Albert Wenger on Global Venture Capital Firms

partner Union Square Ventures. He has a fascinating background in technology and software and is interested in all sorts of interesting things, ranging from climate change to humanism, to the huge transitions that humans have gone through as a species and what it means to society investing scarcity and just the quality of life that we will enjoy as a species. I found this conversation to be really intriguing if you're interested in venture capital, in technology, in how to think

about early stage investing, well strap yourself in. This is a great one. With no further ado, my conversation with Union Square Ventures. Albert Wehner. You have quite a fascinating history. Let's delve into that. Starting with your background. You won a national German competition in computer science in high school. Tell us about that and where that led you. Well.

I fell in love with computers very early on when I was a young teenager, and my parents were super indulgent of this at a time when that was very unusual, and they bobbed me an early Apple two computer. One of the earliest Apple two is to be sold in Europe. Actually, and I've stuck with that my entire life. I've studied computer science as an undergraded and as a grated student, and I've been investing in a lot of computer companies over the years. So it's been central to what I

do and who I am. So let's talk about the timing of school. You graduate Harvard in an economics and computer science degree perfect for the explosion of the Internet, a PhD from m I T and Information Technology nine. So when you were leaving school, were you interested in

the Internet or was it more hardware and software? No, the Web was really exploding while I was at m I T. And I actually finished my PhD n but I started a company in late nineties six early ninety seven, and I was kind of doing the company and the thesis at the same time, which wasn't great for either and also wasn't great for our marriage. We kind of managed to get through that. But I was really fascinated with the web from when I first discovered it, which was in a computer lab at M I T trying

to do my stats homework. So so let's talk a little bit about some of the other companies you either founded or run. The most famous is probably Delicious, which ended up getting picked up by Yahoo. Tell us a little it was. It was an early whib to Darling. Joshua Schackter had started he was working in Morgan Stanley actually full time, and had started this as a side project.

And it was kind of this idea that you would share your bookmarks with others because bookmarks were kind of an indication of something that was actually interesting on the Internet, and Joshua added tacks to that, and so you could browse things by bags. And at that time Unit Square Insures, Fred and Brad had started the firm. They had just raised the first fund. I had just finished another project I've been working on and they were like, hey, we're

talking to this guy, Joshua what he thinks. So I met up with Joshua uh and they wound up investing and I wanted up becoming the president. So your president of Delicious, you see it through in order to be acquired by Yahoo in the early two thousand's. Tell us a little bit about that experience. The Delicious team was tiny, it was subt in people basically, and it was a

very rapidly growing service. I made myself sufficiently unpopular during the acquisition, but because I insisted on certain things, I'm like, we're not doing this, We're not doing this, we're not doing this, um that. They at the end they were like, we want all of you except for this Winger guy. We don't want him, which was perfect for me, Mindy, because I didn't want to relocate to the West Coast, so I got to just take my marbles and start making angel investments. So is that what led you to

Etsy and Tumbler was the Delicious acquisition? Yeah, exactly. I had a little bit of money and I met Rob Kalen, the founder of Etsy. He had just come back from the West Coast. He had tried to raise money on the West Coast, was unsuccessful with that, and so I wrote an angel check here and then I brought Union Square interest in as the first Series A investor. Is that what led to your transition from entrepreneur to well?

I was basically hanging out at the USB offices after the sale of Delicious, and just because she had no place. Because I knew both Brand and Fred really well, and so it was kind of a natural thing to do I did these angel investments. I led the interest investment in Etsy, I became a venture partner for that and then became a GP in the two thus Nate Fund so et C. Also, Tumbler was another one. If Memory Serves were they acquired by they were also acquired So

so you're working, you're working that contact list. What was that experience like now, not as a as a president but outside investor. It was a very very lucky landing for Tumbler because yeahoo really the only bidder and they were bidding against themselves, but they didn't really know that. So what eventually led you to say, you know, I

think I could do this venture stuff full time. Let me let me hang my hat at Union Square Ventures and focus solely on on Yeah, that had really been my goal since my own first startup in seven, which was a company called W three Health that ultimately failed. From that experience, I realized that I really loved startups, but that I was never going to be a good operator. Um, but I thought I could maybe be a decent investor. Let me make a digression here, and since you're in

front of me, I have to ask this question. So ideal with traders investors, fund managers, economists down the list. There is no group of people that seem to be prouder of their failures than venture capitalists. Why is that Because it's an integral part of the business, and if you can't deal with failure, you can't be a VC. Because many of the startups you invested and fail, it's

statistically that's your spectations. Yes, absolutely so. It just seems like the healthiest way to think about what is unavoidable. Yet so many people within the world of finance kind of dance around it, trying not to deal with it. There's a little bit of denial. It's almost like an object of pride. Look here all the companies we invested in that didn't make it. Look here all the great companies we passed on. It's almost like a point of pride,

this sort of self awareness. Well, it's also important to how the venture capital model works overall. Right, so the most you can ever lose in venture capitalist the amount of equity you've put in. But the upside is nearly limitless. I mean, it's what Notes seemed to let calls convicts tinkering. Right, it's the perfect example of that. You took many small relatively small positions, and any one of them can be become very, very large. But you also learn a lot

from the things that don't work, you know. Um, sometimes you learn a lot more from that than you learn from the ones that do succeed. Sure, you tend to you tend to learn more from from losers than winners. Um. Usually, And and then I have to ask the same question, So Union Square ventures by definition union squares here in New York City. What's it like being a venture investor on this side of the country as opposed to what seems to be you know, the gravitational black Hole adventure

out out in Silicon Valley in California. Well, first of all, it's no longer that. So you know, Sequoia just opened a New York City office. UM, Andrewson Harwitz has people on the ground here. So New York City is now today one of the epicenters when we started. That wasn't the case. When we started. People were like, oh, there's been no tech company in New York City. There's been no I p O. Of course, you know, we were involved with two of the major I p O s. We let the Series A and It's I also let

the series A. We you know, Square Ventures. Let the series A in MONGREDI b you know, the big New York City based success story. So it was incredibly healthy though, because we were never caught up in the oh my god, fomo off, we have to have one of these or one of those and everybody else's investing in the sector. It was always a from our own thesis, let's figure out what we believe and then let's find companies that fit with that. And we've always been extremely competitive in

winning deals on the West Coast. I mean Twilio, I let the series A UM for your grow interest and it was a you know, San Francisco Bays company. So last question on this topic, how different is venture in New York versus California or is there really no big There used to be a noticeable difference between East Coast and West Coast today I think that's completely erased. Quite interesting. So let's talk about the theses driven venture capital firm,

which is how USV describes itself. Tell us what these theses are and how do they drive your investment? Yeah, so there's been an evolution over time. I would say the you know what we call thesis one that oh, was that we invest in large networks of engaged users differentiated by user experience, and those were investments like Twitter and Tumbler. And then wear to focus on companies that had less obvious network effects, so more data behind the

scenes companies like Sift for example. UH. And then we added to our thesis sort of infrastructure and infrastructure investments included Twilio and mongredib cloud Flare, Stripe. There's a whole bunch of infrastructure investments infrastructures for building digital businesses. Our current iteration, what we call thesis three DOTO is about broadening access to knowledge, capital and well being by leveraging existing networks and protocols and building trusted brands. And each

part of that thesis actually means something very concrete. So let me just pick one of them. Building trusted brands for us. A lot today is about is your business model fundamentally aligned with your customer or not. The advertising model, as we have learned, is not aligned with customers interests. Right You, If your YouTube you want to serve the most engaging videos so you can show more ads, you don't want to serve the most appropriate video, right So,

but if you have a subscription model. Let's say, like Netflix, you want to show something that somebody actually, really, truly deeply is going to relate to so that they stay a subscriber long term. So each part of this thesis means something, and we we use these sort of high level thesis to then look for very concrete things. So,

for example, I said broadening access to capital. So we've done a lot in lending, like how can we do better underwriting, better, cheaper, faster loans for instance, too small businesses investment like a company like Funding Circle, or two individuals like a company like Upgrade in a way that actually helps people, so where you're not dragging them into like a dead hole, but you're actually helping them build up their credit score while you're giving them extending them credit.

So three point oh sounds a lot like World After Capital. I'm hearing some very similar themes. They're absolutely um there's a strong relationship between some of the ideas in the book and some of the ideas that inform our investing. We'll circle back to the book in a little bit. Let's talk about a couple of companies you invested in, because I'm picking up a theme there. Needable terror living carbon, marvel fusion, legendary food, climate sustainability. So those are all

personal investments, not not theraventurous investments. But I made those investments in the run up to us forming a climate thesis and now a climate fund. So those are all investments that go back a few years when I sort of became really interested in what kind of opportunities come out of the climate crisis. The climate crisis, if we don't get on top of it, none of the other stuff of matter, none of the money we've made will matter. It's so big, it's so much bigger than COVID, for example,

in ways that I think people still don't appreciate. And so I made some personal investments first, and then we started talking to our LPs about it. And then during COVID we raised the first climate fund, hundred sixty million dollar climate fund. We're almost done investing that. And so the climate thesis very simple. We want to invest in companies that either reduce emissions, draw it down existing emissions, or help with adaptation. So I'll give an example of

an adaptation investment. We invest in a company out of Australia called flood Map, and what they do is they predict where things are going to flood. They also measure the actual flooding. Floods are one of the biggest problems coming out of the climate crisis, and they're here today. This is not some future problem with getting mega floods in Pakistan. A third of Pakistan is underwater as we speak. I don't think people understand how horrific the devastation there is.

It's the other side of the droughts that are everywhere. It's what's dry gets dryer, what's what gets wetter. Absolutely talking about emissions reductions, we've made investments, for example, in our first every investment in Africa in a company called Shift ev. What shift DV does is it takes existing delivery vans and retrofits them in the space of a couple of hours from internal combustion engine to electric a

couple of our couple of hours. Because if you want to take an old nine eleven and converted to e V, it'll take you about a year, assuming you can get on the list. It's that they have completely industrialized this process. They drive a minivan in and a couple of hours later it drives out as an EV. Wow, what do they do with the internal combustion engine. And that's a great question. I need to ask Ali what they do with that. I don't know. I mean, it seems like

that's a lot of hardware to just throw away. I don't know. A great question. And then I'll talk about one of the drawdown investments we've invested in, a company called Brilliant Planet out of the uk Um. What they do is they build ponds in the desert and they pump seawater and then then they grow algae very very rapidly, continues algae blue and it takes a huge amount of carbon out of the atmosphere. Algae in ponds in the desert can can move the needle. Yes, absolutely, Huh. That's

quite fascinating. Two questions come out of this. One is structural and one is fund based. Let's do the fund one first. So John Door had a climbed funds started about ten years ago at Cliner Perkins Um. Some people have said it kind of lagged other similar era venture funds. Was he just early? How do you look at this in terms of not just having a positive impact on

the planet but generating a return on investor. The the early green tech funds they were too early in one sense, but in another sense they were actually crucial to our having a shot at overcoming the climate crisis, because if it hadn't been for the investments, we wouldn't have gotten on the cost curve, for instance, for solar PV. Right.

So the reason we have really cheap PV today, the reason we have really relatively cheap batteries today, it's because of some of the investments that were made back there. And there's this pattern in the world where every big technological shift starts with a bubble. Right, So when we had ships, we had the South Sea bubble, right, And when we had railer was we had the railer bubble. There was an automotive bubble, there was the dot com bubble,

multiple bubbles in crypto. There was a green tech bubble. But now it's a decade plus later and all the things that they were rightly concerned about are all coming true and we are now reaping some of the benefit. But we're also now building on with sort of standing on the shoulders of giants as we and and to clarify, I believe that fund doubled over seven or ten years, not like it was a sinkhole, but compared to what it could have done. Had that money been invested elsewhere,

it might have seen better returns, but it wasn't. I don't want to make it sound like it was a total loss. So the second question is you're making seed investments. How does that work if you want to bring one of those seeds to your firm, to Union Square ventures it from a public market. That sounds like it's compliance and conflict nightmare. You guys approach it different. We in our lp A, we can write checks up two hundred thousand dollars, so we can't make massive investments in startups.

So all of the companies you mentioned a sub hundred thousand dollar investment in, and then the only one where I've invested more is Marvel Fusion. We can invest more once the fund has passed on something. So if the fund says we're not doing this, then we can best interesting. So along those lines, there are some venture firms that don't really seem to care a lot about valuations and others seem to focus on a little bit. How do

you fall in that spectrum? Is valuation significant or is it? Hey, we're gonna make a hundred investments and of two or three work out the valuations are irrelevant. Now, we've definitely always been disciplined on valuation, and we've let a number of things go. Sometimes you let them go and they do grading and like, well, we could have made money if we had invested, and sometimes you're very happy you

did that. Our approaches, we've always kept our fund size as small so we don't need to be in everything that's out there. Um, our latest funds are our core fund is two fifty million dollars. So these aren't big funds in the scheme of things when you have other firms that raised three eight fifteen billion dollars per fund. And as a result, if we think the price is too high, we can just find something else. So let's talk a little bit about some of those bigger funds.

And I guess we'll hold off Bank off to the side because that was really aberrational. But do you end up when you have lots of ten and twenty billion dollar venture funds with too much capital chasing too few good deals. How does this impact the whole ecosystem that's out there. Largely, it's great for us because we're early stage investors, so you know, it means there's lots of money to come in and fund later rounds of the companies we've invested in, so we haven't really spent much

of our time worrying about it. And then every once in a while these firms go, we're gonna go really early, and some of them do spread money early. But we find because with thesis driven and because we are opinionated on deals that we're really interested in, we you know,

can win those deals. Uh. Sometimes they'll take a small check from somebody else along for the ride, but they know that we work with early stage companies, that we roll our sleeps, upt that we're involved, and that we have a thesis, and you know, we take the approach we'd rather disagree with founder and then not invest then sort of like be like, oh, well, whatever it is you want to do, Like, we have a thesis as to why we think this is interesting. Let's talk about this.

If it's aligned, great, and obviously things may change after we've invested. We're not like stubborn, you know, um, but let's talk about why we are excited and if that aligns with you, that's great, and if it doesn't, let's go separate ways. Right, So we take a kind of I call it a high alpha approach investing. We'd rather have really upfront conversations about what we like and don't like, then sort of get married as it were. And it actually it's harder to get rid of the VC than

is to get a divorce. So like, we think it's good to have these conversations up front, right, What about follow up rounds or some firms that will do seed

round and then participate in a or b around. Is that something that well we we we reserve a lot of funds for follow on and we have a very um sort of I think sophisticated reserves methodology that we've honed over many fund cycles now where we actually build kind of a Monte Carlo analysis of the portfolio to see how much money we think we need to keep in reserve. But eventually, when the valuations get too high,

the rounds get too larger, we don't follow on. We have a separate vehicle called the Opportunity Fund, where we sometimes write bigger checks into late state trounts and some of our portfolio companies, but not always. So let's talk a little bit about this book, The World after Capital, starting with what is technological non linearity. I like that phrase.

The basic idea is that um every once in a while in humanity's history, we invent things that radically change what we as society have as a binding constraint on us. So let me make that very concrete. For hundreds of thousands of years, our ancestors were foragers. They were hunt to gather as they would go out and find things and eat berries and kill little squirrels. And then roughly ten tho years ago we had a bunch of inventions.

We figured out that you could plant seeds, that you could irrigate them, that you could domesticate animals, that you could use the dune from the animals too, as a fertilizer. We figured all those things out and we got agriculture, and the constraints shifted from how much food can you find how much land arable land do you have. And when that constraint shifted, we changed just about everything about how humanity lives like. We went from being migratory to

being sedentary. We went from very flat tribal societies to very hierarchical agrarian societies. We went from being clearly like polygamous, polyamorous, whatever you wanna call it to being monogamous ish um. We went from having religions where you know, everything was a spirit, a tree or rock, everything had a spirit and it. We went from that to theistic religions, where there was some defined number of gods. Then fast forward to a couple hundred years ago, we had so the Enlightenment.

With the Enlightenment, we had big scientific breakthroughs, and we figured out how to dig up stuff out of the ground and burn it and create energy and make heat and electricity and all those things. And the constraint shifted again. It shifted from you know how much you have to how much physical capital can you create? How many machines can you build, how many buildings, roads, railroads, et cetera. And we changed everything yet again. And so now the point of the book is guess what we have to

change everything yet again because capital. This is why the book is called the World. If a capital, capital is no longer the binding come straight. Instead, it's human attention, human attention. So that's the third grade shift is So we went from agricultural scarcity to having enough food, and we went from forger to a grarian so from food scarcity to land scarcity. Then we went from land scarcity to capital scarcity, and now we're going from capital scarcity

to attentional scarcity. Capital is no longer scarce, so now attension is the new scarcity. Which there's a line in the book that really caught my eye. Attention is time plus intentionality. Explain that. Yeah, so speech just tells you how fast you're going. Velocity to tells you how fast you're going towards something, towards some destinations ne plus direction speed plus direction list velocity and the same as true for attention. Time just tells you how much time has elapsed.

You know, two hours. Attention is what was your mind and your body doing during those two hours? Um, were you, you know, just scrolling doom, scrolling Twitter? Or were you like working on a solution to the climate crisis. So you say something about these transitions that really jarred me. Previous transitions like agriculture emerged over thousands of years and

was incredibly violent. Industrial Age lasted over hundreds of years and also involved lots of violence and bloody revolutions and to world wars, which raises the obvious question, what sort of violence is the next transition? Based on attention scarcity potentially going to involve well at the moment, the leading candida is the climate crisis. We have known about it for literally hundreds of years actually, and we have refused

to do enough about it. And so now we have entered the state where we're getting extreme heat events, we're getting extreme drought events. The food supply is definitely in question, uh, something that we have taken for granted for many years now. We've taken for granted that you can go to the store and buy food unless we really course correct very hard, very dramatically. And by dramatically, I mean the level of

government activation that we had in World War two. And World War two we spent roughly fifty of g d P on the war effort. We need to spend roughly fifty of GDP on the climate crisis for several years sustained in order to actually avert it. So that suggests that you do think there's going to be some technological magic bullet gonna appear out of nowhere. Well, if you look at World War two, the government went to Ford and said we need you to build airplanes, not cars.

And actually there's a chart in my book that shows that the output of cars dropped. We need to get to a similar point where we say there's certain things but just not going to do for a while, because we need to do these other things. There are great technologies. We don't need to invent some magic bullet that doesn't exist. We just need to build a lot of what we already know how to build. Like we need to build

a lot of nuclear power plants. We need to build a lot of these ponds in the desert that can draw down carbon. There's a thousand and one different things that we need to build. We just need to take our physical capital and pointed at that. And when you do that at that scale, incredible things become possible. So during World War two, for a motor company built a planet was called the willow Run Facility, and it willow Run.

They built the B seventeen Liberator bomber. Now that's a four engine bomber with lots of gun turrets to defend against fires. At peak production, they finished they finished one of these every hour. They finished a complete airplane every hour. And my point is, once we decide to take our attention and allocate our attention to what the problem is, we can read alright, our physical capital we have plenty of physical coupital. People say, oh, you can't build nuclear

power plants fast enough. That's if you built them in peacetime mode. If you built them in wartime mode, you could build them very rapidly. So when you say this requires a substantial commitment of capital, let's put a dollar amount on that, or you talk half of GDP. So I'm half trillion dollars just in the US alone. Now, we just passed a climate bill arguably, um that was a couple of billion dollars, a hundred billion dollars maybe over ten years. And it was like pulling teeth. It

was a miracle that just managed to skate through. And that's a fraction of a trillion dollars. How are you going to get ten x or a hundred x that? Do things have to get much worse before they get much better? Yeah? I mean there's a book about the climate crisis called Ministry for the Future Kim Stanley Robinson, and the book starts with a devastating heat event in India where tens of millions of people die. I don't know what it takes, but I can tell you it's

only going to get worse. It's going to get a lot worse, and at some point, hopefully people enough people will wake up and say no, no, we really actually have to get into a wartime footing. So up till now, a huge swath of the population has been that's my grandkids problems? What what wakes them up? Is it that sort of event? I mean, you see what's happening in California, you see what's going on in lots of the United States with droughts. It seems like people are starting to

pay attention. How absolutely. The Yale does an incredible survey of climate attitudes, and it is very clear that even in the US, which has been lagging on this, a significant majority of people believe that the climate crisis is real, that is caused by humans, and that government should do something about it. So I actually believe this is going from a kind of losing proposition for politicians to a winning proposition, and I think politicians need to lean much

more into it. Most of them still aren't willing to acknowledge the full extent of this, and the physics of this crisis are extraordinary. So because of all the CEO two we've put in the atmosphere, the amount of heat that we're now trapping that used to radiate out of the space. Do you know how much heat it is? It's four Hiroshima sized nuclear bombs every second. It's insane that I read that in your book and I was like, no, no,

he must be in every week, every second, every second. Now, imagine for a moment you had alien spaceships above Earth throwing four here she mus as nuclear bombs into our atmosphere every second. That would put us on a wartime place. And what will we do? Yeah, we would drop everything, right, we would be like, they're trying to kill us. We have to get rid of them. I mean, we made a movie about it called Independence Day. Four nuclear bombs every second and it's just every minute of every hour

of every day. It's a mind boggling amount of heat. So there's a couple of other things in the book I wanted to touch on. Um you mentioned alien visitors will hold off on the Fermi paradox discussion because what he wants to hear me babbel about that. But one of the things I thought was kind of interesting is the transition of the nature of scarcity. You right, it changes the way we measure human effort. It makes it more difficult, and we need increasingly more sophisticated ways of

providing incentives to sustain unnecessary level of effort. Flesh that out a little more so if you think of hunter gatherers, right, I mean, you can see the results of effort immediately, Like you go out to the forest, you have to come back with something or not. So it's very easy to create incentives like if you don't find something, go back out and come back with something, where you go hungry.

Right when you go to agriculture, you have these you need to see, you need to take care of it, and you don't know how big a harvest you're gonna get, so you need a little more sophisticated incentives. And a lot of those incentives were often provided via religion, religions saying you have to apply yourself to this backbreaking work because it's the word work of the lord, etcetera. And then when we went over to capital, now it gets even more complicated because you might not see results of

some effort for many, many years. I actually think when I say more sophisticate incentives, in the book, I talk a lot about just freeing up humans to pursue their interests to make it so that you can freely allocate attention. And I'm always very inspired by mathematics, like, you can't

get rich as I'm working mathematician basically. I mean, yes, if you wind up going to Wall Street, you can, but if you actually keep working as a mathematicians, that's not a you know, there's also no patents, and you know, the only thing math works on recognition by peers. And there's some prices. There's like the famous Fields Medal, and there's some other prices. And yet the amount of math that's been produced over the last you know, a few decades,

it's just mind blowing extraordinary. And I believe we need to bring that type of model to many, many more parts of the economy and parts of activities. So in a way, what all of world after Capital is about is how can we shrink all the explicitly incentivized economic activity where there's an explicit okay, you go to work and you get paid a wage kind of thing, and here's a market transaction. How can we shrink that and make room for things that are super super important but

cannot have prices, cannot be economically incentivized. Let me give concrete examples of that. Obviously, we've talked about the climate crisis, but let's talk about death from above. Like every million years or so, the Earth gets hit by something very large out of space. That's very, very bad when it happens, But there's no market for allocating resources to that. There's

no supply and demand for it. So we as humanity need to decide that this is a real problem and we ought to be working on it now, aren't we tracking various large observed asteroids? And we are, But the amount of effort we're putting into this relative to the size of the problem is minuscule. The number of people who sort of truly globally work full time on this is a tiny fraction of the people we actually should have. And we're also not working sufficiently on Like what will

we do if we detective one that's clearly headed for us? Right? Well, you send Bruce Willis up exactly he takes it. He does. I mean, it's not unknown. We know the regular major extinction events. There's a real interesting theory that as the Sun goes around the galaxy and passes over and above the galactic plane that affects the asteroid belt out and the famous sort cloud a lot of these objects, which is full three six around. So we know all of this.

And here's the interesting thing. When we went from the Graian Age to the Industrial age, we didn't get rid of agriculture. This agriculture today, right, we all eat food that's grown in agriculture. But what we did is we shrunk how much human attention is required to do agriculture, and we took it from being like eight percent of human attention to like sub ten percent. It's less than two percent in the United States. It's tiny. So what I want to do is let's do the same with

the rest of the economic sphere. I'm not an anti capitalist, I'm not a d growth person. I'm not suggesting we should get rid of markets. I'm just saying we should compress market based activity from observing much of human attention to observing maybe thirty percent of human attention, and we should free the rest up to work on these incredibly

important things. Some of them are threats and some of them are opportunities, right, opportunities to cure cancer, opportunity to create incredible wildlife habitats, restore those wildlife habitats, opportunity to travel to space. I mean all these opportunities that were not paying attention to because they're not again, they're not really market price based and can't be market price based.

There's just no prices for them. So the conclusion of the book had a list of action goals, which was not what I was expecting in a book on venture capital and the world after capital. Mindfulness, climate crisis, democracy, decentralization, improving learning, and humanism. Address whichever those you feel like. Well, these are all core components of how to have a

hopefully a transition that's not a violent transition. Right. These are all about how could we get out of the industrial age into the knowledge age without some kind of colismic event, without a world war, without killing billions of people through the climate crisis. Right. They're also all components of what a knowledge age society might look like. Right, So let's talk about mindfulness for a second. We're constantly

assaulted with new information. Now this you know, our brains evolved in a in an environment where when you saw a cat there was an actual cat. Now there's an infinity of cat pictures. So if you don't work on how you how much you're in control of your mind. External sources will control your mind. So mindfulness, which is a much abused word, but it has become much more important in the world where we're constantly assaulted by information flows. Right, Um,

let's talk about humanism for a moment. Humanism is about recognizing that humans are the prime movers on this planet. We are the ones who brought about the climate crisis. We're the ones who could, in theory, solve it or wind up getting wiped up by it. And it's about this idea that you know, with great power it comes great responsibility, and so we are responsible for the whales,

not the whales. For us, there is at the moment, because we're in this transition period already, and because things are going so poorly for so many people in this transition,

there's now a flight back to religion. There's a flight to populism, and a big part of the book is about no, there is a secular alternative way of thinking about society that embraces science, that embraces progress, that embraces humans and all types of humans, and that recognizes that we are first and foremost human and only secondarily are we American or Russian, or male or female or something else.

You know, these are all secondarily but primarily where humans and humans are fundamentally different from all the other species. Quite fascinating. So let's talk about the current state of the world for venture capitalists. We've seen valuations come way down for public companies. They're pretty reasonably price these days, about sixteen times for the SMP five. That's historically more or less average. Where do you see the state of the world in early stage valuations? How are they holding up?

A year ago, late stage valuations had gone just bonkers. Tell us a little bit about what's going on today. The correction always basically is a trickle down type of correction. It happens very rapidly in the public markets. Then you still get some high price private rounds that either we're in the works or they have a lot of structure. On the later stage markets, you know, it's it's a there's a headline number, but then nobody talks about all

the warr and coverage that's behind the scenes. So and then the early stage valuations tend to sort of lag behind all of that. But we're seeing early stage valuations come down. Um and as a firm, we've always been disciplined on valuations, so we we just let a lot of things go where we just thought it was are they down off the peak or are they cheap and attractive? The down off the peak. Whether they're cheap or attractive,

I think, you know, time will tell. But we are back in a situation where you know, there are seed deals getting done that the low ten million dollars certainly below twenty million dollars, and you know seed rounds that have a reasonable size. So you know, for a while we were seeing these ten million dollars seed rounds um

sounds pricey, Yeah, and and that's not happening anymore. But even scriventest, we've also always tried to basically be at the next era, at the next thesis, and evolve our thesis before everybody else gets there, and once everybody else gets there, trying to evolve our thesis. So, for example, in the Climate Fund, we've made any number of reasonably pressed investments, very reasonably presced. So I always assumed it

was tied to the public markets. But sometimes you just don't realize when you have a good couple of years in a row in the public markets, like we saw in the tens, pretty much straight up through one. You see that impact in what people are looking for, what

sort of deals get done, and and valuations generally. I always find it relatively surprising how much private early stage valuations are tied to public markets, because right, but but our holding periods are five, eight, ten years, and so like what's the current public and so there's a couple of different explanations. One obviously, it's just investor sentiment, right, you know, when investors are like bearish because of what they're seeing in the public markets, they take a bearish

attitude towards their own investing. We try, as soon as graventest, we try to have a pretty steady pace as one way of contracting our own sort of you know, whatever

our own emotions may be about the public markets. There is, however, another effect that sometimes is underestimated, which is that the people who give money interventure funds, so these are pension funds and endowments and so forth, they have a certain whips of from the public markets because when they're feeling flush on the public markets, then the private allocation, you know, as a percentage of their overall portfolio. They have a certain target in mind. Now, when the public markets come

down a lot. All of a sudden, they're overallocated, so they want to pull back. So there is a mechanism by which the current public markets transmit into the private markets. There's a real financial mechanism. There's a psychological mechanism and a real financial mechanism by which some transmission, some contagion basically happens from the public markets into private But it

doesn't make very much sense. Like if people were sort of more cognizant of both the emotional reaction and this mechanism, they'd be like, well, yeah, but innovation is happening at some pace in some area. There's some innovation that we should be funding that innovation. So I'm just I'm just making notes, and investors are irrational, so profound insight right here. Yeah, you've never heard this one before. So to put that

into a little context, one very founder friendly deals. Now it seems like a little more investor friendly, fair assessment or not quite there yet. Well, when it comes to found a friendly versus investor friendly, there's a lot more to a deal than valuation is all the other terms. And while I believe we will see a h correction on valuation, that's pretty significant. I don't think we're gonna go back to where venture capital was twenty or thirty

years ago that had all these super draconian terms. Certainly even at the early stage, even at the early stage, there were all these like there were redemption provisions in early stage deals. I don't think that's going to come back. Um, we are not fans of structure in later stage deals. Like just to give a good example, UM, And I

was still on the board of Twilio. Um, Tweli, you had the option of doing a totally clean, no structure around and called it a billion one and a highly structured round with like you know, we're gonna have a full ratchet into an I p o at a billion five. And I was, you know, some of the other investors at the table really wanted the billion five number, bees at the bigger headline. And I talked to Jeff and I said, just make any sense. You don't actually know

what you deal is until many years. Just take the deal where you know what the deal is today, and you know what the deal is a year from now and tiears from now, because it's not going to change based on circumstances. And so Jeff took the clean deal and that enabled Twiley to go public um when the I p O window reopened, whereas at the billion five deal they wouldn't have been able to go public. And it worked in probably well for Twiley to become a

public company. Really interesting. So since we're comparing early stage investments to the public world, lately, everybody has been looking at different sectors. The past year, energy has done well,

technology not so much. Within venture, do you see that same sort of segmentation different sectors have different Well, we we were basically the first sort of venture firm to have a dedicated climate fund, and now many of the venture firms are falling suit, either adding a climate pocket to the existing funds or a climate thesis or you know, some people call a sustainability fund. Hours is very focused on climate, so for instance, we don't deal with water waste.

It's strictly about atmospheric carbon. So there's a lot money rotating into that sector. There's still a healthy set of activity around Web three so you know with three, there's still cryptow blockchain all that. Yeah, there's still a healthy set of activity. I do think that certain kind of software companies that had founded very easy to raise money. I think of finding it a lot harder, just because people have looked at and said, wow, I think we've

reached some stage of normalization in this market. You know, like, not everything in this market is going to be a fifty billion dollar outcome, and there's going to be many much smaller outcomes, and so we need to adjust accordingly. And also, many of these markets had just too many companies raised venture capital doing basically more or less the

same thing. So it was easy to raise money for a fund today a little more challenging even if you're a pretty decent sized VC with a ten twenty year history. Are they having difficulty going back to their clients saying, hey, we're doing another billion dollars. You know, I think that we will only see a year from an hour or two years from Uh. There were a lot of funds that had put out a lot of money very very rapidly. Uh, and we'll see just how big the hangover is, but

we won't know that for some time. So some of the folks who give advice to founders, like Jamathan and Jason and the crew at the al In podcast, they've been talking about preaching really about cutting costs and reducing your burn rate and get ready for a tough year or two. How do you see this environment? Is that good advice or do you really have to, you know, go all out and get more funding as opposed to trying to make a more modest burn rate last longer.

This very little, one size fits all advice that makes sense and fair. Nonetheless, we held a call earlier this year for all of our portfolio companies UM and we said, this really is a big adjustment, and it's not a one or two months blip does It's a long term adjustment. And it was great because we had some CEOs in our portfolio who had managed through the implosion of the dot com bubble, and they spoke about just how difficult

the funding environment can get. So generally speaking, we did a lot in twenty one because we saw this coming. To me, the biggest sign of the bubble really was that we really were reaching the tail and was all these incubation efforts that we're being raised. And I knew this because I had raised money into an incubator towards the end of the dotcom bubble, and I think when investors think, oh, I don't even need the entrepreneur, I

can just start the company myself. That's kind of when you know that it's gotten too easy, right, and that's not gonna last. So in twenty one, we took a lot of liquidity, we sold a lot of things that we were able to sell, and we told all of our portfolio companies to raise money. And so we last year. Yeah, well, it's it's best to do things before a right, So as a result, we have very few companies in our portfolio that need to raise We have some, but we

have very few. And then you know, at the beginning of this year, we told everybody who had raised successfully, you've got to make this money last much longer than you thought when you raised it. And so yes, absolutely, Um, you know, companies were operating with very inefficient growth because it was easy to fund inefficient growth. You could be burning one to three four million dollars a month and you know, if you were growing fortent, that was good enough. Um,

that's not going to be the case. So you'll either growing very fast or you have something very compelling, when which case you can raise money, or you are growing, you know, but you are growing very very efficiently, right, So being in this sort of fifty pc growth, but you are super inefficient. That's gonna be a really tough

place to be, alright. So before I get to my favorite questions, I have two questions I've been sitting on sort of from the book and somewhe from your blog continuations that I want to hear where you go with this. And the first one is a quote from the book mal this could not foresee the scientific breakthrough that enabled the industrial revolution. I think you let him off the hook a little too easy. It's just an abject failure

of imagination, and you are in the imagination business. The Malthusians. Weren't these folks just unable to imagine any sort of progress or technological development. Well, we have had more progress and more technological development than people were able to imagine. I think conversely, we're now in the opposite trap. We can't imagine that things could get really, really bad. We can't imagine that the climate crisis could disrupt our food

supply to the point where billion people start. We simply can't wrap our head around this idea. So I think we're in the opposite trap at the moment. We've we've been so used to the successive progress, and we have so neglected the engines that produce progress that I think we're in the opposite trap at the moment. What what are the other engines? Is it early stage investing from governments when the project has a ten and twenty year r O I that the private science want to do it?

Foundational research, we've not had a true breaks through in science since quantum mechanics. It's a hundred years ago, so general relativity and quantum mechanics a hundred years ago. Now, we've made some progress in biology. Biology, we've had some really good progress, but you know, you're talking fundamental science. Fundament like I immediately think of semi conductors was a giant Oh no, incredible progress, but fundamental science we've not had a true big unlock in a hundred years now.

I think when we talk about engine of progress, this also how hard is it to start a business? How many regulations do you have to comply with? How expensive is it to comply with those regulations. We're also talking about we're still subsidizing oil and gas globally to the tune of trillions of dollars subsizing oil and gas. It's crazy, which by the way, helps to explain why so many people have an incentive to either question the impact, the

source or the reality of climate change. Yes, there's forces at work there, and and so I believe we're in this sort of opposite trap today. And and you know, people like to make fun of Greta Thunberg, but young kids, young activists, understand the severity of the climate crisis in a way that most adults don't seem to be willing to accept. Right, I don't. I don't think climate change is gonna impact my life. You know, I'm sixty. I'm I'm going to run out the clock someone in our age.

The reality is you're not. You're not going to escape You and I are not going to escape this. It's here, it's now, and it's only going to get worse. I don't doubt that for a second. But and here's the here's the thing I think I challenge. We could live in this amazing, incredible future, Like wouldn't you rather live in a city that has mostly electric or all electric cars in it? Like the air would be so much better.

Wouldn't you rather live in the world that has huge like think of all the Midwest instead of growing corn to feed cows, super inefficient if we can grow the meat with the cows in the vat. Instead, we could have like incredible forests, we could have incredible wildlife areas in these airs, Like we could have this amazing, incredible future. We could have energy out of the wazoo. If we build more nuclear power, electricity could basically be almost free.

So we have this amazing thing we can go. Instead, we're headed for this complete disaster, and we're mostly like, I think that's a fair assessment. I think you definitely have that, And I certainly see people my generation absolutely think it's not going to impact them more minimum impact. It's really their grandkids problem. Yeah, And it's just that's

totally utterly wrong. Alright. One other curveball I have to ask you about, which in you've all know ah Harari who says in sapiens, all value systems are based on equally valid subjective narratives and humans have no privileged position as a species. You say, he's wrong. Explain not just wrong, it's completely dangerous because it opens the door to absolute moral relativism. It's sort of like, well, if you believe that, then you know the isis narrative is just as valid.

You know, um, and I just think that's wrong. And I do think there's an objective thing, which is humans have knowledge. And by knowledge, I mean I can read a book today that somebody who else wrote in some other part of the world a thousand years ago. Right. No other species on the planet has this. I mean, other species have amazing things about them, but none of them has knowledge. And that puts us in a privileged position. By the way, privilege comes with obligation. That's usually what

it used to mean. Today we think of privilege just let's you do whatever you want, But it used to mean that you had real obligations, right, And I believe because we have the power of knowledge, we have real obligations to other species. Other species don't have much of an obligation to us, but we have an obligation to them.

And the interesting thing about what you said is, not only does no other species have the ability to access anything anybody has written any time in history, pretty much this is the first generation that had access that in that way, across pretty much across the whole board. Well, this is the amazing thing about digital technology, right. We could use it to make all the world knowledge accessible to everybody in the world, and great things could come

from that, right. So there's some people like Ellen Musk and others who are like, oh my god, the population is gonna, you know, decrease a lot, and that will be bad. I'm like, no, we have eight billion people at the moment. Peak population at present trajectory might be eleven billion, although if we don't get in top of the climate crisis, it will decrease actually rapidly. But we're making such poor use of it. Why because so many people don't have access to knowledge, don't have a shot.

I always love the story of Ramanuja and the famous mathematician who was to send a letter to Hardy, and Hardy like, we should bring this guy over to England and he wanted up being a very productive mathematician. There are Einstein's and Remanue Jones and Eleanor Ostrom's and Marie Carries all around the world today and we're not giving them. So we're vastly undertapping human potential. And we can use digital technology to change that and to give everybody access.

And that's one of the things, one of the great opportunities that we have in this transition to the knowledge age quite quite fascinating. So let me jump to my favorite questions that I ask all of my guests, starting with tell us, what kept you entertained over the past couple of years? What have you been watching or or listening to? I really don't watch much um at the moment.

The only thing I watched with any kind of regularity is to being Hastenfelder's YouTube series called Science without the Gobbledegook. I'll take a look at that. I'm a giant fan of YouTube premium, and I'm always astonished that people I know who are YouTube junkie spring for the eight bucks a month to pull out commercials and distractions. But YouTube is just endless rabbit hole. Well, YouTube is an example of the best and the worst of the Internet all

in one place. Right, There's so much amazing knowledge, like Sabina's video, it's very tassium. I mean, there's you could learn almost anything from how to fix your dishwasher to how you know the theory of general relativity works. Um. At the same time, YouTube is also this place where tons of people you know become radicalized or red pilled or whatever it is because the algorithm. The algorithm has the wrong objective function, right, It's objective functions, engagement, it's

not lifting people up. Tell us about some of your mentors who helped shape your career. I was super super fortunate when I was at early teenager. We talked about this. When I first fell in love with computers. I lived in a relatively small village in Germany, UM, and there was one computer science student there who was maybe ten years older than I was, and he just spend time with me, and he gave me his books, and he gave me his floppy disks with software, and he helped me.

UM sort of understand all this, and I'm forever grateful to add Sturgen Gunta wherever you are in the world, that's really interesting. UM. Have you spoken to him any time recently? No, because I haven't been able to find him. He's basically he seems to have disappeared. Well, if you're listening, reach out to Albert tell us. We mentioned a number of books. Tell us about some of your favorite and

what you're reading right now. Favorites, I would say, Um, David Deutsch The Beginning of Affinity is definitely one of my favorite. Just started that because of you. I'm reading at the moment a book by um Ada Palmer called Perhaps the Stars. It's the fourth book in a serious called the Terra Ignota series. She's a professor at the University of Chicago. What sort of advice would you give to a recent college grad who was interested in a

career in either entrepreneurship or venture capital. Develop a mindfulness practice, you know, whatever works for you. Um, whether that's yoga, running, For me, it's conscious breathing. I just think it's such a superpower not to get hijacked by your emotions. It's a true superpower. And the more humans can cultivate it, the more we can achieve. That's that's really really intriguing.

And our final question, what do you know about the world of venture today that you wish you knew thirty or so years ago when you were first getting started. There will always be another bubble. There will always be another bubble. That's amazing. Just human nature can't be avoided. And what should we do in anticipation of during and after bubbles. We should acknowledge that they will come, that they're part of how we operate, that you can make

money before, during, and after. There you go really really fascinating stuff. We have been speaking with Albert Venner. He is managing partner at Union Square Ventures. If you enjoy this conversation, well, be sure and check out any of our previous four hundred or so discussions we've had over the past eight years. You can find those at iTunes, Spotify, or wherever you get your favorite podcast from. We love your comments, feedback and suggestions right to us at m

IB podcast at Bloomberg dot net. Sign up from my daily reading list at ridals dot com. Follow me on Twitter at rid Halts. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Sarah Livesey is my audio engineer. Sean Russo is my head of research. Paris Wald is my producer. Atico val Brand is my project manager. I'm Barry rich Halts. You've been listening to Masters in Business on Bloomberg Radio.