Steve Murray Discusses Startup Valuation

venture investing. If this is an area that is of an interest to you as either a career or just a passing fancy, if you're intrigued by technology, finance, startups, fintech, UH sports technology, wearable technology, well then you're going to find this conversation quite intriguing. So, with no further ado, my conversation with Steve Murray, I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. My special guest

today is Steve Murray. He is a managing partner at Revolution Growth of venture capital funds that specializes in technology, software, wearables, and a number of other fascinating UH tech subjects. He was a partner and managing director at SoftBank for twenty years, working with such companies as Yahoo, e Trade, Geo Cities, Ziff Davis, BuzzFeed, and many others. He is a current board of director member at Fitbit, where he has served

since Steve Murray, Welcome to Bloomberg. Welcome. Thank you for having me, Barry. I appreciate it. So let's start with soft Bank, because you were there for twenty years, um, both as a director and a partner for for a large part of that. What did you do with SoftBank A TOF bank or many years is a long time. I can't imagine that I was there for that long, but it was. It was a lot of fun, I guess in summary, I got to sort of be on the front row of the sidelines of the commercial development

of the Internet. So what I did, what I did functionally as I started there, I started is really ramping up. Really, the Internet was just starting, and soft Bank had just acquired companies like Ziff Davis, Kingston Technologies, Comdex trade Shows, and plus I trade Shows, and so there were seven different operating units that had had been put together here in the US and outside of Japan. There was a grand total of four people that worked for soft Bank.

So I joined initially from an infrastructure perspective to really put together all the information systems, the accounting, legal, tax and other activities for the and and managing that reporting into Japan and working with them on their strategies there.

That quickly, as the commercial development of the Internet sort of moved along rapidly, the tasks that I were doing really moved much more into the investing side of life, which really starting in current out of early two thousands, I spent most of my time on the investing side. What what was the relationship between Yahoo and soft Bank

way back? Yeah, so that's a that's a one of the great stories of lore, which is um uh soft Bank made an investment in Yahoo and owned about a third of Yahoo at the same time that they made the investment in in Yahoo US. At the time, that was a huge investment. I think it was about a

hundred million dollars and they bought a third of it. Right, put things in context, right, it was a a pre I p O investment where Masioshi Son and Jerry Yang got together and decided that Massa wanted to be a big partner here in the US of of Yahoo's but also at the same time they created Yahoo Japan which was a real partnership. Actually, I think it was a sixty forty partnership or something like that between soft Bank as the controlling and managing partner of that entity and

Yahoo US. They also created Yahoo Korea, Yahoo UK and some other things, So there was really a global partnership that was set up, and that really was on some level the basis for a lot of soft Banks US and other Internet activities. Really, you know, that's the flagship investment early on in the soft Bank story on the Internet. So it's funny to think of you as a venture

investor because your background is that of an accountant. And and maybe it's my bias, but I think of accountants as steady risk averse dotting eyes and crossing teas and making sure double entry accounting adds up. How did you transition from a staid profession of an accountant to something that's got a touch of cowboy in it? Yeah, I'd say a touch of cowboy might be an understatement someday, but I guess it takes all types. Um and uh. I actually really enjoyed my time at Deloitte and was

my background is. I was a c p A for a while. I was in the accounting and auditing function within UH within Deloitte for six years, So my first six years of my career were there spent. I spent an inordinately large amount of time on companies, and I think why it translated to my soft bank activities, it's spent.

I spent a large amount of my time on companies that were heavily transaction orientated, So companies like Prime Mark that was buying a lot of data service companies at the time, a company like Hardcore General at the time that was buying Hardcore Brace, Jovanovitch and Neeman Marcus and other things. So I was I was involved in the assignments that I ended up being on were very transactional orientated, a lot of acquisitions, and they were doing a lot

of activity. Accounting skills would come in very handy with that. Accounting skills come in very handy. I do find that my background of accounting skills is actually quite helpful with the companies, particularly as they scale. As they say there's there's uh, there's nothing like that ruins a good story like facts, and accountants on some level have facts, which is how are the companies doing versus their plan? How much cash is left in the bank, Can we last

another year or five years? How would we be viewed relative to comparable companies in the marketplace? So um, Although, for sure, you know the venture capital market is a lot of art project, not necessarily a pure science project. I think having the background and accounting actually has been helpful. So tell us a little bit about Revolution Growth. What sort of companies do you invest in? And gives some

examples of of some of the companies you're working with currently. Sure. So, Revolution Growth is a growth fund based out of Washington, d c uh. It was started maybe ten years ago by three folks that previously we're partners together at A o L. So it was Steve Case, Ted leonss and Don Davis started Revolution. That's the murderous row. There we go, right, I have three more podcasts. I'm sure they'd be happy

to come. So the three of them started Revolution a number of years ago really to do what at the time, they were trying to figure out what was big and what was next for them in their careers after they left the A O L situation after that merger, and they ultimately created a series of investment funds, one of

them being Revolution Growth. Revolution. Growth invests in companies that are, as the name would suggest, at the growth stage, so bigger companies, not smaller, but not generally not billion dollar companies. Generally companies that have twenty thirty fifty hundred million dollars of revenue. We generally invest twenty to fifty million dollars in each opportunity. We usually have a pretty significant minority ownership, so we don't We're not a private equity shop where

we take control of businesses. We are more like a venture capital UH even on on some level structured like an early stage venture capital from where we own five percent of a business ten percent of a business, but we get involved as the business is really starting to scale. And so the types of businesses that we get involved in generally our technology related businesses, but they can be

across a number of different verticals. Right, So we have UH companies actually as diverse and versus some of the folks that we work with as co investors um in fast casual restaurants, So we're investors in Sweet Green, We're investors in Cava that are both using technology to change the supply chain and change the ordering patterns and change the So that's a fast casual thing that we think

is really big. We're involved in UM fintech, so we've recently made an investment in a company called Talo, which is doing UH micro loans in in developing nations through the use of information on people's cell phone. We're involved in sports related technologies like draft Kings where I'm on the board, sport Radar, which we're involved in. I'm sure we'll get to that topic later. UH. We're involved in UH data companies places like Uptake in Chicago, Tempest in Chicago,

Interactions in Boston. So those are the types of companies. So they tend to be companies that, when we we get involved in them, tend to have substantive revenue, but not a billion dollars of revenue. We tend to put twenty to fifty million dollars to work. In almost every instance. We're on the board of these companies, and we serve to try to, you know, help them out, get them through their journey, and use the experiences and references and networks that we have to try to make them and

make them successful. You referenced soft Bank earlier, and I have to ask you they now have a venture funds it's a hundred billion dollars. That's an insane amount of money for something like that. Uh, what does this say about what's going on in that space? And is this part of what's driving valuations that at firms like uber and we works through the roof? Well, clearly there's been a lot of talk about SoftBank's vision fund UM. I

think it's actually it's really an amazing thing. And what does it say about the market and what does it say about where we are in the market and things? I think if we take a half a step back, what it says is certainly something like this was not possible ten years ago as an example, So what's changed that true? A decade ago you could not have had a fund this side, don't I mean outside of the financial I don't believe so just it wasn't the appetite for it, or it wasn't the capital for it. I

think maybe a combination of both. But I think what UM has come to more clarity for people, which makes something like this possible, although it is an invent of one so you can't make too many broad conclusions about it. And it is sponsored by Massa, who is one of

the world's great dealmakers. So I'm not suggesting that there will be multiple more hundred billion dollar funds, but I think what it does suggest is that the world has recognized the importance of tech aology and major industries and therefore the ability to deploy big amounts of capital in those.

So things like industries like real estate, industries like healthcare, financial systems and others are really now being fundamentally changed by technology in a way that it's really just starting to happen, although there's been a lot of talk about it, you know, the industrial complex and the like, those things are really now starting to change materially, and those give real opportunities to deploy real amounts of capital. We say, we see this with a bunch of different opportunities that

that's up Bank is deploying. So I think that they are a hugely influencial investor in the marketplace. I don't think a fund like this was possible ten years ago. I'm not sure there's ten more of them that are coming down the path, but I do think it speaks to the importance of technology in major industries that maybe previously had been a bit more immune to it. So not too long ago, I had a conversation with Benic Devans of Andrews and Horowitz, and his comment was, there

aren't um technology companies anymore. Everybody's a technology company. If you're not using tech in in the most optimal or most productive way, you're just going to be left behind. I think that's a fair and accurate summary. I do think there are obviously some and many companies that are using it more effectively. There are industries that allow for

it to be used more effectively. The pace at which some of these industries are going to be able to adopt the technology is not at the same pace that we've seen in some other industries. So as an example, when you talk about health care and you talk about you know, money supply, and you talk about things like that that are heavy heavily regulated, the pace at which some of these changes are going to be happening is not gonna be like how long it took Facebook to

be published. For changes in there, it's going to take. So let's talk a little bit about health I see you're wearing the bigger what is that called the versa? This is all the ionic Oh, the ionic, so that's the big fit. But I'm wearing the charge to my wife. I had the original one, which I had, truth be told, I didn't love, but my wife. I got this from my wife and she liked it so much that I went out and got my own. You've been heavily involved

in wearables. Where is that sector going, especially since you mentioned health? What might these things mean for a sedentary overweight nation. It's I think the existing status of wearables means a lot for a sedentary overweight nation, which is that it provides basic information around things like how active you are, what is your what's your pulse, how much sleep have you gotten? Things that are very basic in theory.

But those pieces of information, when provided to people and easy to use formats with easy to use devices, change behavior for many many users. I could tell you from pro and experience. When I had the original fitbit and I was doing ten fifteen thousand steps a day, I became a little obsessive with it, and then I I had a couple of glitches with it, and I kind of got bored with it, and I put it down, and the phone is still tracking most of my travel.

And I noticed that those ten thousand a day without something on your wrist just disappeared and it. Once I got this back again, suddenly it's all right. My office is down on four the street. We're on fifty eight street. I don't need to take a subway. I could walk, And besides, that's gonna add me two thousand steps. It

really makes a significant thing, it really does. The mindfulness piece of it, which you're referring to, is really the key piece of the first generation of these things, which is really we're on maybe the first and a half

generation of these things. So we started out with really basic trackers that did a pretty good job of tracking steps, but they were really electronic pedometers, if you will, right, And then they married that with really easy to use mobile software which makes you able to look at a

little bit more. They've added sensors to things, and I don't know if you use the other ones that do things like your heart rate, you know, which is actually for lots of people quite interesting, what's my what's very pretty chill? What's your and and people sometimes say when I'm working out, I should get to thirty or forty beats a minute. Okay, how is that? You can drill into that in your mobile app after your workout and

look at how that goes. The other feature that I use a lot, and I don't know if you do, but many users do, and it actually has really influenced me is the sleep function my wife uses that I like to take off anything from my winning band is the only jewelry I have on it in your bed. But that's just a function of getting used to it.

And I would so the sleep thing for me, as somebody that travels every week and has a lot of functions that I attend to and are in different cities a lot I find, particularly as I'm not getting younger, My my vibrancy, my health, everything seems to directly correlate with the number of hours of sleep I get, it seems. And so as an example, I was looking yesterday, was

talking to somebody about this. Yesterday evening. I looked at my fitbit data on my phone yesterday as I was traveling someplace, and I noticed that it has been over a month since I've had more than seven hours of sleep. I said, you know, something is not good there. I gotta fix that, right. So there's a mindfulness piece of it there. You've got to report at the end of a week, says your average sleep has gone up or down since last week, and so those basic things that

are being provided now materially change people's behavior. Where is it going? I think is is the next step, and I think of it is around health. So they'll be just as they added functions around things like pulse and things like sleep, they there will be things that will add things around blood sure, perhaps blood sugar contact. You could imagine a whole series of sensors that get added into whether it's a risk device or something else that

feeds a central depositor depository like a mobile application. And the real key will be when that can be integrated into your health system. If you will your doctor, If you imagine your doctor at some point getting your report about what's going on with you, and and a check engine light if you will goes off and says, hey, Barry, you know, looks to me like your blood sugar levels pretty low. You might want to get home and get something.

You might want to get get something to eat, or eat an apple or something, or geez, your pulse is way high. You have the symptoms of somebody that looks like you might be having some hard issues that you might want to go to your doctor. But so if you think about some of where this is going. I think in the next phase is around this check engine

light for yourself. So, without getting to graphic, I've read about sensors that can be put into a toilet where they can check things like blood sugar, and actually check for proteins associated with cancer. This is so small and doesn't have, you know, a giant battery, but I would imagine the next couple of generations of sensors are going to be able to pick up all sorts of stuff that,

you know, hard to even imagine. Yeah, the real trick in all this is figuring out what pieces of sensors people would be willing to wear or use regularly so that the data comes through regularly, because with periodic data is and as valuable as regular data. So there's this constant battle between battery life. You know, so this ionic device lasts four or five days, you could put more

sensors on it to do more things. It might last four or five hours, in which case, what do you need to watch for that last four or five hours that's of no value to So there's a they're the constant push and pull and struggle and and researches around how do you create sensors that identify things that make the form factor usable enough for people to wear on a regular basis. Related to wearables, I have to ask the question why did Google glass flame out so spectacularly?

It seemed like an interesting piece of tech, but it never caught on except for some very specific niches. Yeah, I think it ties back to what we were just talking about with respect to sensors and battery life and usability. It appears as if the form factor never got to a point where people really wanted to wear it. It looked kind of geeky, it looked kind of weird, and you know what we've seen with the fitbit devices and I think it will be applicable for a lot of wearables.

Is that the fashionable piece of this is very important. You know, can you is this something that you would wear in public and and and use? Um So, I think I think that might have impacted Google Glass. But the thought of a surgeon who has Google Glass on and wants to pull up a you know, either the X ray or the m R, a you or some

other resource makes perfect sense for that absolutely. I think what you what we'll see, particularly for those types of applications on the I've seen something like that that's on the construction floor where actually it was I think of something with Boeing or or Lockheed or something where somebody who was putting together the intricate pieces of a wing of a plane can look at the through his glass

blueprints through blueprints right on the throughs. So those are the types of applications that I think are easy to use, much more likely to have early success. I think the form factor for general commercial use hasn't quite got there. And how significant is the Apple Watch as a player in this space because you're your Fitbit watch about the same form factor as the Apple Watch, the same size. Yeah. Everything Apple does is they do a great job. They

have a real a loyal fan following. They're passionate, they make great products that they're they're following loves um, you know. So they're they're they're a credible competitor, and I think that they will have and continue to be one of the real leaders in the wearable category for sure. I want to talk a little bit about a fund associated with revolution growth called Rise of the rest O r TR,

and the concept is so intriguing. Most of the venture investing seems to take place in San Francisco and New York and Boston. But Revolution Growth does a bus tour, five cities, five days, five thousand dollars, and they do sort of a local pitch competition. Tell us more about the idea behind that, and who's driving that literally driving it, driving above the bus, right, So, so the idea really is Steve Case's idea, um and it's something that he's been and it and it started as an idea and

and some activities around a bus tour. They've recently done their seventh bus tour. Really that many wow, And it's half a million per tour or half a million per city, half a million per tour generally, although sometimes he finds a way to involve a couple of the runner ups sometimes get something as well, but apparently that's not to

be known. So the activity really is Steve's, and it's one of a personal passion of his, and it's one that the firm Revolution has adopted generally, right, which is in essence, the ideas around good company development and entrepreneurial spirit are not solely located in New York, Boston and San Francisco San Jose region. And if you look at where the distribution of capital is about somewhere between seventy and seventy eight percent of the venture capital money is

spent in those three areas. And so there are a number of other great cities in the country that can and should be producing more entrepreneurial based technology companies. It's important for the country, it's important for the people in those communities, and it's a real business opportunity. So we combine all those three and that's really the impetus behind Rise of the Rest. Rise of the Rest has become much more than a bus tour, right, So it started really as a bus tour. It's now become a real

platform of folks. There's a real team there as you As you mentioned earlier, there's now a fund associated with it. Hold on a second, I just have to read a few of the names who are affiliated with this fund, because it's just the noodles. Jim Barksdale of nets Gay, Jeff Bezos of Amazon, Tory Birch, Steve Case, Ray Dalio, John Dor, Henry Kravis, Michael Milkin's, Sean Parker, Howard Schiltz, Eric sch Mintmigut Whitman. That's just the like first half

and the rest of it is just as impressive. How on earth did a group of rock stars like that come together to fund a concept like this? That's just a mind blowing list of investors. It is an amazing list. I'm not sure that list of investors has ever been put together in a fund. And now I have another twenty two podcasts to do based just on that list. I think it speaks to the power of the idea.

Uh as. The first phases of this were the investments were funded mostly from Steve Case's personal UM resources, and as he traveled around the country and as he talked to people that he had known and worked with and interacted with, what he heard was, Geez, this is a great idea. I want to be part of it. And a decision was made about a year ago to to institutionalize that activity, at least in terms of the deploying of capital around a fund and based on the names

of people you can imagine. Um. You know, they really thought that this was a powerful idea. They believe that it is important for the country, important for the growth of entrepreneurship across the country. I mean, anybody that runs companies in Boston, New York and San France. Cisco knows that labor shortage type hiring and retaining engineers is tight um cost of living cause we're living through the roof,

so there's lots of things that make it challenging. There's those are great places, and there are great companies and they will continue to be. So the rise of the rest is not, you know, sinking of these other places. It's that these other opportunity there are places where new opportunities can to be created, and we should be really sponsoring those. And so that's really what that's all about.

There was a New York Times article some weeks ago about a bunch of Silicon Valley venture capitalists who suddenly had become completely enamored with Detroit. The cost of living is incredibly cheap. There's a huge engineering and and um technology talent pool there that they didn't expect to see.

How realistic is it to think of parts of the Midwest Pittsburgh, Milwaukee, Detroit and other cities outside of the core current technology venture capital areas really developing a burgeoning texting I think it's very realistic, and I think we're seeing it. Two of the most exciting companies in our

portfolio in Chicago. It's just in the West Loop and it's one amazing If you walk into I think it's six hundred West Chicago Avenue where these two companies, Temples and Uptake are located, you would think you're in Silicon Valley. The offices are, you know, vibrant, and there's young folks coming in and out of the building all day long, and there's the activity level is really buzzing. So Chicago's

for sure one of those areas that's coming along. Um. I've done some stuff down in Atlanta, Atlantis coming along's coming along. Um. We just did the investment in tallah that we referred to earlier, which is in Santa Monica, right outside of el I mean, there's so that we believe that there are. Pittsburgh is where Google has their autonomous uh and I think Uber has a lot their autonomous work being done there. So a lot of these cities that have great universities, a lot of young folks

are support of local community. They can do this and and we're really starting to see this. So this isn't a press release. This is a real commitment to those areas. We stayed in the hotel right across the street, from the new Google building, and our office in Chicago is at a WEE works right around the corner from that.

It's amazing, it really is. Let's talk a little bit about the modern era of venture investing, because it seems so different than the two thousands, with the housing boom and bust and the Great Financial Crisis, and of course the insanity of the will we had, the dot com boom and bust and and and that situation. I've noticed that lots and lots of companies are staying private much longer than they used to. The number of I p

o S are down. What's the driver behind that? Well, as they say, probably part of it is because they can all that all that capital we talked around gives them an opportunity to not go public. One reasons, really, I think is one is um because of some of the regulations that's happened around Sarbanes Oxley and other things, the cost and complexity of being a public company has gone up, and so there's certainly some piece of it

is that it's just difficult. It's expensive. Oftentimes, particularly technology based companies d prioritize building the infrastructure to support that over the next product more sales and marketing, expand into international activities and the like. And so there's a part of it that is, hey, we don't want to do that, and then there's a what what? So it's more let me interrupt you. It's more than just regulations. It's building

out human resources, accounting, payroll compliance, all that stuff. They just want to capture market share and sell more and varied products. Yeah, if you think about what drives a founder to start a company and what drives the founder every day to picking a new payroll company, that's what they're enthusiastic, picking a cybersecurity expert and and reviewing compliance with Sarbanes Oxley for a one C or whatever. I mean, for sure there's some piece of it that is not

prioritized with a lot of companies. So what But what has enabled it? I believe as as you referred to earlier as really the access of capital to allow for the growth without having to tap the public market. So that you as a venture capitalist, you as a person running of funds, you're looking for an exit eventually, I got to imagine that the big backers of shops like Uber aren't. Yeah, take your time whenever you get around to it will be patient. I think these folks are

waiting for an exit. And Uber perhaps is a good example. If they would have gone public a year ago, they might have missed that whole. Gee, here's a haircut on your last high water mark valuation. Certainly could have been And for sure, venture investors have limited partners and of

institutions that need money back at some point. That said, if you talk to a lot of them, I'm sure you hear from others that if they find a great company that continues to grow at a fast pace and it's continuing to gain market share and developing opportunity, that's

not something they want to get out of quickly. Right. So, on some level, by these companies, the best of them not going public, it allows some of these venture investors to hold longer and capture more of the upside, where perhaps in previous years, when the company goes public, they're under a lot more pressure to sell their shares because

there's a public market for that. Now, I recall in the nineties and maybe that's an aberrational period, but every now and then a company would come public with a very small float. Perhaps that was the thinking behind it. All Right, we'll sell ten percent of our holdings, but we think this is worth a lot and we don't really need the money, so we willing to let it

ride a little bit. That's right, And and that was also particularly in the nineties, Really the I p O event was much more of a financing event, right, which is they had they got access sitting in boardrooms during that time, the question about when to go public was when do we need to raise our next round? And what would be the benefits of being public? And some of them would be access to more capital, some of them would be we now have a public currency which

we can use for acquisitions and the like. And with the the world that has changed now where there there aren't five soft bank vision funds, but there are certainly five multi billion dollar funds that are focused now on later stage technology based companies that are private. And so the availability of capital I can't imagine it's ever been

more great than it is right now. Are we creating a giant damn behind which there's all this pent up demand to go public or pent up demand for for more companies, And at some point, not too far off in the future, we're gonna see a wave of I p O s coming out. I don't know. There's been a lot of talk about this wave of I p O s for a number of years, and it doesn't

seem to have happened. I do think some of these companies that are private, some of these big companies there, B and B and others, they could go public anytime they want. Uh. They don't have to wait for a good market, a bad market, whatever. There are companies that are our size and scale. Many of them are achieving or past profitability. They're starting to show real leverage in

their model. They're starting to show that they're they're able to add new products and new services onto what they're doing in a very effective and efficient manner. They've built out their management team so they are operating almost as if they are a public company. When the within the shell of within the veil of privacy, if you will, and you know so, I think those will happen. Whether they happen this month, next month, next year, it's unclear.

So let's talk a little bit about valuation. I've had other vcs like Mark Andreeson tell me valuation is irrelevant. Their business model is looking for the needle in a haystack. And whether Facebook returns ten thousand times your initial investment or twenty thousand times, it's a relevant at pace for a lot of other um investments that don't work out. You have the accounting background, what do you think of

of valuation when you're trying to choose amongst early stage companies? Yeah, I guess maybe this is where some of my accounting background would probably put me in a slightly different uh point of view there. I think as it relates to super early stage investments where you're really betting on a team and an idea, whether you invest that two million pre or ten million pre probably doesn't matter too much. I think it starts to matter a lot more as

you get further up the valuation train. So does it matter if you invest in the next best travel company that has a lot of traction at a two million valuation versus a billion valuation? I think it matters actually a lot in many instances. In actually most instances, it's easy to point to a Facebook and say, hey, you're going to make twenty thou times your money. Doesn't really matter if you make ten thousand times your money, of

course it does not. The that's really an exception. Most of the companies follow into a much more predictable pattern of what they can exit at. Ultimately, as you know, what does that bill curve look like of those that don't make it, those that break even, and those that deliver a profit. It depends when you invest. Uh, if you're pure early stage investors, most of them that are honest with you would tell you that certainly thirty or

forty of their companies never make it. That's the earlier stage, the much more challenging it is. You're really casting a wide neck because so many of them are going to fail. At the stage that we invest in, which is really the growth stage where there's been there's lots of work left to be done, but there's a existing revenue stream and there's a product in the marketplace where you can

see things like margin and things like that. The failure rate should be much much lower should be of the companies. But you also lose the fifty or a hundred times x because you're in at a higher valuation and transpoint. But you could still see a ten or twenty x return and that pays for a lot of companies that for sure don't don't break even for sure. We were discussing earlier about some of the companies that have stayed

UM private, and I referenced Duber. What about a company like Tesla that went public and just has this massive cash burn? Should they have stayed private and continue to tap the venture markets or does this make sense for them? I I, you know, I don't know enough to know. I don't know all the details of why they decided to do what they've do. It seems to have worked out okay for them. They're obviously going through some challenges now, but people love the product. They've be able to access

a lot of public funds. Um recently they just did another three billion dollar bond bond offering that worked out pretty well. And the CEO Ellen is obviously one of the world's great visionaries that people want to back and want to support. Uh So why they decided to go public when they did is not clear, but it seems to have worked out okay for them. So you referenced funding, an idea and a team. Um, which is more important?

Is it the idea that grabs your attention? Is it the team and how they execute or is it some ineffable combination. Yeah, it's I'm sure it's It depends a little different on each one, and I think it depends a little bit more on the stage of investments. So the earlier we go, the more it's simply dependent on the team. Right. So it's because what we find is

great teams can find the opportunity. You know, if you're if you're in a general market area where you think there's a great opportunity and you have a superior team, they will find where those nuanced opportunities will be. They're almost never exactly where you start. I use this uh analogy with a lot of people because my sons are all they they're competitive sale racers, And I said, when you're running one of these companies, you're you know where

you need to go. You're at point A and you need to get to point C. The problem is the people that you don't realize that the captain of the ship, if you will, is actually in a sailboat, not a motor boat. So you have to go. And so if you try to go in a sailboat from point A to point C, if the wind is not exactly where you think it is, you ain't going anywhere, right. And too many people say, geez, I know where I'm going, and I keep going and I'm running into this wall.

The really talented managers of these companies and founders, they say, geez, I know where I'm going, but I have to go here first and then there and then there, and I'm going to read the t leaves along the way, and it's it's actually fun to be a part of those We have been speaking with Steve Murray. He is a partner at Revolution Growth Venture Funds. If you enjoy this conversation, be sure and stick around for the podcast extras. Will we keep the tape rolling and continue discussing all things

venture related. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You can check out my daily column at Bloomberg dot com. Follow me on Twitter at rit Holts. I'm Barry rit Holts. You're listening to Masters in Business on Bloomberg Radio. Welcome to the podcast, Steve, thanks so much for doing this. I have a list of questions we didn't get to. I have to um bounce off view before we start with our favorite questions. UM, your New York and DC based.

I have to ask, what's the difference between venture or even private equity? Firms on the East Coast versus those out in Silicon Valley. And I say this as a person who has been to a number of Silicon Valley venture firms, and every time I walk out of one of them, I kind of scratched my chin and say, I could live in California if I had to, I could survive this. In New York. It seems they're role in big offices and it's lovely and everything, but it's

a totally different vibe. Yeah, the weather in UH in northern California is certainly superior to Boston or New York, to say the least. I agree with that, that's agree. So I actually think the differences between the coasts and how they approach things has changed a little bit over time, and they have become are similar. Partly is that some of the firms and the West Coast have opened up New York offices, and some of the firms in New

York and Boston have opened up Silicon value firms. Actually, most of the successful firms on either coast now have a presence in the coast that they weren't in. So I think there's some of that that there's a little bit more of similarity. That said, I do think there is something to the you know, the the old adage that they're the more risk tolerant on the West Coast.

They're more for sure, and they're the acceptance of failure is a little higher, and on some level, particularly on the early stage, I find that the West Coast investors almost look like, look at somebody's failure as a CEO as a badge of honor, not as a you know, a black mark. Hey, this guy tried, They went for it, they swung for the fences. Now I just um said this guy and it's mostly been guys. Do you see an each changes taking place with more women, more people

of color, less um, less just male dominator technology. Yeah, for sure, they're they're less pro topia every everything for the venture from the venture firms themselves, uh, to the firms and the companies running there's there's a clear uh emphasis on diversity, and there's real business reasons for it. The research suggests that you get people in a room with different points of view and you come up with

a better outcome. So let's group think. I think there's a there's a lot a lot of ways to go there, and obviously there's been some some you know, very public and bad stories that have come out in the last couple of years. But that's probably catalyzing change faster, is my my guess. So you sit at a unique perch where you're looking at things that are changing. What is the next industry that's going to be disrupted? Is it healthcare?

Is it finance? Schools? In fintech, which I know is an area, uh you like, is it even something like food or transportation? What what's the next disruption that's going

to take place? I think there's all of those, but so here's but there's one that's maybe more more current than Okay, an interesting topic to talk about, which is the Supreme Court will rule within the next thirty days on a case called Paspo, which is the state of New Jersey sued the federal government essentially around thing about states rights. But depending on which way the Supreme Court rules, it could allow for legalized sports gambling on a state

by state basis. Legalized sports gambling. So currently there's gambling allowed in Las Vegas. You can bet on different um teams and stuff. Isn't that is that not allowable on a state by state basis currently? So you are now seemingly making the argument that New Jersey is making, which is why does Nevada get to allow for this and the other states not? It doesn't make much sense there,

So that that's the essence of the conflict. There's lots of legal nuanced and you with your legal background, would be able to read the briefings, I'm sure, and be able to summarize them, do you, Lord No, under no circumstances. In essence, that is the conflict that's being resolved, or that's being that that's at at that issue right now. The reason I think that's so important is that sports and the media around sports has changed so much in

the last few years. How people engage with sports, whether it's through the mobile device, whether it's through uh fantasy sports, both regular league's fantasy sports or daily fantasy sports like at DraftKings. The engagement with sports has changed so much over time. But the import of sports to the television bundle and places cut the chord. You're not seeing live sports,

that's right, So that this is a big thing. There's a strong opinion amongst many people that know much more about it than I do, that the Supreme Court will in fact overrule. This makes sense and allow for states to decide on their own what they want to do. That will kick off an enormous game of musical chairs around who's doing what. Everybody wants to have their hand in that pie. The leagues, the states, want, the operators,

the media companies. Everyone seems to be positioning there. There's a number of states that have already begun to file legislation in the event this passes. So this is a real game of musical chairs that could start any day. And you think this will be explosive. I think if it happens, it's going to be really interesting to watch. I have a buddy. So I'm not a fantasy sports guy, and I'm too old to be the Nintendo I forgot the name of the the game where people were running

around swiping things in in um Pokemon. I'm too old to be a Pokemon ghost sort of guy. But I have a buddy. Shout shout out to Lend Parissi, who created a company that combined fantasy sports with Pokemon Go. He got it patented. They were just funded and essentially, when you put your fantasy NFL or basketball team together, you run around your city and your's, Oh, there's Lebron James and you're swiping him like he's a Pokemon go egg.

When he told it to me, I said, dude, I don't do any of that stuff, And I gotta think kids are gonna love that. That just seems like a crazy good idea. Um, is this the sort of insanity that we're gonna be dealing with? As all these different kind steps cross fertilize each other and cross pollinate, you end up with just a million new ideas and a

million new businesses. It's very clear that if from sports, which is a big and important business in in the U. S and and internationally, that the way in which the consumers consume that content has changed dramatically and will continue to change. That could be where things like virtual reality and augmented reality player role like with your Friends Company

an AI are gonna apply to this. You think about a situation where you're sitting at your house on a Friday night, you don't feel like going into the Yankees game, but maybe for fifteen dollars, you can be essentially at the front row in your with put your headset on, and you you're there. The game's going on. You hear it all, you see the ball flying by, There's those types of things. So there's a lot of ideas that are going on. What the consumers actually fall in love with?

Who knows, I don't know. I have three teenage boys and they have never seen addictive behavior like their's right now with a game called Fortnite. Of course that's it's just and so, but if a year ago somebody had shown me that game, I would have said, I don't see why somebody would want to do that. They and all their friends and everybody I knows friends play it

all the time. So what consumers actually hang onto I don't know, but there is, there has started to be, and there will continue to be an enormous amount of innovation around the activities around sports because they're so popular, because the usage patterns have changed so much. And I do think this sixty nine. Nobody knows what the number is, but it's a big, big number of billions. That is that is bet illegally in the US through off shore. It's a lot more than that. It's hundreds of billions

of dollars. It's an insane, insane amount of money, and that very soon could be very soon measured in years not days, could be now bet legally, huh that? And so every any profits from it, taxes it, except for the you know Mark Twain called gambling attacks on the stupid, but except for the people on the losing end. There's a lot of activity that's going to take place, and the people the proponents of this would certainly say, well, there are people on the losing end of it. Now,

sure you're not adding to the number of people. Well, you might be attracting more people once it comes out from the black market. That's certainly a reasonable guess. Certainly

could be. I remember having a conversation with somebody that's involved in one of the operators in Europe, a good friend of mine who actually lives in New York here, and he said, you know what's interesting is he said, when we have a tennis match in Europe where the number hundred player beats the number three player, we actually go to the logs and see who bet on what when, and if there's some unusual activity, if that happens here in the U s what do you how do you

find any data? But what you actually don't. It's a way to keep the sport clean and you know they're currently enough twelve step programs UM certainly for for angry birds and candy crush that if it gets to be a problem someone I don't mean to make loud of this. I know they're people who have issues with it, but UM, it's fascinating to to see what takes place. So so that's one area sports, Give me one more area and

then we'll jump to our favorite UM questions. What else do you see as the next area that perhaps people aren't paying attention to? We could we really like a lot of the areas of UM in fintech and infint tech. Fintech Yeah, oh, in within finte I thought you meant like newborn technology, and like, what what are we doing with no, not infantech, in infant infant technology. So give us a couple of examples. So a couple of examples

is our most recent investment in in Tala Tala. As I mentioned what what, So, what we like to see is what are they doing now that has changed the fundamental value proposition of what is being offered? So as an example of this company is taking information that exists on somebody's phone for people that are jet almost almost universally do not have a bank account, and they're making

a credit decision based on that activity. Just so you give them access to your phone and they determine based on what you're doing with your aliate, can you give me access to these five things? They say, yes, please, I would like a loan of X. They say okay, based on that I've correlated that activity with other people, and this means that you're good or not a good credit risk. I actually read something about an attempt to create a credit score based on your social media activity?

Anything along? Is that similar to this or or is that part of that part of the same concept, which is how can you use And it informs a lot of the investment decisions we make in the companies that we like a lot, which is are you using the availability of data that either didn't exist previous slee or wasn't it didn't exist at the pace at which exists

now to do something different. Um. We have a company and Chicago that we talked about a couple of times, Uptake, which is using data from sensors on industrial equipment to do things like tell you that the tractor that's going across the farm in Iowa is just about ready to have a problem, you better go change that oil or you and so things like that. Those are amazing opportunities within industries that previously didn't have a lot of technology.

Now there's data, but somebody has to do something with industrial self diagnostic equipment correct that. That's just wild um fascinating and and Venmo type stuff where you're you're swapping money back and forth without a bank in the middle. Is that really gonna Yeah, that's happening, not counting crypto just talking on an app that theoretically is hackable. Are people gonna be able to trust that? Well? That that's

the question. I think there's a lot out of those activities that happen and then there's an event, and then there's can you trust them? Can you not? There's obviously there is no question a growing concern appropriately so around where does my data? Said? Who has access to it? Um? How do I protect against that? And part of that is an operational thing, and part of that is a

cybersecurity thing. Right. There's not too long ago a Wall Street Journal article about these crypto billionaires who have created these bunkers for the secure storage of their codes and drives and things like that. Because legitimately, these things can get stolen and they just have to hope there's no e M electromagnetic pulse that wipes out the hard drive. But other than that, UM, that that's fascinating, all right,

So let's jump to our favorite questions. I asked these of all our guests, and let's jump right into this. Tell us the most important thing people don't know about you or your background. The most important thing people don't know about me that where they would be surprised to know,

perhaps given the nature of what I do. And so I'm a pretty energetic guy, and I travel a lot, and I see a lot of companies, and I sit a lot of boards, and I do a lot of outwardly facing things, and I'm a pretty introverted person that I most people would not expect. I would not have guessed that if I had to, If I had to make a guess, who were some of your early mentors. Well, I've been amazingly fortunate that. Um, I've had so many people in my career that have taken a real care

about my career and me as a person. And so there's a long list of them. But at you know, I start at Deloitte and that was really um folks like Steve Richards and Bill Platt and Susan Riyo and Give Hammond and others. But there each one of them. I still to this day bring something to the table from them at soft Bank. And probably my best mentor and will be forever. My best mentor is Ron Fisher, who's still at SoftBank, who I had the pleasure of working with for for twenty years. Um. I got to

Brad Feld was a mentor way back. He started at SoftBank way back when, and he and I continue to be friends and and he's currently at a Foundry boundary group. He's the you know, really the managing partner at Foundry. They've been hugely successful and he and I are working on something together now. And you know, one of these guys that's just such an honest and straightforward and involved guy. Um. I've had the pleasure of working with him and learned

a ton from him. Although he wasn't a day to day mentor, having exposure to Massa over the years has certainly influenced me in a great way. So I've been very very fortunate. I've had people that you know, and now I have ted Leonsis and Steve case who who

I learned from every day. I think one of the things that UM is so great about this business that we're in is that I get exposed to brilliant people every day that are either running these company, is on the board, people that I work with, And so I literally feel like I learned something new every day. And Uh, let's talk about venture investors. Who has influenced your approach

to making these investments? Yeah, so I'd say Massa has influenced my approach Originally his and the influence there was his boldness, his willing to take enormous risk against the grain. Uh. He he was by you know, he was buying you know, mobile companies when that wasn't the right the thing to

do out of favor if you will. Um, he has very you know, he raised a hundred billion dollar fund when everyone is saying, jeez, we must be at the end of a cycle, right, So this is a person that his boldness UM is really inspirational on some level. As I mentioned earlier, Brad Feld is somebody that's influenced my investing style. He his is very much understand the the company, the product of people, walk the hallways, see

where things are going. Another guy that influenced my investment style that's here in New York as a guy named actually two people one uh Eric Hippo who runs lair Ho Pope Adventures, who um is sort of the ultimate uh professional, you know. He everything starts on time and ends on time, and decisions get made and you don't second guess your decisions, and you and you put you know, your very uh matter of fact and non emotional businesses. You have to make decisions, and you have to move on,

and you have to go to the next one. I've admired, I've admired him a lot. I've admired, uh you know, I've worked with and he still remains a great friend. A guy who just recently was the CEO at Forbes, Mike Perlis, who's a great friend of mine, who really is a real people person, you know. He is the guy that walks the hallways and says, this guy and this guy don't seem to be getting along, and this gal is having a problem here, and how can I engage myself off and help this company? And he's all

about leadership and clear vision and direction. And so from each one of these persons, I've learned something different. Let's talk about books. Tell us about some of your favorite books, be they finance or technology or not fiction nonfiction. What do you read? What do you enjoying? Yeah, sure so, Uh. I actually mostly don't read about finance and technology because I live it every day. But and time is short. But I actually get to read a lot because I

travel a lot, so I read. I think I've read every John Grisham book and I love them because they're fun and they're easy, and you can read them in a couple and well along flight or two and it's other great. Um, I've read a couple recently that I really like. One is that I've probably many people have read, which is The Boys on the Boat. I like that because I'm a team guy. I'm a sports guy. I love I love how people can overcome adversity and gang

together and accomplish something. And I get, you know, goose bumps on my back every time I hear those stories. And I read about success and things like that. So that that's a book that I've recently reread and enjoy it. I'm also reading. I just finished a book, uh that I that has a real influence on me called being mortal, which is about really it's a it's a book written by a doctor about the way, frankly, that we may

have screwed up the aging process. We're treating the aging process as if it's a disease, not a condition, and it's fascinating. So I like reading all kinds of different things. I read something about that book, and if I'm remembering it correctly, part of the book is doctors die differently than lay people do because they understand what we do wrong.

And I'm recalling the right one. It may be, But really the point of the thing of the of the article was that or the book was that we've made so many advancements in medicine that has allowed us to treat things, and we have. Therefore, when somebody gets older and they have a condition, we read them as if they're twenty five years old and they might have seventy

more years to live. Doesn't make and what we end up doing as a society, as we end up making the last five years of somebody's life probably miserable, where they're going through surgeries and all kinds of other things, the likelihood of materially extending their life is not long and you spend enormous resources doing it, something like eight percent of the healthcare costs or in incurred in the

last twenty of people's lives. And so there's all these things, and and so instead of that, what he proposes is something more along the lines of what hospice and others do, which is, say, what's important to you and how do I create an environment for you to enjoy as best you can your last remaining piece of your profound We we talked about what what excites you? Tell us what changes you're looking forward uh to the world of of venture investing in startup? What what are How is the

industry itself shifting into the future. Yeah, and we've talked about a number of it. The company these are are there are staying private longer. The holding periods therefore are longer. So the idea of investing today and returning capital in a year or two is is much different. The size of the funds seems to be extending. I think partly due to that, which is that people are saying, geez, I have to be able to build a firm to support a company, particularly my best ones from soup to nuts.

I don't want to miss out I've talked to a number of early stage investors who have now started to create follow on investment funds because some of their best companies that otherwise would have been private or sold are now still private companies raising money and they want to participate in those, but they don't fit within the constructs of their early stage small fund. They they are now adding different people call it different things, a select fund

or a follow on fund or something like that. So I think that the things that are changing, or how do you serve the needs of the company in a better way, given the changing landscape that we exist in. A lot of it is international too. I think that will be another thing that will see more of, which

is more firms. Just as we've talked about earlier, more of the East Coast firms they do have a West Coast presence, and likewise, I actually think more of the U S firms will have an international presence over time, Europe, Asia, the least, ETCETERA. Tell us about a time you failed and what you learned from the experience. Well, I fail every day in something particularly and I'm reminded of that

by my three teenage sons. I think I actually fail more in their eyes every as they get older, although I think my older one that's eighteen now is starting to come out of that phase. I think he's realizing that I'm not quite as dumb as he might have thought a year or two ago. But I noticed that the older I got, the smart on my parents got. So there's some correlations. It is an interesting correlation. The

topic for another one perhaps, UM. I'd say the two or three times that I've failed in terms of an investment bad is when and what I've learned about it is really the value of people's ethics and people's integrity. And so in a couple of different situations where we've where we've you know, where I have known that the person that we were dealing with was something less than the type of quality individual that I want to be

associated with. I'm sort of over life on things like that, and so that's happened to me twice where I sort of knew that the person wasn't gonna be the kind of person I really wanted to work with, but you know, the opportunity was exciting and the progress in the business was great, and in both cases it's come to bite me right back in the behind. What do you do for fun when you're not in the office, What do you do to kick back and relax. Well, I mentioned

my three sons. So I have three sons. Two of them are in high school, so I love to and then I have another one in seventh grade. I love to spend time with them. I love to go to their sporting events. I love UH. For many years I was the coach of their hockey team, so I enjoy contributing and participating with the kids and their friends and doing that kind of stuff. I like to work out, that's sort of I find, like we talked about earlier

with sleep. The other thing that correlates to happiness for me, UH seems to be if I can get a workout in, so I try. I love to work out. I love to be outside. I love to be I love to fish and that kind of thing. But I really like spending time with my family. If a millennial or a recent college grad came up to you and said they were interested in a career in venture investing, what sort of career advice would you give them. It's it's a question that I get, as you might imagine a lot

from millennials and recent college grads. Friends of friends and and others. The the good and bad news. I think on that particular question is the honest answer is there's no clear easy path into the venture community. Uh, some folks have. As you pointed out earlier, my background is not sort of classic out of that there. So there's people that have come from legal backgrounds and accounting backgrounds, and they've come from product backgrounds, and they've come from

banking backgrounds. So there really is a collection of different types of people that have come through it. What I would advise what I do advise them to do is if if you're passionate about startups, then get involved in one.

And that could be as um small as volunteering if you will are helping out at the local tech stars or something like that, or it could be maybe on nights and weekends you're helping your friend that's doing and then they's saying you have not everybody is ready to say I'm gonna move to Silicon value, and do you think if that's what you want to do, go do it. So it's not it's not just go to a big school, get a degree in finance and engineering and you're ready.

There's a lot of different paths, and they all can lead to different things. And I think some firms obviously have more of a technology product engineering bend some people. Some firms have more of a investment banking bend. Some firms. I think the best ones have a mix of other

Some people have more operators. I think the best firms really as we talked about earlier, with diversity, diversity of experiences, it's important, but it's it's a it's a tricky path because there isn't a clean one where you can say, go get this degree and get this job, and you'll end up at this place. It's not my experiences, it's not quite that. It's not like there are thousands and thousands of vcs and millions of open slots. It's a

pretty small that's all community too. And and our final question, what do you know about the world of venture investing today that you wish you knew twenty thirty years ago when you were first getting started. I guess the easy answer would be Amazon, Facebook, Google, Right, Well, that's that's hindsight. What should you have bought thirty years ago? But but what did you learn from None? Was Amazon an option?

Did you say pass by the way, there was a thing that I started noticing not too long ago, maybe it was long ago, that a lot of the websites of various venture firms list these are all the companies we passed on, and it's just an sane list of the great we passed on Apple, eBay, Amazon, Why why share that? So it's a little self deprecating. But also they probably don't list here are the other fifteen times that list that we passed on that somebody else thought

was a great idea that failed. Right, So there's an equal number of those. So sometimes the best deals, as they say, they are the ones that you don't do. So let me let me bring it back to what years ago stands out what would have been really helpful to know years ago. Not a crystal ball about the future, but part of your process. So one of the things that I think I have learned over time is that people don't change right as much as they would like to.

People talk about changing, but it's hard. It's changing people is very very hard. Not people you can move deck chairs around, but the fundamental things that drive people to behave a certain way very hard to change. So don't waste a lot of time trying to do that. Secondly, is that uh failure of these companies that are doing this really really hard stuff is okay, they can adjust, they can do things that I think I was, like most people naive that the business plan is the one

that they should go execute on. You spend all this time, you get trained along the way, there's gonna be a business plan and here's how we're gonna do step bay and step B and step see. And I've realized over time that never works. So don't show me a fifty page business plan because I don't want to see it. Tell me about how you're thinking about things. How do you think about challenges, how do you think about opportunities? And those are the those are the things that I

wish I knew. Huh, quite quite fascinating. We have been speaking with Steve Murray, here's a partner at Revolution Growth, a early stage ventured capital firm. If you enjoy this conversation, well, be sure to look up and entered down an inch on Apple iTunes at any of the other two hundred such conversations that we've had. You can find any of them i Tunes, Bloomberg dot Com, overcast wherever final podcasts

are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I would be remiss if I did not thank our crack staff who helps put together this podcast each week. Medina Parwana is my audio engineer, slash producer, Taylor Riggs is our booker, and Michael Batnick is my head of research. I'm Barry Results you've been listening to Masters in Business on Bloomberg Radio