Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's 12 exchanges and six clearing houses around the world. Now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
All of my friends will tell you I'm a prime target for the new, new thing. Mike Allen bolts from Politico, where I've read him since he bolted from the Washington Post, starts up something with Jim VandeHei called Axios. I'm one of the first to sign up for his new newsletter. I'm skiing with my friend Kim Nemser, who tells me that the company where she is CMO, Warby Parker, has a new frame named after quarterback Tom Brady. I'm online in a flash ordering up a pair of prescription Bradys so I can be like the greatest of all time.
Josh King:
Then I look at photos by Gillian Laub of Jeff Sprecher, the chairman and CEO of Intercontinental Exchange, for an article that's about to appear in Fortune, featuring a shot of Jeff working on a Porsche in his garage. My eye goes not to the car, but the soft black sneakers he's wearing on his pristine floor. "What are those?" I ask a friend. "Allbirds," comes the reply. For me, another trip online, a few minutes later, always that easy, direct-to-consumer shopping experience we've come to expect from the hot, new brands, and two new pairs of the featherweight footwear are headed my way.
Josh King:
Allbirds, Warby Parker, Axios. What's the common denominator? Without Eric Hippeau managing partner at venture capital firm Lerer Hippeau, none of my new acquisitions might have been possible. Eric is a part of the team turning entrepreneurial dreams into reality and fueling startups into the fastest-growing brands today. Yes, Eric, as you can see, I'm available to beta test your next new, new idea. My home in the West Village puts me near ground zero of all of the action. The path of the innovating entrepreneur is seemingly formulaic, create an idea, move to San Francisco or Palo Alto, and access the capital and technology needed to take an idea to a new reality. Why did Eric decide to choose the path of Frank Sinatra, "If I can make it here, I'll make it anywhere'? New York, New York is a cradle of startup creativity. We'll find out why in Eric Hippeau's view it might just be the beginning of the song. That's right after this.
Speaker 3:
Cushman & Wakefield is one of the premier brands in the commercial real estate services space. We have 48,000 professionals around the world in 400 offices in 70 countries. This company, 101 years old, if you can imagine, has never been public. There's a reason they call the NYSE the Big Board. It's a great home for companies like us, big companies with big ideas. Cushman & Wakefield, now listed on the NYSE.
Josh King:
Lerer Hippeau is an early-stage venture capital fund with its roots firmly planted in New York City's SoHo neighborhood. Since it's launched just eight years ago, the firm has provided the initial investments for wildly popular media, retail, and tech brands, including Allbirds, Axios, Buzzfeed, Casper, Everlane, Giphy, Glossier, Warby Parker, and many, many more. As they like to say, they're not investing in the companies. They're investing in the people who run them, and they're focused on building relationships that grow into long-form partnerships. From the looks of this list, I've got so much more to buy. Welcome, Eric Hippeau, Inside the ICE House.
Eric Hippeau:
Hi, Josh. How are you?
Josh King:
You're no stranger to the NYSE as a regular on CNBC from their Post 9 position where you talk about everything from Facebook privacy to our FANG stocks. What's on top of mind in the news cycle for you right now?
Eric Hippeau:
There's a new dynamic going on, the backlash, as we've seen, perhaps, with Facebook and Google, certainly in terms of the overall privacy issues that are being discussed at the moment. The political world is kind of waking up to the fact that the whole world is changing and changing rapidly, and they, the politicians, might not be entirely ready for all of this.
Josh King:
Amazon last week in the throws of so many other media issues with Jeff Bezos and AMI and National Enquirer, where should we as sort of a New York City resident look at where this deal stands, and why last week did sort of these issues begin to come to the fore?
Eric Hippeau:
Well, I think we have to take a step back. We just saw Mayor de Blasio kind of complain that the budget might have to be reduced because the earnings or the taxes that are being levied on Wall Street might be smaller given what happened at the end of last quarter. We just have to take a step back and realize that big urban areas are transforming themselves really rapidly into big technological hubs. That's certainly true of New York. New York has been the second largest center of innovation in the United States and one of the largest in the world now for at least a decade. The jobs of tomorrow are technology jobs, not financial jobs per se. Instead of decrying the fact that the financial jobs might not sustain the city in the future, we should be embracing the future, which is right here, and it's all about technology.
Eric Hippeau:
Now, in the case of Amazon, to some degree, it's understandable. You've seen big other technology companies like Google and Facebook and others expand in New York City without having to ask for favors or tax breaks. This issue is, I understand, very sensitive, but on the other hand, Amazon is proposing to install itself in a impoverished neighborhood that needs revitalization, needs renewal. The politicians are once again not being very imaginative. Instead of saying, "We'll give you $3 billion in tax cuts," they should have said, "In lieu of tax cuts, we will invest that money that you will bring to us in additional taxes. We will invest it in the subway. We'll invest it in better education. We'll invest it." Instead, it's in this amorphous tax break, and I think that's what people are revolting against.
Josh King:
You and your partners must have been watching over the last year this dalliance that Amazon had with cities across the country.
Eric Hippeau:
It's all about where the worker or worker of the future is, and the number of workers, of employees necessary to grow the future of a big company like Amazon, it's not going to happen in midsize cities or smaller cities. The population is just not big enough to sustain and to educate the worker of tomorrow. You have to look at the bigger urban areas, and there aren't that many of them. Obviously, New York is a prime example. This whole issue of creating the right environment so that kids who are growing up today, and particularly kids who are in middle school being exposed to coding, being exposed to learning about technology... because those are the jobs that when they graduate, not only from high school, but also from college... Those are the jobs that will be available to them, and those are really well-paying jobs. Amazon is right in targeting New York and coming to New York. I don't think that they had exactly the right political sensitivities.
Josh King:
Talking about political sensitivities and New York State, I was looking at your tweets over the last few days. You were tweeting about IBM's $2 billion investment in New York's research hub for artificial intelligence, about 120 miles north of here in Albany. How does the corridor between Albany and Manhattan compare to the distance from San Francisco to Palo Alto?
Eric Hippeau:
It's very different. What happens in Upstate New York is you have great educational institutions, not only around Albany, but also Ithaca and all this. This is why when Bloomberg was our mayor and he decided to have this competition to bring an advanced engineering school into New York City, ultimately it was won by a combination of Cornell in conjunction with the Israeli Institute of Technology, so really a great combination. Again, it shows you the importance of education and the importance of technology education in particular. I think Upstate New York has a great future, but not in the manufacturing jobs, not in kind of the old, traditional jobs, which have been lost and lost forever, but in order to really keep the people that are graduating in those wonderful colleges upstate, to try to keep those people to stay closer to where they learn and where they were educated.
Josh King:
Just also on a lighter note, watching your Twitter feed over the last couple days, I saw you tweeted over the weekend about these ads that we've been seeing for Mirror hoping to catch on to the Peloton craze with what the New York Times in its headline called the most narcissistic exercise equipment ever. Peloton's got some competition.
Eric Hippeau:
First of all, it's not a zero-sum game. I think the movement of providing relatively expensive services, particularly in terms of physical fitness and all those new machines and SoulCycle and Flywheel and so on... Providing those services at home is a big, big trend, and it's going to include many more people who might not be able to go out of their home for whatever reason. This is a different area. This is an area of yoga and Pilates and even boxing, which Peloton doesn't obviously attract with their machines. Mirror is a wonderful piece of technology created by a founder who is incredibly passionate about this field, who has herself started a number of gyms and studios, and she's bringing everything that she knows across this mirror, which basically brings the instructor and brings the classes right into your home.
Josh King:
You have an investment in Mirror?
Eric Hippeau:
We were seed investors. Yes.
Josh King:
Your past roles, Eric, include CEO of the Huffington Post, managing partner at SoftBank Capital, chairman and CEO of Ziff Davis, former publisher of computer magazines. Let's go all the way back to the beginning. Growing up, you lived in Switzerland, France, England, and Brazil. Your parents were globe trotters?
Eric Hippeau:
My father was a journalist. He was a journalist first at United Press International, and then he became an executive. He would move, and he loved his work. I was a journalist too. I started my career as a photojournalist first in France, and then I was the editor-in-chief of the local English-language newspaper in Brazil, which doesn't exist anymore. It was called the Brazil Herald. This world of journalism, which is a world of curiosity and investigation and finding out, is what ultimately led me to really love investments, because you're constantly turning stones and figuring out what the future is going to look like. It's a natural extension of journalism in many ways
Josh King:
You dropped out of the Sorbonne at age 20 to pursue your career in journalism and publishing. Would you have done that had you not had your father's experience at UPI and the other places that he stopped in his career?
Eric Hippeau:
I think I would've dropped out anyway. I graduated high school in the UK, in London, went to the Sorbonne, and it was 1969 and 1970. It was very difficult to attend classes because it was the continuation of the 1968 revolution, and the classes were being interrupted all the time. I took a job during the day and went to school at night, and that was really not very satisfactory. My parents lived in Brazil, I lived in France, and I just bought a one-way ticket to Rio and stayed there for 15 years.
Josh King:
An old Bloomberg article from 1997 describes you, Eric Hippeau, this way, "Though you've probably never heard of him, Eric Hippeau is among the most influential people in the computer industry. Just ask Bill Gates, who brainstorms with him about potential products, or Michael Dell, who relies on him to spread the word on new wares." '97, Eric, it's the heyday of America Online, AOL, with its headquarters in Dulles, Virginia. Many of my fellow White House aide at the time in the Clinton administration wanted to end up there. How did you go from publishing, reporting on technology, talking to people like Michael Dell to partnering with the biggest names in technology on the next major breakthrough?
Eric Hippeau:
I launched Brazil's first computer magazine way back in 1975. It was a world that went from mainframes to minicomputers and had big implications in large economies like Brazil. I sold that business to Pat McGovern, legendary creator of IDC and Computer World-
Josh King:
Massachusetts based?
Eric Hippeau:
Yeah, and a real luminary in terms of the possibility of technology to transform societies and economies. I developed all of our and IDG's businesses in Latin America. We had magazines and trade shows and market research in Argentina, Brazil, Venezuela, and other places. Eventually, I decided to move to the United States. Luckily, he had a job for me. I took over a magazine in Mendel Park in the Bay Area called in InfoWorld. InfoWorld was very much the first microcomputer newspaper. Now you're in an era where you're going beyond the minicomputer. You now have the very first personal computers, and IDG's InfoWorld was more of a consumer magazine. Their rival, which was Ziff Davis, had a magazine called PC Week, which was more of a business magazine. They had kind of hit it the right way, that it turned out the first PCs were really business machines.
Eric Hippeau:
Our job at InfoWorld was to transform InfoWorld from a consumer to a professional magazine that competed effectively with PC Week, and we did that and had a lot of fun doing it. Towards the end of the 1980s, Bill Ziff, who at the time, and he and his family, owned Ziff Davis asked me to be the publisher of PC Magazine. That was a very difficult job to turn down. PC Magazine was the ninth largest magazine in the United States. Imagine the world where the top magazines are Time and Newsweek and People Magazine and Money, very broad-based magazines, and suddenly in ninth position is this incredibly technical magazine-
Josh King:
And about two inches thick.
Eric Hippeau:
Yeah, it was massive. It was based in New York. This is when I moved to New York. One of the incredible things about that magazine is that we had PC Labs, and PC Labs was a full-blown lab that tested everything that came out, whether it was new pieces of hardware, PCs, and accessories, as well as all the software. We were kind of the arbiter of what consumers should buy. That lab was based on Park Avenue. It wasn't in Silicon Valley. It was 1 Park Avenue. We had a tremendous amount of fun, and it was a fantastic business. A year later, Bill asked me to be the president of the company, and then eventually the CEO and chairman. I had the great fortune of growing up with people like Bill Gates and Michael... We sold Michael Dell's first ads in PC Magazine. He was our biggest customer for many, many, many years. It was a tremendous moment. It was really where you could see the possibility of having all these personal computers in the hands of people.
Eric Hippeau:
It's like they weren't even as powerful as an iPhone is today, and it wasn't online in those days yet. You mentioned AOL. AOL had started their dial-up service, and CompuServe and people like this, but if you remember those days, it was incredibly difficult to go online. You were online for two minutes, and it would break off, or you had to use these couplers to put on telephones, but it was a world of incredible possibility. We also saw in the mid '90s then the birth of the web, the birth of kind of the online world, which foreshadowed what was going to happen. This is when I invested in Yahoo and USWeb. In those days, we had sold Ziff Davis to SoftBank.
Eric Hippeau:
Because we were in the middle of everything that went on in technology, and really only lived in the tech world, I never went to media conferences, I didn't know... Really, I knew nobody in media, but I knew everybody in tech. We were aware of all these new companies that were coming up. This is when SoftBank started to make their investments. The birth of the web was exhilarating because you literally had thousands and thousands of new sites that popped up on a weekly basis. Now, of course, it's in the millions. You could start to see really how technology was going to effectively transform pretty much every segment of society.
Josh King:
When did you first meet Ken and Ben Lerer, and why were they the right partners to form Lerer Hippeau with?
Eric Hippeau:
I first met Kenny and then by default, of course, Ben... When I led the Series A, I was a general partner at SoftBank Capital, and I led the Series A in The Huffington Post. Of course, Kenny and Arianna were the co-founders. I was the first institutional investor. I joined the board. Huffington Post was incredibly transformative in terms of journalism. We published 600 stories a day online. New York Times was publishing 120 in those days. It was way before kind of the trolls had taken over online commentaries, so we had very constructive, very intellectual, sometimes, conversations online with readers who participated.
Josh King:
The comments used to go on for thousands on a breaking Huff Post story.
Eric Hippeau:
That's right. Huff Post, by the way, was the... We invented the format that was... There was a limitless bottom. You could just scroll and scroll and scroll, and there was no end to it. That was true with the comments as well. These were days where there was a lot more positive thinking about the future of online media in the sense that it was really going to be a foundation of democracy and everybody was going to have a voice and everyone's going to be respectful. I guess we were a little Pollyannish, but we managed that. Two years before we started AOL, Kenny and Arriana asked me if I would like to be the CEO. Because of my journalistic background and my love of media, I decided that it was an offer I couldn't refuse.
Josh King:
Lerer Hippeau is an early-stage venture capital fund, meaning that you're on the front lines, making the initial investment in what either could be the next big company or dream that eventually goes bust. What drew the firm of being the go-to for that initial raise when it's still just pie-in-the-sky?
Eric Hippeau:
We started to invest. Kenny, Ben, another partner who is not with us anymore, but a good friend, Jordan Cooper, and I started... In those days, it was called Lerer Ventures. we were really angel investors. Because we're well-known in New York, we had all this deal flow and these opportunities to make investments. Rather than doing this individually, we regrouped our efforts, and it was all individuals and our own money and so on. This idea that we would be kind of the first to see companies in terms of... Right after friends and family, right after pure angels, when you have your first institutional money, it was really very, and continues to be, very appealing because you get to pick early and you certainly get to work with companies to help build them, help make sure that they're on the right track to raise the next rounds of financing.
Eric Hippeau:
It really calls to our operating background. All of us have an operating background. It calls to how to build companies, which is not an easy thing to do. I think we've been quite successful. Today, we are seed investors first, although we are far from the amount of money that we're talking about when we were angel investors. Now we invest millions of dollars. We have two funds that can continue to follow the life cycle of the companies until the later stage. When you talk about companies like Allbirds and Casper and Glossier and other companies like this, we participate in pretty much every stage of financing, which then really enhances our returns.
Josh King:
You were based in New York coming off of your role at the Huffington Post, but what kept Lerer Hippeau based in New York City? Why did you specifically invest in New York-based companies?
Eric Hippeau:
When I was at SoftBank Capital, which was a wonderful time and a wonderful group of people, I traveled pretty much every week. I was on the plane somewhere, West Coast a lot, Asia, Europe, et cetera. I decided that the best investing is really done locally, that it's really difficult to parachute in, into an area, even though you might have really good relationships and good connections, that it's my much better to be dealing locally. The people in the big firms on Sand Hill Road have understood this for many years. It used to be that if your investment took you more than 20 minutes by car to get there, you didn't invest. Now, since then, some of them are in China and other places, but by and large, they tend to stick to their kind of region, their local place.
Eric Hippeau:
It was at the time that New York was booming. There was this other aspect of it, which we call the urbanization of technology, where tech workers decided that they wanted to live in big, dense, urban areas. This is when you started to see the migration of workers from Silicon Valley to San Francisco. What better dense urban area than New York City? We felt that it had all the right ingredients, that it appealed to our background and what we are good at, which has helped build companies. It's worked out great.
Josh King:
Since 2014, Eric, former AOL founder and CEO, Steve Case, who oversees the VC firm Revolution in Washington, DC, has been going cross country to promote his Rise of the Rest Tour, based on the premise that the next great American startups lie outside Silicon Valley, New York, and Boston, which, if you total it all, receive about 75% of all venture capital in the US. Here's what Case says about Rise of the Rest.
Steve Case:
These Rise of the Rest entrepreneurs are attacking big problems in our society, improving healthcare, reimagining education, rethinking food and agriculture, building smart cities. Today, the data is sobering. 75% of all venture-capital investments go to just three states. Companies not on the coast are often overlooked. We know that talent is evenly distributed, but opportunity is not. We're trying to change that. We seek to level the playing field so everybody everywhere has a shot at the American dream.
Josh King:
Eric, does Steve have a point? Can a CEO with a great idea from Kansas City knock on the door at Hippeau Lerer and have a receptive audience?
Eric Hippeau:
Sure. We have companies in San Antonio and Austin, and we have companies in Canada. Anybody can have a good idea. You don't need to be in a big city to have a good idea. You can be anywhere in the world. Now you have access to the same information, the same technology as if you were in the big city, so that really... Steve is right in that respect. The issue though is when you start scaling a company and you need to hire the next 20 engineers and the next salespeople or growth hackers or the kind of workers that you need in tech. You are not likely to find them in small communities. It's just not going to happen. What's going to happen is likely you're going to have to open a big center somewhere else, or you're going to have to move your company somewhere else because that's where your employees are going to be. That's really kind of the issue. We still have to see consistent examples of companies coming from much smaller localities have great exits.
Josh King:
All is not rosy on the publishing front, Eric, despite continuing to break a lot of news. I loved this long-form Buzzfeed story over the last few weeks that I read on the unbelievable story of the plot against George Soros. Buzzfeed announced it would cut 15% of its staff, while Verizon announced it was laying off 7% of its media division, which includes employees at Yahoo, AOL, and Huff Post, which it had all rolled up. The story is equally bleak in some ways at Conde Nast and the former Time, Inc. where the Time and Fortune brands were spun out by Meredith to deep-pocketed owners. Having previously served as the CEO of The Huffington Post and as the current board member of Buzzfeed, what's your take on the changing media landscape? Is journalism dying a slow death, or does it still have fight left in it when people like Jeff Bezos are paying the bills?
Eric Hippeau:
There's a lot in this issue having to do with people who are late to the party in terms of going digital and the small newspapers not surviving and not being replaced by local news. There's a lot going on here, and hopefully people will continue to debate this. The largest pure-digital media companies have had to make some adjustments in the past few years because the advertising business has basically gone to the two big tech giants, Google-
Josh King:
Facebook and Google?
Eric Hippeau:
Facebook and Google. They have proven to be very bad partners or very poor partners to the content people. They offer content for free, but they don't really give you much in return. The other facet of this is that advertising has gone almost all technology so that programmatic advertising, which is all served by computers, very much like what you do here at the Stock Exchange for financial products, has become the dominant way for people to advertise. As a result, companies like Group Nine and Buzzfeed have had to make some adjustments and have opened up new areas of revenue, whether it's commerce and licensing brands or creating content for licensing in a studio fashion, accepting programmatic advertising, and both of these companies that I mentioned are both growing and growing very nicely, but nobody grows in a straight line.
Eric Hippeau:
People grow in spurts. Then there's a little bit of a plateau. If I look back at the history of Yahoo, it's a classic. You plateau for a year, et cetera, and you have to constantly make pivots and make adjustments. This is really what you're seeing. Both of these companies are going to be doing very well. They have a large audience. Both of them have big journalistic organizations. Once in a while, unfortunately, you have to make some trimming, but I don't think that it is in any way a sign that journalism is not going to be thriving in the future. There is an issue about the relationship that the media has with Google and Facebook. As long as Facebook in particular is in the business of publishing content for free and not delivering anything in return, then we have to live through this situation.
Josh King:
Over at your offices, when you see news over the last five years where Jeff Bezos buys the Washington Post, Marc Benioff buys Time, and Emerson Collective buys Atlantic, is this cause for applause or cause for concern?
Eric Hippeau:
I think it's cause for applause. In the case of the Washington post, they, since Jeff Bezos has owned it, they have hired hundreds of more journalists, maybe even a thousand new journalists, they have gone all in on their digital editions. They have broken know tremendous stories. Now in many ways, because of the Trump administration, this is kind of also a very fertile ground right now, this this, you mentioned in your introduction about Jim van DEHA and Mike Allen and Roy Schwartz whom we've backed in Axios. They've done it incredibly well, but the world that they report on is incredibly rich in content.
Eric Hippeau:
I think you're seeing journalism at its best. You're seeing journalists really dig in and investigate and tell the truth and tell the truth to power, which is not an easy thing to do. In the case of Jeff Bezos and The Washington Post, kudos. It was a publication that was dying. The previous owners did not know how to go to digital. They were cutting back. They were cutting back sections. They were cutting back staff. He has completely revitalized it. He is not the editor-in-chief. He's not there telling them what to do. He's giving them the platform and the resources to do what they need to do.
Josh King:
After the break, we'll talk with Eric on the outlook for venture capital this year, 2019, and beyond. That's right after this.
Speaker 6:
Our mission is to bring the world together through live experiences. We're focused on building a technology-enablement platform for event creators, lower the friction and cost of creating an event and increase the rate of success for event creators all over the world. We're a global inclusive company and 11 different countries. This really marks a new chapter for event, and it feels like the starting line. Eventbrite, now listed on the New York stock exchange
Josh King:
Back now with Eric Hippeau, managing partner at venture capital firm LA Hippeau. Before the break, we were talking about some of his firm's investments springing from Eric's golden gut. You've said that when considering an investment, you ask the following question, one, "Is it the right team?" two, "Is it the right idea?" three, "Is the timing right?" Are there any companies or industries that you regret not investing in?
Eric Hippeau:
We had an opportunity to invest in Uber. We didn't do it. I'm not going to share the reasons here, but it's a good example. Part of it, we felt that the black-car industry was going to be too difficult to unify or to transform. We were wrong. Part of what we do is we're going to be proven wrong. We're going to invest in companies that are not going to make it. We're going to miss good opportunities. Our world is one where if you start looking back, you're going to going to make yourself miserable. We only look forward.
Josh King:
Take us through this investment philosophy, these three rules that we just talked about. One is the right team. You're walking into a room. You're about to be pitched. How can you tell?
Eric Hippeau:
My first question to everybody who comes to see me is, "Who are you? Tell me who you are, and tell me why you decided to start this company." What I'm looking for, I'm looking for a really deep-down personal reason, something that has really struck the founder in the gut very personally, and as a result, that founder or that founding team have decided to drop whatever they were doing embark, on a very risky adventure, which is to start a company. As you know, a lot of the companies fail, but they had to do it. It was something that they would've regretted their entire life if they hadn't done it, and that's what I'm looking for.
Josh King:
Two, is it the right idea? How can you tell that?
Eric Hippeau:
I think what happens is we talk to about 2,500 companies every year, and we make about 20 new investments. We have a high threshold. You do this year in, year out, you're going to get some sort of a pattern recognition going on. I think that kind of the big, audacious idea, the one that seems realistic and will get to time in a second, often, it kind of hits you, "Wow. Yes, it's absolutely true. This, in fact, has a huge potential." Also, you're looking for an idea that has at least a national impact, not a regional impact, because you're looking for something that will address a multi-billion dollar market. Because it's so difficult to get going, you need to be in a very, very big environment.
Eric Hippeau:
Again, sometimes we miss it, and we always work as a team. This is not me making all the decisions. We have four partners. We have a team of almost 20 people. Everybody gets a chance to decide together. People can either pound the table in favor or they can pound the table against, and we are not going to go... If there's enough of our team that feels that this is wrong, we're not going to go against that. But by and large, you kind of recognize a good idea when you see it. But you might not have thought about it.
Josh King:
Three, your final rule, is the timing right? 10 years ago, President Obama comes into office. He's the first person to get into Air Force One and go off to Selectron and other solar companies and say, "Now is the time for solar and wind." It might not have been the time back then. It is very much now.
Eric Hippeau:
That's right. This is a good example. What happens when Obama did that is that the cost of these panels was really very, very, very high. You were basically creating these big manufacturing plants at these super high costs because the raw materials were very expensive. You were only going to be able to serve a tiny, a small part of the marketplace. You go today, and we have a company in the solar space. Today, then you hope that it has a decent amount of sunshine during the year, can afford and finance a solar-panel installation, and, in many cases, generate surplus energy that could be then sold back into the grid. This is a good example of what a 10-year difference makes.
Josh King:
We've talked about the three rules, but you've also advised that those who've asked you in the past to invest only in areas where one has knowledge. You may not have had great knowledge about eyeglasses or sneakers when you invested in Warby Parker or Allbirds. Does the belief still hold true for you?
Eric Hippeau:
It does because what we follow is where digital technology transforms the world, either creates a new market like cannabis or transforms a world like sneakers that's been around for a long time, so that we understand the power of digital technology. We don't necessarily understand the sneaker market, but we understand that if you have the right product, the right brand, and if you know how to sell it online, you're going to be able to build the big business,
Josh King:
Looking through some of Lerer Hippeau's past investments, a number have been acquired. For example, voice-messaging app Cord was acquired by Spotify, search-engine software Moat was acquired by Oracle, email-marketing platform Rebel was acquired by Salesforce. Those are all ticker symbols right here at the New York exchange, SPOT, ORCL, and CRM. Eric, you're no stranger to the acquisition world with Ziff Davis having been acquired by SoftBank Capital that you mentioned earlier. You ran Huffington post prior to its acquisition by AOL. We talked about that earlier. Do you see these acquisitions in your portfolio as a success, or does that sever the investment life cycle and they become subsumed by their acquirer?
Eric Hippeau:
No, we see them very much as a success. Certainly, if you look at the multiple returns that we get on the ones that you just mentioned, they're at the top of what you would expect a VC return to be. We are proponents of selling at the right time. We're not proponents of selling at the right price. We feel that when an incumbent company is looking to buy an ad capabilities, and mostly because they cannot develop them in-house or because the target company has already built a big moat and a big company, then what's going to happen is that all the competitors in that field are basically within a period of a few months going to be making their acquisitions. If you do not participate in that phase, you are likely to be kind of the loan tech company without a home, and it might not end well.
Eric Hippeau:
You've got to know when to sell. It used to be advice in Silicon valley was, "You can wait forever because we have an infinite amount of private capital. You don't have to worry about capital," but that has changed in the past few years because the holding time of private companies has gone up from, let's say, five to seven years to more like seven to 10 years. Ultimately, venture capitalists are in the business returning capital to their own limited partners, to their own investors. 10 years is basically the life cycle of a given fund. You can always ask for extensions, but you're bumping against kind of the ceiling here. I think people realize that there is a good time to sell. Certainly when buyers come to you, do not worry about leaving the last dollar on the table. Just sell at a reasonable price, and everyone will be happy.
Josh King:
The decision some of these founders make is they approach their 10-year anniversary when they may become tech unicorns, either getting acquired outright or tapping the public market. The one that we run here, for instance, we're looking at 2019. It may be time for Uber, Airbnb, Slack, and others to say, "Let's offer this investment to the public." Your view on the decisions that founders make between, "Let's sell if the price is right or the time is right to another company," or, "Let's roll the dice and see what public investors have to say about it"?
Eric Hippeau:
I think there's a fear, or maybe the fear is starting to be a little less, but there's been a fear about going public. I think that this needs to be demystified, this idea that it's hard, it's expensive, the quarterly reports are going to limit your ability to think about the future. I think this is all wrong, and I think what the benefit that you get by going public are new currency, new investors, liquidity for your employees who are vested, the ability to be a little more disciplined. All of these are very, very good attributes, and more companies should be encouraged to go public. The issue is that there's still a lot of late-stage private capital that needs to go to work, and that's pushing back against the timetable of going public earlier.
Josh King:
Let's talk about something that didn't have such a happy ending. In 2015, Lerer Hippeau invested in luggage company Raden. It was beautifully designed, I looked at some of the videos, with a sleek and modern style. It had GPS capability and 3G connectivity, yet it faced two problems, Eric. The first was the rise of luggage competitor Away, which offered a similar product at a slightly lower price with a marketing campaign that was made for Instagram. The second was smart-luggage ban on airplanes, people not wanting to have the lithium-ion batteries in the planes. Both Raden and Away featured removable batteries in the suitcases, but at the end of the day, Away's process for battery removal was easier, and Raden shuttered last May. While the events leading up to its closure were difficult to predict, what's the lesson from an investment like this?
Eric Hippeau:
It's true that Raden was out-marketed by Away, and that's one of the lessons of a direct-to-consumer product, which is... By the way, direct-to-consumer products are really enabled... The rise of these product was enabled by social media. You really have to be really attuned to social media and the changes in social media. I believe that Away really took advantage in a good way of the rise of Instagram, whereby Raden was probably not really focused too much on Instagram, was maybe a little bit more on Facebook and Twitter. Those things can make a very big difference, as we've seen, but ultimately they were doomed by the regulators, and maybe in a legitimate way.
Eric Hippeau:
The fact is that these batteries are inflammable, and you don't want one of these batteries to explode inside the cockpit. I don't know that you want it to explode in the hold compartment either, but certainly there was this fear. The combination of the two, as you mentioned, kind of doomed the company. The product was really great. I see cases still being carried around. By the way, Away is basically a regular case now. Because of these bans on the batteries and technology, they're really competing against Samsonite and the other brands, but they've done a good job.
Josh King:
2019 has just begun. As you look around within this three-miles circumference around the New York Stock Exchange, Silicon Alley, what's happening here in New York City, are there industries that you've got to watchful eye on, things that might not yet be so much in the public eye?
Eric Hippeau:
There's a lot going on in digital health, which we feel is very important. There's two really big things. I'm going to say three. The third is probably impossible, but two big things that really need to be changed in our society. One is healthcare for all the obvious reasons. A lot of it has to do with the complete inefficiency, most of them are built in to the system, that increases the price of everything. Digital technology comes in and offers a way for transparency and better information and the elimination of a lot of intermediaries, but unfortunately the healthcare businesses has all these big, powerful factions that hang on to their power. But over time, digital is what's going to free all of this up and kind of redo it. That's one area. We make investments in that because we are very optimistic about the ability to transform that world.
Eric Hippeau:
The world that we're not as optimistic, which needs a lot of transformation, is education. That one leaves me with a little bit of despair, as we talked about earlier, because the more we wait, the more we waste the opportunity for this current generation and the next generation, but that world is in a sclerotic mode. You've got a combination of government unions that have a complete lock, and they don't have the best interest of the kids, but if you were able to free up that world and let innovation come in, they... In China, most education is moving online very, very rapidly. This is going to give them a tremendous advantage. There's a couple of massive companies in China that all they do is teach English to people in China, mostly children. It wouldn't be possible to-
Josh King:
Some of them are listed right here on the New York Stock Exchange.
Eric Hippeau:
Yeah, exactly. It wouldn't be possible for you to create, I don't know, 100,000 English teachers overnight to go in all the schools in China and teach English, but you can do this online. We don't do any of this in the United States. The third, of course, is the government, which is in bad need of reform and bad need of an infusion of digital technology, but that's another world.
Josh King:
Well, Bradley Tusk sat here and talked about the rise of online voting, and beginning at very small baby steps now, but the ability for so many more people to get engaged, if we can change the way governments loosen the stranglehold they have on the ability for people to register to vote, that could change everything.
Eric Hippeau:
Good luck with that.
Josh King:
If that problem, Eric, is somewhat intractable, at least for now, data showed that in 2017, 2.2% of venture capital funding went to female-founded companies while just over 11.3% of partners at venture capital firms are female. Not only has Lerer Hippeau backed the most female-founded companies in the New York metro area, you also hired four female employees to your tightly-run ship. What's your advice on supporting female founders and leveling the playing field in general?
Eric Hippeau:
Well, it's not just female. We're also trying very hard to find more minority founders, although arguably, about half of our companies has at least one member of the founding team that is an immigrant. A lot of them, you could maybe characterize them as minorities in one way or the other. There's no silver bullet. I think that you have to make a determination to be a little bit more diversified. There's no question about that. You have to go look for the talent, and there's a lot of talent out there. Venture capital is great because venture capital... You don't need to be in the office 9:00 to 5:00. A lot of my colleagues and myself, we are kind of out and visiting people and going to conferences and going to meetups and those kinds of things. I think that that kind of lifestyle lends itself really well for perhaps women who have a family and who need to find that kind of balance between the family and work. We found some terrific colleagues who are women, and some of them are on the path to become partners in our fund.
Josh King:
Let's take a listen to CNBC's Carl Quintanilla on two industries that you invested in last year, blockchain and robotics.
Carl Quintanilla:
Eric, I want to talk about your two funds you just closed on, blockchain and robotics, because we've seen some incredible, at least, plans over the past few days on 5G, right? Talked about the possibilities there, Boston Robotics, Musk tunnels in California. What do you see happening, and what are you trying to capture?
Eric Hippeau:
Well, as you know, we're the most active early-stage investors based in New York, and we primarily invest in New York-based companies. In terms of the blockchain and robotics, what we are seeing is that because New York is really great at applications and services built on existing platforms, we're seeing a community of blockchain developers, a community of robotics developers really establish themselves in New York, looking at building really great services on these existing platforms. We're going to be dedicating a part of our efforts with these new funds towards that.
Carl Quintanilla:
Based on things that are available now?
Eric Hippeau:
Yes, like the blockchain, for instance. In robotics, what's interesting is that New York has a nascent 3D printer technology. We were early investors in MakerBot, for instance. Out of that community comes commoditized high hardware that people who design robots are now utilizing, and you can build incredibly useful robots now for $5,000, $10,000 that would've cost $100,000 $150,000 just a few years ago.
Josh King:
Has Lerer Hippeau continued investing in blockchain? What should we expect out of the robotics industry specifically in the area of artificial intelligence?
Eric Hippeau:
We never really invested a lot in the blockchain. We never invested in the crypto world. We were always very skeptical. We felt, and we still feel, that the idea of decentralized internet, which is really what the blockchain is all about, has merit. It could be a timing issue. The technology is very rough around the edges, the tools are, for the most part, nonexistent, and the cost of this platform has gone up tremendously based on maybe what is a flawed concept, which is this idea of mining and the idea that every transaction has to be going through the miners and you have to pay them a fee.
Eric Hippeau:
Whereby a transaction would cost you in the early days of blockchain a few cents, 10 cents, 20 cents, now it's costing you a few dollars, and it makes a lot of the applications not worth it. We'll continue to study and will maybe jump in back in when the timing is right. Robotics is a different matter be because robotics is part of this bigger world of automation and artificial intelligence. Robotics was always... It mirrors very much what the computer world was, where you had the mainframes, you had IBM and Burroughs and UNIVAC.
Eric Hippeau:
These were incredibly complex, incredibly expensive machines. It was only with the advent of the microcomputer and the PC that they became democratized. I think if you look at the photos of the robots that build cars, for instance, you see these massive arms. There's only four manufacturers in the world. Each one of these arms costs in excess of $150,000, very hard to program. You have to call a white-lab technician to come and change the settings on those machines. Contrast that with the world that is opening up now where you have these much smaller, commoditized hardware machines that might cost a few thousand dollars, where all the IP is in the software and the software is almost as easy to use as your phone. That's the world that we're going into. We see tremendous opportunity in that world. We have three or four investments there. We'll continue to look for other opportunities.
Josh King:
What advice, as we wrap up, do you have for entrepreneurs looking to make that initial pitch coming into the room with someone like you and Ken?
Eric Hippeau:
Well, we don't take cold meetings. Every day, we get deluged with people on email, on Facebook, on whatever ways that they can find us to try to convince us to take a meeting, and we won't do it. We only take meetings if those people are introduced to us by someone we know, and we feel that that's the right way to... First of all, we couldn't possibly have the time or the resources to take every meeting. Secondly, we feel that we have a vast network of people who know us, and if you cannot find someone who will say, "Hey, I know Joe. Joe's a good guy," or, "a good person. Take a meeting," then you're not doing your own due diligence. You're not doing your own homework. We want you to take that first step.
Josh King:
They've taken the first step. They've made that interstitial connection. They've got a meeting with you. What do they have to do that day to bring their A game? What are you really going to look for across the table?
Eric Hippeau:
We look for a simple explanation of what they do. Our meetings are only half an hour by design. We want to get to the core. Now, we ask for materials in advance. We do our homework before the meeting. We have a fairly decent idea as to what's going to be talked about. We want the founders, the creators to give us the elevator pitch. Tell us simply, "What are you trying to accomplish, and why is your solution the right solution?" Big explanations, data, charts is not going to help tell us, "What is the core of what you're trying to accomplish?"
Josh King:
All right, founders out there, work on your elevator pitches. Eric Hippeau, thank you so much for joining us Inside the ICE House.
Eric Hippeau:
Thanks, Josh.
Josh King:
That's our conversation for this week. Our guest was Eric Hippeau, managing partner of Lerer Hippeau. If you like what you heard, please rate us on iTunes so other folks know where to find us. If you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or Tweet at us @NYSE. Our show is produced by Theresa DeLuca and Ian Wolf with production assistance from Ken Abel and Stephen Portman. I'm Josh King, your host, signing off from the library of the New York Stock Change. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly-available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, expressed or implied, as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitution offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
