Transcript: Jeremy Liew at Vator Splash LA 2015

Seeking apps that can be on home screens; Observing where millennials are

At Vator Splash LA 2015, Jeremy Liew, Partner at Lightspeed Venture Partners, sat down with Bambi Francisco to talk about the art of LA startup trendspotting. See full video transcript below. 

Jeremy Liew - The art of LA startup trendspotting - Vator Splash LA 2015

[Intro music]

[Audience claps]

Francisco: I’m keeping this little hoodie just in case I get cold. It’s actually for Jeremy’s daughter. Jeremy and I were talking about who has the best shoes? Did you check out Jeremy’s shoes? He’s not only one of the top VCs. He’s also one of the best dressed VCs, I think.

Liew: It’s a low bar.

Francisco: Any VCs out here? No. Jeremy, as long as I’ve known you, you’ve always dressed... I’m surprised you don’t even have a suit on because sometimes, you do wear suits.

Liew: It’s like 100 degrees in LA.

Francisco: That’s true. You, I have to say, that since I have known you – we’ve known each other since 2008 and you have always been so prescient about what’s happening with culture and social media, with commerce. Those are the things that you like to actually to look at. Those are the trends that you’re interested in. There are many startups here that are really young. They’re looking for their first seed investment, many of them. One of your deals was Snapchat, which you invested $485,000 into Snapchat when they were, what? Maybe ten months old? Not even that –

Liew: It was just the two founders at the time. They had, I think, over the magnitude of a few tens of thousands of users.

Francisco: Just a few tens of thousands of users within that year?

Liew: At the time that we invested, yeah.

Francisco: Okay. Some of these startups here are probably trying to figure out, they have a mobile app perhaps and I’m sure it’s different if you’re FinTech or if it’s consumer, but is there a threshold? Is there a minimum number of users they should have before they even talk to you, before they can get a seed round?

Liew: I think that the environment has changed a lot. When we invested in Snapchat, we bought 10% of the company for half a million dollars. They had a few tens of thousands of users. Seed pricing, I think, has moved upwards since then and the amount of traction that you see from some seed companies has changed as well. At Lightspeed, we’ve got $3 billion dollars under management. Our current fund family is about a billion dollars. For us, we actually have the ability to flex upwards or downwards depending on, frankly, the financing environments.

For us, that’s less important. What we’re most focused on, especially on the consumer side, is some evidence that users are really responding positively. For instance, for a social app, I look for a DAU, an MAU ratio of at least 30%. I’m looking for sessions per day –

Francisco: Daily average of user.

Liew: Daily average of user divided by monthly average user. Frankly, what I’m looking for is – apps that can be home screen apps, which means that they get used multiple times a day and multiple days a week. A DAU to MAU ratio, in that 25% and above, means that it’s been used at least a couple of times a week.

Francisco: They can have those metrics pretty early on, right?

Liew: I think once you get into the tens of thousands of daily active users, then you have a reasonably statistically significant sample set. If you see the growth, if you see that sort of engagement – retention, you probably aren’t going to see yet, but engagement’s a pretty good predictor of retention. Then, you have a use case that you think is reasonably widespread. That’s something that looks pretty interesting.

Francisco: Do you think that adoption of consumer mobile apps is binary, meaning either you have the traction – if you can’t get the traction in the first three months, you’re pretty much done? If it’s a good app, you’re going to get traction right away?

Liew: There are so many elements, especially on the consumer side, especially on the social side. There are so many elements to what can drive growth. Getting the app right, getting the product features right, getting the vision right, is just one piece of it. With social apps, the community is part of the product and so, getting the right set of users to adopt the app is another piece. That can also sometimes take a bit more time, even once a product is launched.

But then, once you have that connection between the right set of users using the product that you’ve built, these days, you do see that word-of-mouth. People are telling each other. It’s not this manufactured virality that we used to see in the web where it was all about invites, that this flow of ‘how many invitations can you send’ and ‘what was the acceptance rate’ and ‘what was the install rate’? It’s much more about people who have fully engaged in the app, like leaning over and showing it to their friends and saying, “You’ve got to get this app.”

Yeah, I think you do start to see once you got that phase, you do start to see that growth starting to happen in a pretty meaningful way. If you’re not seeing 20, 30% month-on-month growth once you’ve hit that phase, then you probably don’t have full product-market fit.

Francisco: You probably were attracted to the traction that Snapchat was getting versus say, the vision or maybe both because the vision was disappearing images. When did you invest, 2011, 2012?

Liew: We invested in the spring of 2012.

Francisco: Okay, so spring of 2012. That wasn’t very common, so what –

Liew: The product was disappearing photos, but that wasn’t the vision. The vision was much more compelling than that.

Francisco: And he had that vision?

Liew: Absolutely, yeah. One of the things that Evan talked about, even back then – this, I think, is common knowledge now when people talk about the performance anxiety of being on Facebook, sort of the highlight reel of your life. If something doesn’t make you look the way you want to look, then you don’t put it on Facebook. He was talking about that concept years ago. I think it was a very interesting conversation. He talked about – if you want to build relationships with people, you have to see 360 degrees of them. It can’t be just their top 10% moments.

It can’t be just when they’re feeling happy or proud or excited. It can’t be their highlight reel because real relationships get built around seeing people not just when they’re happy and excited, but also when they’re silly or goofy or sad or nervous, that whole set of emotions is how people build relationships. He said that wasn’t happening on Facebook. The reason why it wasn’t happening was because it was the journal of record for your real life. Everything that you put up there stayed there.

The ephemeral nature of what he was doing with Snapchat actually was driving people to be much more complete in their communications with their friends. Communications are happening digitally. They are happening through their phones. Being able to do that in a way that allowed people to see their whole friends was actually creating much more stronger relationships between people and that was the vision that got me excited.

Francisco: Are you on Snapchat?

Liew: I am, a little bit. To be honest, I’m in my mid-40s. Many of my friends and peers are not into, just like any other social service, you have a messaging service. It’s only useful as the set of people that you communicate with through that. There are some people that I know that are heavier users and I use it with them. Many of my friends are of my age and they don’t use it as much.

Francisco: I’m on Snapchat. My teenager did – he said, “What? What are you doing on Snapchat? You should be on Facebook.” It’s interesting. I wonder if there is, like you said, do they graduate from Snapchat?

Liew: We haven’t seen evidence of that yet. Who knows what the future holds, but we haven’t seen evidence. In fact, what we’ve seen is growing adoption by more and more, the base is growing. In some respects, it has actually skipped a little bit, exactly the way you are talking about where the parents of teenagers and people in their early 20s are signing to Snapchat because that’s the way they communicate with their children.

Francisco: Right. If their kids are on it, they should be on it.

Liew: They almost pop over, the sort of 30s and some early 40s whose kids may not be old enough to be using Snapchat yet, but then as they age into it, I think they’ll start to fill that in.

Francisco: I also want to talk later – because I don’t want to focus too much on Snapchat, I want to focus on your LA trendspotting? How are you spotting trends, but I do want to, if we can talk about it a little later, talk about the future of media because Snapchat, as well as Whisper, the company, another company that you have invested in, Michael Heyward was with us last year. It seemed like they’re redefining media so we’ll talk about that a little later. One quick question, you and I both have three year olds. You talked about your home screen and maybe your mobile phone and trying to think about what’s going to be on your mobile phone. Do you ever look at it and say, “What is my three year old going to be doing when my three year old is ten or 12?” Do you ever think that way? Does that help you figure out what to invest in? Maybe three year old is too young.

Liew: Three year old is definitely too young. I think that looking at people’s home screens is actually one of the most useful ways to figure out what’s coming up. If you look at your home screen today, just about every app that’s on it is at least a billion dollar company. It’s because you get this sort of self-perpetuation. I think the research says that the average person only uses something like 24, 25 apps per month. There are only 28 spots on the home screen of an iPhone 6. If you’re hidden two screens back or in a subfolder or something like that, then you’re not getting used in any meaningful way.

Francisco: Do you have 24 apps on your phone and do you use those 24 apps on your home screen?

Liew: On the home screen?

Francisco: Yeah.

Liew: I certainly have 28 apps on my home screen.

Francisco: I mean that you use.

Liew: Yeah. The ones you don’t use, you drag off because you find something to use more and you drag that on to your home screen. Otherwise, it’s too much hassle to swipe three screens back and find something.

Francisco: What’s missing? Do you need a finance app? I’m saying this because I know there’s a lot of FinTechs and there’s healthcare startups here, but do you need those types of apps? What’s missing from your home screen that you’re looking for?

Liew: I don’t feel incomplete. My home screen works for me. There are turnovers in these things all the time because you go through different phases of life. There might be a point in time where – when my children were really young, I was actually much more interested in some of the content around babies and what that kid should be doing at such and such age and so forth. As they get older, they become less relevant. For a while, that is a home screen app for me because it’s something I use multiple times a day, multiple days a week.

There’s been some interesting companies that started up in the woman’s reproductive health area where those are apps where women are using them, period trackers – Glow, there’s a company, I forget the name, in Europe that was just recently financed that’s the opposite of Glow, not trying to help you get pregnant, but trying to help you not get pregnant.

Francisco: Honest Company, just brought one last year –

Liew: That’s exactly right. These are the apps that have that potential, that are being used multiple times. Maybe not multiple times, well, multiple times a week some of the time, and multiple times per day. When you get that sort of habituation, that’s when you get real value creation.

Francisco: What about the Apple Watch? You’re invested in Little Apps which create these apps for the Apple Watch. What have you learned? What’s actually really important for that? That’s a much smaller screen.

Liew: I think the Apple Watch has been incredibly successful on some dimensions and then, not that successful on others. They sold a lot of watches which is great, but I think most people have been disappointed with the performance and latency for apps on the watch. It takes so long for an app to load that you may as well just reach into your pocket and plug your phone in many instances. It’s really become a notifications channel. That’s been really interesting, but it’s probably a subset of what’s possible with that device. I think we’re going to see more and more as the performance of those things get better and better.  

Francisco: Has Little Apps come out with an app already?

Liew: They’ve come out with a couple of games. Any time you get a mass adopted consumer platform, you’ll get games on it. They came out with a game for The Martian, the movie that just came out. They had a casino game as well.

Francisco: Just for the watch?

Liew: Just for the watch, that’s right. Yeah. It requires a lot of thinking about what’s the right user experience for such a constrained real-estate device. It’s essentially a single tap as your only interaction tool. For instance, The Martian is very much a story-driven, narrative-driven game which is a very different kind of gameplay that we haven’t seen as much of. We’re pretty excited about it.

Francisco: Anyone here building an app for the watch? Not really, not there yet. I guess if it were a mobile conference, that would be a little bit different.

Liew: As I’ve said before, I think there was a lot more excitement about what the Apple Watch could be until it launched. The performance just hasn’t been that good. It is a slow device.

Francisco: Yeah. It could be very early early on.

Liew: I think that’s right. The fact that consumers are adopting it is suggesting there’s a demand for something like that. I think that as the capabilities of that device get better, we’re going to see more and more. Apple has a history of getting the third generation right.

Francisco: Yeah. They came up with the Newton in 80-something, something like that, right? Does anybody even know the Apple Newton? I’m sure. You guys have to know the Apple Newton. You guys weren’t born in the 80s? Some of you were.

Liew: Pre-Palm Pilot.

Francisco: Yeah. I want to read this. Somebody profiled you and said something very nice, very flattering. They said, “When Lightspeed invested in Snapchat and Whisper, most people assumed social startups peaked, but Liew,” paraphrasing you or maybe you actually said this, “if you flipped Facebook’s need for real IDs to anonymous accounts, then you get an app like Whisper. If you flip Facebook’s need for permanence to impermanence, you get Snapchat. Liew is on the hunt for under-the-radar,” I’d say, out of favor, “trends like that.” What is an under-the-radar trend today or out of favor trend?

Liew: In this financing environment, nothing is out of favor.

Francisco: Yeah, good point.

Liew: When I was making some of those investments in 2011, 2012, still hangover, 2009, there was a long period where people were like, “I don’t want to invest in anything. Facebook won,” or whatever the conclusions were. I think we’re in an environment where everything feels up for grabs. I don’t think that that’s as true anymore. I think the pendulum always tends to swing too far. I think it’s probably a little bit too much enthusiasm that everything is possible right now. There are some people who I think are going to be ending up tilting at windmills. That pendulum will swing back around. It’s a great time to be an entrepreneur right now because capital is readily available and that means that you can follow your dreams which is great.

Francisco: It’s probably a lot more competitive so all of these, everybody is just curious in creating these great, new startups and products and services. That must mean that some of them are overdone.

Liew: Yeah, but –

Francisco: What do you see a lot of –?

Liew: This is a wonderful thing. Look, I have six investments in LA. I only have one in San Francisco. I think the reason is that it used to be that the technology early adopters were the sort of ‘digi-ratti’, these kind of coastal elites or West Coast, San Francisco elites who were predicting the future because they were living in this future that no one else saw yet. You saw all these consumer startups in San Francisco because they were building products for themselves.

Today, where everybody got a smartphone, where everybody got broadband, wireless internet, you don’t have to start with early adopters and then slowly go to across the cabin to the early majority, and so on and so forth. Now, you can go directly to the mass market with consumer products. If you ask yourself which one city has their finger on the pulse of popular culture better than any other city in America, it’s probably LA.

[audience claps]

Liew: It’s true. I think LA is the city that leads culture, creates culture, mass-market culture. I’m not talking Symphony Hall-type stuff. I’m talking about things that ordinary people spend their times doing. That is the legacy, that’s the history of this city. I think that’s why you’re seeing so many really interesting startups aimed at Middle America that understand where people want to be, coming out of LA. That’s Whisper and that’s Snapchat and that’s Honest Company, that’s Dollar Shave Club, that’s JustFab and ShoeDazzle. There’s on and on and on. None of these companies are aimed at some elite. They’re all aimed at mass market America because that’s what this city knows so well.

Francisco: That’s an interesting of looking at LA. By the way, we have about ten minutes left. If anyone here has a question, we do have mics. We also want to make this interactive. If anybody has a question for Jeremy, please just raise your hand. I’m sure a lot of people want to know – I know, but you should probably let people know why, if you’re so invested in LA, why you’re not down in LA. You’re here once a month, once every two weeks or so?

Liew: I’m here once or twice a month. My wife likes living in San Francisco and I like living with my wife.

[audience laughs]

Francisco: That’s a good thing, yes. Good answer. Over there.

Audience member: Hi. I’d love to get your thoughts on AdTech and the consolidation from a VC perspective. Do you see companies – well, VCs not wanting to invest in AdTech anymore and moving to ecommerce and FinTech. Has that bubble burst?

Francisco: I think you said, “Do you see anyone investing – is there interest in advertising technology companies? Do you see more interest in commerce?”

Audience member: And FinTech.

Francisco: Is AdTech attractive?

Liew: I haven’t done much investing in AdTech. It’s not an area that I’m an expert in, but I think that your observation is correct, that it’s a little bit out of favor. These things are all – it’s like everything comes in and out of fashion. Ecommerce, until a few years ago, you couldn’t find very many people who wanted to invest in ecommerce. The conventional wisdom was you can’t get an exit more than 5 or $600 million. There hadn’t been a billion dollar ecommerce exit in ten years. It’s operationally intensive, it’s low-margin and it requires a lot of capital to scale.

Then, you had these companies come along to totally disprove that. You saw Zulily and you saw Wayfair bootstrapping themselves on less than $5 million of capital, getting to revenue in the hundreds or millions of dollars and then having billion dollar type exits. Then, you saw all these companies coming up behind them, whether it be an Ipsy or Honest or a Dollar Shave Club getting, again, on relatively low capital to hundreds of millions of dollars of scale. That changes the conventional wisdom.

I think with AdTech, you have a little bit of that dynamic where people are looking back and saying, “Where are the exits that are over $600 million?”Hey, this is a business where margins tend to get compressed over time. I think right now, it’s a little bit out of favor, just as ecommerce was a few years ago, just as content was for ten years. Now, you’ve got the Buzzfeeds and the Vices and the Mics and the Bussles of the world, all coming up behind. There is fashion and fashions come in and out. Right now, I would say that AdTech is a little bit out of fashion, but it doesn’t mean that it’s fundamentally not a good idea. It just means that there may not be an appetite as much today.

Francisco: That’s a good opportunity, right? When AdTech’s out of favor, it’s a good opportunity.

Liew: I think that’s broadly true. Whenever something is out of favor, it means there’s less competition. So if you are successful, then you can be much more successful, but you still have to solve the financing – you still got to get someone else to believe.

Audience member: Hi. You mentioned that Apple came out a little bit prematurely in terms of how optimal the product could have been. My question is around, should a product company sacrifice quality over timing to market? What’s the risk? I think Apple was a little bit under pressure by Pebble Time at the time. They’ve already raised 13 million on Kickstarter. What would you recommend to get to market faster with a product that’s sub-optimal or wait until you get it absolutely perfect and right and then iterate? What would you suggest there?

Liew: There’s no perfect answer to that question, but I think that a lot of it depends on how quickly you can iterate. The faster your ability to iterate, the easier it is to go to market with something that isn’t quite right. If your iteration cycles are slow, then you don’t get as many shots on goal to correct things. Hardware has long iteration cycles. Software and apps have slightly shorter and t4he web has the shortest. What you saw on the web, a lot of people just launching and then watching user behavior and quickly changing the focus of their company and the key –

A lot of it was change based on observing what was resonating with users and directing their product development towards that. It was less driven by product vision and more driven by analytics. In the smartphone app world, I think you’ve seen a much more of a move towards a vision driven approach because it’s much slower and harder to iterate your app. You’ve got certain cycles around AppStore acceptance and so forth and that means you can’t push daily or hourly if you wanted to. It takes weeks. In hardware, the cycles are even longer. It’s more important that you’ve got a product that’s resonating with the core user base, at the moment of launch.

Francisco: Time’s up, but I do want to take a moment to ask Jeremy one last question because he’s such an astute observer of media being an investor in Snapchat and Whisper. I believe both are actually changing the media landscape. Jeremy recently retweeted a tweet from Steven Colbert that said, “More 18 and 24-year olds follow the Republican debate on Snapchat than CNN or Fox News.” What does that say about the future of media and what does Whisper and Snapchat look like – give me your vision of Snapchat and Whisper in sort of the media landscape.

Liew: Sure. You have a 13-year old, right? Where does he spend his time? Phones and feeds. That is where people are spending their time. You’ve got to build media companies that meet people where they are. There’s this concept of omni-channel in retail. Everybody’s moving towards omni-channels. The gap used to be all stores and then, it started catalogues and then, it went to the web. Novo just started on the web. It has opened up physical stores and it’s doing catalogues as well. You got to meet your customers where they are.

I think the same thing is happening in the media environment. When you look at Vice, they started out as a magazine. Then, they became predominantly web, a little bit of mobile. Now, they’re starting TV. Buzzfeed, which started on the web and has moved to mobile and actually has made a nice transition to an app, it’s doing a lot more video as well. Wherever you are, wherever you start, you’ve got to meet your users where they are. Right now, if you’re going to target millennials, they’re in their phones and their feeds. They’re not reading magazines and they’re not watching TV. If it’s video, it’s got to be mobile video.

That, I think, -- if you’re going to target the millennial audience, you got to be where they are. That’s, I think, how that stuff is playing out and I think that’s going to be a really difficult transition for a lot of the traditional media companies. In a large part, because when you think about MTV, MTV was aimed at 20-somethings when the founder was a 20-something. Now, that guy is a 60-something. He doesn’t have the same intuitive understanding of what it is. He’s trying to study it by watching it, whereas the founders of Snapchat, the founders of Whisper, the founders of Mic, they are all millennials. They are intuitively building products for themselves. That’s a way easier thing to do in a vision-driven environment, which we are in right now.

Francisco: It sounds like what you’re saying is they’re going to drive that vision of what new media is what’s going to look like.

Liew: I think so. An area where I’m spending a lot of time in right now is mobile video. We have started to see what mobile video, natively mobile video, is just in the last few years. The first go-around was just trying to port from the web. Now, we’re understanding vertical viewing, form factor is different, the cuts are different, the pacing is different. You can’t assume that you’ve got volume on. All of these things are starting. Yeah, that’s because they really understand it because they are consumers of the product.

Francisco: Okay. Is there a future for Twitter?

Liew: I think so. Absolutely.

Francisco: That’s below its IPO price. Just curious.

Liew: You know what? I think people’s focus on – because we’re early stage investors, we focus on the value of – it was created from the founding of the company, not from the time of the IPO. Twitter, Pure, Zynga, Groupon, all these – Zynga and Groupon are two companies that I think, regardless having underperformed because they’re well below their IPO price, I would reframe and say, “Listen, that’s a company that’s a $4 billion or $2 billion company that’s only six years old. How can that be a failure?” Jobs and enterprise value and happy customers were created.

Francisco: Yeah. No, I’m not saying they’re failures. Just curious if Twitter was going to be replaced by Snapchat and Whisper. Anyway, time is definitely up. I monopolized the stage with you, but thank you so much, Jeremy.

Liew: Thank you.

[Audience claps]

[End]

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