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- Fred Wilson is cofounder and partner at Union Square Ventures, a legendary startup investment firm. He was an early investor in platforms such as Twitter, Tumblr, Zynga, and Etsy.
- In a rare and wide-ranging interview with Business Insider, Wilson discussed his new investment in video media startup The Recount, as well as other opportunities he sees.
- Wilson also explained why he likes direct listings as an alternative to traditional IPOs, and what long-term effects companies like Uber and WeWork could have on the tech sector.
- Wilson argued that despite the debacles of some prominent Softbank portfolio companies, VCs won't suddenly start pushing startups toward profitability.
- Get more BI Prime articles, here.
Fred Wilson has a knack for nailing startup trends.
The legendary venture capitalist was one of the first to jump on the rise of social media, and he wrote early checks to companies like Tumblr, Twitter, Etsy, and Zynga.
There are some trends Wilson is excited about now that seem contrarian (and in the venture world, being a contrarian is a point of pride).
In a rare and wide-ranging interview with Business Insider, Wilson outlined a few of them:
- Wilson, who recently invested $5 million in John Heilemann and John Battelle's media startup, The Recount, thinks it's a good time to invest in media companies. Lots of media companies, meanwhile, are consolidating and downsizing.
- He thinks upstarts and digital companies will find success going back to more traditional models - Amazon launching physical stores, Netflix going into movie theaters, and digital media companies buying print arms.
- He doesn't think WeWork and Uber's highly-publicized problems will make investors any more likely to push startups in their portfolios toward profitability. There's still plenty of cash to go around for people with big (profitless) visions.
- He's a fan of direct listings - a newish alternative to a traditional IPO that other venture capitalists like Bill Gurley have been crowing about, too.
The following interview with Wilson has been lightly edited for length and clarity.
Lucia Moses: You just invested in video news startup The Recount. What do you look for generally in media companies as investments?
Fred Wilson: We look for companies that are not too dependent on a single distribution model. We do believe - although we're not convinced - that short is good, and things should be designed to be consumed on phones.
Audio would be interesting to look at on phones as Apple's airpods are becoming more powerful. We think about, what kinds of things will people want to do with airpods and their phones related to media, healthcare, education, etc? That is an important trend that's investable.
LM: What did VCs get wrong about media?
FW: You don't have to optimize to Facebook. That is one mistake the venture capitalists made. They also bulked up in their cost structures. It's not clear you can make media into a $500 million or $1 billion revenue business. So I think it's important to stay lean. Keep costs low. Create lots of content without creating a huge infrastructure.
The Athletic is probably the exception that proves the rule. Sports is different. People are absolutely crazy about what happens with their hometown teams. But I'm not sure it's replicable to other verticals.
LM: Venture capital has had a big role in creating media companies in the past several years, with mixed success. What went wrong and what role do you see VC in general playing in media?
FW: Venture comes and goes. There are times people are very conservative. Venture has had a love-hate relationship with media. There are a lot of great examples that have sold. They've struggled in recent years. It doesn't mean they'll be out of business in a year. People got too excited about the potential and valued them at prices that didn't make sense at the time.
The other thing is digital media companies buying print, like Vox Media buying New York magazine. I think that's very intriguing. The other thing that's interesting is Netflix getting into the box office theater business. It doesn't seem crazy. Amazon opening stores. That feels like a real trend.
LM: What else in media excites you?
FW: I think audio is going to become an increasingly big deal. What The New York Times has done with The Daily is really incredible. For a lot of people, that's the only New York Times content they consume. They're building a very loyal audience. It makes sense that it would lead to big media companies investing even more in audio.
LM: What's your view on the streaming wars?
FW: I think some of these new entrants are going to be successful, but I don't think it's going to come at the expense of early pioneers like Netflix. The market is a lot bigger than anybody thinks and there will be a dozen big streaming businesses. People are getting rid of their cable and buying internet services. It opens up spending power that'll get invested in entertainment.
LM: The idea of direct listings has gotten a lot of chatter, with Slack going public this way. What do you think of them as an alternative to IPOs?
FW: The stock exchange was going to allow direct listings that included a capital raise. Until now, the only way to do it was list the shares, so the only companies that could do it were companies that don't need the money.
The thing that's great about direct listings is usually there's a lot of price discovery, where companies like Slack let their shares get pretty liquid in the private markets so people have a good idea of what price they have to list at. That's better than a public offering, where there's all this drama.
I do like direct listings, and it's a sign of innovations happening in the public capital market.
LM: How about some of the recent troubled startups like Uber and WeWork? Do their struggles change how you think about investments?
FW: If you look at the companies that were performing well, they tended to be software companies. The companies that weren't performing well really weren't software companies.
Uber is a software company, but so much of what happens when you take a ride isn't software. Peloton is a software company but also an exercise company. We didn't invest in Uber or WeWork. One could argue those were mistakes. We have been more comfortable with companies that are mostly software companies.
Maybe it was validation that our preference for software companies was good over the years.
LM: Yet some companies convinced everyone they were software companies when they clearly weren't.
FW: The idea of technology as a disrupter is a very compelling narrative. Maybe that's all you need to think about to understand why so many people get excited about these companies.
LM: Do you see there being more pressure by VCs for startups to get profitable faster after disasters like WeWork?
FW: I don't think there's going to be a material change in incentives to get to profitability quicker. There's still a tremendous amount of capital to fund losses.
And entrepreneurs with big visions who need investment to fund them are still going to find it.
