Jay Hoag - 成功增长投资的关键 - [Invest Like the Best, EP.429]

My guest today is Jay Hoag. Jay is the co-founder of Technology Crossover Ventures, known as TCV, which pioneered the growth investing category and has backed legendary companies like Spotify, Netflix, Expedia, and many others over three decades. Jay explains how macro factors like regulation have become unexpectedly central to technology investing. He offers his contrarian take on today's market, arguing that consumer internet represents significant opportunity while most investors chase SaaS and AI deals. We discuss investing in new technology versus commercialization, TCV's evolution from cold calling to AI-powered sourcing of eleven million companies, and their three-person unanimous investment committee structure. Please enjoy my conversation with Jay Hoag.

So, Jay, we last did this 4 years ago, which is crazy to imagine how quickly those 4 years have passed. That was a strange world and a strange market, and we're in another interesting time today. I'm curious to start with how today's market conditions feel most different to you from the market of the rest of your investing career. What feels most distinctive about today?

We did this, I think, in September 2021, and as a longtime Chicago Cubs fan, I'm quite superstitious. I'm sure it didn't cause the tech reset in 2022, but let's hope that won't have a recurrence.

1. Technology Markets Find New Openings

There are always parallels and similarities to prior periods of time. I guess what is different is that, particularly as technology has gotten so big over the 30 years of TCV and the 43 years of my career, the focus on macro—which is not something I spent a lot of time focusing on—really is different. Regulation of tech, how tariffs impact global trade, and all those issues, which really were never part of the lexicon or focus for technology investing, are probably something that's pretty new. I think it's very difficult to figure out. A lot of people are talking with great authority about things they know very little about. That includes me. That's certainly something that's quite different.

What feels most opportune about this market? Where do you think there is the most opportunity to earn strong returns by making new investments today?

The world has shifted so strongly in the last several years. Again, I'm leaving COVID out for the moment.

Sure.

That was such an unusual time. I think, as you think about technology investors, there's been a huge focus on SaaS, a huge focus on all things AI, and a huge de-emphasis of consumer-based internet businesses. I think that's actually a pretty interesting opportunity where one can be contrarian, and we continue to see interesting private opportunities that I think most of the world is not focused on.

I was talking to a founder who is actually just building something new in consumer today. There's a heavy AI angle to it.

Yeah.

Nonetheless, it's consumer. He made an interesting observation about how hard it was for him to go find venture investors who are great and who primarily focus on consumer. It's almost like a dying breed of people, exactly to your point. Maybe you could describe why you think that is and what about consumer is interesting today, because it does seem like a lot of the big consumer businesses started 15 or 20 years ago and have just dominated ever since. There seems to be less white space, but maybe you think differently.

I don't necessarily think it's less white space, because you could argue that the big, enormous internet franchises—consumer internet franchises—that have emerged are playing on the opportunity set of 5 billion-plus smartphone users, incredibly engaged audiences across gaming, music, entertainment, and other media, and just incredible consumer engagement with those devices. Therefore, that should create enormous opportunities for new consumer-based franchises.

It's always been hard to break through a virtual shelf-space concept, so I'm not saying it's easy to build consumer businesses. But I think the fundamental reason why so many people are not focused on it is because money chases momentum, or follows perceived momentum. It's possibly like 7-year-olds playing soccer: the ball goes over there, and everybody goes over there. I think, as far as SaaS and AI are concerned, it's super shiny and super interesting. That's where everybody is focused. I just have a hard time believing there are not going to be any new consumer internet businesses founded and built over the next 10 or 20 years.

I'd love to hear you talk about the difference between investing in new technology versus investing in commercialization, something you already mentioned a little bit. As a growth investor, of course, things are typically working at that point, so things have become commercialized. But it seems like the technology is really still being built now, and it's changing really, really fast. What have you learned about that difference?

2. Commercialization Tests Technology Hype

Many super-interesting technologies have taken far longer to reach commercial scale, from a revenue and monetization standpoint, than predicted. Recent-vintage examples would be autonomous vehicles. The pure technologists said they were ready for prime time 5–7 years ago, and now they appear to just be getting there. AR and VR represent a generally great opportunity set, but are still really looking for commercialization.

To me, that's the lesson to keep in mind: it's the applicability of technology, not just the availability of it. In terms of defensibility, what is the monetization model? How big and defensible can it be? How can you build an enduring franchise, not just have the hot tool of the day?

If you think across all 30 years of TCV, is there a most common type of what I'll call fool's-gold investment that you've encountered—a pattern that you see over and over again that you think of as an exciting investing trap?

As a technology investor, I see technologists and technology investors often overestimating the near term on their way to underestimating the long term. That's just something to be careful of.

The other thing I think we talked about last time: I was going back through the most valuable technology companies in the world today. Are they exceptions to this statement? I don't think they are. Every area and every great company goes through a desert of disillusionment in investors' minds, where it was great and then, all of a sudden, people are casting aspersions on its sustainability.

You think about Apple. Apple was left for dead in 2000. Apple and Microsoft are the 2 companies worth $3 trillion today. Microsoft, from an investor lens, wandered in that desert for more than a decade, and that's just worth keeping in mind. It will not be up and to the right in a linear fashion for the vast majority of these companies.

I'd love to hear you opine on the public-versus-private market dynamics today, which are very, very different from most of TCV's history, and it seems really important. You're a crossover investor. You're maybe the first major crossover investor, which has now become a popular style. But it seems that, with private companies staying private for much longer, private markets becoming much more liquid, and people preferring the state of being private to being public, there has been a permanent shift. Do you think that's true? Do you think that's healthy?

3. Private Markets Challenge IPOs

I'm not sure it's a permanent shift. I'll get into the reasons for that in a minute. Everything is bigger. Given that this is TCV's 30th year—technically, June 23 is our 30-year anniversary—I went back and looked at some statistics just to give you a sense of scale.

The entire venture industry in 1994 raised $4 billion. Today, that's a small fund for some firms, which is pretty staggering. In terms of market cap, at the end of 1994, the Nasdaq was at 751. Today, it's north of 17,000, so that's about a 23× increase in the Nasdaq's value.

I didn't have the 1994 number, but in 1991, when you looked at the large public technology companies, there were 31 companies north of $1 billion and another 13 companies between $500 million and $1 billion.

That was large tech back then. And I mentioned that today there are 6 companies north of $1 trillion. In addition to Microsoft and Apple, Nvidia is at $2.8 trillion. Amazon and Google are at $2 trillion. Pretty staggering.

And then Facebook, now Meta, is at $1.5 trillion. So those are dramatically different market values than 30 years ago. Today's market puzzles me for at least 1 reason. I understand it's standard to say, "Oh, companies want to stay private longer," et cetera. I think that's true in some cases, although that was the concern before Google went public as well. They were staying private too long.

And I understand if companies have specific things they want to invest in under the cloak of being private prior to going public, but I'm old-school in that I believe the vast majority of the best companies will benefit from being public over the long run. There's discipline in being public. These days, you can manage the guidance expectations however you want, including not providing guidance. It provides a public currency and a fully liquid stock for all your employees on a persistent basis over time.

I'm totally puzzled as to why the technology IPO market is just so moribund. We're now in our 4th year of pathetic numbers overall, so maybe I'm missing something. But even in mediocre years, historically, there were 50 or 60 U.S.-based tech IPOs. I hearken for those years.

And part of the explanation is that I think there's a lot of private capital in general—in real estate, credit, private equity, and elsewhere—but certainly focused on tech. To some extent, that is creating liquidity for the best companies, but not all companies. The tender offers at Stripe and others are examples.

But when you say it's a permanent shift, I guess my question back is: If you're investing billions of dollars into a private company today in some of those transactions, that capital needs a return someday. So are you assuming that there will be a robust private liquidity market in the future, or that the capital will need an IPO market in the future? At some level, I think some of the values now are beyond the scale where they can get acquired rationally.

Where are you seeing more opportunity between public and private today? If you think about the supply-and-demand dynamics of capital itself, like you said, there's tons of demand for Stripe shares in private markets. I'm curious: Between the 2, where you operate and you're totally flexible between them, are you seeing more or less opportunity in 1 versus the other today?

We're not totally flexible. The C in TCV is crossover, but I tend to think we're more 1 of the early players in growth—

Mm.

Distinct from early-stage venture and private equity. There are certain characteristics of growth that we found attractive and continue to find attractive. We will hold our private investments as they go public—the best ones—for a long period of time. That's an economically driven decision. We may take 1 times our money out, but the best companies over time, like Netflix and Spotify, compounded at high rates for a long period of time.

So we're being, hopefully, economically selfish by retaining our stake. Then we will selectively and opportunistically deploy capital publicly, with the Netflix PIPE in 2011 being a great example, or in situations where our view is: If this were a private company, is that a compelling value? There might have been a dislocating event, but we're trying to get actively involved and treat it as if it were private and ignore the day-to-day public trading.

That's a little bit of a long answer. In today's world, I don't think of it as quite as much as public or private. I think of it very much as a company-selection criterion, where we have a very private market and a very bifurcated public market. Tech has always been a world where there are haves and have-nots. The true category leaders in a segment get very robust multiples and long-term value, and a lot of other companies don't get robust multiples and don't necessarily generate a lot of long-term value, whether they're private or public.

What is it about growth that you still find attractive? I know that was a key part of the early DNA, but fast-forward 30 years: What is still interesting to you about that category specifically?

4. Growth Investing Finds Its Edge

The original pitch, which remains true today, I think—and everything was a lot smaller, as I mentioned. Venture was a lot smaller. Private equity was a lot smaller in 1995. I think KKR and others were still tiny enterprises. Growth didn't really exist. It wasn't viewed as a separate category.

The way to think about it is that early-stage venture will invest in, to some extent, science projects, meaning undeveloped technology that they have to develop into a product or service, prove that it works and is cost-effective, and then start to ramp the monetization of the business. Inherent in that model is that the successful ones can generate a 50–100x return and return an entire fund.

But I think inherent in the early-stage model is very high loss rates. It could be 30% or 50% for a seed or early-stage fund. Successful ones have it all baked into the model. You can end up with great funds.

At the other end, I tend to think of large private equity—and, of course, they invest across all swaths of the economy, not just tech—as investing in much bigger, more slow-growing businesses. The way to generate returns could be through the facile use of leverage, cost-cutting, or lots of different acquisitions and consolidations. The best of those firms also generate good returns, but I think much more through financial measures than otherwise.

In a world where rates went down for 10 or 15 years, that was a huge tailwind. I'm not a forecaster of interest rates, so I can't say whether it'll be a headwind or not, but I think that was a huge tailwind.

Growth sits in between. The original virtue is that we're investing after the technology risk has been eliminated, so a product or service is available, and consumers, enterprises, or small businesses are touching it. Our job then is to evaluate the rate of market adoption and help grow those companies.

The benefit of growth is that you're typically investing in a decent-sized business, which hopefully means that, hopefully senior in the structure, your risk of principal loss is quite low. Then, if you're fortunate to stumble into the Expedia, Netflix, Spotify, Revolut in Europe, or others, you're generating returns from very rapid growth.

About half our businesses were profitable at the time we invested, and half were not. But the compound effect of top-line growth and very high incremental operating margins means that, ultimately, earnings are growing a lot faster. That's how we generate our growth: Very little leverage, all based on company building and growth in a great product.

I've found this sort of game to be the most fun when you have the least competition. When you started, as you said, growth wasn't really its own category, and so you had less competition. Today, there are lots of growth investors. Can you describe what the competitive dynamic feels like with other investors when you find a company that you really like? How has that changed, and how do you manage it?

It does ebb and flow. Back in 1995, as you might imagine, it wasn't just that there wasn't much interest in growth. There actually wasn't that much interest in technology. Now it's obvious to everyone, but people viewed it as a tiny prize. As technology returns have been robust, money follows. That just seems to be how capitalism works.

So there are a lot of growth investors, many of whom have built very successful firms. Some have gone from success in growth to really scaling assets and becoming much more private-equity-like—big buyout funds, et cetera. That's not bad; it's just different. Many have gone from being purely focused on the tech vertical to other categories of growth, whether it be retail or health care. I don't mean health care IT—just hospitals, et cetera.

We've made the decision to stay, I'd say, relatively small, although our first fund was $100 million and our last fund was $3 billion, so it's relative. But we've really just stayed focused on technology because we think it's the greatest industry, and it also requires a tremendous amount of expertise to be able to execute against.

Yes, competition has increased, but I'd say that in the last 4 years, it's actually decreased. If you hearken back to the last time I was here, everybody had entered technology and growth investing in 2021, and that led to some challenges for a lot of the capital that was deployed during that period of time.

There were many early-stage funds doing growth, many public funds doing growth, and many private equity funds doing growth. Some will be successful, but a lot may not. I tend to think firms generally have a center of gravity. You can think about collecting assets across lots of different vehicles, but you have to make sure each of the disciplines you're exercising is great; otherwise, you won't continue to get capital.

I suspect that a number of folks have retrenched based on having deployed a lot of capital in 2021, but not necessarily having a great return associated with that.

I'd love to talk about the history of the business. You mentioned that the 30-year anniversary is coming up. The life expectancy of new investment firms is definitely less than 30 years. It's hard to build an enduring investment franchise. If you think back on that time, what are the key moments or filters that you went through that allowed you to not just survive, but scale and thrive across 3 decades? That's quite unusual.

5. TCV Endures Through Cycles

It's interesting to reflect on it. We are active participants in our industry, but to me, all of the credit and blood, sweat, and tears, so to speak, goes to the founders who, as we've spoken about before, have to be a little crazy to become a founder. I think it requires unbelievable sacrifice on their part. You can't be a founder of what will be a great technology franchise and do it part-time and have a great work-life balance, as often gets bandied about. It's impossible.

As I reflect back on when Rick Kimball and I started TCV, we quit our jobs in 1994. We were on that founder journey as well. Knock on wood, it's worked out great, but I was thinking that, first of all, it's a little bit of a shock to be sitting here celebrating 30 years. We did a few more good things than mistakes we made, so we're able to do that.

People backed our first fund and continued to invest as we built the firm, which is awesome, but it requires a lot of resilience because, in my investing career, I've been through so many crises. Like a company founder, you have to be ready to deal with adversity, to deal with people thinking you don't know what you're doing. I was reflecting personally, if you were to say, "Well, go back to that time period."

It's great that our bet on technology paid off. It's great that our focus on growth paid off. Then the third thing we talk about is being a long-term, patient investor in the best companies. We know the latter requires being invested in the best companies, so there's a little hard work but a lot of luck involved in that, too.

I was sitting here today, a lot older, 30 years older, obviously. When I quit my job, I was 35, and when we closed our first fund, I had just turned 36. We had a son who was turning 3, a son who was turning 4, and my wife was expecting our daughter. We had just moved to Palo Alto, and we were starting a new fund. They say there are four or five main life stresses.

You did them all at once.

Just get it all on the table. In hindsight, it made no sense.

Yeah.

What were the keys? I'm going to mix my sporting metaphors. It's a batting-average business: you can't hit 1,000, but you have to be a decent hitter. Or, using a basketball example, Steph Curry, who's been in the news after the game-saving win last night, is the greatest three-point shooter of all time, the greatest scorer of all time, and he only makes 42.5% of his three-point shots. Now, as an investor, you have to be over 50%, but even then, you're not going to be perfect.

Part of it is that you have to be willing to take some level of risk, no matter how much diligence you do. From a managing-the-firm standpoint, we try not to repeat our mistakes, either in managing the firm or in investing, but we probably made every mistake in the book.

We talk a lot about Netflix and Spotify and others, but we also had plenty of bad investments—investments that didn't work out well—and, in hindsight, ones where we sit around and say, "Well, I'm not sure what we were thinking on that one," particularly in the internet-bubble days. But it comes down to internal talent.

I think last time we talked about Reed Hastings and the concept of stunning colleagues, and the fact that a great investor is not 30% or 40% better than a typical investor. Similarly, a great engineer is not 30% to 40% better than an average engineer. It's an order of magnitude. That's been the focus on the internal, people side.

We've had an enormous number of people over that 30-year period contribute to TCV, and some have gone on to greatness at other firms as well.

I'd love to do a little bit of the "how the firm works" type of questions and try to categorize them in the normal life cycle of an investing firm of this type, which I would say is: see the company, know it exists, and start digging in; pick which ones you want to invest in; win those investments; be a good salesperson; and then support them.

And maybe selling is the last criterion, which is relevant because you hold for so long. Maybe we'll go in order. What have you learned about the sourcing side of the business? What does great look like versus good or something—

Mm-hmm.

—in making sure you see all the right businesses and engage them at the right time?

So that's one area where there have been many iterations, I think, for the industry and then for us. Let me see if I can walk through it. There's also a sector overlay because we go to market in different sectors: consumer, application software, infrastructure software in Europe—four big sectors.

Way back in the day, well before TCV, there were outbound deal-sourcing factories, TA Associates being a classic one, and then some of the folks spun out to start Summit. It was phone work; it was cold calling to try to build a database of interesting companies and get whatever financial metrics they could. Then, through all that, the idea was to go chase X number of investment opportunities.

We started building that core at TCV in 1999 because originally it was Rick and me.

Doing everything you could?

Yeah. We knew some venture guys, and calling it a sourcing effort sounded much more grandiose than it actually was. We went with those people-driven hordes of associates. They would come in and commit to 3 years and then sometimes go off to business school and come back, or go off to a portfolio company and come back, or just go off to another firm or another company.

Going back about 12 years, one of our associates said, "We need to automate this." It moved from phone work to email work to lots of scouring of the web and going to trade shows and all this other stuff.

We have a data-intelligence group that—and I'll stumble on some of the metrics—is the front end of our sourcing effort. There's actually AI applied here, where we have a massive number of data sources tracking employee growth, app downloads, various product-usage measures, and it's ingested, I think, something like 11 million technology companies, many of whom are really, really tiny, obviously, at this point.

That is ingested and analyzed. We score companies, and that, in addition to all the inbound leads we get as a benefit of our 30 years—if Reed Hastings sends a note saying you should check XYZ company out, we're going to check it out.

The data-intelligence group is an automated tool. Just as applied to sourcing, it means we don't have to hire 1,000 associates to go out and try to scour the world. It's a tool where we're much better as humans at allocating our time and prioritizing certain companies over others.

If we have a list and you're aware of all these companies, then you start engaging the ones that seem the most interesting. What is the process like—the actual internal investment process—at TCV? Are individual investors allowed to just pick what they want? Is there some sort of committee process? Walk us through the actual process of selecting investments.

I realize we'll probably have to couple this answer with how you win them because they're interrelated, and you're building the relationship with the company as you evaluate it. But maybe talk us through the nuts and bolts of how that actually works inside TCV.

Yeah. Each of those sectors meets at least weekly, and often more. That is where all that data, as well as an existing pipeline of opportunities, is discussed: near-term priorities, long-term priorities, and how we can leverage our extended network to get into Company XYZ, which we've had a tough time breaking into. That's where the initial sorting-out process comes.

We also have a weekly global pipeline meeting where all investment professionals are involved, and we're bubbling all that stuff up to determine what might be actionable in the next 6 to 12 months. The reason I say 6 to 12 months is that there are thousands of financings happening all the time, but what we're really trying to do is get to know these companies over an extended period of time and be working today on what might be a 2026 investment.

A young company is not yet in the growth stage. That's part of their design. X number of things get through the sector-screening process and get presented to the IC: let's move forward with these; let's not move forward with those. Then we actually have a 3-person final investment committee that has to be unanimous on investments.

It is unanimous. At the end, it's you and 2 others, presumably, who have to say yes on every single thing that you do. How many is that typically in a year? How many new investments would you make?

We have a velocity fund, which is invested in expansion-stage companies, and the growth fund, which is a big fund. We might typically invest in 6 to 10 a year. You start with tracking 11 million companies in an automated fashion and get down to 6 to 10.

How many do you think you barely say no to in a year? What is right outside that 6 to 10? Meaning, it's on the line. You're excited about the company, probably, at this stage. If you invest in 6 to 10, how many are on the cutting-room floor right before that final approval?

I couldn't cite you an actual percentage, but it should be a reasonable, robust number, which may sound crazy. An early-stage investor—and I'll use AI as an example, but also just in general—will have many more, I'll call them bets, but investments in a given fund, in part because they want to have as many chips on the betting table as possible to get that 1 or 2 that really will pay off big.

Missing a significant portion of those, I think, for an early-stage venture fund in any given vintage can be really problematic. As a growth investor, we tend to run pretty concentrated, so our typical fund might be 20 to 25 investments. We really have to have conviction, and we are focused on doing all that work ahead of time to say, “This is the one in this category.” So we're not betting on 2 or 3 players in a given segment. It should be hard to get to a full yes, and there should be a bunch of “we're not sure,” which then end up being nos.

Can you describe the taste of the 3 people who are on that final committee? If you had to describe how the taste is different between the 3 of you, how would you summarize it?

I would say the similarity is rigor. The differences—the degrees of aggressiveness or conservatism—vary by practitioner. So it's actually a good mix.

Where do you fall on that spectrum?

Strangely, more on the aggressive side—not in taking unverified bets, but I'm not turned off if it's different, because non-consensus is good. Again, a quadrant: consensus, non-consensus, right, wrong. If you're wrong and non-consensus, that's really bad. But if you're right, it's often where the excess returns are.

Of course, the world can come to an end, and all the current macro stuff could be a decade of unpleasantness in the world. But many of the companies I mentioned earlier showed an ability to grow through any and all environments. If you look at churn rates for some of these subscription services during recessions, you can't see any difference. So I'm a firm believer in the best-quality technology companies.

One may, at different points in time, have to be aggressive on valuation and pay more, but it will be a long-term win. That's where the aggressiveness comes in, as opposed to thinking, “Well, intellectually, this should sell at X times revenues because that's where the median SaaS company has sold over the last decade.”

What's it like holding a company like Spotify or Netflix for a very long period of time? It's easy to talk about those 2 because they're unbelievable companies and CEOs, and we know all this in hindsight. But certainly, if you study those companies' histories, there have been periods when tons of people, or most people, doubted them—when they had challenges that they had to overcome. You said earlier that they often faced existential challenges.

Maybe just pick 1 and tell the story of what it's like actually holding something like that—not just the fun part, which is great returns. They're both huge companies, but what are the challenging parts of holding something like that?

6. Winners Survive Years Of Doubt

Netflix was challenging. There was a very challenging financing in 2001 that we led, so it was not just challenging staying with it publicly; that predated the IPO.

What made it challenging?

Netflix was founded in 1998. It was enabled because, instead of a VHS tape, which is heavy, a DVD can be mailed cost-effectively via first-class mail. But the original model was that you rented 1, returned it, and the unit economics on that were not attractive. Subscription was what unlocked ultimate profitability.

The company filed to go public in 2000, the market melted down, and it went down 60% twice. That's not very fun. There was a financing in 2001—I'm dating myself—where we had a discussion and, as a huge supporter of Reed, conveyed that we would provide the financing, but I wasn't sure how to price it.

Series A through E had been up and to the right, so he canvassed the marketplace to see what the price of Netflix was, and there was no equity provider. Zero. We did a restructuring financing in 2001 in order to get them through to the other side of profitability and positive free cash flow. Then they went public in 2002, although they traded down for a while and traded sideways for about 6 years.

That was the tough part of the journey. “Why are you staying with this company?” was part of the discussion at the time. I think 1 of the benefits of experience is that we invest in these 20 to 25 companies in a fund, and hopefully they're all the next Netflix or Spotify. But after some period of time, you realize, “Well, they aren't.” Which ones are really going to have that decade or multidecade growth and become a dominant player? We go through that sorting process.

So what's the challenge of holding? When they go through periods of material revaluation in the public market, you get second-guessed out the wazoo, and sometimes you second-guess yourself: “Oh.” During the correction in 2022, people were saying, “Why hadn't you sold everything in 2021?” Well, if you could predict when the market's going to sell off, that would be a productive discussion to have, but I don't think one can predict that.

Public scrutiny and second-guessing can make it hard, but that's really kind of it, and it can obviously prove to be really rewarding. Fund lives also mean you can't own it forever. Netflix's market cap on Friday was $480 billion, and at the time of the IPO, TCV owned 43%. Forty-three percent of that would be a much bigger number than what we realized.

Does that make you wonder if the whole structure is wrong? If all of the returns come from a couple of companies, should funds be set up so they don't have to sell?

I don't think the structure's wrong, because we entered into a contract with our limited partners, and so we abide by it. It's always easy to look back. Hindsight is perfectly crystal clear.

Of course.

But I think that is why some have explored—Sequoia or Sutter Hill or others—kind of the permanent-capital, evergreen-like vehicles.

Did you ever consider that?

No.

Why not?

I just think the financial structure is great as it is.

If it's not broke, don't fix it.

Often, as a GP, we have a European waterfall structure. Once we return all the limited partner capital, then we start getting our carried interest. Once we do that and we're distributing stock, we can choose—

You can always sell.

—or retain the Spotify or Netflix shares as it relates to our own financial well-being.

If you think about this interesting question of whether the investment firm itself should have lots of enterprise value—KKR and Blackstone and all these things are publicly traded, huge, huge companies—whereas some investment partnerships explicitly target the idea that the thing doesn't really have any value, that this ephemeral partnership that may dissolve isn't worth much, and they don't plan to sell any of it. How do you think about that question, which seems important for every investment firm to answer about itself?

Well, personally, I've never been motivated to say, “Let's go—”

Take it public.

—and globally dominate. I do think—and I'm only a casual observer or student of Blackstone, say—that they had a very simplifying organizational assumption, which was that they were on a path to go public. To maximize the public value, they would go from being a buyout shop to a smorgasbord—

An everything store.

—of financial services offerings, offer that in a very compelling way to the largest LPs in the world, and so credit and fund of funds, and they have obvious growth vehicles, et cetera. That seems to have worked out superbly for them.

For me, that level of scrutiny and visibility is not appealing, so it's not something we've really ever contemplated. The alternative, too, is that sometimes people sell a piece of the GP, but that's mostly my casual analysis of it: front-loading economics that you would otherwise get.

You would otherwise give up.

Yeah.

How do you think about setting the firm up for the circumstance where someone else leads it other than you—succession?

Succession planning: it is John Doran. He's 20 years younger than I am, which is a lot. I plan on having an active role, but he's running the day-to-day. He's actually moving to the Valley with his family in July; he lives in London. If I get hit by a bus, that's 1 level of succession planning. I'm very careful around buses. I don't envision going anywhere, but that's very simple.

It's always 20 years. It always seems to be a 20-year gap. That's the magic number for the younger partner.

We talked about stunning colleagues earlier. The next question is, how do you identify them? It's not just about being brilliant; it's about whether they're a good investor. To be a good investor, somewhere in your 20s you're maybe trying to figure things out, and then you invest in a certain number of companies when you're 30. I mentioned that when we started TCV, I was 36.

It's a long-term business. Again, disasters can be very short-term measured, but it's really hard to know if somebody's a great investor except through the passage of time.

Does anything feel broken to you about the investing world and system today? It could be anything in the triangle of GPs, LPs, and companies—anything at all. Is there anything that you would change about the way the system itself works today?

7. The Investing System Needs Humility

In a strange way, I wish the AI enthusiasm hadn't distracted everybody. This may be a bit of a dinosaur approach, but this is a really great business. It's also a really hard business. I think there's a whole bunch of players who think it's easy: “I invest in these 10 companies, they all were marked up, and all is great.”

A lot of people, if you think about it, were only 10, 12, or 14 years into the business. The global financial crisis was a big reset in 2008 and 2009—not so much for tech, but for the financial system. With the exception of 2022, it had only been up and to the right for many people who were then 10, 12, or 14 years into the business.

There still might be a lot of pain to be felt from some of the investments made during that period of time. There hasn't been a day of reckoning, and a lot of investors have jumped on the AI bandwagon—not necessarily saying, “Pay no attention to this stuff over here. We're an AI shop.” But I worry a little bit about some of the 2020 and 2021 capital, which was an enormous sum, being, by and large, broken capital—a broken part of the system.

I used to describe that when the internet bubble happened, venture returns went like this, and venture egos went up dramatically. Then the bubble burst, returns did this, and the egos of a lot of people in the investing business didn't come down. Success has many fathers; failure is an orphan. I wish there was a little bit more modesty in our business.

Any advice that you would give to a young investor, maybe 30 years old or something, having made some investments cresting into that period you talked about earlier, who wants to go launch a firm today based on the 30 years of success that you've had at TCV?

Do it if you love it. Don't do it because you think it's going to be financially rewarding. It can be, but success has to precede that. If you add people, do it in a measured way and only add exceptional people. We have had a lot of exceptional people, and we also have had periods of time where we expanded too quickly.

Go try to find a segment that is relatively unexploited, and therefore maybe has to be a little more contrarian. That also means the fundraising is going to be harder, but don't follow the herd.

Anything else that we haven't touched on across our 2 conversations that you feel like is an important ingredient in your story, personal or professional?

I went to high school in a small town in Wisconsin. We did an aptitude test, and the best industry for me to go into was agriculture. Beyond going off to college, et cetera, I was a huge John Wooden disciple, the longtime coach at UCLA, and his Pyramid of Success is something I try to live by.

You need to have your own definition of success, not somebody else's. Success is peace of mind, which is a direct result of the self-satisfaction of knowing you've done your best to become the best you're capable of becoming. To me, that's the yardstick I try to hold myself up to, and maybe that's why I don't sleep that well at night, because I want to get up and continue to try to be as good as I can.

The one other personal angle in the Netflix story, which has never gotten much airtime—thank God I paid attention to my first-aid training as a kid—is that, I think, in 2002, I ended up having to do the Heimlich maneuver on Reed.

Hmm.

So if value-add is saving the life of a CEO, he had a piece of meat that couldn't get dislodged. There were 2 of us in a conference room. Somewhat humorously, pay attention to your first-aid class; it may come in handy.

Say a little bit more about John Wooden, and the Pyramid of Success that you described. You can pick which spot in the pyramid you think is hardest, where you've seen people struggle the most, or where you've seen it be uncommon for people to actually pursue. Say more about your interest in him and how you actually do the things that he advocates.

Yeah. It's component building blocks that lead up to a definition of success, and he had some funny lines, like, “Be quick, but don't hurry.” To this day, I'm still not exactly sure what that means.

As a youngster, I aspired to play in the NBA. Preparation was one of his key things. Unfortunately, I lacked athletic ability. My career lasted 15 minutes in college tryouts, when a guy in cutoff shorts lasted longer than I did. That reinforced that I wasn't going to be an NBA player.

In my senior year of high school, I was the point guard on my team, and in the sectional finals, I guarded an individual named Bill Hanzlik, who was averaging 25 points a game and went on to play for Notre Dame, which I think is where you went.

Yeah.

Then he went on to the Denver Nuggets. I like to joke that I was trying so hard because I was always working hard and was pretty savvy on the court. I defended Bill Hanzlik, and I held him to 10 points over his season average, so he scored 35 on me. That's what greatness looks like. That's not to be my path.

But John Wooden's ethics, preparation, and hard work were all part of the pyramid.

Jay, this was so much fun to do with you. Congratulations on 30 years. Quite an achievement and accomplishment, and incredible companies built along the way. Thanks so much for your time.

Thank you. Always a pleasure.