Digiday Podcast – August 21st, 2018

Listen here: https://digiday.com/podcast/homebrew-hunter-walk-venture-capital-media/

Brian Morrissey:        Silicon Valley has long had an uneasy relationship with media. Look no further than the fraught relationship publishers have with Facebook and Google. Sometimes it seems like the two sides are barely talking the same language. I'm Brian Morrissey and this is the Digiday podcast.

        In this episode I'm joined by Hunter Walk, who is a partner at early stage venture firm Homebrew and has invested in media businesses like theSkimm, Cheddar and more. Hunter is the rare person who speaks fluently both the languages of Silicon Valley and the media industry. I wanted to have Hunter on for an insider view from the West Coast and to get his take on investing in the media business. I also get his views on platforms like Facebook and Google and what it means to have them trying to "help" the media. Hope you enjoy it.

        Hunter, welcome to the podcast.

Hunter Walk:        Thanks so much for having me. You don't have investors on often.

Brian Morrissey:        No, I don't.

Hunter Walk:        How did I make it?

Brian Morrissey:        Well, because I like what you talk about with media and I'm also trying to get different points of view because I get a lot of media executives grousing about platforms, so had on Richard Gingras from-

Hunter Walk:        Great.

Brian Morrissey:        ... from Google. Hopefully, Campbell Brown is going to be coming on in the fall. So, wanted to broaden it out a little bit-

Hunter Walk:        Excellent.

Brian Morrissey:        I wanted to get your views sort of as a visitor from Silicon Valley.

Hunter Walk:        You say that sort of like, you know, they just discovered water on Mars.

Brian Morrissey:        Yeah, no. I was surprised-

Hunter Walk:        You're an alien from Silicon Valley. I grew up out here.

Brian Morrissey:        It's 90 degrees outside, and I want everyone to know you're not wearing a fleece vest, so there is a lot of stereotypes that are being broken down here. But there is this drumbeat all of a sudden of bad news and Silicon Valley as a whole is getting beat up. You know Facebook, I think had the sort of biggest single sell-off. They're getting hauled before congressional committees.

Hunter Walk:        Their stock crashed to levels not seen in seven months.

Brian Morrissey:        I know. Silicon Valley is always the land of optimism. Is there sort of a bit of a reality check going on over there as far as ... Look, this is a broad question. Building all these platforms and connecting the world and everything like this, there's much more focus on the negativity right now, externally at least.

Hunter Walk:        I am an internal optimist for technology because I believe ultimately what it does, access to information, distributes ability of creation and empowerment. I think the gravitational pull is in a positive direction. What I think is happening right now and I think it's very healthy and I think it's part of a broader questioning of equality, questioning of power, questioning of institutions is Silicon Valley is partially embracing and partially being challenged to embrace the responsibility it has. Tech for so long was an underdog. It was the weird folks who were in the basement typing away at computers just trying to change the world.

        Somewhere along the way, as market caps, as user bases, as employee counts have all grown, we evolved from sort of the underdog to the incumbent industry, software from a vertical to software powering every industry. I think in some cases, our sense of self lags that reality, still feel like the underdog just trying to change the world. But with great power comes great responsibility, I guess. I'm pleased that the industry as a whole is being asked to consider that responsibility.

Brian Morrissey:        How about Facebook in particular? Facebook is obviously in the spotlight quite a bit these days and sometimes negatively so. Do you think that from the top they are really truly starting to embrace the responsibility that comes with their gigantic role in society.

Hunter Walk:        Yeah, it was great because I spent nine years working at Google where I could never talk publicly about Facebook but now that I'm out of Google, I can say whatever I want about anybody, right?

Brian Morrissey:        Yeah.

Hunter Walk:        Look, I think all these companies are starting to understand the questions they should be asking themselves. Sometimes that comes from internal, sometimes that comes from external. Are they moving as quickly as possible to the answers? I think sometimes they're letting the complexity of the debate get in the way of decision making. When you say, if we're gonna change this policy, we have to change it universally and let's debate all the corner cases, I think in order to gain and restore trust with employee bases, with customers, with regulators, it's important to be clear about what you stand for, the values you stand for and then try to implement as consistently as possible.

        When I was leading product at YouTube, we knew we had responsibilities above and beyond the minimum legal set of things we had to abide by and we had policy councils to discuss these things. We didn't always get it right but we were willing to make decisions and publish those decisions. In some cases, stand by them when they were unpopular and other cases, revisit them. I think it's important to do this stuff thoughtfully but also iteratively and publicly.

Brian Morrissey:        That's a difference in the whole move fast and break things and often cut corners when it comes to laws and regulations. We've seen with Uber, for instance, and it seems to me Silicon Valley oftentimes does do that because it prizes speed and innovation over thoughtfulness and iteration.

Hunter Walk:        I think also there's historically sometimes a disconnection from some of the communities that are being most affected by your choices. As the teams grow diverse, as these companies become more international, as tech companies hopefully look less white, less male, less a feeder from five or six different academic institutions into a single campus in California, I hope that they'll be able to not just diagnosis but anticipate some of these issues quicker. But when you're touching a billion people, two billion people, even an error rate of 1% in your policy enforcement means that you're going to create thousands, tens of thousands, hundreds of thousands of errors. Some of it is understanding that despite the immense success these companies have had financially, very often the decisions are not 12 years planned out in advance with a set of dominoes falling just right. It's people with partial information, good intent, trying to make the best call in the moment. I look at some of the things YouTube has been struggling with over the last year or two and it's not like those issues ... YouTube is now what, they started in 2005, so 13 years old or so?

Brian Morrissey:        Yeah.

Hunter Walk:        The challenges that they're dealing with now were not problems that we saw on the platform in year three that we did a fantastic job of obfuscating and pushing back under the rug for 10 years and only now are they growing. They were sort of like year 10, year 11 problems.

Brian Morrissey:        They've always been there.

Hunter Walk:        When I was there, the years I was there were '07 to 2011 and content quality meant dogs on skateboards, not controversial political topics. In fact, if we were anything, we were too optimistic that the idea that anybody with their camera phone could record what was happening in front of them and upload it to essentially a global TV network, meant that truth ... It was essentially a platform for truth because before it was video production was only in the hands of the few. It hit the editing room before it hit the TV screen and it could lag production by hours, days, weeks.

        Now, you had the ability for anybody ... I went to Baghdad for a week to understand how YouTube was being used there. You could have a teenager in a war zone streaming footage about what was really happening on the ground. It seemed to be an incredible platform for exposing lies, for telling the truth. Now, they're dealing with the fact that in some cases it's being manipulated the other way.

Brian Morrissey:        Right. What I wonder and maybe this is crudely New York versus Silicon Valley because we're more cynical here and I'm a journalist.

Hunter Walk:        I was gonna say is it geo or the profession?

Brian Morrissey:        I'm an edge case. In building these platforms, there's been this unbridled optimism. It connects the world, it does these things, and it absolutely does that but there tends not to be enough cynicism about how these tools will ultimately be used. I wonder how that ends up getting balanced. I know Karis Fisher did, which was a really good podcast, and I thought Mark Zuckerberg was actually really thoughtful about some of the issues. I think his unfortunate analogy with Holocaust deniers I think overshadowed what overall was to me a very interesting discussion. But not thinking through the fact that okay, we're gonna put live video in the hands of billions of video and people are gonna use it to film all sorts of horrible things and broadcast it, that just seems like, wait, why would you not think about that?

Hunter Walk:        I don't know the product development process at Facebook. I can tell you when we shipped live video at YouTube, we did it incrementally. We started with making it first available to partners, so people we had a commercial relationship with. It was our goal to open it up to every account. What we did from there, as we were understanding how it was being used, building different types of user flagging and review processes for live video, which would be different than video that was uploaded, asynchronously to YouTube onto the platform. We then made it available to what we said were accounts in good standing, so accounts that had been on the platform and didn't have any policy strikes. We had some level of experience with them that they understood the rules of engagement on YouTube and how the platform should be used.

        We had that for a period before we opened up to the idea that anybody with a new account could start live streaming right away. I would sort of challenge the notion that these platforms don't think about some of those things. In our case, at least, tried to make incremental steps that created in some cases user disappointment for trying to take a measured approach to it. Now, would we have waited before shipping live video for coming up with a foolproof way to make sure that the 100 different ways of terrible things that could be done with live video were preventable? I don't know. I think then you're punishing the other 99.999% of people who are doing interesting things with it.

        We sort of had this mantra on abuse of those types of things, which said, fool us once, shame on you. Fool us twice, shame on us. Let's trust people and put systems in place to make sure that if somebody proves to not be trustworthy, we don't get fooled again. An area where I think these companies have up until maybe the last 12-18 months under resourced is that policy abuse, customer support areas, things that maybe don't scale with just technology but where you do need people to help make a judgment call.

        When Susan from YouTube talks about hiring thousands of more content reviewers, I think that's a very positive step. It's a positive step in two ways. First, it's a signal from these companies that they're willing to spend margin points on content review, on policy enforcement. The second thing is that it's an admission that no matter how many of the world's brightest technologists they have there, and certainly there are incredibly smart people at Facebook, at Apple, at YouTube, at Google, that the last mile problem might be human.

Brian Morrissey:        It's not all AI, it can't be. A lot of the brand safety controversies with YouTube, I mean I was a little cynical about because this has been going on for years. I think we wrote like five, six years ago this beheading video is brought to you by Toyota. Toyota was coming to us and was like, how did this get on there? Because of the complex programmatic ad system, everybody can blame everybody else. It's interesting that all of a sudden it came to the fore.

Hunter Walk:        I'm a child of New York City, which means I consumed a lot of media growing up. I remember when I open up the New York Times, there can be an article about something terrible and a Tiffany ad next to it. When I turn on the news and I'm watching my 6:00 p.m. newscast, there can be a horrible story and then they go to commercial break and Buick is trying to sell me a car. I, as a consumer, don't associate Buick with ISIS because of that. I think transparency is good. I think giving advertisers understanding and control is good but I also think that sometimes we overreact to a notion of what brand safety means and we underestimate the consumer's ability to understand what they're viewing. I worked on Ad Sense for three years before YouTube.

Brian Morrissey:        That dealt with it all the time.

Hunter Walk:        Yeah, so during the early days-

Brian Morrissey:        I remember Overture used to send me the-

Hunter Walk:        The suitcase ad?

Brian Morrissey:        The New York Post suitcase ad.

Hunter Walk:        Yeah, exactly. I have some experience with the-

Brian Morrissey:        The head was found in a suitcase or something?

Hunter Walk:        It was some sort of terribly violent news story that triggered like luggage and vacation ads. But over time, I mean you don't hear about that anymore, right? It's not because Ad Sense is smaller business than it was in 2006, it's probably an order of magnitude larger, but it's because the technology continued to get better and I also think we understand that consumers don't sometimes have the same reaction that a CMO does if given one example of millions and millions of impressions. Everyone should work together on these things but I think sometimes the screen shot is worse than the actual problem at hand.

Brian Morrissey:        Quick break to tell you about Digiday Plus. Each week I invariably talk to publishers who are always going on about how they're diversifying their businesses and often adding in subscriptions. We are no different. Digiday is our premium membership program for people in media, marketing, tech, even if you're a venture capitalist like Hunter. Here's how it works. Digiday Plus members get access to exclusive content. Each day we have pieces only available for them along with invites to our member events, early access to this podcast, exclusive research we do on top industry trends and much more. It is worth it, I promise you. Please visit digiday.com and you will see the plus tab. Digiday Plus membership is $395 a year but if you use podcast at checkout, you will get 20% off. Please check it out.

        You talk with medial people, medial executives, people running media businesses. What do they typically get wrong about Silicon Valley?

Hunter Walk:        Wow, that's an interesting question because for me the path not taken ... I have incredible respect for journalism-

Brian Morrissey:        But not journalists.

Hunter Walk:        Like any profession, like any profession.

Brian Morrissey:        Not your respect, I mean like people running media businesses. A lot of them come on this podcast and they blame a lot of their current struggles on decisions that are made on the west coast.

Hunter Walk:        I think one, we referred to this a little bit earlier, I think sometimes there's assumptions that because these companies have been so successful that the strategies or the way the strategies have played out were completely premeditated. Google had some notion about how the interworkings of Ad Sense, Ad Words, and Search would slowly boil the news industry and make it dependent upon where you rank on the page one of search results or things like that. It's not that elegant. I heard your conversation with Richard at Google News.

        There are beliefs in Silicon Valley or there were beliefs in Silicon Valley, information wants to be free, so and so forth. The question about how to handle paywalls and search results and stuff that did have secondary, tertiary effects on the potential adoption of new business models, aggregation, switching to an ad-supported only model for a while for some of these newspapers. Sometimes I think that just comes from lack of understanding of these industries, Silicon Valley having lack of understanding of these industries rather than some sort of Machiavellian scheme.

Brian Morrissey:        Talk to me about that the other way, then and how people in Silicon Valley don't truly get the media world.

Hunter Walk:        I think that there's the belief that content will find a way. That if you create a level playing field, which all these platforms think they are, that organizations will adapt quickly towards new realities. I think, you know, especially in industries that have been successful doing one thing one way for a very long time, the incentive is to continue to make that work. It's hard to disrupt yourself. I think a lot of industries underestimate the speed at which technology change can impact your business.

Brian Morrissey:        But Jonah Peretti was on here and if there's any media company that has to me that has adopted all of these precepts that come from Silicon Valley would be BuzzFeed and he was saying, "You would think we would be making a lot more money considering we've aggregated these gigantic audiences on these platforms and yet ..."

Hunter Walk:        The question being?

Brian Morrissey:        You can't just blame it on traditional media companies doing traditional things. Anyone in the media industry is struggling to make money off of gigantic audiences that they aggregate on platforms.

Hunter Walk:        But at the same time, at least over the last few years and you look at the FT, you look the Times, you look at people who have returned to the idea that their content is valuable enough for people to pay for it. You look for some of the brands that have used content and don't think that they're in URL business, they think they're in the audience business. One of our investments, theSkimm thinks of themselves as an audience business, a membership business, and that's been very successful for them over the last five, six years of their life. I guess I'd say that it's possible that the atomic unit of a URL widely distributed has for several years declining value and now maybe has some toted value. But the eyeball behind that is actually more valuable than ever if you have a relationship with that user. If they understand the byline and the brand behind the URL. If they want to connect and identify with real life via commerce, via events.

Brian Morrissey:        Like true audience businesses, not like unique visitor businesses.

Hunter Walk:        Yeah, you've had some people on the podcast over the last few years and we've all seen a lot of businesses that crowed about their reach but it was drive-by traffic that came from a headline shared across social, maybe read once, and not sure aided or un-aided that "site visitor" or unique user could have ever remembered where it came from or-

Brian Morrissey:        They weren't building brands.

Hunter Walk:        That doesn't look any different than what a CEO 100 years ago would have told you about building a brand and knowing who your audience is and selling them product.

Brian Morrissey:        You've invested in a couple of media businesses.

Hunter Walk:        TheSkimm, Cheddar, Anchor. They all think of themselves as various degrees of media businesses. Some of them would describe themselves differently. Jon Steinberg from Cheddar might be the one to embrace it most. But yes, we look for a few things in those cases, founders who are perfect matches for what they're building. We believe in founder market fit. Sometimes you hear Silicon Valley talk about product market fit, the idea that a product has found its right customer. We invest pre-product market fit, so we have to think about founder market fit. Are these founders the right people to build this type of business. Carly and Danielle for theSkimm, clearly. Jon for Cheddar, clearly.

        We think about whether their audience is underserved. If they're just another place trying to create content where there's nine, 10, 20 other choices for that audience and you're trying to change that audience behavior, you're trying to say hey, I'm better than the other 10 places you're already going. That's less interesting to us than people who have a point of view about an underserved audience or an underserved channel. In Carly and Danielle's case, it was women, especially millennial women. In Jon's case, it's the belief over the top and what's happening to the aging audiences on cable TV and who is not watching those, namely anybody under 50?

        Then the ability to, let's call it, create a big tent from a company perspective. All of the companies we invest in have strong product leads, strong engineering leaders but they also have great community, great sales, great brand ambassadors. It's the understanding that these sorts of audience companies may not look exactly like a typical tech startup.

Brian Morrissey:        Audience, that does mean it has to inevitably have subscriptions as an important part of the inevitable ... I know you do early stage so the business model is in flux a little bit.

Hunter Walk:        The business model is always in flux. I guess I would say I tend to believe that the most successful businesses will have multiple legs of the revenue stool and I think getting paid directly by your viewers or in some cases, a proxy, somebody who is paying on behalf of your viewers in the case of maybe some of the distribution models behind video.

Brian Morrissey:        Starting the year with a bunch of money is usually I think ...

Hunter Walk:        Advertising, especially for your most dedicated audience, you know, your 1,000 true fans, advertising will always undervalue them and so as a brand, you want to have deeper relationships with them. There's other ways to ... Skimm started building their back on newsletter, a daily newsletter that millions and millions of people open each morning as part of their news diet. Once they built that, then they were able to roll out an app that's a $2.99 a month subscription and that became an additional seven-figure revenue stream and that was a second leg of the stool.

Brian Morrissey:        Okay, and with Cheddar, eventually they're gonna get paid for carriage.

Hunter Walk:        Yeah, as Jon has been on here and has told you, he had some assumptions going in.

Brian Morrissey:        He said that them here.

Hunter Walk:        He said them here and then-

Brian Morrissey:        Then he changed.

Hunter Walk:        He was fortunate to be correct about the value of his content and then adaptive as to where that value would come from over time and for him it's a scale game. On August 1, they bought MTV University Networks. As he likes to say, the largest out of home setup screens, larger than CNN networks.

Brian Morrissey:        I joke with Jon all the time about when he's gonna be on the gas station pump screens.

Hunter Walk:        Right, that's a great idea. Take a note, take a note.

Brian Morrissey:        He's like, I can't wait.

Hunter Walk:        In that case, we've known Jon since Jon worked at Google, we've known Jon since the Google days. We're team, team market. We bet on people first. We hold equity in the companies but we have to get up every morning and support people. I don't think it's a coincidence that the types of founders we've backed are also the types of founders that appear on this podcast.

Brian Morrissey:        Yeah. Give me the case for theSkimm and this audience-based business.

Hunter Walk:        Sure. When we met them, three things clicked for us. The first was that product market fit I talked about. These were two women who were news junkies. In Silicon Valley, we used the word disruption a lot, overused. We talk about people who disrupt with love as opposed to contempt. They are making change within their industry because they fundamentally love it and want that industry to be stronger, not because it's just a large market and there's money to be made. Carly and Danielle first and foremost are news junkies.

        The second was the audience. Women have been underserved by media, especially when you talk about news and not just lifestyle. The third was, and my partner at Homebrew, Satya and I saw this from our time at Ad Sense, my time at YouTube, his time at Twitter, how quickly new voices could aggregate audiences in a durable fashion and so starting with sort of an email blast from their contact list, it went from a few thousand people to several million. Because of their audience, because of their connection with that audience, they have 30,000 Skimmbassadors. Those are young women who are evangelists for the brand on campuses holding Sip and Skimm parties. It's almost like multilevel marketing, if you can think about it.

        Because they started off with the idea of how to help you live smarter, you can imagine how that brand promise expands outside of news. When they recommend a book in their Friday newsletter, it jumps to the top of Amazon's bestsellers. When they recommend a wine, it sells out. When they educate people about finances, about health, theSkimm app has a calendar integration that shows you things over the next 30 days that you should be interested in. When they're able to drop in on National Breast Cancer Awareness Day a reminder for a mammography, it brings people not just to click and order things for commerce but to think about their health.

Brian Morrissey:        It's audience like as a community. But those seem inevitably, I mean obviously, it's more than half the human population.

Hunter Walk:        That's a good market to start with.

Brian Morrissey:        Generally, these types of businesses end up being smaller than the giant scale businesses, which are just, you know, they end up becoming homogenized because they're trying to be everything to everyone. Not every, I am not a woman, but theSkimm is not for everyone and I think that's its power.

Hunter Walk:        Yeah, if you're gonna create a strong brand, a strong brand voice, there's always gonna be some folks who say this isn't for me and that's fine. I think if you look at I guess Twitter reported earnings this morning. You do the numbers, they make $1.79 per monthly active. Maybe that increases as you strip out the bots but ... The question is-

Brian Morrissey:        How much do they make on the bots?

Hunter Walk:        It depends on what those bots are set up to do. If you look at a dedicated Skimm reader who is spending 10-15 minutes with that newsletter every morning in a very intimate fashion and who is using theSkimm increasingly as a starting point to get smarter and make choices about their personal and professional lives. I think 50% plus of their audience makes more than $100,000 a year. The other 50% is aspiring professional. You see any number of opportunities even if you just use as a proxy what Google gets paid for Ad Words clicks on health, financial services, travel, lifestyle, commerce. You see plenty of opportunities to make multiples of that $1.79 per user in ways that are consistent with the brand, additive to the user experience, and ultimately in service of the woman as opposed to exploitive. We're very comfortable with the idea of their growth.

Brian Morrissey:        Okay, so those kind of businesses can work in a venture framework because we're coming out of an era where venture capitalists broadly stayed away from media for a long time.

Hunter Walk:        Let me say the answer to that is absolutely with an asterisk. We were the first venture investor in theSkimm and we were the only venture investor at theSkimm at the time because our colleagues didn't necessarily see the near-term potential. Once that started to happen, then a venture capitalist needs to ask themselves, what's the likely out here and then what's the upside case? If you are a multi-billion dollar fund, which some of my peers now sit atop of, media is a very hard business to get a fund returner on. Just as sort of let's do a little math, I'm sure everybody listening to this is immersed in venture capital, I hope most people aren't, it's not that interesting. A venture capitalist might own let's say 10% or 20% of a company when all is said and done. If you own 10% of a company and you have a $1 billion fund, what you're looking for are things that are "fund returners."

Brian Morrissey:        Two hundred million is not gonna do it.

Hunter Walk:        It has to exit for $10 billion, so your 10% of that is worth $1 billion and your goal as a venture capitalist is to get 3X, 4X, 5X on the fund. The best routinely get 7X, 9X, 12X. Plug in the numbers behind an exit of Facebook, an exit of Snapchat, or you know in the consumer space. Obviously, there's plenty of enterprise companies talking about all these different things but when you're talking about consumer properties. Very, very few media companies over the last decade have exited at that scale. So, when you look at some of the companies that have been awarded multi-billion dollar valuations by the private markets in the media space, those have a very narrow line, the balance beam to sort of make it out and actually get liquidity at those levels. Our funds are under $100 million, so for us, a $300 million, $500 million, $750 million exit for a company that's been capital efficient can be the equivalent of a Facebook for a $1 billion fund. That gives us some flexibility that maybe the $500 million-

Brian Morrissey:        Right, that's what I mean. You don't need a $2 billion exit.

Hunter Walk:        We have a definition of success that can be broader than a $2 billion exit. We always want to invest in people who we think have a very high ceiling on their ambition and the outcome, but we don't have to implicitly or explicitly force their hand to define what success looks like. I think that's where the investor-founder, investor-CEO relationship can sometimes go off the rails, which is the bigger, bigger, bigger, faster, faster, faster but not necessarily durable, not necessarily staying true to the mission of the company, serving your audience in the most appropriate way possible and that's where you have the rocket that goes up and then the jets sort of fail and the rocket comes back to earth.

Speaker 3:        The Digiday podcast will be right back after this break.

        Hi, I'm Shareen Pathak and if you enjoy the Digiday podcast, be sure to check out Making Marketing. Join me every Thursday as I sit down with a leader from the industry to discuss what it takes to make great marketing today. Each episode features candid conversation and insight into some of the brightest minds in marketing including P&G's Marc Pritchard, HP's Antonio Lucio, and GE's Linda Boff. You can find Making Marketing on digiday.com. We're also on iTunes, Stitcher, Google Play, and anchor.fm. I hope you'll listen.

Brian Morrissey:        Will that have been a blip when we saw these gigantic funding rounds for the Vice and BuzzFeed and Vox and a host of others because it seems very few of them are gonna build billion dollar plus businesses.

Hunter Walk:        I think it's interesting. The first half of their fundings were venture backed, the second half have been strategic, have been private equity, things that maybe have different goals in mind than just pure returns. If you're NBC, Comcast, you're throwing off cash, you're trying to look for growth businesses, you want an inside track as sort of a call option on buying that business if it ends up doing well. Then maybe you put $200 million against it. The fact that you somehow did that at a $2 billion valuation, who’s to say? Eventually, all these things collide with public multiples.

        If you look at the New York Times, if you look at Viacom, if you look at these other companies, they're not trading at a multiple to their revenue that matches what some of these larger private companies have been given. Either those public companies are worth a whole lot more or these private companies better be growing faster, have different types of P&Ls, be making a lot more off each set of eyeballs than the New York Times or Comcast is. I assume that those are the bets that people would make there. We're very comfortable betting on amazing teams with big ambition but who are going to be very capital efficient and very revenue early.

Brian Morrissey:        Yeah. Are ad driven models like not cool now for startups?

Hunter Walk:        I think it's very hard to invest in a venture-backed company that believes it's going to plug in ad models that are-

Brian Morrissey:        Turn on the revenue spigot?

Hunter Walk:        Yeah. Here, if we get to this level then we put in this CPM and you plugged in a $25 CPM. Show me the last venture startup that said they were gonna use a programmatic ad model, tap into ad networks to make their money. Compared to something like the Athletic subscription based, right? Creating vertical sports newsletters, news sites for super fans of different teams.

Brian Morrissey:        Some of the media models that are almost like, they look a lot like DTC companies to me from the outside. A core competency of the Athletic is absolutely customer acquisition. DTC, it seems to me like the core competency of most of these companies is not even the product.

Hunter Walk:        It's Instagram.

Brian Morrissey:        Yeah, it's Instagram acquisition.

Hunter Walk:        Yeah, we have a company called Lumi, L-U-M-I, out of LA that does a lot of the packaging work for these companies and so we sort of get to see the brand being built in cardboard and tissue paper and logo tape instead of storefronts. Yeah look, I think that in the entrepreneurship area and in the venture market, because they're very tied together, there's always a turn to the shiny thing. What's buzzing around the valley right now? Fortnite. Can you imagine how much money they're making and they're able to sell a virtual for just your character to wear for $12.95. Digital goods or synthetic media/virtual celebrities. Little Michaela and what happens when instead of the Kardashians, you essentially have CGI-created celebrities and you never have to pay those people more than scale.

Brian Morrissey:        The Second Life guys are kicking themselves. They ended up doing [crosstalk 00:35:32].

Hunter Walk:        I'm a Second Life guy.

Brian Morrissey:        Really?

Hunter Walk:        You didn't know that?

Brian Morrissey:        No, I didn't know this.

Hunter Walk:        That was my job before Google. I was the non-engineer on the team that build Second Life.

Brian Morrissey:        I went to press conference on Dell Island.

Hunter Walk:        Oh, yes. [crosstalk 00:35:45].

Brian Morrissey:        I don't know what's happening to my avatar on Second Life.

Hunter Walk:        Let me just clarify, Second Life is now an 18-year-old profitable ongoing business.

Brian Morrissey:        I know.

Hunter Walk:        I've gotten dividends a few times, so it's made more money than most startups.

Brian Morrissey:        But it was possibly a little early.

Hunter Walk:        Yeah. I draw lines from that and say, what was the opportunity there and the opportunity there looks more like Minecraft. Somebody who got right the creative constructive notion of the world and didn't worry about the uncanny valley of getting photorealistic avatars correct.

Brian Morrissey:        Right. The final thing is, with the power of the platforms, is that having a negative impact that you see in the trenches with entrepreneurship? Because there's one school of thought that look, we've seen powerful technology companies and they don't always stay powerful. There's another school of thought that no, this time it's different.

Hunter Walk:        Despite my geeky exterior, I'm actually a liberal arts grad at heart. I went to Vassar, I was a history major and so sometimes I look backwards to answer the questions of looking forward. At every point in history, there was some set of incumbents that seemed like they were impenetrable. They were going to dominate their landscape forever and most of those are bankrupt these days. In this case, what's the argument to say that we're dealing with a different evolved animal right now? The network's effective data, these companies are throwing off so much cash that can reinvest into adjacencies. Google is not just a search engine, Google is a health company, Google is a logistics company, Google is fundamentally data company.

Brian Morrissey:        Although they make all their money off search.

Hunter Walk:        They make all their money off search. And they're smarter, they all read Clay Christensen, so they know now how to disrupt themselves versus wait for the low cost provider to come into the space. That's the argument to say, my LPs, instead of giving me money should just be dumping into the public markets and buying Amazon, Google, Netflix and that's where the returns continue to be. But history suggests that entrepreneurs who are singularly focused, who are earlier contrarian, and who believe that there's going to be a new way of doing things and have the aptitude and attitude to build something that matches the vision they have in their head.

        We'll always have the ability to create value. You just need to look at the last 10 years of Uber, Airbnb, sort of these transactional companies that have built businesses, WeWork, that are now worth the tens of billions of dollars, are in the pipeline to go public. Slack, the fastest growing SaaS company in history, I guess is using an enterprise chat product. But wait, doesn't Microsoft already provide that? Doesn't Google provide that for free? I tend to believe that sometimes it can be difficult to attack the incumbents on their home turf.

        I'm not sure I would fund a company that was trying to beat Google at search or Facebook at feed or Instagram at photos. But we now hold devices in our hands that are literally always on super computers. Every other device that didn't have software running through it, is increasingly having software run through it and to me, that opens up much, much larger markets than any of the ones that these companies have touched yet and so that's where we invest.

Brian Morrissey:        Are you sympathetic to Mark Zuckerberg's view that if you tie down Facebook with regulations here and in Europe, that that's just gonna give an opportunity to Chinese companies that are already gigantic to take that role?

Hunter Walk:        I'm sympathetic to the argument that if you try to legislate what companies can or cannot do ahead of them trying to do those things, you under serve the consumer and I think that's what fundamentally matters. If you can't figure out how to allow these companies to experiment with what they could create and then give people the chance to adopt them or not, you're shrinking the GDP because you're taking things out of people's hands that they'd otherwise want to buy and use. If it turns out then that as opposed to helping a startup, you're helping another country build those products in a global economy, then sure. But I think of it more as independent of whether there's a China story or not. Are you expanding the economy or contracting the economy. I do think regulators have roles and responsibilities in this world, in this tech world, but I'm not sure it's about locking down data in advance of giving entrepreneurs and engineers the ability to take their products into marketplace and see what happens.

Brian Morrissey:        Right, I know. People complain about the duopoly making decisions but I'm not sure if they want Jeff Sessions making the decisions for the market.

Hunter Walk:        Yeah, we could do another podcast about the politics of Silicon Valley. Sometimes interesting, sometimes progressive, sometimes challenging.

Brian Morrissey:        All right, well come back for that Hunter.

Hunter Walk:        I will look forward to the spinoff of the Digiday pod.

Brian Morrissey:        Okay, thanks. And thank you all for listening. This show is produced by Aditi Sangal. If you liked our show, please subscribe. We are on iTunes, Stitcher, Google Play, Spotify, and anchor.fm. Please leave us a comment. We always like to get comments. We'll be back next week with a new episode.

Page  of