Here’s what we cover during this week’s Partner Meeting segments:

  • The current state of Series A valuations
  • Thrive Capital sells stake and the institutionalization of venture capital
  • Current state of inflation
  • Data is showing how households are finally starting to conserve capital by spending less and saving more as they plan for a downturn 
  • What it means when labor participation goes up
  • Strength of USD and what that might mean for US startups selling to cash rich countries 
  • Startup Tip of the Week: B2B pricing strategies


Transcript (this is an automated transcript):

MPD: Welcome back everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society through doing what they do best build in the future. And this podcast is part of that effort. We're getting back on a saddle here. We took out a month off for winter break and things have not slowed down for us.

We are on the go. Lots of business building lots of activities within interplay. I have a lot of travel scheduled. I'm currently down in Miami for a conference and getting me a talk with a group of other business leaders from around the world. Super interesting stuff, learning a lot. But the party has started and so today we're recording from my hotel room and we're gonna jump right into it, back into our partner meeting.

And we look forward to getting the show back going. We'll be producing weekly going forward until you're here otherwise. Ready or not? Here we go.

All right, Fong. Hello from Miami. You know I'm down here. Before you start, there is a bizarre phenomenon taking place down in Miami. I came down from New York's 30 degree weather for a conference. I am here in this wonderful, warm, tropical, 75 plus degree paradise, and I get an Uber. I get to the hotel everywhere I go.

It's freezing. I don't get it. The Miami folks blast the ac. It's 60 degrees everywhere when it's 80 outside, so everyone's wearing sweaters indoors, who knew? Anyways, so air conditioning's the worst. Yeah, I don't get it. You're gonna get a and like over air conditioning. Yeah, . Take it from 80 down to 70 maybe.

But isn't it like an understood human thing that like 70 to 72 is perfect , isn't that univers? 

Phuong Ireland: I'm too cold at 71, 72 is perfect. 

MPD: See, there you go. It's understood. . It's a universal under Anyway. All right, let's jump into today's lesson. We're glad to be back here. What do you have for us? 

Phuong Ireland: So today I'm gonna be talking about pricing strategies again.

So we've talked about pricing earlier on in the podcast, but it's such a com complex and important topic for both startups and later stage businesses that I thought I'd come back to it again today. So last time you went over the basics, three different types of pricing and talked about some general concepts across all sectors.

Today I wanted to specifically talk about pricing and B2B businesses, which in many ways can be different from gtc Strateg. A lot of startups make the same mistakes in pricing when they go to market. So just wanted to keep, give you guys a few things to keep in mind First. First thing is to engage your customers in determining pricing.

So yes, you should do your research. Know what competitors are charging, have benchmarks, look at customer data, but don't just sit in front of your computer. The most important part is getting to know your customers, meet with them, meet with as many of them as you can, and ask 'em questions about their experience and get to the heart of their pain points.

Use that information to come up with your pricing strategy. Some questions you can ask them is when was the last time you purchased a software solution or a service? What was that decision making process? Whose budget does it fall under? So if it falls under the marketing team's budget versus the sales team, they might be thinking about pricing very differently.

You can ask what they think is a reasonable price to solve their pain points and how much is too much for them. So you get an idea of a range of a, of where you can be thinking about. Number two is to keep your pricing structure simple. So keep it in line with how customers are used to buying and make it easy to budget from month to month.

So pricing is not the place to innovate here. If your customers are used to paying in a particular way, monthly subscription per transaction, per user, don't stray too far from that. Anything vastly different will just be another thing they have to wrap their minds around and then have to get buy-in.

And also don't create pricing that vary. Varies wild, wildly from month to month. If it's, if it varies too much, it's gonna be hard to budget for, it's gonna be hard to get approved, especially in larger companies. Tip number three, don't price too low. So a lot of startups end up pricing too low because they lack proof points, and therefore they lack the confidence to value the product for what it's really worth.

They'd rather price their product low to quickly land the deal than really spend the time to let the market tell them where they should be. And remember, it's easier to decrease prices than increase prices. So keep that in mind when you set your initial price. Tip number four. Build confidence and buy-in during your sales conversations.

So if you're truly solving a pain point and you have a great product, you should make your customers understand and fall in love with your product before you get into the pricing conversation. If a customer wants to talk pricely ear pricing earlier on in the conversation, they're likely price shopping and you don't really wanna play that.

If they really make you they quarter you to into talking pricing earlier on in the conversation, give a reach basic customers, pay this bigger established customers, pay this for more premium product. And then once you get to that point, communicate your pricing strategy in real time. So either. In Zoom or over the phone, if you send it over email, you'll miss the chance to get feedback.

So give them the price, let them process it, and then ask them for their initial feedback. I think you'll get really valuable information on May you know how to close this particular deal, or at the very least, get some information on how to approach the next deal. And then last. Keep revisiting your pricing strategy.

So just because you've gotten some market validation from a few customers doesn't mean it should be set in stone markets. And trends change, customer needs and budgets change. So stay close to your customer and constantly reevaluate. Pricing is really an art and not a sci science because you're dealing with people your, your potential customers who are making decisions on how to solve the problems.

So it's really best to get to know them, their pain points and understand the psychology behind how they're making the purchasing decisions. So that's it. That's all I have. Hope that's helpful. 

MPD: Yeah, it's super helpful advice, and I think there's an overarching thread in this. When I see a founder come in and say, We've created a new product that has improved the experience and quality of service in a space, and it's got all these bells and whistles and we're gonna be cheaper than everybody else.

I wonder why I'm bothering to hear the last and exactly. I don't think winning on price is usually the right game to be in, cuz it's typically a race to the bottom. The game is to win on creating. And so pricing should be an afterthought. That's yeah, you're gonna stay at the market price and you don't be more expensive or less expensive, but you're gonna do something better.

Now, there are some scenarios where you're fundamentally changing a cost structure of an industry where you've taken something that was labor that cost a hundred thousand dollars a year to do, and you've made it 5,000 because you've done it through technology. That's a different conversation, right? But when it's more head to head and you're upgrading some existing behavior or service, Pricing isn't really the best way to try to compete.

It should be around everything else. And so that is a different mindset. And by the way, I started a company way back that was essentially a negative price on search engines, right? The idea was you would use our search engine we had a feed coming in from one of the other major surgeons s at the time, and you would earn money that you could keep or donate to a charity.

It was essentially a negative. And that's where I came out and realized pricing isn't really what motivates people to make buy decisions. It's the thing they consider after they've already narrowed down the list of which vendors are viable, which solutions are viable, which things make sense for their life.

So pricing is an afterthought at some level. And entrepreneurs really, you gotta get the pricing right. You have to be thoughtful about it. Fong's advice is dead on, just. It's not the first. You shouldn't be going to market saying, we're gonna win because we have a lower price, full stop.

There's gotta be a lot more to it. 

Phuong Ireland: Yeah. If you have a truly differentiated product that provides a lot more value than everything else, then you really shouldn't have direct competitors that you should be comparing. So in such a detailed way, you're pricing against. 

MPD: Yeah. Thank you Fong. Awesome. As always.

If you're looking for more business insights, I've doubted a conference in Miami. Just met Ernie Levine, who's the founder of Ways and Another Unicorn. He's got a book out, very nice guy. He's got a book out to help entrepreneurs think about how to build businesses. It's Fall in Love with the Problem, I believe is the title of it, really centered around understanding problems more than solutions, and the solutions deliver themselves.

Sounds like it's an insightful piece of content. We're gonna link to it in the show notes, and hopefully it's helpful to y'all. 

Mike Rogers: Mark, I like your Florida appropriate shirt. 

MPD: I, I actually thought if I'm gonna be in Miami, I should be wearing lime. Doesn't that make sense? No it's 

Mike Rogers: very southern 

MPD: Florida on brand.

It's actually my only lime shirt, but it's polo anyway. Yeah. The more question, 

Mike Rogers: am I looking at it? Whoever designed the hotel you're seeing. 

MPD: Yeah, this is the W in Miami and yeah, it dated. It dated, yeah. 

Mike Rogers: I think w had their moment and I think theirs just, they just, I think they got bought by Marriott or one of the bake hotel chains and they just weren't able to keep innovating and yet so many other new hotels come in that it's just become kind of 

MPD: bled now.

Yeah. It's not it wasn't a wow experience, but whatever. Yeah. I'm a simple. Hit the bed. Yeah. Shower out. Out to do meetings. Yeah. No bedbugs. No bedbugs so far. You check no, I think you see my 

Mike Rogers: girlfriend walk into a hotel room. I'm not kidding. This is a true story. We walk into a hotel room and she goes, don't move, and she goes over to the bed and then she goes and pulls the sheets away to try to see if she can catch 'em before they run away.

But were there any bugs? No, never yet. I don't actually think you can catch bedbugs that way, to be honest with you. This, 

MPD: this is just paranoia. This isn't like a real, it's pure paranoia. 

Mike Rogers: And you know what? It makes her 

MPD: feel, I don't know why people are so afraid of bedbugs. What the fuck? You just, you take the, you trash the bed, you get a new bed, you spray some stuff.

Mike Rogers: They get in your clothes and the carpet, you kept the fumigate, the house Roscoe's gotta come in 

MPD: the bed. It's such a thing. I know a guy who. Like the bedbug clean guy. He, that's his company. He cleans the bedbug situations. Dude, Ben, we don't want, and when I met him, he was uncomfortable telling me what he did.

Cause I think so many people get worried that he's gonna transmit bedbugs to them like he's infected. And we had this whole issue conversation about it's a, there's a social stigma in his job that makes his life a little bit weird. It's probably like being an executioner 200 years ago. No one liked that guy.

There's the bedbug guy and I didn't even think anything of it cause I'm not paranoid about bedbugs. But whoever your friend is probably a problem. I'll tell you, not gonna beg story next time I see you. Okay. All right. I'm glad everyone is probably really excited to hear that banter. We're back at it, Mike.

Let's get the update. What are we 


Mike Rogers: I think it'll be fun to talk about how the new series A is the old series A. Again just 

MPD: a little different. Isn't that just mean? It's a Series A? 

Mike Rogers: They're calling it a seed extension man, so it's different. It's not the Series A, optics are everything.

It's just it's fun to see. I think, at, in the peak of the mania, call it a year to two years ago, then, you had founders raising seed extensions, but it was more opportunistic and, maybe they had a little bit of revenue and they could just get some more cash and the prices were high and whatever.

And then you'd see these monster series A 20 and a hundred, 2,030, et cetera, and those rounds were just absolute bananas, right? Those were, maybe 1 million a or businesses raising a hundred million valuations. So now what we're seeing, which is interesting, is that those companies are raising 5 million rounds at two or 3 million there r and it's anywhere from 25 to 50 million valuations.

And it's funny, they're calling them seed extensions and if you look at the news you'll set, you'll see oh, series A rounds are not down that much in valuation. Maybe only 10, 15, 20%, but in reality they're just calling it a seed extension and they're just raising their round that way. It's been a fun trend to see.

I think there's a lot of psychology around it, but at the end of the day, I think it's great for founders and, 

MPD: and great for investors. Someone told me once, When the government doesn't like the inflation numbers, the consumer price index, which is what they use to measure part of the inflation, they'll actually choose different brands of milk so that they can say, oh, it's inflation didn't go up.

Yeah. And they're looking at a brand of milk that maybe was cheaper before or whatever. This is the same kind of thing. This is a little bit of funny math. Yeah. Yeah. I feel like the numbers we're seeing, we talked about this before reported by PitchBook and all the ag, the organizations that are kinda aggregating the data, it's not their, they're not wrong, but what's being reported, we think is very carefully understating the change in valuations that were actually happening on the front lines of the market.

Mike Rogers: Yeah, it's at the point now where I don't tell people that we're a series A firm. I say that we invest in rounds between 4 million and 15 million in size. . It doesn't make any sense to tell people you're a series A firm. It doesn't mean anything anymore. It's cool, what's the valuation we typically enter a business at?

That's the way I think you, we need to think 

Chris Zhang: about it 

MPD: now. This is gonna, so my experience, I don't know like that, like when I started this business in oh six, seed wasn't a thing. Seed was synonymous with friends and family. Yeah, I'm doing my seed round. That meant you were like doctor's, lawyers, it was non-institutional capital. All that changed and it shifted things around. There's always these moving targets around the definitions. I have a feeling though, this is gonna just start to shake out in six, 12 months from now. Look a lot like it just did in 1819, where just yeah. We knew what they meant.

We knew what the labels. 

Mike Rogers: It's happening. I, maybe, I'm perhaps not as optimistic as you are that the labels will return to normalcy. I think the, once you, it's like this, it's like the consumer pricing index. Once you people learn that they can manipulate what they call something, they're never gonna stop manipulating it.

I think like I'm not gonna sit there at a founder and say, Hey, founder, no, this is your series A. If they wanna call it their seed extension, I don't care what they call the round, as long as it's a good company at an entry price, that's reasonable for us and our LPs. So I think it's like a fun dance that's happening in the market.

And yeah, maybe it'll shake to a certain point, but at the end of the day it's like, where are you investing? 

MPD: All right. It's been state of the market, more weird chaos as things get reset back to normal. 

Mike Rogers: Do you wanna talk about the thrive Capital Management Cosal? 

MPD: Only if you want to, man. Cool. Just to 

Mike Rogers: recap it was announced this week that a group of investors, a group of five investors led by Bob Iger and Henry Kravis of KKR are buying a minority stake in the firm Thrive Capital for about $175 million.

Should get them about 3.3% of the firm. I think the trend here is that it, it's the same trend that's been happening for the last really five to eight years. It's the institutionalization of venture capital. There's a lot of private equity funds out there that are publicly traded. You can buy stock in K R.

There's a lot of private equity funds that have had big sales where other firms, either by some of the management company or they sell, they go public. But you haven't seen that adventure capital. And what this really is, and with, the, with Sequoia flipping over to an RIA and now Thrive selling a portion of the GP and the management company is that you're seeing the institutionalization of venture capital.

And we knew this was happening already, but this is like the, this is the transactional viewing of it as well. 

MPD: This is what it's working. It's really interesting and I think it gotten to know Josh a little bit over the years. I think quite highly of him. I think. He's a bit of a trendsetter.

So my suspicion is yeah, when he makes a move like that cuz he's ahead of a lot of the pack. There will be other firms that look at this and follow. Totally. For sure. And the institutionalization broadly, I was having the same conversation last night with an entrepreneur. That the whole top to bottom ecosystem now is a conveyor belt machine, right?

There are certain expectations around stages, operating performance all the capital, almost all, almost all the capital now is institutional. This was like a club effort 20 years ago. Yeah. And even before that, where, your parents threw in some money, you tried something, maybe it worked.

If it stuck, maybe you could find one of those VCs. And then if you got with the VCs, then there was a machine, a conveyor belt for part of the journey. Now it's increasingly end to end. Yep. Institutionalized, professionalized, which I think overall is wonderful for, innovation and output. Totally agree.

Mike Rogers: Totally agree. So anyway, congrats to the Thrive team. It's awesome. 

Chris Zhang: Yeah. 

MPD: All right. 

Chris Zhang: Thanks Mike. Later, dude. 

MPD: Chris, we're back at it for the year. What do you got for us? Let's 

Chris Zhang: start with what we always do, which is inflation and the Fed. We have the headline is this, mark. We've had, we've come a long way from the peak of the inflation that we experienced last year.

Hot off the press this morning. We have the PCE inflation data, and again, this is the Fed's preferred measure of inflation. The print came out very interesting. Zero positive, 0.2%, month on month for December, which is the slowest since January, 2022, and significantly off the cycle high at 0.7% in October.

And core inflation, et cetera, showed the same trend. The best part of this report for me is related to what we talked about internally last week, that real disposable. That's inflation adjusted household disposed by income increased by 2.5%, which is slower than the month before and slower than the month before that.

And real consumer spending is actually decreasing at a faster than expected speed. So we're in December. It decreased by 3.4% and that's on the back of a negative 2.4 print in November. So as a result of all that personal saving rate, that's a percentage of saving, household saving a as a percentage of the disposable income has finally started to reverse the mean we talked about this, but over the past 10 years, us household saving has consistently forget about the the pandemic period.

That's, that kind of just messed up the whole data series, but before the pandemic. Household stated consistently above 6% in household saving. After January last year, we dropped all the way to 3% and we hit a low in September of 2.4%. Okay. And now finally, that, that trend is reversing this has, this to me is probably the best part of this of what we've seen in the past six months.

Households finally starting to conserve. I'm trying to spend less and save more and potentially plan for a downturn that's ahead of us. And the only blemish this report I have to mention is that inflation, as we talked about, has goods and services. Goods has been the one that helped inflation coming down in the PA in the past couple months.

Services, unfortunately, is still a little bit sticky still showing positive trends, and that's the part that we really have to watch for in inflation going forward. If we want to come back to 2%, which is the fest the fest target. And all this is to say that we're heading into another fed meeting in about a week less than a week.

And mark has completely priced in a 25 basis point. Increase the slowest since. The Feds started to hike really this hiking cycle. And I do think that's likely what's gonna happen. And the fed will slow down accordingly after that. So 

MPD: we're headline is the Fed's program of raising interest rates has had its effect, right?

It's brought the economy back into a new equi equilibrium. Do you think inflation is still gonna be the, it's been the topic for us, Chris, for months and months now. Is it gonna fade to the back or are we gonna still be talking about this every day? 

Chris Zhang: That's a good question. So up until now, right?

Every market participants main focus has been inflation, has been the fed. More importantly, the volatility that we've seen in the public markets and sometimes in, in the private markets has been largely driven by the volatility or uncertainties, right in the prediction of what's ahead in the macro in terms of app macroeconomic decisions, interest rates, inflation jobs, you name it.

Now that we've come a long way, inflation is showing the right trend and sort of actual data are starting to match. Predictions expectations and also what's priced into the market going forward. Of course, borrowing any major surprises from the inflation print or the fed guidelines on, on, on their interest hikes, which I think are very unlikely at this point.

I personally think that the volatility of the market will be more driven by the secondary effect of all these macro recomme data, which is corporate earnings. And speaking of corporate earnings, we're in the middle of it right now for q4 last year, Q4 earnings based on what we've seen, it's what we talked about before, which is, it, we're entering this sort of second phase of correction that corporate earnings are starting to adjust.

More importantly, the guidance for 2023 and 24 beyond are starting to adjust down. Financial sector. We've seen Goldman Morgan Stanley, American Express pretty horrible earnings and even worse guidelines going forward. The tech sector will also be hit Microsoft, really poor guidance, even though they beat earnings, but very poor guidance for 2023.

But on the flip side of that, airlines and energy sectors will likely do pretty well, just given, that's where sort of consumers still spending a lot of money and energy prices given the supply demand picture. On a global stage is still very imbalanced. To answer your question, coming back to your question earnings is gonna be very important.

Earnings gonna be what everyone looks at going forward. And the volatil, the uncertainties between prediction and actual is gonna be what's driving the volatility in the market. 

MPD: Okay? But you're not mentioning in all of this, you haven't brought up jobs. And like the unemployment rate seems like that's getting a holistic recap on the market, a missing piece of this.

Where are we with that? So 

Chris Zhang: this is where things gets a little bit interesting. And it becomes you have to really on the one hand, be patient. With the data on the other hand, try delve in and look at the underlying tone of the data. So the latest is that the non-farm payroll data, which is the number one job data in the US for December, has began, come out very strong.

We're at plus 223 jobs, 223,000 jobs in December, and that brought down unemployment rate to, again, a historical low of 3.5. So from the look at that, that gives the fed sort of bullets to, to march ahead in terms of hiking rates, and which is negative for risky assets. But if you look at the second part of the report, which is average hourly earnings, that has finally come down, right?

So it's still positive, but the growth rates has calmed down. and what's more encouraging is labor participation has also come up, right? So you can't look at the job data without looking at the unemployment rate and the job data in conjunction with the labor participation rate. If labor participation goes up, likely that will translate to some sort of unemployment or higher unemployment and potentially lower wage.

So we're seeing labor participation going up now, finally, which means probably households are exhausting some of their savings from the pandemic era. And they're now looking for a job which will hopefully, eventually in a couple of miles, translates to a lower unemployment, a higher unemployment rate, and a lower hourly earning rate, which will then translate to likely lower inflation.

But all that is actually still constructive for demand, which is corporate, which will then translate into corporate earning. So this is a healthy path. This is what I'm trying to say. And more attention will be given to it going forward, for sure. 

MPD: Okay. Anything else people should be thinking about or worried about right now?

Chris Zhang: For 2023 in particular we're going to see my my, my thought is that we're going to see a reversal of a lot of the trends that we saw in 2022, and one of them, probably the most important one for me that I think everyone should really watch out for is US Dollar, the Strength of US Dollar. The Fed was ahead of the curve in terms of hiking rates versus the rest of the developed market in 2022.

Therefore, US dollars saw a significant in increase in strength that translated into corporate earnings, energy has ramifications across the globe this year. Again, the Fed is, at least the market thinks that the head, the Fed is going to be ahead of the curve in terms of tapering the hype, right?

So in terms of this sort of just either staying on course or potentially even cutting interest rates toward the end of the year. And that has translated into the weakening of US dollar. In the past couple of months, we've seen, in fact around a 12% decrease in US dollar value versus the major peers in a PA since October.

So really in the past two to three months, this will then translate into many different things. Top of my head, what's relevant really for us. Think about the international m and a market. So firms, international firms that are based, let's say, in energy intensive countries that are already benefiting from the current energy dynamic and increases in price in, in, in prices of energy, which will have, will translate into a large amount of corporate earnings, now are getting another boost from the of US dollar which they do not have as their major currency reserve.

How would they spend the. One logical conclusion, especially taking advantage of the weakening of sort of the us M and a market and i p O market could potentially be that, that these firms are based, let's say in the Middle East or China come to the US and start really driving the m and a market, m and a activities in the US which could translate into nice exits for US firms.

And that could lift up the venture and private equity space. So that could be huge for us.

Also for companies that, us companies that have large international presence, we're thinking, McDonald's, Proctor, gamble, consumers and of course airlines as dollars weakens the demand of these product and services of these companies internationally will increase and that will then help hopefully.

Translate into earnings, Southeast companies. So many re ramifications that I think everyone should go through and really figure out and analyze how that specifically impacts how the weakening of US dollar specifically impacts their particular sector. 

MPD: Fascinating to think about.

It's standard to think about the change in the value of the dollar and it changes the equilibrium of what's being sold abroad for domestically. Got it. The idea. It's gonna be an opportunity for a buying spree for cash reg countries and American companies. Yeah, that's fascinating.

And probably does have a lot of really practical implications for entrepreneurs who are looking for liquidity right now. Okay. Thank you Chris. Appreciate your time. Of course. Pleasure. A reminder for everybody, Chris is an s e c registered, r a a. And nothing he said should be taken as financial advice.

Thanks everyone from Listen for listening and welcome back to the pod. If you're traveling to Miami this year, hot tip, bring a sweater. If you've got any other awesome travel tips, I always wanna hear 'em. Let me know and you can hit me on Twitter at M p D. Take care.


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