Here’s what’s covered on this week’s pod:
Transcript (this is an automated transcript):
MPD: Welcome everybody. Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society, and this podcast is definitively part of that effort. Today we've got a normal partner meeting. We're gonna run through a bunch of conversations about the startup market the broader markets, et cetera.
There's a couple of patterns and trends you're gonna hear come up. One of which is most salient is we're starting to see the same reorientation towards profit. And KPIs in business fundamentals in public companies that we've already seen take hold in the early stage market. So you hear that in a few different segments today.
I think that'll be interesting. One thing I wanted to touch on that's not gonna fit within the rest of the partner meeting format today is a piece of content I caught last week. I'm a big documentary nerd, history nerd. I'm into all things where I feel like I'm learning. Used to be embarrassed about that, but definitely just part of who I am.
There is a segment that I think everyone should watch on Netflix if you're a subscriber. There's a series of mini documentaries called Explained and Explained as like 20 minute topics on 20 minutes on a whole load of different topics. Season two has a really interesting segment and it touched on something that I've always had feelings about and formulated my own opinions throughout my.
But it did a good job of crystallizing some of those insights and bringing something more to a close and giving me an answer. The question it was addressing was whether animals are intelligent, right? There's this overarching confusion in our society about whether or not animals are sentient or not.
And there's a little history behind this, which I'll share but this documentary, this 20 minutes, Makes a pretty compelling case, showing you the scientific studies done with different animals so you can see what types of intelligence they really do have and don't have. And so I thought it was, for me, very, it was an aha moment, something I'd probably been looking for more than a decade.
One interesting factoid, this is all hearsay from one of Yuval Hararis books, is that humans actually used to go around worshiping most of the. We talk about going from kind of polytheism, having many gods to monotheism with one God. What people were mostly worshiping were the animals in and around their lives.
And as we moved into more of a domesticated animal situation where we were breeding animals and slaughtering them worshiping them became a bit of a conundrum because you're killing your God. And that Yuval argues is one of the precursors to the birth of monotheism, an independent God that's not an animal around us.
So our relationships with animals has really swung, right? Where I think if you surveyed a lot of people today, at least my experience, there would be very mixed results around whether people think they're sentience, maybe they have real thought and feeling and emotions, or they're simply robotic like creatures that are on this earth for us.
Eat and consume however we want. The reason I bring all this back up is cuz I think the Netflix documentary gives an answer to that, that will hopefully help people take that information and formulate some different perspectives. Hope you enjoy it.
Mikey, I'm back at home. I know you're still out in Jackson Hole. How was it? It's love. Every
Mike Rogers: day is better than the one before the sunshine. Now
MPD: it's like your dream place.
Mike Rogers: It's my dream place. Yeah. Yeah. The sun shining today, which is I alluded to, is it's not my preferred Jackson weather, but when it does shine, we can enjoy it every
MPD: once in a while.
So what do you got going on in Jackson? Are you jumping outta helicopters or?
Mike Rogers: No, not this week. Yesterday we did a nice little sunset hike up glory Bowl, which is in Teton Pass, so some sunset skiing, which was a first for me. Never done that before. We got some good snow and a new friend of mine took me up for some fun laps, which was good.
Good, good times.
MPD: That's awesome. Yeah. All right. What do you got for us this week? What's going on? The venture. What's going on this
Mike Rogers: venture market? I'd say high level. It definitely feels like the market is starting to accelerate again. The pace of deals is increasing. Our pace of deal is certainly increasing.
I think we committed to two deals last month. It looks like there might be another one or two this month. Both at the early stage, and I think even more interestingly, back at the growth stage. And I'd say it's like early. Is the area where people are starting to check and get excited again, call it the 150 to 250 million valuation range.
And we're seeing the pace of deals there. Accelerate term sheets come in, founders pricing rounds, they're at reasonable valuations. There's a good expectation of what returns will look like on these deals. And
MPD: it's pretty exciting. It feels like that was quick. That's my reaction. Cause I feel the same way.
It's obvious. We're Fifth Gear 18 months ago. The market crashed. It didn't go to zero, went to third gear. And maybe it's an anomaly. It's too early to call it a data point or a trend. It's a trend yet. But yeah, feeling fourth, fifth gear again and holy shit. Yeah, that was quick, is my read on it for a market correction.
If it, if this is a pattern where it's actually going faster now and not just a January. Yeah, and we're
Mike Rogers: seeing in the news headlines too, people are like, where's the recession? Which is a little scary if you ask me, right? I think. We're not out of the woods by any means yet.
We'll see what, how the Fed continues to drive rates and what the job market looks like, which continues to be quite strong. But I think those two things in concert are a little scary because Feds indicated that they want to crush the job market, right? And slow wage growth and slow inflation.
It's not really working, which is I guess a good sign, but also a bad sign here. I'm not. Of the mindset yet that we're out of the woods and everything's clear. But it is encouraging to see that at least capital allocators like ourselves are starting to get more comfortable putting money to work in the markets, and founders are getting more comfortable accepting the terms and the new reality of where businesses price and how to grow and scale them with good unit economics.
I don't know if you saw Bob Iger was on CNBC yesterday and it was very interesting to see a seasoned CEO. Of one of the biggest companies in the world. Talk about how they got over their skis on subscriber growth and how they were growing unprofitably for Disney plus for a long time, and now they're shifting back.
They're shifting back to lowering expectations for subrow making, raising prices, improving unit economics. And it's wow if Disney and Bob IER can get caught up in this in. And then of course the third or fourth year, first time counter drinking caught up with this. The whole market is shifting.
It's for the best expectations have come back down to reality and deals are getting done again.
MPD: And you know this, but Chris's narrative on this market is that we actually might stick a soft landing or something like it. Yeah. So who knows more time to come now what's going on in the growth market, because that's the area that was most decimated.
, when the market. And I know you have a good announcement. We just did our first opportunity. Fun deal. Yes. You wanna, it's. Give us a scoop.
Mike Rogers: Sure. I'll start with the announcement. We did a first close on our opportunity fund one, which is a new vehicle that we've launched to follow on into our most successful companies in our existing portfolios.
So longstanding founder relationships, businesses that we've been involved in for 2, 3, 4, 5 years and some, and sometimes. And we did our first deal in a company called Leaf Link, which is a B2B marketplace for the wholesale legal cannabis. Very excited to back Ryan again and invest in what we think is going to be the largest technology
MPD: player in the cannabis space.
Yeah. They're a monster. Yeah. I feel like it's a marketplace and they've already won it. Yeah. They that's
Mike Rogers: the, that's the belief now that's what they can scale as new states need to come online, like New York, Connecticut, and New Jersey in the next few months. And that work continues to mature and, hopefully we move towards a better legal framework here in the US as.
Cool. Yeah. Overall
MPD: growth market how are you feeling? Are you seeing deals evolve? What are you seeing in the game? Yeah. As
Mike Rogers: I, I slightly alluded to earlier, there is, there was a while where anything kind of one 50 to two 50 or higher valuation was dead in the water.
The second would, would come to market or start sniffing around people just didn't want to take risk in that space. Most of those business models were too far upside down am like upside down again. Unit economics didn't really make sense for fueling growth. And now we're starting to see those companies have been able to right size unit economics, bring the business back into a place where growth is sustainable and they can actually put money in and out.
The other end comes better growth and grid unit economics and we're seeing the capital markets open back up for them. I think what's been encouraging is a lot of those rounds have not been mega rounds where you see companies. 50 million and that would necessary a two necessitate, a two, three, 400 million valuation.
They're raising 10 or 15 or 20 maybe. And that gives lets the dilution be right size the founder, get the right economics themselves. Investors get good ownership and valuations are reasonable. And it gives not only the cocktail, but the founders and the employees the ability to exit a company at a reasonable price.
MPD: Cool. Hello, Fong. Hey Mark. How are you? Doing really well. So you're not gonna be recording next week, right? You're on the road?
Phuong Ireland: Next week I'll be here The week after that I'll be on the road. I'm taking my husband and I are taking the whole family on a vacation to Erway and bu iss.
MPD: That's awesome. Have you been.
Phuong Ireland: I've never been to South America before. I've traveled all through the rest of the world, but never to South America. So we have friends who live in Ergo, so I'm, I feel like we'll be okay there. I'm a little nervous about taking the kids to, to ba just cuz I've never been.
MPD: it's not gonna be easy with kids cuz nothing's easy with kids, as you said. But yeah, I've been at BA a few times. We had business down in Argentina. We used to have a dev shop with a pretty significant footprint down there. So I've been to Iwai and Boars a bunch of times. It's great. Oh, I'm
Phuong Ireland: Yeah. We haven't done a ton of international traveling since Covid, so I'm really excited to get back on track on that.
MPD: That's amazing. Just pro tip sleep on the flight down the red eye, wake up refreshed, and you're in business.
Phuong Ireland: Yeah. No time zone change. And so it's no time zone
Yeah. The red is cold, but it's long. Red eye across the US is a nightmare because you've got like a six hour flight, you don't get a full night's sleep. This is if I remember, it's 10 hours. Yeah, it's 10 hours. Get on, snooze it, wake up, brush your teeth and start your day.
Phuong Ireland: Excited. Yeah, that sounds great.
It's better than the five hour, San Francisco, New York, red Eye nightmare.
MPD: It's a nightmare. Nightmare. Awesome. All right. What do you have for us this week?
Phuong Ireland: Mark, so last week we started a conversation around the power of brand partner. We talked about how they can be a great growth vehicle, how to choose a good partner and different ways to partner with other brands.
Then I think it was you, mark, who noted that landing partnerships with big brands can be daunting and difficult for your startup. So what I wanted to come back and talk about today is, once you identify the companies you wanna partner with, just how do you land these big partnerships as a startup.
So the first step is to do your. Learn about the brand's, customers, their product, their messaging key strategic initiatives they're working on. Look at how they show up in different channels in the press, social media, their advertising, and while you're doing this, triple confirm that they're the right fit for your brand.
And then understand the landscape of their company. Who are the key players, who are the decision makers? And figure out how you'll build relationships with. So in doing that, start by leveraging your personal relationships and make sure you're tapping into all of your potential leads. So it's your network, your team's, networks, and don't forget to leverage the relationships with agencies and influencers you work with.
Those people have huge networks and can often be a great resource. For example, when I was a founder, we worked and developed a close relationship with a fitness influencer who had done content for a ton of big wellness brands. She was able to introduce me to the influencer marketing contacts at those brands who in turn connected me to, to the partnership teams.
So just try to get a connection within the company. Even if you can't get directly with the key players, you've identifi. Connect with someone in the company who can make a personal intro to them. And then once you're in, try to find a champion within the team that and win them over. That should be someone who gets your vision, is excited about you, but is also senior enough to influence others and bring your partnership over the finish line.
And then once you get a meeting with a potential partner, clearly define the unique benefits that you bring to the table and what advantages they can get out of a partnership with. That could be a little bit daunting. In thinking about that, there are lots of reasons why a bigger brand might be, might wanna work with a smaller brand.
Maybe they wanna show support for emerging brands, or maybe they're trying to rein, invigorate their brand image. Maybe you reach an audience that they can't, or you can plug them into a conversation or a social topic that they can't have on their. So using that information, pitch them ideas that are potentially beneficial with the goal of bringing something to life that only your two brands can uniquely do together.
Make sure it meets their goals, and compliments their brands, and be a good listener, understand what their vision for the partnership is so you can deliver on that once the partnership is under. Be ready to scale. So if it's, if done right, partnerships with big brands can deliver significant growth in a short period of time.
So ensure that you're able to handle the growth that your website can handle the traffic that your supply chain production inventory can support the increase in demand. And then lastly, be patient. So I've worked at big companies for a lot of my career and I can tell you that things always take longer there than you expect, especially when you're used to working at working in a startup environment.
There's just a ton of processes and decision makers to get through. So be patient, don't get discouraged follow up with your contact, but, strike a balance between persistent and not annoying, which is I think great advice for a lot of different parts of your. So anyway, that's it, .
MPD: That, that's a terrific summary on that, and one thing that struck me is you talked about your channels into these relationships and obviously there's service providers and everything else.
The elephant in the room also you're investors and the people who maybe you're advising or incubating your company. Yes. Are a great part of, forgot about those people . Yeah. That you should select based on their ability in some cases to open those doors. So yeah. The whole cap table point must be working for the benefit of the company.
Phuong Ireland: Exactly. Yeah. Great. Great idea.
MPD: Very awesome. Enjoyed Boars. You'll be fine. All right.
Phuong Ireland: Thanks. Smart. Thanks for your time. I'll report back. Bye.
MPD: All right, Chris, you wanna do your update?
Mike Rogers: What do you got this.
Chris Zhang: Actually, before we jump into risky assets and markets let me just highlight one event that ha happened this week that I think is more important than anything else.
Of course, we got the magnitude 7.8 earthquake in Southern Turkey in northern Syria this morning. I saw the headline that the death wall has now increased and surpassed 22. So I ab absolute tragedy. I, it's, it hurts part of my soul every time I see a headline like this. Part of the reason is me personally I experienced an earthquake myself.
This was back in 2008 in China. Not sure what was the headline here back then, but it was a magnitude 8.0 earthquake, followed by a 7.9. In Citron China that ultimately resulted in over 60,000 death. I was about a thousand miles away at the time and yet still felt aftershock. I was in my dorm on a bunk bed and I just remember waking up and the entire building was shaking.
My bed was shaking, and I remember hearing cracks in the wall and people going down rushing down the floors. Trying to escape. And this is 850 miles, almost a thousand miles away from the epicenter of the earthquake at the time. So I can't, ima, I can't imagine what it's like to be in the center of it.
And my heart goes out to everyone, all, everyone was suffering at the moment. And and really hoping that people can be, as many people can be rescued as possible. To me it's extremely sad because it's an inf infrastructure. It's, you can't predict natural disasters, but, there's certain things we can do as humans is to make sure the infrastructure's in place that's heavy.
MPD: Grew up in LA obviously had earthquakes all the way through my childhood, but yeah. Only in a really bad one would anyone die And if they died, if someone died, it was fewer, more people died in normal car accidents that day than the earthquakes because the infrastructure was so good it could withstand the earthquakes.
Exactly. Going now, having traveled a lot and seen, the building code in other countries, it's terrifying. It's terrifying. And unfortunately, I see this headline of 22,000 people. It's so big you can't even process it. It's just a stat. It's like you just see it and check out.
But as a parent, if I can reduce it down to losing my kid if I were in someone's shoes it's terrifying. Yeah, sure. Echoing, hearts out to those folks.
Chris Zhang: So yeah let's talk about the market a little bit this week. I there's frankly ha not a lot has happened. But let's start with the aftermath of last week's drop data.
The short of it is, equity, the equity market, public markets really we're trading sideways all week, digesting the data processing. Powell came out with a statement in the middle of it. So people were really patiently waiting, but ultimately we ended slightly in the margin on the, in the red.
So we sold out 1% this week. And a lot of it had to do with what we talked about with market participants pricing in a higher potential interest rate given the drop data, which could then translate into earnings and et cetera, et cetera. One clear sign to me is if you look at a two tens curve, this is the interest rate, two year and 10 year curve.
You know how a lot of people have been talking about inversion, that's, which has high correlation with historical downturns. And that inversion as of now, is back to the historical lows. So we're at right around a negative 83 basis point, and that's on the back of one of the strongest 10 year treasury auction that we've seen in memory.
Just tells you, people, a lot of market participants are still looking to at least hedge their portfolios against a potential downturn. And by buying safe assets like tenure treasuries and embedding on the Fed being eventually accommodated and coming back down from the higher interest rates.
It's a reminder. Equity, a lot of equity sort. Market participants are buying auction, are buying options on the upside. And while the bond market participants are hedging themselves and buying by buying tr tenure treasuries and selling front end two years. So it's, there's a lot of disagreements out there, let's put it that way.
And we, it's very easy for market at this point to move one way or another, and in a drastic. So volatility will still be sustained. So that's the, where we're at the moment.
MPD: Mixed earnings results, any major trends you take away from this? What does this mean?
Chris Zhang: Yeah, so I, so let's talk about earnings for a second and then we can talk about trends from this. This week's a continuation from last week. We've seen basically both beats and misses, beats from the likes of PepsiCo and Disney and misses from the likes of Lyft and credit suites and other banks.
Y it's very messy based on the results, but if you really jump back and look at. Any trends that we can see here? I personally, I see two. One is that and this is one I'm, I definitely would want to monitor going forward. It seems to me that market markets are now finally really shifting their attention on pro profit margins, the bottom line, as opposed to top line growth.
I may use an example from Disney. Disney. Disney results obviously beat came out, but at the same time it reported less subscribers from Disney Plus. If you put this result in context of maybe 2021, 2022, it's very easy to see that just because of less of subscribers and and potentially less revenue top line.
This will result in some very negative reaction from the equity. But at the same time of this less subscriber data, Disney also reported effectively higher subscription price increase and therefore higher margin and better bottom line and market took it in incredibly well.
So I, I think this trend can be broadly expanded to other companies where, again the regime change here from growth at all costs to. Maybe next is profitability at all cost. And I think that has, takeaways and implications for private markets as well, right?
How investors are currently looking at how to allocate their capital.
MPD: The parallel is real with the early stage markets, obviously. Yeah,
Chris Zhang: exactly. Exactly. The and the second one maybe also has implications in private markets. I've talked. It's, reading these earnings reports and statements and I'm sensing that there are more references to the impact of the US dollar than let's say, in the past couple of quarters.
Of course 2022 big year for the dollar strengthening. But now, as I mentioned, two weeks ago, we're on the diverse of that, right? We're trying the dollars coming back down and in fact, on the back of what we seeing yesterday and day before where Mexican Central Bank came out surprise market hiking more than expected.
Japan doing similar things. So all these are, major currency payers with US dollars, which means if these currencies strengthen a dollar will be weakening. So the impact of dollar into earnings across all the companies, especially consumers with low margin, is going to be, in my opinion, very significant.
And we're seeing companies referencing do the dollar either the strength or the weakness of it and its impact more and more. So that's something that I think everyone should be watching and properly hedging in their own portfolio.
MPD: Got it. Thanks for the update and a reminder for everybody.
Chris is a s e c registered r a, so nothing he has said should be misconstrued as investment advice, yada yada.
Chris Zhang: Great. Thank you, mark.
MPD: Surrendering on a bit of a heavy note. But the world has real problems appreciating Chris bringing up the earthquake. And, hearts and minds are going out to the folks out there and what they're dealing with. Thanks for listening. We'll be back in next week.
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