Snapchat’s first investor on the slowdown in funding: 'The tourists have gone home'

Jeremy Liew is not afraid to speak his mind — even when his opinion may be unpopular, or even scary.

A partner at Lightspeed Venture Partners, Liew and I first met last week in Las Vegas at a conference for retail investors and brands called Shoptalk. All the panels and discussions were about the future of retail and e-commerce, yet no one wanted to talk about Amazon. A giant player that controls half of all e-commerce sales, Amazon was avoided as a topic of discussion by investors and founders alike.

That is until Liew stepped on stage. 

"Amazon is not your friend and that is really the bottom line," said Liew, who is an investor in Bonobos, Honest Company, Snapchat and Luxe. “They have done a fantastic job of sucking the unit economics out of e-commerce from everybody. If they haven’t sucked it out of you yet, just wait.”

Given his candor on stage, I asked if we could meet up to talk about other topics in startupland as well. In an interview, we discussed everything from trends in startup investing to the slowdown in private market funding and what founders should learn from Theranos. 

Caroline Fairchild: What trend in tech are you most excited about right now?

Jeremy Liew: There is a ton of activity around VR, AR, and AI/bots right now. But one area that I am personally very excited about is triggered by Facebook’s live video product. Facebook has opened up an API for video to third parties, and every time that Facebook has opened up access to its huge audience via an API, some companies have rapidly grown to reach hundreds of millions of users. This happened when they launched the original Facebook platform; think Slide, RockYou, Flixster, when they opened up the right rail for ads; think Groupon, Zynga, Gilt, and when they allowed external links in the feed; think Buzzfeed, Huffington Post, etc. Some of these companies lasted and some did not. The ones that lasted aligned their interests with that of Facebook in the long run. I think we’ll see some companies taking advantage of the ability to grow that this new API offers up and will build lasting and valuable companies. 

CF: The retail environment right now is very bleak. How can startups take advantage of that?

JL: Whenever value is being destroyed somewhere, it is being created somewhere else. The legacy retailers are struggling to deal with their legacy cost structure as shoppers move rapidly online and to mobile. Commerce companies that are born online and mobile have a strong advantage in their early years because they are riding the wave and don’t have to deal with any legacy issues or channel conflict. Eventually they might move omnichannel, but the fast iteration and innovation that being born digital affords helps them to quickly find product-market fit and then scale. 

CF: You were the first investor in Snapchat. What do you think you saw that others didn't?

JL: To some extent I was lucky, as I met the company at a point when they were hitting very rapid growth and showing strong engagement and retention, yet were still small. The founders told a compelling story about why the growth was happening and they convinced us that there was a real sea change in the way that millennials wanted to communicate with each other. And they couldn’t pay their server bills. So we offered to help. In addition to investing, we also provided them with their first office space, introduced them to their law firm, and helped with the hiring of their first two engineers who were alumni of our Summer Fellowship program. But the credit for the growth in the company belongs to Evan [Spiegel] and Bobby [Murphy], not to any of the investors. 

CF: What about that success do you feel can or cannot be replicated in future investments?

JL: Snapchat is a special company, and its founders, Evan Spiegel and Bobby Murphy, are special people. Companies like that come along once a decade or so. Most venture capitalists would be lucky to see one company like that in their portfolio, so hoping to replicate it in a future investment might be too much to ask! But one thing that I always look for that I saw in Snapchat is the high proportion of young women in the initial user base. Young women are the group that shape and predict popular culture. What they do today, many will do in the future. 

CF: There's a lot of talk right now of a slowdown in VC funding, yet firms are raising more money than ever. What's your take on this trend?

JL: The past few years were anomalous as we saw a lot of funding for startups coming from non-traditional sources, including many individual investors, mutual funds, PE firms, family offices and sovereign wealth funds. Many of these sources of capital have since left the market. Tiger Global is a great example; they invested heavily over the last few years, but their pace has slowed significantly recently both for new investments and even for some of their existing portfolio. This leaves the professional venture capitalists continuing to fund and support startups, as has always been the case. It turns out that funding and nurturing early stage companies is harder than it looks! The tourists have gone home. 

CF: What do you think we can expect to see in the VC funding market in the next six months?

JL: The next couple of years will look like a normalized financing environment, like say 1993 to 1997 or 2005 to 2012. Great companies will continue to get financed. 

CF: Theranos finds itself in the news again. What should founders learn from it? 

JL: Many startups abide by the motto: Move fast and break things. If you’re building a social network, and the worst that can happen is that someone's photos get lost, maybe that is OK. If you’re in a heavily regulated environment like healthcare or financial services, that is definitely not OK.