Episode 17: Matthew Lee- Building a career in Venture Capital & Next Wave of Consumers- Gen Alpha
About Matthew Lee:
My next guest on The One Percent Project is Matthew Lee, partner Progression Fund. This is an interesting conversation on many fronts.
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In this conversation, he talks about:
His career in Venture Capital as an early-stage startup from pre-seed to now at product-market-fit with Progression fund that he built with musical.ly / TikTok alums.
What he learnt about himself and the VC space when he was in the pre-seed learning stage with a 67M fund and investing as an angel.
His take on why Progression Fund is a consumer-focused fund when the YCs and Greylocks of the world are bullish on B2B.
How Gen Alpha are digital natives, treat Alexa as a human and could turn out to be the richest generation ever.
The opportunity that foundations such as Bill & Melinda Gates bring for Venture Capital funds through the startups these foundations are funding which is solving hard problems with a bottom-up approach in emerging economies.
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Transcript:
*The transcripts are not 100% accurate.
Pritish: Welcome Matt to the 1% project.
Matt: Thank you for having me.
Pritish: You have defined your career in venture capital as an early-stage company, your pre-seed start in VC was launching a 67 million fund, and now you have product-market fit. As you say, with progression fund, which you have launched with musically and TikTok alums. What's the framework behind thinking about your VC journey as a startup of you and what are the learnings.
Matt: That's a really good question, as somebody who's been in the venture ecosystem, I've, come across companies that are all across different stages. And, that gave me inspiration to kind of think about my own personal journey in venture, in terms of stages as well because, at each stage, you're working on something different. You have a different team, you have a different, traction, you have different products and things evolve over time, and things can change, and potentially you have to pivot to achieve those wins, and then make those changes. So, I kind of thought about my career in venture, in three different stages. The first stage was my, pre-seed round, in, New York. That's where I started. I joined a firm called ventures, focused on series SaaS enterprise companies, and did that for about one and a half years. And really at that point, it was really just building foundation and understanding how. Venture capital works. I'm learning the business. I'm building my network. I didn't get through to too much investing. I was mostly supporting the partners on deals, and, I learned a lot about what I was interested in as well. I found out after one and a half years that, series A wasn't the best fit for me. Enterprise software wasn't the best fit for me, just like a startup. I was in search of something different or something that was a good fit. And, I shifted my focus to precede and seed stage. I believe that was a much better fit for me because I spend a lot of time on products because of my engineering background and then I shifted the focus to the consumer in frontier tech, where I was more passionate about, and I can really relate to and help those companies and, as a result, I, did my seed round, which was moving from New York to, to, to the Bay area in 2016. And I joined a firm called Sierra cm, benches, spent, three and a half years there. I was hired as a principal, and then I became a Partner in a fund. I helped raise fund three, help launch it. Again, it's like I'm learning new things, developing new skills, learning the ecosystem and now I have actually had a chance to invest as well, in the consumer and frontier tech space at the preceded seed stage, and that was my seed round and, however anytime that you're joining a, an existing fund. Some of those philosophies that you have may not, come to fruition because you have partners that have been there for a while for me, really, the graduation to my series a was starting my own fund, going through the process of fundraising myself with my new partners, the Musically tech talk alumni, to launch something brand new with a new thesis, with new thinking about how the world revolves and how the world works. and that's kinda like the, I guess like the series a journey. And, about that as finding my product-market fit in the venture space.
Pritish: What are your learnings from the seed fund and the investments that you have made in companies like lunch club?
Matt: actually for both bikes and lunch club, they were my angel investments. I did those when I was in between funds last year. There's a big difference in angel investing, and venture investing that a lot of folks, may not understand and I could run through a few. The reason I invested in Lunch Club, I had thought I had a thesis around, people needed to build professional relationships, and LinkedIn was becoming too transactional. And in-person meetings were kind of like the next wave. Instead of just paying somebody, messaging somebody on LinkedIn I'm on lunch club provided a very, good product, that became like a weekly ritual for a lot of people, that allowed you to connect and meet other people to build your network. But what I have done that from a seed fund perspective. I'm not sure because as an angel investor, you're really just spending most of your time thinking about whether this is, whether you like the guy or not. I basically ticked off a few boxes and, it was a small cheque from my personal side. And then same similarly with Bolt Bikes, it's I just really liked the founder, and no didn't really have to think about things like how big is the check size, because it wasn't involved in the fund. It was just my personal investment. Didn't really think, have to think about things like ownership, and, the traditional things that you had to think about, at a seed-stage fund. What I learned from the, one of the biggest things that I learned from fundraising and raising a $67 million seed fund, was one mistake that we made. We actually raised the fund over three years. First-year the fund was 15 million. The second-year fund was 30 million, and the third year fund was 67 million and, that becomes kind of problematic, especially because of the early. Investments that you make, and they're not, the side, as of those investments are not matched, fund size. Basically the first, let's say the first 10 investments where like, 150 200 K cheque ownership wise, they probably like 1% of the pre-seed seed-stage company. But, as the fund group, that ownership we need to basically, we needed more ownership. To and write larger checks. The first 10 or companies were just kind of like wasted. that was a big learning for me. And that was one of the reasons why, for this new fund that I'm raising, we're only targeting, 10 million. It's something that we can in one year. It's something that. We can deploy and manage quite well as well, and we can write like a 200 K check and take a two to 4% ownership in early-stage companies. Those, I guess that that's probably the biggest learning, in terms of managing a fund that I learned from, from fundraising and then raising a seed pump.
Pritish: Progression fund which is your next thing is focused on the alpha generation, and in your hypothesis, you've mentioned that you think that this is going to be the richest generation of all the generations What is the logic behind that?
Matt: We're not just focused on generation alpha. It's one of the areas we're focused on. Our thesis is really around behaviour change, and what really drives behaviour change. We identified three things. The first one is generational differences. Different generations use different platforms, have different behaviours, interact with technology in different ways. , and generally, will be a driver, for a new platform to emerge for example, musically really came from gen Z girls, it was a nice operational platform. It came out because it was completely focused on a new generation. It was focused on gen Z, especially gen Z girls. , that's like the first part of our thesis. The second part is out around emerging technologies and how they have an effect on people as well. For example, things like voice. technologies, younger generations are now adopting voice technologies like Alexa and Google home. And, some of the talking to some of my friends who have, who have, kids like two, three, two to five-year-old kids, some of these kids are giving they believe technology like an Alexa is not just technology itself, it's almost like a human being, somebody that can talk to any time anywhere, they'll go to a friend's place. And then they'll just be asking about Alexa questions. So, that kind of behaviour is, is, because of these emerging technologies, people have new interactions and new behaviours, and this other thing we identified was historical events have a big impact on behaviours as well. In China in 2003 with SARs, that's where Alibaba and jd.com really started taking off and building that e-commerce empire in China because people had to shop online because they were locked out. And similarly, with this, I guess this historical event COVID-19, it's now really affecting, not just China, but the whole world. So, we believe all three of these things, are converging now to create this moment in time where behaviours are shifting, across all generations and across all geographies. Gen alpha is one that we're focusing on now, in terms of our early thinking, because it's something that's very new and not a lot of people know about it. The reason we think gen alpha is potentially one of the richest durations is that, firstly, the growing up with tech as young as one year old. So, they're playing with devices. They're playing with voice technologies, 5G coming out that probably going to be playing with AR VR, maybe even autonomous driving, autonomous vehicles. The interaction with technology is at a very young age. They will be the most tech-literate, and likely they're going to be hacking, solutions for everything. As they grow up and, get a bit older. That's the first part where we think that the most, tech-literate and, and the second thing is where we believe that this historical event has debunked the notion that change only happens over time and not overnight, and because of COVID literally, overnight, people are wearing a mask, overnight, people are staying at home. We believe that because Gen Alpha is witnessing this at a very young age, they will be the one generation that'll be like, anything can be done. Anything can be possible. Anything can change overnight, and they're going to find a way to hack and build it that's the reason why we think they're going to generate a lot of wealth, [Not Clear] generates a lot of, knowledge that's going to drive them forward because of some of the things that I'm experiencing now and because of technology and the differences with some of the other generations.
Pritish: What you think is the possible innovation or advancement that the consumer tech industry is still to explore because if you look at the major funds specifically based in Silicon Valley, Greylock partners and others, they tend now towards more on the B2B side and they see that B2C is flattening. What is your take, in the consumer space?
Matt: That's a great question. And, we have, I noticed that in the last five years or that SaaS is really just, enterprise SaaS, especially is, really picking up and, and you can see it in the w YC companies, Y Combinator, nowadays they have about 200 companies and, I use, I always use YC as a good indicator of what's going on in the market. And, for the last two or three years, Or maybe it's two or three batches most of the companies have been enterprise SaaS companies, I'd say probably 75% and 25% consumer companies. So, why are we focused on the consumer? And I guess like, where are their opportunities? Is the question? The reason I definitely, because we're focused on consumers because we were the team that built the. Biggest social media network in the last, five years that's kinda like our bread and butter, and we see some trends that are changing, especially for Gen Z and Gen Alpha. We believe there's going to be the next generation of platforms that's less focused on, these one to many platforms, one to many broadcast platforms, like a, like a Facebook like Instagram or even a tech talk. And we believe there's going to be a wave of collaboration platforms. We have people. Co-creating and Co-collaborating together to create content that's kinda like starting to think ahead of where I guess as new platforms will emerge in the next five. No three to five years would say, and kind of like take over from a take talk potentially with gen alpha driving it or the younger gen Z driving it that's the first part. The part around, this applies more for the, if you look at the comparison between us and China, in terms of consumer investing over the last, I'd say 30 years or so, we believe the first wave, came out in 93 when the internet came online. There was a rush to bring everything online. Yet companies like Amazon companies like Google. Emerge during that timeframe. And then you could compare it to China. China was a little bit later. The internet came online in 95, and then companies started emerging like alibaba.com in 99. And they didn't really take off on suits three. You can argue that China was probably like three years, maybe even five years behind the US at that stage during wave one or cycle one, and then, cycle two came when the smartphone came out in December 2007. That's when the iPhone came out, in the US and, and then, there was a rush to amplify everything. Let's put everything on, on the app store, essentially. And then, you had companies like Instagram. Yeah. Companies like Uber, Airbnb, Lyft, all these. Big companies emerge around that time. And then if you look at China, the food iPhone was sold in China in 2010. again, it was like two years behind, and then the big companies didn't start emerging until, 2012, whereby dance was launched and musically actually, launched into some 13, but not as musically as an education short video company called Zula, based out of Shanghai. And then they had to pivot to music musically 2015. So, again in the cycle too, there's, there's been a lag. China was about two to three years behind the US, but if you look at the last five years in China, And we believe for a few reasons. China has now overtaken the US in terms of consumer innovation. Just things in the last five years have moved quickly with Wechat with the democracy of payments, basically, through Tencent and Alipay is much easier for people to interact over mobile. Yeah, you had companies like Pandora. Yeah. Companies like mofo by mobile OFO, Mobike, and, and obviously, musically came from, from China and by dance. I came from China as well. And you had live stream shopping. You had, Taobao live, emerged three years ago and is now like blowing up and a lot, all of that has not come over to the US yet. The bike stuff has musically, TikTok has, but musically take talk is still about three years behind doughy in China. In terms of monetization, now you've got both, you've got line bike here in the US obviously you can't take a Chinese company concept and just like planted in the US you still have to localize it because there are some subtle differences between Americans and Chinese people. And, we believe there's going to be a lot of learnings from China that hasn't come over here to the US yet, which we can explore. And one of them is live-streaming shopping. And because of COVID, A lot of these retailers and small business had to shut down, and a Livestream is now really picking up in the US with Livestream shopping. There's Amazon introducing Amazon live. Instagram is introducing Instagram live. We have a portfolio company called pop shop live. That's doing live stream shopping and, basically Shopify for live streaming. Essentially. That's doing really well. Basically, we're trying to take some inspiration from, from Asia, from China, and then looking for opportunities and see if they can be adapted to the US market.
Pritish: Some of my friends in mainland China, they would say, and mainland China's tech ecosystem and Silicon Valley ecosystem are almost equally, equally mature that mainland China is still exploring. And on the tip of the iceberg of B2C and Silicon Valley is potentially has crossed the gov and moved on to B2B. But you do see that there is, as you mentioned, collaboration, a lot of B2C businesses will be made adaptable to the US market that could be coming from China or Asian and African countries. The other current news, which is potential Tech-Talk acquisition by article, let's see if that happens or not. How do you see this acquisition? Because Oracle is taking a very similar bet like Microsoft did by taking over or buying LinkedIn, moving into the social media space. I don't know. What, what is the logic behind Oracle acquiring Tech-Talk or their ambition of getting into social media?
Matt: that's a really good question. Oracle really, Oracle, besides being a big enterprise company, they do have, Oracle marketing cloud. Which, does a lot of ad tech and, obviously on the enterprise side, but, that's where they can really benefit from partnering with TikTok
if about TikTok as distribution, and, Oracle as being the backend for, as a marketing partner, it could be very powerful. But I don't think advertising is a good model for TikTok, or any kind of new social media companies, subscription. And, in-app purchases or kind of like social commerce is the next wave that's coming, and Doquing in China already partnered up with, jd.com to provide live stream shopping on Doquing in China and they're doing pretty well the Oracle partnership with Walmart. Plus TikTok, Walmart is providing the supply of all the products and, and then take talk as the distribution and then Oracle as the backend, kind of like, personalization of products and marketing of products that might work. The challenge would be big companies coming together. Affecting the creative culture of a very aspirational platform like musically TikTok is that going to have a big impact on them possibly. I'm still kind of waiting to see it happen and to see if it actually is going to turn out to be successful a little bit sceptical here.
Pritish: I could see why Microsoft wanted to get a buyout LinkedIn, because the customer base is potentially the same because they are selling to corporates and professionals. There is an overlap, but Oracle and the kind of generation that exists on TikTok. I don't know-how.
Matt: Doesn't make sense.
Pritish: but who knows? Magic happens all the time.
Matt: Yeah. Who knows, then, and then like Walmart stuff, like gen Z, you want to buy Walmart, Walmart stuff? I don't know. So.
Pritish: Yeah, but again, you see that is a part Gen Z is definitely buying things from Walmart. Maybe there is an overlap and as you say that the alpha generation is going to be the richest. Everybody wants to get into their wallet, share as soon as possible.
Matt: exactly.
Pritish: I was reading this, and I found it interesting -The next decade is not going to be Amazon, Facebook, Google, but it would be coming out of the bill and Melinda foundation, and the take is that if you look closely at the kind of hard problems that they're solving, it comes clear that it is the best place to change human experiences because the Fang companies, which is Facebook, Amazon, Google are solving first world problems, impacting a population that is already aware and already has all the basic needs fulfilled. But the Gates foundation is busy solving problems for a huge underserved population. And they are gathering a lot of press, information and data from these kinds of organizations and the work they are doing in Africa, Southeast Asia, and they're basically working, bottom-up kind of, ecosystem, and the fangs have actually done are top-down. What do you think, is this something which is insightful or this is where there could be an opportunity.
Matt: Really interesting; actually, I haven't come across that, but I'm going to look into it a little bit more. I actually do think there is some merit to that kind of thinking. , a lot of the big tech, they're kind of products. That's not really, and I guess like focused on making tech very human or using tech to drive humanity forward, kind of thing. So, using tech in very, I guess, like, novel ways that are helpful for people and then that's, that's one of the things were a lot of these apps, they kind of, built in a way to, to basically hog your Mindshare, and to make you addicted that you spend more and more time. A waste more and more of your time inside the app. I do think there is some merit to thinking outside the box and kind of rethinking how we design products that may serve a greater purpose and can be helpful to people. The power behind the Melinda Gates Foundation and some of these other, for example, like climate change-focused funds, they can drive. I love change forward and for a lot of people. And about, as this relates to gen Z and gen alpha, especially gen alpha, where, they will be early adopters for everything, and they won't believe that change can happen.
Pritish: if you look at it, it seems that they're working on the same technologies and the same challenges, but, bottom-up. They're looking at health; they're looking at finance; they're looking at, polio vaccinations in schools. It is what we call in the advance world Healthtech, FinTech, Edutech. When you go to a third world country or an emerging market, you just don't see it like that. You just see that these are basic needs that kid who was born in an undesirable situation. We do not dumb it like that, but at the same time, as you said, the impact of the bill and Melinda Gates foundation is huge, and they have such a span that the collective information. Across these countries is very valuable to build an infrastructure and invest for these bottom-up, products and services.
Matt: Definitely. Definitely, especially, and then there's the thinking that, That companies that are targeting some of these emerging countries that don't already have a lot of infrastructure in place, can become very big because if you look at the US, one of the reasons why change is difficult is especially around payments of these like banking systems, it's just layers and layers of infrastructure hard to get people to move from writing a check. To mobile payments or even online payments. Whereas like you look at China, like, in the last 10 years it's just gone straight to mobile payments, and that adoption just went through the roof. But here in the US was still writing checks. I guess emerging economies where you could be the first one in, and you're designing and building a product, that's serving a mass amount of people you could be a big, big winner there.
Pritish: Three quick for rapid-fire questions. The hardest thing about your job?
Matt: That's a tough one, saying no,
Pritish: One book or a blog that has changed your professional and personal outlook.
Matt: It's called a Three-Body Effect. It's basically an engineer from China, and he wrote a book pot time, and it became one of the top-selling books, science fiction books in the last 10 years. The idea behind it is that it's going to that thinking around. Like a lot of these inspirations are coming from China in the last five, 10 years, and does being zero science fiction from China until now.
Pritish: Your most favourite superhero?
Matt: Ironman.
Pritish: Thank you, Matt. It was a pleasure speaking to you.
Matt: Thank you, much.