Amy Wu, Consumer & Enterprise Trends Through Covid

Awesome. Thanks so much for joining.

Of course. So, and Amy and I are here, we're going to go ahead and talk a little bit about some investment trends and strategies Amy's been seeing. So I'll just kick it off from the top. So I've been chatting with a few of you for a few moments. My name is Rachel Shepard. I'm the director of Global Marketing at Founder Institute. We're early stage Pre Seed Startup Accelerator. We operate in over 180 cities in 65 countries. And if you want to learn more about the pre Seed accelerator program and where we're operating, you can learn more at FI co enrolling and I'll have that link into the chat before we're done. But I'm here today with Amy Wu, who's partner at Lightspeed Venture Partners. Amy joined Lightspeed in 2019 and she has previously enjoyed both sides of the table as both investor and operator. She was an executive for several years, most recently at Discovery Inc. A global media company with 17 TV networks in 220 countries. And, and at News Credit Growth stage marketing software company based in NYC where she helped raise over $60 million. She has a BA from Harvard majoring in biochemical sciences and has summited over 14 Alpine peaks over 10,000ft. And that's a fun fact about Amy. So I'm so excited. Amy has generously provided her time. We've chatted before and founders learn so much from her because she's so forthcoming with the investor's mindset and how you think and the excitement and exciting things you see coming up and different trends. And so we're here today to talk specifically about how things have changed since we sat down right when Covid hit, right when the shutdown happened, and what she's seen from an investor perspective as she's witnessed what some of her companies have experienced and also just what you see happening in the greater tech industry, of course. So I'm going to kick it off with some questions, but I'd love to continue to hear in the chat where you're calling in from. This is wonderful. We'd love to engage with people from all over the world and, and secondly, if you have any questions for Amy regarding getting investment as a female founder getting started, as well as any trends, things like that that you see. Amy's got a lot of beautiful thoughts and really great insight on what she's been seeing happening from around the world as well. So let's get started.

Thank you for the intro, Rachel.

Yes, yes, of course. Anything you wanted to add Amy, before we get started with some questions.

No, I think you covered everything.

Awesome. So first and foremost I want to ask what investment trends have you seen in recent months? So just since the shutdown, just since COVID very high level, what have you been seeing?

Yeah, I think maybe I'll take a step back and just kind of explain like where people's mindsets were in both the entrepreneur and in the investor community. Because I think sometimes it's helpful since we just we look at over so many companies. Lightspeed is, we're a full cycle fund. So we have investments early stage like from seed all the way through pre IPO. We have about 400 portfolio companies across the globe. And so we do, we're fortunate to be able to see kind of across the board. What happened right when everyone wanted to shelter in place in the US is that, you know, I think VCs kind of had a spectrum of of how deep was this going to be? Was this going to turn into a recession? How should companies react? And Lightspeed along with a number of other, many other firms actually especially with partners who have seen multiple recessions previously, know that any large sort of like negative economic impacts like Covid that the, that there's typically like a fairly. There's a good chance for a longer term recession. And as a result our first instinct was to just immediately work with our portfolio companies and then just work with them around increasing Cash Runway to at least 18 months, ideally 24 months plus in a manner of different ways. Some of our companies need to raise a bridge note or a small equity round or a larger equity round because that was just kind of their fundraise cycle. Unfortunately they hadn't raised in a couple of quarters previously and they had just been out raising. Then there were some companies that needed to raise venture debt in order to increase Runway and we were actually very encouraging of people doing that. And so we also walked them through that. But across the board, particularly for companies that are clearly either neutral or negatively impacted by Covid, we had companies reforecast their plans and take the opportunity to reduce just cash burn to extend Runway and of course particularly consumer in some pockets of enterprise. And I'll talk about a couple of some of the categories that fall into this category but some companies are positively impacted by Covid trends because of the change in consumer behavior, but then also mostly consumer behavior and also just the shifts in where companies are spending. And so of course those companies each revise their plan in the positive. Most of our companies revise their plans down and so For a period about two months, myself and most of the other partners at Lightspeed just looked really intensely inward at our portfolio and really helped every single company with this exercise. So then kind of like emerging out of that, starting from about a month ago, we really like, we went through the first wave of just working with companies on their operating plans and then we were able to look outward and really see, well, actually how did companies get impacted. And the categories that you can imagine are positively impacted by Covid and that's in the areas of productivity, collaboration, online education, online health, so digital health, then I would say B2B also. So like, you know, companies that maybe sell into the call center because, you know, very high volumes of calls started coming in and then into like the travel insurance, fintech, finserve and some of the other industries. Then consumer, you know, you've got online food and then sort of like, you know, maybe like home furnishings, some of these categories and then like entertainment, gaming. These categories just massively accelerated through Covid to different degrees. But there generally were acceleration. And so we at Life's people even frankly investing through good times and bad times like bull and bear markets. And so we've actually been, maybe our investment pace has been decreased slightly over the last three months, but we've done probably like four series A investments in the last month and then working on quite a few growth deals as well. I'm a growth investor at Lightspeed. And then you can see kind of a similar pattern with a lot of VCs quite frankly. So I think we all kind of collectively came to similar conclusions. And right now what companies are thinking about is there's still a ton of uncertainty in the market. I think we were all sort of wrong around how fast the impact would, would be for the, for the stock market. I mean, stock market is high. I think it's down today, but you know, and, but the macroeconomic trends fundamentals still look fairly poor, you know, with unemployment rate at 9% plus. And so, and so there's a very, I think a lot of people are like, you know, I think another shoe is going to drop in a couple of months potentially or maybe a few months down the road. But there's going to continue to be adjustments and depending on like how Covid rebounds. It's a lot of factors. And so we are. Companies are just sort of on a holding pattern waiting to see. They don't want to be too conservative because actually like the majority of them have not missed their revised plans. In fact, they've exceeded their plans. So Far. But they also don't want to be too aggressive and hiring all of a sudden in case like, you know, a further adjustment does happen and they need to again. Right. Size their capital structure.

Right. So is there, is there. If a founder on the call right now is in an industry that's experienced, experiencing headwind or they're experiencing it already, what are like two or three things you'd recommend that they do right now they haven't done them already?

Yeah. So like as an experiencing negative, you know, trends. So definitely by now I would recommend that, you know, this is just a good, I think in terms of it's just a good time to get lean. I would say, you know, a lot of our companies have gone through a whole checklist in terms of, you know, reducing a lot of variable spend. And that's everything from actually like temporarily deciding to give up their lease. I mean, I think this is like one of the more extreme. I think something like 15% of our portfolio companies just eliminated the real estate lease because they're like, we're going to be shelter in place. We're going to be working remote 100% for some time and through like, you know, not like reducing T and E budgets, you know, cutting all new hires and like kind of like a whole checklist of things that they've done to just extend cash Runway in this period of uncertainty. And then at the same time, you know, right now we actually do have a window of, I think like a good window of investing funds have come out. They have become more comfortable with actually writing a check from beginning to end, completely virtual. And so if you are thinking about raising money, like, whereas two months ago I think it was very difficult, like now there's actually a window like where investors have now come out to do rounds again. And so you might want to, like, you might want to think about that and go out and do a quick round of fundraise or look into debt. That window may close again in a few months. We just don't know.

And so let's talk about that a little bit. If you're a founder right now in this position, do you feel like there's more opportunity for founders to reach out to investors that are maybe in a different location or market from them? And then secondary to that, what does that experience look like from when it comes to fundraising virtually, Are there any tips you have for founders in terms of getting across the table and reaching out through zoom basically at this point?

Yeah, I think there's like a lot of surveys probably still about Half or maybe more of investors are not comfortable with doing a virtual investment yet because so much of it is just about in person. These are long relationships that investors get into companies with. And so the in person element was actually really important before COVID And so I would say because of that.

It'S.

Still good to first talk to your existing investors and then also with investors that you have previous relationships with as a first, kind of like first reach out to those folks before kind of reaching out cold to new investors. But like, and then if you are reaching out cold to new investors, I would really just kind of qualify them at the beginning. Like how comfortable really are you in making. Have you actually made a virtual investment? You know, action is stronger than words, as always. And then just understand from them what the process is. Right. Every fund has their own like, similar to pre Covid, every fund has their own way of like from start to finish and making investment for Lightspeed. On the seed investment side, you know, it's getting involved with one of our seed investors, early stage investors in a particular category, it's having a few meetings and then, and then you know, sharing like vision sharing, some sort of like early traction that the company might have, then like gradually, like the investor will invite you to like present in a virtual investor meeting on one of the Mondays and then shortly after that, the investment committee decides whether to go forward with a check or not, with a term sheet or not. So that's like more or less. There's variations on that, but probably what you're going to go through. And it might be different though, if you're raising from like an angel investor that's not an institutional fund. Right. The angel investors will have their own sort of like checklist that they'll go through. But yeah, I do think that it does open up geographically, but I think like, maybe like less so than people think because ultimately early stage investors do tend to like to invest in companies in their geography because you know, they get very involved, they get involved in like product iteration, etc. And so there's, you know, once Covid is over shelter in place lists, I do think people will go back to meeting in person again, maybe in a limited way, but. And so I don't think, you know, all of a sudden angel investors will maybe invest in like, you know, another continent. Whereas before they, if before they didn't. But they might be more flexible in investing in cities within like, let's say the U.S. awesome.

Awesome. Yeah. So founders, if you're on the call right now and you're interested in building relationships specifically across the US like take advantage of this time where you don't have to fly out and be in front of an investor. You know, a lot of people are still doing some stuff digitally. And then don't forget to put your questions in the chat. You know, we're here to answer your questions. That's what we're here for and to support you. So please do let us know if you have any questions, big or small, about investments. That's what, that's what Amy's here to share her insights on. And so kind of getting. Where do you suggest one can learn more about investing? Shweta says. And would you mean to getting into investing on the investment side or from the founder side? Actually maybe I'll pose that to you, Amy. Either way, if you were a founder or looking to be an investor, where would you look for more information if.

You'Re a founder looking to get an investment? There's a lot of, there's a lot of people who have blogged about the topic online, I would say. And so start by just like quickly just googling how to run, you know, like how to like you get a, like a seed check and there's like great content that's been written online that has a general guidance. But you know, there's like a lot of like I would say the devil's in a detail and depending on what the sentiment is, like, you know, we're in Covid right now. There's like going to be some nuances around how to get a deal done. And so you can always reach out to one of your investor friends like just to have like that kind of level of conversations. Always, always pretty helpful I think in addition to just like reading. And then I would say getting into investing, it's a pretty gray area. And also like, you know, there's not like a lot of like direct paths to it kind of people kind of stumble into being an investor, particularly in the earlier stage. There's like a really large breadth of people with experience. The most common paths are that, you know, you were a founder or maybe like a head of product at like a company that you founded or a tech company or you already investor maybe in different asset class. And then you have a great interest in being a venture investor. And so you get to learn the space, you get to build your network and then you get to build a network with funds that you would like to work for. And then gradually they invite you to interview because I think very few funds actually post positions like funds are really small entities and so they're not looking to hire that many people per year. And so it's really just about VC is a relationship game. And so how you even get hired a fund is a very relationship based process.

Yeah, I would say one of my favorite blogs to read is Elizabeth Yin from the Hustle Fund. I think she writes some great stuff and she shares some good stuff too, if that's at all helpful. And so, okay, so Margo is asking and she's calling, she's coming, joining us from Winnipeg. She said if your town is small and doesn't have any investors in it or anywhere even close, how do you get notice elsewhere? So if you're a founder trying to, you know, kind of look into a bigger market, what's one of the ways that you suggest doing that is that hiring a team in that market is it, you know, how does one.

So if you're based on a smaller. So at some point, you know, if the town is small. I think a question that founders naturally ask themselves is like over time, as you scale, they naturally will need to like higher in other cities. But one of the things that is actually great is I always say the majority of our portfolio companies are thinking about partially just making remote work permanently. And so I do think like there is like a lot of opportunities to hire in new cities now with a new normal that is remote work, which is great. And it gives founders a lot more flexibility around where to maybe set their hq. And the concept of HQ really has changed since COVID as well. And so I think in terms of getting noticed in different cities, participating in a larger hub, like virtual tech events and virtual networking events. VCs do a lot of events all the time. Or kind of like organizations like Rachel's actually do events all the time. Way to meet other entrepreneurs and other people and investors in a, in a particular hub. And then, and so, and then of course like hiring some people in that city that already know the community, there is another way to also get to again know people. But like, I think in terms of like naturally as companies scale, they tend to leave just, you know, the immediate city that they're in anyway. And so that's a pretty normal expansion roadmap, I would say.

Awesome. And then Rushi, I hope I pronounced your name correctly. She has a question too. She said she's working with two other people in the initial stages of building an mvp. When is a good time to start talking to seed investors and seed money? You've already touched a little bit on this which is like there's a lot of networking involved. But we'd love to hear.

Yeah, there is. I mean, you know, founders I think that are raising seed funds might talk to like 100 investors. They have a list, you know, they have a pipeline. Like it's a very kind of just like systematic way. And you do need just volumes and numbers game, just talk, talking a lot and looking for that fit. I was saying that in seed, pre seed, there's kind of two buckets. There is the like if you're a founder that has like done at least one other successful startup previously and so there's like a, there's de risk or like can you get to the 0 to 1 phase, then investors are willing to essentially write a check into the company pre product actually you just need a crisp vision of what you're trying to build the market. And then you know, kind of like your next 12 months plan. Everyone should have like 12, 18 months plan. What are you going to do with your first check that you raise friends and family or institutional or otherwise and they're able to raise that money. But I would say for the majority of founders who this is maybe like their first startup, you need a bit more than that. Typically you do need friends and family who are just going to send you pre products. So I think you can always do around pre products or maybe with like a very lightweight like beta product on just that with friends and family. But for the next concentric circle, whether it's a small institutional angel investor, an angel investor who doesn't know you, you do need some early traction. And this is where it's actually like a signal for an investor how scrappy somebody is on what kind of traction you can get while you're at MVP stage. And that can be everything from you surveyed like thousands of people or companies or you've managed to get a couple of B2B Enterprise logos to try out your beta product for free, or even better if they're paying you something or you have launched a beta or you launched test flight, you've gotten a lot of people using it. And so I'll just give an example because the Clubhouse deal was pretty crazy and it was very, very fuzzy and all that was was about 1,000 users in TestFlight. And so like even with that the founder was, even that founder was not able to, I mean he didn't raise money like pre product. He actually had launched a beta by the time he took his first like pre seed round in. So those are some things to think.

About as to Just a follow up on that. If founders. So not every founder has a friends and family round as an option. And so like what do investors think about equity crowdfunding or crowdfunding platforms? Does that often prove traction and kind of help them get through that initial stage too as well? Or do you have any specific thoughts or.

I think that was probably more popular like a few years ago, but I think of more recently. I haven't really, I just haven't seen that as much. Like obviously, you know, however you get money, as long as it doesn't come with a lot of strings attached that would actually like make your company less attractive for a new investor to invest in. Like, so I would really be careful about that. Like I advise friends all the time and you know, they do, you know, in the C stage people do receive fairly like predatory term sheets where there's like a rofer for example, to invest in the next round, like 40% of the next round. I saw that recently in a friend's like term sheet. And I think some people think like, oh, you know what, like I can just negotiate that out later actually. Like, you know, those terms are put in there for a reason. And so the time to negotiate that is when you're getting the term sheet, not like after you signed it for sure. And it will absolutely like make your company a lot harder to invest in for a future investor if you're not careful with that. So I would say do be very careful about the terms you're receiving because the seed round and yeah, I like, was there like the follow up question around that, Rachel?

Right, yeah, no, I think there's actually there's a macro question from a macroeconomic question from Stephanie, which I think is great. I'd love to touch a little bit on this too is how much more do you expect? So in the past we've seen a surge of startups come out of a slow economy. How much more do you expect to rise from this Covid recession time? And I would, I would add to that, like, what do you expect to see for the fall, which is traditionally a very heavy fundraising time? They're all predictions in a, in a world we've never lived in before. Right. But I'd love your thoughts and opinions on that.

We're honestly just seeing a lot, just a similar, if not higher pace to startups being founded right now because of these unique situations. I think so. For example, in virtual events, collaboration space, like these two in particular, as you can see from the last call, but then also just like, you know, we're on hopping right now. There's been so much creativity in these two sectors and lots of founders starting companies. I think I saw a company that started a bunch of companies that started on the B2B side just managing remote workspaces and they were just founded honestly a couple of months ago and they just sprinted in order to go to market with the product. So I think founders, it's just incredible just how big of hustlers a lot of founders are. And so they're able to just get a lot done even since the beginning of COVID and come out into market.

Awesome. And then fall is going to be a pretty good time for fundraising like normal because normally generally speaking falls a great time to fundraise as a startup followed by.

I think it depends on the market. I think if the market has not sort of like if we're in a bear rally and you know, and that has like disappeared and we're actually just in a bear market by the fall, I think funds will pull back a bit more and the fundraising environment will get harder again. If the, if we are really in like a V shaped recovery like some people believe, then I think the fundraising environment will be strong.

Okay, awesome. And then do you think like the stimulus is working? Do you think some of that is actually playing a role in keeping some market optimism going and keeping some of these companies operating, you know, sort of above their, their, you know, sort of regressed projections? What are your thoughts on that?

Well, I think there's a lot of alignment amongst economists and sort of like fund managers right now that the stimulus is what's propping up the stock market for as long as it is. Right. There's been the largest stimulus in the history of the United States. I think something like multiple, like a couple trillion dollars essentially poured into the economy at this point and they, you know, kind of like 2,2 trillion the first wave and then it's just like unprecedented time. So I think. And all of that is essentially kind of band aiding over a lot of starting from like Fortune 500 sort of like debt obligations all the way down to, you know, startups I think ended up taking fewer PPP loans because of all the reputational issues and all the sports negative press around that. But, but I think, you know, it is absolutely kind of like a lifeline for a lot of the industry or kind of kicking the can down the road right now. I mean, given the fundamentals are that we're in a place where there's like, you know, some of the highest levels of Corporate debt that we're, that we're like, you know, that companies have right now in the US and so you would, the fundamentals would assume that there's going to be an adjustment to the market and that will trickle down. Absolutely. To tech as well, but we're not seeing that. And this is absolutely like a time when FAANG has been consolidating their power and actually accelerating their business. Their business fundamentals are spectacular. And so a lot of people are saying these companies are overvalued right now, but not by that much based on the fundamentals. But maybe government control regulation may actually like, you know, stop the continued growth of these companies. So there's a lot of like, uncertainty right now.

Right. And then Paula has a question for us. She says research goes or shows a lack of female founders in tech and AI especially. Have you experienced this? Have you seen this as a trend? And then I would add to that.

Absolutely. I mean, I think there's been a lot of really great discussion that we've had. And also, just, just in tech in general that there's, there's. There's really like, just not enough female founders and also like, you know, founders who are like, you know, people of color and you know, minority founders. And you know, how do we actually address. How do we level the playing field more and how do we address kind of like how do we encourage more of these founders to participate and start companies and. And yeah, absolutely. I'm an investor in AI and then I would say kind of like security and some of the other infrastructure, some of the. As this lightspeed and there are so few. They're like way. There's even like fewer founders in those categories. Like, you know, right now there's still a lot of founder, female founders that are in consumer tech categories. And I mean, I think there's like a feeling that they understand the buyer. Like, you know, consumer tech buyers tend to be female in a lot of different categories, and so they understand the buyers more. There's not like this. There's fewer maybe preconceived notions that a lot of investors have. They're actually looking for a female founder maybe in some of these categories. But I think in the B2B enterprise space, there's just fewer female founders.

And in AI in particular, we know how important that is because that has added effects. Right. If there's a less diversity pool building the technology, that will cause major problems I think down the road in terms of how the AI is used, it is really important. And it sounds like Paula Maybe you're familiar with the space, maybe you're starting an AI company which we'd love to learn more about.

I can tell you guys maybe there are founders in the room right now that are interested in starting a company in some of these infrastructure AI spaces, maybe security. And I would say for early stage funds for lightspeed at any stage, it is critical. The thing that we will look at more than anything else is the technical capability of the team. So this is something to think about. I've actually personally like angel invested in a company that's like a female founder who is building a company in the sort of like data infraspace and she's an engineer by trade and then she has really technical co founders. I think this is a very important quality. You know, if you're a female founder, you're not technical. It is very important for you to have a co founder that that is highly technical. Not just highly technical, but you know, is in maybe like the top like 10% of that engineer in that space. Because the differentiation is in the tech particularly early, earlier stage. And whereas some of the other categories I think the differentiation may actually be in go to market. Do you understand your customer more? Like in some of those categories like AI, the differentiation is in the technology.

Information. And so I would say as we're starting to get to a close a little bit. What companies are you most excited about, Amy, right now? Like what companies are you tracking and they're just like really exciting or where you're like oh, I'm really excited about this space and its potential couple of.

Spaces I'm really excited about. I mean we're investors in epic games and I'm personally I love gaming and I continue to look at like I talk to a lot of companies in the gaming space, would love to make more investments there. You know I'm a personal investor in online grocery and I've talked to probably every single online food company at scale in the last couple of months because I mean this is probably in the consumer sector has experienced more acceleration than almost any other category and we have a thesis that consumer behavior is just permanently altered in that space. We are extremely excited about collaboration and productivity. So continue to break down. If you think about it like the Google or the Microsoft productivity suite breaking down to pieces. People reimagining what spreadsheets and Google Docs look like. And there's a lot of companies in that space, older generation like Smartsheet, $6 billion like market cap company today at least I think. And then you got like The Notions and Airtables like the kind of the more modern versions like Monday.com and then new companies coming out right now in this Covid environment because everyone has shifted to remote work and so there's been so much creativity in that. We love that. We've made a number of investments in this category in the last couple of months and we'll continue doing investments there. And then I would say, you know, like on the infrastructure side, like I'm a believer that we're in this like 10 year life cycle of like you know, CIOs at enterprise companies all moving gradually from on prem to cloud infrastructure. And so this was like an incredibly like diverse and with you know, really great like great like technical tech progress I would say from startups even pre Covid. And people have continued to buy and you know, we've continued to fund companies through Covid.

Wow, that sounds awesome. Lots of exciting things on the horizon for lightspeed and for you. And I would just say in our last few minutes I would ask what is any advice you have for founders who are at the early stage right now? Any advice at all, more general, more tactical? Totally up to you. For the female founders all around the world who are joining us today, yeah.

I would say now is a great time as ever to start a company. So I totally encourage it. I think one of the things you should think about is in a very uncertain funding environment. Whereas like I think a lot of founders maybe pre Covid were like, well you know what, the funding environment is great. It's really honestly not that difficult to raise like 500k or a million, a couple million dollars if you have the right playbook. I think if you just, if you understand how to do it, like I think if you just, you know, no need to reinvent the wheel. Like there's so many playbooks around how to raise a seed ground and you should like absolutely do your homework on that before going out and doing it. But I think like in this environment it's only gotten a little bit more uncertain. And so like I don't, you know, Nobody knows in 12 months time when you maybe need to raise that a series A or institutional seed, like what the environment will look like. And so in this environment keeping your burn as low as possible and just being really flexible is a strength that I think a lot of founders can take advantage of. Because if you raise around now, like maybe you can go out and raise again in 12 months, but maybe like the window's not going to be available for another couple of years. You just don't know. So I would say like, you know, being lean in this time is definitely looked upon positively awesome.

And then I would say how can founders keep in touch with you or connect with you if they'd like find you on LinkedIn, I assume.

Yeah, yeah, you can find me on LinkedIn.

Awesome. Awesome. And any other parting words for founders before we sort of wrap up for today?

I just want to say thanks so much for your time like enjoying the session, really appreciate it and really great to. And thank you Rachel, for moderating.

Of course. Of course. Thank you, Amy. Your insights has always really helped founders and I think everyone on the call has learned a lot. I'm ready to jump over to my next session. I'm going to be talking about pitching and idea stage ideation if anyone's interested. But thank you ladies so much for joining us today. Have a wonderful morning, afternoon and evening and great day. Thanks everyone. Thanks, Amy.

Thank you.