David Sze | Nextdoor Reflections

Hi, everyone. Welcome to Grey Matter, the podcast from Greylock, where we share stories from company builders and business leaders. I'm Heather Mack, head of editorial at Greylock. Today we're thrilled to share the news that Nextdoor has gone public. Greylock has been a partner to the social networking platform since 2012, and Greylock General partner David Z sits on the company's board. David joined me on Gray Matter to discuss this exciting milestone for Nextdoor. We will also cover his experience over the years working with the company and talk about the ways local neighborhoods help create a more connected global community. You can also read a transcript of this conversation on our website greylock.com blog, and you can find all Gray Matter episodes by subscribing on SoundCloud, Spotify, or wherever you get your podcasts. David, thank you so much for being with me today.

Oh, thank you for having me.

So today we're talking about Nextdoor, which has officially gone public through SPAC and is now trading on the New York Stock Exchange with the ticker symbol kind. You've been involved with the company since 2012, when Greylock led their $21.6 million funding round, and you've continued to invest since then. Let's start with how you first met the Nextdoor founders. Describe your initial impressions.

I knew the founders actually all from very different backgrounds in my experiences. One, Sarah Leary, who was one of the founders, actually was an associate at Greylock when I first joined and so we overlapped and became friends there. Sarah since I joined to help build out the consumer side and she was very much moving into the consumer side of the world and so we stayed friends for a long period of time. Nirav, who founded Epinions, I met through Sarah, but also had met through his time at Yahoo when he was involved with Yahoo. And then the third founder, Prakash, actually I worked with him when I was at Excite at home. He was one of the engineers there and was one of my favorite engineers to work with. A young, upcoming, brilliant and can do kind of guy. When they came to me about investing in them in their first form, they were doing a network that was really about how do we become sort of ESPN for amateur sports. It was called Fan Base then I'd looked at a number of things that had tried to do aggregating up that portion of the market and it's just very distributed. It's very hard to get people to aggregate up. It's very hard to get people to pay or to be paid as an advertising side. And so I thought it was going to be a long haul, at least from my experience, and a difficult business to build into. And I love all three of the guys. It was one of those classic kind of dilemmas of you invest behind the people in an idea that you aren't so sure about. Or do you say, you know what, I'm going to wait? And in this case, it was just a journey that I was not as signed up to as they were. And so I ended up passing, but staying in touch with the company. And when they pivoted, they came back and said, hey, you know, now we're doing something different. Would you like to look at this? And that was Nextdoor.

It's interesting because Greylock has famously invested in some of the most durable social networks of our generation, probably the most. And including previous portfolio companies like you said, Facebook, Instagram, LinkedIn, musical ly, which is now TikTok, which is larger than life discord. And you led many of those investments and been actively involved in all of them. Nextdoor is really different, but it's still managed to be a durable network. And so you didn't invest when the company was founded in 2008, but you were one of the first to invest after their pivot to what Nextdoor is today. And what had they done with the pivot that changed your mind?

Well, yeah, so the original investors rolled over and then into the new company when it pivoted, and then we joined in soon thereafter. The things they had done that I thought was really interesting was they had found a new space in the social networking fabric that I actually had not seen. And so, as you can imagine, having been involved with Facebook and LinkedIn and any other number of the social networks, I got to see every social network come across my desk. And this was the first one where I sort of stood up and said, this is interesting. This is part of our social fabric that has not been built upon and the value has not been created for us. Connecting as neighbors. There also was a meme of the Internet really creating separation of people at that time. The idea that people would stay in their homes and be on their computers on the Internet, and they'd lose external connection. And so I really liked the theme of Nextdoor, of bringing together neighbors using the new technologies, but really about connecting with your neighbors and really engaging sort of this online, offline way that was kind of special. And then the last piece, I think, is we all live our lives locally is the bottom line, and there's this connection to each other because of that. And then there's this connection to local businesses and small businesses and the businesses around us. And that's a really important untapped market as well.

Those all sound like really solid reasons, but I'm sure you got some pushback from some of your co investors. What was that like?

Every social network has its advantages and its challenges. I think one of the things that really appealed to me about Nextdoor was, was at the same time there was a team that had come out of Twitter that had started something called neighborhood.com and they took very much of a kind of like classic Twitter Facebook approach, which is sign up, we'll suck in your address book and then we'll sort of spam out all your users and we'll try to build and get hyper growth that way. And initially they did get a bunch of growth, but it was very short lasting. The things that I think nextdoor had really done well was they had said we need to figure this out, we need to figure out the local model. It's going to be very different than say a Twitter model, than a Facebook model. It's going to be about people that are nearby you, that are connected by geography, not necessarily by having gone to high school together or having done other things, work together. And so figuring out how to knit that community together, how to bootstrap that community was non trivial. And instead of doing the classic let's go big and suck out an address book and spam everyone, they went very small, they went to certain localities and they really tested it out in a hyper focused, hyperlocal kind of way to really figure out how to, to unlock bringing neighbors together. That was controversial. I mean it was very not the way people had done social networks. And so some of the pushback was, look, is this going to scale? And I think neighborhood networks have a certain level of challenge of hyper growth, but they tend to be much stronger when the connections are made and they tend to have complete stronger relevance day in and day out when the connections are made because our lives are so fundamentally local. And so I really believe that despite the pushback on, it may be not having the hyper growth characteristics that some other social networks would allow. I did believe that it could grow and that it would be a solid grower and that when you had those connections, they'd be very rich and they'd be very powerful, particularly when you match them up against the huge amount of revenue and dollars that are spent in local commerce and small businesses. And so that seemed like a magic combination. Probably a lot more like LinkedIn in the sense that Facebook or Twitter had hyper growth. LinkedIn had sort of measured growth because it was really focused on being a business. So it wasn't doing things that would violate what you would want in a business network that might have caused it to grow. And in an analogous fashion, nextdoor resisted doing things that could have made it grow faster, but probably would have had it end up in a worse place and not survive and thrive like it has.

A few months back, we were really lucky to have Sarah Fryer, who is now the CEO of the company, on for our iconversations. And she described a lot of those kind of difficult decisions they had to make that maybe didn't seem logical to growth, but made sense for the long term strategy. And so she joined in 2018 from Square. Describe when you first met her and what struck you about her as a leader and executive.

So I was lucky enough to have met Sarah a number of years before. And she's someone that a number of us at Greylock have known and really respect. Sarah is just incredibly smart, she's incredibly thoughtful, she communicates and engages in an incredibly compelling way. And she was someone that we'd been looking for ways to get in involved. We'd be looking to put her on board, looking for her to find an opportunity where might be a good fit as a CEO. And so when we started to search for that, for Nextdoor, she was top of my list as someone in our network to contact because I'd always looked forward to trying to find a way to work with her. And her background is really very, very unique. I mean, I already was a huge fan having interacted with her while she was at Salesforce and that at Square, even outside of the context of Nextdoor. But when you think about her background in the context of Nextdoor, it was even more power. I mean, her strengths standalone, her success at Salesforce, her success at Square, speaks for itself. But in the context specifically of Nextdoor, not only were all those things true, but there also is the fact that she really came from a small town in Northern Ireland, she came from Belfast. She'd seen the troubles. She had two parents that were small business owners. And so she really understood the challenges as well as the opportunities both in neighborhood and community and also in terms of the power of tapping into small local business owners and helping serve their needs as well.

What smart choices has the company made along the way that have put them in the position that they are today?

The biggest choice they made was not to run after hypergrowth. The pressure is always on from investors, from employees from everyone to emotionally feel like, oh, we've got this hyper growth, and it's all just like dragging us forward. And there is a certain euphoria that goes with that. But they were very structured about deciding that they needed to have quality growth and that the neighborhood connection needs to be a quality connection, not a hyper connection. Because if you think about it, pulling in your address book, we can quickly probably find friends that you grew up with, friends you went to high school with, your college friends, et cetera, would probably only find a handful of your actual neighbors in there. And so this is about bringing people together that live in proximity and share commonness because of that, not because they already knew each other through some connection. And so taking that and understanding the importance of how you make that connection, the understanding of the importance of privacy and control of privacy, because these are people that you know by geography, but you don't know personally yet in some cases, how important is if you're going to expose yourself into that community of your neighbors, that you know that you have control over how that's being seen and where that goes. And so there's a very special type of network that needed to be built for nextdoor, and it required a lot of discipline not to get sort of drawn into the siren song of a lot of the things that other networks were doing. We now see that paying off. But there were definitely years where that was challenging and where that was unpopular as a choice. But I think in the long run, that's created much more richness and density. That's created much more opportunity. And going forward, the power of that community, unlocking their power for small businesses and all the dollars that are in small businesses, I think is a massive opportunity that they're just. They're barely scratching the surface of. One of the magic things that people didn't understand about Facebook in the early days was right after you graduate from college, you go into a city that you don't know anyone. And so you. What are you going to do? You're going to bring your connections from your high school Facebook connections, your college Facebook connections, and you're going to find the ones that are in your local new city. I think the same thing's true for nextdoor. Yes, people may change, but when they come to the new place, they need to get connected into that neighborhood. They need to find community. And so there's just so many wonderful and heartwarming stories about people that move into a neighborhood, don't know anyone, someone could be elderly. And so they aren't as Active outside or engaged socially, and they can reach out through nextdoor and people will throw a backyard party for them or will have a weekly dinner with them. And there's just this great connection that happens. And so whether someone's moving into the neighborhood or whether they've been been there 30 years or their whole lives, surfacing up the richness of connection between that neighborhood, surfacing up the richness of all the great and wonderful small businesses and restaurants and stores and what the great things to do in the area are. There's just a power that will always exist, even if you move from one place to another. And I think that it's something that just doesn't go away. And it's very different than a lot of the other networks.

2020 was obviously a really interesting year for the company. Many people became much more active in their local communities on nextdoor during shelter in place and the neighborhood connectivity bec essential also for businesses. And it was also an interesting time for nextdoor to make a lot of decisions with some of the fallout of the events of 2020. And they did some things that might have seemed counterintuitive, like putting in product changes that introduce friction that actually make people slow down and moderate what they're going to say with anything that would have to do with any racist language or hate speech, especially during all the social upheaval that we had last summer. What do you think about that strategy?

I think that the complexity and the speed of change that happened over that last year took a lot of people by surprise. And I think for nextdoor, there were challenges that appeared inside our network that we hadn't expected. The great news is, and the thing that gives me so much confidence is just how fast the organization responded, how quickly they reacted and the way they reacted. And so in the case of Black Lives Matter, we instituted a whole bunch of actions to, as you said, slow people down, make them think about what they were saying. If we were picking up that they were potentially about to post something that might be racially loaded or involve racial profiling, they put together and how already had a board, but augmented an advisory board of experts on things like racial profiling and instituted a whole bunch of changes in the product in order to help combat some of those challenges. And again, it's one of the things that is both a blessing and a curse. Right? The blessing is that we'd grown big enough that we were covering 98% of the neighborhoods in this country. The curse was 98% of the neighbors of the country meant we had all the diversity and all the complexity and all the surfacing of challenges and conflicts that happened in that very powerful summer. But I think that's part of our goal. Like, if we want to be a great place for neighbors and neighborhoods, we have to go and figure out how to solve these problems. And we won't always get it right immediately because we'll get surprised by changes like who could predict the pandemic, who could predict the social upheaval, somewhat related to that. But it's more to me about we've earned the right to be there, and we have the leadership team that's reacting and making the product in a way that really helps build great community. I think, for example, we hope we're a place where those conversations can happen in a civil manner. You know, elections is another example. We obviously had some very contentious elections, both at the local, state, and federal level. We made a conscious decision not to take advertising from candidates, political advertising. And we've made a conscious decision during that cycle not to encourage or allow huge conflict or debate around those topics. I think that's unfortunate. I think it's the right decision for right now because I don't think we were ready for that, and I don't think it would have been a positive influence in the system if we allowed it. But I think in the future, I think our vision is we should be a place where those kind of dialogues can happen at the local level. There can be such richness of dialogue and decision making. One of the things that's happened, as we know, over the last couple decades is certainly at the hyperlocal level, the newspaper, news and information sources have just gotten eviscerated. And so when you get that ballot, yeah, sure, you know the presidential candidates, you probably know your Congress people. It's. And you probably know at the top, the mayor. But after that, down the school board, down the education board, down all the different areas, people have no information about these candidates. And in truth, in our daily lives, those people affect us in major ways, too, at the local level. And so I think in the future, I have this view that we can be part of that discussion. We can help encourage that discussion, and we can help, while there will be disagreement, have it be civil and be part of a neighbor discussion that gets to better answers and brings us together as a civil union.

Mm. The company's grown tremendously, and I know you've known them for a long time, but what are some of the key features that have always been there? Core attributes of the company, Core company values that you see, today, they're really.

Focused on the neighbor. They're really focused on the small business. And what are the jobs to be done? Sort of this concept of jobs to be done. What are the jobs to be done for a neighbor in their neighborhood? What do they want to experience? How do they want to interact, what they want to do? What are the jobs to be done for a small business? What are their needs? How can we connect them with customers? How can we make them more successful and thrive? How can we make their presence more known? There's just the same fundamental values about staying close to the neighbors, staying close to the small businesses, treating them with respect, giving them a sense of privacy and control so that they feel safe in their neighborhoods, the virtual neighborhood that's next door, just the way they should feel safe in their physical neighborhoods. And then I think, you know, encouraging and engaging the different constituencies in how to make their neighborhoods better, how to make it better for their lives, how to help each other, how to support each other. That's the things that I think have always been the core tenets. This idea of creating community and civility at the local level is just incredibly inspiring. And I think that's always been the case and will continue to always be the case at a fundamental part of the company.

Very cool. Why is now the right time for the company to go public?

You talked about the challenges of the last few years. They also created great opportunities for the company. The company grew, the world became incredibly local. Our world all shrunk down during the pandemic to where information was happening at a local level, where activities were at a local level, where what was safe or not safe to do was really a function of what you were doing at a local level. We saw great growth and an explosive jump in usage and an understanding of why Nextdoor existed and what service it provided. Same thing for small businesses. Small businesses were struggling. They needed support, and you had all kinds of support. Whether it was Nextdoor providing a way for encouraging locals to take out from a local restaurant, or whether it was, you know, locals finding out that a restaurant was really struggling and actually just giving straight up donations to that restaurant to keep them in business, and showing the love and saying that this is my favorite place and I want it to survive, and rallying the other neighbors in the neighborhood to help support their fellow neighbors who are businesses, those are inspiring things. And I think it was really a step function in the understanding of the business that's continued on when things have opened up or when they've closed down. Like we've still continued to see that growth. Our international presence has exploded. And so I think it's a wonderful time for us to then sort of tap the public markets, not only to have the financial wherewithal to continue that growth, but also to have the presence of and scale, because it really was sort of a real step, function, opportunity. And we're just growing from there, and I think we want to take advantage of that. There's just so much ahead of us in terms of what we can do for our local communities, whether that be the neighbors or whether that be the small businesses and beyond.

Awesome. Well, thank you so much for joining us today on Gray Matter, David. I really appreciate your time.

Well, thanks for having me. It was great to chat.

That concludes this episode of Gray Matter. If you liked what you hear, Please subscribe at SoundCloud, Spotify, or wherever you get your podcasts. To find all of our content, check out our website@greylock.com and follow us at Twitter reylockvc. I'm Heather Mack, and thanks for listening.