381. The Opportunity in Gen Z, Deciphering Signal From the Noise in Generative AI, and The Future of Work (Rex Woodbury)

Today's episode of TFR is brought to you by Tech Domains. The right.com is usually taken and adding extra words weakens your signal. I see thousands of decks every year and a clean domain still matters. That's why founders choose tech. It's simple, modern and sends the right signal. Secure your tech domain early and this episode of TFR is brought to you by the American Arbitration association where smart startups and investors turn for fast, efficient and cost effective dispute resolution. Visit ADR.org TFR to learn more. Now here's the episode.

Welcome to the podcast about venture capital where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran and this is the Full Ratchet. Today we welcome Rex Woodbury to the show from New York City. Rex is a partner at Index Ventures where he has invested in companies such as Persona, Beam and Gather, to name a few. Prior to joining Index, Rex worked in Growth at Airtable and Calm and previously invested in growth stage companies at tpg. Rex, welcome to the show.

Thank you. Thank you for having me. Of course.

I've been, I've really been looking forward to doing this one. I know I'm not the only digital native reader that is going to be listening to this, but anyway, could you walk us through your background and your path to index ventures?

Yeah, yeah. No, appreciate you saying that. Sometimes sending a newsletter is like sending it out into the void and you never know who's reading or if anyone's reading. I reliably get a response from my dad each week, which is very sweet. But other than that, you know, it's who knows who's reading out there. So I appreciate you saying that. Yeah. So I've been in index for a few years now or a global multi stage, multi sector venture capital firm. It's a little unique in that it's one team investing from seed through growth. So we have three funds. We have a seed fund, a venture fund and a growth fund. It's one team across all of them. So our goal is kind of be partners early and be partners for the long run. But we do tend to be a little more domain focused and sector focused. And so I spend most of my time at Index in the consumer and consumer adjacent world. So that's a lot of consumer social marketplaces, gaming as well as some kind of picks and shovels sort of B2B2C companies. And I mean I've always been, I think I was just lucky to come of age with the Internet and I've always been Fascinated with how people use technology and use the Internet to interact with each other, to make things, to collaborate and have sort of caught my professional career, sort of caught this interesting time of mobile and cloud and now AI. And the things that interest me are just, you know, how does slow changing human behavior collide with fast changing technology in this unique moment we live in? So I started my career in later stage investing, worked in growth investing for a bit, worked on the growth team at a couple startups before coming to Index for a little bit, and then have been here for, yeah, I guess a few years now. And we're very kind of collaborative between our three offices. I'm based in New York, but we also have San Francisco unlended offices.

Mm. So you, you were a TPG for a little bit, is that right?

Yeah, I worked on the growth fund there and the social Impact fund there. So on the growth side, we did a lot of consumer investing. On the social impact side, that was, it's called the Rise Fund. It is sort of a lot of ed tech, digital health climate. And so those were kind of my, my two interests of I'd always geeked out on kind of pop culture and media and a lot of the consumer investing we were doing. But then also like any good millennial, I think felt an urge to have a mission driven career and was sort of compelled by how investing in technology and business could unlock social impact. And I think a pivotal part of my career was kind of a reframing that. Impact is a broad lens and it's not just limited to those categories, but it's really about how technology is reinventing how people live and work and interact with each other. And you would never think of a company like Instagram or YouTube or Amazon or Google as a quote, unquote, social impact investment. But, you know, I think you could easily make the argument that those have been the most transformative companies, for better and for worse. And we can talk about where that nets out on sort of the externalities from those. But there's no doubt that the sort of story of the 21st century is technology and innovation. And I wanted to make sure to play a part in that.

So you went from investing to operating, back to investing. I'm curious if your experience as an operator, how that shifted your mindset as an investor or what that experience gave you in terms of making investments, building rapport with founders, whatever it might be, because it's interesting to have investor experience without operating experience. And now that you have that operating experience, not many people have that path. So I'd be curious to just hear how that shaped you as an investor and how that's been helpful.

Yeah, I mean I had a very sort of brief stint in operating. I think I very much consider myself a lifelong investor. I think a lot of people at Index are also sort of queer investors. And the way we think about it is investing and operating are very different skill sets. And I think success at one doesn't necessarily mean success at another. I think by surrounding myself with, with operators, by working in IT for a bit, I mean, I feel more of my perspective has been shaped by my partner who has worked at Fair, the sort of B2B marketplace for the past four or so years. I think we've learned a lot about what our own interests are and skill sets are and how that differs. And I tend to think of the world and zoomed out pictures of, you know, large trends and how, how the world is shifting. And I think he's more of a product person who likes being sort of in the day to day. So that's compared and contrast. But I think having being immersed in that environment, especially living in San Francisco for five years, it gave me a lot of empathy just for what it takes to build a company. And it's no easy thing to join a startup, let alone found one. And so at Index, I mean our philosophy is very much that we're not here to tell you how to run your company. Most of us have never started a company or run a company. We're here to unlock different ways for you to have a better chance at success. We sometimes refer to ourselves as, you know, almost professional recruiters to help you have the right talent, bench around you, early engineers, your C suite down the road. But I think our philosophy is very much to be a partner, but not necessarily to be the one that's telling you what to do because you know better than we do.

You talked about some of the areas that you're focused at briefly at Index. I want to go into more detail. You said you're interested in slow to evolve human society colliding with today's rapid pace of technological changes. Can you expand on what you mean by this and how it informs your investment thesis at Index?

Yeah, I've always been someone who geeks out on consumer behavior and what people are doing online. And I think that kind of captures it where if you think about the human brain, it sort of hasn't evolved in, I don't know, a thousand, five thousand years, maybe more, but it basically takes a very long time. It turns out for human evolution to happen. But at the same time, in the last 25 years or so, you've had all of these kind of seismic shifts in how we live with the Internet connecting everyone around the world and social media and now us having supercomputers in our pockets and now generative AI. I mean we're just living in this time where every year brings leaps and bounds forward in innovation. And I think it's really interesting to see how as people, we react to that, how our social constructs, constructs adapt, how our sort of innate behaviors and how we achieve status or meaning or fulfillment adapt in a digital world. So that's kind of the guiding through line of a lot of my interest areas, both investing at Index, writing, talking to people and being part of this ecosystem. Because we're just living in this very unique moment where we as people haven't changed much, but the world has never been changing faster.

One of the areas that I know you focus on is Gen Z and for those that don't know first, before we go into Gen Z and areas that you're interested in, specifically how do you define Gen Z or what is the exact age range? Just so the audience has some context.

That's a great question. I think the oldest Gen Zs Maybe now are 26 or 27. I'd have to check on the youngest, maybe 18. But Gen Alpha comes after Gen Z and I think Gen Z has kind of become a catch all for younger millennials, maybe older Gen Alphas. I called my newsletter Digital Native because it's sort of this generation that hasn't known a world without the Internet, social media. A lot of people now who are in high school were born after the iPhone was born. And so it's really just this new generation that has emerged and come of age in a completely different world. And I think it's very fascinating to think through what are the different behavior shifts that carry through to every facet of the economy and how people shop, how they communicate with each other, the kind of jobs they expect to have. There are just a lot of different behaviors that are changing very rapidly because of this Digital Native cohort that's coming of age.

So why, why focus on Gen Z as an investor despite them not having the same purchasing power of older generations, such as that as millennials or those that are getting ready to retire. Right. I'm curious how you think about that element from an investor lens and specifically what, what gets you excited about the demographic.

Yeah, I mean, I think certainly I'm just not I'm not just focused on Gen Z. I think there are many opportunities serving older cohorts. I think a classic example is baby boomers, to your point, actually have much higher disposable income, are quite online now, and have a huge breadth of problems that they're facing, whether it's loneliness, declining health, needing caretakers. So that I think is an underserved segment to build for if you're, you're an entrepreneur. But I do think that, you know, in our job, the success is measured in years, if not decades. And so you want to focus on who are the next people that are going to shape society and the world that we live in. And that's the people who are entering the job market now, who are maybe even younger in high school and college. But Gen Z, I think, is the largest generation in the US by population now, soon will be the largest by, you know, income earning potential and eventually disposable income. And, you know, probably in five or 10 years we'll be talking about Gen Alpha in the same way. But I think you always kind of have to have an eye to the future of these are the people who are about to inherit a lot of the jobs and income and different sort of positions of influence in society.

And from your observations and research, what are some of the unique characteristics for Gen Z compared to that of a demographic such as millennials? And you alluded to one, given that, you know, Gen zers have only grown up in a, in a digital native environment, but specifically when it comes to their behavioral characteristics, I'm curious, what are, what are some of those that might not be so obvious that you've observed?

Yeah, I think I'll start with the obvious. I think the probably most overused word is authentic. And I think that's been interesting in seeing how Gen Z uses social media in a very different way. We've seen the rise of Be Real over the last year, which is a much more sort of in the moment, spontaneous form of social connection that's less kind of curated and performative. And you know, the social media that I grew up with was sort of the Instagram influencer age, where it was like latte art and murals and, you know, the museum of ice cream and sort of the contrived view of perfection on the grid. And now, you know, you see Snapchat and TikTok. A lot of the filters there are actually purposely meant to not beautify but to actually distort and make you look funny. And there's just a huge shift online of moving away from this facade of perfection and into sort of really deep personal expression. So I think that's an interesting trend. But I also think, you know, we touched a little bit on entrepreneurship and this generation kind of having different views on work. And I think that's probably one where I would argue that will have the most lasting impact. Because if you think about the world that young people are coming into, a lot of them saw their parents or grandparents lose their jobs during the Great Recession. Some of them were maybe coming of age during COVID and were again, sort of scarred by that experience of entering a workforce and being laid off or not having a job waiting for you. And again, now we're in this macro downturn. So I think it's been a relatively unforgiving traditional job market for this young generation over the last 15 years. And so how will that manifest? It might manifest in more small businesses, maybe more digitally native jobs that people take on platforms like YouTube or TikTok or Roblox or Patreon, or different ways that people find a living online. And I think that's very interesting to think about how the sort of architecture of work gets reinvented.

I'd be curious to talk about that.

A little bit more.

I've read and heard, you know, some business owners have said that Gen Z employees, they're the most entitled, they're the least hardworking workforce. I first, I'm curious to hear if you agree or what you hear when, when or what you think when you hear this, and then we'll go from there. But anyway, yeah, first off, do you agree with that statement? What comes to mind when you hear that? Because there's, there's always more that meets the eye. And there's also a cultural disconnect now between the baby boomers that own some of those businesses and gen zers and their expectations from a work environment.

Yeah, well, I disagree. I think that if you start kind of looking at the history of older people bemoaning young people's work ethic, there's a very funny Twitter thread that actually looks at the past hundred years of newspaper clippings. And basically every few years there's an article about how young people don't have any work ethic and how, you know, people forgot how to work hard. And it's very funny because it's like in 1923, people are like young people today, like aren't showing up for work on time. And it's almost like this quiet quitting phenomenon that we're seeing now, just applying, you know, A hundred years ago. So I think.

Why do you think that is, by the way? Why. Why do you think the older generations always look down upon the younger generations? Do you think it's just because they feel like they're all the wiser or, I don't know, like you think about.

It probably comes down to self preservation of your own identity. And I think a lot of people just want to feel better about themselves. And I think one way to do that is to find an attribute that you value like hard work and, you know, hold it in high esteem for yourself and lesser for younger people. I think another aspect of it is self preservation of your entire identity and outlook on life. Meaning that a lot of older people have made huge sacrifices in terms of time with family vacations, just maybe things that they would have done differently if they were younger. And so I think they resent younger people who are foregoing that path or think that there's a different path. You know, it reminds me of like investment banking culture or consulting culture where, you know, older people want to almost haze younger people by making them work crazy hours and work crazy hard because they went through that. And it's sort of, you know, it's kind of a cruel thing to do if it's like, well, you were miserable when you went through that. But, you know, you kind of, it's like you want people to experience the same things that you did or go through the. Through pain that you did, or just have the same outlook on sacrificing for capitalism and for work that it totally destroys your worldview and I think can be very destabilizing. If you look at young people and they have a completely different perspective on what a career is from what you were indoctrinated with from a young age, I think that's probably part of it. And now I'm just on my soapbox here. But I think that generational views are changing around what the relationship is between life and work. And some of that was probably part of a long term shift and the rise of alternative jobs on the Internet. And part of it, I think, was a near term shock of COVID showing us that. Did it make sense that we were spending eight hours a day with our coworkers and, you know, 10 minutes with our kids before bedtime. And a lot of people are just kind of re thinking a lot of those norms that we took for granted. And I think that's a great thing for, you know, the productive path of, you know, family time and society and our healthy relationship with work. But I think for people who just spent, you know, 50 years commuting an hour a day each way and barely seeing their families, it's very tough to see younger people questioning a lot of those norms.

Yeah, it's almost like there are these contrived systems or structures and younger generations questioning is this the way that it needs to be? Because there are elements where it's illogical or even times irrational. And then to your point with COVID it forces you to take upon a different structure. And I think everyone is resistant and fearful to change. But through that shift that, that four score shift, businesses realized, hey, this, this is actually working and working quite well for some businesses and maybe not so much for some others. But anyway, it's interesting because I think it helps break down some of those barriers or reshape some of those systems and shows that things don't always need to stay the way that they were. And just because that's way that they were, that doesn't mean that's the way it has to be in the future.

Yeah, I wrote this piece called this is Water, which is. It gets its title from a David Foster Wallace commencement speech that he gave at Kenyon College, I think, in 2005, where he opens with this parable of two fish are swimming along and they run into an older fish and the older fish says, morning, boys, how's the water? And the two fish keep swimming. And then after a minute, one of them turns the other. He goes, what the hell is water? And it's, you know, it's sort of. It captures this idea that, you know, the most obvious things to us are often escape our attention. And so the jumping off point for the piece was about social constructs and exactly what we're talking about, where, you know, you're born into this world where the expectation is that you go to this physical other building from the hours of nine to five and you spend all this time there with your co workers and then you come see your family for an hour and then go to bed. Or, you know, other things, like car culture is a social construct, gender, and like the fact that boys wear blue and pink, you know, is for girls. Like all of these things that just are so ingrained. Women wearing makeup and not men, like all of them, you can go all day if you just start kind of seeing the world through this lens of what is something that is totally constructed by society that I take as an absolute given. And I think a lot of the great businesses have been born by questioning these norms, whether it's airbnb and opening your home to a stranger or Uber getting in a car with a stranger. Like a lot of these kind of businesses or, you know, Facebook even broadcasting your life online. Twitch, same thing. I mean, these are very new concepts that were uncomfortable to people 10 or 20 years ago and, and now are world changing businesses. But I also think to our earlier point, it's very destabilizing when you're on the tail end of your life and you see people questioning these things that you have taken sort of as gospel for your entire existence. I completely empathize that that would make you feel rudderless and a little frightened.

Yeah, absolutely. As you think about Gen Z in the workforce and we talked about how things might be shifting, maybe there are more independent business owners. How else do you see work evolving over time here? It still feels like we're, we're relatively early in the trajectory of what the future of work looks like is not quite shaped. I'm curious, what, from your lens, what does the future of work look like?

Yeah, I mean, I think one point I would make is that I actually think a lot of same behaviors existed in millennials. The difference was that there were fewer opportunities for digitally native jobs 10 years ago or 20 years ago. So what I mean by that is now if you are a young person graduating high school, let alone college first, you might be questioning whether you want to go to college to take on all this debt and sort of have these handcuffs of your student loans. But there are so many options for you to do. I mean, you could write a substack newsletter, you could be a TikToker YouTuber, a Twitch streamer, you could launch a custom product line on Pietra, you could be a Roblox game developer. You could design templates for Figma and sell them there. I mean, you can really go all day with the different ways that you can find income streams online. And so I think that's one part of it is sort of really thinking from first principles, more Internet native jobs that people can do that are A, more flexible, B, have potentially higher upside if you own your own equity, and C, can maybe achieve this holy grail of passive income, which is something that a lot of online entrepreneurs go after. So that's one piece. And then related to that, I think we're going to see this sort of breakdown of what we view as a career where our parents or grandparents might have had one job their entire careers. For people in my generation, for people in their 30s, and for millennials, it's maybe switch jobs every two, three, five years, which is already a novel concept to a lot of our parents. And for younger people, I think it might even be that you never had one primary income. You stitch together a lot of different forms of making a living and you know, maybe you have a skincare line that you sell on TikTok and do sponsored posts on Instagram, but then you do a podcast on the side and there are lots of creative examples out there of people that find really quirky ways to make a living off of their own specialized skills. And so I think the shift away from monolithic income streams to more kind of combination of tributaries that contribute to a bigger pool of income with high upside for you, that's probably where I see the world of work going.

Got it. Are there any other, any other trends specifically for Gen Z that you're especially excited about as of late, like aside from their involvement in the workforce? And we'll talk about generative AI in a minute because I'd love to get your take on that, but I know you have your ear to the ground and would love to hear what are some of the other trends that you're noticing or that you're excited about.

Yeah, I mean, I guess two that interest me that come to mind. One would be mental health and sort of the result of growing up online as well as sort of a combination of a lot of different societal consequences and events that have happened has been a very high level of stress and anxiety among young people. And so I think a destigmatization of mental health, awareness of that and hopefully solutions to it. That's one. And then the second is kind of a shift to more social impact and focus on mission driven businesses. A huge emphasis on sustainability, which I'm very interested in, both from climate investing, but also kind of second order effects like how that affects commerce and secondhand and retail. So those are two that come to mind. Happy to dig deeper, but. So that would be the ones that are top of mind.

Yeah, I, you know, from the mental health perspective, I'm curious if you feel that social media, specifically Instagram, has a net negative or a net positive overall for society and then maybe you feel that it differs from demographic to demographic, but overall I, you know, there's more suicides today than there have been in a long time. Mental health issues are definitely on horizon attribution, at least from some psychologists and psychiatrists attribute that to social media. I'm curious how you think about that. And I don't think it tells the entire story. Just taking a look at the data. But how do you think through that component and where do you shake out on it being a net negative or a net positive?

I feel very strongly that the Internet writ large is a net positive. I think for social media specifically, as sort of a subset of that, it's a much closer call. I still think that it's a net positive externality. I will make the argument to the day I die that the Internet and technology are a net positive. I think some of that is, of course, self serving. I think you can't be in venture capital and not be a tech optimist. And I am very excited about the future. I think one of the privileges of this job is every day you're exposed to really interesting and brilliant people building things with new technologies that completely blow your mind and show you a glimpse of where the world is going. And I think throughout history, you know, there's a. There are many examples of times when it would have been easy to be a Luddite and be sort of apprehensive around innovation. And I think that can be very warranted in that you're exactly right that there are many downsides to these new technologies and particularly the social media. But I think that the positives that way, that I'll give you one example. One of the reasons that I fell in love with technology and the Internet was how social media enables people to connect one another. So I came out as gay when I was a sophomore in college. And I think a huge part of that was being exposed to people on social media, especially Instagram, who were out living their life. I didn't really know that many people in my day to day life in high school in Arizona who were openly gay. And so it was mostly through the Internet that I was finding that kind of community and acceptance and learning about the LGBTQ community. And then when I was in college, I started this organization called Worthy, which is a nonprofit that matches mentors and mentees in the queer community. So it's kind of like a lot of the mentees want help coming out to conservative parents or Catholic families. And so you might be matched with a mentor who, you know, had to navigate his own relationship with religion and his sexual orientation. And it was almost entirely through Instagram that people were able to sign up for for Worthy and match with one one another. And so I think that's just one microcosm of one niche community that are not too niche. But there are so many more smaller communities online where it's like even harder for you to find people who share the same interests and identities and you know, we like to point it at index. Discord is one of our investments. And I like to say that there are 19 million weekly active servers on Discord. So you would be hard pressed to, you know, not find one that you identify with and find people like you. And I think to me that's the power of the Internet of being able to find community. And that's not as always easy for everyone offline as it is for some people. And so the Internet unlocks that potential. And to me that, and there are many stories like that. Those kind of are the examples that sway in my mind this to being a positive externality.

Yeah, yeah. And analog that I'm thinking about in terms of connecting to people on the Internet is similar to an advertiser connecting with their target audience. Right. It's the ability to match with who's looking for your product is much easier when you're able to capture in a digital real time fashion what someone is searching for or what products they might be interested in. And being able to take the entire world and funnel that down to present the perfect product to the right person at the right time is very similar principle to what you're talking about here which is I might have a particular interest and it's a very niche interest or I have a large interest but doing so or connecting in real life is not easy. Right. So there are definitely many pros. It at times it feels like we've over rotated. Right. Like where it's, it's, it's hard because when it comes to dating for example, it's great because you can meet someone very easily. But at the other side of the coin is because you can meet someone so easily. Relationships are most more transient these days or it seemingly so. Right. So anyway it'll be interesting to see how things evolve. Obviously I agree that Internet big net positive. I don't think you can be a VC to your point without being an optimist when it comes to technology and that technology is overall very beneficial for the world.

But and yeah, I mean I will be fascinating. Sorry to interrupt you. Yeah, I mean I. That's not to say that there aren't complete downsides that we could do a better job protecting. Whether that's within the private companies or you know, now private sector or as a government with regulation. I think there are strong arguments to be made around, you know, limiting social media use in younger people, limiting the types of content and the algorithms that surface a lot of problematic things. Content moderation, I mean That's a whole other, you know, discussion. But I think that shouldn't take away from the potential. And you also mentioned advertising. And I think it's very easy to sort of sit on your armchair and criticize ad driven models. And some of that is warranted in that when you're not paying for a product, you're not the customer. The advertiser is the customer on these platforms. But I also think for a lot of the vitriol aimed at Facebook recently, Facebook advertising, their platform really did enable small businesses in a new way to be able to reach customers with the level of rigor and specificity that they weren't able to do in an analog world. Not everyone could buy a billboard. And so it, I think enabled this breadth of small business creation. And that's something that we don't pay enough attention to or sort of give enough credit to.

I also wonder how many people does it truly bother versus how many people like the advertisement? So one thing that I've found as of late, and that I've heard this from numerous people, is that they still have a Facebook account or that they use Instagram because it helps them discover products that they didn't know about yet. And I think that's very interesting because it's not the intended use case of the platform that is the byproduct, the business model. Like again, the, the attention or the usage is the product for the advertiser. But there are some people that go specifically to these platforms because they are after a, a pair of shoes and Instagram is showing them pairs of shoes or shoe brands that they didn't even know existed. So it's interesting because there's definitely a form of behavior among consumers that use these platforms more so as tools than they do entertainment.

Yeah, I mean, I think that's exactly right. And I also think it's just very difficult to separate away the impacts of the Internet from the world we're in today. I mean, we were talking about mental health after tpg. Well, at tpg we invested in the series B of Calm, the sort of mental health sleep meditation app. And then I went and worked thereafter and on the growth team. And you know, I love that product because it's a product just completely aimed at trying to push forward time for people. It's ironic in that it's delivered through a phone, but it's sort of to try to help you escape this chaotic world that we're living in with, with the Internet and cell phones. And that's very core to the mission of the company. And we talk a lot about destigmatization of mental health, but I think you'd be hard pressed to extract sort of the Internet and social media from that destigmatization. And what I mean by that is if we didn't have a venue or a place online where we can debate and talk about these things and people are exposed on TikTok and YouTube and Instagram to each other around the globe, would we have had so much progress on being candid with mental health, talking about it, changing our conversation around it? I doubt it. Like, I think we used to live in this world and you still see this in a lot of cultures and in a lot of even homes and families in America is where you just don't talk about going to therapy or mental health or suffering from anxiety. And I really think the Internet is to credit for changing that stigma. And, you know, I just think that's one where we would never say appreciably that the Internet and social media are the reason that stigma is changing and our mental health is at least being talked about more. But I fully believe that that's probably the primary driver behind that destigmatization.

Yeah.

This episode of TFR is brought to you by ADR.org a business dispute doesn't need to become a legal and reputational crisis. Smart investors and startups add arbitration language to their term sheets for fast, efficient and cost effective dispute resolution. The American Arbitration association has arbitrators that understand your business, bringing industry expertise and experience with startups, tech and finance. Visit ADR.org TFR to learn how arbitration helps leaders keep their focus on growth, not on legal battles. And this episode of TFR is brought to you by Tech Domains. Every founder runs into the same issue. The right.com is taken or wildly overpriced. And settling for a long, complicated domain with extra words sends the wrong signal. I review thousands of startup decks every year and branding still matters. A sleek, memorable domain reinforces clarity, focus and ambition. That's why more founders are choosing tech. Tech, startup, tech domain. They are on the rise for a reason. Tech investors don't back lifestyle businesses or services companies. They back tech companies. And a tech domain is clean, sharp and instantly communicates what you're building. It's no surprise many venture backed startups secure their dot tech domain early before someone else does. If you're building a tech company of the future, align your brand early. Secure your tech domain today. Now back to the episode.

Yeah, one of the other trends that I did want to Pick your brain about was generative AI, because it seems as if we've gone from crypto and Web three, now we've moved on to the next thing, and it's really taking both the business world and consumers by storm. I mean, I think ChatGPT, created by OpenAI, garnered a million users in five days. It's unheard of, the fastest to ever do so. And with Web3 and crypto, it seemed as if the killer apps, everyone was always questioning exactly what those might be. With generative AI, it feels as if we're already seeing them today. Right. So I'm curious to get your perspective on how do you think generative AI is going to shape both the impact for the future of work, but also our lives as consumers?

Yeah, I mean, I think the last few years in the tech world have been a clamor for what's next after mobile and cloud. So mobile and cloud have really been the two engines powering tech for over 10 years now. If you look at the 2009-2013 era, on the consumer side, from mobile, you had, you know, Uber and Airbnb and Robinhood, and from cloud, you had, you know, Slack and Airtable and Figma. I mean, these giant success stories were really powered by those, those two vectors. And I think a lot of worry over the last few years is those aren't going away, but they're certainly not as ripe for innovation as they once were and they're becoming a little more saturated. So there's still opportunity there. But kind of what's Next? Is it VR and AR? Is it crypto?/web3? Is it autonomous vehicles? You know, what is the next platform? What's the next tailwind? And I think, I mean, I really has a pretty compelling why now? In terms of how fast the language models and image models are improving and to your point, I mean, the kind of incredible things that they're already able to do. ChatGPT, to me, is one of those magic moments in tech akin to using Google for the first time or connecting with your, you know, high school friend on Facebook. So I think, to answer your question, I kind of separated in my head just to wrap my head around potential use cases into two buckets. One is AI amplifying creativity, and that's maybe a little more the image models. And then the second is AI amplifying productivity, and that's probably a little more kind of chatgpt and a lot of the language model stuff. So that's kind of how I think about it. And happy to dive into it more. But I think there's no arguing that it's going to be a pretty formative few years as AI continues to improve and become more adopted.

It's interesting to compare generative AI with cloud and mobile because I totally agree with you. Like those were the two vectors that really drove a lot of the large companies that we see today. But when I think about mobile and I think about cloud, I think about them as delivery mechanisms for many of the applications that we're seeing today. And when I think about generative AI and these foundational models that applications are being built upon almost requires a different framework because it's not necessarily a delivery mechanism, but it's an infrastructure layer or it's a platform to be built on top of, but one that we haven't exactly seen before. So as you're thinking about, one of the criticisms of generative AI today is that many of these applications are relatively easy to stand up because if you can build them on top of one of these foundational models, you're able to build something very powerful, but do so very quickly. So as you think about analyzing the landscape of generative AI and specifically that that issue that is being raised, or maybe it's not an issue, but a level of skepticism among investors just how defensible some of these applications are, how do you think about analyzing the landscape for generative AI and the business models that are most exciting, keeping in taking into account specifically which ones are the most defensible?

Yeah, I mean, I think the way that we think about it at Index is that you these kind of the models like OpenAI GPT3, GPT4 and stable diffusion, Dall E, a lot of value will potentially accrue there. But we think of it a little bit like cloud computing ecosystem where aws, Azure, people build on top of them and they enable as a platform, as a foundational layer, the infrastructure for a lot of innovation. And so I think if you think about tech, I mean there are very few companies that have a moat because of true tech differentiation. And so I think the challenge for generative AI companies is going to be finding different moats. And it might come down to, you know, ones we've seen in the past, like, you know, network effects, first mover advantage, figuring out how to build into your product or the go to market that you have some sorts of defensibility. I think it's a big question. I mean if you think about like Lens is a great example where you know, it blew up on the back of, of Instagram TikTok and other social networks. But you know, there's no moat there. That doesn't mean that it wasn't wildly successful in, you know, earning a lot of income for the developers or in pushing forward kind of the public's understanding of, of what I could do. But you know, to your point as a venture backed company, you have to question is that a 10 year sustainable model or is it going to be a $10 billion company? And I think we're in. I saw one comparison that was like Lenza and other early apps like that are kind of similar to like the early age of iPhone apps when it was like flashlights and like, you know, silly things that were maybe also not defensible then, but that were people just building on the app store and trying to figure out different consumer applications. And so I do think we're going to see a lot of, you know, interesting things come about that might be blips and some will figure out ways to actually build competitive differentiation in over time. But it's going to go back to the same playbook from before of, you know, if it's not the tech that's the differentiator, you have to find something else. Yeah.

So would you, is it fair to say that you're specifically interested in generative AI companies that are able to build a moat through something like a network effect or some other mechanism that they're utilizing for defensibility or what, what areas specifically within generative AI you the most excited about today?

Yeah, I think one, one more point on that is the information had a great piece on Jasper which is built on GPT3. It sort of gives copywriter superpowers and I, I think that they were quite taken by surprise by Chat GPT which was offered as a free product by OpenAI and to your point blew up to you know, a million users in five days. And that I think was a great example of needing to figure out defensibility, especially when OpenAI is being very fast moving and innovative in the space. And so to answer your question, absolutely. I think from the investor perspective you want to understand how a business is going to stay ahead and protect itself over time. That said, I think that the right business models in AI are probably going to be similar to the right business models over the last 10 or 15 years. I think there are probably going to be a lot of SaaS companies, there might be a lot of marketplaces, maybe some gaming sort of MMO type companies. And so I think, you know, the same business models that we like at Index that I like as an investor will apply here. We just have to think about how it actually carries forward into a new wave of innovation.

Rex, if we could feature anyone on the show, who should we speak to and what would you like to hear them talk about?

Hmm. That's a great question. I mean, I will. I would have to give it deeper thought. I will tell you, the first person who jumped to my head was my friend Kyle Harrison, who's at Contrary Capital. Maybe it's because I had breakfast with him here in New York yesterday, but we had a lively debate just on what the future of the venture ecosystem looks like. And I really respect his his thinking and writing on it. He writes a newsletter called Investing 101. And you know, I think it's just someone who challenges a lot of the norms of what is value additive from an investor on your cap table how the art of venture is evolving over time. And I think these are major questions that a lot of funds are grappling with in 2023. And so he's the first one that came to mind and so happy to to try to convince him to come visit the full ratchet and I think you guys would have a great conversation.

Please do. Do you have any habits, tactics, or techniques that you would consider to be a secret weapon?

Habits, tactics, techniques? I'm a big believer in sort of defensive calendaring, meaning blocking out time on my calendar to focus on, you know, even putting two hours on there for thinking time or going for a walk and reflecting writing time. Really just kind of living by the calendar and being sure that if I don't build in time to think and breathe and read, then I won't get to it. So that's just one that has been really sort of transformative for me and making sure that, you know, if you think about the famous quadrants of urgency and importance, we often spend a lot of time on the urgent but not important and too little time on the not urgent but important. And so I think making time and space on your calendar for the things that are very important but not quite as urgent is one thing that has helped me a lot.

How do you organize your schedule for writing? Like what. What have you found to be the most productive for you when you're drafting a new piece?

That's a good question. I mean, 99% of my week is meeting entrepreneurs, and so I try not to do it during work hours. So what I do is Sunday night and Tuesday night I block out a couple hours for writing. Sunday night is a little more outlining and thinking through the topic. And then Tuesday night I kind of just try to hammer it out in an hour or two and I send it out every Wednesday morning. And the structure that I have, I use notion to sort of organize my future topics. And so I have right now, you know, a number of of topics upcoming where, you know, I'm interested in health and wellness as a category. So I want to do a piece on health and wellness. I want to do a piece on social commerce and why Instagram Shop has failed. And so those are examples where over the next couple weeks, as I find relevant charts or stories and articles, I'll put them into the sub page about that topic. And so when I go to write in a couple of weeks about those, I have a decent amount to go off of. So that's kind of the one way I systematize it.

Got it. Rex, what do you know that you.

Need to get better at? That's a great question. I mean, I think many things come to mind. I think I'm trying to pick one that's not investing. I think one thing that someone can continually get better about, especially as they're a young investor, is trusting your own intuition and so sort of blocking out noise from the crowd. And I think you can get into a trap in this job if you spend too much time reading what people are saying on Twitter or even listening to people you respect who might have old biases from the past. And pattern recognition can be a downside. So trusting your own view. We have many examples of this at Index and other funds too, where I think because we saw X company that didn't work out, we missed Y company without realizing that the timing was different or that we were biased from that prior experience. And so I think as a younger person in investing, you need to form your own views and then have courage of your own convictions. And it's something that I could continually get better at. I think it's someone that everyone has room to improve on. But this is a job where I think you get successful by being opinionated, often contrarian, and just having a point of view and sticking with it. And so I think that's not always easy to do. But it's one thing that I'm in a constant quest to. To improve that.

Yeah, definitely. And last, what is the best way for listeners to connect with you?

Yeah, maybe shoot me a note on Twitter. I think it's Rex Underscore Woodbury. I, you know, you can shoot me a DM there and then also reply to my newsletter. I'M pretty responsible for email too.

Awesome. And I will also double down by saying anyone who has not checked out the digital native, please do so. It really is a great newsletter and appreciate you taking time out of your your week each week to craft such thoughtful pieces.

My my pleasure. It's very self serving too because I think it's good at synthesizing my own thoughts and forcing myself to have clarity of thought. So I appreciate you reading. But yeah, I'd also recommend everyone turn to writing when it's when there's something you need to think through.

Absolutely. Well, thanks again for coming on and we look forward to having you again in the future. Awesome.

Thank you. Really appreciate it. Nate.

Alright, that'll wrap up today's interview. If you enjoyed the episode or a previous one, let the guest know about it, share your thoughts on social or shoot them an email. Let them know what particularly resonated with you. I can't tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that's a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently. Thanks so much for listening.