Michael Abbott discusses how venture capital has changed over the past decade, from the rise of smaller funds and easier seed funding to talent spreading thin across startups. He covers emerging technologies like containers and machine learning, and why India and China represent major opportunities for founders.
Chapters
Okay, so now I want to talk a little bit about trends and kind of where you see things moving. So firstly, in terms of entrepreneurship, let's say over the last— well, I guess only since 2012. Actually, no, after— over the last 10 years, what kind of trends have you identified in terms of where we are now, and where do you think that will be moving?
Around entrepreneurship?
Yeah, in terms of industry trends.
Industry trends. So As I mentioned, I spend probably most of my time in data center technologies. I think, for example, there, you go to a data center at Google or Facebook or Twitter, and you don't see something from IBM. You don't see Oracle, right? Sometimes you see HP, but not much. I think that whole world's changing pretty rapidly, but it's still very early days. It's early days because we actually pull together 50 CIOs of the Fortune 100 about 4 times a year, And I can listen to the transformation that either a Walmart or a JP Morgan's going through, and they're just starting. So I think that whole area there is really fascinating. Things like containers. I led our investment in the CoreOS, which is a competitor to Docker. I think that whole type of microservices trend is certainly very interesting. So that's one. So we'll say kind of the DevOps, the data center piece. Another area that I spend a lot of time in, which I'm really excited about, is just computer vision and some of the advances in AI and ML. But I'm really focused on what are the unique use cases that those advances enable? Okay? So, 'cause machine learning alone is not that interesting. Okay? But if we can actually, let's say, take some of these advances in natural language processing and apply that, let's say, to a sales team in an enterprise, to make a sales rep more effective so he or she can actually make more money, that's interesting. So that is an area that I'm very excited about of, you know, I'm not a marketer, but think of this as like smart applications, right? There's a lot of things that occur in the enterprise that humans do that don't make any sense that humans do that. You know, there's been the term bots that have come up lately. I think that, you know, label aside, I think we're talking about automation in the enterprise. Now, I think these conversational UIs are really interesting, especially if you go back, you know, you said 10 years. If you go back 10 years ago, my numbers are gonna be a little bit off, so bear with me. I think initially, if you saw the average number of terms entered into a search engine like Google, it was like 3, okay? And if you go over the last 10, we're right now at about 8 words, and it's projected in 2020 to be a little over 10. Why is that important? Well, the average conversation between 2 humans is 11 words. So you can maybe infer from that data that we want to start interacting with computers in a similar way that we interact with humans. And so what does that mean? For either Alexa, like voice, or SMS, or WeChat, that you're actually talking to a service. I think that's also very, very interesting. What are other interesting areas? I mean, we spend a lot of time in AR/VR. I think that's very early. Not think, I know it's very early. But we have to be looking at things that are 5 years out, 3 to 5 years out.
OK, and when you put that into the context of an international market— so a lot of our students here are international. We're about 65% to 70% international. What markets are exciting you and why?
Certainly, I think one of the things we've been seeing as a pattern is more and more companies are looking at India and China as huge opportunities to potentially even launch there first. And I think especially, I mean, one of the advantages you have being international is you all understand that culture and domain better than me, some local from here. People are realizing there's actually real economic opportunity and products that can really take off because we lack that understanding. That'd be something— I think at the end of the day, it's all about what are the advantages you have that you can leverage to give you that unfair advantage as an entrepreneur.
One of the questions that I get asked a lot being here at Draper is, I'm international, or I want to go back home. Does that mean investors wouldn't be interested in me? Because I wanna go back home.
I guess it really depends on the investor. One of the things that I encourage, even different folks I've worked with over the years who are starting companies when they ask a question like that is, you can go actually on AngelList, as well as frankly even LinkedIn or Crunchbase, and reverse engineer to understand, does this investor or do these investors have a track record of investing in place ABC? 'Cause if they haven't, I don't necessarily know if I would advocate you being the first because that is just going to be— you're going to be dealing with not just a challenge of having to build conviction around your product, but also convincing them that it's great to invest outside the US in this particular country.
Okay, so before I get into some more lighthearted questions, I have one more, more serious question, and that's really looking at venture capital. So how would you say that it's changed? And do you see it changing even more over the next 10 years, and how do you see it changing? I think one of the great things about venture capital is, like I said, those barriers to entry, or those perceived barriers to entry, and how that might be changing right now. And it is becoming a lot more of a democratic industry for people to get into. So what are kind of your views on that?
Yeah, so I mean, even though I've been at a venture firm for 4 and a half years, I still feel like I'm very new.
Yeah.
And our firm has been around for 44 years and has seen various cycles. So I think what's changed, to answer your question, it depends on the segment of investing. Meaning, I think what's really changed is, boy, I think 4 and a half years ago, don't quote me on the numbers, but I think maybe there were 40, 50 firms max that had raised, let's say, something between, you know, something below $200 million. That number's ballooned to almost 300. That is a lot of money that has to be put to work. It's a lot of money that has to be returned. I don't believe all those funds are gonna survive another fund cycle or 2, 'cause there's too much money at that early stage. So it's interesting for us because all that's actually good, 'cause more money goes to you, some percentage of these companies actually emerge and grow. Because we tend to write checks between $5 and $10 million in our venture fund. And then our growth fund, 20 to 40. If there's more flowers blooming, then that's only a good thing. But I don't know how— it's hard to imagine how that works out for the limited partners in those funds.
Yeah, there's a lot more smaller funds generally.
Yeah, I think it's certainly a lot easier to raise seed money. One of the number one most difficult hires for me at Twitter was a frontend engineer. Because a frontend engineer, he or she can have an idea, they can go get $500K, and they can get something out there that has no business being funded. That was always the most difficult recruiting scenario. We had a close rate of 90% when I was there, but that 10%, it was this problem because there was so much capital available. You know, it causes a real diffusion of talent, right? Yeah.
