DAVID BLUMBERG: I knew that the big salmon were caught in the bay. But I wanted to go upstream and find the minnows that were going to become the big salmon and understand what are the right requirements to grow them fast, healthy and strong? Because I thought that at an early stage, we in the venture fund can have the most impact.

The public market board of directors and CEOs are really short-term oriented for these quarterly consistency numbers. And so, you see the market reward that because the market doesn't like uncertainty.

Politics tends to reward fading industries and past electorates. It's very bad at predicting the future at understanding technological change and investing into the future with.

TYLER NEVILLE: We're here in San Francisco, the mecca of venture capital, and we're interviewing David Blumberg of Blumberg Capital, who's been around for a couple decades now and doing series A and seed rounds. And we're getting a pulse on the venture capital market as it is right now. Really looking forward to this.

David Blumberg, here we are at your offices in San Francisco. You've been in Silicon Valley VC for since 1990. What I want to talk about is your life and career, your career in venture, get into a little macroeconomic policy and then dig into the future and how you see it. So, why don't you tell us about your past and how you got here?

DAVID BLUMBERG: Glad to. Well, welcome, Tyler. Welcome to Mecca.

TYLER NEVILLE: Thanks.

DAVID BLUMBERG: This is where a lot of it happens. And it's a very unusual ecosystem, the world is better off because Silicon Valley exists. And I think all of us at Blumberg Capital feel very privileged, and I personally do to have been part of it for these last decades. It's been transformative personally, and we'll get into that. It's obviously made a huge impact on this regional economy and think that products and services have been brought about that have affected billions of lives around the world. So, feel like a good place.

How did I get here? Well, I don't know how far you want to go back. But a kid from Fresno, California, went to Harvard College, thought I wanted to change the world by working in the government. Worked in three internships in Washington, DC, and decided, I don't think this is the place that's solving problems. I think it's causing more problems than it's solving. At the same time, I was running a business at Harvard, called Harvard Distribution Services. And I thought, wow, even in a boring little business like this, it's so much fun to be an entrepreneur. It was so challenging and dynamic and rewarding.

And I thought this is really the exciting part. But I want to be involved in the future industries, not distribution of newspapers on campus, but I want to do something in technology. Problem was, I should have gone to MIT and learn computer science. I studied international relations and economics. And so, I thought, how can I get into technology? So, I went to a wonderful investment firm called T. Rowe Price. And from there, I learned how to analyze technology companies, I was only focused on that. And then I had wonderful experience at Stanford Business School. And then right into venture as a mentorship under Fred Adler, and Alan Patrick Coff, and Charles Bronfman, very major investors from the East Coast, and that established the network, then it's all about the network and venture capital and pattern recognition.

So, I've had really outstanding opportunities to join with those teams, find out how it's done. And then just being able to build up lumber capital with our team here, my wonderful colleagues that bring a whole bunch of other disciplines, backgrounds, most of us have some operating experience. And that combination has, I'd say, led to some really good results. Because venture is one of the most holistic kinds of professions. It's really like a general internist, it's not a specialist, like a brain surgeon, or a nephrologist, or an anesthesiologist, it's everything all together. You have to understand something about the technology, something about the finance, something about psychology, something about the fundraising world of running your own firm. And then generally, if you're not a specialist firm, you have to know about many different industries, or at least enough to know how to separate wheat from the chaff and help the entrepreneurs thrive.

So, I'll just say one of our guiding principles is that the entrepreneur comes first. And basically, the idea is that some venture capitalists, I think, get the mistaken impression that they're in charge. They're the puppet master. And the entrepreneurs are little marionettes that dance on strings. We see it as the NASCAR model. And the NASCAR model, the founder is really able to call on us for resources. So, we're there to change the oil and fill the gas and bring fans into the stands. And well, we've been around this track, thousand times, so we have some experience that can sometimes be helpful to say, hey, maybe slow down around that curve, you might crash, and we would take it at hundred miles an hour instead of 150. So, some of that advice comes in handy.

And then this network, over the years, builds up and builds up. We specifically have something that's nice value add called our CIO Council. And that CIO Council meets with our teams about four times a year in New York and in San Francisco, we bring in our portfolio companies, they can get feedback from the market from real practitioners, mostly CIOs, Chief Information Officers, some CCOs, some chief marketing officers, because they today are spending a lot on IT and services. So, it's again, it takes a village- if you could say it that way. There's a whole ecosystem of people that need to support entrepreneurs. And we try and find the most innovative ones, building the greatest companies and help them scale from seed to A is where we like to start. And then we follow on.

TYLER NEVILLE: Can you give us a little background of how it- so, generally, our viewers are stuck in public markets a lot, could you tell us-

DAVID BLUMBERG: Stuck?

TYLER NEVILLE: Yeah. Could you tell us how the seed round and the series A round and where you guys primarily like to play it? How your process works?

DAVID BLUMBERG: Oh, it's so funny, because that brings me back to my days at T. Rowe Price. Because even when I was there, right out of college, I knew that I like caught a salmon. I knew that the big salmon were caught in the bay. But I wanted to go upstream and find the minnows that were going to become the big salmon and understand what are the right requirements to grow them fast, healthy and strong? Because I thought that at early stage, we in the venture fund can have the most impact. And in terms of running a venture fund in that market, what we got was relatively large, we're managing about $550 million, our last venture fund was over 200 million.

So, for the seed and A rounds, as a specialist in that category, that's large, and we can have large ownership, we can lead rounds, we can follow on. And that's not true of most early stage funds. They're generally more limited in scope and tenacity. So, we have that advantage.

The public market folks, I think, are all dealing with public information. Private companies, venture capital, we can deal with private information that is not available for everybody. So, we have inside knowledge, but it's all legal. And so, that's what I like about it, because we have inside knowledge of what's going to happen in these companies. We don't know all what's going to happen in their competitors. But we have a good knowledge of the insides of the company. And we see the management up close on a regular basis, because we take board seats. Most public managers are at least one or two or three leagues removed from those decisions. So, we're seeing up close in real time, with the access to private information. That's why I love this business.

TYLER NEVILLE: So, another interesting thing is the incentives. So, you're a longer-term incentive. How does that play in verse public markets where they're always concentrated on next quarters earnings? It seems like one of the lines I heard recently was, if you're concentrated on next quarter, you're always going to lose to the guy concentrated out two to three years. How do you see that?

DAVID BLUMBERG: There's so many interesting topics there, I'll pick a few. One, you're right. The public market board of directors and CEOs are really short-term oriented for these quarterly consistency numbers. And so, you see the market reward that because the market doesn't like uncertainty. And it tends to make people a little bit more short-term focused and do things that are safe bets. We're more interested in things that are longer- term and a little bit riskier bets. And we're able to live, we let people try things out for a year or two to grow into the right approach and right success factors. So, sometimes it makes take two or three pivots for them to reach the right escape velocity.

I'd say that the benefit, this allows us to do more in R&D. And you find that the trend has been- there used to be great places like Bell Labs and Xerox PARC that were enormously innovative. Not everything came into production for those companies, like a lot of the results of those got commercialized by others. But innovation tends today to become much more efficient in small groups. And that's who we finance. So, they might have been trained at other places, or universities, but then they come out in a small group of three, four, five, six guys and gals, and we back those startups. So, they have several years before they're actually expected to show something major to the market.

So, they have a lot more flexibility, they can pivot a few times. That's a lot harder for the big companies. Now, the negative for startups, is that they don't have the sales credibility. They don't have the sales reach. They don't have the pipeline, that's this engine that runs. So, how do we compensate? We have to be better. So, the products that we are trying to back have to be sometimes like five to 10 times better than the existing.

One of the rescue agents that helped venture capital really thrive from transition back in the '70s and prior, most of it was hardware and semiconductor related. Now, it's much more software. Well, this enterprise SAS model has transformed the industry and made it much easier. So, it's much easier for startups to sell with lower friction. And then the cloud revolution and the dematerialization of on-premise equipment has made a much lower cost. So, you have wonderful trends helping innovation startups. It's cheaper to start them. It's easier to sell and service. Does that make sense?

TYLER NEVILLE: Yes, absolutely. I think one of the things that you mentioned back in 2014, was, you said there's almost an arbitrage where 40% of companies might fail. And you said, because of those very things you said, lower cost of cap backs and better distribution channels, and also emerging markets becoming a bigger player in globalization. You've actually hit it out of the park in terms of all those things happening in the face of a macro economy that's been almost like in the media, like everyone thinks it's a bear market in public markets.

DAVID BLUMBERG: Today?

TYLER NEVILLE: Not in Silicon Valley, but everyone's scared, it's almost a riskless environment, how hedge funds in public markets are net neutral, they don't want to take too much risk. Whereas like, maybe, if you're thinking about it differently- when you're based in Silicon Valley, you see all these opportunities that necessarily, the public market participants don't see. But switching to macroeconomic policies-

DAVID BLUMBERG: Yeah, I have a lot of through of this.

TYLER NEVILLE: Yeah. So, right now, I think there's 9 trillion in negative yielding debt, which, to me, signals there's not enough great ideas that are producing positive returns. Some people think that's bearish. I think it's a little bit of both. It's this weird thing that's going on. But can you speak to that in how macroeconomically, you think about things from a venture standpoint?

DAVID BLUMBERG: Okay. So, super big picture, from Ronald Reagan in the 1980s until to the 2012 period, something like that- declining interest rates. That was almost a guarantee. So, folks that were heavily debt oriented- private equity firms, real estate firms, people were investing, saying, assuming that the next year, they could borrow for cheaper, which went great. There was this incredible rising tide, or you might call that the tide was going out on interest rates, things are going down. And then quantitative easing ramp that up on steroids. So, lots of money, it was super easy to get money. And so, things were very capital intensive, and faced a lot of debt, had a pretty easy road for three decades.

Now, it's different. That quantitative easing, at least in the United States, has been stymied and probably reversing, Europe and Japan are sticking with it. I don't know why. I think they're mistaken. But I'm not a central banker. What we're doing in Silicon Valley is real growth- growth by real product sales, new innovation. That's disrupting some markets, you get the cheapest money in the world, and they're still going to decline. We're trying to build businesses for the future. And these businesses are much less capital intensive, they're much more dematerialized. They're much more software based. They're based on data sources that were never available even five years ago, using AI that was never available five, 10 years ago, on hardware that was never available. Or if it was started, Nvidia started gaming and things like that. And now it's found a wonderful home and powering algorithms for AI and even crypto.

So, we have this confluence of these wonderful technological spurs, or accelerators, plus an environment in the macroeconomics that says, yeah, debt's probably not going to get a lot cheaper, it might go up. Yield is low, I better find some real assets that are going to grow. So, that's why I'm so bullish on this economy. And we're seeing companies, very young startup companies get customers that are Fortune 100 right out of the box. That was not really possible 10, 20 years ago.

Now, the scale of the cloud, as a base gives you a foundation. The credibility of the VCs behind you is a thumb of assurance on the scale. And the innovation that they're able to show and demonstrate 10 x performance better or safer or faster, says to the big customers, hey, I should try this. And if you're not selling to big customers, you can now sell to SMBs on a distributed basis at low cost of customer acquisition for relatively good LTV- long term value of that customer. So, the acceleration of disruption, I would say is happening.

And a funny statistic, I think, in 1955, 'til today, only about 10% of the same Fortune 500 companies are extent, there's been a big turnover. Some of them have consolidated, but some have completely been wiped out. And new ones are being created. And if you notice, many of them are data companies. They're building new data barriers, the Googles, the Facebooks, etc. They're building new franchises. And that's the kind of thing that we think is so exciting.

In FinTech, we're seeing unbundling, and then rebundling of services, adding financial services to marketplaces. A lot of things can be done so much more efficiently by these new folks. And they can partner with large companies, we love that. We would like large companies in our LP base, we'd like to work with them and partner with them because it's not a zero-sum game. And some startups will become the next Fortune 100 themselves, but many will partner with or be sold to the existing large companies today.

TYLER NEVILLE: Let's talk about how capital is moving into more risky parts of the market recently. SoftBank, can you talk about how much division fund affects the venture capital ecosystem? I know you're on the earlier stages, and they're on the latter stages. But how does that affect the whole ecosystem?

DAVID BLUMBERG: Let me start with one of my favorite analogies for this business. Early stage- and that's similar to sports analogy- early stage investors, our sport is really going to be compared to like scuba diving- I'll explain why in a moment. Late stage investors, their sport is surfing. It's catch the wave. It's the trend. It's going to be high-priced waves. It's the latest thing. And it can shift around with wind and ocean conditions and so on. So, that's the late stage investors. And part of that is driven by the fact that until recently, the IPO market was put into a trauma by Sarbanes Oxley, some other regulatory issues and some changes in Wall Street, decimalized trading a number of things, the ending of really buy side research that was able to be traded for soft currency.

That has caused the IPO market which used to start much earlier to retreat back. So, a lot of companies stay private a lot longer. There are also a lot of tort lawsuits against young companies. So, they would stumble in the first couple quarters, they get sued. A lot of people didn't want that. So, a lot of companies stayed away from the IPO market. Now, what that did is it allowed- and it required the investor class that wanted access to those high growth companies to jump in while they were private. So, a number of big institutions that used to only participate and T. Rowe Price is one that I used to work for, we only used to participate in public companies. Now, they come into the later stage.

So, SoftBank is a hybrid of that. They're coming in with very large checks in late stage companies, pre-public, because they want part of that growth. And I think it's an interesting phenomena. It has caused inflation at the higher end of the market. Doesn't affect us so much. Again, we're scuba divers. We're worried about long-term currents that are consistent like the what's that- the Gulf Stream is always going to the northeast on