Letter #154: Josh Kushner and Kareem Zaki (2023)
Letter #154: Josh Kushner and Kareem Zaki (2023)
Founder of Thrive Capital and GP of Thrive Capital | The VC Outlook
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Today’s letter is the transcript of a conversation with Josh Kushner and Kareem Zaki. In the conversation, Josh and Kareem discuss starting Thrive and the VCs they looked up to when founding the firm, how their LPs felt about their initial strategy, going against conventional wisdom, their consumer investment strategy, the importance of having a celebrity in building a consumer brand, views on the stalled IPO market and how it is affecting later stage companies, their best bet on an eBay-like trend that is developing under the radar, the intersection of hardware and software outside of transportation, brain machine interfaces, the thinking behind becoming an RIA, some companies they invested in after they went public, how they think about when it’s time for a founder to move on, how much a market downturn forces faster decisions, Kanye’s comments on Josh, working with Bob Iger, advice for people going into college, and more!
Josh Kushner is the Founder and Managing Partner of Thrive Capital, where he has invested in companies such as Instacart, Instagram, Skims, Slack, Spotify, Stripe, and OpenAI, and incubated companies such as Oscar and Cadre. Prior to founding Thrive, Josh spent a year in Goldman Sach’s private equity arm, where he focused on distressed debt. He had also been a cofounder of Vostu and Unithrive.
Kareem Zaki is a General Partner at Thrive Capital, where he has invested in companies such as Affirm, Ramp, Trade Republic, Lemonade, and Robinhood, and has incubated companies such as Cedar, Nava, Scope Security, and Cadence. Prior to joining Thrive, Kareem spent three years in private equity at Blackstone.
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Transcript
Host: Good morning. Thank you for joining us today. With me I have Kareem Zaki and Josh Kushner. Josh is founder and general partner of Thrive capital and cofounder of Cadre and Oscar Health. And Kareem is a general partner at Thrive Capital and cofounder of numerous health tech companies, including Cedar and Cadence. And I'm sure you all are very familiar with Thrive--it raised $3bn earlier this year for its eighth fund, and has been investing hard in companies like Stripe, Plaid, Robinhood, Slack. And so I thought we would just begin by if you could tell me how it is you came to start Thrive, Josh, and who some of your mentors were or what VCs you looked up to when you were founding the firm.
Josh Kushner: So first off, thank you so much for having us here today. We are big Bloomberg fans and consider it an honor to be with you all. When we started the firm... there are different firms that we admired. But we always made a decision that we wanted to not look like anyone else. We just wanted to be ourselves. And when we started the firm, one of our early investors spoke to us about how as firms scale, they start to lose a sense of who they are. And I had this conversation with him where I said, Why don't I actually tell you who I want to be in 10 years and why don't we just start there. So we took a very first principles approach to what we wanted to do, which was, we wanted to be a firm that built companies and invested in companies at any stage in any geography and in any sector. And this was deeply controversial at the time. Because in 2011, when we raised our first institutional fund, you were either an early stage fund or a later stage fund, you were either a consumer fund or software fund, you were either a US fund or European fund. And our view was, we wanted to really be hands-on, on the ground, building things ourselves, but also partner with category defining companies, and really help them realize their full potential. And as we think about the firm today, it really works as a flywheel. We are building stuff ourselves, which really enables us to appreciate how hard it is to actually build. We are investing in early stage companies, and as a result of us building, those early stage companies actually want us to be their partners. And we also have the opportunity to invest in later stage companies, because when we approach these founders, we're building these really unique, already scaled businesses, they view us very similar to them. And then the fact that we get this incredible lessons from all the names that you mentioned, we can actually take those back to the things that we're building, and the things that we're investing in at the early stages.
Host: It's hard to appreciate that now, when so many firms are stage agnostic and sector agnostic. I'm just curious, at the time you had this conversation with an investor who's now an LP in your firm, what did that person say? Were they skeptical? Did they support you?
Josh Kushner: Yeah, we feel very grateful to have incredible partners at Thrive. And we feel really fortunate to work for incredible institutions that do a ton of good in the world: not for profits, university endowments, foundations, hospital systems. But when we started, many of them didn't really understand our strategy. But we had always believed that building something that worked in a flywheel that actually enabled us to kind of get these insights, get these lessons, to really ultimately be the most meaningful partner to our founders was what we wanted to accomplish. And we figured it would enable us to scale and do the exact same thing. So we are doing the exact same thing with our $3bn fund as we were doing with our first $40mn fund. And that's something that we're proud of.
Kareem Zaki: I think the industry, also, was evolving, that allowed an opportunity for a new type of venture technology investment firm to be built. I think venture a long time ago was kind of viewed as a cottage industry. Maybe you're backing science projects. The life of a company was three to four years, you were going to be trying to sell to Cisco, you were trying to just get through this one milestone. And now we're seeing that technology's not just a niche asset class. It is this transformation across every industry. And it's growing from just trying to build companies for a couple of years to transforming industries over 10 years, sometimes decades. And when you kind of take that lens, this idea of just focusing on seed or just focusing on finance, or healthcare, or infrastructure, misses a picture of kind of what's happening behind these trends. And then you have these founders who want to build much more ambitious companies, and they don't want to have to have a different partner for every question: Oh, I'm an early stage company, I need to ask the product person or I'm growing right now, I need to ask the business person, or the growth mindset. What does it mean to actually have an investor, a partner, who understands all the stages? And not just because the firm says they do it all, because even if a firm says to do it all, they have different teams. They have a seed team, they have an early team, they have a growth team, they have a publics team. And so it's a really disjointed experience for the founder. And so what does it mean for us to align and not just say, We're here for part of the journey. We're here for all of the journey. And also, when you're trying to identify these trends, if you're just looking at what's right in front of you, because my firm says to do this, or we look at this area, you only have one piece of the puzzle, and maybe you're missing the broader picture of what's happening, which is a multi decade, maybe a century long trend around this ripple of technology transforming every aspect of the economy.
Host: So in setting it up, you went against the conventional wisdom. Is there anything you continue to do today that's against the conventional wisdom in, for example, in the types of companies you back, or anything else you're doing?
Kareem Zaki: Yeah, I think part of it stems from building companies, which I spend a good amount of time doing, but I think the whole firm spends time on this. I think, sometimes you talk to limited partners, or people ask, is a former founder a better investor or classically trained investor lead to better results? And I think our answer is both. These businesses are becoming much more complex. I think the investor needs to be much more multi dimensional around it. And I think what's also really important is, it allows you to kind of take on more ambitious opportunities, because as technology expands from just impacting other tech industries, or selling tech to other tech companies, or going across industries, sometimes to innovate in healthcare financial services, it needs to be bigger from day one. There needs to be multi stakeholders. We need to work with the existing industry, as well as the new innovators. And being able to build companies, I think, allows us to bring in more people in the ecosystem early on to drive and do that. And I think the second thing is just having a firm that has a very long term lens, how do we use time horizon as a competitive advantage when we invest? Because if you're only focused on the stage, how do I get one company from one stage to another, you're gonna bet on companies that have inflection points in six to 12 months. And sometimes that's true. Some of the most innovative companies take couple years to build. And if you're really forced to think on a short term horizon, you might be missing some of the most ambitious, exciting companies. And that's allowed us to innovate, I think in financial services and healthcare before most industries were investing behind that, or at the intersection of hardware and software, like investing in companies like SpaceX, but earlier stage businesses now that are innovating in hearing aids or surgical devices.
Host: So let's talk a little bit about your consumer investments, because you're in quite a few like Warby Parker and Glossier. What's your thinking on... do you prefer direct to consumer? And what's your strategy around the consumer investments?
Kareem Zaki: I think we, again, I think, one, we try to keep a generalist lens. And where we kind of view is, technological innovation is not monolithic, or these breakthroughs aren't monolithic. So as we think about sometimes the consumer space, it's less around what do we think is most interesting in consumer today, but what are some of the most exciting and most powerful trends happening broadly. And I think one of the things that's really interesting is the growth in the power of the creator. And having a direct voice to individuals. And that can be around already recognizable individuals like Kim Kardashian and Skims, which we're investors behind, but also new people coming up on new mediums and platforms. We invested in Patreon and Twitch and things that kind of enabled a whole new category of individuals to kind of lead and have an authentic voice.
Josh Kushner: Yeah, the thing for that is, every single one of our businesses is a brand, and that brand is selling to an end customer. So in many respects, consumer is seen as selling directly to all of us, but Stripe and GitHub are selling to developers and [Airtable] and Slack are selling to enterprises. And we think brand, coupled with an extraordinary product and a great go to market is important across all industries. And I think people focus on our investments in things like Instagram and Spotify and Twitch, but at the end of the day, there are a ton of shared lessons and learnings across all these businesses, irrespective of the end customer.
Host: So how important is it to have a celebrity if you're trying to build a consumer brand? You just mentioned quite a few where you don't have a celebrity, but increasingly will that be more important going forward, like Kim Kardashian with Skims, or...
Josh Kushner: I think for all of our businesses, we try our best to think about distribution. And obviously, the most important thing around ultimately selling a product is the quality of that product. But businesses like Warby and Fnatics and some of the platforms that I mentioned, they had extraordinary products which enable them to ultimately realize incredible go to markets. Those that have existing distribution, though, where a business that they're ultimately selling is very authentic to who they are, can lead to really extraordinary outcomes as well.
Host: And speaking of outcomes, a lot of companies that had planned to IPO this year are forced to delay those plans. You guys are in Stripe, which has been often spoken about as an IPO candidate this year. What do you think of the outlook for next year and beyond? What are you anticipating for your companies, the ones that are getting close to exit stage?
Kareem Zaki: I'm sure there's lots of people in this room who probably have a better perspective on what the market's exactly going to look like in 12-24 months. We don't live under a rock, like we obviously know that valuations have shifted and multiples have kind of evolved over time, and feels like everyone's obsessed right now talking about the multiples and where prices trade, which we get, it's been a big shift. It's obviously jarring. It's things that we're aware of. But we're also aware that valuations of companies are multiples times earnings. And we spend a lot of time really thinking about what are the earning power about businesses, and the real core operating metrics driving these businesses, not for the next quarter, not even for the next year, but over the next five years. And when you're talking about the next five years, and the opportunities for companies around that to exit and grow and create value for the shareholders, and for the employees and the founders who are building it, a model is not going to tell you that answer, it's too far out. It's really the market, the dynamic, the product, the founder's positioning, that's really going to transform all those elements, where ultimately where we lean in and really thinking from a product lens and then zooming out and being like, what are the really big macro trends that are going to drive and propel a company to continue to compound it really fast? Growth rates, which I think is... one of the things that's challenging about venture is, I think you have to have macro conviction, what's this big tailwind that I'm going to invest behind, but then actually have micro precision in the individual company. You could have been in the 90s and say ecommerce is going to be a really big deal, but if you didn't invest in Amazon or eBay, you didn't really participate in that trend in a meaningful way. And so how do you step back and identify the things that are really taking over, which is why we tried to keep this generalists lens, be zoomed out, because we don't miss one of these really breakout trends. But at the end of the day, like you have to make sure there's the building blocks, the environment, the set up, the team, the founder, the market, to really get something out not just quickly, but with real velocity to explode and take over an industry on the time horizons we're talking about. And that's where I think a lot of the founding and the building lens, tied with really trying to be students of the market and be professional investors kind of comes together.
Host: What's your best bet on an eBay like trend that might be developing now without people being aware of it so much?
Kareem Zaki: Again, like, we want to zoom out to kind of see some of these things. I think we're we're starting to see a lot of really interesting innovation is, we're seeing kind of the intersection of software and hardware come together in new ways. We used to think about software as one element and hardware as a different element. And then they would try to come together. And now we have companies from day one thinking about building around this. And I think we've seen Tesla and SpaceX kind of being one of the first innovators in that. But we're really seeing acceleration now with all the founders who are coming through the door, innovating across a lot of these different dimensions. I think healthcare is also having an interesting moment, right now. Obviously we've been talking about digital health for a while. I think it's going to be kind of a reawakening of digital health post-COVID. One, physicians have a lot more interactions with the new ways that we can treat patients, but also patients have gotten a lot more comfortable with it. And it's not so foreign, because we were, unfortunately, forced into that with COVID. But now you're actually seeing insurance companies and the government wake up to the value of it. And so now they're paying for digital health the way that maybe they pay for a normal doctor visit. And that, I think, is going to really help accelerate some of the things that we're seeing in the market in a way that's much faster than we saw in the previous decade.
Host: When people talk about software and hardware coming together, it's often in a transportation example, like Teslas, like rockets. Is there any other example that would be more of use in daily life that isn't a transportation element?
Josh Kushner: Yeah, we're starting to see a lot more on the medical device side, in particular. Again, I think the Moore's Law components of hardware and chips has kind of reached a point that is actually enabling a greater percentage of people to ultimately focus on these problems. But I think coupling what we believe to be somewhat commoditized with actually software to enable continuous improvement is a trend that we are tremendously excited about. And you can think of Tesla as a car, or you can think about it as a computer on wheels. And I think as we start to think about lots of other things that are deeply impactful in our lives, we'll start to see a lot more transformation in that capacity.
Kareem Zaki: And one interesting example, I think, is like, Apple. Obviously you think about as a hardware company, but increasingly, it's the software ecosystem that keeps people tied in to it as well.
Host: What about brain machine interfaces? Those might be another example. And you mentioned SpaceX and Tesla, are you Neuralink investors as well?
Josh Kushner: We're not.
Host: Okay. That's the Elon Musk brain machine interface company. But could you see that as a promising area? There are so many companies starting in that field right now. Is that something you look at?
Josh Kushner: We have not spent time on that. So don't think we're the best speak to it.
Host: Okay. And then, just thinking some more about the type of firm you are. I know that about a year ago, you registered as an investment advisor with the SEC. What was the thinking behind that? Was that to enable more crypto investments or are there other things you can do with that type of designation?
Kareem Zaki: Yeah, I think, from our lens, we're looking for technology companies. We're stage agnostic. I think increasingly, we're seeing... we saw the last couple of years, a lot of those companies have gone public. So we care less if it's a public or private company, we want to find really innovative technology companies that are still early in their growth curve, and kind of haven't leveled off. And sometimes, companies wait a long time to go public in that journey, and we can participate as private investors. But just because an interesting company, maybe look at Shopify went public in 2015, $2 billion, is that a company that would be interesting to participate and kind of follow its journey? Of course. And so we kind of think the distinction between private and public is a bit arbitrary. And we just wanted to be in a position that we didn't feel constrained by whether a company was private or public to think about whether this is a really innovative technology in the early innings of transforming the space.
Host: And so can you give me some examples of some companies that you've invested in once they've gone public or...
Josh Kushner: So, we invested in Zoom at the IPO, because, again, we thought Zoom was very early in its lifecycle. Incredible product market fit and was very early in its adoption. But it's not something we do often. And when we do it, the return threshold for what we invest in, on the public side, is no different than what we do on the private side. We are technology investors, and we're very focused on making sure that we're working with really exceptional founders that we know extremely well that are building products that we think are going after very large markets. So that's an example.
Host: So speaking of founders, I know that you were co-founders of Cadre, and Ryan Williams, the CEO recently stepped aside as CEO of that company. What's your thinking on when it's time for a founder to move on? What was the thought process there? And when is it right for a new person to lead one of your portfolio companies?
Josh Kushner: Yeah, Ryan is really an exceptional founder, and has built an incredible product that has done exceptionally well for its end customer. And he's really scaled the business to an incredible, incredible point. As a firm, we've had a founder first mindset. We've always been of the belief that we are investing in people, and those people are ultimately the ones that deserve all the credit. You won't see us on Twitter, we're not blogging. I think this is the first thing I've done like this in 10 years, because we actually don't want to take credit for their success. They are the heroes in this journey. And we're very fortunate to support them. But sometimes, people like Ryan raise their hand and say, I actually think this thing could be so much bigger, and how do I bring in someone who's exceptional? And he did exactly that. So this is his decision, he came to us. And we wanted to do our best to support him in that decision. And he's still full time with the business, he's the chairman of the business. He's probably working as hard or if not, even harder than he was prior. And we feel really fortunate to be partnered with him, and with Jared Kaplan, the new CEO of the business.
Host: How much does the downturn in the market just make it tougher and drive someone faster to a decision like that?
Josh Kushner: I think every situation is unique and every situation is specific to a specific company. So I think it's a hard thing to speak to. I think some founders in these moments will be emboldened and actually lean in and feel like it's a market share getting moment for them in their company, and some will think how do I actually bring in people with certain expertise that can kind of help me go to the next level? At Thrive, as a firm, we think the reason why it works is because we all bring something very different to the table. We learn from each other, we grow from each other. And every time we feel like we're not doing something well, we actually try to find someone who can actually help us be better in that area. And I think that's what the best founders do. The best founders are the ones who are the most self aware, they're the ones who are constantly thinking about what they're good at, and what they can be better at, and trying their best to improve in both areas and bringing in people that can support them in both areas.
Host: And, Kareem, do you have anything to add to that? Or is that the firm philosophy that...
Kareem Zaki: Yeah, I mean, I think there's deep alignment. I think one of the things about Thrive is, we're a really small team. And how we've done that, and the reason we're a small team is because we want to be collaborative. I don't know anyone who said I had a really productive meeting with 30 people in a room trying to talk. And that's the size of most partnerships these days. And so how do you engage and work as a team and align a lot of these philosophies? And so, in that respect, a lot of these things we work really closely together on and really aligned in, mostly because we want to learn from each other and really help, step back and support companies in the most robust ways. Now, these business are complex and multi dimensional, but also to identify some of the things that are really interesting.
Host: And, you're still on the board of Oscar, right? I know they said that they were aiming for profitability next year. Is that still the case?
Josh Kushner: I'm on the board of Oscar. And given that it's a public company, I'll let them speak for themselves.
Host: Okay, great. Had to ask. And there's one other thing I have to ask. I'm sure...
Josh Kushner: Yeah. And Kelly's very proud of that answer. And as is Oscar's IR department.
Host: I'm sure many of you saw some comments made by a particular musician, Kanye West, in recent days, and he was saying disparaging things about one of your most successful portfolio companies. And Kim Kardashian, the founder of the company... just have to ask, what's your relationship like with Kanye West?
Josh Kushner: Um, already see the phones going up. Yeah, getting called out by Kanye on Instagram was not on last week's bingo card for me. But you know, as a firm, we're incredibly heads down. We do our best to kind of keep to ourselves and are entirely focused on doing whatever we can to be the most meaningful partner to our founders and supporting those founders. And we feel really fortunate to work with that business in particular, and to support Kim and Jens and Emma and all the people involved, and feel very grateful for that. On a personal level, and a human level, I think some of the comments that were made specifically around anti semitism are disappointing to me. And I'll leave it at that. I think this is an investing conference. But... I'll leave it at that.
Host: Have you spoken to him since then?
Josh Kushner: Is this TMZ? Or is this Daily Mail? Come on, Sarah.
Host: All of us have a little TMZ in us. Come on! Inquiring minds want to know.
Josh Kushner: I know. We are heads down and focused as a firm, and I think we've done a really good job of avoiding distractions. And I think that is our ethos as an organization, and we just keep our heads down and stay focused.
Host: So tell me about your newest partner, Bob Iger. How did you come to know him and what's it like working with him? I know he's only been at the firm for like a month or so. But...
Josh Kushner: Yeah, I mean, we revere Bob. When I think about the most extraordinary executives over the last century, he is one of them. As a firm, we all feel like we're early in our careers, and we have a ton to learn, and we feel really grateful to have him and to learn from him. And I think what we're most excited about about the idea of him being involved in the firm is a lot of our founders are building really audacious businesses, and having the capacity to spend time with him is something that those that have already done it have benefited tremendously from and those that will in the future will benefit tremendously from, and we feel really honored to have him involved in, and truly humbled.
Host: I want everyone here to leave with some advice they can use. I was thinking of asking you both, If you were giving advice to somebody going to college now, what would you tell them to major in? Kareem, I know your major is actually very relevant to your work today. Would you suggest somebody find something like that out there?
Kareem Zaki: Yeah, it looks relevant now. At the time, I thought it was gonna be a doctor on my way to med school, and it shifted at the last minute, but...
Host: And you were a healthcare economics major, is that right? Okay...
Kareem Zaki: Exactly, exactly. But I tried to diversify a little bit. So I studied economics. And I think one of the things that I really took away from that is how do you think about abstract problems. And so my main piece of advice is pick a major that teaches you how to think, and in some ways, that's computer science, and in other ways, it could be bioengineering. But the world is changing so quickly that to be able to pick what you're studying now and assume that's what the world's gonna look like 20 years is challenging, and so how do you create a flexible mind? I'd pick something that aligns with that?
Host: Josh, you said that you had a couple interesting recommendations for kids.
Josh Kushner: Yeah. So for all the college students who are watching this on their Bloomberg terminals right now, my advice would not be what major you would take as much as I think college is the last moment in your life where you don't have a resume. And you can make friends based on interests and passions. And you are not orienting the conversation towards Hi, this is who I am, and this is what I've done. And my advice for anyone would just be these are the friends that you're going to make for the rest of your life.
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