Transcript: Steve Murray, Revolution Growth


 

The transcript from this week’s MIB: Steve Murray, Revolution Growth is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Soundcloud. Our earlier podcasts can all be found on iTunesSoundcloudOvercast and Bloomberg.

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ANNOUNCER: Masters in Business is sponsored by Harvard Business School Executive Education offering four comprehensive leadership programs that transform rising executives into competent business leaders. To learn more, visit hbs.me/transform. That’s hbs.me/transform.

ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST: This week on the podcast, I have an extra special guest, his name is Steve Murray, and he has a story background in the world of venture investing. He is currently a partner at Revolution Growth. He spent 20 years at SoftBank working with a legendary list of companies and we very much get in the weeds about startup and venture investing.

If this is an area that is of interest to you as either a career or just a passing fancy, if you’re intrigued by technology, finance, startups, fintech, sports, technology, wearable technology, well, then you’re going to find this conversation quite intriguing. So, with no further ado, my conversation with Steve Murray.

I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My special guest today is Steve Murray. He is a Managing Partner at Revolution Growth, a venture capital funds that specializes in technology, software, wearables, and a number of other fascinating tech subjects.

He was a Partner and Managing Director at SoftBank for 20 years working with such companies as Yahoo, E-Trade, GeoCities, Ziff Davis, BuzzFeed and many others. He is a current Board of Director Member at Fitbit where he has served since 2013. Steve Murray, welcome to Bloomberg.

STEVE MURRAY, MANAGING PARTNER, REVOLUTION GROWTH: Welcome. Thank you for having me, Barry. I appreciate it.

RITHOLTZ: So, let’s start with SoftBank because you were there for 20 years, both as a Director and a Partner for a large part of that. What did you do with SoftBank?

MURRAY: With SoftBank, 20 years is a long time. I can’t imagine that I was there for that long. But it was a lot of fun. I guess in summary, I’ve got to sort of be on the front row of the sidelines of the commercial development of the Internet. So what I did — what I did functionally as I started there —

RITHOLTZ: What years was that? What (inaudible)?

MURRAY: I started in 1996.

RITHOLTZ: OK, so right as it is really ramping up.

MURRAY: Really that Internet was just starting and SoftBank had just acquired companies like Ziff Davis, Kingston Technology, Comdex tradeshows, N-Plus I (ph) tradeshows. And so, there were seven different operating units that had — that put together here in the U.S. And outside of Japan, there was a grand total of four people that worked for SoftBank.

So, I joined initially from an infrastructure perspective to really put together all the information systems, the accounting, legal, tax and other activities for the — and managing that and reporting into Japan and working with them on their strategies there. That quickly, as the commercial development of the Internet sort of moved along rapidly, the tasks that I were doing really moved much more into the investing side of life, which really starting in early 2000s, I spent most of my time on the investing side.

RITHOLTZ: What was the relationship between Yahoo and SoftBank way back when?

MURRAY: Yes, so that’s one of the great stories of lore, which is SoftBank made an investment in Yahoo and owned about a third of Yahoo at the same time that they made the investment in Yahoo U.S., at the time that was a huge investment, I think it was about $100 million and they bought a third of it, right —

RITHOLTZ: Wow.

MURRAY: — to put things in context.

RITHOLTZ: That’s amazing.

MURRAY: And it was a pre-IPO investment where Masayoshi Son and Jerry Yang got together and decided that Masa wanted to be a big partner here in the U.S. of Yahoos. But also at the same time, they created Yahoo Japan, which was a real partnership. Actually, I think it was a 60/40 partnership or something like that between SoftBank as the controlling and managing partner of that entity and Yahoo U.S.

They also created Yahoo Korea, Yahoo U.K. and some other things. So, there was really a global partnership that was set up and that really was on some level, the basis for a lot of SoftBank’s U.S. and other Internet activities. Really, you know, that’s the flagship investment early on in the SoftBank story on the Internet.

RITHOLTZ: So, it’s funny to think of you as a venture investor because your background is that of an accountant and maybe it’s my bias, but I think of accountants as steady, risk-averse, dotting i’s and crossing t’s and making sure double-entry accounting adds up. How did you transition from a staid profession of an accountant to something that’s got a touch of cowboy in it?

MURRAY: Yes, I’d say a touch of cowboy might be an understatement someday. But I guess it takes all types. And I actually really enjoyed my time at Deloitte and was my background is, I was a CPA for a while. I was in the accounting and auditing function within Deloitte for six years, so my first six years of my career were there.

I spent an inordinately large amount of time on companies and I think why it translated to my SoftBank activities, I spent a large amount of my time on companies that were heavily transaction-orientated. So, companies like Primark, that was buying a lot of data service companies at the time, a company like Harcourt General at the time it was buying Harcourt Brace Jovanovich and Neiman Marcus and other things. So, I was involved in the assignments that I ended up being on were very transactional-orientated and a lot of acquisitions and they were doing a lot of activity.

RITHOLTZ: Accounting skills would come in very handy with that.

MURRAY: Accounting skills come in very handy. I do find that my background of accounting skills is actually quite helpful with the companies particularly as they scale. As they say, there’s nothing like that ruins a good story like facts and accountants and some level have facts which is, how are the companies doing versus their plan, how much cash is left in the bank, can we last another year or five years, how would we be viewed relative to comparable companies in the marketplace. So, although for sure, you know, the venture capital market is a lot of an art project, not necessarily a pure science project, I think having the background in accounting actually has been helpful.

RITHOLTZ: So, tell us a little bit about Revolution Growth, what sort of companies do you invest in and give us some examples of some of the companies you’re working with currently?

MURRAY: Sure, sure. So, Revolution Growth is a growth fund based out of Washington D.C. It was started maybe 10 years ago by three folks that previously were partners together at AOL, so it was Steve Case, Ted Leonsis and Donn Davis who started Revolution.

RITHOLTZ: That’s the murderers row, right?

MURRAY: There we go.

RITHOLTZ: Then I have three more podcasts then.

MURRAY: I’m sure they’d be happy to come. So, the three of them started Revolution a number of years ago really to do what — at the time, they were trying to figure out what was big and what was next for them in their careers after they left the AOL situation after that merger.

And they ultimately created a series of investment funds, one of them being Revolution Growth. Revolution Growth invests in companies that are, as the name would suggest, at the growth stage of bigger companies, not smaller, but not — generally not billion dollar companies, generally companies that have $20 million, $30 million, $50 million, $100 million of revenue.

We generally invest $20 million to $50 million in each opportunity. We usually have a pretty significant minority ownership, so we don’t — we’re not a private equity shopper, we take control of businesses. We are more like a venture capital even on some level structured like an early stage venture capital firm where we own 5% of a business, 10% of a business, but we get involved as the businesses really starting to scale.

And so, the types of businesses that we get involved in generally are technology-related businesses but they can be across a number of different verticals, right? So, we have companies actually as diverse versus some of the folks that we worked with as co-investors in fast casual restaurants or investors in Sweetgreen or investors in Cava, that are both using technology to change the supply chain and change the ordering patterns and change the — so that’s a fast casual thing that we think is really big.

We’re involved in fintechs. So, we recently made an investment in a company called Tala which is doing microloans in developing nations through the use of information on people’s cell phone. We’re involved in sports-related technologies like DraftKings where I’m on the board, Sportradar, which we’re involved in. I’m sure we’ll get to that topic later.

We’re involved in data companies, places like Uptake in Chicago, Tempus in Chicago, Interactions in Boston. So, those are the types of companies. So, they tend to be companies that when we get involved and then tend to have substantive revenue but not $1 billion of revenue, we tend to put $20 million to $50 million to work in almost every instance we’re on the board of these companies and we serve to try to, you know, know help them out, get them through their journey and use the experiences and references and networks that we have to try to be — make them help make them successful.

RITHOLTZ: You referenced SoftBank earlier, and I have to ask you, they now have a venture fund. It’s a $100 billion, that’s an insane amount of money for something like that. What does this say about what’s going on in that space, and is this part of what’s driving valuations at firms like Uber and WeWorks through the roof.

MURRAY: Well, clearly, there’s been a lot of talk about SoftBank’s Vision Fund. I think it’s actually — it’s really an amazing thing. And does it say about the market and what does it say about where we are in the market and things, I think it if we take half a step back, what it says is, certainly something like this was not possible 10 years ago, as an example. So what’s changed —

RITHOLTZ: Is that true, a decade ago, you could not have had a fund this size?

MURRAY: I mean outside of the financial crisis, I don’t believe so.

RITHOLTZ: Just there wasn’t the appetite for it or there wasn’t the capital for it?

MURRAY: I think maybe a combination of both, but I think what has come to more clarity for people which makes something like this possible, although it is an inventive one, so you can’t make too many broad conclusions about it. And it is sponsored by Masa, who is one of the world’s great dealmakers.

So, I’m not suggesting that there will be multiple more $100 billion funds. But I think what it does suggest is that the world has recognized the importance of technology in major industries, and therefore the ability to deploy big amounts of capital in those, so things like industries like real estate, industries like health care, financial systems, and others are really now being fundamentally changed by technology in a way that is really just starting to happen although there’s been a lot of talk about it.

You know, the industrial complex and the like, those things are really now starting to change materially and those give real opportunities to deploy real amounts of capital. We see this with a bunch of different opportunities that SoftBank is deploying. So, I think that they are hugely influential investor in the marketplace. I don’t think a fund like this was possible 10 years ago. I’m not sure there’s 10 more of them that are coming down the graph.

RITHOLTZ: Yes.

MURRAY: But I do think it speaks to the importance of technology in major industries that may be previously had been a bit more immune to it.

RITHOLTZ: So, not too long ago, I had a conversation with Benedict Evans of Andreessen Horowitz, and his comment was, there aren’t technology companies anymore. Everybody is a technology company. If you’re not using tech in the most optimal or most productive way, you’re just going to be left behind.

MURRAY: I think that’s a fair and accurate summary. I do think there are obviously some and many companies that are using it more effectively. There are industries that allow for it to be used more effectively. The pace at which some of these industries are going to be able to adopt the technology is not at the same pace that we’ve seen in some other industries.

So, as an example, when you talk about health care and you talk about, you know, money supply and you talk about things like that, they are heavily regulated. The pace at which some of these changes are going to be happening is not going to be like how long it took Facebook to be public.

RITHOLTZ: Kind of slow for changes in that area.

MURRAY: It’s going to take time.

RITHOLTZ: So, let’s talk a little bit about health. I see you’re wearing the bigger, what is that called, the Versa?

MURRAY: This is called Ionic.

RITHOLTZ: Oh, the Ionic, so that’s the big Fitbit, I’m wearing the charge too.

MURRAY: Excellent.

RITHOLTZ: My wife —

MURRAY: I can see.

RITHOLTZ: I had the original one which I had — truth be told, I didn’t love, but my wife — I got this from my wife and she liked it so much that I went out and got my own. You’ve been heavily involved in wearables. Where is that sector going? Especially since you mention health, what might these things mean for a sedentary overweight nation?

MURRAY: It’s — I think the existing status of wearables means a lot for a sedentary overweight nation, which is that it provides basic information around things like how active you are, what is your — what’s your pulse, how much sleep have you gotten, things that are very basic in theory, but those pieces of information when provided to people in easy-to-use formats with easy-to-use devices change behavior for many, many users.

RITHOLTZ: I could tell you from personal experience, when I had the original Fitbit and I was doing 10,000, 15,000 steps a day, I became a little obsessive with it. And then I had a couple of glitches with it and I kind of got bored with it and I put it down and the phone is still tracking most of my travel and I noticed that those 10,000 a day without something on your wrist just disappeared. And, you know, once I got this back again, suddenly, it’s — all right, my office is down on 40th Street, we’re on 58th Street, I don’t need to take the subway, I could walk it besides, that’s going to add me 2,000 steps. It really makes a significant —

MURRAY: It really does, the mindfulness piece of it, which you’re referring to is really the key piece of the first generation of these things, which is really we’re on maybe the first and a half generation of this thing.

RITHOLTZ: Right.

MURRAY: So, we started out with really basic trackers that did a pretty good job of tracking steps, but they were really electronic pedometers, if you will.

RITHOLTZ: Right.

MURRAY: Right. And then they’ve married that with really easy to use mobile software which makes you — able to look at it a little bit more. They’ve added sensors to things and I don’t know if you use the other ones that do things like your heart rate.

RITHOLTZ: Yes.

MURRAY: You know, which is actually for lots of people quite interesting, what’s my —

RITHOLTZ: Seventy-two.

MURRAY: What’s — seventy-two.

RITHOLTZ: I’m pretty chill (ph) right now.

MURRAY: We are pretty chill. What’s your — and people sometimes say, “When I’m working out, I should get to 130 or 140 beats a minute.”

RITHOLTZ: Right.

MURRAY: OK, how is that? You can drill into that in your mobile app after your workout and look at how that goes. The other feature that I use a lot, and I don’t know if you do, but many users do, and it actually has real influence to me, is the sleep function.

RITHOLTZ: My wife uses that, I like to take off anything from my wedding bands, you know, and jewelry I have on it in the bed.

MURRAY: There you go.

RITHOLTZ: But that’s just a function of getting used to it.

MURRAY: And I would — so, the sleep thing for me as somebody that travels every week and has a lot of functions that I attend to and, you know, in different cities a lot, I find particularly as I’m not getting younger, my vibrancy, my health, everything seems to directly correlate with the number of hours of sleep I get it seems.

And so, as an example, I was looking — yesterday, I was talking to somebody about this yesterday evening. I looked at my Fitbit data on my phone yesterday as I was traveling someplace and I noticed that it has been over a month since I’ve had more than seven hours of sleep.

RITHOLTZ: Really?

MURRAY: I said, you know, something is not good there. I’ve got to fix that. All right. So, there’s a mindfulness piece of it there. You’ve got to report it at the end of the week since your average sleep has gone up or down since last week. And so, those basic things that are being provided now materially changed people’s behavior.

Where is it going, I think is the next step, and I think of it around health. So, they’ll be just as they added functions around things like pulse and things like sleep, there will be things that will add things around blood pressure perhaps, blood sugar content. You could imagine a whole series of sensors that get added into whether it’s a wrist device or something else —

RITHOLTZ: Right.

MURRAY: — that feeds a central depository like a mobile application. And the real key will be when that can be integrated into your health system, if you will, your doctor. If you imagine your doctor at some point, getting your report about what’s going on with you and a check engine light, if you will, goes off and says, “Hey, Barry, you know, it looks to me like your blood sugar level is pretty low.

You might want to get home and get — you might want to get something to eat or eat an Apple or something,” or “Gees, your pulse is way high. You have the symptoms of somebody that looks like you might be having some heart issues that you might want to go to your doctor about.” So, if you think about some of where this is going I think in the next phase is around this check engine light for yourself without any help.

RITHOLTZ: So, without getting too graphic, I’ve read about sensors that can be put into a toilet where they can check things like blood sugar and actually check for proteins associated with cancer. This is so small and doesn’t have, you know, a giant battery, but I would imagine the next couple of generations of sensors are going to be able to pick up all sorts of stuff that’s, you know, hard to even imagine.

MURRAY: Yes, the real trick in all this is figuring out what pieces of sensors people would be willing to wear or use regularly, so that the data comes through regularly because with — periodic data isn’t as valuable as regular data.

RITHOLTZ: Right.

MURRAY: So, there’s this constant battle between battery life, you know, so this Ionic device lasts four or five days.

RITHOLTZ: Right.

MURRAY: You could put more sensors on it to do more things, it might last four or hours, in which case, you know, what do you need or watch for that lasts four or five hours. That’s of no value too. So, there’s the constant push and pull and struggle in researches around, how do you create sensors that identify things that make the form factor usable enough for people to wear on a regular basis.

RITHOLTZ: Related to wearables, I have to ask the question, why did Google Glass flameout so spectacularly? It seemed like an interesting piece of tech, but it never caught on except for some very specific niches.

MURRAY: You know, I think it ties back to what we’re just talking about with respect to sensors and battery life and usability. It appears as if the form factor never got to a point where people really wanted to wear it. It looked kind of geeky. It looked kind of weird.

And, you know, what we’ve seen with the Fitbit devices and I think will be applicable for a lot of wearables is that the fashionable piece of this is very important. You know, can you — is this something that you would wear in public and use? So, I think that might have impacted the Google Glass.

RITHOLTZ: But the thought of a surgeon who has Google Glass on and wants to pull up, you know, either the x-ray or the MRI or some other resource makes perfect sense for that.

MURRAY: Absolutely. I think what you — what we’ll see particularly for those types of applications on the — I’ve seen something like that that’s on the construction floor where actually it was — I think it’s something with Boeing or Lockheed or something where somebody who is putting together the intricate pieces of a wing of a plane can look at — through his glasses.

RITHOLTZ: Through blueprints.

MURRAY: Through blueprints, right, on — through the glasses.

RITHOLTZ: Amazing.

MURRAY: So, those are those are the types of applications that I think are easy to use, much more likely to have early success. I think the form factor for general commercial use hasn’t quite got there.

RITHOLTZ: And how significant is the Apple Watch as a player on the space because your Fitbit watch, about the same form factor as the Apple Watch, the same size?

MURRAY: Yes, everything Apple does is they do a great job there. They have a real — a loyal fan following, they’re passionate, they make great products that they’re following loves. You know, so they’re a credible competitor and I think that they will have and continue to be one of the real leaders in the wearable category for sure.

RITHOLTZ: I want to talk a little bit about a fund associated with Revolution Growth called Rise of the Rest or RTR. And the concept is so intriguing. Most of the venture investing seems to take place in San Francisco and New York and Boston, but Revolution Growth does a bus tour five cities, five days, $500,000, and they do sort of a local pitch competition. Tell us more about the idea behind that and who’s driving that.

MURRAY: Literally driving it.

RITHOLTZ: Driving the bus.

MURRAY: The bus, right. So, the idea really is Steve Case’s idea, and it’s something that he’s — and it started as an idea and in some activities around a bus tour. They’ve recently done their seventh bus tour.

RITHOLTZ: Really? That many, wow. And it’s $0.5 million per tour or $0.5 million per city?

MURRAY: A $0.5 million per tour generally although sometimes he finds a way to involve a couple of the runner-ups sometimes get something as well, but apparently, that’s not to be known. So, the activity really is Steve’s and it’s one of a personal passion of his and it’s one that the firm Revolution has adopted generally, right, which is in essence, the ideas are around good company development and entrepreneurial spirit are not solely located in New York, Boston and San Francisco, San Jose region.

And if you look at where the distribution of capital is about, somewhere between 70% and 80% of the venture capital money is spent in those three areas. And so, there are a number of other great cities in the country that can and should be producing more entrepreneurial-based technology companies.

It’s important for the country, it’s important for the people in those communities, and it’s a real business opportunity. So, we combine all those three and that’s really the impetus behind Rise of the Rest. Rise of the Rest has become much more than a bus tour, right? So, it started really as a bus tour. It’s now become a real platform of folks as a real team there. As you mentioned earlier, there is now a fund associated with it.

RITHOLTZ: Hold on a second. I just have to read a few of the names who are affiliated with this fund because it’s just banoodles (ph). Jim Barksdale of Netscape, Jeff Bezos of Amazon, Tory Burch, Steve Case, Ray Dalio, John Doerr, Henry Kravis, Michael Milken, Sean Parker, Howard Schultz, Eric Schmidt, Meg Whitman, that’s just the like first half and the rest of it is just as impressive. How on earth did a group of rock stars like that come together to fund a concept like this? That’s just a mind-blowing list of investors.

MURRAY: It is an amazing list. I’m not sure that list of investors has ever been put together in a fund.

RITHOLTZ: And now, I have another 22 podcasts to do based just on that list.

MURRAY: I think it speaks to the power of the idea. The first phases of this were the investments were funded mostly from Steve Case’s personal resources. As he traveled around the country and as he talked to people that he had known and worked with and interacted with, what he heard was, “Geez, this is a great idea, I want to be part of it.”

And a decision was made about a year ago to institutionalize that activity at least in terms of the deploying of capital around the fund. And based on the names of people you can imagine, you know, they really thought that this was a powerful idea. They believed that it is important for the country, important for the growth of entrepreneurship across the country. I mean anybody that runs companies in Boston, New York and San Francisco, knows that labor shortage is tight, hiring and maintaining engineers is tight.

RITHOLTZ: Cost of living.

MURRAY: Cost of living through the roof. So, there’s lots of things that make it challenging. There’s — those are great places and they are great companies and they will continue to be. So, the Rise of the Rest is not, you know, sinking of these other places. It’s that this other opportunity, there are places where new opportunities can be created and we should be really sponsoring those. And so, that’s really what that’s all about that.

RITHOLTZ: There was a New York Times article some weeks ago about a bunch of Silicon Valley venture capitalists who suddenly had become completely enamored with Detroit. The cost of living is incredibly cheap. There’s a huge engineering and technology talent pool there that they didn’t expect to see. How realistic is it to think of parts of the Midwest, Pittsburgh, Milwaukee, Detroit and other cities outside of the core current technology venture capital areas really developing a burgeoning tax scene?

MURRAY: I think it’s very realistic and I think we’re seeing two of the most exciting companies in our portfolio are in Chicago.

RITHOLTZ: Just in the West Loop and it’s on fire.

MURRAY: It’s amazing. If you walk into, I think it’s 600 West Chicago Avenue where these two companies Tempus and Uptake are located. You would think you’re in Silicon Valley. The offices are, you know, vibrant, and there’s young folks coming in and out of the building all day long and there’s — the activity level is really buzzing.

So, Chicago is, for sure, one of those areas that’s coming along. I’ve done some stuff out in Atlanta. Atlanta is coming along. L.A. is coming along. We just did the investment in Tala that we referred to earlier, which is in Santa Monica right outside of L.A.

I mean there is — so that we believe that there are — Pittsburgh is where Google has their autonomous and I think Uber has a lot of their autonomous work being done there. So, a lot of these cities that have great universities, a lot of young folks, support of local community, they can do this since — and we’re really starting to see this. So, this isn’t the press release. This is a real commitment to those areas.

RITHOLTZ: We stayed in a hotel right across the street from the new Google building and our office in Chicago is at WeWorks right around the corner from that.

MURRAY: It’s amazing.

RITHOLTZ: It really is. Let’s talk a little bit about the modern era of venture investing because it seems so different than the 2000s with the housing boom and bust in the great financial crisis. And, of course, the insanity of the 1990s where we had the dotcom boom in Boston and that situation.

I’ve noticed that lots and lots of companies are staying private much longer than they used to. A number of IPOs are down. What’s the driver behind that?

MURRAY: Well, as they say, probably part of it is because they can.

RITHOLTZ: All the capital we’ve talked around gives them an opportunity to not go public.

MURRAY: Yes, there are two reasons really, I think. One is because of some of the regulations that’s happened around Sarbanes-Oxley and other things, the cost and complexity of being a public company has gone up. And so, there are certainly some piece of it is that it’s just difficult, it’s expensive, often times, particularly technology-based companies deprioritize building the infrastructure to support that over the next product —

RITHOLTZ: Right.

MURRAY: More sales and marketing, expanding to international activities and the like. And so, there’s a part of it that is, “Hey, we don’t want to do that.” And then there’s a — what —

RITHOLTZ: So, it’s more — let me interrupt you. It’s more than just regulation, it’s building out human resources, accounting, payroll, compliance, all that stuff. They just want to capture market share and sell more in varied products.

MURRAY: Yes. If you think about what drives a founder to start a company and what drives the founder every day to —

RITHOLTZ: Picking a new payroll company. That’s what they’re enthusiastic about.

MURRAY: Taking a cyber security expert and reviewing compliance with Sarbanes-Oxley 401(c) or whatever. I mean —

RITHOLTZ: It’s a (inaudible).

MURRAY: For sure, there are some piece of it that is not prioritized with a lot of company. So, what — but what has enabled it, I believe, as you referred to earlier is really the access of capital to allow for the growth without having to tap the public market. So, they —

RITHOLTZ: But you as a venture capitalist, you as the person running a fund, you are looking for an exit eventually. I got to imagine that the big backers of shops like Uber are on, “Yeah, take your time whenever you get around to it. We’ll be patient.” I think these folks are waiting for an exit and Uber perhaps is a good example. If they would have gone public a year ago, they might have missed that whole, “Gee, here’s a 40% haircut on your last high watermark valuation.”

MURRAY: Certainly could have been, and for sure, venture investors have limited partners in the institutions that need money back at some point. That said, if you talk to a lot of them, I’m sure you’ll hear from others that if they find a great company that continues to grow at a fast pace and is continuing to gain market share in a developing opportunity, that’s not something they want to get out of quickly, right?

So, on some level, by these companies, the best of them, not going public, it allows some of these venture investors to hold longer and capture more of the upside where perhaps in previous years, when the company goes public, they’re under a lot more pressure to sell their shares because there’s a public market for that.

RITHOLTZ: Now, I recall in the ‘90s, and maybe that’s an aberrational period, but every now and then, a company would come public with a very full small float.

MURRAY: Yes.

RITHOLTZ: Perhaps that was the thinking behind it. I will sell 10% of our holdings, but we think this is worth a lot and we don’t really need the money so we wouldn’t let it ride a little bit.

MURRAY: That’s right. And that was also particularly in the ‘90s, really, the IPO event was much more of a financing event, right, which is they had — they got access, sitting in board rooms during that time. The question about when to go public was, when do we need to raise our next round, and what would be the benefits of being public, and some of them would be access to more capital, some of them would be, we now have a public currency which we can use for acquisitions and the like.

And with the world that has changed now where there aren’t five Softbank Vision Funds but there are certainly five multibillion-dollar funds that are focused now on later-stage technology-based companies that are private and so the availability of capital, I can’t imagine it’s ever been more great than it is right now.

RITHOLTZ: Are we creating a giant dam behind which there’s all this pent-up demand to go public or pent-up demand for more companies, and at some point, not too far off in the future, we’re going to see a wave of IPOs coming out?

MURRAY: I don’t know. There’s been a lot of talk about this wave of IPOs for a number of years and it doesn’t seem to have happened. I do think some of these companies that are private, some of these big companies Airbnb and others, they could go public anytime they want. They don’t have to wait for a good market, a bad market, whatever. There are companies that are of our size and scale. Many of them are achieving or pass profitability.

They’re starting to show real leverage in their model, they’re starting to show that they’re able to add new products and new services onto what they’re doing in a very effective and efficient manner. They built out their management team. So, they are operating almost as if they are a public company within the shell of — within the veil of privacy, if you will. And, you know, so I think those will happen. Whether they happen this month, next month, next year, it’s unclear.

RITHOLTZ: So, let’s talk a little bit about valuation. I’ve had other VCs like Mark Andressen tell me valuation is irrelevant. Their business model is looking for the needle in a haystack, and whether Facebook returns 10,000 times their initial investment or 20,000 times, it’s irrelevant. It pays for a lot of other investments that don’t work out. You have the accounting background. What you think of valuation when you’re trying to choose amongst early-stage companies?

MURRAY: You now, I guess maybe this is where some of my accounting background would probably put me in a slightly different point of view there. I think as it relates to super early-stage investments where you’re really betting on a team and an idea whether you invest that $2 million per year, $10 million, it probably doesn’t matter too much.

RITHOLTZ: Right.

MURRAY: I think it starts to matter a lot more as you get further up the valuation train.

RITHOLTZ: Sure.

MURRAY: So, it doesn’t matter if you invest in the next best travel company that has a lot of traction at a $200 million valuation versus $1 billion valuation. I think it matters actually a lot in many instances, in actually most instances. It’s easy to point to a Facebook and say, “Hey, you’re going to make 20,000 times your money. It doesn’t really matter if you make 10,000 times your money.” Of course, it does not. That’s really an exception. Most of the companies fall into a much more predictable pattern of what they can exit at ultimately. As you know —

RITHOLTZ: What does that bell curve look like, of those that don’t make it, those that are breakeven and those that deliver a profit?

MURRAY: It depends when you invest. If you’re pure early-stage investors, most of them that are honest with you would tell you that certainly 30% or 40% of their companies never make it.

RITHOLTZ: Right.

MURRAY: I think —

RITHOLTZ: Earlier stage, the much more challenging it is. You’re really casting a wide net, because so many of them are going to fail.

MURRAY: At this stage that we invest in, which is really the growth stage where there’s been there’s lots of work left to be done but there’s existing revenue stream and there’s a product in the marketplace where you can see things like margin and things like that. The failure rate should be much lower. It should be 10% of the companies. But you also lose the 50 or 100 times x because you’re in a higher valuation at this point.

RITHOLTZ: Right. But you could still see a 10 or 20x return and that pays for a lot of companies that —

MURRAY: For sure.

RITHOLTZ: — don’t breakeven.

MURRAY: For sure.

RITHOLTZ: We were discussing earlier about some of the companies that have stayed private and I referenced Uber. What about a company like Tesla that went public and just had this massive cash burn? Should they have stayed private and continued to tap the venture market or does this make sense for them?

MURRAY: You know, I don’t know enough to know, I don’t know the details of why they decided to do what they do. It seems to have worked out OK for them. They’re obviously going through some challenges now, but people love the product, they’ve been able to access a lot of public funds.

RITHOLTZ: Recently, they just did another $3 billion bond offering that worked out pretty well.

MURRAY: And the CEO Elon is obviously one of the world’s great visionaries that people want to back and want to support. So, why they decide to go public when they did is it is not clear, but seems to have worked out OK for them.

RITHOLTZ: So, you referenced funding an idea and a team. Which is more important? Is it the idea that grabs your attention? Is it the team and how they execute or is it some ineffable combination?

MURRAY: Yes, it’s — I’m sure it’s a — it depends a little different on each one. And I think it depends a little bit more on the stage of investment. So, the earlier we go, the more it’s simply dependent on the team, right? So, it’s — because what we find is great teams can find the opportunity.

You know, if you’re in a general market area where you think there’s a great opportunity and you have a superior team, they will find where those nuance opportunities will be there, almost never exactly where you start. I use this analogy with a lot of people because my sons were all — they’re competitive sale racers. And I said, when you’re running one of these companies, you’re — you know where you need to go. You’re at Point A and you need to get to Point C.

The problem is the people that — you don’t realize that the captain of the ship, if you will, is actually in a sailboat, not a motorboat. So, you have to go —

RITHOLTZ: So should keep talking back and forth, right?

MURRAY: And so, if you try to go in a sailboat from Point A to Point C, if the wind is not exactly where you think it is, you aren’t going anywhere, right? And too many people say, “Gees, I know where I’m going and I keep going and I’m running into this wall.” They’re really talented managers of these companies and founders. They say, “Gees, I know where I’m going, but I have to go here first and then there and then there and I’m going to read the tealeaves along the way.” And it’s actually fun to be a part of those.

RITHOLTZ: We have been speaking with Steve Murray. He is a Partner at Revolution Growth, a venture fund. If you enjoy this conversation, be sure and stick around for the podcast extras where we keep the tape rolling and continue discussing all things venture-related. We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net. You can check out my daily column at bloomberg.com. Follow me on Twitter @ritholtz. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

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RITHOLTZ: Welcome to the podcast. Steve, thanks so much for doing this. I have a list of questions we didn’t get to. I have to bounce off of you before we start with our favorite questions. You’re New York and DC-based. I have to ask what’s the difference between venture or even private equity firms on the East Coast versus those out in Silicon Valley?

And I say this as a person who has been to a number of Silicon Valley venture firms, and every time I walk out of one of them, I kind of scratch my chin and say, “I could live in California if I had to. I could survive this in New York. It seems they’re all in big offices and it’s lovely and everything,” but it’s a totally different vibe.

MURRAY: Yes, the weather in Northern California is certainly superior to Boston or New York, I can say that for sure.

RITHOLTZ: It doesn’t shock to say the least.

MURRAY: I agree with that, 100% agree. So, I actually think the differences between the coast and how they approach things has changed a little bit over time and they have become more similar. Partly, it’s that some of the firms in the West Coast have opened up New York offices and some of the firms in New York and Boston have opened up Silicon Valley from — actually, most of these successful firms on either coasts now have a presence in the coast that they weren’t in.

So, I think there are some of it that there’s a little bit more of similarity. That said, I do think there is something to the — you know, the old adage that there are more risk tolerance on the West Coast.

RITHOLTZ: Yes, OK.

MURRAY: There are more for sure. And the acceptance of failure is a little higher. And on some level, particularly on the early stage, I find that the West Coast investors almost looked like — looked at somebody’s failure as a CEO as a badge of honor.

RITHOLTZ: Right.

MURRAY: Not as, you know, a black mark.

RITHOLTZ: “Hey, this guy tried, they went for it, they swung for the fences.” Now, I just said this guy and it’s mostly been guys. Do you see any changes taking place with more women, more people of color, less just male-dominated technology?

MURRAY: For sure, yes, for sure.

RITHOLTZ: Less brotopia.

MURRAY: Everything out of the venture — from the venture firms themselves to the firms and companies running, there is a clear emphasis on diversity and there’s real business reasons for it. The research suggests that you get people in a room with different points of view and you come up with a better outcome.

RITHOLTZ: Sure.

MURRAY: So, that —

RITHOLTZ: — group think.

MURRAY: I think there’s a lot of ways to go there and obviously there’s been some, you know, very public and bad stories that have come out in the last couple of years, but that’s probably catalyzing change faster, is my guess.

RITHOLTZ: So, you sit at a unique perch where you’re looking at things that are changing, what is the next industry that’s going to be disrupted? Is it health care? Is it financials and fintech, which I know is in the area you like? Is it even something like food or transportation? What’s the next disruption that’s going to take place?

MURRAY: I think there’s all of those, but —

RITHOLTZ: OK.

MURRAY: So here’s — but there is one that’s maybe more current.

RITHOLTZ: OK.

MURRAY: An interesting topic to talk about, which is the Supreme Court will rule within the next 30 days on a case called PASBO (ph), which is the State of New Jersey sued the federal government essentially around the thing about state’s rights. But depending on which way the Supreme Court rules, it could allow for legalized sports gambling on a state-by-state basis.

RITHOLTZ: Legalized sports gambling.

MURRAY: So, currently, this gambling allowed in Las Vegas, you can bet on different teams and stuff.

MURRAY: Correct.

RITHOLTZ: Isn’t that — is that not allowable on a state-by-state basis currently?

MURRAY: So, you are now seemingly making the argument that New Jersey is making, which is, why does Nevada get to allow for this and the other states not.

RITHOLTZ: Does it make much sense there?

MURRAY: So, that’s the essence of the conflict and there’s lots of legal nuance than you with your legal background would be able to read the briefings, I’m sure, and be able to summarize them.

RITHOLTZ: Dear lord, no under no circumstances.

MURRAY: In essence, that is the conflict that’s being resolved or that’s being — that’s at that issue right now. The reason I think that’s so important is that sports and the media around sports has changed so much in the last few years. How people engage with sports, whether it’s through the mobile device, whether it’s through fantasy sports, both the regular leagues fantasy sports or daily fantasy sports like of DraftKings, the engagement with sports has changed so much overtime, but the importance of sports to the television bundle and places —

RITHOLTZ: Right, it’s live, it’s nowhere else.

MURRAY: It’s live and it’s nowhere else.

RITHOLTZ: When you cut the cord, you’re not seeing live sports.

MURRAY: That’s right. So, this is a big thing. There is a strong opinion amongst many people that know much more about it that I do that the Supreme Court will, in fact, overrule this.

RITHOLTZ: Makes sense.

MURRAY: And allow for states to decide on their own what they want to do. That will kick off an enormous game of musical chairs around who’s doing what, everybody wants to have their hand in that pie, the leagues, the —

RITHOLTZ: The states want taxes, sure.

MURRAY: — the states, the operators, the media companies, everyone seems to be positioning there. There is a number of states that have already began to file legislation in the event this passes.

RITHOLTZ: Wow.

MURRAY: So, this is a real game of musical chairs that could start any day.

RITHOLTZ: And you think this will be explosive?

MURRAY: I think if it happens, it’s going to be really interesting to watch.

RITHOLTZ: I have a buddy, so I am not a fantasy sports guy and I’m too old to be the Nintendo — I forgot the name of the game where people were running around, swiping things and —

MURRAY: Pokémon GO.

RITHOLTZ: I’m too old to be a Pokémon GO sort of guy but I have a buddy shout out to Lenny Parisi who created a company that combined fantasy sports with Pokémon GO, he got it patented. They were just funded. And essentially, when you put your fantasy NFL or a basketball team together, you run around your city and you’re, “Oh, there’s LeBron James,” and you’re swiping him like he’s a Pokémon GO egg.

When he told it to me, I said, “Dude, I don’t do any of that stuff and I got to think kids are going to love that.” That just seems like a crazy good idea. Is this the sort of insanity that we’re going to be dealing with as all these different concepts across fertilize each other and cross-pollinate, you end up with just a million new ideas and a million new businesses?

MURRAY: It’s very clear that if — from sports, which is a big and important business in the U.S. —

RITHOLTZ: Huge, it’s huge.

MURRAY: — and internationally, that the way in which the consumers consume that content has changed dramatically and will continue to change. That could be where things like virtual reality and augmented reality play a role like with your friends company.

RITHOLTZ: The RNAI (ph) are going to apply to this.

MURRAY: You think about —

RITHOLTZ: Sure.

MURRAY: — a situation where you’re sitting at your house on a Friday night, you don’t feel like going into the Yankees game, but maybe for $15 you can be essentially at the front row in your — with — put your headset on and you — you’re there, the game is going on, you hear it all, you see the ball flying by. There are those types of things. So there is a lot of ideas that are going on, what the consumers actually fall in love with, who knows? I don’t know. I have three teenage boys and they — I’ve never seen addictive behavior like theirs right now with a game called Fortnight.

RITHOLTZ: Of course, it’s just —

MURRAY: I’ve never seen it. And so — but if a year ago, somebody had shown me that game, I would have said, I don’t see why —

RITHOLTZ: Right.

MURRAY: — somebody would want to do that. They and all their friends and everybody, those friends play it all the time.

RITHOLTZ: Right, right.

MURRAY: So, what consumers actually hang on to, I don’t know, but there is — there has started to be and there will continue to be an enormous amount of innovation around the activities around sports because they’re so popular, because the usage patterns have changed so much. And I do think this 60, 90, nobody knows what the number is, but it’s a big, big number of billions that is bet illegally in the U.S. through offshore.

RITHOLTZ: Oh, it’s a lot more than that. It’s hundreds of billions of dollars. It’s an insane amount of money.

MURRAY: It’s an insane amount of money and that very soon — could be very soon measured in years, not days, could be now bet legally.

RITHOLTZ: And so, everybody profits from it, taxes it, except for the — you know, Mark Twain called gambling attacks on the stupid, but except for the people on the losing end, there’s a lot of activity that’s going to take place.

MURRAY: Well, and the people — the proponents of this would certainly say, “Well, there are people on the losing end of it now.”

RITHOLTZ: Sure.

MURRAY: So, you’re not adding to the number of people.

RITHOLTZ: Well, you might — you might be attracting more people once it comes out from the black market, that’s certainly a reasonable guess.

MURRAY: It certainly could be. I remember having a conversation with somebody that’s involved in one of the operators in Europe, a good friend of mine who actually lives in York here. And he said, “You know what’s interesting is,” he said, “When we have a tennis match in Europe where the number 100th player beats the number three player, we actually go to the logs and see who bet on what, when, and if there’s some unusual activity. If that happens here in the U.S., what do you — how do you find any data about what happened?

RITHOLTZ: You don’t, you actually don’t.

MURRAY: It doesn’t exist.

RITHOLTZ: It’s the way to keep the sport clean.

MURRAY: That’s right.

RITHOLTZ: And, you know, there are currently, you know, 12-step programs certainly for Angry Birds and Candy Crush that if it gets to be a problem, someone — I no means make light of this, I know there are people.

MURRAY: Yes, that’s right.

RITHOLTZ: Who have issues with it, but it’s fascinating to see what takes place. So, that’s one area, sports. Give me one more area and then we’ll jump to our favorite questions, what else do you see as the next area that perhaps people aren’t paying attention to but we could explode?

MURRAY: We really like a lot of the areas of — in fintech and —

RITHOLTZ: Infant tech.

MURRAY: Fintech, yes.

RITHOLTZ: Oh, within fintech?

MURRAY: Yes, within fintech.

RITHOLTZ: I thought you meant like newborn technology. I’m like, what, what are we doing with babies?

MURRAY: No, not infant tech.

RITHOLTZ: In fintech.

MURRAY: Fintech, fintech technology.

RITHOLTZ: OK.

MURRAY: So —

RITHOLTZ: So, give us a couple of examples.

MURRAY: So, a couple of examples is our most recent investment in Tala. Tala, as I mentioned, what — so what we like to see is what are they doing now that has changed the fundamental value proposition of what is being offered? So, as an example, this company is taking information that exists on somebody’s phone for people that are almost universally do not have a bank account and they’re making up a credit decision based on that activity.

RITHOLTZ: Just so you give them access to your phone and they determine based on what you’re doing with your —

MURRAY: Yes, they say, “Can you give me access to these five things?” They say, “Yes, please, I would like a loan of X.” They say, “OK, based on that, I’ve correlated that activity with other people.” And this means that you’re good or not a good credit risk.

RITHOLTZ: I actually read something about an attempt to create a credit score based on your social media activity. Anything along– is that similar to this or —

MURRAY: That’s — yes.

RITHOLTZ: — is that part of this concept?

MURRAY: That is — it’s part of the same concept, which is how can you use — and it informs a lot of the investment decisions we make in the companies that we like a lot, which is, are you using the availability of data that either didn’t exist previously or wasn’t — didn’t exist at the pace at which it exists now to do something different?

We have a company in Chicago that we talked about a couple times, Uptake, which is using data from sensors on industrial equipment to do things like — tell you that the tractor that’s going across the farm in Iowa is just about ready to have a problem, you better go change that oil or —

RITHOLTZ: Right.

MURRAY: And so, things like that, those are amazing opportunities within industries that previously didn’t have a lot of technology. Now, there’s data but somebody has to do something with it.

RITHOLTZ: Industrial self-diagnosing equipment.

MURRAY: Correct.

RITHOLTZ: That’s just a while.

MURRAY: Yes.

RITHOLTZ: Fascinating. And Venmo-type stuff where your swapping money back and forth without a bank in the middle.

MURRAY: That’s right.

RITHOLTZ: Is that really going to —

MURRAY: Yes, that’s happening and —

RITHOLTZ: Not counting crypto, I’m just talking on an app that theoretically is hackable. Are people going to be able to trust that?

MURRAY: Well, that’s the question. I think there are a lot of those activities that happen and then there’s an event and then there’s, “Can you trust them? Can you not?” There is obvious — there is no question, a growing concern appropriately so around, “Where does my data sit, who has access to it, how do I protect against that?” And part of that is an operational thing and part of that is a cyber security thing.

RITHOLTZ: Right. There’s, not too long ago, a Wall Street Journal article about these crypto billionaires who have created these bunkers for the secure storage of their codes and drives and things like that because legitimately, these things can get stolen and they just have to hope there’s no electromagnetic pulse that wipes out the hard drive, but other than that — that’s fascinating.

All right. So, let’s jump to our favorite questions. I asked these of all our guests and let’s jump right into this. Tell us the most important thing people don’t know about you or your background.

MURRAY: The most important thing people don’t know about me that they would be surprised to know perhaps given the nature of what I do. And so, I’m a pretty energetic guy and I travel a lot and I see a lot of companies and I sit on a lot of boards and I do a lot outwardly facing things and I’m a pretty introverted person.

RITHOLTZ: Really?

MURRAY: That most people would not expect.

RITHOLTZ: Yes, I would not have guessed that if I had to — if I had to make a guess. Who were some of your early mentors?

MURRAY: Well, I’ve been amazingly fortunate that I’ve had so many people in my career that have taken a real care about my career and me as a person, and so, there’s a long list of them. But, you know, I started at Deloitte and that was really folks like Steve Richards and Bill Platt and Susan Reo (ph) and Gib Hammond and others.

But each one of them, I still to this day brings something to the table from them at SoftBank and probably my best mentor and will be forever my best mentors, Ron Fisher, who’s still at SoftBank, who I have the pleasure of working with for 20 years.

I got to — Brad Feld was a mentor way back when he started at SoftBank way back when then he and I continue to be friends and —

RITHOLTZ: He is currently at —

MURRAY: Foundry Group. He’s the — you know, really, the Managing Partner at Foundry. They’ve been hugely successful and he and I work on something together now. And, you know, one of these guys, it’s just such an honest and straightforward and involved guy, I’ve had the pleasure of working with him and learned a ton from him.

Although he wasn’t a day-to-day mentor, having exposure to Masa over the years has certainly influenced me in a great way. So, I’ve been very, very fortunate. I’ve had people that — you know, now, I have Ted Leonsis and Steve Case who I learn from everyday.

I think one of the things that is so great about this business that we’re in is that I get exposed to brilliant people every day that are either running these companies on the board, people that I worked with, and so, I literally feel like I learn something new every day.

RITHOLTZ: And let’s talk about venture investors. Who has influenced your approach to making these investments?

MURRAY: Yes. So, I’d say Masa has influenced my approach originally. His — and the influence there was his boldness, he’s willing to take enormous risk against the grain, he was — you know, he was buying, you know, mobile companies when that wasn’t the right — the —

RITHOLTZ: Out of favor.

MURRAY: — the good things to do, out of favor, if you will. He is very — you know, he raised $100 billion fund when everyone is saying, “Gees, we must be at the end of a cycle.”

RITHOLTZ: Right.

MURRAY: Right. So, this is a person that his boldness is really inspirational on some level. As I mentioned earlier, Brad Feld is somebody that’s influenced my investing style. He is — very much understand the company, the product, the people, walked the hallways, see where things are going.

Another guy that influenced my investment style that’s here in New York is a guy named — actually two people, one Eric Hippeau who runs Lerer Hippeau Ventures, who is sort of the ultimate professional. You know, he’s — everything starts on time and ends on time and decisions get made and you don’t second-guess your decisions and you put your very matter-of-fact and non-emotional businesses, you have to make decisions and you have to move on and you have to go to the next one. I’ve admired him a lot.
I’ve admired — you know, I’ve worked with and he still remains a great friend, a guy who just recently was the CEO at Forbes, Michael Perlis, who is a great friend of mine, who really is a real people person. You know, he is the guy that walks the hallways and says, “This guy and this guy don’t seem to be getting along. And this gal is having a problem here. And how can I engage myself and help this company.” And he’s all about leadership and clear vision and direction. And so, from each one of these person, I absolutely learned something different.

RITHOLTZ: Let’s talk about books. Tell us about some of your favorite books, be they finance or technology or not, fiction, nonfiction, what do you read, what are you enjoying?

MURRAY: Yes, sure. So, I actually mostly don’t read about finance and technology because I live it every day.

RITHOLTZ: Right.

MURRAY: But — and time is short, but I actually get to read a lot because I travel a lot. So, I read — I think I’ve read every John Grisham book and I love him because they’re fun and they’re easy and you can read them in a long flight or two, so they’re great.

I’ve read a couple recently that I really like. One is that I thought many people have read, which is, “The Boys in the Boat,” I like that because I’m a team guy, I’m a sports guy. I love how people can overcome adversity and gang together and accomplish something and I get, you know, goosebumps on my back every time I hear those stories and I read about success and things like that. So, that’s a book that I’ve recently reread and enjoy.

I’m also — I just finished a book that I — that has a real influence on me called, “Being Mortal,” which is about really — it’s a book written by a doctor about the way, frankly, that we may have screwed up the aging process, we’re treating the aging process as if it’s a disease not a condition.

RITHOLTZ: Right.

MURRAY: And it’s fascinating. So, I like reading all kinds of different things.

RITHOLTZ: I made something about that book and if I’m remembering it correctly, part of the book is doctors die differently than laypeople do because they understand what we do wrong. Am I recalling the right one?

MURRAY: It may be but really, the point of the thing — of the article was that — or that book was that we’ve made so many advancements in medicine that has allowed us to treat things. And we have therefore when somebody gets older and they have a condition, we treat them as if they’re 25 years old and they might have 70 more years to live.

RITHOLTZ: That doesn’t make any sense.

MURRAY: And what we end up doing as a society is we end up making the last five years of somebody’s life probably miserable where they’re going through surgeries and all kinds of other things. The likelihood of materially extending their life is not long and you spend enormous resources doing it, something like 80% of the healthcare costs are incurred in the last 20% of people’s lives.

RITHOLTZ: Right.

MURRAY: And so, there’s all these things. And so, instead of that, what he proposes is something more along the lines of what hospice and others do, which is to say, “What’s important to you and how do I create that environment for you to enjoy as best you can your last remaining piece of your life?”

RITHOLTZ: Makes a lot of sense.

MURRAY: Very profound.

RITHOLTZ: We talked about what excites you. Tell us what changes you’re looking forward to the world of venture investing and startup. What are — how is the industry itself shifting into the future?

MURRAY: Yes. Well, we’ve talked about a number of it, that companies are staying private longer. The holding periods therefore are longer. So, the idea of investing today and returning capital in a year or two is much different. The size of the funds seems to be extending I think partly due to that which is that people are saying, “Gees, I have to be able to build a firm to support our company, particularly, in my best ones, from soup to nuts.”

I don’t want to miss — I’ve talked to a number of early-stage investors who have now started to create follow-on investment funds because some of their best companies that otherwise would have been private or sold are now still private companies raising money and they want to participate in those, but they don’t fit within the constructs of their early-stage small fund. They are now adding different people called different things, a select funder, a follow-on funder or something like that.

So, I think that the things that are changing are, how do you serve the needs of the company in a better way given the changing landscape that we existed? A lot of it is international too. I think that will be another thing that we’ll see more of, which is more firms just as we talked earlier more of the East Coast firms, you know, have a West Coast presence and likewise. I actually think more of the U.S. firms who will have an international presence over time.

RITHOLTZ: Europe, Asia, Middle East, et cetera.

MURRAY: Right, right.

RITHOLTZ: Tell us about the time you failed and what you learned from the experience.

MURRAY: Well, I fail every day in some things, particularly, I’m reminded of that by my three teenage sons. I think I actually fail more in their eyes every — as they get older, although I think my older one, he’s 18 now, he’s starting to come out of that phase. I think he’s realizing that I’m not quite as dumb as he might have thought a year or two ago.

RITHOLTZ: All right.

MURRAY: But —

RITHOLTZ: I noticed that the older I got, the smarter my parents got.

MURRAY: Yes.

RITHOLTZ: So, there’s some correlation.

MURRAY: Yes. So, it is an interesting correlation and topic for another one perhaps. I’d say the two or three times that I failed in terms of an investment badly is when — and what I’ve learned about is really the value of people’s ethics and people’s integrity.

And so, in a couple of different situations where we’ve — you know, where I have known that the person that we were dealing with was something less than the type of quality individual that I want to be associated with. I’m sort of old for life on things like that.

RITHOLTZ: Really?

MURRAY: And so, that’s happened to me twice where I sort of knew that the person wasn’t going to be that kind of person I really wanted to work with. But, you know, the opportunity was exciting and the progress in the business was great. And in both cases, it’s come to bite me right back in the behind.

RITHOLTZ: What you do for fun? When you’re not in the office, what do you do to kick back and relax?

MURRAY: Well, I mentioned my three sons, so I have three sons, two of them are in high school. So, I love to — and then I have another one in seventh grade. I love to spend time with them. I love to go to their sporting events. I — for many years, I was the coach of their hockey team.

So, I enjoy contributing and participating with the kids and their friends and doing that kind of stuff. I like to work out. That’s sort of I find the — like we talked about earlier with sleep. The other thing that correlates to happiness for me seems to be if I can get a workout in. So, I tried — I love to work and I love to be outside. I love to be — I love to fish and that kind of thing. But I really like spending time with my family.

RITHOLTZ: If a millennial or a recent college grad came up to you and said they were interested in a career in venture investing, what sort of career advice would you give them?

MURRAY: It’s a question that I get as you might imagine a lot from millennials and recent college grads, friends of friends and others. The good and bad news I think on that particular question is, the honest answer is there’s no clearer easy path into the venture community.

Some folks have, as you pointed out earlier, my background is not sort of classic out of that. There’s — so there’s people that have come from legal backgrounds and accounting backgrounds, and they’ve come from product backgrounds and they’ve come from banking background. So, there really is a collection of different types of people that have come through it. What I would advise — what I do advise them to do is if you’re passionate about startups then get involved in one.

And that could be as small as volunteering, if you will, or helping out at the local tech stars or something like that or it could be may be on nights and weekends you’re helping your friends that’s doing this. I’m not saying you have — not everybody is ready to say, “I’m going to move to Silicon Valley and do things.” If that’s what you want to do, go do it.

RITHOLTZ: So, it’s not just go to a big school, get a degree in finance and engineering and you’re ready?

MURRAY: No. There are a lot of different paths and they all can lead to different things. And I think some firms obviously have more of a technology, product, engineering bend, some firms have more of an investment banking bend, some firms — I think the best ones have a mix of others — some people have more operators.

I think the best firms really, as we talked about earlier with diversity, diversity of experiences is just important, but it’s a tricky path because there isn’t a clean one where you can say, “Go get this degree and get this job and you’ll end up at this place.” It’s not — my experience is it’s not quite that —

RITHOLTZ: It’s not like there are thousands and thousands of VCs and millions of open slots. It’s a pretty small — a small community too. And our final question, what do you know about the world of venture investing today that you wish your knew 20, 30 years ago when you were first getting started?

MURRAY: I guess the easy answer would be Amazon, Facebook, Google, right?

RITHOLTZ: Well, that’s hindsight, what should you have bought 30 years ago, but what did you learn from none — was Amazon an option, did you say past?

MURRAY: No.

RITHOLTZ: By the way, there was a thing that I started noticing not too long ago. Maybe it was long ago. That a lot of the Web sites of various venture firms list these are all the companies we pass on and it’s just an insane list of the great — we passed on Apple, eBay, Amazon. Why — share that. So —

MURRAY: It’s a little self-deprecating, but also they probably don’t list, here are the other 15 times that list that we passed on that somebody else thought was a great idea that failed. All right. So, there’s an equal number of those. So, sometimes the best deals, as they say, are the ones that you don’t do.

RITHOLTZ: So, let me bring it back to —

MURRAY: Yes, yes, what I learned.

RITHOLTZ: — what 25 years ago stands out, what would have been really helpful to know 25 years ago, not a crystal ball about the future but part of your process?

MURRAY: So, one of the things that I think I have learned over time is that people don’t change, right, as much as they would like to. People talk about changing but it’s hard — it’s — changing people is very, very hard.

RITHOLTZ: Right.

MURRAY: Not people — you can move deck chairs around, but the fundamental things that drive people to behave a certain way, very hard to change, so don’t waste a lot of time trying to do that.

Secondly is that failure of these companies that are doing this really, really hard stuff is OK. They can adjust, they can do things that I think I was — like most people naive that the business plan is the one that they should go execute on. You spend all this, tell you, you get trained along the way, there is going to be a business plan and here’s how we’re going to do Step A and Step B and Step C.

And I’ve realized over time that never works so don’t show me a 50-page business plan because I don’t want to see it. Tell me about how you’re thinking about things, how do you think about challenges, how do you think about opportunities. And those are the — those are the things that I wish I knew.

RITHOLTZ: Quite fascinating. We have been speaking with Steve Murray. He is a Partner at Revolution Growth, an early-stage venture capital firm. If you enjoy this conversation, well, be sure and look up an inch or down an inch sure on Apple iTunes at any of the other 200 such conversations that we’ve had. You can find any of them, iTunes, Bloomberg.com, Overcast, wherever you find a podcast result.

We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net. I would be remised if I did not thank our crack staff who helps put together this podcast each week. Medina Parwana is my audio engineer/producer. Taylor Riggs is our Booker and Mike Batnick is my Head of Research. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

ANNOUNCER: Masters in Business is sponsored by Harvard Business School Executive Education offering four comprehensive leadership programs that transform rising executives into competent business leaders. To learn more, visit hbs.me/transform, that’s hbs.me/transform.

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