20VC The Two Largest Changes in the Investing Market Today, Why The Scarce Resource in Venture is Access & Why Investors Are Acting Mostly Rational and Upside Scenario Planning Needs To Change with Anton Levy, CoPresident @ General Atlantic

In this episode of "20 BC," host Harry Stebingson has an enlightening conversation with Anton Levy, Co-President, Managing Director, and Global Head of General Atlantic's technology sector. Levy, renowned for his investment acumen, has been instrumental in General Atlantic's backing of tech giants like Alibaba, Facebook, and Snapchat, earning him a spot on the Forbes Midas List from 2014 to 2021. Throughout the discussion, Levy shares insights from his 23-year journey at GA, detailing his transition from a computer geek with a passion for finance to a principal investor at Morgan Stanley, and eventually to General Atlantic, where he has witnessed and navigated multiple economic cycles. Levy emphasizes the importance of active engagement with portfolio companies, the strategic shift towards earlier-stage investments, and the competitive landscape of venture capital. He also touches on the power of great management teams and the significance of maintaining a culture that prioritizes doing the right thing, which he believes is crucial for building lasting relationships and successful businesses.

• Harry Stebbings introduces the episode of 20 BC, expressing excitement for the guest.
• Anton Levy, the guest, is introduced with his titles and roles at General Atlantic.
• Levy's investment achievements and board positions are highlighted.

This is 20 BC with me, Harry Stebingson. What a show we have in store for you today. I just loved recording this one with someone I've long admired and respected. And so with that, I'm thrilled to welcome Anton Levy. Anton is copresident managing director and global head of general Atlantics technology sector.

Harry Stebbings introduces the podcast episode and expresses his admiration for the guest, Anton Levy, setting the stage for the conversation that follows.

• Harry thanks various individuals for their questions and suggestions for the show.
• Promotion of Angelist's fund admin platform for managing investments.
• Introduction to Harness Wealth, a wealth management solution.
• Promotion of Ripling, a platform to help manage remote teams and automate HR and IT.

I'd also want to say huge thank you to Anthony at Squarespace, Adam at articulate, Kevin at Tilting Point, and many more for some fantastic questions. Suggestions today really did make it so special.

Harry acknowledges the contributions of individuals who provided questions and suggestions, enhancing the quality of the podcast episode.

• Anton Levy shares his background, including his early interest in computers.
• Levy's education in computer science and finance at the University of Virginia.
• His entry into the venture industry through Morgan Stanley after the Netscape IPO.
• Levy's transition from investment banking to General Atlantic, seeking a principal role.

Well, first, I'll take you all the way back, just for a minute of background. So I was born in South Africa, even though I don't sound south african.

Anton Levy provides context about his origins and formative years, which influenced his career path and interest in computer science and finance.

• Levy reflects on his experiences with the .com boom and crash.
• The importance of being selective with investments and focusing on growth.
• The contrast between the advisory role in investment banking and the ownership in venture capital.

I've been lucky in many, many different ways across my life and career, but in particular joining at the time I joined, which was in 1998, I still got to see the beginning almost pre the.com mania.

Anton Levy discusses how witnessing various economic cycles, including the .com era, shaped his approach to investing and the value of being involved in building companies rather than just executing deals.

• Levy disagrees with Keith Rabois's statement about the lack of price discipline in funds.
• He argues that valuations should be higher due to larger potential outcomes and low interest rates.
• Levy believes that while some may lack discipline, the majority of experienced investors act reasonably.

I don't fully agree with Keith. I think Keith is amazing and we've been involved in a number of companies together and have incredible respect for him.

Anton Levy provides his perspective on price discipline in venture capital, acknowledging Keith Rabois's viewpoint but offering a more nuanced view based on current market conditions and potential outcomes.

• Levy expresses optimism about the current era of innovation.
• He suggests that the current period will be seen as special by historians due to the convergence of capital, talent, and global innovation.
• Levy believes that despite cycles, the current time is advantageous for investing in technology and innovation.

I think we're in the golden age area of innovation right now. And I'd say that golden age could be decades plus.

Anton Levy shares his positive outlook on the current state of innovation, predicting that the era will be regarded as a golden age for technological advancement and investment opportunities.

• Levy acknowledges that while he is optimistic, there will be cycles of booms and busts.
• He advises that investors should be prepared for changes in interest rates and capital flows.
• Despite potential fluctuations, Levy maintains a long-term positive view on technology and innovation.

Listen, for all my optimism, which I do share, I'm a glasses half full person. I'm a glasses half full investor.

Anton Levy conveys a balanced view, combining his optimism with a realistic expectation of economic cycles and the implications for investment strategies.## Economic Cycles and Predictability

• Anton Levy discusses the inevitability of economic cycles and the difficulty in predicting what will cause a shift to the next cycle.
• He suggests that while a recession will likely trigger a shift, the specific event that leads to a recession is unpredictable.
• Levy uses historical events, such as the dot-com boom and 9/11, to illustrate the unpredictability of market peaks and subsequent downturns.

"The idea that the cycles have gone away is I don't believe, but I also don't think you're going to be able to predict what's going to move out of the current cycle."

This quote emphasizes Levy's belief in the persistence of economic cycles and the challenges in forecasting the triggers for change.

"I think it could be a war. I hope that doesn't happen, but it could be a lot of unexpected things."

Levy acknowledges that a variety of unforeseen events, including war, could precipitate the end of the current economic cycle.

"But I will tell you the thing that will ultimately cause this cycle to move into the next will be a recession."

Levy predicts that a recession will be the definitive factor that moves the economy into the next down cycle.

• Anton Levy discusses the bifurcation in tech investing between active and passive strategies.
• Passive investment, as he describes, involves minimal engagement with the invested company, allowing for scalability of the investment business.
• Active investment, on the other hand, involves deep involvement with the company, including board roles and infrastructure support, which does not scale as easily.

"One is that you're seeing a bifurcation into active versus passive."

This quote introduces the key theme of the bifurcation between active and passive investment strategies in the tech industry.

"The other half of the world is the active and that doesn't scale as well."

Levy contrasts the scalability of passive investment with the more hands-on and less scalable approach of active investment.

• Anton Levy addresses the question of deployment speed in investment, suggesting that it is not purely a velocity game.
• He emphasizes the importance of due diligence, scaling help for companies, and the division between active and passive investment approaches.
• Levy also notes the trend of investment firms moving across stages, from seed to public markets, driven by the realization that access and relationships are more valuable than capital.

"It's about people, it's about being able to do diligence and it's about, for a lot of people trying to, how can you scale helping companies?"

Levy highlights the multifaceted nature of investment beyond just the speed of deployment, including the importance of people and scaling assistance for companies.

• The conversation shifts to the importance of access in the investment world, with Levy noting that access to entrepreneurs and building relationships is a scarce resource.
• Levy describes a trend where firms are moving across investment stages to maintain access and relationships, which allows them to support companies throughout their growth.

"It's access. The scarce resource is access."

Levy identifies access to entrepreneurs and deals as the critical and limited resource in the investment landscape.

"I think you're seeing more people move cross stage because what they've realized is the valuable asset is not capital."

This quote explains the strategic move of investment firms across different stages of company growth, emphasizing the value of access over capital.

• Anton Levy addresses the popularity of passive investment, particularly the approach taken by firms like Tiger Global.
• He expresses confidence in the active investment model, believing that most entrepreneurs prefer assistance and resources over passive capital.
• Levy suggests that passive capital can become commoditized and that differentiation in the passive space is likely to be based on price and speed.

"The passive capital commoditizes really fast."

Levy points out the risk of passive investment becoming undifferentiated and commoditized due to its nature.

"I think firms like Tiger have a brand and real credit to them because they've got good returns. But there are others who have brands in that market."

Levy acknowledges the success of Tiger Global's passive investment model while also recognizing that other firms have established brands in the market.

• The discussion turns to whether investing across different stages requires different mindsets.
• Levy argues that many aspects of assessing investments are similar across stages, such as unit economics and TAM analysis.
• He notes that seed investing, which often lacks data and is based on an entrepreneur's vision, is a different kind of investment requiring a different mindset.

"I think there's much more that rhymes than doesn't rhyme."

Levy suggests that the skills and factors considered in investment analysis are largely consistent across different stages of company growth.

"I think the one that really is different, though, which I think would be the biggest leap of faith for us to get into, is the seed business."

Levy distinguishes seed investing as a unique subset of investment that differs from other stages due to its reliance on vision rather than data.

• Anton Levy discusses the evolution of General Atlantic's investment strategy, moving from larger minimum investments to smaller, earlier-stage deals.
• He envisions a future where investment firms can support companies from early-stage funding all the way to public markets and beyond.
• Levy's goal is to build a firm that can offer comprehensive support and capital to entrepreneurs throughout their company's lifecycle.

"I think it's inevitable in terms of what do I want to build."

Levy expresses his belief that the evolution of investment firms to support companies across all stages is an inevitable progression.

"We've taken our $75 million check down to 15 to 20."

This quote exemplifies General Atlantic's strategic shift to engage with companies at earlier stages by reducing the minimum investment size.## Capital Deployment Strategies

• Capital deployment in the current investment climate is about gaining a seat at the table for future financings.
• Firms are expanding their investment stages, with series A firms moving into B, C, D, and even IPO stages.
• The trend is towards larger investments, even if it means starting with smaller amounts to build relationships.
• This strategic shift is seen across major firms and is driven by the desire to participate in the growth of winning companies.

"And now we're writing 15 to would say, well, how does that make sense? But the reason is, is because it gives you access, it gives you a seat at the table."

This quote explains the rationale behind writing larger checks—it's not just about the money, but about securing a strategic position in a company's growth trajectory.

• Traditional portfolio construction models, which focus on diversification and reserves policy, are being challenged.
• The key to successful portfolio construction is identifying the few investments that will significantly matter, regardless of the total number of investments.
• The concept of "pressing the winners" involves increasing investment in the most successful companies.
• A cultural shift is occurring, emphasizing follow-on investments and active engagement with high-performing companies.

"I think it's the wrong math to do. And the reason I believe that, is that what's going to happen, and I've seen this again, just because I happen to have a front row seat in our business and other businesses for the last 20 plus years, what happens is even within that portfolio, there's still only going to be 20 that matter."

Anton Levy emphasizes that the traditional approach to portfolio construction is less relevant because only a select few investments drive the majority of returns.

• The decision-making process for smaller checks (below $75 million) is distinct and more agile to allow for quick action.
• Larger investments are often easier to commit to because of the familiarity with the company and its performance.
• Knowing a company intimately, including its challenges and successes, reduces the risk associated with large follow-on investments.
• The internal culture of a firm can affect the willingness to commit to both small and large investments.

"So it's a faster process that allows us to be more nimble."

Anton Levy describes the need for a rapid and flexible decision-making process for emerging growth investments, highlighting the importance of agility in capital allocation.

• A firm's culture, particularly its attitude towards risk and loss, significantly influences investment decisions.
• Low loss ratios are a reflection of a firm's cautious approach to investment and its emphasis on proven unit economics.
• The balance between avoiding losses and taking risks to maximize upside is a cultural characteristic that shapes investment strategy.

"It's cultural is the honest answer. So we hate losing money."

Anton Levy explains that the firm's cultural aversion to losing money is a foundational principle that guides their investment decisions.

• Building a firm's culture requires leaders to exemplify the desired behaviors and ethics.
• A firm that prioritizes doing the right thing attracts and retains top talent.
• The reputation of a firm and its leaders in the market can influence an entrepreneur's decision to partner with them.
• The culture of a firm is crucial for its long-term success and generational legacy.

"I think you got to lead by example. So whatever the behavior you want in the culture, you need to live it."

Anton Levy advises on the importance of leading by example to establish and maintain a firm's culture, which is vital for attracting the best people and ensuring long-term success.## Importance of Reputation in Venture Capital

• Reputation is critical for venture capitalists to win deals, especially when entrepreneurs have many options for capital.
• A positive reputation leads to better partnerships and successful investments.
• Negative reputations can lead to being "ejected from the system" as word spreads about poor conduct.

"You're not going to win the next deal for people who have tons of options if you're not a person who leads by example and the people want to partner with."

This quote emphasizes that a venture capitalist's behavior and reputation can be a deciding factor for entrepreneurs when choosing investment partners.

• Despite efforts to promote good conduct, there are still "too many jerks" in the industry.
• The hope is that these individuals will be naturally phased out over time.

"There's still fucking too many jerks."

Harry Stebbings expresses frustration that despite the importance of reputation, the industry still harbors individuals with poor conduct.

• Reflecting on missed investment opportunities can provide insights into improving decision-making processes.
• Even experienced investors acknowledge the inevitability of missed opportunities over a long career.

"What was your biggest miss and how did your process change as a result?"

Harry Stebbings asks Anton Levy to share an experience of a missed investment opportunity and the resulting changes to his investment approach.

• Investors should trust their convictions, even when others present doubts.
• Missed opportunities may not always be about companies you didn't invest in, but also not investing more in the winners.
• The example of Facebook illustrates the significance of conviction; a missed opportunity due to not pushing through despite belief in the company.

"When you have conviction, don't be talked out of it by others... I should have more fully pounded the table to drive that through."

Anton Levy discusses the lesson learned from not investing in Facebook, highlighting the importance of sticking to one's convictions in investment decisions.

• Anton Levy's favorite book is "Bridges of Terabithia," chosen for its themes of loyalty, honor, and love.
• The book illustrates the importance of doing the right thing and making sacrifices for others.

"It's about doing the right thing in honor, and it's very meaningful."

Anton Levy explains why "Bridges of Terabithia" is meaningful to him, emphasizing the values of loyalty and honor.

• Anton Levy's closest advisor emphasized the importance of great management teams and the desire to work with likable people.
• The advice underscores the critical role of team dynamics and interpersonal relationships in business success.

"Great management teams do great things and bad management teams do bad things."

This piece of advice shared by Anton Levy's advisor highlights the significant impact of management quality on a company's performance.

• Time management is identified as the most challenging aspect of working in venture capital.
• Prioritizing tasks and focusing on impactful activities is crucial given the multitude of potential engagements.

"Time management is by far the hardest part of the job."

Anton Levy describes the difficulty of managing time effectively in the venture capital industry.

• Anton Levy humorously wishes for less competition but acknowledges that competition is a sign of a vibrant market.
• Competition in venture capital is indicative of the vast opportunities and potential for multiple winners in the industry.

"It'd be nice if I had a lot less competition, that would be great."

Anton Levy comments on the competitive nature of venture capital and the desire for less competition, albeit in a lighthearted manner.

• Articulate, an e-learning platform, is Anton Levy's most recent publicly announced investment.
• The decision to invest was based on the company's impressive performance and Levy's longstanding relationship with the company's founder.

"I've known Adam, who is the founder, and Lucy, who's one of the senior principals, I've known them for a decade and I've watched them execute."

Anton Levy explains his investment in Articulate, emphasizing the importance of trust and performance over time.

• Harry Stebbings expresses pleasure in conducting the interview and gratitude towards Anton Levy for his insights.
• The conversation highlights the personal enjoyment and value found in such in-depth discussions with industry leaders.

"This has been such a joy for me to do."

Harry Stebbings concludes the interview, reflecting on the enjoyment and appreciation of the conversation with Anton Levy.