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🔑 Key Takeaways

  1. TCV's revolutionary approach of investing in both public and private companies has led to their success, and investing in future-looking products is key to remaining on top in the technology industry.
  2. Investing in private companies for the long-term, while being patient and focusing on promising trends, can generate substantial returns. However, the investment community's receptivity varies greatly, and not all venture firms survive market ups and downs.
  3. Investing in a new and potentially unpopular idea may not yield immediate results, but reinvesting in its growth and taking calculated risks can lead to success in the long run.
  4. Successful companies invest in the future by prioritizing customer satisfaction and taking risks to shift consumer behavior. Reinvesting profits into unknown ventures may be daunting, but it is crucial for growth and long-term success.
  5. While experimenting with new strategies, always prioritize the consumer's needs and preferences. Don't compromise long-term value for short-term gains and understand the business model. Expand internationally to increase the value proposition.
  6. Making it easy for customers to cancel subscriptions can lead to long-term loyalty, and investing for growth as a tech company requires a visionary CEO, great talent, and high conviction. It's important to reassess the product, prioritize customer delight, and have a competitive edge, even if it means being non-consensus and viewed as an idiot for a time.
  7. Stay focused on long-term goals, ignore inaccurate press, invest during crises, and lead by example by analyzing situations dispassionately.

📝 Podcast Summary

TCV's Founder Jay Hoag Shares Investment Insights into Successful Companies

Jay Hoag, founder of TCV, a firm known as the original crossover investors, has invested in well-known companies like Netflix, Spotify, Zillow, Expedia, Facebook, Airbnb, Peloton, and many others. TCV invested in both public and private companies from the same fund, which was a revolutionary concept back in 1995. Today, TCV has over $20 billion in assets and 50 people in their investment team. In the interview, Jay talks about the firm's history, pivotal moments where important companies almost died, and how to think about future-looking product investments. Despite growing up in a time with no technology, Jay's good work ethic and a series of fortunate events led him to become a successful technology investor after joining Citi as an analyst.

The benefits and challenges of investing in private companies alongside public investing.

Investing in private companies can be a lucrative business model, especially when done alongside public investing. It is important to be patient and take a long-term approach to investing in promising trends and companies. The ability to sustain rapid growth over a long period of time, including in the public market, can generate substantial returns. However, the receptivity of the investment community can vary greatly depending on market conditions. Surviving and thriving in the investment management business for a long period of time can be a significant accomplishment. Successful private companies can also become successful public companies, but not all venture firms survive the ups and downs of the market.

Taking a Risk on a Compelling Value Proposition

Investing in a compelling value proposition that may not be popular with the world can be worth funding. Netflix turned free cash flow positive shortly after a recap financing and went public in 2002, but it took 8 years before the investment was truly great. The company chose to forward invest early in streaming despite the limited content offering, and it wasn't until 2010 and 2011 that it was clear it was successful. Betting the company moves are common when a company is in a terrible position, and reinvesting free cash flow into something that could be huge can be a worthwhile risk for prospective investors in new companies.

The Power of Forward Investment in Business Growth

Investing in the future requires vision and guts, as well as a willingness to shift consumer behavior. Netflix's success came from their forward investment in providing great customer delight, which led to more subscribers and more content. Blockbuster's reluctance to invest in their online business led to their downfall. Companies who get public often start playing defense, but great founding entrepreneurs CEOs have the vision to see beyond short-term earnings. Reinvesting profits into an unknown future is daunting, but necessary for growth. Netflix's success was not a secret, but it took four years to become a compelling value prop. A strategic acquirer did not try to come after Netflix, which surprises Jay to this day.

Focusing on the Consumer and International Expansion: Key Lessons from Netflix's Strategic Move to Streaming

One key learning from Netflix's decision to forward invest in streaming despite the backlash from a price increase and rebranding of the DVD service is to focus on the consumer as the north star. When experimenting with new things, it's important to iterate and test a lot while keeping the consumer in mind. Even if short-term financial gains are tempting, nickel and diming the consumer along the way is counterintuitive. It's also crucial to understand the business model and not rely solely on operating leverage, especially when the company is not experiencing high growth. Lastly, Netflix's subsequent international growth story is one of the greatest of all time and highlights the importance of expanding across the globe to increase the value proposition.

The Importance of Customer Loyalty and Conviction in Investing for Growth

Making it easy for consumers to cancel subscriptions may seem counterintuitive, but it can actually lead to long-term customer loyalty, as seen with Netflix. The key factors in deciding to double down on challenged companies include a visionary CEO who hires great talent and reassessing the product, customer delight and competitive moats. TCV's success with investments like Peloton, Airbnb, and Zillow have followed a Netflix-like path, with the firm not being shy about making calls when chips are down. Being non-consensus and right is important, but being viewed as an idiot for some time may also be necessary. Therefore, having high conviction is crucial when investing for growth as a tech company.

Overcoming Short-Term Setbacks in the Tech Industry

Market dislocating events like market crashes are short-term. Most successful technology companies have struggled at some point but they managed to overcome their struggles and come out even stronger. Therefore, as an investor or entrepreneur, it is important to stay focused on the long-term goals and not take the short-term setbacks personally. Ignore the press and focus on delivering value to consumers. Assume that the vast majority of what the press writes is inaccurate. Every crisis has been a good period to invest in and every downturn is different and idiosyncratic in its own way. Therefore, as a leader, you have to be dispassionate in analyzing the whole situation and lead by example.