Pivot Schooled #2: The New Generation of Innovators, with Nextdoor CEO Sarah Friar and investor Rana Yared

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Hi everyone, it's Kara.

Today on the podcast feed, we're going to share an edited version of the second episode of Pivot Schooled, our live video series.

This episode was originally broadcast on Wednesday, August 12th, and the theme was a new generation of innovators.

Our guests were next-door CEO Sarah Fryer and venture capitalist Rana Yarad.

And later in the show, we also answer listener questions and make some predictions.

What you won't hear on this episode are the parts of the show that don't translate well to audio, but you still have a chance to watch Pivot Schooled Live.

Our final episode is this Wednesday, September 2nd, at 10 a.m.

Pacific, 1 p.m.

Eastern.

If you already bought a ticket for any of the previous Pivot Schooled episodes, you are all set and we'll see you on Wednesday.

But if you haven't, you can still get your ticket for Wednesday's show at pivotschooled.com.

But now, let's go to Pivot Schooled about the new generation of innovators.

Scott, masks off.

Are you ready?

Good to see you.

How you doing?

I'm doing really well, Cara.

How are you?

So ready?

You look so much better.

What's with the beachy setting there?

Where are you now?

What ridiculous vacation spot are you?

I'm in Nantucket.

Just dressed up my kids like SEALs and wetsuits and they're off.

So yeah, we're here.

all right.

This is how pathetic I am everybody.

Tara Swisher is now arranging play dates for me.

She feels sorry for me and she's setting up play dates for me.

So thank you for that.

I need the socialization.

I need the structure.

It's going really well.

She's a fan.

Friends of mine are there and I they wanted to meet Scott Galloway for reasons unknown.

And so there we have it.

And so Scott, there's so much to talk about.

This is a great episode.

This is an innovators episode.

This is the new generation of innovators.

We're going to talk about a lot of things and where innovation isn't actually.

But let's go down.

There's been so much news.

You've missed.

I've had other guest hosts, Stephanie Ruhl.

I had Andrew Osorkin this week.

We have had a lot of news.

You've been missing quite a bit up there in your vacation hotspot.

So you wanted to run down a few thoughts on a couple of things.

So go for it.

Yeah, so first,

most importantly, Andrew Rossorkin from New York.

That's a lie.

He is a Gordon from Alberta, Canada.

It's just time to stop that,

anyways.

Okay, so the most over-reported story, two words, tick and talk.

Everyone thought that, okay, the reality show that Donald Trump attempts to script out where he plans a scenario, inserts himself, and what he believes are writers, that the script will unfold the way he plans.

And then, what do you know?

He's the hero.

This is just not going to play out the way he thinks it's going to play out.

We have

Twitter.

I mean, effectively, unless he has...

auctioned off and he may have behind the scenes with Xi, given them some island in the South China Seas in exchange for she serving up TikTok on a platter.

The notion that Satya Nadella, who probably has to shower every time he gets on the phone with his corp dev team and goes through the process of having Donald Trump force a company on him, the notion that this could even be forced on

so let's talk about let's talk about the ban, right?

I don't know even logistically or legally how they're going to execute this ban and what will be a replay of the trade war that we have already lost.

They will announce that they are extending the deadline to shut down TikTok because

to coordinate with Android and iOS and then figure out a way to piss off 100 million people and to see what happens when I take away my iPad for my nine-year-old times 100 million.

It's just not going to happen.

Yeah, but WeChat's in there too.

It is a ridiculous distraction.

And there are bigger issues with China, as I have pointed out, that

have nothing to do with this.

And so it should, you know, it'll fade away, just like the caravans of immigrants that are headed to our border.

They're still on their way apparently it's it's another distraction of course now he's got uh kamala harris to to to focus in on and so like the the nat uh attention span that's where it's going to go by the way i have i have not been this excited about a female vice presidential candidate since tim kaine i think this is just so exciting um anyway that is so inappropriate totally inappropriate he was a marine thank you for your service

anyways so you what other news what other news you have you have effectively what's going to happen here is a bunch of companies will announce they're in talks because they've figured out that every company that announces they're in talks, their stock goes up 5%.

She can wait just 88 days, realizing there's no way logistically to pull this off until the next election.

But everyone is trying to guess who is going to acquire TikTok.

The answer is none of the above.

It's not going to happen.

Anyway, the most underreported story is what's happening across America in university and K through 12.

What has been a consensual hallucination between university leadership, their finance departments, and parents.

The most the least vulnerable cohort in America right now is the children of wealthy parents that make up university freshmen right now.

And all of this discussion and hand-wringing over whether universities are going to open, it all leads to one place, and that is they are going to go all remote.

It's just a question of how many infections and how much damage is levied on university towns.

But it is ridiculous to even think

universities.

I'm so excited excited to get in the car on Monday.

The Florida Marlins.

The Florida Marlins pay

their players an average of $3 million a year.

The endowment at Princeton is approximately $3 million per student.

The most well-resourced college in the world decided that they don't want to deal with this.

And if that means they can, it means no one can.

So we are going to see universities shut down.

The tragedy, the least prepared, and the most vulnerable in terms of non-health are K through 12.

That is where I think, unfortunately, America comes under huge strain because we're not talking your 19-year-old-year-old at home is a nuisance.

Your nine-year-old at home is a tragedy and

could literally puncture 30 to 50 million households come September.

So

you're going to see, unfortunately, you're going to see almost all of them close down.

So TikTok goes to no one.

TikTok goes to no one.

Universities, they close.

Sucks to be a grown-up.

And K through 12 is the most underreported story, how that the impact that's going to have.

All right.

All right.

We're going to bring in some friends of Pivot to talk about the future of innovation, which Scott is, I would say, negative about.

First up, Sarah Fryer, the CEO of Nextdoor.

Hey, Scott.

Hey, Carol.

Hi, Sarah.

So let's start.

You have a really fascinating background.

You had been at Square and a bunch of other places.

Talk about the rise of Nextdoor during COVID.

Maybe you could address what Scott said first, actually, in terms of innovation.

You've been around the block, a lot of blocks.

So how do you look at sort of the innovation economy?

Where do you put it?

What is the landscape from your perspective?

I mean, I'm still a wild optimist on innovation.

I've had an almost 20-year career now in Silicon Valley.

And for sure, you can get into these ebb moments where you're kind of like, what is the next big platform change?

But, you know, I remembered at the beginning of Square seven years ago when I joined 200-person company and everyone said there's no innovation in finance.

And I think we really spawned the innovation of fintech.

And so similarly, when I look at something like Nextdoor and when I made that shift over, a lot of people said, you know, no one's ever made local really work and have a strong business model.

And I really, you know, disagree.

I think there's massive innovation that's coming all the time.

So I guess I'm an innovation optimist to Scott's pessimism right now.

Scott?

Sarah, do you think that maybe FinTech, I agree with you, in FinTech, there's been tremendous innovation, but do you think that maybe it's because FinTech is one of the huge large categories that isn't dominated by one or two companies, that the fastest growing parts of our economy, search, hardware, cloud, social media, are dominated by a monopoly or duopoly, and that yours is one of the few industries that isn't dominated, thereby leading to this notion that if the biggest parts of our economy are actually having innovation suppressed?

You know, I don't know if I agree on the innovation suppressed, but I do think that you need to be careful of that monopolistic behavior that can happen.

And I think that's why it's super important, right, in a company like mine that we find our area and then really play to our competitive strengths, right?

When I think about the neighborhood hub that next door is becoming, right, number one is this being founded on trust.

And we were willing to go a little slower in the beginning because we verify that you're a real person at a real address, right?

And that's very different from social media and therefore has a very different outcome.

And so I think there can sometimes be a slow burn in these areas because it does take a long time to build a firm foundation.

But I don't really think ultimately innovation is stifled.

But I do think it needs, you know, a strong hand at the tiller from a regulatory standpoint and making sure that there's good oversight, which I think is what you're calling to.

Yep.

So when you think about local, you just said something, you sort of a throwaway line.

Local hasn't really worked.

And I think of Tim Armstrong throwing money at it.

I didn't remember what that was called.

But since I started covering the internet, there was something, there was digital cities, there was all kinds of stuff to try to spur local.

Talk a little bit about that.

And you moved from square to this.

Why did you think this was an opportunity, besides the fact that I kept bugging you to be a CEO?

What do you, I was always like, Sarah, be a CEO.

Stop being a CFO.

What do you think is, what is the problem in local, and how do you look at it right now?

Sure.

So, I mean, there were three big reasons I came to Next Door, and I think they've only been magnified.

Number one was deep a deep belief in kind of a purpose-driven company.

And I think the more we see companies arise like that, it'll just be better for our society and our communities.

And so huge believer in that power of local.

COVID-19 has only accelerated that.

So, you know, as we went from February to March, we saw an 80% lift in our daily active members, for example.

So I think local has come into its own.

And yeah, we're all stuck in shelter-in-place mode.

But from a business perspective, that's where it got really interesting.

Remember, you know, I have a way back used to be a research analyst, so I've spent a lot of time in my life analyzing companies.

And when I look at local, to me, it's this interplay of the residents, the neighbors in the community, the local businesses, and I use the word local, not small, because Walmart, Fortune One, is a local business, all the way down to Tony Tuda's Pizza here in my local neighborhood.

They're all local, they want to act local.

And then there are other constituents like the public agencies, the nonprofits, and so on.

And I think that interplay is what starts to create really interesting business models.

So no one has ever done a good job of really aggregating how does a neighbor go talk to a local business, right?

If I stood you down on Main Street and said, Kara, there's a gas station.

I want you to kind of tell me, are they open at 6 p.m.

tonight?

And you can't go physically go talk to them, you'd kind of be a little head scratcher.

Like maybe you'd email them.

Would you expect them to reply?

Maybe not.

Would you find a website?

They might have some details.

Maybe they have an Instagram page, probably less likely if they're a gas station.

And so there's been no kind of singular aggregation.

And I think that's the opportunity that I got excited about is how do we aggregate the interplay of those small businesses who really need their best customers, who are their neighbors, and how do we get residents to really support their local businesses.

And again, it's a place where COVID is actually helping play that strength because we just polled our neighbors, 72% of them said they want to shop local much more today than they did five months ago because they recognize the importance of those small local businesses to have their community thrive.

Sarah, can you

stop getting decimated?

Oh, sorry, go ahead.

Can you just give us, just step back and just give us sort of the overview or the elevator pitch on Nextdoor and some of the numbers around growth and your business model?

I don't want to assume that people, including myself, really understand Nextdoor.

Yeah, no, thank you for that.

So Nextdoor, Nextdoor, we're the neighborhood hub.

It often surprises people when I say we're in 11 countries.

So, this is not just a U.S.

phenomenon.

In fact, what I liked about the TAM or the total addressable market for Nextdoor is there's not a community in the world that doesn't want to build stronger local ties.

So, you go to North Korea, you'd see the same thing: pregnant mothers getting together, older people feeling isolated, local shopkeepers.

So, every country in the world is addressable in this case.

If you look at our business model, there are really three ways today that Nextdoor monetizes.

So remember in the U.S., we have very broad distribution.

One in four households in the country is actually on Nextdoor and the awareness is building.

So that does open up an advertiser model.

I know you're not a super fan of advertiser models, but in our case, we give advertisers something very, very unique.

We give them hyper-local.

We give them the ability to be part of a community, right?

For example, during COVID, Walmart actually came and did a campaign with us around help groups where if you wanted to go shop at walmart you could say hey i'm going to walmart can i help out a neighbor like go grab groceries for you maybe you're immunocompromised and so it went far beyond just an ad it actually brought a company that wanted to be purpose-driven into the community so that's kind of revenue stream one The second revenue stream is those small local businesses.

So they have a wonderful home on next door.

From the get-go, we've seen neighbors neighbors give recommendations.

So a very natural thing that happens on the platform is I say, hey, you know, I woke up this morning, super leaky faucet.

Who's the best plumber out there?

Right?

And it's a very high trust ask because this person is going to walk into my home where my children are.

And so those recommendations are inherently positive.

So unlike, say, Yelp, where you get this one star and businesses get all pissed off about who really reviewed them, right?

The business knows that it's inherently positive and that it's trusted.

It's really from the neighbors living in that community because they're the only people who can give a recommendation on Nextdoor.

Kara, can I follow up quickly?

Sarah, I just want to comment on something while I'm thinking about it.

It's not, I think the ad model from a pure business model standpoint is fantastic.

A lot of fixed costs and then 95 points of gross margin on ads.

The problem I find online with the ad model is it leads to a business model where you pursue engagement at any cost, including not putting in place the right content moderation or filtering to create a safe aspirational environment.

And there are some issues around racist comments and basically hateful commentary on your platform.

What are you doing to implement that kind of moderation such that we don't end up at Facebook and Twitter in a rage machine?

Yeah, which has been a long time issue, Nestor, what they've tried to address.

And it was before you got there too, but it was probably one of your major issues was this content moderation issue.

The second one, I would say, right now with COVID is the decimation of small local retail.

I mean, just in my neighborhood alone, seven businesses that were thriving are gone.

Gone.

And I don't know what's going to happen or anything else.

So talk first about the content moderation and then about the decimation of local retail.

Sure.

So on the moderation point, Scott, it's an incredibly important point.

And I think that's why I started by saying I went to Nextdoor because it was purpose-driven and it can't be engagement at any cost.

Remember, we wouldn't even do verification if it was engagement at any cost because making people verify slows down the build of the network.

From a moderation standpoint, it's a layered cake for us, right?

On the bottom layer, local moderators, and that's really important because I truly believe you have to live locally to understand whether the content should be taken down off the platform, whether it's against our community guidelines.

And we're very explicit that we have a set of community guidelines.

The next layer is clearly technology.

We've done a lot of work with academics around things like slowing people down.

So the rage machine you talk about, the fuel of it is speed.

And so we actually do things with technology.

We have something called kindness reminders.

So if you were about to write to Kara, you moron, like,

why is your faucet working?

Clearly, you know, you did something to it last night.

That's just another Wednesday.

Sarah, you get me.

I was being polite by using the word moron.

A little kindness reminder about it.

It's the other way around, Sarah, just so you know.

Go ahead.

Sorry, go ahead.

It might seem, you know, somewhat superficial, right?

This interstitial,

but what it's doing is a couple of things.

It's slowing you down.

So like you're no longer in this dinosaur brain.

You're up here somewhere.

Come and read.

Totally.

It's reminding you that there's a community guideline at work, which is to be kind, not hurtful.

And when people think they're going to be reviewed in a future state, they actually behave better.

And so these are examples of ways we can use technology.

So it's not just everyone says machine learning, like it's

the second coming.

In reality, it's about how do you get smart using deep academic research but put it into product in a way that feels seamless and then finally we do have internal moderators too who look at content particularly when it's in the zone of discrimination or racial profiling all right we have two questions from the audience but do you feel that these issues around racism and next door because a couple years ago it was ridiculous you know it was you know person of color walks by my house and it was really kind of crazy like how do you feel if it's improved and then i have two quick questions questions from the audience.

So, I do think it has improved a lot.

So, if you look at something like racial profiling, that's where we worked with Jennifer Eberhardt, who I think you interviewed last year, Kara, to actually ask people.

In fact, her tagline for what we put in place was, instead of if you see something, say something, it's if you see something suspicious, say something specific.

And so, we really went out of our way to define racial profiling, to let people know they might be engaging in it, even if they don't realize it, and to realize that things like color are not a way to describe, and walking is not a suspicious activity.

And so, what we've seen, even just implementing that racial profiling flow, is that racial profiling posts declined over 75% and actually continue to decline.

So, I actually, I mean, will you ever feel good?

No, because it's like fraud.

These things are always evolving, right?

The bad actors are always finding new ways into the system.

But do I feel good about our reaction and that we're making neighborhoods kinder places?

I absolutely do.

And I feel totally inspired by what I've seen during the crisis.

Okay, what is striking is just this morning the president tweeted about suburban housewives and being scared of poor people and people of color.

It resonates.

It continues to resonate.

I don't know if it works, but nonetheless, let's get some questions.

I'm going to lean forward from the audience.

Nextdoor has been trying to achieve profitability for many years.

What are its plans to achieve operating profitability and when will it happen?

And let me read the second one.

What product timelines have changed, accelerated at Nextdoor because of COVID?

So, let's do the first, the last second one first, and then the last one about profitability.

So, I think it's important in crisis, like if you don't change anything, clearly something's wrong because you should be reacting.

But I think the worst thing you can do is start to get super tactical.

So, you're kind of in whack-a-mole territory of let's do this, let's do that.

So, instead, what I think about is how do we accelerate the long holes of our strategy?

So, I talked with you asked me about small businesses.

We accelerated a product we plan to launch, for example, in next year into the midpoint of this year, which is our business engagement bundle.

So we know that small businesses want to post into the feed.

We know that their need to tell their neighbors right now what's going on has never been higher.

And so that's a product that we brought forward.

Similarly, we just launched a product around nonprofits, where we have an amazing part of our platform called For Sale and Free, so kind of our classified business.

We see about $2 billion

per month put on the platform.

And now you can sell on behalf of a nonprofit.

So my dream is if we could even get 10% of that, right?

$200 million a month going to nonprofits, how amazing would that be for communities?

On the profitability side, it'll come as we grow.

We are inherently a profitable business.

Scott pointed out the margins of advertising or the SaaS businesses that we have.

These are inherently very high margin businesses.

So it's really about making sure you have the foot on the gas to keep up growth, but that you're doing it in a very mindful way.

So we clearly have plans to turn profitable, but I want to balance that right now to grow, grow, grow as much as we can, particularly while we're a private company.

All right, here's another question.

What does Nextdoor do to train their local moderators?

What do you, because how, and how many of them are there?

What is the balance between AI, your different tools, and the moderators themselves?

So the moderators, so what we call leads today, there's hundreds of thousands of leads, right?

We have 266,000 neighborhoods, and every neighborhood has a minimum of one, and usually multiple leads.

So, I'll give you a sense of scale.

Something new that we're doing right now is also starting to bring in more community reviewers.

So, leads kind of do everything.

They welcome you, they review content,

but they also act as like the normer of what's the right behavior in this platform.

And so, we're finding that some people just want a very specific role, and a community reviewer role is one of them.

To train people up, today we use a more basic set of here's our community guidelines.

We help people think about how

if content is being looked at against that guideline.

Is it, you know, how should they review it?

Is it something that should get taken off?

Because we will remove content.

We have work to do there, though.

I will be totally honest with you.

I think we need to do more training of

moderators, particularly with the rise of systemic racism and really understanding just the huge inherent problem in the country right now.

Related to that, and it's your last question because we only have just one more minute.

Recently, a friend of mine had some family in Ohio.

They were saying there was going to be a caravan of anti-Faw coming down to this minor town, this small town

in Ohio, which it wasn't.

And it was on Facebook groups.

And they were all convinced they were getting their guns ready.

They were ready for the buses, this and that.

None of it was true, and Facebook moderated none of it.

And my friend kept saying, You're there's no buses coming of anti-Fa people, this is not happening.

And it and it went on and on.

And what are you doing to fight disinformation?

Because your platform is perfect for that.

Like, you know, there's going to be looting, there's going to be this.

And all these cities are in distress right now, uh, for good reason, a lot of them.

And so, what do you, and yet there is, you know, damage being done, like in Chicago and other places.

So, how do you, what do you do in that position?

Yeah, so we take it super seriously.

So to begin with, we make sure that mis and disinformation, we want to get at the top of the newsfeed really credible sources.

So if you go back to COVID, we wanted to make sure people were hearing from the CDC or their local health and human services department and not from their neighbor who had heard on the grapevine some cure for COVID.

So that's number one is how do you boost content that is accurately sourced?

And then using something like Kindness Reminder, we do a pop-up that when you are posting about a given thing, like let's say it's your parade that you're talking about, we ask you to put a source in and that's a credible source.

So, again, we're trying to push you not just to promote hearsay, but to actually think about where did I get that information from.

You know, next door is different from the bigger platforms because, in the end, you're just talking into your community.

So, it's a much smaller group.

You're a real person, a group's real name that gets a lot more kind of, yeah, but remember, a Facebook group has no verification.

I could be a bot, an avatar, I could be a Russian agent, and a group across the country, right?

There's nothing that keeps it hyper local.

And I think in the hyper local, there's more of a repeat game, right?

If I'm always that person that's posting the wild and wonderful thing, people can mute me.

People can keep reporting my content.

And eventually, I think there's kind of more of accountability of, you know,

what I'm posting is actually real.

And it's in the spirit of how you're just.

You're just the crazy neighbor.

So you're just the crazy neighbor who always has some.

There's a little bit people get to know you for the actions that you take.

And you can do a lot more to normally do it.

So Sarah, you are accurate.

You are accurate.

My middle name is Glass Half Empty, but I just want to say we got a comment from someone who's listening who said, and I quote, I built my in-home IT business on Nextdoor.

So thank you.

So well done, Sarah.

All right.

Yes.

Okay.

I love to hear that.

That is great to hear.

Thank you.

I'm so glad to see you too, by the way.

Anyway, thank you so much for being with us.

And it was really interesting.

I hope you keep fighting that misinformation and stuff like that.

It's really critical as we move out of COVID to help local businesses, for sure.

Anyway, thank you so much for coming on.

Congrats on your success, Sarah.

Thank you.

Bye.

So, Scott, what do you think of that?

You know, I know so little about Nextdoor.

I don't like my neighbors.

I don't want to make eye contact with them, much less have any digital connection to them.

Do you use Nextdoor?

I do.

I use it for a lot of stuff.

I do.

I find it really interesting

from a consumer and information about local businesses um you know boxes it's down to like we have some boxes would you like some there's a lot of community groups like that already on sort of listservs but i find it uh i find it interesting there the the there was for many years when i was using it i what i was persistent racial comments it was really quite ridiculous and i would report them all the time yeah just like oh there's a a black guy walked by my house i was like uh-huh yeah like what?

And then, then, then there was a package thief videos, which were of, let me just say, a very diverse group of people steal packages.

But that went on for a long time, which is sort of interesting and weird to watch.

But I use it for a lot of things, like information about

community meetings, about think crimes,

school stuff, playgrounds, what's open, local businesses.

So I use it.

You should try it sometimes.

Why?

Why doesn't Google do to Nextdoor what they've effectively done to Yelp or Facebook?

They just feel vulnerable to me.

You don't think they're vulnerable?

There's moats there?

Well,

I think local is incredibly hard, and so much money.

You know, Tim Armstrong had it a day as well.

It's hard, and they would rather just do the easy stuff to shoplift from people, I think.

Hey, it's Kara.

We're listening to the second episode of Pivot School, which was broadcast live on Wednesday, August 12th.

We're going to take a quick break now, but we'll be back after this.

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This is Pivot Schooled.

Let's get back to the show on our second friend of Pivot interview with investor and former Goldman Sachs Managing Director, Rana Yarad.

Now for a different perspective, let's bring on our second friend of Pivot, Rana Yarad.

Rana is a general partner at Balderton Capital.

Bring her on, Rana.

Ronna.

Hi.

Hi, good afternoon.

Thank you for having me.

All right.

Thanks for coming.

Anyway,

Goldman.

Oh, my gosh.

I just saw that in your profile.

Are you a DJ?

Are you DJ Ronna?

I have no musical talents.

I'm very sorry.

None.

Well,

either does David Solomon.

Come on.

That shouldn't stop you.

Maybe I should just dream bigger.

That's not fair.

No.

All right.

So, Ronna, before you're at Baldwin, you did run a huge division at Goldman, investing in huge enterprise companies, including some crypto.

So talk a little bit about

why you left and what's your focus now.

Sure.

So I'll just start by saying that Goldman was an incredible experience.

I spent the first 14 years of my career there and left as a partner in what was named the Goldman Sachs Growth Equity Team.

And I've now gone to Balderton Capital as a general partner.

I'll report that it's my second week there.

So it's very exciting to be there again after being on the sideline for six months.

And look, the

main reason why I went is twofold, really.

The first is that Balderton has a legacy of really being best in class in Europe.

They've been been there for 20 years.

They're known for being a best-in-class early stage investor.

And I found that incredibly exciting to be part of the extension of that into a growth platform.

That's the first thing.

And then the second is that despite all the interest that have been printed about the dismay that European governments have about the lack of technology European champions, I actually view that as a huge opportunity.

And as I look across the European landscape, I believe very strongly that there is room for both disruption and for European champions and for those champions to actually grow and flourish staying in Europe and raising from the capital markets in Europe versus being forced to come to the U.S.

Well, let's talk about that because Europe's always been an issue.

That's always been, you know, I spent a lot of time going to Europe looking for fresh companies and Spotify and several others have been the only ones that have really, you know, there's Atlassian and Australia and others.

Talk a little bit about that and then your overall view of sort of the innovation landscape.

Scott had a very negative view of it.

How do you, what do do you look at as opportunities and where's your focus?

Sure.

So you won't be surprised that coming from Goldman, my focus has historically been financial technology and enterprise technology, and that will continue to be my core focus at Balderton.

You know, when I look at the innovation landscape, you know, I'm not as bearish on what COVID has done.

So there's a line of thinking that goes, you know, COVID has thrown the baby out with the bathwater.

Everything has changed.

From my point of view, all of the trends, or many of the trends that we're seeing, are actually trends for whom the seeds were already planted prior to COVID.

So the acceleration of health and beauty businesses online versus going to bricks and mortar isn't new.

Bricks and mortar were having problems before COVID, right?

If you think about healthcare, which Scott had focused on, there have been healthcare deserts in the United States long before we had a problem with coronavirus and a true need for telemedicine in places where hospitals have long been closing down and people find that they have to increasingly drive hundreds and hundreds of miles to get proper care.

So again, to Scott's point, the biggest saving wasn't time, sorry, it wasn't cost, it was time.

And the risk associated with walking around with COVID has caused an acceleration of the provision of telemedicine in places that frankly have needed them for a long time.

And then if I look at close to my home base in financial services, it's not like the financial services industry in the United States hasn't needed to become more user-friendly and frankly hasn't lagged in terms of customer care and customer accessibility behind the rest of the world.

When people didn't want to go into branches anymore, all the services that I couldn't get from my big universal banks on my phone or my tablet suddenly became available.

And so I'm very positive on innovation because I think there was a lot of innovating to do and we now have a proper catalyst for that innovation.

And Kara, to address your question on,

go ahead.

I'm just saying you said the word accelerated and Scott is now has a VC crush on you essentially because that's been his sort of song and dance.

We always say here that COVID's more of an accelerant than a change agent.

But let's talk about in the U.S.

We like to simplify things and we're fairly narcissistic and we think of Europe as one country and it's not.

When you look at the different markets there, it's

If you were to think of them as stocks or as assets, and that is looking at culture, looking at the startup scene,

looking at the universities that pump out great IP and hopefully smart people, interested in entrepreneurship.

What markets or what countries specifically in Europe are you long on?

And I won't ask you to go short because nobody wants to offend anybody, but what are the overlooked countries or markets where you see a lot of innovation?

What are the stocks you want to go long on regionally in Europe?

I don't know if it's overlooked, but maybe it's

less favorable because of the Brexit scenario.

But I'm long the UK and I have been for a long time.

And I'm long for a couple of reasons.

Well, it's not just that it's the FinTech hub.

It's that you have commerce, so London, you have universities, Cambridge, Oxford, Imperial College, King's in close proximity to that, and you have the seat of government, all within a one-hour train ride of each other.

And those things together should be the right combination of factors in order to provide not only access to innovation, but also access to government help and regulatory frameworks to allow that innovation to be a responsible kind.

So I still think that just the confluence of events that started when Cambridge was founded a thousand years ago that put it close to the capital is a reason to be long the UK on innovation.

And then I'm also long Germany on innovation and for a couple of reasons.

One, there's a lot of forgotten industries that people find boring that are highly addressed in kind of that German culture of meticulousness and innovation coming together.

And so whether it's the pipes and plumbing of capital market that's coming out of Frankfurt, the big car manufacturing hubs that are thinking about the next generation of transport and logistics, or what we're seeing in Berlin around the consumer, they really have grown multiple hubs with specific expertises across Germany.

And so I'm pretty excited about that.

And they're a dark horse.

You know, five years ago, I wouldn't have said that.

Okay, let's talk about the whole world because a lot of people feel there is sort of a splinter net coming, you know, this idea of different hubs of innovation, different development.

U.S.

has been the center of that, you know, for and capital formation and everything else.

What, if you had to look out where the U.S.

is right now, because you've got to be looking at that because you want to, you're now a VC, you want to make, you know, want to make returns.

How do you look at the U.S.

market now?

And what do you see as the positives and the negatives, especially around the economy?

In London, there was just a report out of Britain, the economy is in a free free fall.

U.S.

economy is problematic.

Doesn't mean there's not money.

Wall Street's doing great.

Where do you see the U.S.

as that leader?

Or do you feel like that's done?

I don't think it's done at all, right?

So the U.S.

will continue to lead in both capital formation, capital provision,

and

also in just innovation and creation.

When I think about even companies that are outside the United States in particular sectors, they will always need to access access the U.S., either for clients or capital.

So particularly in business-to-business enterprise technology, it's foolish to think that an Asian or a European company won't need at minimum clients of the largest technology companies in the US.

So I'm still very long the idea that the US will be first among all the rest.

And the positives are obvious.

Huge amounts of capital, a capital market system that's considered second to none at this point,

and an open and free economy still that allows

for innovation.

And so, those are the pros.

The cons are a little bit of like what Scott had mentioned.

There is a huge concentration.

And the result of that concentration is potentially the stifling of the potential to be hugely innovative and disruptive, and frankly, game-changing for the consumer by large companies who have so much capital sloshing around that they buy them before those companies reach their full potential.

So, Ronaldo.

We have some questions from the audience.

Scott, just we only have about two minutes, but go ahead, ask if it's a very quick question.

So, I want to get to the audience questions.

The PE guys I know that focus on Europe say it's not that we buy better companies, we just get them at better prices in Europe.

What are you seeing in terms of valuations in the U.S.

versus an equivalent company in Europe?

So, having covered Europe for the previous five years as well at Goldman, I would say that yes, the valuations are less astronomical in Europe.

I regret to report that that gap is closing.

But yeah, I think the PE guys are correctly reporting that.

But I would hypothesize it's less impactful on the PE guys who are able to use financial engineering and leverage to get the returns that they need versus on a venture where it's an equity-only model.

Thank you, Your Honor.

Right.

Okay, so let's go.

This is a question.

Should VCs be held liable for any negative externalities that the products they fund create?

That's an interesting question.

That's an interesting question.

I think I know the answer.

Ronna, do you want me to answer for you?

I think you know I'm going to answer.

No, please.

Laura can speak for herself.

No.

I mean, I'm sorry.

No.

Like, ultimately, boards of directors and companies are held responsible for that.

They are and they are not,

unfortunately.

Anyway, should VCs have to, they should be, that's true.

If wishes were horses, all beggars would ride.

Should VCs have to pay uh automation tax?

What I'm just it's it's a quote from Shakespeare, my friend.

Anyway, uh, it's an okay, sorry, I'll tell you later.

I'll try to find the reference.

I once met a guy and then talked to Shakespeare.

Oh, wait, never mind.

Sorry.

Go ahead.

Oh, no, no, no.

Don't even start.

Should VCs have to pay information tax that goes directly to social services when they invest in companies whose sole purpose is to automate human jobs?

That's a big question.

That is an interesting question.

That's an interesting line of questioning.

That's a very interesting question.

Tax the robots.

And again, you won't be surprised when I say that my answer is no to that.

So not in a direct way.

So one could argue that companies may need to become more social, more responsible participants in the societies from which they profit.

Becoming that more responsible participant may incur costs for that.

company.

That cost will reduce the returns.

Inherently, the VCs are the shareholders in those companies and therefore will pay that tax by virtue of having their returns reduced?

And so

all of the focus on correcting the consequences should be on the companies and the boards that have fiduciary duties to the shareholders and to the communities.

In late 1999, I started an e-commerce incubator in New York, and it was funded by Maveron, JP Morgan,

and Goldman Sachs.

And we took funding in December of 1999.

So I just want to say I'm sorry, Ronna, that didn't end well.

That didn't end well.

But that's neither here nor there.

So

do you

it is not neither.

It is neither.

Venture capital returns, it seems to me, are largely a function of, well, the deal flow and where you invest in terms of where in the cycle.

Do you worry that

you could be outstanding at what you do?

And we're at, we're in a, this trope where it seems to me private market valuations are just crazy.

Are you worried that

you're going to overpay?

Is this the wrong time?

Venture firms are closing on record funds valuations are sky high isn't it isn't it isn't this just the wrong are you worried about valuations and where you're entering the cycle if you will i always have a very healthy paranoia about overpaying and what that'll do to to returns and so um yes but i'll also add i think there's a third pillar to what makes ventures successful and that is the ability of the underlying investor to really have a differentiated view of the sector or the industry in which they are investing.

And so expertise is more likely to survive those kind of cycles than investors who are generalists.

All right.

Ronna, this is so great.

Such a fantastic conversation.

I really appreciate it.

And good luck with your new job.

Thank you so much.

Have a great day.

All right.

Thanks a lot.

Okay, now it's time for listener mail.

First, we have a video question.

Let's watch.

Jungle Cat and Big Dog, huge fan here coming to you from Los Angeles.

My question, though, is about global expansion.

Do we see today's today's new generation of

innovators and big companies narrowing their focus to U.S.

markets or European markets and avoiding the emerging markets like Latin America, where I do most of my business, because of the combined effect of the pandemic and the protectionist, kind of nativist politics that's going on in the U.S.

and Brazil and in Mexico?

Really curious your thoughts.

Oh, that's a great question.

That is a great question.

Sarah, what are your thoughts?

Well, I do think that we are getting to this splinter net, this idea of where it is.

I think the pandemic is going to accelerate it.

I think there's going to be less

aggressive investing worldwide, you know, until this is solved.

Obviously, things change after that.

But, you know, it was already so Silicon Valley-centric for people in Silicon Valley and a lot of the venture capitalists there, and they still have a bulk of the money, no matter how you slice it.

There have been good signs of venture capitalists, local venture capitalists in each of these markets.

And I think that's how it has to happen.

There has to be great venture capitalists in Europe, like Rana or in Latin America.

I don't think it's going to come from this country.

And I think China at this point is out of the picture for

a lot of companies were opening.

Venture money was going there.

Innovators were staying there.

But if you're a Chinese company,

you put yourself in harm's way, at least right now.

And especially if Trump wins for a lot of problems, I think it's not helping.

None of this nativist stuff is helping innovation at all whatsoever.

Scott?

Yeah, I was interested in what Ronna said about she still sees the center of capital formation as the United States.

I've always felt that

the best investment you can make in innovation is

kind of K through 12.

And that is people still typically, people with options, people who are investors or entrepreneurs are people who usually have more options than your average bear.

And number one in their selection criteria, I don't even think is money typically, it's quality of life.

And if you look at the centers of innovation, they typically are a couple things.

One, they're a bike ride from a world-class engineering university.

I still think higher ed is the secret sauce, is the ground zero.

Within a bike ride of Stanford, there was more wealth created from 92 to 99 than all of Europe since World War II.

And the second is investing in society, investing in accommodative demand, investing in public education, investing in infrastructure, investing in a tax system and a healthcare system that works.

And that's the biggest threat to us: at some point, San Francisco becomes such a dystopia that, regardless of the money, people just don't want to live there.

So, an investment in schools is an investment in innovation.

I'm still very bullish on Europe and U.S.

because I still think they're the best places in the world to live.

Okay.

All right.

So, then

it's a really great question, and we really appreciate it, Rob, from California.

Now, audience questions here.

Which tech company will lead the revolution in telemedicine and healthcare?

Let me say, I've been around the block so many times with Google and others, China, Microsoft, Vault, like a million things.

And they all sort of, it never happened.

And Apple certainly is very active.

And

they would be at the forefront of this because they've got the phone and the devices and things like that.

And Google also, but they seem to have...

pulled back under Sundar Prachai.

We can ask him that when he's here on our show.

Where do you think?

Who do you think the player?

Amazon is the one we talk about all the time that could be a really big player in healthcare.

So unfortunately, it won't be.

There'll be small companies that'll make a lot of money as acquisitions, but the companies that are most likely to dominate healthcare as they are any other sector where there's margin and shareholder value creation because of a neutered DOJ and FTC is big tech.

So let's go through each of them.

First off, Facebook, not possible.

No one's going to tell Facebook they have diabetes or an STD.

They're off.

Apple is largely, in my opinion, overrated as a healthcare company.

I think it's more show and utility and branding than it actually is data sets

that will help them in real healthcare.

Google has the culture, the greatest concentration of IQ since NASA in the 60s is at Google.

But unfortunately,

their healthcare has been more moonshot, things like cure death.

And I think when an adult showed up, Ruth Barat, she focused them and probably took them, I don't want to say off the table in healthcare, but I think they'll be a provider of tools as opposed to in the business.

The fastest growing healthcare company in the world will be Amazon.

Amazon, vis-a-vis Prime, and Alexa, they know your body mass index, the food you eat, whether you're in a monogamous relationship, your economics, your zip code, all the indicators and signals of disease and morbidity.

And they will have the ultimate actuarial

data set.

And what they're really good at is sitting on top of a data set and deciding which businesses to insource, i.e.

high-margin businesses like dermatology or insurance or diagnostics, and which shitty businesses to outsource i.e., pediatrics, and they'll just let pediatricians on their platform and take a cut of it.

So

get ready to come home and have an Alexa say, hi, Rob, are you interested in cutting your healthcare costs by 50%?

Say, Alexa, tell me more about healthcare, fastest growing healthcare company in the world by 2020, 23, 24, will be Amazon.

What about any of the actual healthcare companies?

Do you see like an Anthem or

any of the others or not at all?

Can they innovate their way in here the way Hollywood has done a relatively good job finally moving into

streaming and entertainment, stuff like that?

I don't know.

I don't know much about healthcare, but my sense of these guys is that

they have such incredible, it's the ultimate innovator's dilemma, they have so much

vested interest in maintaining the status quo that their best people are primarily weapons of mass entrenchment, lobbying.

To a certain extent, COVID-19 will create more innovation in healthcare because all of a sudden the government has demanded certain levels of HIPAA compliance and torn down barriers such that we could deliver medicine remotely.

And that was over kind of over the objections of the healthcare industry that has a vested interest in what is the most one of the most efficient deliveries of one of the most important services in the world, U.S.

healthcare, that has resulted in incredibly negative externalities for our society.

So I think they're going to be more focused on delay and obfuscation than they will be on innovation.

All right.

Okay.

Very quickly, we're going running over.

So let's get these questions quickly.

How long until the internet is considered a right necessary like other public utilities?

I just talked about this today with someone.

They want to behave like public utilities, but not have any of the laws that govern public utilities.

And there is a big question whether internet access and other things should be a right and not something that you have to just pay for.

And some people get them and some not.

I think this educational problem we're having with kids from remotely just

shows that completely.

Everyone should have robust internet access and it should be done like a utility.

Scott?

Yeah, I agree with you.

The first line of defense when we want to break these guys up is: you need natural monopolies that have the size and girth to offer the incredible, you know, to make the kind of investments they need to make.

And what that spells is utility.

So they want to be, they want to have the power of monopoly, power of utility.

They just don't want the regulation.

But

to your point, Kiera, I think you're right.

I think they need to be treated more like

utilities.

And then this massive investment in 5G, I don't know, that'll be super interesting whether that we see the same spillover effects we saw from DARPA and all that good stuff.

100%.

Last very quick question.

How could Twitter and TikTok merger compete with the likes of Facebook, Instagram, and even YouTube?

It's not going to happen.

So

you're not going to see that.

Correct, Scott?

I originally got.

Or maybe you will.

I originally got so excited about this because when you think about it, it's kind of, it would be the ultimate gangster move for Shia for the Chinese because, all right, Trump says you have to sell to an American company.

And they say, and I think they're just going to stick up the middle finger and nod and just wait till the election and then do whatever they want but say they decided okay we need to sell to an American company the ultimate jiu-jitsu move here was to sell to Twitter because Twitter at 28 billion dollars a valuation of tick tock 40 to 50 that means effectively TikTok has acquired an American company and that just would have been such an interesting

gymnastic move to say fine you want us to be acquired by a US company fine we'll end up buying a US company i.e Twitter and it would have in some ways been elegant because you would have had

That's exactly right.

And then Vanessa Pappas would have been, Twitter needs a full-time CEO.

I get the sense that Ms.

Pappas is a really competent leader.

And two, they need a strategy and they need product innovation.

So it would have been elegant.

I don't think it's going to happen, but it was kind of, my mind was blown when I thought about how

man bite.

Yeah, exactly.

Because Twitter has stuck its thumb in the eye of its best customer recently, President Trump.

Anyway, one more thing we have to do before we wrap up today's show is Scott and a surprise guest to make predictions.

Okay, let's go to that.

Professor Gallery, before you make your prediction, I have asked a special guest and a good friend of mine

to send in her prediction.

Let's play it.

Recognizing that we're all totally overwhelmed by tech, Karen and Scott are going to radically pivot and their next generation of entrepreneurs are going to join them in destroying all physical tech and using all of the items that they can gather from it as repurposed.

So one's going to be a macrame artist who's weaving cords and wires into wearable pieces.

The next is taking keyboard keys and doing mosaics to make tables that we can live with in our COVID houses.

The third is going to be taking all the collective precious metals like aluminum and copper and gold and melting them down to make a new kind of post-Bitcoin coin, a coin coin actually, and pieces of jewelry.

That's Susan Cryer.

Suzanne Cryer, who's a good friend of mine.

And she is, she played Lori Bream on HBO's Silicon Valley.

She was literally the best character on that show, was a venture capitalist that was an amalgam of every venture capitalist capitalist I've ever met.

And she's terrific.

So Scott, anything to add?

Please make your, last week, Kathy Griffin.

Now we have

Suzanne, which was great, Ryer.

What is your prediction?

Very quick, because we have to go.

We made our first prediction.

Trump, she will play Trump.

Tell me he's handsome.

And he will brag that they're making progress.

And as a function of that, extending the deadline.

on banning TikTok when he realizes that he doesn't control the studio audience here and he's made another stupid strategic move.

Nothing happens.

It's a lot of fun for the media, but basically they just wait and

there's no acquisition and we wait till the election and then we see what happens.

What do you think will happen to Biden?

You have to follow that up.

Do you have any thoughts?

He's got a drop.

So I just don't.

Look, you know what you could see?

Here's another prediction.

China takes a medium-sized company, not Apple, and says, okay,

I'm not even Starbucks.

We've decided you need to sell to a Chinese company.

I mean, the Chinese are now carrying a bigger stick than us.

That's what we just don't realize.

We have, I mean, we are just as dependent upon them as they are on us.

Granted, we're a consumer economy.

We're the customer, but they're the supplier and they can start making noises too.

The worst mistake you can make in strategy is that you assume you are punching a speeding bag.

I got into boxing.

I was amazing on the speeding bag.

I entered a boxing tournament.

I got knocked out.

And the reason my nose bends right is because I was under the impression that my competition wouldn't hit back.

And this is the fundamental error in strategy and geopolitical strategy is you assume your competitor cannot hit back.

The Chinese can hit back and they have fists of stone right now and we have fists of Trump.

Guess who gets the shit beaten out of them?

That was good.

All right then.

That was good.

The dog is back.

Capital D, capital D, sign us out.

Thanks so much to everyone who's been joining us live for Pivot School.

And don't forget that our last episode is this Wednesday, September 2nd at 10 a.m.

Pacific, 1 p.m.

Eastern.

We'll be talking about education and the recovery with the president of Howard University, Dr.

Wayne Frederick, and the superintendent of the Los Angeles Unified School District, Austin Utner.

Get your tickets now at pivotschool.com.

You can also shop pivotschool swag at pivotschool.com/slash shop.

Thanks again for listening and see you on Wednesday.