Interview, Fireside Chat
Kevin Ryan: Are the Best CEOs the Best Fundraisers & Why Ownership Should Not Be a Focus in VC|E1138
- Union Square Ventures has raised a new $250 million external fund, marking the firm's first time raising outside capital after a decade of investing only personal funds.
- The fund will focus heavily on healthcare, technology, robotics, and social impact, primarily investing in companies based in New York but extending beyond the city.
- The firm plans to launch approximately six to eight new incubated companies annually, allocating roughly $1.5 million in initial capital with a standard structure where the founding team retains 40–45% equity.
- Union Square Ventures typically invests in portfolio companies until they reach a valuation of $100–$200 million, generally capping total investment in any single company at $10–$15 million.
- The firm holds a "people-led" thesis where the selection of exceptional founders is paramount, though they acknowledge that market dynamics (e.g., avoiding saturated sectors like e-commerce) are also critical filters.
- Kevin Ryan identifies MongoDB as his biggest monetary success, currently valued at $25 billion with a long-term goal of reaching $50 billion, and DoubleClick as his most impactful career-defining company.
- The Gilt Group is cited as his most fun venture, despite the eventual sale for $250 million; the company initially reached a $1 billion valuation but suffered due to uncontrolled industry-wide discounting dynamics.
- Ryan predicts the economy may worsen over the next three decades due to mean reversion from current highs, noting that while 70% of DoubleClick's clients went bankrupt during the 2001–2002 dot-com crash, the current market has abundant VC capital on the sidelines that must be deployed.
- He argues that "first to market" is often decisive in consumer apps (like Uber) due to network effects, whereas in enterprise software, incumbents like Salesforce and Google often dominate by embedding features and leveraging high switching costs.
- Ryan asserts that consumer-facing businesses have seen little value creation in the last five years, predicting a shift toward B2B and deep tech sectors driven by scientific breakthroughs in areas like gene editing, psychedelics, and material science.
- He believes New York City has outperformed all other cities over the last 25 years, overtaking San Francisco in the speed of tech talent acquisition and venture capital density, though he concedes SF retains an advantage in AI due to proximity to Berkeley and Stanford.
- Ryan expresses concern regarding the centralization of AI talent in San Francisco and the potential "orphaning" of startups when large multi-stage investors participate in seed rounds but fail to lead subsequent rounds.
- The venture capital industry is viewed as becoming more commoditized at the seed and Series A levels due to increased competition for deals, whereas late-stage investing is becoming a low-margin, private-equity-like business.
- He notes that 90% of a company's success is determined by the CEO and team, with the board's single biggest responsibility being the selection and retention of the right leadership.
- Ryan prefers first-time founders in consumer sectors but recognizes that enterprise software often requires experienced repeat entrepreneurs who possess the credibility to sell to large organizations like Goldman Sachs.
- He identifies the biggest lesson from his career as the necessity of aggressive early capital deployment and team building, noting that a lack of diversification in the past would have led to better returns if he had doubled down on successful bets earlier.
- The firm's investment approach involves deep industry research, such as interviewing 50+ industry players before launching a new company, which simultaneously generates deal flow for external investments in the same sector.
- Ryan warns that "selling" is a major challenge in the current market due to illiquidity, citing that the IPO market remains closed for companies with strong fundamentals due to a lack of banking appetite and regulatory hurdles.
- He believes that market timing is less relevant for early-stage investors because successful companies often take 10 years to build, necessitating a strategy that withstands inevitable recessions.
- Ryan admits to a personal bias against EdTech and Media due to historical difficulty in monetization, though he acknowledges the risk of this past trauma influencing future decision-making.
- He states that his relationship with money has not changed significantly; his primary motivation remains the enjoyment of the work, the mission, and the opportunity to help entrepreneurs.
- In a quick-fire round, Ryan identified Donald Trump as his greatest current concern regarding global stability, specifically citing risks of geopolitical fallout, corruption, and poor government execution.
- He attributes the stability of the current economy to effective fiscal stimulus from the Biden administration and the Federal Reserve, contrary to early recession predictions.
- Ryan advises founders against blindly following generic startup advice, emphasizing that judgment and context-specific decision-making are the true drivers of success.
- His luckiest event was partnering with the co-founders of MongoDB, whom he credits with the intellectual and executional success of the company despite his role as CEO.
- He advises entrepreneurs to avoid "hired gun" CEOs in incubated companies unless the founder is truly exceptional, noting that strong incentives and a deep understanding of the product are vital for success.
- Ryan predicts that the AI sector will eventually distribute talent more widely as top university graduates prioritize quality of life in cities like New York over the high cost of living in San Francisco.