Netflix's Journey, Building TCV, and Investing Through Downturns (with TCV co-founder Jay Hoag) 45:56

Hello, Acquired LPs. We had the rare opportunity to interview Jay Hogue, who is the founder of TCV, the firm originally known as Technology Crossover Inc.

This was so cool. Back on our Altimeter episode, Brad Gerstner referenced Jay and TCV as the original crossover investors and still among the very, very best out there. TCV was founded back in 1995, and they were the first crossover

firm that invested in both public and private companies at the same time from the same fund. Jay has some awesome war stories that we get into with companies like Netflix, which we talk about

talk a whole lot about with him. Spotify, Zillow, Expedia, Facebook, Airbnb, Peloton, many, many others. Yes. And the firm obviously looks much bigger today, very different than it did in 1995. They have over $20 billion in assets under management, 50 people on the investment team, 140 employees total. We recorded this episode

episode live at a private summit that TCV had for their portfolio with all their chief product officers. And we asked them if we could release it as an Acquired LP episode, and they were kind enough to let us. So this interview covers a little bit of firm history, some pivotal moments where important companies in our world today almost died amidst big macroeconomic changes, which... Gosh, I don't know anything. What's that like? Yeah.

And we also touched on the topic of how to think about the magnitude of future looking product investments that a company should make.

We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple.

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like Vanta's 7,000 customers around the globe and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. Now with that, this is not investment advice. Do your own research and on to our interview with Jay.

It's a rare chance that we get to interview legendary founder of TC. Old people. No, no, no. No, but it is. I mean, I know we're sort of in a closed room here, but this doesn't happen very often. You tend not to be on stage despite having an unbelievable amount of experience to share.

And literally the magnitude of your impact goes to our hotel rooms tonight. Ben texted me a photo when you checked in. Yeah, so it is wild walking into the hotel. And of course, the TV's on because it's a hotel. And they always have the TV on with some promotional something when you walk in. So the first thing you do is they grab the remote. And you're like, shh, and you go to turn it off. And I went to push the power button. But the most prominent button on the remote is not a power button, but a Netflix button.

Like a standard button on a remote control shipped by an OEM who makes a television. So that had to be the investment thesis, right? When you were... Totally. Totally, yeah. I mean, there's one company... That was my idea. It has to be unfathomable based on where that company started and slowly inched its way to literally be the one brand on many TV remote controls today. Yeah.

Wild. So before we get into Netflix and a lot of companies that you've worked closely with and building TCV and your own entrepreneurial journey, we wanted to start back with your upbringing. So over to you. Tell us a little bit about

where you grew up, what your family was like, and we'll see some of the threads come through with that. Okay. Well, it's great being here. Thank you for having me. I'll try not to bore you too much. I guess somebody would be the least likely person to ultimately be a technology investor for now 40 plus years to date myself. So I grew up in Midwest.

was in high school in the '70s, graduated from college in '80, there was no technology. If you think back, not only was the internet not commercialized and there were no mobile phones-- There was no internet. It wasn't until 1980 that the fax machine was invented and the VCR. So not only do we not have email as an example, we didn't have voicemail. I grew up outside Chicago and then went to high school in a little town in Wisconsin, 5,000 people. And the technology we had was a stoplight.

And halfway through high school, they installed a second stoplight. Totally blew people's minds. People were just cruising through, just ignoring it. 100% year over year growth. Yeah, didn't know. Exactly. Exactly. Didn't know what to do about it.

So in college, there were no PCs. And even in business school, just to, again, date myself, I went straight on from undergrad to business school. So 81, 82, University of Michigan Business School, the University of Michigan. We won't talk about that. We'll get to the Ohio State-Michigan rivalry in a minute. I'm a Buckeye.

We learned to program on punch cards. So these were mainframes. It's an arcane thing. There was no personal computer. So it was a very strange, strange time before most of technology. How did you end up going from that environment first to Wall Street? You joined Citi, right?

Right after business school? Yeah. So I'd describe it as a sequence of very fortunate events, as opposed to the books on fortunate events, and a series of lucky moves slash choices. And I'll try to do it fairly briefly. So actually, the first luck was I grew up in kind of a middle class Midwestern family and for whatever reason had a good work ethic. And so middle class being I was going to go to college, which is sort of born on second base as opposed to hitting a double. So that's the first bit of luck.

meandered through my college life and had one single offer coming out of college, which was to sell insurance and decided, well, maybe that's not the thing. So I applied then to business school and law school. I got into a better business school than law school. At the time, the rankings were sort of parents wanted to be a doctor, a lawyer, a

a business person in that order. So didn't go in a long business school and then was kind of meandering through that. And I had a professor named Dave Brophy who taught investments class. They got me interested, got me off my kind of full college and business school experience to start to focus and then applied to 102 jobs.

coming out of business school, had three offers and one of which was being a research analyst at Citi, became chancellor of capital over time, so 1982. - Being an equity research analyst. - Equity research analyst, old fashioned analyst, which ultimately gives you a lot of fundamental grounding. And then the additional piece of luck was

I wasn't assigned when I started to any industry. They just show up and they offered, I could cover Paper Forest products. This is covering public stocks. Paper Forest products, which at the time- It's like Weyerhaeuser. Yeah, I don't even remember who it was. Publishing and the public universe of publishing companies at the time was McGraw-Hill and Standard & Poor's.

Or technology. And I like to say I knew equal amounts about all three, which was to say nothing. And it was not like sexy to pick technology, right? It was not. It was not like an obvious, oh, I should go do that. No. And actually, it wasn't sexy. It also wasn't necessarily sexy to go into the investment business. One of my old bosses said his biggest professional accomplishment was keeping his job between 1974 and 1982. Because it...

It was generally the markets moved sideways. '82 was kind of a bear market in small cap. - These were the days, when we think about now, I'm remembering, right? These are the days of like mid-teens interest rates, right? - Yes, so yeah, in addition to-- - People are freaking out about the world going to 4.5%. - So at the time, Ronald Reagan was president, and my first office job was the summer of '81 between business school years at an investment firm. And I vividly remember short-term interest rates were 18%.

That'll keep home prices down. That'll keep a lot of things down. That will make the investment management business a lot less sexy. How did you start first investing in private companies? Was that just natural of technology being such a young industry? Yeah. So, again, I started as a research analyst at Citi. My clients were portfolio managers on the institutional side and on the high net worth side.

and did that for three years. And then in '85, joined the venture group at the time, which invested in funds, venture funds, directly invested in companies, and then had a small cap public effort. And then over the years, I ended up running the technology portion of that. So that was the business model. And at the time,

The prominent venture funds include like Kleiner Perkins. And so my contemporaries were folks like John Doerr and Brook Byers were older. So it was more Kevin Compton and Doug McKenzie at Kleiner. Benchmark had not started. TVI and Merrill Pickard. Andy Ratcliffe at Merrill Pickard, Bruce Dunleavy there as well. Bob Cagle came from TVI. As a side note, it is amazing how many of these are no longer brands. Like we think about a lot of venture firms as these big enduring things, but like,

The venture landscape is just littered with people that raised Fund 1, Fund 2. Even the enduring firms stopped and new firms were born. Yeah, although obviously some, I have the world of respect for Sequoia, who's done multi-generational shifts over a very long period of time. When the internet bubble burst and subsequent, the fact that we survived, you know, one of the biggest professional accomplishments sometimes is like,

literally just surviving. So here we are in our 27th year. And it sounds maybe overly dramatic, but it's not always clear because there are a lot of funds that either perish firms or peak and then have a long kind of gestation period of less than stellar. We're going to talk about a company or two that had some of that journey in a minute. What was the first time that you saw success in doing public and private investing at the same time? And you thought,

I might be onto something. Like there really could be a durable future here because I'm learning things from doing this that I wouldn't learn by doing just one or the other. Yeah. So I'd say the first thing about the late 80s, probably, which actually when I met Reed Hastings and Pure Software, I had Pure Software at the time. That was a Chancellor investment? It was. It was Reed's first company? Yes. It's really important to be lucky early on. Yeah.

Keep following great entrepreneurs around. One of the big themes on Acquired, even to this day, it's still true today, but must have been so much more back then, was it's a small number of people who create...

the huge amount of value in this world. Most people don't know that Reid had a company before Netflix. Getting to know him then gave you a great seat for later. Yeah. Again, we had plenty of not great investments, but some of the way back in the 80s investment, we invested in Sybase, which was the original online transaction processing relational database. Ingress, which was a successful but less successful than Oracle relational database. Intuit, which kind of crazy. Intuit's business at the time

they've ultimately sold off and totally transformed the company. The reason I go through some of those, those ended up being successful private companies and then successful companies in the public markets as well. And so that was, oh, okay, you can, the companies are able to sustain rapid growth over a long period of time.

including in the public market, can generate substantial returns. Was it partially because you were within a large Wall Street investment bank that there wasn't this pressure from the LP base and the funds to distribute

stock from private companies as they went public and you were able to keep going with them? If you're spending all this time identifying what the most promising trends are within technology, identifying the best companies, investing in a bunch of them privately, their growth prospects don't end when they become public. So maybe you should be patient, be long-term partners with those companies. But also that all that work can lead in periods of dislocation to an opportunity where you might deploy capital publicly via pipe.

or just taking a stake or taking a stake and becoming an active board member. It's so economically rational in part because markets are volatile and things go in and out of investor favor. So it makes total sense. The receptivity on the part of the investment community varies by it's well-liked and understood in bull markets and it's generally not liked in periods like right now where everything's under intense pressure.

Anytime you're doing anything that's a little bit divergent or disruptive, you get lots of rope and bull runs. And then if you took a risk, then that's the opportunity to get penalized is during those down periods. And so I think it's so interesting to study the down periods and the moves people make and the risks people think are worth taking in those down periods. And I want to zoom in in 2000. Netflix is getting ready to go public.

but they're not going to be cash flow positive before they go public and the market's falling apart. And if my history is right, you put together a financing for Netflix that it might be fair to say it saved the company and the company wouldn't exist today without this financing coming together. And I'm curious, when you think about those moments,

where tens of billions of dollars of value is created in the future. But of course, you don't know that, but you're willing to take a bet.

that even though everyone's looking at me with the most scrutiny that they ever could, I'm still going to take this risk. How do you analyze a situation like that? Of course, we wish they all worked out the way Netflix did. You know, experience does have some benefits, and I was less experienced then. But, you know, the ability to be balanced in one's view, which often can mean contrarian, you know, not consensus, and kind of ignore...

conventional wisdom or ignore the headlines because it right now is an example as was true then the press headlines were just horrific around all things technology and just to set the stage for it my old firm we had backed reed hastings when he's a pure software which was a very successful software company back in the day they did error checking software for programmers acquired another company went public and they ultimately got i think it's still part of ibm ibm's efforts software efforts you know netflix

Did ever increasing financings from 98, 99, 2000, raised a lot of money and filed to go public in March of 2000 on the heels of 300 plus tech IPOs in 1999. Kind of crazy. And then the nuclear winter hit for all things Internet related, which is a little crazy to think about today because.

You have Amazon. I mean, those businesses weren't bad. They were just subject to investor psychology swings. Which is important. The dogs were eating the dog food. People were loving these services, and yet everything was overvalued. And so you had this weird situation where as long as you could survive, people kept wanting your product, but you had to survive. Yes. Now, there were a lot of companies from that era that didn't. I mean, there were some

bad ideas funded. There were some good ideas funded that their order book just went away. We invested in a couple of companies that helped people build websites, which sounds arcane. And then a lot of the world didn't need websites built short term. But I do think it's one of the benefits of if you, and for all people focused on the consumer and focused on products, if you have a compelling value proposition,

that is quite evident, then it is worth funding, even if the world doesn't think it's worth funding. And so the story I tell, which is true, so they pulled the IPO.

Netflix was pretty close to breaking even from a free cash flow standpoint, which is a really important measure of being break-even, but needed additional capital. And in our conversations with Reed, we said, we will provide that capital, but you may not love the valuation. So please go out and do a market check on what others might value Netflix at. And the psychology was so negative that the answer was nobody would provide any capital.

So, we did a recap financing where we and others who participated were able to increase our ownership. Ironically, the company never really needed the capital. They turned free cash flow positive pretty quickly. So, I'm glad their forecasts were off. And then they went public in 2002. Even there, the stock traded down on the IPO. And it was... How long did it take before that investment became clear that it was truly a great investment?

Eight years, probably. It wasn't until 2009, 2010. So the investment originally went on the DVD model, which I'm happy to go into. And then the company started investing in streaming in '05, although originally it was actually digital delivery because it wasn't clear whether a download model or a streaming model was going to be the preferred choice. I remember installing Silverlight so that I could download the digital delivery of the Netflix.

movies. Yeah, it doesn't get a lot of headlines now, but so we started investing in streaming in 05, and part of it was Reid as a student of technology history and things like Innovator's Dilemma, from Clayton Christensen, if you read the book, and had observed, and not to pick on my AOL, which was original online service, it was dial-up. And they, as broadband occurred, they didn't forward invest. They just kind of

harvested the dial-up. They also sent a lot of discs through the mail. Yeah, no. And so Netflix, we chose to forward invest early. And it wasn't clear you knew how big streaming was going to be, but the cost of missing it and under-investing was potentially fatal. The sin of omission. Yeah. But streaming was launched in 2007. Maybe this is when you downloaded Silverlight. It was PC only, not even Mac.

It was about a thousand titles that nobody cared about. And in contrast, DVD, for some arcane legal reasons, the DVD service was every movie and TV show ever made.

The streaming service... The for sale doctrine, I think, was... It was... Yeah, because video stores like Blockbuster way back in the day could buy every DVD, therefore so could Netflix. But streaming was a pretty limited content offering. But, you know, they stayed at it, stayed at it. And it was free. It was an onto your DVD subscription. But it really wasn't until...

2010 and 2011 that it was clear it was going to be successful. And then the company hit the gas from a content spend standpoint. So bet the company moves are very common when a company is in a terrible position. I mean, Apple betting the company on the iPod or the iMac or the iPhone. I mean, like the...

Mac OS 9 was a dead-end platform and it was going nowhere, so it didn't actually cost much to bet the company. This cost a lot, because you're reinvesting a lot of what otherwise could be free cash flow into something that it would be very difficult to try and understand the TAM. So how do you think about, at that time, an investor in Netflix, but now as a prospective investor in new companies on Netflix?

Not only does this have product market fit, but I believe that this thing could be huge. What's your calculus around that? Well, I also say, by the way, it's also as a sometimes current public board member with companies who are going through the same calculation, which is how much do I forward invest in the future thing or expanding the product roadmap so that the value prop in three and five years is quite different than it is today in much bigger competitive modes. I do think it's really hard to

for most companies, but particularly for most public companies to do that. So I think Netflix is an extreme positive example. There are others as well. It is

Sort of mandatory. But I think many companies, once they get public, start playing defense, playing a little safe. There's such an emphasis, obviously, on quarterly earnings. And so the thought of reinvesting half of your profits into some unknown future thing is pretty daunting. Do you remember, either for you and TCV at that moment or within the company for Netflix, what was the...

work that you did to get conviction that this new whole paradigm with a whole different business model, that the prize was big enough, that this would be so much bigger than our current market in DVD streaming, that it was worth this risk the company paid? You'll probably be disappointed in the answer because the question implies a level of detailed quantitative analysis, maybe not in evidence. That to me is what makes great founding...

entrepreneurs, CEOs, we'd envision a day when they would be not shipping DVDs. Now, actually, they still are today. Looking at the bandwidth expansion, and iPhone was also introduced in 07, but obviously there were cell phones before that, consumption on handheld devices. But it took a lot of guts to do that because they recently talked about, particularly with the originals effort, that they're competing with studios that have been around for 100 years.

And in the last decade, effectively, in the original site, they built up a catalog to rival that. It took huge forward investments. Everybody who's a Netflix subscriber, in fact, benefited from that value being delivered because it was forward investing to provide great consumer delight. And then more subs allows you to spend more on content. More content allows you to get more subs and so on. Which is so interesting because that was...

so different from the Blockbuster model with the doctrine of first sale, Blockbuster and the first iteration of Netflix could just

Ride along with whatever Hollywood produced and not have to worry about investing all of that money. You know, all that dynamic that you then later learned of more subs, investing in more content. You could be a small DVD rental business and have access to everything. But the minute you moved to streaming, all of that changed. Now, early DVD days, it was not always totally clear what...

that Netflix would be a runaway success if you think way back when it was requiring changing consumer behavior, something that a lot of companies contemplate. So yes, you could get all the DVDs in the world. And the advantage of the online model was you don't have physical stores, so you don't have the burden. You have an infinite supply, so you're not limited to, I think a typical blockbuster had like 800 titles or something. The downside though was people for years

got in their car and went down to Blockbuster or on the way home from work, Bob or Mary went by Blockbuster to get something to watch that night. The idea of the Netflix queue, which was list all the movies you want to watch. And then when we rolled out a subscription service, three at any time, you watch one, you return it, the next one shows up. That took a while to actually take in the consumer's minds because like, what do you mean?

What is this all about? Because you're asking them to shift their behavior, their model for how I think about what movie I'm getting into. Yeah, it's going to be a spur of the moment. I don't want to go, you know, obviously the online thing was newer, so you weren't spending hours and hours doing it. Blockbuster is considered a very intimidating company to compete against, but they were not consumer friendly. So their North Star was not delighting the customer, including the late fees.

They also sort of maybe strangely were quite profitable at one point. And so that same issue, do you invest a massive piece of your physical store profit into this DVD online business? Or do you milk...

those economics. It took them a while. They ended up being a significant competitor for some period of time. And having a real advantage in the fact that if you want to go get another movie right away, instead of waiting four days to mail it back in and to get it back, you could just go to a store and swap it instead of... Yes. But they also, they had a debt load, which is a whole other set of issues that I think constrained their ability to forward invest. They had a series of different CEOs that

who maybe pursued different strategies. And then some of the stuff they did was, in hindsight, to me at least, was just harebrained. At one point, their solution to digital delivery was you would go into the store and download a movie onto your USB or whatever. And you're like, wait, what? That's not consumer convenience. But the other thing I'd say, even about the streaming business and Netflix, it surprised me

to this day that because it was not a secret, you know, it took probably four years to really

become a much more compelling value prop. But the company, we're doing that in the public eye. And we can talk about the financing in 2011 was due to a dislocating event. That's where we're going. We're going there next. I still am surprised. We did have an activist investor in Netflix at one point, Carl Icahn. But I'm surprised- Who was the same activist investor in Blockbuster, right? Around the time they were competing with Netflix? I don't know if it's a-

around the same time. I think that is, he was part of the blockbuster. The fact that a strategic acquirer did not try to come after Netflix still surprises me to this day because it was, once it was pretty clearly successful. You just wait for it to become cheap enough and then try and take it out. You would think. And so, there was that opportunity in 2011. Yeah. We're building out the acquired merch store and

And right now we just have t-shirts that say acquired. This is not a commercial. This is not a commercial. We really want to add t-shirts that have our favorite quotes from the years we've done the show on it. One of our favorite quotes is,

Barry McCarthy's quote from this time. So what happened for folks who don't remember is that the Quickster, the spinoff of the DVD business that Wall Street was not very receptive to. Public backlash. It strategically made sense, but received very poorly. And the company had to like very quickly recover and figure out how do we not abandon all these customers that... And I believe the story, you can correct us if it's wrong, was Barry McCarthy, the CFO, was set to retire. And then this happened. And he said on an earnings call that...

When asked why he wasn't retiring, he said, "You don't leave your friends in the middle of a knife fight."

Is that true? I think so. Yeah. Yeah. Just to broaden out the time. So in 2011, so launch streaming in 07, build the content catalog, support more devices, including partnering with Microsoft on the Xbox as a delivery mechanism at one point, and then Sony and Nintendo. And then ultimately having Netflix everywhere on all devices, including a remote control in your hotel room.

But in 2011, oh, and then forward investing in content for streaming without charging for it. So it was bundled in with your DVD subscription. 2011, two important strategic decisions. One, to start charging for streaming. In the consumer's mind, read that as a big price increase.

and then rebrand the DVD service as Quickster and spin it out. That part actually was, that decision was changed, and so it remained as part of the company. But the price increase, to your point, I think was...

The right strategic decision, because it would allow the company to forward invest more in content and get that flywheel even going further. But there was a great hue and cry. I think consumers often respond emotionally to price increases. Or redesigns. There's actually the irony there is that historic customers were... Different points in price increased in Netflix's history, folks were grandfathered for a year or two. And some of those people canceled. Well, you're not...

It wasn't happening to them. So the stock was down 70%. I think probably had... And that's uncorrelated with the public markets. This was not a part of... This was benign time. Right now, when you say the stock was down 70%, you're like, yeah, so is everyone else. That's true. But also from a business standpoint, I think 22 million subs went to 19 million.

It was a nervous point in time. The company was just about to launch in the UK to pull back on that. It ended up pretty quickly stabilizing and then subs grew fairly soon thereafter. If you think back, it's super easy to say, well, easy decision. This is when you led a public investment in the company. We led a pipe there. But you think about, from a business model standpoint, big fixed content obligations, shrinking subscriber base.

That's when operating leverage goes wrong. You want operating leverage when you're a high growth business, but as soon as that's not true, oh my God, this is a big problem. The underlying analysis, well, streaming is the future. We're a clear leader. We're providing tremendous value to the consumer. Some of them are canceling right now, but we'll be through that. At the time, Netflix was US and had just launched Latin America.

And so there were big growth vectors across the globe. You couldn't extrapolate data points because we weren't in Europe or various parts of Asia Pacific. But you could envision this value prop being applicable there. That subsequent international growth story for Netflix is...

I think one of the not as well-known and told growth stories, but it's one of the greatest of all time. I mean, how many countries is Netflix in now? 195, I believe. There are not many more countries than that in the world. It had been everywhere other than China because China has some constraints. But I think it now also excludes Russia. Can I generalize a little bit? So we've got the leaders of incredible products and growth teams in the room.

How would you generalize some learnings around when it makes sense to continue to forward invest in something that's not yet proven? And when the experiment is showing enough data where you're like, let's focus on the core business. There's a bias. I don't think great technology companies can not forward invest in both the current product roadmap as well as you can't run the risk that this is true of Facebook when they had no mobile ad unit.

Zero. It had just gone public. The entire world, you know, so could you... Trade it down massively. Can you afford not to invest there? I have a dinosaur story, a company called Ascend Communications, which was one of the original building blocks of the internet. There was an Ascend box in every point of presence across the country as it was being built out. But that was actually, it was a technology called inverse multiplexing, whose first application

was in data networking and sold a million dollars. They forward invested specific features for points of presence in building out the internet service provider network, and that was hundreds of millions of dollars. To me, it's a matter of degree. How much can you experiment new things? And obviously today, as opposed to back then, you can iterate and test a lot. But I also do think using the consumer as the North Star, everything you do,

even if they're short-term financial hit, should be with that, keeping that consumer in mind as opposed to nickel and diming them along the way. It was counterintuitive at the time, but if you think back to the old, well, actually not the old cable model, current cable model and AOL and others, it was or is almost impossible to cancel. You had to call the help desk and they would

John Malone famously used to say something like, he would look at the percentage of revenue that was spent on customer support or customer service, and he would fire people if it was too high. He was like, "I want it to be as low as possible because I want to have the worst customer support possible." Yeah. And obviously, that's one strategy.

And that's why we all love cable companies today. Yeah, sort of the short-term maximization. But I was going to say, when Netflix first rolled out the DVD offering and the streaming, it was one-click cancel online, which is viewed as insane by Wall Street because, well, you're going to make it easier for your consumers to churn? And the answer was, well, near-term, yes, but they'll come back. I've probably churned as a Netflix customer 50 times. Wow. And I'm currently a Netflix customer.

50. I mean, I'm probably this outlier case, but-- I thought this was a successful podcast. So to me, the only economically rational thing to do is always cancel all of your subscriptions all the time, and then always feel free to restart whenever you want to watch a piece of content. I don't know if that's-- Well, I as a board member can't do that probably. It would be viewed as disloyal. But you could imagine Netflix making that call enabled this weird consumer behavior that I have where I don't even think about it.

And yet, I've paid thousands and thousands and thousands of dollars to Netflix because I trust them as a brand that I have a good deal with them. To the point, if it was a Herculean effort every time you went to cancel, you might just

Like, once you successfully cancel, you may not come back. You should see my tweets about the New York Times. Anyone ever try and cancel your Times subscription? That is a nightmare. It's very difficult. But again, public companies, another modern day example on Netflix, and two things. Analysts can't seem to get through the fact that are you going to release things in the theaters? That's where people want to see movies.

You know, they'll occasionally do a limited window, but it's not where people want it. If people want to go to the movie theater, great. But the vast majority of consumers see it at home. And I think it's because Hollywood has the ear of a lot of analysts and they can't seem to get through that. It's not actually a major issue at all. It's kind of a minor issue. And the other thing is the binging model.

and company articulates that some of the biggest hits like Squid Games be hard to envision unless there was a lot of talk in the zeitgeist, a South Korean

drama being successful across many of those 195 countries if it was one episode every week. So binging allows a massive awareness hit, a positive hit. And of course, yeah, somebody could binge through it and cancel if they so desire. It's a

legacy question and if you're an ad supported model Then maybe you know, maybe like Game of Thrones you do want appointment TV once a week But I think most the world's moved beyond but they still get questions as to why not why not release, you know one episode a week

I want to maybe ask Ben's question in a slightly different way. Ben's question of when should you forward investment for growth as a tech company, when should you not? We have an audience of product and growth folks in the room. I want to ask you maybe in a more native to TCV as an investor kind of way that I think might also shed light as operators for companies.

Many, if not most, of TCV's legendary investments have followed this Netflix-like path. I'm thinking Peloton now. I'm thinking Airbnb during the pandemic. I'm thinking Zillow through all this. You are not, as a firm, and you personally as an investor, not at all shy about making a call when the chips are down for a company that this company is going to persevere and continue to being a fast grower in the long run. I'm sure you don't always make the call to do that.

What are the key factors as you think about whether you're going to double down on some of those situations versus not? This will sound like mother and apple pie. It starts with the CEO and the team. And I think particularly public markets swing wildly from genius to idiot.

Folks, it's the same team. You were telling me before, it's always funny, you can see whatever the story, the narrative the press wants to perpetrate by what picture they pick, and it depends what cycle we're currently in, if it's the frowning picture or the smiling picture of the genius CEO, but it's the same CEO. I haven't tried to

Prove that scientifically, but I'm pretty convinced it's accurate. The same person, but different picture. We start as a private investor. Often the teams aren't complete. And then over multiple years, there's change. If you read Reid's book on No Rules Rules. But the visionary CEO who hires...

superb people. Kind of sounds simple. And then when you work with them over a long period of time, you're gaining confidence. And that may actually be where the whole decision ends, right? I mean, starts and ends. You know, it's also really trying to reassess

The product, customer delight, competitive moats, maybe would be the second big variable. And the team gets into the ability to execute. I mean, there are many companies across technology history who had equal opportunities. Some execute superbly, some don't. Market cap differences is quite dramatic. I say you have to, particularly if you're buying more of a public situation that is under severe pressure, you have to be comfortable being viewed as an idiot for some period of time.

which is wholly counter to everything that evolutionarily has led humans to where we are. Like, we're the people who...

were the descendants of people who were not viewed as idiots. And so it's really hard to rewire your brain to be like, I'm super comfortable being ostracized. Yeah. Well, I wouldn't say it's like, it's not always easy. You don't think it's fun. And it obviously derives from you need to have really high conviction. And you can't be viewed as an idiot forever because, you know. Eventually, if you're non-consensus, you need to become consensus. But you need to have placed that back. Or most of all, in that quadrant of consensus, non-consensus, right, wrong. Yeah.

you know, you have to be right no matter what you do. Ben talked about this on a recent episode, but I love it. I think it's true. You have to be non-consensus and right.

But you can't be in the non-consensus part of it for too, too long or else that becomes wrong, even if you're right. That's the other angle. And hopefully the current environment is an example. When you look back at market dislocating events like the global financial crisis or the Netflix history in 2011 as an example, when you look back at them, they're actually pretty short.

When you're in the middle of it and the clouds are rolling in and the thunder and lightning, you know, it can seem really daunting. But I can't think of a single great technology company that didn't struggle at some point. I refer to it as the desert of disillusionment. You know, they're

They were in this nice, plush forest. They went out in the desert and there's scary animals and there's no water and some might die. But I think if Netflix went through that, Expedia and 9-11, there were negative booking days.

Think about that. Not like revenue slowed down. Airbnb, negative booking days. Again, not all coming out. Yeah, now we look back at that now, and that was like a month. But it probably felt like 10 years. And Facebook, no mobile hand units. I'm trying to think of other... The Facebook example is a great one. Zillow went through global financial crisis, COVID shutdown. I mean, just Rich is a veteran of...

many crises in his 25 years. So as an investor, you can say, well, I'm going to be dispassionately reanalyzing the whole situation. As a CEO leader, you have to be a leader. I'd say maybe at TCV and other investment firms now, you also have to try to lead and hold hands a

And that means most investment professionals may not have lived through the global financial crisis. They got here after that. They don't know whether the world's really going to come to an end or it just seems like it. I think that's where we would love to end with you and to spend a few minutes of, we got a chance to chat with Howard Marks recently and his son, Andrew. Other than Howard, I can't think of anybody else we've talked to

who's had a four-decade-long investing career. So you've seen, you know, here we are in 2022, end of 2022, you've seen times like this probably at least four times in your career. And every one of these downturns is different and idiosyncratic in its own way. So it's, of course, it's not like, oh, this is exactly like it was last time, so we'll be over in three and a half months. You know, they're all special, different. Yeah, and I'd say there are some that are tech-specific.

Boom, bust. Global financial crisis I described as sort of a tech got sideswiped a little bit but didn't get run over. Current thing after many, many years of uniformly positive investor psychology, it's a little bit more front and center. The

Got hit by the bus. Truck. Yeah. But then there's also, God, as I think about it, so I started during a bear market for small cap. There was the crash of '87. The markets were crushed in '90 when the first Gulf War. I forget when long-term capital management when people thought that was the end of the financial system. Global financial crisis.

Pandemic. Pandemic is a, there's no playbook on how to invest during a pandemic. That was a first. And then it did the opposite of what we all thought. I'm old, but I wasn't there during the pandemic in 1917 or whenever it was. Yeah. So I'm curious what, you know, especially for the folks in the room who are operating at companies, what advice would you have for, say you're working at a small cap public tech company right now and your stock's down 70%.

I'd say don't take it personally. By the way, somebody would say, well, that doesn't mean that XYZ is not going to go down another 70%, because the old joke, stock down 90%, it's down 70%, down 70%. But it's short term. Again, assuming the company is well-funded. It's kind of a basic critical assumption. Just focus on the business. Ignore the press. Assume vast majority of what the press writes is inaccurate.

That's been my experience. And stay passionate about the roadmap and delivering value to consumers and all will be well. It may take three months. It may take two years. I don't know. I love that point, too. I hadn't focused on that. But the very beginning of my career was in the... I started in 2007 after college at the peak and then the global financial crisis.

It wasn't that long. It was your fault. Yeah, it was my fault. It was exactly my fault. But it wasn't that long. You know, it felt like forever at the time. I'm not trying to say it doesn't weigh heavily upon the psyche when it happens. And actually, the best thing is that's one of the things you have to guard against. Like, okay, seemingly getting beat up every day, it could make you defensive when actually now is the time to...

Every crisis has been a good period of time to invest. Now, not across all companies, but Google started in 2000. People thought it was an insane valuation at 70 pre. I'm serious. That was the chatter. Tesla almost died in 2008 when auto industry was being bailed out. And so just as you look back, there are failures, but it's proven to be a

good period of time. Amazon, absent the Joy Covey vehicle of putting together the convert while they were a public company, they would have gone out of business. Yeah. You think about Amazon went public in '96? 190 million in revenues or something like that? The scale is insane. So it's hard to separate the negative psychic aspect, but it's really important to.

Great. It's a great place to leave it. That is a great place to leave it. Well, Jay, thank you so much. Thank you. Thank you, TCV. Thanks, everyone. Thank you. Thank you. Thank you.