1Mby1M Virtual Accelerator Investor Forum: With Warren Weiss of Foundation Capital (Part 1)

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Responding to a popular request, we are now sharing transcripts of our investor podcast interviews in this new series. The following interview with Warren Weiss was recorded in April 2017. 

Warren Weiss, General Partner at Foundation Capital, has a long track record in the Silicon Valley venture capital industry. He shares areas that he and Foundation are excited about as opportunities for building future Unicorns.

Sramana Mitra: Let’s start with your overview and synthesis of what you feel right now about the industry, about ventures, and about how to build these unicorn companies. What have you learned? What have you seen? What are you thinking about opportunities for future unicorns?

Warren Weiss: It’s really a great time to be a very early stage venture because of the disruptions at every level of the enterprise. We not only see that on the enterprise side of venture, but also on the consumer side. It’s primarily driven by mobility and being able to have the freedom to do things.

For Foundation Capital, I focus on the enterprise market. Every space of Denmark is being reinvented. What we’ve known as security in the past where you built a higher and higher wall to keep the bad guys out is completely broken. There is no perimeter.

It’s a great opportunity to build a unicorn in security. Analytics is also being reinvented with high-speed databases and cloud computing. User interfaces that look like consumer sites from a consumption standpoint are incredibly exciting. We see the explosion of apps in the SaaS market as well and just the whole cloud computing stack itself where you’re lowering the cost of everything from bare metal, computing, databases, to operating systems.

All that’s getting compressed tremendously, so it leaves entrepreneurs with a very unique opportunity to start companies for hundreds of thousands of dollars, which took $10 million and $20 million just a decade ago.

Sramana Mitra: Let’s talk about a couple of your portfolio companies where you have had significant success. What I want to understand is a synthesis of what parameters have made them so successful.

Warren Weiss: Right, the classic thing in venture capital. It’s all about large markets. There are many other attributes that make up a successful company that can get you a billion dollars in market cap but if it’s not a large market, it’s very difficult to make it happen.

So I would encourage your entrepreneurs to really be intellectually honest about the market size. One of the two most recent examples is a company called Lending Club that went public in mid-December. My partner, Charles Moldow, is on the Board. It became very obvious that the financial services market was yearning for a different way to do consumer lending for loans that average around $25,000.

For those of you that even start businesses, try to get a small business loan or personal loan. There’s so much hassle that you have to go through with the bank to get this done, especially when you’re building intellectual property that doesn’t initially have a lot of value like a tangible asset. You find it impossible to get your business off the ground.

Even for folks that want something like combining their credit card or buying a car, Lending Club is a company that obviously was in a multi-trillion dollar market and a disruption in this case was for the company to build a marketplace where you could be both a lender and be a borrower.

The match between those in marketplaces is incredibly efficient. You have the ability to lend money and get a higher rate of return. The rate of return to a lender depends upon the risk that you’re willing to take and then they have a whole credit risk system.

On the lender’s side, it’s a very simple process to get involved based on your credit score and within minutes, you can complete a transaction where you get a loan. We have a very low default rate in the company. It’s now a public company. That disruption is in a multi-trillion dollar industry. Another example is OnDeck, in which we’re a small investor. They also went public and do small business loans. We’re involved in a company called Auxmoney in Germany. That’s like a lending club of Germany.

My partner Charles started a mortgage loan services companies for loans $250,000 under called LendingHome. The macro trend was that we saw tremendous disruption, an easier way to acquire customer service customers, and actually a lower risk and lower default rate from a traditional bank.

We see that as a cyclical trend extended for 20 years. Its very exciting for entrepreneurs. Bitcoin obviously has opportunities in those markets as well, and that’s just one recent example.

This segment is part 1 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Warren Weiss of Foundation Capital
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