Making Sound Investments with Ashton Kutcher and Effie Epstein (Sound Ventures) | Disrupt SF (Day 1)
7:25PM Sep 5, 2018
With that, I'm going to bring up our next guests. Please get excited because I am. From sound ventures. Please welcome Effie Epstein, and Ashton Kutcher.
We shake hands like we haven't been talking for the last 30 minutes. Okay.
It's a weird, like, talk show habit.
I know, right?
You have to like shake the host's hands. And otherwise they're like, oh, there's some tension.
You gotta break it.
Back stage you're a hugger. I was waiting for a hug. Well, I never got one.
I hugged you. Yeah. Wow. You're out here lying already? Oh, my God. Okay, no, let's all start off on a better foot.
For those of you that don't know. Effie Epstein is the managing partner at Sound Ventures. She was at Clear before iHeart. Marsh McLennan. Hopefully you know who this guy is, Ashton Kutcher is an angel investor, A-Grade investments, founder of Sound Ventures with investments in Bird, Acorns, Lemonade, Robbinhood and the list goes on. Very excited to have you guys here. I'm going to start with you Effie. I think all of us are really familiar with Ashton the entertainer.
And in the community here in Silicon Valley. Definitely, he's made his presence known. There are a lot of people who do know what he's all about. But I think there are a lot of people have no idea what Ashton the investor is, like. Yeah, how would you describe Ashton in a pitch meeting?
Definitely our secret weapon and not for the reason that I think most people would think I can speak to my own experience. When I first met both Ashton and Guy, I was floored by how scary smart they were, I think where they are both excellent is taking away all the noise around and they have a bullshit meter that's higher than I've ever seen. And so that's something that's super valuable for us as investors, of course, but scary, smart, analytical, able to piece signals together from the market. And for me, in my career, I've been completely industry agnostic, I've always followed the people. And that's exactly what we're doing here. So first of all, working with them, and then backing great entrepreneurs.
Um, you said signals from the market. And I know that you guys have a little bit of a flexible investment strategy. Got your ear to the ground, what signals is the market sending now. To either.
so I think like, generally, as a firm, we try to stay as agile as we can, I think a lot of firms have a tendency to set up variable guard rails around the things that they invest in, when they invest and how they invest, and what stage they invest and everything else. And I think for us to be agile and opportunistic is really important. Because I think in general, the next great idea is going to be in a sector that you can't lay out in a PowerPoint presentation to your LPs or, or even to your team because generally the sector becomes created by the next great company that's going to come along
You know, to me, that question sort of falls into the trappings of what is x right we end to know what X is before you see X as an investor is often really hard right like because you I don't think you could anticipate the changes Airbnb created in
Travel and Leisure area, I don't think you could, you could have been anticipated that there was going to be a great disruption in transportation, when the great disruption and transportation came, I think, you know, the biggest thing that we try to do as a firm is stay open to the notion that the next great change isn't going to fall perfectly into a PowerPoint
We are seeing, like, we're seeing pretty big burst of companies around D to C space where, you know, people are coming up with some product that's a little fugzy and been around forever, and trying to, like rely completely on brand as a differentiation going to market and direct consumer, like, a lot of those companies are going to stumble, because there's an assumption that they have some advantages, because they know how to engineer Instagram,
suddenly, they're going to win because of that. But there are some companies in that space that actually do have market wedge and some ability to actually create consumer traction that will ultimately deliver a cohort the sticks around for a while, probably some network effects that they can create inside of that that's that's one space in particular, that we're seeing a lot of advances in,
I think, generally, you know, sound takes a very broad market approach. And we tend to look for the intangibles. And for us, some of those are what's scary to people, what's a little bit uncomfortable to think about as an idea or to have a conversation around? How does constraint breed creativity, that's something that we look at a lot, where's the talent going, that's been, you know, a core part of our strategy now for years is looking where, where people are going in terms of industry sectors, companies, and so for us, as a firm will never be industry or sector specific, it will always be a broad market approach based on these intangibles.
Well, on the one hand, you can't anticipate certain things, but then your job is also to anticipate certain things
Or see a good thing when it comes along. Yeah, identify like, likely, the truth is, if you really, you know, if you're in it for the money, you're going to go build something. And if you know what the next turn, you'll go build it, and you'll make a lot more money than you will just invested in it. Right? Because you're the founder, and you have steak and, and everything else. If I knew what the next thing is, I go build it tomorrow, right? But our job as investors isn't to necessarily know what the next big thing is, is to be able to identify it when you see it,
you know, so much of that comes down to who's the person building it? What is their strategic advantage? What do they know that nobody else in the world knows what they haven't? You know, what, understand it, they have this deep and,
you know, yeah, we can we can, we can look out and go. Okay, so if you think companies that are building technical technology platforms, and have robust database, if you think that they deserve a 20X multiple relative to companies that don't have that, historically, over the last years, you'll get a company that has some AI capabilities, and probably deserves a 100X multiple if they actually have the appropriate data to run their training sets against, so I can look at AI, I could go, yeah, AI is the next big thing. Well, okay, great. There's every person that sits down with you is like, well, we're building AI for and then once you start unpacking it, you go, that's actually not AI. You just are running an algorithm on a database, right?
Have you ever like you're talking about, oh, if I know what the best next big thing is? I just go out and build it. Like there is a contagion of Silicon Valley where you see people building things becoming successful, and people want do that, and you're around it all the time. Do you ever catch the bug a little bit and want to build something be an entrepreneur?
Yeah, yes, it's course you do then have to sort of, it's hard to run that same, the same rigor against your own ideas as you can run against somebody else's idea. Like, yeah, it's a lot easier to be a judge on American Idol than to stand up and sing in front of everybody,
you know, running the same rigorous process against your own ideas. And what you should build is really hard to do. I think if when we have those bright ideas that we think about building like the first person, I'm going to go to Effie and go, all right, Effie tell me what's wrong with this and tell me why we shouldn't build this. And I think that that keeps you from building a lot of things that maybe you shouldn't build.
Okay, let's talk geography a little bit. I know you grew up in Iowa, you were raised and born in Israel in Israel. That's right. Yeah. Outside of the Big Three LA, San Francisco and New York. What is the most promising market?
Yeah, for us. And from a pipeline perspective, what's interesting, as we've seen, some of the usual suspects been in our pipeline for a long time. Boston as a great leader or about Austin has really been picking up for us, we have a couple of companies out of Miami, that's going to taking market as well, we're Nashville next week judging, we work crater wars, competition, a pitch competition, those are a few the cities that have emerged, Seattle has always been in the background, I'm kind of surprised that we haven't seen more out of Seattle, but I would say Denver, Austin and shockingly, Miami have been climbing up the ranks
Denver last week, looking at an extraordinary company there, you know, I think any of the cool thing is really happening is this the democratization of a lot of just baseline software tools is actually allowing companies to actually start to spruce it up. In other places, we actually ran market analysis on company culture,
what we did was, we thought, you know, most likely the next greatest companies in the world, they're going to be the companies where the most talented people want to work at it. Even if you don't necessarily understand what the business looks like today. If this is a company that's attracting the most talented people around the world,
they're gonna to figure it out
they're probably going to figure it out, right, we started running, pulling a bunch of different data sources to figure out where talented wanted to go, like what companies they want to work at. And there were two things that were super interesting that came up, they were, they were, there were a lot of companies that weren't here or New York, which was great for us, because we started to see companies in other markets, there were a ton of female founded companies, which I thought was outstanding,
really exciting. One of the one of the biggest things relative to those companies being in different markets was they could attract talent at similar to lower prices, because the cost of living was lower.
So suddenly, people could have better lives, working at companies working on hard problems to solve, you know, to make the world a better place, but actually have a life while they were doing that.
How long do you think it'll take for people to realize that LA is better market than San Francisco?
They're already realizing it.
I don't know. Is it a better market?
Depends how you define better. Yeah, I mean, yeah, is it better listen, I think for us, what we've seen is, you know, in the last three years, that capital going in venture capital way into la has more than doubled number of companies have been funded, has doubled number of exits has stayed the same, which is interesting. But I think for the first time, talent in LA and specifically technical talent has more options. And so the market as a whole is able to retain that talent in LA, you know, in the past, we've had capital and we've had great lifestyle and cost of living associated with that, but we haven't been able to retain the talent I think that's the biggest piece of devolution I've seen is when a companies are actually relocating entire engineering teams from up north to LA that's a signal.
Yeah, I think the market in there was a billion dollars of venture that went into companies last year there was 7 billion that went in and Los Angeles but like Effie said that there were 68 exits in 2015, 63 in 16 and like 68 in 18,
you know, it'll probably take a while for the market to mature and It'll take a while I think the one of the one of the biggest trends that hasn't changed it historically it's been tech companies acquiring tech companies and tech companies actually realizing understanding the value of tech companies and when they acquired them so they actually pay market premium relative to it and so getting media companies to actually do that again you know, there was a moment when MySpace got acquired and everyone okay everybody's getting in the game and then didn't go very well and I think that there's been a lot of apprehension around that and actually paying those prices relative to exits but if it gets that continues to happen ecosystem will only get stronger and there will be more talent in the area it'll continue to build there's a little bit of a void
sort of hubs for people to really get together and you know stress test ideas
So one of the question I wanted to ask you guys was around actually I was reading an article where you said that female founder tend to be more conservative and undersell their valuation where is man come in and they can have the same exact pitch and instead of being worth 2 billion its worth 20 billions. Which is great.
Who is right? When you are heading this pitches, what is more attractive to you? Someone who is more conservative and actually like feel a little bit more humble about their reach or someone who has come in and said I am going to take over the world.
Right, I think that this really go to the ego of the investor. I mean for us any day we rather see a companies exceed their projection and budget than miss. And is a trend we follow very closely with our companies. There is definitely a balance between confidence and cockiness. Pitching, I think it's something real that we see. And, you know, not to provide blanket statements. But as a whole, absolutely, I see women being more conservative in their pitches. And we do with with male founders, music to my ears, whether someone is presenting me two billion dollar TAM, or 20 billions dollar TAM is the words I'm not sure I need to test for me, I'm always looking for those signals and an entrepreneur to say, I want to learn, I want to iterate. And I want to listen to smart people around me, I'm very clear on my vision, and where I want to take this company. But those are the signals that we look for more than a TAM. I mean, you can slap any number on that page, it doesn't mean anything is the reality, we need to believe first and foremost in that person sitting in front of us. And so that's what you're selling. You're selling yourself, you're selling your team and your vision. So those are the things that we tend to focus on the most
well, and another thing that I heard was that you guys are really interested in storytelling, Ashton, you in particular have to be a good storyteller. You are a communicator by trade, do you feel like you're ever missing out? Because not everyone is a great storyteller doesn't mean they have a great that doesn't mean they don't have a great business.
I think, you know, one of the, one of the critical tests that I try to run when I'm sitting across from a founder is, can you sell me your idea, right? Because if you can't sell me, how are you going to sell your first hire your second, hire your third hire? How are you going to actually create the the capacity for the rest of your team to sell those next hires, like, especially early stage companies, generally, the CEO, the company has to hire the first, you know, call it 40 people and they should hire the first 40 50 people. And if you're competing for the best talent in the world, and you can't sell your idea to the best talent in the world, how are you going to actually get all a players around you to actually turn this into an explosive company
I look at it is a giant if they can't sell me if at the end of the conversation, I'm not thinking man, should I leave Los Angeles and go work for this company, like, what they're doing is genuinely impactful for the world is going to make life better for human beings. And I want to work with that person every day. Like, because once I invest in the company, I'm going to work for them every day for the next 10 years. Likely, if you can't sell me to work for you, basically, then how are you going to sell your first 50 employees, right? And then and then on the other side, you know, it's also sort of a job interview, do I want to hire that person like, and so you're sort of playing those two games in your mind where you're going, what I hired this person, and do I want to work for this person, because at the end of the day, that's what you're going to end up doing. If you invest, I think that storytelling pieces has to happen. And then you can refine it and make it better and improve it and like,
figure out how to communicate to a consumer over time. But, you know, early stage companies, that person has to be able to do all of those things.
Well, I mean, Effie I know that you coached a lot of the companies personally during the perfect pitch in Austin, like what tips you have for their summit? Raise your hand if you are a founder, entrepreneur. So everyone? Yeah. What's your advice?
Yes, absolutely. I think the key being very clear and succinct on your vision, your goal and an investor meeting, especially a preliminary one is to pique their interest, why are you building the thing that you're building? How do you prove that you are the right person to build that and being clear on your vision? And the reason being is when I listen to someone's vision, I'm not just looking at the market opportunity behind it. I'm saying, okay, are they going to be able to get their entire workforce and team behind that vision? Are they going to be able to get customers and clients behind that vision? So to me, that's something really critical and I can share with this audience the three things that we look for in founders, regardless of the industry or business that you're building is great, self awareness and followership, I would say, we're very fortunate to see great entrepreneurs every day, we find that there's nuance between the good entrepreneurs and the exceptional ones. Most entrepreneurs who come into our doors have great, right, they have the perseverance to go kind of run through doors, I would say less have self awareness. If you can show an investor that you recognize where some of your blind spots are, that's critical, because to me, it shows you'll know how to fill those gaps in your organization. And then lastly, is followership. So being able to attract and retain people who are smarter, better, and sometimes more seasoned or senior than you, to me, that's a huge part of the story so pique their interest about the vision be clear, but also explain why you're the right person to run this company.
Okay, we're going to switch gears just a touch. Ashton, you have been in Hollywood for a really long time, and now become very embedded here in Silicon Valley, which gives you an interesting vantage point when it comes to the the me to movement. I'm just curious about your perspective, given that you've been in both worlds.
You know, I, I think it's, you know, what the best advice that I got relatives to this entire thing came from my wife, and she said, Men have had hundreds of years to solve this problem. And to talk about this and figure it out. It's probably the best thing at this point for men to just shut up and listen for a little bit. I actually think anything I say, ultimately a hollow action and the only thing it is for me to do is to actually do
every anything else in between is bullshit. hire more women get busy making sure that there's equal pay within organizations, make sure that the companies that we invest in are thinking about this problem on day one, continue to tell stories about the extraordinary women history and in the world. And going forward, I think that's my baseline of what need to be done
and so, in doing so it's incumbent upon me to have my investment fun be 50% women to increase the number of companies that we fund that are female founded, it's incumbent upon me make sure that my fund it more my foundations already 80% women in every woman, every position in the C suite is all women, my media company is over 50% it's like 70% women, all the people in the sea suites are women in my media company, I just
actually now going to shut up and I'll hand it to Effie, to actually like, say, what needs to be what else could be done.
And your fund is right now a female founders is at 30%.
That's right. So over the last 18 months, 30% of the companies that we funded, have been female founders. But I think it's important to emphasize, these are phenomenal businesses, ones that we see as 100X opportunities, and they happen to be founded by women, right? We don't need to, in any way change our investment strategy. We just need open up our pipeline. So we see those opportunities because they're, there.
awesome. Let's talk about Twitter for a second. You were the first Ashton to reach 1 million followers on Twitter. There was a time when you were interested in investing in them for a brief period, you left Twitter, now you're back if you were on the board, let's say have
I never left Twitter. I never left Twitter.
after the paternal tweet.
Oh, no, I actually just started like asking somebody next to me. Like
three. Yeah, just like not assume. Well, I think that was like a specific inflection point where there were so many media companies were following people's Twitter that it no longer became a private conversation. Everything was public. So if you made a mistake, you're screwed. We're publicly lambasted at that point. I was like, Well, before I tweet something, I'm just going to say, Hey, what do you think of this whoever's next one, okay, so
correct. Yes. filtered, further filtered further filter. But let's say that you had made the investment and Twitter and you were on the board. What would you be telling Jack right now?
Oh, that's a great question. Thank you for what would I tell Jack, I probably till I emailed him five months ago. And I was like I gave it I just said, I'd love to be able actually segment my audience.
I don't think that everybody would, that is following on Twitter wants to hear about what companies I'm interested in investing in or have invested in. I don't think everybody that follows me on twitter wants to know about The Ranch on Netflix, if you haven't seen it's great show. I don't think that anybody, everybody wants to hear what my political views are. I don't think that everybody I was like, wouldn't it be a better experience, if you could actually segment your audience towards interest base that would then filter your feed, you could actually sell filter your feet as you post it,
eliminate the presumption that everybody wants to hear what you have to say about everything, because I just don't think that's the case. Be my base.
Okay, perfect. I hope he takes it. I like that idea. Not actually heard that.
Another one I have is around a portfolio company that you're actually invested in. Not hypothetically, bird. Okay, one person. So good scooter here
as, as an investor in Uber, you were there for all of the kind of regulatory hurdles and watch that unfold and they very much had a ask for forgiveness, not permission approach. bird has done a similar thing, but the environment is different in that it was really Uber versus the government, in this case, bird is not only dealing with the government, but also the public and the citizens have strong feelings. Are they playing it right?
Oh, yes. Yeah, they're, I think they're playing it. Exactly. Right. Right. Right. Fundamentally, what's you know, Uber thing was very frustrating the whole way through as well. The Airbnb thing, regulatory wise, has been incredibly frustrating the whole way through
bird to me. This is like the simplest one of them all in so much as nobody wakes up in the morning opens their front door. It looks outside and goes God. Look at how many cars there are parked everywhere. Yeah, the fucking parked everywhere. their cars parked everywhere. It's ridiculous. And they're clogging up the roads. They're making it impossible to get anywhere you want to go, but boy do we will open up the door ago, man, they're just scooters all over the place. And you're like, why? Hold on, wait a second. This is just a version to change, right?
And suddenly we go all right, we have to regulate the hell out of this. Because people are complaining about there being screwed. But nobody's complaining about the fact that their cars everywhere. And even the if you think about like a pure square foot perspective of how much space a scooter takes up relative to a car. This is absurd, right? Fine. I understand. Like, maybe we find appropriate parking places for these things and everything else. But the regulatory function on this, like, if you're like, in any position that you're looking at this and thinking about it, open up your door and look at how many cars are outside and you're just used to it right, this is just something you're not used to.
And so there are certainly ways that we can get places where these things can be parked that people are comfortable with, and everything else. But boy, it's just a better world. If this takes off and works like from an energy consumption level, it's gonna be a much better world from from an admissions perspective is going to be a better world and from a people just getting where they need to go. It's just going to be a better world if we actually pull this off. So you know, I can advocate all of this for bird and I can advocate for this for all of this for every scooter company. It's Let the battle be between these companies. But don't make the battle about like suppressing the freedom of your citizens are suppressing, suppressing the ability for us to actually make the world a better place where people can get where we want to go. Like that's, that's not serving anyone. That's my message to regulators,
boom. Mic drop, only it wasn't strapped to your face, I am cutting into your break. But I have one more question. You came from the world of entertainment to be a VC and have definitely proven yourself
There so many celebrities, NBA players, athletes, people who have made their money in the entertainment world, and now want to come be a part of the new gold rush and Silicon Valley, what advice do you have for those people, as someone who's done it,
you know, there are a lot of, you know, want to be entrepreneurs that are trying to build companies, and they're just as many want to be investors that are trying to become investors,
I don't really have that much advice for those folks. Other than, like, if you want to have a job, you got to do the work in it. And it really comes down to a function of I mean, I was at TechCrunch 50
a decade ago. And I've probably been in the valley and I've probably in the course of the last 10 years, I can't even imagine how many pitch decks and companies have looked at and found
I've been to every YC demo day, every six months for the last 10 year, is it you can't build pattern recognition by looking at something 10 times if you're an investor, the one point of leverage you really have is building pattern recognition and being able to see what is a great entrepreneur look like? What's a differentiated idea? What's the defense ability of this company? What are the moats that they're creating over time? Where's their expertise? Are they going to get people to rally around them? How are they creating efficiencies in the marketplace? What is the competitive landscape look like? All of those things, you know, you can see a great idea and be like, Wow, that's a great idea. And you seem like a really good person. But if you don't have an understanding of what a competitive landscape looks like you can be gobbled up in like a minute. Nelson your cashes out the door the bottom line. It's just like anything else. If you want to have a job, you got to do the work. It takes time, a ton of mistakes.
You know, the truth is the value I've added as a celebrity investor compared to the value of added as an investor investor don't even think that they're on the same map.
My only recommendation to people is like, if you want to do it, you got to do the work and it you're going to lose money most of the time. Occasionally you'll find something that's unbelievable, and you might be able to make money.
All right. Thank you guys. I really appreciate it. I could stay but they'd yell at me. Thanks so much.