Bill Reichert, managing director and co-founder of Garage Technology Ventures, describes its mission as discovering entrepreneurs who could change the universe and unleash disproportionate value. He believes that COVID-19 has flattened the access between entrepreneurs and investors globally.

Reichert has a pretty broad gamut of investments across life sciences, material science, robotics, AI, quantum computing, fintech and edtech (educational technology). He is also partner and chief evangelist of Pegasus Tech Ventures, a global VC which has invested in more than 170 companies across the world, with 8 IPOs and 30 exits.

The following are key points that he discussed with Emmanuel Daniel:

• The inflated valuation of start-ups is highly misleading and has been distorted by huge investments from late stage funds into a limited number of top-tier companies that do not reflect the underlying innovation in the start-up ecosystem 
• Due to COVID-19, new investments have been stalled to an extent, but it has not caused the widespread devastation that occurred during the global financial crisis
• The pandemic has uncovered new investment opportunities in logistics, hospitality, supply chain, healthcare and personal mobility, which VCs look at with caution and optimism
• The true pace of technology change is not as fast as investors and entrepreneurs claimed to – it is the growth in product release cycle, competition and revenue that has accelerated immensely, not technology

Here is the full transcript of the session:

Emmanuel Daniel (ED): I’m very pleased to be able to speak with Bill Reichert, the managing director and co-founder of Garage Technology Ventures (Garage). Our conversation is going to be a little complex. We're going to talk about valuations and the impact of the pandemic on venture capital, generally. I want to test your ideas on a couple of things where technology is evolving and how you take positions on things that are disruptive. It's going to be a long conversation, but let's get going. I am delighted to be here and very eager to have this conversation with you. Maybe you can start by giving us a snapshot of your background.

Bill Reichert (BR): I came to Silicon Valley as a student. It was while I was a graduate student at Stanford that I wound up starting a software company. I had no intention, when I came to Stanford, of starting a company, of being an entrepreneur. I thought I was going to go back to Wall Street or Washington and do high finance or public policy. I was doing a project for a venture capital firm while I was a student, a long time ago when the personal computer (PC) had just emerged as an alternative platform for computing. I had grown up, frankly, learning computing on minicomputers. That was kind of my era, learning how to programme and learning computing in the minicomputer era, which is to say during the 70s and early 80s.

The PC came out, and I was complaining to this VC about the fact that there was no good software for the PC. You couldn't do any serious kinds of analytics. All you had was a spreadsheet. And, I said, ‘Somebody's got to figure out how to develop serious business applications for the PC.’ And the VC said to me, ‘Well, Bill, why don't you do that?’ I thought, ‘Well, okay, maybe, I guess in my spare time I can go and solve this problem, and then I can go graduate and go back to the East Coast.’ One thing led to another and I wound up starting up a company, which was a software company, with a friend of mine. We were actually the first app development company for the PC. Our business model was to develop a matrix of applications for the PCs that would be appropriate for the enterprise. It was a blue ocean, and the company just took off. We crashed and burned, and the whole thing blew up. That was my initiation into entrepreneurship, venture capital and Silicon Valley.

ED: In those days, when you said app development for the PC, what apps were you working on? As you said, the whole world has opened up to you at that point.

BR: Originally, the whole idea was financial applications. Before business school, I had done a stint at McKinsey & Company as a research analyst.I wound up being their analyst for their mergers and acquisitions (M&A) programme in the Los Angeles office of McKinsey, which was the practice leader for mergers and acquisitions. I wrote a bunch of programmes, specifically to do analytics on mergers and acquisitions. I did this on minicomputers. Time passed, and now we have the PC. The big idea was to develop financial applications for the PC. The great thing about entrepreneurship is, you never actually wind up doing what you plan to do.

ED: At the same time, you sort of gravitate to something that is you. That's the whole idea of being an entrepreneur.

BR: There were these accidents, but we wound up writing the first Rolodex software. We were at a trade show, and these guys showed up and said, ‘Hey, we were thinking, maybe people would be interested in managing their contacts on a personal computer. Could you guys help us write this software?’, and we said, ‘Yeah.’ So, we wrote the first Rolodex software. Charles Schwab came along and said, ‘Hey, do you think people would be interested in managing their money on a personal computer?’, and we said, ‘Yeah, we can do that.’ So, we wrote the first software for Charles Schwab called Money Manager. And then, Dow Jones came along and said, ‘Hey, I think people would be interested in doing their bookkeeping on a computer.’ We said, ‘Yeah, we can do that.’

ED: Does that universe still exist in Silicon Valley? Is there a new frontier where – things like artificial intelligence (AI) and blockchain, for example – there’s like, ‘We got this ability’ and someone comes along and says, ‘Can you put this on blockchain? Can you put it up?’ Can you build, and then a whole range of applications are born because of that?

BR: Well, every generation of compute technology has spawned a new generation of app development. Fast forward when the internet came along in the 90s, everybody said, ‘Oh, we got to have something on the internet.’ Initially, brochures were on the internet, but a whole industry sprouted around enabling companies to get on the internet. The companies couldn't do it themselves, so the third parties had to do it.

ED: Since we’re on this topic, where is the technology today, given that the entire 1990s applications have had evolved into enterprise applications? About 2008, after the iPhone and all the mobile devices came about, it all became frontline technology. The technology sits on a mobile device. I asked this because in banking, for example, right up to the mid-2000s, there was this whole thing about core banking systems. There were monoliths built and the applications were built around the way in which the enterprise was structured. Today, the application has to sit outside the enterprise, so it needs to be developed quickly, definitely has to sit on the device and the institution buys from that. Where's the Western world? I say Western world, because the Chinese world seems to have really gone into the mobile universe very easily, very quickly, very intuitively, and then there's this whole enterprise culture. Where is that if you take companies like Oracle, relational database, which is really enterprise, and then now they say cloud and community? Give us a sense of how do you think that evolution has evolved? Where is it right now?

BR: I don't know what the right metaphor is. It's sort of like a wave, which is to say that the base of the wavecomes up more slowly than the crest of the wave. The crest of the wave is what we all see. In the 90s, we got the evolution of e-commerce, and eventually this evolution of financial applications on the internet. PayPal is sort of the early version of that. Since then, lots of other financial applications, almost all of which have been sort of the front edge of the wave, the underlying infrastructure of finance. Banking evolves much slowly. In the innovation world, it's relatively easy to develop applications and software that sit at the front edge of the wave in terms of the interface between the infrastructure of the financial services industry and the consumer. Whether the consumer is an individual true consumer, a small business or even a large business, that interface is much more dynamic in terms of what technologies can be implemented there. Way back at the infrastructure, that has moved slowly, so the underlying plumbing of the financial services industry, certainly in the West, is very old.

ED:I also asked this, because in finance, manufacturing and so on, there was a time when the SAPs rule the rule of waves. You had the core banking players and institutions dedicated large amounts of resources on that. Now, it's possible to start a digital bank with just five people, entirelyon the cloud. The rules have changed. You create a community of developers, community of users, community of application programming interfaces (APIs) around a basic application. In the old days, you'd start by saying, ‘Okay, where's the general ledger? Where's the basic information on the customer sitting?’ And then, you build everything else internally as a stack, one on top of the other. Now, you don't stack it, but it comes and it goes.

It just takes five people to start a digital bank today, but every digital banking initiative of a traditional bank involves armies of people who are trying to do two things. They're trying to protect what they have built as an enterprise architecture and they're trying to get into the new universe of the cloud, the ecosystem. Do you see that transition taking place? While you're doing that, can you give us a sense of how many companies you have invested in? What's the size of your fund? Some background, as well.

BR: Through the end of the last century, I was an entrepreneur. I wound up doing five venture-backed startup companies. And then, after my last company went public, I got together with Guy Kawasaki and a few other people and we started Garage to be a different kind of venture capital firm. We hadall sorts of radical visions as to how we were going to change the venture capital world. Our first investment was in January 1999. We filed to go public in February of the year 2000. It was an insane period of time. Fast forward,we've had five funds in Garage. We've invested in over 150 companies over the years. We have several brand name success stories.Our most famous success story – because it’s a consumer brand – is Pandora. We have several even bigger successes on the enterprise side. Recently, I connected with a global venture firm, originally out of Japan that set up its global headquarters in Silicon Valley, called Pegasus Tech Ventures. Pegasus invests all over the planet. They have a big office in Southeast Asia, where they’ve invested in over 40 companies. I sit on the board of a company in Vietnam for Pegasus, and they invest in Japan and Korea as well as primarily in the US. I have had the wonderful opportunity to invest across the entire spectrum. From very raw startups seed stage – two guys in a garage – to pre-initial public offering (IPO) companies. Earlier this year, we invested in SpaceX, a pretty broad gamut – have done life sciences, material science, robotics, AI, quantum computing, fintech and edtech (educational technology).

ED:When you invest in such a wide range of technologies, what sort of game plan do you see evolving? What are the elements that you pay attention to, that you pick up from, in terms of where the technology is and in terms of where it should be today? It was easier in the 1990s, where all the work in technology had the mindset of how do we map this into an institution. Today, it’s just not that,you also have the legacy institutions and so on. 

BR: Broadly speaking,the biggest trend in the venture ecosystem has been that every single corner of our world has now opened up to technological innovation, potentially disruption to venture capital investment, to entrepreneurial involvement.My point earlier was, backin the 80s and 90s, the tech industry and the venture industry were pretty narrowly focused onbroadly defined information technology, broadly defined communications technology to some extent, including networking and all of that. The internet came along, and it opened up these new classes of business model. E-commerce was not a technological investment. E-commerce was not investing in technology. E-commerce was investing in business models. It was investing in a way of doing business on top of an established technology. With that transition, then you fast forward to the mobile era. You had the evolution of Web 2.0, which was primarily a laptop experience intersecting with social.

And then, the smartphone came out and that whole evolution of moving your internet access to the smartphone, which made a huge amount of sense globally. It was less dramatic in the United States (US) and Europe than it was in the rest of the world, because the entire infrastructure of the internet had evolved on the laptop. Everybody in the US and Europe had a laptop and a credit card. That meant that the emerging economies, primarily China, but also the rest of the world, had a chance to leapfrog technology and be unshackled by the infrastructure that we have grown up with in the more traditional laptop-based internet, e-commerce and fintech models. In a lot of ways, you saw much more innovation outside of the US and Europe in terms of the impact on daily life of digital technology. As compared to the US, it was way more dramatic, 10 times drama, obviously in China, India, Southeast Asia and the rest of the world.

ED: Do you think that PayPal today is innovation or still frontier technology? The reason I asked is, when I look at PayPal,by securing payment on the website, which was a bigbreakthrough at that point,but eventually the backend now is so credit card-centric that it feeds right back intothe legacy credit card universe. It's so comfortable for PayPal thatif you compare them to say, Alipay, they just won't evolve, so are there other technologies that you invested in or you were part of in the early 2000s that are today legacy technologies?

BR: It's sort of the other way around. One of my favourite initial pitches was in the year 2000. I was at a conference in Chicago. This group of guys came up to me and said, ‘Hey, Bill, we are going to disrupt a $30 trillion industry.’ The name of the company was Rocket Check. In the year 2000 – technically PayPal had just been born, but the drama was the internet – a huge percentage of financial transactions in the United States were being done by physical cheques. It was extremely rare that there was direct deposit kind of payment back then. These guys’ big idea was, ‘It's the 21st century, we’re going to transform payments and we're going to make all payments digital.’

The challenge to this day is that the infrastructure for payments is owned by the legacy players. Your point about the new generation of banks, five guys can start up a new bank, it’s a yes and no. What you have to do if you want to start a new financial play is, you got to go find this legacy player who will give you a base you can operate out of that is compliant with all of the local and international regulatory regimes. And then, you sit on top of them as an exciting novel interface, but you haven't really made a dent in terms of your own infrastructure. 

ED: Given that there's so much legacy and regulation today in a number of industries, not just finance, venture capitalists like yourselves, to what extent do you dare to break rules to move the line a little bit, to test regulators and push things even a little bit? There was a time when the Ubers of the world will go in, set up aninformal taxi network without permission and then work out. But, today, I get the sense that lots of VCs almost factor in the legacy and regulatory thinking into them. The final product that you look at is not innovative at all. It's incremental, if anything.

BR:Our job is to invest other people's money into companies that will generate a 10 times return. I love when I get the opportunity, for example, to invest in quantum computing. I know it's going to take a long time for that to play out, but I also believe that we're at an inflection point in some of these technologies, that within the span of venture investing, we're going to get a significant increase in the valuation of these companies within the next four, five or six years. Our job is not to change the universe, but to find entrepreneurs who can change the universe. If an entrepreneur comes to us and says, ‘I have this disruptive technology, that if only the regulations were different, we could transform this sector of the economy.’As an investor, we've made a couple of investments on the presumption that policy was going to move into our direction. Almost, always, that's a dangerous assumption that policy will move in your direction.It's appropriate for investors to take into consideration the regulatory requirements. Now, we can inveigh against regulation, government bureaucracy and all of that. To put our limited partners’ money at risk, becausewe think that the politicians haven't done their job, that just doesn't make sense.

I love working with entrepreneurs that are thinking outside the box and that are notconstrained by the current law or current legacy infrastructure. We've done that several times to great effect, particularly in the material science space. But when you're talking about regulatory environments, that's tough. Ten years ago, the smartphone came out and finally e-wallets came out in Europe and Japan, around the same time as PayPal came out in the United States. The United States just never got excited about e-wallets until smartphones came along. There was a little bit more enthusiasm about the e-wallet model. It's still not that big a deal in the United States, but the idea of trying to go against the grain in terms of one, regulation, and then two, user enthusiasm, doesn’t make sense for an investor.

ED:In a lot of industries, there seem to be a slowing down of disruption and more of an incremental thing. In fact, just this week, Alibaba’s Ant Financial were forced by the regulator to drop the word ‘financial’ and call it Ant Technology. China is also consolidating now. It’s becoming more conservative. That era of Alipay is now officially over, and it's going back to the traditional players and so on.I'm just wondering, in the VC universe, whether you're on the lookout for things that are disruptive. You would have at least two or three companies in your portfolio that are (disruptive).

BR: Our potentially most disruptive investment, we have a few. One is SpaceX. It's astonishing, all of the things that they're planning to do. Now that I'm an investor in them, when they actually do that, it's going to be amazing. 

An important aspect of SpaceX, which is so much of what they are doing, the rules are relatively open and there are very few legacy players. They're aligned with their partners. They are very much aligned with NASA, for example. There aren't really legacy players out there unless you consider Boeing, a legacy player that they're competing with. There’s very little that you have to overcome there.

Another example is a company less well known. We've invested in Vicarious, which is an AI robotics company. Lots of famous Silicon Valley people have invested in Vicarious around the idea of leapfrogging the path of progress of smart robots. Vicarious is a team spun out of Stanford that believes that traditional networks are a dead end. They arehighly limited in what they're going to be able to do. AI requires an entirely new framework for computing, decision-making around robots. It's very transformational in terms of the architecture and the approach that they're taking. Their business model is pretty mundane, robot as a service. You don't have to buy, install, configure, programme and develop $150,000 just to get a robot working on your production line. The big idea is $2,000 a month, here's a robot, in 30 minutes it can figure out what it's supposed to do and it will just do it all day, all night, tirelessly, never making a mistake.

ED: You just pointed out something very interesting, which is, the more technology we see, the more we see in terms of AI, robotics and so on. There’s a kind of a price destruction taking place.It's actually to commoditise business models and make it more available to more people. AI doesn't mean more revenue, AI means democratisation, it meansprice destruction. When you look forsustainable business models that you can cash out on – in the networking days, it was critical mass, number of customers, number of eye views and yeses and stuff like that – what do you look for now? Is it the technology? Is it the ability to amass a large user base?

BR: Venture capital has avery clear set of criteria, which is that you invest in companies that can grow very rapidly, achieve scale and have disproportionately attractive economics. It doesn't matterif you're selling it for 99 cents a pop or for $999,000 a pop. You want to price it to optimise that end objective, which is to deliver disproportionate rents in an economic sense.So, what's the price pointthat's going to ultimately generate the greatest value as a company? The great thing about software – and this is the reason that digital has transformed our economy – which is if you can develop an application or a solution that delivers value, the marginal cost of delivering that application to more people is almost zero. You have a customer acquisition cost, but unlike selling the next car, selling the next house or selling the next boat, selling the next subscriber is a wildly different economic than in the physical world. It's a win-win, in economic terms, that we can deliver substantial incremental value for virtually no incremental cost. That is good for everyone.

ED: There is the universe that was evolving, just before the pandemic hit. In fact, when I look at the numbers, VC dry powder had beengrowing very well, but investments were actually sort of tapering off a little bit in 2019.And then, curiously, a few startups were being valued very well. I actually thought that it were companies like SoftBank that were providing the benchmark valuation when everybody else was trying to reach that, and thenwhen SoftBank got off the scene, everyone's lost somewhat. Now, you have – as part of the pandemic problem – the US government putting in a lot ofliquidity in the marketplace. This liquidity might be different from the 2008 liquidity. In fact, right now, as we speak, the stock market is doing very well in the US and it actually seems to be rewarding the digital companies. Talk to us a little bit about where valuations were in 2019, where they are as a result of the pandemic and who are the players, like the stock market, the series players, the VCs and so on?

BR: Let me first tell you that the aggregate numbers that you see on venture capital investing are wildly misleading. They tell you very little, because the aggregate numbers that you're looking at are overwhelmingly the numbers associated with late stage investments in unicorns. If you burrow down inside, you can see some other data on what's going on at the startup level, at the seed and early stage level. Unfortunately, for a whole bunch of reasons, that data collection on what's going on at the venture ecosystem is not very good data. There are just so many accelerators and incubators, angels and angel groups, corporate players andsmall fundsthat it's really hard for you to get a real sense of what's going on from the data. When I look at what's going on in the venture ecosystem, I make this very clear differentiation between what's going on at the top, at the unicorn level, where the really big players, the late stage funds, which make up more than half of all the venture capital, is dedicated to late stage. And that's limited to several hundred companies globally, basically. Some of those are interesting, exciting companies, and they're highly relevant, but it doesn't give you a great sense of the underlying innovation ecosystem.

At the top of this ecosystem pyramid are valuations, which got crazy high and they're still amazingly high.The problem for us traditional venture capital investors is, every venture capital as a class is such a tiny asset class that as soon as the big guys decide, ‘Oh, let's allocate more money to venture capital.’ it swamps the class because it's such a tiny class. This is unfair but the true startup, because capital domain is less than $50 billion a year. You put in all of these new players with all of their big cheques, and it swells to something over $200 billion, globally, with all the late stage money going in. It's just a very distorted perspective on what's really going on.

Having said that, because there has been so much money coming in, it has been for the last six, seven or eight years, it has been an entrepreneurs’ market. There's been so much new money coming in that entrepreneurs, once they cross a threshold of fundability in terms ofhaving validated that they got a technology that delivers compelling value, thenit's been relatively easy for them to give this inflated prices. There's that whole class of players out there, andit's also partly our fault on the VC side. As soon as we see a sector taking off, thenthere's a herd mentality that you want to say, ‘Why haven't you already invested in a food delivery startup? Why haven't you already invested in a personal mobility startup? Why haven't you already invested in an autonomous vehicle startup? And why haven't you already invested in a robo wealth advisor startup?’ Pick a sector and there is this unfortunate tendency by the community to want to have a tow in all of these emerging sectors as they come out.That's created what is now affectionately known as the Gartner Hype Curve. Technology has never evolved and progressed as fast as we think it has. We have this myth in our brains that we grew up with, which is that the pace of technology continues to accelerate. Well, no, it doesn't actually move that fast.Product release cycles have accelerated, competition has accelerated, globalisation has accelerated, revenues globally have accelerated, but the pace of technology does not move as fast as investors and entrepreneurs think it does. 

ED: Take blockchain, for example. Just listening to what you just said, every VC will pay homage to blockchain. You see all the different blockchain initiatives evolving. What I see is this: number one, a lot of it is just software. It's actually a shared ledger. The second is, every blockchain initiative is an onus initiative, meaning that each one of them wants to create their own universe. So, without a connectivity, it's going to be years before you start seeingthe real benefit of blockchain. And then, of course, it's hampered by the fact that the technology itself is not mature to be fast, to beuseable and so on. Do you look at blockchain companies? When you do, what are you looking for?

BR: When did the world learn about blockchain technology?It was 12 years ago. It has evolved. It's gone through these crazy cycles because of its attachment to crypto. And so, because of its attachment to crypto, it had a somewhat different ride through our technological world.

ED: They have decoupled it now. Again, coming back to the question of enterprise, the enterprise has embraced it, owned it, redefined itand then there's 1,000 different initiatives out there. It's become a regular software industry.

BR: Your point is that it is just another app. If I decide to implement some sort of solution on blockchain infrastructure, as opposed to Oracle infrastructure, a flat file infrastructure or a non SQL insert, it doesn't matter. I still have the issue of ‘how do I open that database to third parties?’ No matter what, you have this issue of how you open it up. Blockchain has a different way of providing access than a traditional database does, which is sort of interesting and has some particular benefits in certain applications.

We have a couple of blockchain investments. There is no magic in blockchain, and unfortunately, far too many entrepreneurs are religious about blockchain, and that's always scary to investors. Whenever an entrepreneur comes along and says that blockchain is going to displace all infrastructures and Oracle is dead,I just stay away from those entrepreneurs, who for years and years have said that the legacy banks are doomed, they are dinosaurs and they will die. It's not going to happen.

ED: Coming back to valuations andwhere you find the anchor pricing mechanisms, I want to add in the fact that there’s low interest rate environment right now, lots of quantitative easing are equivalent out in the marketplace and huge liquidity. What do you think about all these things, in terms ofthe institutions and the exit mechanisms that are available now? To what extent is that M&A for you? What's unique about how Garage doesits exits?

BR: The point you're making about the global liquidity is related to the point I was making before about how small the venture capital asset class is and how a little bit of incremental capital swamps the rest of us. The world chases returns.We know that and we've seen this cycle after cycle. Right now, it's really hard to see what asset class is going to be giving you good returns in the future. Equities seem pretty highly priced right now. In spite of the fact that the stock market is doingshockingly well, there's a huge pool of cash that is sitting on the sidelines. How in the world can Boeing be doing as well as they are? It's just there's no place to put your money right now.

ED: How has COVID-19 played out for you? How has that changed your business? What do you spend time on?

BR: Because we're venture capitalists, we're investing for the long term. The irony is, to some extent, because of COVID-19, we've been flooded with entrepreneurs who say, ‘I got the perfect answer for COVID-19, whether it has to do withvideo conferencing, food delivery, therapeutics or personal protective equipment.’ I mean, we had all these entrepreneurs who've decided, ‘We're going to pivot and address the COVID-19 crisis,’ but that's not the type of thing we invest in. It hasn't fundamentally changed our investment thesis. There are things on our radar in the hospitality and personal mobility space. We're not abandoning anything, but we are trying to understand where the world is moving andhow this larger crisis is going to play out. Almost certainly, we're going to go into this world that is going to be very different than it was before COVID-19 in terms of economic growth or lack thereof. We are certainly going to go into a prolongedeconomic downturn of some sort.We may hit the bottom before the end of the year. It's going to take a long time to crawl out from wherever that bottom is, and who knows where that bottom is?

ED: In the companies that you already invested in, what sort of trouble are they in, like cash flow and operational delays?

BR: This crisis is very different than the meltdown in 2008-2009. In those years, everybody got whacked and we weren't sure if the financial system was going to survive. We would literally have board meetings worried about where our cash was banked. Right now, on the other hand, the impact of this crisison early stage companies ishighly variable depending upon where you are in the market.

We've been very fortunate that none of our companies were totally whacked by this thing, partly because they had raised money last year and they had the ability to hunker down. So, depending upon your timing, if you had enough cash in the bank when this thing started and you got whacked, then you can hunker down. Whatwe're telling everybody is, if there's any way you can make it to next summer or the summer of 2021,design for that. Do not assume this thing's going to be over this year. 

What we're seeing is, there's some slowing down, butwe're not seeing wholesale cancellations of software subscriptions or licensing, unlike when the bubble burst and in 2008-2009 where we had to just forget about any new investments and focus on the portfolio. Back during the global financial crisis, the venture capital industry shut down in terms of new investing and just focused on the portfolio. That's not happening. In fact, what I'm seeing is an awakening, where people are thinking. This could open up some interesting new angles in things like logistics and supply chain. Or,obviously, healthcare is an increased focus going forward. Frankly, pretty much all the governments of the world are going to appreciate entrepreneurship, innovation and that investing in new technologies is the smart thing to do. All the data supports, having public policy and putting a certain amount of resource into supporting entrepreneurship, innovation and disruptive technologies, there's tremendous research that support that.

ED: Onraising funds, how's that going? Has it become easier because of the interest rates and other people coming in with bags of money?

BR: I just had a long conversation with a good friend of mine who is at a different VC and just closedtheir new fund. There are a lot of negotiations and attractions happening during the last three months while we were in this crazy period. There's a ton of liquidity in the world. There's just a lot of money out there trying to figure out where do we go. We haven't seen the LP (limited partner) window shut at all. I think we're seeing caution. There is going to be a flight to quality or a movement to quality. For some of the newer funds, it's going to be harder.It is going to be harder for startup companies to attract capital. The angels are going to be more cautious, so this is going to slow things down, but nothing like the global financial crisis of12 years ago.

ED: You've described it well, because what you're saying is that there is caution, but there are lots of liquidity. If you have experience, the funds are going to be gravitating towards you, then that puts pressure on you. Where are the investors coming from and what are they looking for? Are they just parking your funds with you?

BR: Well, it dependson who the investor is. With Pegasus, most of our investors are corporate investors.Their focus is not on internal rate of return. Their focus is on making sure that they get a window into emerging technologies that are relevant to their business over the long term. From that point of view, the valuation issue is not a significant driving force. The driving force is we want to make sure we don't get blindsided by technology that's going to be relevant to us. And, conversely, we want to be early adopters of the next wave of technology that's going to affect our sector. They're leaning in, if anything, because in our world, it's about the balance sheet, it's not about the P&L (profit and loss).

The family offices, they're all more cautious. In March, when the market just fell off a cliff for it, the family offices were pretty much in chaos, but the family offices are now much more comfortable this week than they were the last week in March. They're trying. They can now breathe because they're not looking at their portfolios going down from 25% to 50%. They're now looking at their portfolios down to 10% from the beginning of the year, and that's not a crisis. So, they're just trying to figure out what equities are going to be cheaper and when.

ED: I see that at least in fintechs there's a number of M&As, which are distress-driven, like models that didn't work and then didn’t work even worse during the crisis, and then there’s been some buying and selling. Are there other value buys in this environment for you, like other things that you look at because they're cheaper now? 

BR: When I was a youngster here in the valley, one of the godfathers of venture capitalsaid, ‘Well, look, there's no such thing as a bargain in venture capital. You get what you pay for. You cannot go bargain hunting in venture capital.’ He also has other phrase that says, ‘Don't worry about hitting every pitch, there will always be another good pitch,’ a very baseball metaphor. His name is Reid Dennis. He was the founder of Institutional Venture Partners.

ED: That's useful, because in a way, it's like the art market. You don't go into bargain with an artist. You decide what the valuation should be about. Going back to your original point about Garage Technology Ventures, when you started it, you said you had an original intention, which was to be different from other VCs.How is that playing out, like are you as different as you wanted to be?

BR: We've reinvented Garage. Every few years, whether we needed to or not.When we started Garage, what had happened was that all the guys in Sand Hill Road have raised these bigger funds because all these new money were coming into venture capital. The godfather of Garage was a guy named Craig Johnson, the founder of Venture Law Group. He had spun 24 lawyers out of Wilson Sonsini, took them and set up this radical new law firm called Venture Law Group.By the late 90s, Craig was getting frustrated because he came across these two graduate students out of Stanford who had this good idea. He called up his buddies on Sand Hill Road and said, ‘Hey, let's put a couple hundred thousand into this company and let's see if they can make something.’ And they said, ‘Craig, we can't write a check for $200,000. That's crazy, we got to write a check for $2 million.’ So, Craig said, ‘There's this incredible opportunity to create a venture firm that actually bridges between the angels and Sand Hill Road.’ Our big idea was to fill that gap.

One of our original mantras was, ‘We are venture capital, filling the gap between angels and VCs.’ At that point, real VCs didn't do seed, so we said, ‘Fine, let us do seed.’ We were overwhelmed with demand, and so we built this engine to bring startup companies to put in like $25,000 or $50,000, andwe would run them through a curriculum. Basically, we created the Garage curriculum, and depending upon how experienced you were as an entrepreneur and where you were in terms of product launch and all that stuff, we would run you through the curriculum. When you were ready, we would then introduce you to our friends in Sand Hill Road.Our original investors were Sequoia, Mayfield, Draper Fisher Jurvetson, Silicon Valley Bank and Highland Capital. They were the ones who actually originally funded us to be the farm team for Sand Hill Road. And, so, we invested in like 130 companies in the first three years.

ED: It's become so complex now, isn't it?

BR: That had happened. That was the phenomenon. Prior to Apple, it was always the case that 70% to 80% of exits were M&A. If you were lucky, you could get an IPO, but the dominant exit was always M&A. And then during the bubble, you had this unbelievable flip, where you had this explosion of IPOs out of Silicon Valley. But it was all hot air. That bubble burst, and we thought we learned our lesson at that point. We sort of did. Fast forward to this last cycle, as companies became more and more successful, what happened was they didn't have to go public. In fact, they didn't want to go public. You had all of these late stage money that came into the market, the PE (private equity) guys, the Fidelities, the Goldman Sachs and the T. Rowe Price bigger than the market.

And then, you had this horrible phenomenon where the entrepreneurs could cash out through these late stage guys, like the guys from Groupon. Goldman Sachs raised $900 million in a pre-IPO for Groupon. The $450 million of the $900 million went to the founders. It was obscene. It was crazy. All of those Goldman Sachs people were underwater after the IPO. The company went public, and then it went down. 

ED: You've just introduced one element that I wasn't looking at, the founders themselves, at which point they reward themselves. This has been an amazing conversation. Just one more part to it, which is Garage Technology Ventures globally. Is Silicon Valley where you want to be? Is that where the good deals are still? They're much baseline deals, which you can scale in other parts of the world. How do you see internet?

BR: Two quick points. The first point is, the world is now a much more open opportunity for innovation and entrepreneurship. That's a key part of why I am now also at Pegasus Tech Ventures, which is a global venture firm. Pegasus gives me that much greater global reach than I can with just Garage. There are a lot more opportunities globally than there was 10 years ago.

The second point is, the really interesting thing about this crisis is, now I get up in the morning and I'm on a Zoom call with Israel. And then, during the day, I may be talking to New York, Boston, Minneapolis, Southern California and San Francisco. In the evenings, I'm on a Zoom call to Taiwan, Japan or Singapore, for that matter. What's really interesting is the experience. Whether I'm talking to Israel, Singapore or San Francisco, it's the same experience, same issues.

This crisis has flattened the access of entrepreneurs to investors and of investors to entrepreneurs globally. I got a pitch from Germany for this AI manufacturing technology, and they could be in San Francisco, but they happened to be in Germany. That night, we hooked up with a company in Taiwan and said, ‘Hey, you got to look at this technology. It's an extraordinary technology.’ In the olden days, we wouldn't have even thought about doing that. Maybe, we would have had a conference call. But now, the standard is to actually look at other people, thanks to video conferencing, which has gotten much better. It's a very different experience. This crisis is going to accelerate the globalisation of venture capital. We had some globalisation, and that's sort of stalled out.

ED: What you’re saying is that venture capital is not as global as it is yet.Thank you very much, Bill.