As
FP caught up with Addepar, Palantir, OpenGov and
In addition to being a founder of
Lonsdale also was an early institutional investor in a lengthy list of notable technology startups including Oculus, Guardant Health, Oscar, Illumio, Anduril, Wish, JoyTunes, Blend, Flexport, Joby Aviation, Cityblock, Orca Bio, Qualia, Synthego, RelateIQ and others.
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This interview has been lightly edited for length and clarity.
Financial Planning: What is your take on the state of VC and the perceived doom and gloom? Are you seeing this play out, or is the fear of a "VC winter" being blown out of proportion?
Joe Lonsdale: The massive capital inflows to the U.S. and overvaluation of technology companies in the years leading up to 2021 allowed us to raise some massive rounds for great missions, but in hindsight was somewhat unhealthy for many businesses and their discipline. Even great businesses often received funding at valuations so inflated that investor disappointment was inevitable. Many later stage companies are well funded … and some that need money will need down rounds or special structures to get it. Others may go years without raising new capital as they grow into their valuations. The 2021 vintage funds, having invested at inflated entry prices, will struggle to generate the same returns as those which came before and after them.
Entry valuations are back to more sensible levels from three to five years ago — perhaps excluding a few much discussed AI businesses — and the challenges the world has faced in the last few years have elevated demand for innovative technologies to address them. Especially in critical industries like health care and defense. Venture capital will be harder in the 2020s versus the 2010s, as the incumbents now often have much better technology cultures and can harness the new possibilities (such as AI) better than legacy competitors a decade ago. But for the top investors who have the experience to identify talent and partner with industry to solve their problems or address their opportunities, there's still a lot to do.
FP: In the current macroeconomic climate, what strategies are companies like Opto employing to overcome obstacles?
JL: The relative scarcity of cost-effective capital in the current macroeconomic climate has forced many early to mid-stage venture companies to focus on growing more efficiently than they might have a few years ago. While the amount of available capital seeking alternatives is not quite as aggressive as the height of 2021, the opportunities are probably much better today, so for Opto little has changed. We remain relentlessly focused on building great products and relationships with our customers, and helping them navigate and access this important part of global finance to create unique value for their clients.
FP: What strategies have you seen work well for fintech companies to build a loyal customer base?
JL: Trust is the single most important feature of any relationship between fintech companies and their customers, and a necessary condition for building loyalty. That means honesty, ease of use, security, customization, integrations, transparency and outstanding customer support are essential from your first interaction. At Addepar and Opto, and other fintech companies we have started or invested in, our customers trust us and respect us as a partner that not only has the best technology, but also has a deep respect for their talents and needs. No financial manager is the same. Our customers' needs are always changing. Our job is to continue to expand and adapt our products and services to meet those evolving demands.
FP: How are fintech startups refining their value propositions to resonate with investors during times when differentiation and potential returns are especially critical?
JL: Despite the explosion in the number and size of fintech companies over the last few years, which has made standing out in some areas (consumer fintech for example, or digital payments) particularly difficult, it's extraordinary how antiquated so many elements of the global financial infrastructure still are today.
We build and invest in businesses which aren't afraid to rethink the infrastructure necessary to operate in an AI-enabled world, and to confront the dauntingly complex and inefficient workflows which professional financial managers deal with every day. One thing these businesses have in common is the recognition that the challenges they tackle can't be solved with a clever software product alone.
FP: From your perspective, which specific subsectors within fintech are showing the most promise for growth and innovation?
JL: The opening of access to alternatives and new markets to a far broader range of investors is one of the most exciting and important trends in finance we will see play out in the 2020s. Every week we meet investors of all sizes and levels of sophistication who understand the importance of diversification and are looking for exposure to new asset classes, and the new types of opportunities and value creation in the world they represent. In many cases, the only way to back the top talent and top operational cultures transforming our industries with the highest impact and return is through private markets and alternative vehicles. Many new companies are being started (and) products (are being) launched, which helps democratize access to investment opportunities on the forefront of innovation. But only a few have the right DNA to make it and to provide real value. When done right, more investment in alternatives, particularly in startups, drives technological advancement and economic growth, which in turn amplifies demand for these asset classes. So despite some macro challenges, we are seeing real value creation and a positive feedback loop in the best parts of the ecosystem.
