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Transcript: The Path Forward: Venture Capital with Theresia Gouw

MS. PASSARIELLO: Hello, and welcome to Washington Post Live. I’m Christina Passariello, technology editor here at The Post.

I'm delighted to be joined today by one of the most influential investors in Silicon Valley, Theresia Gouw, here to talk about the state of venture capital, the future of technology, and more. Theresia, welcome to Washington Post Live.

MS. GOUW: Hi, Christina. Thank you for having me. It's an honor.

MS. PASSARIELLO: Oh, it’s great to have you. I’m so excited for this conversation today. There’s so much to talk about. We’re in such a changing economic climate, and so I would--there’s many themes that I want us to be able to hit on today, but let’s start with talking about the economy. How is inflation affecting startups in the tech industry?

MS. GOUW: Yeah. So I think inflation is infecting--affecting--infecting too--sorry--is affecting the tech industry in a few different ways, right? So I think the biggest one is actually--and we’ve seen it in the stock market adjustments, particularly in public companies, which we can see in tech, which have been hit harder, even more than the other indices. And that’s because as growth stocks, they’re very inflation-or interest rate-sensitive. So we’ve seen that, you know, a lot of the high-flying tech stocks last year were down 40 percent or more, much more so than the broader market index. And that flows back down into early-stage technology startups, which is where I spend my time with private companies, both in the negative and actually some pockets of opportunity. So, obviously, that potentially impacts availability of capital for private tech companies to grow and raise money.

And, on the other hand, the one potential positive, if there is one--I’d like to try to be balanced in my perspective--is that with a lot of the larger tech companies either having hiring freezes or even significant layoffs, that does mean that there’s more amazing technology talent, both on the developer side and on the business side, which is helpful from a talent perspective for private companies.

I also think that tech executives are maybe now seeing startups not necessarily as so much riskier than what were thought to be, you know, really safe, big, mega public tech companies, given the layoffs and cutbacks that have occurred in the large companies.

MS. PASSARIELLO: Absolutely. I mean, yes, you hit on--you hit on so many of the big themes that we’ve seen in the last couple months there with the layoffs and the slowdown in big tech.

Let’s pause a little bit more on just the investment climate in venture capital and how the economy is affecting that. Do you--are you finding that it is--that there is less capital to invest? Are you having to be a little bit more strategic with where you place your bets?

MS. GOUW: Yes. So I think that, you know, our firm and the venture capital industry has been fortunate in that many of us raised capital over the last year or two when the cycles were good, and there's been some articles written about how much dry powder we have. So we have capital to invest in companies, but I would say most tech venture capitalists are investing more slowly, and that's for a couple of reasons.

So one is, in terms of new investments, we’re waiting for private market valuations to more reflect and adjust to what’s happened in the public markets. That’s common. The public markets, because they are publicly traded stocks, you see the price adjustments happen there readily, and it flows back more slowly to private companies and then even slower to get to the earlier-stage companies.

But I think the other reason is that people are also hanging onto their capital because we have funded. It's been a very busy last couple of years, in 2021 and before. So we want to make sure that our companies that we've already invested in, that we have plenty of capital to support those companies as they grow and those that continue to do well because we know it will be harder and harder, at least in this environment, to raise new capital from new sources.

So it's that balance of, you know, there's still a ton of really exciting technology companies being started, and we are still investing, but maybe we're taking a little bit longer to make those investment decisions now because we have the time. And then we're also, you know, being mindful of the mix of how much are we investing in new companies versus how much are we investing in our existing companies that are starting to do well and will need more capital from their existing investors.

MS. PASSARIELLO: And so, I mean, tech culture has become sort of famous in the last decade or so for really high salaries, for lavish perks, you know, catered lunches, and we've seen, obviously, big tech cut back on both their workforces but also a lot of those perks. How are you seeing it in the startup world? Are they holding onto their dollars more carefully? What kind of changes are there?

MS. GOUW: Yes. I think that the--in the startup, in the private company world, you’re seeing a lot of those same changes, right? So I was talking mostly because the numbers are obviously with the big companies, but, you know, I think many private companies have either quietly--more quietly because they’re smaller, you know, had workforce freezes or had some--also some smaller layoffs, some bigger ones that we’ve read about in private companies, but, yes, I think a lot of the perks. You know, some of those perks like lunches probably will stay around because it also encourages people to come into the office, which has been harder to do post covid, but maybe not quite as fancy lunches. But I also have seen like the big tech companies really were the ones that were pulling up the salaries to levels that even in the last three, four, five years--I mean, I’ve been doing this for 20-plus years--like eye-popping. And now that that’s abated, I think that we aren’t seeing salaries go the other way, because then you’ve got the inflation issue that we were just talking about, but I think we are seeing salaries staying more firm as opposed to the significant escalation we’ve been seeing over the last several years.

MS. PASSARIELLO: Okay. That's interesting.

And so, I mean, yes, these layoffs in big tech have really been kind of unprecedented, you know, Meta laying off, you know, thousands of people, Amazon, Salesforce really recently, obviously huge layoffs at Twitter. What kinds of opportunities does that create for the startups in terms of their hiring?

MS. GOUW: It does create both talent and then also it creates opportunity for more new startups to be started, right? So I think a lot of times both the people who are laid off but even I think the people who remain, you know, they start to think, “Well, maybe I’ve been thinking about starting this company or joining this early-stage startup, but I used to think it was too risky. and I was in this really safe job. But maybe my current job isn’t so safe anymore. Maybe now is actually a time to go out and start something.”

And, interestingly, you know, if you look at the companies that were started or grew dramatically during the last two down cycles, so in the ’08, ’09, and then the 2000 through 2003, some really amazing companies were started and/or grew during those time periods. It turns out to be a really good time to be at a startup or to start a company because, ironically, if you can actually raise the capital, because it’s so hard, you have less competition, right, because fewer companies are able to raise that capital, and you have less competition for that talent, right? So it actually has turned out to be a really amazing time for tech startups during--you know, their birth during these crisis periods, shall we say.

MS. PASSARIELLO: Absolutely. And, yes, I mean, you refer to those last downturns over the last 20 years when we had, you know, huge booms in search and in social media, in particular. What are you seeing now in terms of the areas of tech that are attracting a lot of interests? Like, what kinds of technology do new startups want to be building right now?

MS. GOUW: Yeah. So I’ll start with a couple of different areas that my firm is pretty focused on. So one which isn’t, I think, new but has, like, continued and it’s grown a lot over that 20 years that you were just talking about, which is cybersecurity startups. So, when I started doing cybersecurity investments in 2000, there were--it was like single-digit percentages of venture capital, and then I think in 2020, 2021, it was 17, 18, maybe 20 percent. So it’s grown dramatically.

And that, you know, Washington Post knows, given the--so a couple things. So, even in past macroeconomic down cycles, you know, cybersecurity tends to be an area that’s pretty resilient to that. Companies still need to invest in keeping their employees and their technology resources secure, and then given, actually, increased geopolitical risk we’ve been seeing actually increases in things like ransomware and others often from nation-state actors. So I think that that’s going to continue to be--excuse me--a big area of investment.

Another area, which I’m sure people have been reading a lot because of ChatGPT, but it’s an area that my firm’s been investing in since, oh, 2015 or ’16, which is machine learning and artificial intelligence. So I do think that we are seeing--well, we’ve obviously read about the 29 billion valuation we’re seeing in OpenAI. So it’s a booming area, both at the later stages and at the early stages.

But I think that it’s really real for two reasons. One is we see that traditional Fortune 500 enterprises have really moved from their AI models being sort of internal, sort of more research and development to actually out in production, actually being used to do things like offering credit decisioning. For example, I’m sure a lot of us read about the issue with the Apple credit card when it first came out. It was doing credit decisioning, and because although it was a new credit card, obviously it was using, you know, 20-plus years of credit decisioning credit card data, which the data in it turned out that historically people with the same FICO scores--but if you just take one demographic dimension, male versus female, the females were getting credit limits that were half or less of what the males with the same credit scores were getting.


MS. GOUW: And so, once that was discovered--so that’s an example of like real machine learning and AI being out making decisions in the real world, and that creates opportunity for new technology companies like one of the companies I’ve invested in called, which actually has a big presence in the D.C. area, that does monitoring of AI algorithms that are in production, to monitor for things like what we call drift, performance, but also bias, right, so to identify when these things are coming up, that the algorithm is telling you to do something that does not necessarily meet with what your strategic goals are for that software offering.

MS. PASSARIELLO: Yeah. I mean, this area of generative AI, as we saw, you know, the second half of last year just exploded with the interest in Dall-E, which creates art from--you know, from different verbal prompts, and then, yes, at the end of the year with ChatGPT, which can create just totally wild, you know, dialogue and written information. What--like, what do you see the uses of these kinds of generative AI being kind of in the real world?

MS. GOUW: Yeah. You know, I think that there’s some really interesting potential opportunities--we’ve seen some in the seed phase--to use generative AI to create types of entertainment content. So take an area where it will probably seem very near term, right, because if you think about gaming, video games, which is a huge area in entertainment, growing, fueled partially by covid, right, and the amount of human effort to create the artwork and the content in those games is tremendous. And, if you could use generative AI to assist, right--so the creative piece--so that I read some article about is generative AI going to put the creatives--absolutely not. The creative part, so the person who’s doing the game design, the game element, the game play, but now in order to fill in all of the art and all of the movement and animation that occurs after you’ve sort of sketched out what you want the game play to be or as you want to create more digital assets, right, if you can use generative AI to help create and fill in that scaffolding, I think that’s got tremendous opportunity.

MS. PASSARIELLO: That's fascinating.

One of the areas that I noticed you didn’t mention is crypto, and of course, in the last few months, we’ve seen the implosion of one of the highest-profile startups, FTX, which is the crypto exchange that is accused of losing billions of dollars of customer deposits. What kind of failing did that represent for venture capital?

MS. GOUW: I think that one, in particular, you know, when there’s--again, from what I read, I think the--specifically the part about the fraud, right, the $8 billion that was moved from FTX to the sister company from customer accounts, like, that speaks to a lack of controls, a lack of compliance, a lack of oversight. So I think the other learning which has been written about, right, is that, you know, typically--and I know this is true for our firm and most other VCs that I know--when we make an investment, we will adjoin the board of directors, or someone from the investment syndicate will. And that was not the case there, and it’s not always the case everywhere. But it is true that that is one really important diligence and governance mechanism that I think is a failure in that particular case. But to your point about why I didn’t mention crypto per se, you know, I think we think about it as sort of blockchain in terms of the underlying technology, and then obviously cryptocurrencies or cryptocurrency exchanges are at the application layer, if you think about a software stack. So we still believe strongly in the important potential for blockchain technologies to disrupt certain key existing areas, and we’ve made investments--and we’ll continue to make investments--again, dating back to, I believe, 2017.

So, for example, we made an investment in a company that did security monitoring and compliance for blockchain transactions, and it was used by financial institutions, government agencies, and others who were trying to make sure that they were being compliant with their cryptocurrency transactions. And that company was acquired a little over a year ago by actually MasterCard, which shows me that the traditional financial players do believe that this is real, and the question is just like when is it going to be ready, and what are the pieces of infrastructure that we're going to need to have in order to have it be part of the ecosystem? I think, you know, we don't necessarily speculate at sort of the crypto level.

But the other thing I think--and I don’t know if this is going to be true, but I feel a little bit like right now the, like, crypto boom-and-bust, that cycle that we’re in right now--and there have been others. There was one actually in 2017 and 2018.


MS. GOUW: It reminds me a little bit of the dot-com boom-and-bust, right, where it was sort of, you know, there were some really large, very public failures at what I’ll call the “application level,” right--layer, right?


MS. GOUW: So a website like Webvan or eToys, right, that just imploded--


MS. GOUW: --went out of business after being a public company in those cases.

But if you--and if you just thought, well, that means that this whole dot-com internet thing is not real, what it really meant was there are some businesses that don’t have good, sustainable, or in some cases maybe non-fraudulent business models, but it didn’t mean that the underlying technology--in that case, TCP/IP--and connecting computers in the internet didn’t mean that that wasn’t still going to grow, right? It was at the infrastructure layer or picks and shovels, if you will. And so, during that time, you know, companies like Cisco continued to do well because people still needed firewalls and routers to connect to the internet and connect their different enterprise locations.

So I think, similarly, even in this time with sort of the crypto boom-and-bust, I think these infrastructural level-type companies that are enablers will continue to kind of be innovating and need, and whenever--now, there’s obviously the big issue of, you know, consumer confidence. When will consumers come back?


MS. GOUW: They were really the ones who drove it.

But, you know, if you’re at that layer, you know you’re providing capabilities. You’re not placing all your eggs in one basket, so to speak, in terms of one consumer use case or one consumer website. So I think those who are patient, it was--like I said, it was a pretty long, you know, post dot-com winter, lasted at least three years, by my personal recollection. It felt like a lot longer.


MS. GOUW: And I think, you know, maybe that’s what we’re in for again, but it doesn’t mean that there’s not going to be something interesting coming out of the other side of it because decentralized----


MS. GOUW: --distributed ledgers and blockchains are very interesting technology for certain types of businesses, be they financially oriented or even other types of businesses. And I think that people are doing a lot of innovation and experimentation at the enterprise level right now.

MS. PASSARIELLO: Yeah. All right. Well, so, yes, we might still be kind of in the early part of this crypto winter, then.

I want to shift to talk about diversity a bit because this is a subject that you advocate for a lot in an industry, venture capital, that has been very slow to diversify. What do you see in the current economic context in terms of opportunities or challenges for further diversifying venture capital and startups?

MS. GOUW: Yes. Thanks for asking, Christina. You know it’s near and dear to my heart. It’s very exciting to be able to kind of combine my professional advocation, which is venture investing and investing in tech startups, and my passion for diversity in tech, and what’s really great about that is I’ve seen--in the 20 years that I’ve been doing this, I’ve seen a significant change, most importantly in the entrepreneurs and how they feel about this, meaning they realize that it is potentially a strategic advantage to have a more diverse and inclusive culture and company. They’ve maybe seen some of the stats, like I have, from the McKinsey studies, which I think has been repeated at least three times by McKinsey that, you know, gender-diverse boards and management teams outperform on a return-on-equity basis by about 25 percent, and gender-and ethnically diverse boards and management teams outperform on ROE by 35 percent. So those are pretty meaningful--


MS. GOUW: --for anybody who wants to just--


MS. GOUW: You know, I get it. I'm an investor. Those are pretty interesting numbers.

So what does that mean for venture capital? So I’ve seen a lot of progress, right? So we’ve seen--we’ll just take one, one axis of diversity, which is women, women founders and the amount of capital that they’re getting. So the percentages have increased in terms of, you know, I think in the most recent year about 20-ish percent of companies that received venture capital were companies that had a female founder. That’s great. It’s more than doubled from when I started. But the bad news is it was only about 2 percent of the dollars, so--


MS. GOUW: --20 percent of companies but only 2 percent of the dollars. And, unfortunately, which happens during economic times of downturn and stress, the first three--so, in 2021, it was 2.4 percent of the dollars went to female startups, bonded startups, and through the first three quarters of 2022, that actually fell to 1.9 percent, so, you know, going in the wrong direction.

These things happen sometimes. People--I don’t think it’s purposeful. I think it’s people tend to revert to sort of what they’re comfortable and what they’ve seen in the past. So I think it makes it a bit more challenging.

On the flip side, the good news for this is--and this has always been true in good and bad economic times. I believe this is data from PitchBook--that women-founded companies that are VC-backed are actually significantly more capital efficient than their all-male, VC-backed counterparts. They--so make--you can say it’s a necessity is the mother of invention, right? They only get like 2-ish percent of the capital, and surprise--


MS. GOUW: --they’re more capital efficient. And I bring that up as a positive because, in this environment, as we were talking before, right, capital is hard to get for everybody--public companies, private companies, early-stage startups. So that is a very positive, you know, management trait for these female-led companies. So I’m--you know, I’m cautiously optimistic. In the medium term, I think there’s--obviously, there’s turbulence. It’s hard for everybody to raise money right now, but they are potentially better positioned to weather this type of environment.

MS. PASSARIELLO: Got it. Okay.

And let's talk a little bit about diversity in the venture capital segment, because, you know, it has long been an area that has been very slow to diversify. You were really one of the few women for many, many years, you know, in these decision‑making roles. How has it evolved in the last few years? And it seems like it's been slow to diversify. So tell us a little bit about where things are at now and how it's changed.

MS. GOUW: Yeah, you bet. So it was slow to diversify for a long time, and then a few years ago, we--several of us started a group in venture capital called “All Raise,”, which was to promote an increase in diversity in venture capital and then also in the underlying companies. And, at that time--I’m going to forget the exact years, but I remember when that was like launched publicly a few years ago--it was something like

almost 70 percent of all venture capital firms had zero female decision-makers who could--


MS. GOUW: --you know, write checks. And then the combination of that and then, you know, a bunch of other--and things in the world that sort of highlighted the need for increased diversity first for women and then later for--and then also for racial diversity and inclusion. And I won’t share those numbers because they’re also very, very small and need to be much better--


MS. GOUW: --on the entrepreneur side. But--so there’s been progress, and several firms who have been--storied firms who have been in the industry for a long time actually--you know, I and my other female VCs, I’m sure were getting lots of calls, “Hey, do you have any amazing female potential investors that we could hire?” And so that happened, and now that number is down to 60 percent. So there’s progress but still the majority of venture capital firms have zero female investing check writers, decision-makers.


MS. GOUW: So we're making progress. That's a lot of progress in a short number of years compared to the prior 15 years.

MS. PASSARIELLO: Definitely, definitely. I'm going to imagine that most of the people who are tuning into our chat today have never been in a pitch meeting between a startup and a venture capital firm. Explain to us a little bit about why diversity is important when you're considering what to invest in and as you're looking at different ideas.

MS. GOUW: Yeah, you bet. Well, I think it starts even before the pitch meeting because it’s like how do you get into that meeting, right? Like many other businesses, we are a business that’s largely through referrals--not always, but, you know, referrals of, you know, an existing entrepreneur of mine refers me to another friend of theirs who’s starting a new company or maybe an investor that I invested with before and so on. You get the idea. So part of why it matters is who gets invited into those pitch rooms, right, who gets referred into those pitch rooms is a function of the networks, the professional, you know, business school, undergrad, work networks of the partners who they’re meeting with on the other side. And, if you have--you know, my firm’s strong viewpoint is if you have a partnership where everybody has the same demographic, educational, work backgrounds, you’re going to get great networks from that group, but you’re maybe missing a whole, huge, other group of people. And so, you know, we think that that is one reason why it matters.

But then, in the pitch meeting, when--typically, a pitch meeting, you’ll meet with, you know, two or three people from the venture capital firm as a founder, and so if you are--if you--either yourself come from a different educational or demographic background than maybe, quote/unquote, is like the “stereotype” of what you see in Silicon Valley, like it may just be harder for the person, especially if you’re pitching.

So we take, for example, like one of our companies, which has, like, turned out to be a really huge and successful company that my partner, Lauren, led, the Series A in, it’s a company called Chime, which is an online neo-bank primarily targeting sort of--you know, sort of--at that time sort of young--younger millennials who were just entering into the workforce and did not already have a banking relationship and also a lot of people who turned out to be what’s called “underbanked.”

Well, if you don't necessarily understand what it's like to live paycheck to paycheck, then you maybe have a hard time understanding who this demographic is that Chris Britt and the Chime team was trying to target, and it may be harder to see why this is a really big opportunity, because then you kind of look at the overall U.S. economy and you say, well, actually the vast majority of Americans largely live paycheck to paycheck with very little other buffers. So this actually appeals to a huge amount of the American population.

But if you are--and, you know, myself included now. I’ve, like, gone to the other side, right? But, if you’re--if you’re a Silicon Valley venture capitalist, that might not be as obvious to you. But that’s why having people who have maybe come from different--you don’t--sometimes you see it because it’s obvious. It’s like my firm is, you know, like over 50 percent female. That’s very unusual. So some things are very--you can see. Some things you can’t see. Like, I can’t know what somebody’s, you know, socioeconomic background was growing up, but if you have more people who are coming from different walks of life, you’re better able maybe to see those opportunities.

And then, also, I think just sometimes making it feel more comfortable. It’s a--I’ve been on the other side of it. It’s very--it can be very intimidating. You’re going in there asking for millions of dollars with people that you’ve probably never met before. It helps if you got the warm introduction, which is more likely if it’s a more diverse set of networks, and/or you can see something that you clearly--like, you can make a connection with that person, just like I think in every business meeting.


MS. GOUW: You kind of looked up somebody’s LinkedIn and you’re like, oh, well, we both are--you know, worked at this one place, even if not at the same time, or, you know, we both are from this town, because people will list their hometowns and so on.


MS. GOUW: So I think those are the reasons it matters for who gets into that room, right, who's in those networks.


MS. GOUW: It matters for what is the ability for people to maybe see a unique or orthogonal perspective to a new market, particularly for consumer markets. I mean, for--B2B markets may be less clear, but I think it matters in all of those places.

MS. PASSARIELLO: Yes. Okay. Got it. One last question to close us out. Let's play the tape to the end for this year. Where do you think the tech sector is going to be at the end of 2023?

MS. GOUW: I think the public tech markets are going to be starting to, I hope--I believe they’ve found their level, and things are--I think we’re going to start to see recovery maybe as early as late this year but hopefully in 2024. And that’s important because, as we started out the conversation, that flows back down into early-stage startups. So I think that capital will start to be more available for tech startups.

You know, it's still available now. It's just like much, much harder than it was, you know, 12 or 24 months ago. I think it's going to start to get a little bit better, a little bit better, and I do think that in 2024, we'll start to see sort of the return to more normal, which is not to say that I thought that 2021 was normal, but whatever normal may be at that point.


MS. PASSARIELLO: The new normal.

MS. GOUW: The new normal. I like that.

MS. PASSARIELLO: All right. Well, we are out of time, but we’re going to have--so we’ll have to leave it there. But, Theresia, thank you so much for joining us today. It’s really been a great conversation.

MS. GOUW: Thank you for having me. It was great.

MS. PASSARIELLO: Thank you so much, and thanks to all of you for watching. To check out what interviews we have coming up, please head to to register and find more information about our upcoming programs.

I'm Christina Passariello. Thanks again.

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