# a16z's Jeff Jordan on The Ultimate Guide to Investing in Marketplaces Two Core Features to Look for in All Marketplace Investments, Why Fragmented Supply is so Important & Lessons from Airbnb, Pinterest and Instacart on What Makes the Best Cohorts 20VC · Jan 16, 2023 · 46 min · 9,287 words Speakers: Jeff Jordan, Harry Stebbings Source: https://www.996.fm/episodes/20vc--ep-81c8b160/ ## Cold open **Jeff Jordan** [0:00]: In the case of Instacart, the number of users declined pretty precipitously from first purchase to 10 purchase. A year out, the number of users declined something like three quarters. But the users that stayed spent three or four times money. Their cohorts were actually on revenue basis were close to staying at 100%. **Harry Stebbings** [0:18]: This is such a great episode. ## Intro **Harry Stebbings** [0:19]: I always find the best shows the ones which really go granular, which really examine the details. I've wanted to have this guest on the show for the last eight years. I first met him in London when he was doing a trip with one mister Ben Horowitz, and I've wanted to have him on the show ever since. So persistence finally paid off, but I'm thrilled to welcome Jeff Jordan, general partner of Andreessen Horowitz, where he serves on the boards of Airbnb, Incredible Health, Instacart, and Pinterest, to name a few. Before Andreessen, Jeff was CEO of OpenTable, where he led the company through a period of hyper growth and oversaw its IPO. And before OpenTable, Jeff was senior VP and general manager of eBay North America, where he drove the successful acquisitions of PayPal and 0.5.com and went on to become president of PayPal. But before we dive into the show today, ## Sponsor read **Harry Stebbings** [1:02]: Secure Frame is the leading all in one platform for automated security and privacy compliance. 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But building these internal tools from scratch takes time and engineering resources, and that's why teams at thousands of companies like Amazon, DoorDash, and NBC build internal tools using Retool. And Retool's a very different way of building custom internal software. Instead of waiting months, you can now build out five to 10 apps in just an afternoon using a bit of JavaScript and SQL. That's a game changer for your business. Retool is free to teams of up to five, and startups now get $25,000 in free credits. $25,000. Just get started at retool.com/20vc. That's retool.com/20vc. 3210. You have now arrived at your destination. ## Conversation **Harry Stebbings** [3:48]: Jeff, I am so excited for this. I've loved much of your writing before, so thank you so much for joining me, Stebb. Oh, my pleasure. Thanks for having me. Not at all, but I wanna dive straight in and a little bit on you. So how did you make your way into the world of startups? And then how did you make your way most recently to be a GP at Andreessen? **Jeff Jordan** [4:04]: The world of startups was quasi accidental. I was working at Disney, and it was a great time to be at Disney. Frank Wells and Michael Eisner were there. The company was doing great. But then the Internet came along, and you had to get into it. I jumped out of Disney. I was CFO of the Disney stores, became CFO of a publicly traded retail company called Hollywood Entertainment that had just bought real.com, the superstore for DVDs and VHS tapes with the idea of doing video on demand. It was a great idea. It was about two decades too soon, and Netflix ended up doing it after. But that got me into tech, and then I just found I loved it, I stayed. **Harry Stebbings** [4:40]: How do you think your operating career positively impacted how you think as an investor today? The **Jeff Jordan** [4:46]: big job upgrade for me was when I went to eBay and got to manage ebay.com. Meg Whitman was my hiring manager at Disney way back in the day and was looking for talent and all the talent as the bubble grew, all the talent in Silicon Valley was grabbed up. So she went and found me and brought me into Silicon Valley. I think doing eBay early meant there was no playbook. We had to write the playbook, and you get to know a business at such an anatomical way. You're just building it from the ground up and you're making a ton of mistakes. You're trying to correct them and getting that level of involvement in the network effect business, I think gave me a pretty good sense for this business has the potential to replicate that network effect. This business doesn't. And largely as an investor, I'm a kind of a one trick pony. Everything I would like to talk about as an operator and an investor typically involves a network effect. **Harry Stebbings** [5:34]: On the flip side, and that struggles or challenges with having had such operational experience and success, and now someone said it well to me the other day, is eyes on, hands off. **Jeff Jordan** [5:44]: That's a very important question for an operator who goes into an investor. Reed Appin once described it to me. I'm in the passenger seat, and I don't wanna grab the wheel. The entrepreneur has to be steering, and I think that's a pretty good metaphor. I had gotten to the point where I did not want to operate any more tech businesses. I had scratched that itch after well over a decade running them. Now I appreciate the efforts and commitment of my entrepreneurs, but I'm not tempted to grab that steering. **Harry Stebbings** [6:11]: Do you think there's a danger? And I have this danger now, advising founders especially on content, where I tell them what has worked for me, and it may be very different for them. Do you find that actually playbooks have changed so much that it makes a lot of operating experience actually irrelevant? I try **Jeff Jordan** [6:28]: never to be prescriptive. You should do this. I try to say, in my experience, I'd face something similar. I tried a, b, and c, and here's what happened. I don't want the entrepreneur to do what I say, then not in spending one twentieth of my time thinking about their business. If I picked well, it should be making a decision. I just appreciate being listened to, have that perspective considered. The last thing I want is an entrepreneur who'll do whatever I say they should do. **Harry Stebbings** [6:52]: You mentioned not being prescriptive there. I think one of the biggest problems with venture state is venture investors, who especially haven't been operators, are too nervous to tell founders the truth because they don't want a bad NPS. Or what I hear, it's a bad look, Harry. And I'm like, fuck it's a bad look. You have a fiduciary duty, and you have a responsibility to your team and to the shareholders to say, Jeff, this is not working. We need to change. And you may not wanna hear it. **Jeff Jordan** [7:17]: I agree with that. And you have a responsibility to your entrepreneur. If you think that there's a high probability they're gonna drive the car over the cliff, you owe it to them to talk to them about it, about that concern. I may not be right, but just, hey. Please pay attention here. This could unfold. For me, it's a privilege to have the opportunity to discuss the meaningful things with the entrepreneur. **Harry Stebbings** [7:37]: How would you give advice like that, which is very hard to hear, with empathy, but also with real direction? **Jeff Jordan** [7:45]: Exactly. With empathy and with real direction. There was a mindset shift I made when I back when I an operator to have the tough conversations. It is in the other party's interest to have that conversation. If you want them to be successful in the org, you owe it to them to have the hard conversations. And when you put that lens on it, I'm being charitable by empathetically sharing that point of view, and it makes the conversation a whole lot easier. I do **Harry Stebbings** [8:09]: wanna move to marketplace. We're gonna break down marketplaces first with an overview, and then demand, and then supply. I have a structure to this show, which actually is quite a rarity for me. So I listened to you on other podcasts. You said that there were two things really that you look for in terms of characteristics that make a great marketplace. Number one was fragmentation of supply side. What did you mean by this, and why is this so important to you? **Jeff Jordan** [8:33]: So I had a very interesting conversation conversation on this with another entrepreneur at one point. I always contrasted OpenTable with Fandango. Fandango, they're like, what are they? Six or seven major movie chains in The United States. Aggregating that supply was very straightforward. And then, okay, that's great. The challenge is if there are only six or seven major suppliers, each of those suppliers has supplier power. I remember I used to go to AMC, and one day they weren't in Fandango. So what did I do? I went to amc.com and made the reservation. OpenTable, by contrast, had the target market was 30 or 40 or 50,000 restaurants, almost all of which the owner only managed one restaurant. And so it was brutally hard to aggregate. But once you're aggregated, it's brutally hard to compete with it, and no supplier has supplier power. I think the biggest chain had a 100 units. What I was telling this to that entrepreneur, he goes, one thing you might not know about me. I was the founder of Fandango. I was like, oh, crap. It sounded so good coming out. **Harry Stebbings** [9:30]: Do you know what, Jeff? I'm picturing being in a room with a VC, and I'm the founder. And what I can imagine the VC saying is, oh, god. You're gonna have to go one by one and acquire each restaurant. Oh, that's gonna take time. Oh, that's gonna be expensive. Oh, the payback is gonna be undetermined. That's a bad model. **Jeff Jordan** [9:46]: Yes. Oh, absolutely. OpenTable is pretty interesting because it was a long slog before it became an overnight success because aggregating supply did take time. It was a classic come for the tool, stay for the network play. And so early on in a city when you're just selling the tool, the productivity enhanced tool, your sales were few and far between, and it was a really slow build in each market to get a critical mass of supply such that the diner would be interested in the convenience. You have a subset of supply, but it's so incredibly convenient that I'll use your service. And once the diner started using the service and OpenTable could deliver revenue to the restaurant, sales exploded. So how did you disagree with the it was a long build. Did you determine a critical mass of supply side within a specific region? We didn't have to. The did. They would discover the service, if they searched for Saturday night in their five restaurants, they're like, yawn. If they search on there's a interesting assortment of restaurants, including some of the ones they know, we typically try to go to the very best restaurants and work our way down. So French Laundry is on there. You can't book it, but it's on there. That gave some credibility and it just there was a tipping point in each market. It's something like 10% of the target market supply, where diners finally said, okay. This is so much more convenient than calling restaurants one at a time, getting put on hold, getting voicemail, getting all this and that. I'm gonna forgo the complete selection in lieu of convenience. What are the biggest **Harry Stebbings** [11:10]: reasons that you see founders fail to acquire the fragmented supply side? Depth **Jeff Jordan** [11:15]: of value prop, I think, probably. I mean, most markets, even successful marketplaces, typically are supply constrained. Airbnb always is looking for new supply to enhance the user experience. There, it clearly is a value prop, but if the value prop's not robust, it can be very hard to acquire. My partner, Andrew Chen, wrote the book at the cold start problem, which is the hard side of the marketplace. There are a number of them where you have to start with supply because without supply, the demand is uninterested. It's really important to get supply right. **Harry Stebbings** [11:44]: How do you think about introducing kind of artificial marketplaces? And what I mean by that is where you suddenly become Netflix and you start creating supply yourself. Or when you oh, Airbnb and you say, hey, Joe. Let's use your new start ups inventory and add that to Airbnb's, and then we own supply as well. How do you think about when you can own both in that manner? **Jeff Jordan** [12:05]: I think it's pretty hard to do that on two sided marketplaces just because of channel conflict. Take the case of Instacart. They partner with physical grocers to give them incremental business through the digital mechanism. Now it would be very easy for Instacart to say, okay. We're going to drop a warehouse into each city and do ABC gross. But at that point, you're competing with your customer, and but that channel conflict is something that Instacart had this no desire to do. They want to be the go to partner for their physical grocer. You get some very interesting choices like that. When Netflix made that choice, it was a one way door. It just worked really well. **Harry Stebbings** [12:39]: It's a tough no turning point, as Jeff Bezos says, a one way door decision. You mentioned channel, and that was the other element that you said was a crucial element in your kind of desire to see in marketplace businesses, which is really intelligent lead gen in terms of how they acquire their customers. What do you want to see in how marketplaces acquire their customers first? **Jeff Jordan** [13:00]: Yeah. Let me contrast two things. When I got to OpenTable, it was such a good idea. I said, okay. What other industries can I do this in? I know not a 100% at the beginning, not what the measly CEO package I got. And the lead gen was really important. The issue is, say, car repair or hair salon. They typically have a customer that is a regular guy. I go to the same place to get my haircut out each time. If you go and say, want you to pay me a slice of each transaction, they're gonna just say, no. There's free scheduling tools online. Why would I pay you for access to my customer? What's was wonderful about dining is people crave diversity. That new restaurant, the different cuisine, this, that. And so because they crave diversity, we often were introducing a diner to a new restaurant, and the restaurant finds high value in that. So if we were just helping the restaurant digitally enable their own customer, we couldn't have charged what we charged. It was that new customer that they value so much. **Harry Stebbings** [13:54]: How do you think about how new customer acquisition has changed given the rise of TikTok, given the rise of short form video, given the changing landscape that we have today? The **Jeff Jordan** [14:04]: only constant is it's constantly changing, I guess. I mean, think of the advent of mobile, and it used to be google.com had that monopoly. You just have to keep your finger on the pulse of, okay, what is new? My partner Connie Chen thinks TikTok in China is already replacing a lot of the Google use cases. And one of the ones we argue about constantly is restaurant discovery. She says in China, people are discovering restaurants through TikTok. That's a different use case than I envision for that platform. But, you know, then again, if you're a restaurant, you gotta stay current and try to figure out, okay, what's the next thing? What's the new thing? **Harry Stebbings** [14:36]: I saw an unbelievable stat, which is that 45% of millennials use TikTok instead of Google as their primary search engine. That that's Connie's argument. She's a smart investor. The polls that you sit on, internally, are you saying, shit. We need to get on video. We need to get on TikTok. What do those conversations look like? Because it's coming so thick and fast. **Jeff Jordan** [14:56]: You're constantly looking for the new channel. There was been a duopoly for too long between Google and Facebook. There's this meme in the venture business that you don't wanna fund companies where you're just basically you transfer money to the company and the company transfers money to Facebook and Google. I am reluctant to invest in companies that require heavy paid marketing to build their audience. Best concepts, they're so compelling. They don't need to buy users. That's not a categorical rule because TikTok buys users at monster scale. Google early didn't buy many users. Facebook didn't buy many users. **Harry Stebbings** [15:27]: How do you think about when is the right time to really double down on paid and actually just spend a lot? **Jeff Jordan** [15:32]: It's when you know your unit economics and, you know, you're comfortable that it works. Early on, I was a big proponent of that e commerce was gonna clean the clock of department stores. I got the thesis half right. Share did shift. No one could make money other than Amazon because of there's just no defensibility, no barriers to entry. Look at that mattress in the box company got to a 100,000,000 in '8 Well, so did the other nine. Then they're all fighting for the same customer on the same channels with the same product. And as a result, the cost of acquisition went up and prices cap because you typically are trying to compete in price and the movie ends badly. And also on **Harry Stebbings** [16:08]: matches, your repeat rate's not very high. There's so many things about this business which suck. But what do you do then if you say, you know what, Jeff? Me and you're my board member. We're not gonna spend. We've got a great customer base that love it. We're gonna grow sustainably. But we've got a competitor who's raised from a big institution, and they are spending a ton of money. And they're gonna hoover up all the oxygen just by spending. **Jeff Jordan** [16:30]: What do we do then? You're faced with a super tough choice that's probably informed by the capital environment. In this environment, is someone who raised a ground and is spending it hard trying to drive growth. The pendulum swung a little bit away from that business. We're today counseling our businesses, try not to need to go to market for as long as you sustainably can without hurting the business. Three years ago, it was spent. This is an environment where there's unlimited capital behind you. So you get the Uber, Lyft situation where billions of dollars went into the building of those two businesses. And in United States, they compete with each other. So it's a bit of a hamburger hill, think is the phrase. Point being there, Jeff, if we're **Harry Stebbings** [17:07]: just being blunt, I think I sort of start, like, 97% of the money that's gone into Uber will not return one x, just given the quantum of money. Point being, capital efficiency is so key. I'm gonna get so much shit for this, Jeff. None of the businesses that we're looking at are very capital efficient in marketplaces. Actually, I'm sorry. You're gonna crush me. Disagree. **Jeff Jordan** [17:28]: I'd put I'd put two out there. Airbnb raised way less money than the other leading marketplaces at the time. It's got a couple characteristics that are very nice. One of which is they get paid in advance. When you make your summer vacation over the holidays, you're giving Airbnb money, and they didn't need much money because they were actually cash flow positive very early. They were cash flow positive before they were operating income positive. Incredible Health has that same characteristics. Hospitals are paying for nurse seats in advance. That, hey, I'm gonna ask you to hire a 100 nurses over the next year, and they pay for those seats in advance. Incredible Health. When we did the a, they went three years without raising while the business was going very well. And when Iman finally did raise earlier this year, she had more cash in the bank when she raised than she did after we funded her. And so that positive cash transaction is one thing that some rare marketplace businesses do have, and we value it highly. **Harry Stebbings** [18:24]: So that's a really interesting granular trait that I would then look for in marketplaces, which is a delayed duration between payment and execution. And bluntly, and I again, I'm gonna get in trouble for this, but I care less more and more about getting in trouble these days, which is great fun. Uber, Instacart, Deliveroo's. If you look at the time between payment and executional action, it's very quick. It's ten, twenty minutes. And then Airbnb, Incredible Health, it's much longer. So essentially, I'm just being blunt. Are these businesses much better where there's a much greater payment time between because of the liquidity that one gets and can invest. **Jeff Jordan** [19:01]: There are tons of features that we look for in business. The get paid in advance is very rare, but when you see it, I've come to value it heavily just because it changes the capital efficiency. Iman at Incredible just had this dream. She called it a to IPO. She arguably could have never raised a b round and gone public. The business has that kind of momentum. And because she was, quote, unquote, accidentally profitable, the bookings came in way faster than particularly coming out of COVID than any of us anticipated. She literally could have gone a IPO. That is a pretty rare characteristic. Why did she decide not to? There's a point at which a business was valued at a level where the safety of having additional money in the bank outweighed the the incremental dilution. **Harry Stebbings** [19:44]: That's one of those rounds where as an investor, you're like, take the money. Take the money. I wanna dive into actually the demand side now. We mentioned a little bit on the paid channels. When we think about kind of big mistakes that we see founders make, I think one of the biggest is actually messaging and making it resonate with the target customer. I find that many really struggle with this. First, I guess, do you agree? And second, how do you advise founders on really making that initial message resonate with the first cohort of users? **Jeff Jordan** [20:11]: I think it's super important, and one of the reasons I still do what I do is I get to learn from my founders too. Watching Brian Chesky and the founding team there refine the Airbnb messaging over the years to the point now where I actually think that it's a spectacular brand, Just watching them continually to refine and hone in on the essence of the business was a fascinating exercise for me. That was not my core strength. Watching them get it right on a sustained basis, I learned a ton. So I would love your **Harry Stebbings** [20:40]: advice on that one. That seems like a really hard messaging story. It's a really hard messaging horizontal. You've got my mom, and you've got very cool young people. Not all of her mom's not cool or young. Yeah. How do you advise founders when it's a horizontal play on the messaging? **Jeff Jordan** [20:56]: Well, think of the challenge they have. You have strangers staying into other strangers' places. Trust and safety incidents can happen. They happen in hotels at at a very predictably high rate. And so they have to message to make something fairly alien and scary into something enticing. And I think they've done a great job of a belong anywhere, live like a local. Their messages are one of of community more than hospitality. One thing that I often **Harry Stebbings** [21:20]: advise founders is be so specific. Choose people who love fishing and also love protein snacks, but at the same time, so specific that it seems outrageous, and then slowly it's banned. Yep. Do you agree with that extreme specificity? And how would you respond then to founders who say, yeah. But then I go to VCs and they say, oh, it's not a big enough market. **Jeff Jordan** [21:41]: We strive as a firm not to base investment decisions on current market size because a lot of the best businesses created new markets to create new markets. The Jeff Skoll wrote the business plan for eBay with Pierre, and I got a copy of it when I joined the business. And they were focused entirely on the collectibles market. Now, argument was collectibles market in The US, I think, was a 10,000,000,000 or a $100,000,000,000 market, and they were going to own that market. And so when Bob Taylor benchmark wrote the check, he was investing in a collectibles marketplace. Now, what happened is we started in collectibles. The collectible messages got honed, and then people said, oh, this had utility beyond collectibles, and they started using it that way. The best motion we had to grow the business was watch what the users were doing and double down on it. So when Simon Rothman was there, he was an early employee and he loved collectible cars, and I think he searched for a Lamborghini and two real ones showed up. That was the beginning of eBay Motors. It's like, why are Lamborghinis on the site? And then you say, okay, because they're only sold in large coastal city. If you want a Lamborghini and they're not in a large coastal city. So eBay became a mechanism for that, for computers, for sporting goods. The most successful growth strategy we had back in the day was just look what people were listing and then try to enable it. We found about a much more systemic basis. **Harry Stebbings** [22:59]: I agree with you. The one I don't like to take risk on is market timing. I just always am wary of the intelligence of the market and my naivety. Do you take market timing risk? **Jeff Jordan** [23:09]: Yeah. We always take market timing risk. In a recent blog, I stole the Marc phrase, there are no bad ideas, only bad timing. So That's the guy. Then you don't take market **Harry Stebbings** [23:17]: timing risk. **Jeff Jordan** [23:18]: No. But at some point, you pile in and just say, I think it's now time or this is the right approach. I remember, I diligence though Instacart with the lead investor in the prior round, which is Mike. So I go, Mike, talk to me. Yeah. Web band was a pretty sustained failure, and I he just goes, ugh. I go, what's that? He goes, I was an investor in web band. And then he came back with Instacart ten, fifteen years later, and fairly similar consumer proposition, but digital groceries, different execution. And by the way, it worked a whole lot better with a mobile phone. I don't think you could do Instacart without a mobile phone because getting the shopper both what do I pick, where do I go, that whole thing would be torturous without that device. **Harry Stebbings** [23:57]: My question to you is, how do you retain mental plasticity? When you see something from your operating career that didn't work, or you have an investment that doesn't work. And then like Mike, he did Webvan, and then he did Instacart. How do you retain mental plasticity as an investor to not be jaded by prior experience? **Jeff Jordan** [24:14]: The good news on that is you fail a whole lot, and that's pretty humbling. And then I spend a lot of time going back and trying to do the Annie Duke thing of it's not the outcome, it's the quality of the decision. And then, you know, why did I make this decision? What did I get right? What did I get wrong? I'd mentioned early on I was doing DTC e commerce before it was even called DTC. It's differentiated from Amazon because they have their own brand and it's not sold on Amazon and all that stuff. And then that basket resulted in an uninspiring set of outcomes. I actually got two of the best e commerce companies out there, Fanatics and Zulily, and it still is an uninspiring outcome. And you're kinda like, okay. Why is that uninspiring? And that's where I doubled down on the LTV to CAC. The need to buy users at scale, typically, the economics erode. And so that developed the thesis on, okay, I am leaning out on heavy paid acquisition businesses. It it was through just pattern recognition, trying to assess, okay, why did this decision not work like I wanted it to, and what can I learn of it going forward? So over eleven years of investing, there's been a lot of failure slash warnings that hopefully I now incorporate, but you cannot stop that plasticity or you're just gonna kill as an investor. **Harry Stebbings** [25:26]: It's very hard. I think it's one of the biggest challenges. You said about the reliance on paid there and the challenges that come from it. When we think about the other big challenges in terms of acquiring demand, what are some of the biggest that you work with founders most often on in the early days when it comes to acquiring that initial demand side? **Jeff Jordan** [25:41]: Yeah. Trying to get the initial product market fit is really hard. Andrew wrote a book on it. But there's the cold start problem, the hard side, all this. You're constantly saying, okay. How are we feeling? How's it going? And then there is a point at which, okay, we're feeling great. Let's put the chips on the table, then start playing for real. Early on, it's a lot of experimentation on both sides of the marketplace. Who is this resonating with best? I do like your start with a narrow, deli like community and serve them well. Airbnb started with the younger consumer, and then they've added use cases on top of that. And now it's a pretty mass market brand, but it's when it was started, it was twenty something Gen Den Z travelers who like both community and budget. It was a less expensive alternative. **Harry Stebbings** [26:22]: So Jeff, I'm a marketplace founder in this hypothetical scenario. We had a great first meeting, and you were like, yeah, I'd really like to see your cohorts. And I go, great. I'm gonna send them over to you. I send over my cohorts to you. Where do you zoom in? What do you wanna see? What excites you **Jeff Jordan** [26:37]: when you look at those cohorts? The steepness of the decline, or is there a decline? And then how are they trending over? So in the case of Instacart, the number of users declined pretty precipitously from first purchase to 10 purchase. Yeah. A year out, the number of users declined something like three quarters. But the users that stayed spent three or four times more money. Their cohorts were actually on revenue basis were close to staying at 100%. If you look at that, you're like, okay, that's pretty good. And then are new cohorts declining or improving relative to older cohorts? I put a lot of interest in this. If they're constantly improving, it could be a sign of a network effect. I just like, okay, this business is improving because definition of network effect is the more people use it, the more valuable it is. If more people are using it, it's become more value, it's gonna show up in the cohort. **Harry Stebbings** [27:24]: One thing I think about a lot is actually negative network effects, which I'm intrigued to hear your thoughts. A great example of this is like, hey, in London, we have the way you have it with Go Puff. In London, we have a ton of these. You actually have negative network effects, which is increased demand. It means that supply side is so overwhelmed that the quality gets worse. They have multi stop delivery, and actually, it's a worse experience. And then you tail off and you lose customers because of that. How do you think about that negative network effect? I'm fascinated. You obviously are on the board of Instacart. **Jeff Jordan** [27:52]: Instacart is at a scale where they can do faster delivery with both service integrity and economics that make sense to the company. Trying to do that without the base of business that Instacart was built at is really hard. We didn't make a bet in fast commerce. That's one word. Internet veterans remember Cosmo and Oh my god. Yeah. Our concern was it's Cosmo redo without anything really new on top of it, so we did not place a bet in that sector. **Harry Stebbings** [28:18]: A lot of times, we've spoken about Instacart, many people who do argue in favor of these models. They say, yes, you have inherently bad unit economics in the early days, but at scale, at critical mass, at density, they look fantastic in terms of the unit economics. How do you think about mentally projecting yourself forward to a time when they are good, and how long you can stomach just getting pounded by shit unit economics? **Jeff Jordan** [28:42]: It's a prototype for me was Instacart. From recollection, they were billing something like 10 or $12 per order when we invested, and they were losing $20.25 dollars per order on each one. And you where you're sitting there like, okay. This is hemorrhaging money in a business where the conventional wisdom is you're never gonna be able to do it economically. So I went right back to the entrepreneur, Upurva, and said, okay. You're losing a lot of money per order. How do you square the equation? And this was one where I think there was good founder product fit. Upurva was a fulfillment engineer at Amazon and is just wired to continuous improvement. And he sketched out a roadmap for how he was going to make the economics work by type. Couple of the big ones, just by recollection, are ads were clearly huge, high revenue business. Once we get to scale, we can provide performance marketing to CPGs. That's valuable. Second was deals with the grocers where they would give that Instacart a cut of economics and then scale and then improve it. An example of this, early on in Instacart, the shoppers went, picked the product, and waited in the line with all the other consumers. As they got bigger, they were able to go to the grocers and say, can you give us a dedicated line? So our shoppers are not sitting there waiting. Then they developed a software that as the picker's picking with some grocers, they developed trust that the picker would just scan the product. The basket is on the phone and Instacart paid the grocer directly, so they never had to even stand in line. Each of those took many minutes off of each order, and time is money. And so that's just the example of the kind of continuous optimizations they were making, trying to take minutes and seconds out of the process. And in doing that, they've gotten to the point now where they are significantly profitable. **Harry Stebbings** [30:23]: I thought it was fascinating. I spoke to you before the show actually on email about Barry at Peloton who spoke about Netflix and how they use the discovery engine to get better margins because they could direct you towards content where they have better margin profiles. Yep. And then with the decline in traffic that they would show the people with better margins, they would say, hey, we're shifting all traffic away from you and use it as a barrier and like, hey, bluntly reduce your margins or we're gonna crush you. It's called market power. Yeah. That was brilliant. A lot of times when we look at CACs, especially for a lot of these businesses, and they're pretty, pretty volatile. How much weight do you place on CACs, given how much they change over time? **Jeff Jordan** [31:01]: Concern I have on CACs is they typically go up in my experience as you try to scale the acquisition. And part of that could be competitive dynamics if you're paying, you know, your for the 10 mattress in a box customers trying to find the same consumer. I look at a CAC and I assume it's only going to go up. So with the LTV to CAC is tight, it's a definitely a cause for significant concern. If it's enormous, like, okay, I get I have a 20 to one LTV to CAC, it's like, okay, I can stomach that. If it's two, that's a big problem. If it's four, I'm still leaning way back just because they erode, **Harry Stebbings** [31:32]: and it's not in your power. How do you think channel spend changes over the next year given the macro? I think a lot of people forget that you're always competing as everyone when it comes to channel spend, but the demand will go down, especially with less venture investment, less liquidity in the ecosystem. How does channel spend change, and how do tax change over the next DOG thing? **Jeff Jordan** [31:52]: It's been pretty volatile to say the least. You know, the the Apple changes with the impact on Facebook, TikTok, and Pinterest, and Snap coming as potential new channels. The privacy stuff is both Facebook and Google. It definitely are using the data from their ecosystem to their advantage, and lots of regulators around the world are getting increasingly concerned on that practice. So I think it's gonna be super volatile. Even without the potential recession impact as an entrepreneur, you gotta be constantly reviewing, saying, okay, what's happening on this channel? What new channels can I try? I love the companies that segregate an experimental budget from their core acquisition budget, because if you bundle them together, it is a barrier against experimentation. If you're constantly optimizing Google and Facebook, but you're trying TikTok and Pinterest and Snap from Insta from a different budget, it promotes that channel diversity attempt. **Harry Stebbings** [32:43]: To find that people try and get too cute with channels, Jeff, they try and diversify too early. If Google or Facebook's working and you're scaling well, just go. Don't get cute. Do you agree or do you think actually diversification **Jeff Jordan** [32:56]: is important? I think there's a point at which it pays to start experiment. Early, I agree with you. But over time, as you look to scale and look to diversify your dependence on two mega platforms, I do encourage experimentation. **Harry Stebbings** [33:09]: We're talking about demand and supply, bringing them together. What have been your biggest lessons in terms of maintaining equilibrium between the two varying levels of demand and supply? **Jeff Jordan** [33:18]: I have a belief that the demand side is kind of the is the more strategic side because suppliers typically will go wherever the demand is. For me, keeping a healthy demand bucket is what your suppliers are looking for. If I list my place on Airbnb and it's 60 occupied and I make a bunch of money, I'm gonna continue using Airbnb. If I go through that agony and I get two orders a year, it's not worth it to me. Healthy demand results in healthy marketplace typically. **Harry Stebbings** [33:45]: When we spoke before about marketplaces, you said that you liked or had interesting kind of unbundling crazes with blue collar jobs, home services, rentals. And I respectfully read this and thought I must be an idiot. But why? Tried it. Joe Fernandez tried it. All these people who are good tried it, and it did not work. **Jeff Jordan** [34:05]: There's no bad ideas, only bad timing. You know, that famous crap in the Internet meme with here's CraigsVR's homepage and here are all the cat the here's the new code that killed that category. Here's a new code that killed that rideshare, homeshare, just the dating. There are only three left. They're big fat ones, and I agree with you. No one has conquered it yet, but there's no bad ideas, only bad timing. **Harry Stebbings** [34:26]: Do you not think the reason why they're the three remaining is because they remain the core human relationships that you have, which is you have the painter in your phone book, you have the decorator in the phone book. It's like Odesk or Elon's or any of these businesses. They suck because the leakage is so real. **Jeff Jordan** [34:43]: I think there is a real issue with leakage, and the other is frequency. Except for lawn care and home cleaning, almost all services are very infrequent. It was very hard to build a brand. Typically, what you remembered is you search it on Google and then found it, that you don't remember that, oh, it came from x, came from y. That's, I think, been the challenge there. And then for those frequency ones, you do wanna cut out the middleman. So I do think there are significant challenges. I also find myself often in, god, I need someone to fix the x. I would love a brand that I could find high quality contractors through because I don't have the gutter specialist in my Roladex. **Harry Stebbings** [35:20]: Do you take the view that, hey, entrepreneurs find white spaces, come at me with anything, or do you go, this market is ripe now for x. I'm looking for people to build in this market. **Jeff Jordan** [35:31]: It's kind of a meeting between the two. You send out bad signals, and the reason we publish content is we're you're trying to send out bad signals saying, this is what I'm interested in. This is what I'm looking for. I have a thesis. And then you're looking for founders ideally come to you with companies that try to address, you know, what your bat signal is for. The shortest blog I ever wrote was about early in the on demand economy about, hey. You could have convenience. You can have economics. The ones we're looking for have both. And at Instacart, Reddit, came and talked to me during his fundraise. I was late, but he saw the bat signal. I go, hey. Why'd you reach out? He goes, saw your blog. And you're like, okay. The bat signal works. That's the power of content, my friend. **Harry Stebbings** [36:06]: I wanna talk a little bit about your style before we move into a quick fire round. When you think about your style as a board member, I spoke to many founders that you're on the board of. How would you describe your style of board membership, Jeff? **Jeff Jordan** [36:17]: I think there are issues that the board should be involved in, and there are issues that they shouldn't be involved in. I had a board member at OpenTable who wanted to design the product, and that for me was not a productive board activity. So if you try to keep on the topics that the board is there, and then you try to add value in a surgical and an empathetic way. If I've been in that chair, that is a hard chair. I very rarely be inspired to not come across as sharp, critical, to just surgically pick the topics where you think makes sense to opine, and you have something to say. There's a Grateful Dead lyric, please don't dominate the rap jack if you got nothing new to say. Way too many board members just talk for airtime, and try not to be that person. What can founders do to generate and build **Harry Stebbings** [36:59]: the **Jeff Jordan** [37:00]: best relationship of trust with that board? The most important thing is pick your board members selectively. The founder who comes in, gets 10 term sheets, spends an hour with each of the GPs, then picks one. You're actually picking your boss potentially for a decade or you spend a little time thinking about it, getting to to know them. Do we share the same values? Do we have the same vision? Be selective in whose money you take would be the biggest advice. **Harry Stebbings** [37:25]: Jeff, we both invested in very compressed timelines over the last twenty four months. Well, I didn't. Many entrepreneurs didn't. I guess you didn't because otherwise, you just lost every deal. Oh, Jeff, I want a month getting to know you. Well, I'm deciding next week. It's **Jeff Jordan** [37:38]: hard to get the month. It's the job of hurry up and wait. You're just kissing frogs, kissing frogs. Something comes in, and then you just have to dive on it. So we try to get as much time with the entrepreneurs we can, even in the compressed time frames. You're doing dinner. You we're do our reverse pitch. Just trying to make that personal judgment on a compressed time frame because that is the reality of the market. I try not to write checks in one day, but the market often doesn't give you a month. And if it's a month, there's often an adverse signal that they can't raise. **Harry Stebbings** [38:04]: I think there's a lot of misalignments between VCs and founders that we don't talk about. What do you think are the biggest misalignments between founders and VCs? **Jeff Jordan** [38:11]: I think the biggest one is that VCs have a portfolio. The founders have n of one. I try to be very explicit on that. The founder says, okay. I have a fork in the road. What's your point of view on where I should go? And it's just like, listen. Just so you know, I have a portfolio. Because of that, I'm attracted to the riskier but higher upside one. You don't have a portfolio. So that's an important different alignment. Let's be completely upfront on that. When you think about the boards that you sit on, who's the best board member that you sit on a board with and why them? The team at, Pinterest, the team at, Airbnb, the team at Instacart, they've all gotten very high quality folks, and they're filled with folks who kinda had the same philosophy I have. Don't dominate the rep if you got nothing new to say. **Harry Stebbings** [38:51]: I spoke to Alfred Lin before the show. He mentioned your walks during COVID on Sundays. What do think makes Alfred a very good board member? **Jeff Jordan** [38:58]: I think he's very thoughtful. He does his work. He's got unique insights. It's been a pleasure partnering with him at Airbnb, so **Harry Stebbings** [39:05]: I'm a big fan. It was very funny. I asked him what your weakness was, and he said the biggest weakness Jeff has is he works with a competitor. Well, we hold Segway in high regard. They're very good at what they do. A final one for you. A lot of young VCs listen to the show. What advice would you give to young board members who are assuming **Jeff Jordan** [39:24]: their first board roles? Watch what season board members do. Try to figure out, okay. Is that person adding value? If so, how are they doing it? And why? Just model what's on there? I remember my first board, it was Hotwire. David Bonderman's on it. I have TPG, and the ex head of SABR was on it. So I just watched fascinating on, okay, are these guys, very experienced people do on boards? And then there's a counter example where someone's just driving you crazy because they're designing product in the board meeting, and so pay attention. I **Harry Stebbings** [39:53]: wanna move into a quick fire. So I say a short statement, Jeff. You give me your immediate thoughts. Does that sound okay? Sounds good. What book would you most recommend to the audience? **Jeff Jordan** [40:01]: There are two I've read recently, both on race relations, both on sports. One was Major Taylor, and the other is I Come As A Shadow by John Thompson, his autobiography. I found both fascinating because both the sports and the racial topics. It really makes race in America come alive. What's the worst change to happen internally at Andreessen over the last one to two years? We're over 400 people. And in COVID and post COVID, it's hard to get to know your coworkers. So it's become large. December 2023, will we be in a better or a **Harry Stebbings** [40:30]: worse macro place? You plan for worse and you hope for better. **Jeff Jordan** [40:36]: What do you believe that many around you disbelieve? At eBay, we had this phrase, people are basically good. I do believe that. I love the businesses that work for economic empowerment for the communities, Airbnb, Chef, Sniff Spot, eBay. What do you know now that you wish you'd known when you started in venture day one at Andreessen? I was looking for a new learning curve after I'd be shallowed a lot as an operator. I found a new learning curve. **Harry Stebbings** [40:59]: What was the hardest thing to learn? Mine is getting comfortable with wasted time. If you're an operator, you spend a day doing something, you have a day's output. Here, we could meet 10 **Jeff Jordan** [41:07]: entrepreneurs. You're a spectacular investor of half your companies create value, which means half your companies don't create value, and that hit rate. If you're batting 500 as an operator, you're an ex operator. What's the biggest miss, and how did it impact your process? The biggest miss, I think, was I had an opportunity to do DoorDash early, and I'd love Tony as a founder. I had a thesis on the food delivery market that there's no defensible barrier to entry and that the end state was restaurants with 20 iPads taking orders from everyone. So I think I made the right decision. It worked out badly. I did not anticipate Travis getting capped at Uber Eats and then in the level of consolidation that happened in the industry, and and Tony created a very valuable product in DoorDash. Why did Uber Eats tail off? My read is DoorDash out of executed. Pinned about Travis World. What's the best investment advice you've ever received, Jeff? Don't bet on current market size, bet on future market size. **Harry Stebbings** [41:59]: Final one. What's the most recent publicly announced **Jeff Jordan** [42:01]: investment, and why did you get so excited? It's Codi, which is a marketplace for commercial real estate that seeks to tear up the incredibly awkward for new goes seven year lease and lets you lease space a couple days a week, nine month term instead of a seven year term. For off-site, it's just making commercial real estate liquid. And post pandemic, that's an option that and by the way, a bunch of my companies have already availed themselves of when you describe, okay, you don't have do a seven year lease. You can do a twelve month lease. You people kinda go, oh, where do I sign? **Harry Stebbings** [42:32]: But, Jeff, listen, I've loved this. Thank you so much for your time today, and you've been a great guest. My pleasure, Harry. Thank you for inviting **Jeff Jordan** [42:39]: me. **Harry Stebbings** [42:41]: I absolutely loved doing that episode, and a huge thank you, Jeff, for giving up the time today. If you'd like to see more from us, you can find us on our YouTube channel by searching 20vc. You can find us on 20vc.com. 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