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- [00:13]
A
Hello and welcome to the Consumer VC Podcast, where we discuss the intersection of venture capital and consumer innovation. I'm your host, Mike Gelb, and if you're enjoying the show, you can subscribe to my newsletter where you'll receive every new episode a week early. Head to the consumerbc.com and click subscribe. All content episodes are for informational entertainment purposes only and is not investment advice. Hello and happy holidays. Just like we've done in years past, during this special time of year, we're going to be sharing recaps of our most popular episodes from this past year. 2022, an annual roundup, so to speak. It's going to be during Hanukkah and Christmas, so every day from December 18th through December 26th. Today's highlight episode is with Mike Gafari, general partner of Canvas Ventures, a firm that specializes on leading Series A. This is a recap of actually the second time Mike's been on the show and he was actually the first second guest. And, and I really do appreciate him because he was very much an early supporter of consumer VC back in the day, one of the first guests that had been on the show. In this episode, we focus our conversation of what's the next big, big consumer platform after mobile? Without further ado, here's Mike. Mike, thank you so much for joining me. How are you? You are our first second time guest.
- [01:31]
B
Oh, wow. I'm honored. Thank you. I'm doing great and I'm really happy to be the first second time guest. That's exciting.
- [01:37]
A
So what do you think about what is the next platform beyond the iPhone, beyond mobile? What, what are some candidates that, that you're thinking about?
- [01:47]
B
So look, I think there have been a lot of candidates with a lot of hype. The first one I'll just call out, we're spending a lot of time as a firm in as well, which is Web3 this broad. People would love to, I mean, that would be easy. That would be the most convenient if we just had web one and then we had web 2.0 that came like right in time for mobile. Web 2.0 was kind of, I believe, took steam like mid 2000s and right before the iPhone launch. And then a lot of the Web 2.0 companies like Yelp, where I spent a long time, Facebook and others, LinkedIn, they said, hey, we're taking new advantage of the web in ways that the 1999, 2000 companies didn't. And then they caught the wave of the iPhone right as it launched. And so Web 2.0 kind of neatly just rolled into mobile. Now if Web 3 came, and by the way, if there's some other big technology advancement on the order magnitude of the iPhone that kind of comes with it, that would be great. The one challenge I'll call out with Web3 and we're spending a ton of time there. I still see a lot of B2B there. There's consumer fintech applications and we can talk about Web3 means, but it's an umbrella term that has a lot of components like blockchain, crypto, NFT tokens. It doesn't have to be fintech, it doesn't have to be cryptocurrencies, but they kind of loom heavily. There's daos. Daos and a lot of stuff there. So there's a lot to talk about. And I can talk about the vision of, of Web3 a little bit, which is Web 1.0 is very platform dominated and very controlled. Web 2.0 was a user revolution. Users made all this content, but still controlled by the platforms. The promise of web3 is you control your own content, you own it, you have the rights, like that. It's truly decentralized. Some of the original promises of the open web, that's kind of the idea. But I think it's very early days to see. So that's the top candidate to throw out because I think the most entrepreneurial energy is being thrown in there. But let me just rattle off a few other candidates of what I've heard as potential platforms. So we could dive into any of these. Another big one I would say is virtual reality, augmented reality and then the metaverse in general. And the metaverse might blend into web3. That's the funny thing you're starting to see now. Or it might be its own separate VR category, you know, like Facebook and other companies. They're not, you know, while they've done some crypto, they're coming at meta and metaverse much more from a VR angle. And so that people were hoping VR, it seemed like the natural follow up to an iPhone. But it hasn't created the kind of broad based user penetration and explosive growth to allow consumer app developers to say this is a big enough platform and it might be interesting to talk through. Like when I was an app developer, I co founded Stitcher, the podcast app, and I was doing Yelp. We would always be looking like, what's the install base of these different platforms? What's Apple got, what's Microsoft got, what's Google got, what's Samsung got, what's Amazon's launching a phone. What do they have going? What does this country have? Because as an app developer, you don't want to build for an audience of a maximum of a million people and then you're only going to get a small percentage. So that's been a challenge for VR Covid as a platform. We talked about, I think remote first and remote work, remote workers as a platform, that's an area. Another area that's I think come up a lot as a potential platform is AI and big data. But again, it tends to just skew. B2B, that's a tougher one to see as being a consumer platform. But you might see consumer applications Regulatory as a platform is something that's come up quite a bit. So there's been a few pundits like Mary Meeker in her annual report for a few years, Benedict Evans, others who they put out like Reg Tech and regulatory again, skews a little more B2B and then voice is an area that people were hoping to be a platform. Everyone thought, oh, VAPs, voice apps and Amazon Echo and Alexa, that could be a big area. You know, we've been holding our breath on some of that. The car is one we're all waiting for if Apple finally launches a car, if Tesla really goes big on third party apps, you know, obviously there's driver distraction and other issues there. So there's a bunch of these platforms in waiting things. People want to be a platform, you know, related to voice or chat apps. But again, as an app developer, as an entrepreneur, you're not seeing any of these really having the exit velocity of the last three, like the PC revolution, the broadband revolution, the, you know, the mobile revolution. With the exception of Web3, I would say having that potential right now.
- [06:02]
A
I wonder, just for those that might not know that much about Web3, obviously with the iPhone, you know how your life has changed with an iPhone, right? And the applications and overall your habits. What do you think about if Web3 were to succeed? How does they be a consumer habit or what? Or different applications that a consumer does day to day. How does that change?
- [06:23]
B
Yeah, it's an interesting question. So part of the promise of Web3 is that you take more ownership, more autonomy and more kind of self control over your own content, your own creativity, what you contribute. So there could be a change of, hey, I get more invested. Maybe you have a generation of people who create more, they're more artistic or they contribute more, they write more, or they make more digital art. Maybe that's visual, maybe that's audio, music, even podcasters like you and me right now on this. You are taking. It's not like you're as captive to any one platform, but then you kind of are like most of your listenership probably happens through the Apple app. As the founder of a legacy like podcast app Stitcher, I know that like Apple still kind of dominates probably for your listenership. No third party platform took off. Maybe you really would have could have more of a direct connection to consumers. So both your listeners would somehow more have a direct relationship with you, not intermediated by Apple. And you would also take advantage of those direct relationships. That's why I think you're seeing a lot of Web three creator focused apps. But that's exactly the thing. It's all about creator innovation. I haven't seen as the consumer like let's say the listener or the viewer or the reader those benefits really accruing. It's more about. But there are some startups that are doing when they help bridge that relationship. Like maybe you could give me exclusive content. So maybe fans and consumers of content get special access. They get tokens, they get some ownership, they feel a part of it. Maybe when you launch your show and I was an early guest, maybe I could somehow get tokens in your show or share in the ownership and then the show does well and then I'm financially participating in that. There are some different ideas, but we just haven't seen widespread. I think if you ask the average consumer like hey, is there some cool new Web3 application that's changed the way you use technology and really made you feel different in how you're enjoying. I just don't think that same thing versus when you got your iPhone in a box. And then in 2008 the App Store launched and you're like, whoa, I'm downloading these new apps and now I'm ride hailing and then I'm ordering food and going in Yelp. I'm finding new restaurants, I can even find a plumber on here. And I'm doing my social networking all my phone. Whoa. This is all this new stuff I couldn't do in the palm of my hand anymore. You don't quite have that feeling. VR has that potential by the way. I think that's why Metaverse is so tantalizing for so many people and technologists is the VR could have that big aha, whoa breakthrough feeling for consumers. It just doesn't have the install base. And I think their big challenge is the friction of start stop is very high. So on a Phone, you just whip it out and you start playing with it. VR, you gotta put it on. I don't know if you've used Oculus, but you have to set up your guardian boundaries. Can never seem to remember my guardian boundary. It's just there's a lot of friction getting that session. You might bump into people. What's the space? It's just challenging in that regard. Millions and millions of consumers have participated in Web3. If you count like just starting by buying Bitcoin, buying Ethereum, buying these new coins, buying NFTs as participants, and then consuming content that has a web 3 spin on it. If TikTok was started today, it, it would probably, you know, it could very well be a Web3 based platform. And maybe, maybe that's all it's going to take is the next massive TikTok consumer facing platform where the creators are super motivated to have a big web3 element to it. Maybe that will lead to the big consumer adoption as well. And it all kind of blends together. So that's the opportunity. We haven't seen it yet, I don't think. Or it's very early days. It's too early for us to notice it at any kind of scale, but maybe it's coming soon.
- [10:15]
A
What have you seen? I've also read about how people at least post about how if you are a web2 company, you really need to be thinking about web3 or maybe modding into a web3 type of business. What does that mean to you? I know we've touched on a little bit about Web3, but what does that mean to you? And if you are a Web 2.0 company, how do you need to be thinking about Web 3?
- [10:42]
B
Well, I think there's an analogy. It's kind of like when There was web 2.0 and they caught good timing and then mobile came out and everyone said, well, you need to have a mobile strategy. And it was absolutely right. And some companies like Yelp and Facebook, Yelp, I saw firsthand, we did extremely well with catching the mobile wave at the right time, going all in on mobile, really making that a priority for the company. And that was a very, very smart bet. But again, it was a lot more obvious what to do. Like take our experience, put it on the small screen, make it awesome and use any new features of this device if we can. Like, boom. It was a no brainer, you know, use the GPS, use some of the new features. With Web3, it's not quite as obvious. There's not a new screen. I mean that's the simplest way. Like platforms that we're used to, it's like a different screen or hardware format. This isn't some new hardware format. It's more of a new paradigm and new protocols and new ways of doing economic exchanges as well as organizations with DAOs. So it's a little bit different. But I do think every company should think about their Web3 strategy if for the only reason being that there's such a widespread groundswell of young entrepreneurial energy being poured into Web3, that if you're not thinking about how Web3 could reinvent your business, I guarantee you, like some smart young person is doing that and trying to figure out how to rebuild your business that way. So you should try and get ahead of that. And just like a lot of Web2 companies did really well in mobile, you should do that for Web3. But it's not as obvious, it's tougher. And I also think lots of money and resources are going to be seemingly wasted because they won't find the obvious way to port to web 3. But you should at least try to do it as successfully as like Yelp and Facebook and others did in the last transition.
- [12:30]
A
Yeah, I think that that's a really good point too, that it's just also not as obvious as that transition to desktop to mobile that we're still obviously in the early innings. But there's also a lot to take in. I'd love to also talk about VR. VR is really back as an interesting market for VCs. What has changed?
- [12:49]
B
Well, I think a Oculus and other platforms have slowly but quietly built up more and more. Millions of the install base is getting new, noticeably large. The problem is like what kind of usage do people have on that install base? I heard secondhand. I don't know if it's confirmed. Like Mark Zuckerberg gave a copy of Ready Player One, which is a great book that I really enjoy, to every employee at Facebook, or at least certainly on the VR metaverse kind of teams and said, you've got to read this, by the way. The one thing I think we have to be careful is that's an extremely dystopian view of the future. It's not exactly like that much of an optimistic view of where technology will bring us if everyone's living in these very depressing places and just trying to escape reality. Only with VR. The nice thing, my favorite part, by the way, of the mobile revolution and the reason I worked at Yelp was when the phone actually helped open you up to better real world experiences. Rather than just always making you escape the real world, it actually enhanced the way you enjoy the real world by helping you find new businesses, new places, new parks, new trails, new friends. Right. And then augmenting that real world experience. That's one challenge. Like VR has a lot of promise, but it does take you out of the real world. I think that's why augmented reality, there's a lot of excitement also because there is an opportunity to actually enhance and improve your real world experience. And that could be interesting. Arkansas again, has just kind of gone back and forth. There's, there's the magic and a couple. There's companies that have had a lot of hype around what they could do with ar and there's been promise of a bigger iPhone Apple solution. So we'll see. It's interesting. Will this be one where an incumbent kind of FAANG company comes in, Apple, Facebook or otherwise? Or does some new startup really come up with an amazing AR solution?
- [14:38]
A
That's actually a great point about does AR or even VR come from an incumbent or does it come from a startup? It reminds me a little bit, and this leads me into talking a bit more about Facebook and your reaction to maybe Facebook changing to meta and what your takeaway from that. But also when I think about VR right now becoming a lot more popular or I feel like there's just some type of swell going on with VR, especially since Facebook maybe is one of those that are leading the charge. It just reminds me too, I was talking with Ray Ma, who's an expert when it comes to everything, all the technological revolution that's happened in China, and she brought up live streaming and how live streaming is a multibillion dollar industry in China. It really hasn't touched the surface here. And the reason why is because Alibaba, which is an incumbent, obviously they made live streaming, they were very focused on live streaming as part of their core strategy and put it directly on the app dead center. And that's how live streaming took off. Where, you know there's a lot of live streaming startups here in the US but you haven't seen that incumbent push by like an Amazon, for example, looking for livestream, which would be similar. And I wonder when it comes to VR and maybe in parallel, are you seeing a little bit of that where a few years ago the incumbents weren't really maybe interested in it, where now you're actually seeing Facebook take a really big leap into betting on VR? And, and I guess just what's your overall reaction there?
- [16:10]
B
So first of all, yes, I think when the incumbents start pushing it and really saying like, this is the time, we should all take that seriously. And I think Mark Zuckerberg had a lot of foresight in acquiring Oculus early on and seeing that there was some future there. I will say with Facebook, one challenge is developers have been burned before by the Facebook platform. So there was all this excitement that hey, Facebook platform platform is going to be this big money making. I was there when Facebook platform launched at the F8 conference and every year and people were excited like this could be the next big thing. And they thought it was maybe on par roughly with like the Apple platform, but it wasn't, you know, and Zynga was able to make a little bit of money for a little while. Spotify was able to get some usage, but we're not left with a lot of big companies that had been built off the Facebook platform the first time. That's kind of like Facebook Platform 1.0, if you call this the true Facebook Facebook Platform 2.0. That's the question is like, are there going to be big companies being built? And I wonder if people still remember that. That was hard to do the first time where Apple, for all the lawsuits you read about with epic games and people fight about their rev share, the bottom line is like, Apple did help launch not just an ecosystem, but like a whole global industry of apps. Like, it's incredible how many apps, how many huge companies have been built on this app ecosystem and made so much money, you know, billions and billions of dollars. And Apple's own share of App Store revenue like boggles the mind. So the question is, this is Facebook's moment. It's an interesting observation just with a US centric point of view. This is Facebook's chance to pull an Apple and maybe build a platform that actually can help everyone make as much money and be there. And they could, if they make it as accessible and as widespread and work it as well as Apple did with the iPhone App Store launch, it could work, but the history of 10 years ago would say they weren't actually able to pull that off. And so that's the question. I do think you see people holding their breath saying, is this really Facebook's DNA to build a thriving ecosystem? Because that's hard to do. What I think Web3 and some of the Web3 advocates would tell you, and they might be right, is like, this is our chance to do it in the true promise of the original open web way of let's not have a messiah let's not have somebody who's. Let's have it be all power to the people. Bottoms up, not top down. The challenge is, I think then the gauntlet is down on Web3 to answer the question of like, what is the rallying cry that gets people together? What captures people's imagination? What gets them excited? Excited that they can all coalesce around the same thing. I think you've seen great examples the Constitution Dow, which was a bit of a letdown at the end, but showed that people. Do you remember how much they raised? Is it like $30 million in a.
- [18:56]
A
Short period of time? I think it was like 30. Yeah, I think it was like 30. 35 million.
- [18:59]
B
30, 35 million in a short period of time. I mean that was amazing. Right? Not only to get crushed by like a hedge fund billionaire is kind of a sad. There's got to be hopefully a part two of that movie. Right. That feels like part one ended with the bad ending and the. You need like part two to help turn it around. The question is, can you pull that off in a decentralized way? And I think that would be super cool. And at the same time this more came up in the context of Metaverse. I think things that are hardware related, it does help to have that messiah, that leader who comes in and paints a very clear vision for a hardware platform that helps people quite a bit to understand what's happening.
- [19:39]
A
And I think, you know, when we were talking about this, you know, earlier you also mentioned Elon Musk.
- [19:43]
B
He's been the closest candidate to Steve Jobs, I think to take there's, you know, Musk Dorsey people put up also as obviously with the Twitter platform and Square just having done multiple companies and then Musk.
- [19:55]
A
But it is interesting with all of these folks because like Elon Musk, like Tesla is not a platform. So that's going to be. Obviously Musk is very. Well, it seems like not to speak for Elon Musk, but based on his Twitter feed and what he says, very, very bullish about Web3 and crypto. But Tesla's not a platform. But it is. I think it's also quite interesting too how the founder led person like that's actually really want to explore at least Metaverse as a maybe one of the possible next paradigm shifts. Zuckerberg, how he's never talked about as being the next one. Right, right. It's just. That's also quite fascinating too.
- [20:35]
B
Yeah. I don't know. You know, we could try to dissect like what is it about Elon Musk but I do think it's a back to like when there is a piece of hardware actually as the rallying cry like the Tesla such an obvious in your face, major step up in innovation Facebook, by the way. I remember I was on Facebook when it launched. I think I was user number like, you know, 7,000 or something out of now the. You know, I don't know if they've hit a billion or how many users they have. So I was very early to the platform and I remember when it launched in the early. It was pretty amazing feeling at that time. Of course there was Friendster already. Maybe MySpace was already on, but it felt different and better and it was great to connect with people. But since then. And then Oculus the first time you use it too kind of amazing. But Elon Musk as. And he's not the original founder founder of Tesla, but essentially became the founder and inventor of the company company and carried that vision forward. He just. He puts this piece of hardware and you drive it and you're like, wow. We didn't think electric cars were possible at scale. We were always told that it was not going to happen and now it's happening and then, wow. And then, you know, there's Starlink and there's satellites and there's rockets that are landing on like all these amazing. So you have this person who he's kind of like, you know, Iron Man. He's making all these amazing things happen and I think people just get really excited. He's very memeable and. And so he is in a good position. If he did want to throw the gauntlet down and say this is the web3 platform or vision that you should build for app developers. This is the Metaverse you should build for or this is the car app platform, which he hasn't quite done. I think he has good currency to do. So he hasn't really built app platforms thus far. Interestingly, it's been more just building his own kind of stuff and not opening it up.
- [22:22]
A
What the next paradigm shift is and the jury's still not out yet about it. But are there any theories that you've heard of the next consumer technological shift that you don't believe?
- [22:32]
B
One that I was always skeptical about was the voice devices. And I think it's more obvious to people now being iPhone level or platform, like really having that potential to take off to that level. I think voice apps, it's just difficult. They're a little bit too limited in kind of ui. I think they. They have certain functions like they're very useful. It might get a very large install base, but I don't think it's going to take over and, you know, have that kind of problem and not, it's not going to be like the next big thing to the scale that iPhone Apple was able to do or, you know, Web3 is looking like now. Similarly, chat apps and chatbots. That was one that had a lot of hype that I just don't see as I think chatbots and chat app, like that'll always be. And again, this is not necessarily voice chat. It could be, but this is like typing chat. People thought that was a big thing. I think they'll probably always be embedded in some other bigger platform, like it's swallowed into mobile or ar VR, something else is chatting. Within that context. I think VR is the one that people love to love and love to hate. It's one of the most divisive. But I wouldn't write it off. I would say the problem with VR is it's still. I remember, you know, I was investing and looking at mobile as a large area of investment starting around 2006 and everyone said this is the year of mobile. And then it wasn't. And 2007, even when the iPhone launched, it was like, this is the year of mobile. But it wasn't because you could only do mobile web and there were no mobile apps. And then 2008, the App Store launched and it was like, this is the year of mobile. But it hadn't launched at the start of the year. I think it launched like they usually do it in October or late summer. So 2008 was like, maybe this is the year mobile, but still wasn't. And finally 2009 to late 2008 was the year. So there were multiple false starts. And I feel like there's a little bit of that with VR and Metaverse. It's like, this is the year it's happening and we might be waiting even longer on that one. So I'm not saying it's not ever going to happen, but I do think people might just be holding their breath, holding their breath a little longer than they thought. Well, at least in terms of entrepreneurial energy and effort and mindshare, Web3 is the one where it's now, this is the year, like it's happening. You know, some people were like, one year was the year of, like the Dao and one year was the year. Like, maybe this year was NFT and next year was the year of the dao. They're like slicing it up. But overall, if you just say this web three umbrella area, this has certainly been the year of that and next year will be what we don't know, as discussed, is that going to translate into a broad based consumer platform that founders can build consumer apps with with the gusto they did on iPhone and other platforms? That remains to be seen.
- [25:11]
A
My final question for you is what's like one piece of advice for consumer oriented technological founders that are kind of building during these times.
- [25:22]
B
Remember that your fresh look or even some might call naive view of how things work is very much an advantage. Like people will talk to a crusty old vc. You know, I don't want to say like me because I try and keep it very open mind, but a stereotypical vc, not like me, who's less open minded and someone will tell them, or maybe, you know, maybe it's a parent, maybe it's a peer, maybe it's a boss. Someone will tell them this will never work. Kind of like you can't do this. This has been tried before. Oh, I tried this seven times. You know, when podcasts on entrepreneurs would come to me, I would say, look, don't even take my advice on podcasts because I've cut my teeth in it and there could be some huge opportunity I'm not familiar with that I might be missing. Take your fresh look and open minded view and the fact that you're not jaded by what's happened before as a huge advantage that you have. It's part of your really superpower and think big and don't be chained by the past view of what was and wasn't possible. But instead just think with a blank slate what you think could be possible and kind of dare to dream and think big. You know, not to sound kind of cheesy about it, but that's. And then that, that's the other advice I give all the founders I invest in, I work with is remember that ultimately you're recruiting missionaries, not mercenaries. So like take that vision that you have for the future and use that to recruit missionaries. Like recruit people who really believe in what you're doing that aren't there for the money. I hear a lot of founders complain about how hard it is to hire these days and you have to pay people so much and it is hard. It's harder than it's ever been. But if you paint a clear vision of why you're changing the world in a really fascinating way, you can then convince people to come work for very little and take big pay cuts and way less than they could make elsewhere because they believe in you and they believe in the vision of what you're doing. And you have to constantly communicate that you have two jobs As a founder is communicating that vision to recruits employees, to co founders, customers, venture capitalists, people. You're fundraising the capital market. So that's number one, chief vision sharer and recruiter. And then goal number two is if you raise money in cash and you're not profitable, don't run out of cash. You run out of cash, that's your oxygen. You die. So, like, keep that cash. If you do those two things, you can win.
- [27:45]
A
Well, Mike, this has been so much fun. Thank you so much for your time.
- [27:47]
B
Always a pleasure. Honored again to be your first, second time guest.
- [27:51]
A
Thanks so much, man. And there you have it. I hope you enjoyed this highlight episode. If you enjoyed this episode, I'd love it if you'd write a review on the Apple Podcast. You're also welcome to follow me, your host, Mike, on Twitter ikegelb and also follow for episode announcements onsumervc. Thanks for listening, everyone.
- [28:08]
B
It.