Wish (and Airbnb, and Palantir) investor Justin Fishner-Wolfson doesn’t care about first-day pops
It's probably no wonder that when Founders Fund was still a very young venture firm, it brought aboard as its first principal Justin Fishner-Wolfson. Having nabbed two degrees from Stanford and spent two years as CEO of an organization that provides asset management services to the school's student organizations, Fishner-Wolfson wasn't shy about voicing his opinions at the venture fund. In fact, he says Founders Fund made a much bigger bet on SpaceX than it originally planned because he pushed for it.
He stayed three years before spying what he thought was an even better opportunity, owing to friends who worked at Facebook before the company's 2012 IPO. They were beginning to look for ways to liquidate their shares, and while they had options, to his mind, they weren't great. More, Fishner-Wolfson says he foresaw more companies like Facebook staying private longer. He said goodbye to Founders Fund and formed 137 Ventures to acquire secondary shares from founders, investors, and employees.
That was 10 years ago, and the firm seems to be doing just fine for itself. Last year, it closed its fourth fund with $250 million in capital commitments, bringing its assets under management to more than $1 billion. Its approach of focusing on roughly 10 to 12 companies per fund appears to be paying off, too. Since late September, it has seen three of its portfolio companies - Palantir, Airbnb, and Wish - hit the public market.
We talked at length with Fishner-Wolfson this week to learn more about how 137 Ventures works, from how it screens companies, to the impact it has seen from companies that are giving their employees longer windows in which to keep their vested stock options. (It has certainly stopped the desperate calls from people who have huge amounts of equity that's about to expire, which, I'm totally happy to not get those phone calls, because I feel terrible for people who are in that sort of situation," he said.)
We also talked about that early deal in SpaceX, which also appears in 137 Ventures's portfolio.
You can listen to that longer conversation here. In the meantime, we're pulling out part of our conversation that centered on Wish, the discount e-commerce company whose IPO this week has been called a dud.
TC: Two of your portfolio companies have done very well as they've entered the public market - Palantir and Airbnb. Wish was a different story, dropping in its debut. What do you make of its IPO? Do you think investors misunderstand this company?
JFW: I think it takes the investment community a long time to understand any newly public company. At the end of the day, the IPO is just one day, right? What really matters is how companies perform over the next 10 or 20 years.
I would look at Microsoft or Amazon or more recently, Facebook, whose [share price] dropped 50% in the week or two following its offering and Facebook has gone on to be an incredible business. I have no idea what the market is going to do tomorrow [or] the day after. But over a decade, if you can really build a great sustainable business that compounds, it all comes out in the wash.
Wish has done an incredible job of scaling the business. I think [cofounder and CEO] Peter [Szulczewski] is one of the best operators I've met in this industry. And they've done a lot of innovative things in terms of mobile. There's a lot more discovery on the Wish platform. The whole in-store pickup has been really innovative; they're helping consumers get products quickly in an asset-light kind of way where you don't need to buy millions and millions of square feet of warehouses.
TC: You're talking about these partnerships that Wish starting striking with mom-and-pop shops in the U.S. and Europe, where those who have extra storage space will now take receipt of Wish goods, which in turn gives them a little bit more foot traffic when people come in to pick up their items. That's a big shift from how Wish used to operate, which was by shipping things very cheaply from China through a USPS deal whose economics have since changed. Is that right?
JFW: Right. They're helping small and medium-size businesses drive foot traffic, which was always valuable but in the current environment, going to become even more important to these sorts of businesses. They're [also] helping those businesses leverage the data they have across their entire platform because Wish understands what consumers in that geography are looking for, and they can help those businesses merchandise better. And then, because they're shipping product to one location, they're aggregating orders from a whole bunch of people who don't know each other, and that reduces logistics and shipping time and costs. So they send that stuff in, and it's easier for the consumer to walk or drive five to 15 minutes, and go pick it up. That allows Wish to focus on the value-conscious consumer who is willing to trade a little bit of time for a much better price on things.
TC: Wish is known as a place to get tchotchkes from China. Now that it's trying to sell more mainstream goods, how does it go about changing the perception that it has in the marketplace?
JFW: I'm not sure they need to do a whole lot to change that perception, because I still think they haven't penetrated the market as a whole. There are lots of people who don't even know about them quite frankly. And as [I've] watched the marketplace evolve, you've just seen more and more merchants, and more and more data back from customers about both the merchants and the quality of the merchandise, and all those things feed back into this very powerful system, where they can leverage the data to improve product quality and make sure that they're selling what people want.
TC: Do you think uneven quality explains the company's uneven revenue? It grew something like 57% in 2018, then 10% in 2019, and picked up again in the first nine months of this year. Why do you think it's been topsy turvy?
JFW: All businesses go through these cycles of growth, and then focusing on efficiency. If you just focus on growth, you tend to grow, and then break things, and then do things in relatively inefficient ways. And then ultimately, you need to turn around and focus on how you drive operational efficiencies. So I think the cycles that you're describing, if you look at the underlying metrics, you [see] improvement in operating efficiency.
TC: Wish's shares did not pop." On the other hand, former Snap executive Imran Khan told CNBC on Tuesday that the recent post IPO stock pops, including those of Airbnb and Doordash, represent an epic level of incompetency" from the bankers who underwrote the stocks. Do you believe it was incompetency on the part of the bankers or just market volatility that caused those stocks to pop as high as they did?
JFW: I think no one actually knows the answer to that question. I think it makes for a good sound bite. At the end of the day, I don't think the price on the first day is a meaningful indicator of anything.
TC: Are the feverish embrace of these companies driving prices up in the secondary market? What are you seeing?
It really does matter what the public prices are [because] that ultimately trickles into the private markets and also vice versa. At some point, things can't have massive differences in value between their private market valuations and their public market valuations. So you definitely see multiples shift as the market shifts. But these things are often averages. People focus on one company or one example of these things without necessarily looking at all the companies because that would be quite difficult.
But there are always examples of things that are overpriced. There are also examples of things that are under priced. As an investor, you want to try to invest more of your money in the good companies that are on the lower end of that spectrum, certainly. But the focus is always on good companies. If you can find companies that are going to compound over long periods of time, as long as you're not too crazy on multiples or valuations, you end up being in a good spot.
TC: Who are you tracking right now? What's an investment that's not up on your website yet?
JFW: Snapdocs [a company that helps real estate professionals to digitally manage the mortgage process and other paperwork and which just closed on $60 million in funding in October].
Aaron [King], who is the founder and CEO of the company, has done really a fantastic job of building a product that that people are willing to adopt, and this is the right moment in time for that growth to really accelerate. They've been having a good year.
Pictured above: The 137 Ventures' team, with Wolfson center (in glasses).