I thought today I'd bring an optimist's view to the Five Questions... series. Fred Wilson is a VC, serving as managing partner of Union Square Ventures and Flatiron Partners (author's note: Flatiron is an investor in Alacra). Fred invests in technology companies and has successfully identified trends, investing in successful early stage companies like Twitter and Etsy, among others. His blog, A VC, is widely read by both the tech and investor community. He's an avid tweeter and can be followed @fredwilson. Fred was atop Silicon Alley Insider's SA100 for 2008, which ranks entrepreneurs, investors and other leaders who impact the New York digital media market. And, he's a big fan of late 70's and early 80's bands like the Replacements, which gives him bonus points in my book.
Having survived (and thrived) in both the Web 1.0 and Web 2.0 bubbles, Fred has a valuable perspective on where we are today and what that means for technology and media companies.
Content Matters: 2009 will certainly have its share of challenges. What do you see for the Tech industry in 2009?
Fred Wilson: In 2009, the strong tech companies like Apple, Google, Salesforce, etc will get stronger and the weak companies will get weaker and some will go out of business. It’s going to be a flight to quality all around, by employees, vendors, customers, investors, and everyone else in the tech business.
CM: Facebook was all the rage in 2007, while Twitter took center stage in 2008. Do you think Twitter has staying power? If so, what’s different about Twitter?
FW: Facebook is having a fantastic year in 2009 already. I think it’s having a second wind, driven by serious adoption (as opposed to just setting up a profile) by the over 40 generation and by significant international adoption. Twitter is different from Facebook and highly complimentary. The two big differences are Twitter is public like blogging and Facebook is private (friends only). Also the relationship models are different. On Twitter you can follow me even though I don’t follow you. On Facebook, the following/friendship has to be mutual. This leads to different use cases and I think we’ll see many people use both services for different purposes.
CM: With generally lower startup costs and more limited “end-games” for successful startups, how does that change the role of venture capital in the tech space?
FW: I think venture capital has to learn how to generate appropriate levels of returns (3x over 7-10 years) on lower investment and lower exits. We decided in 2003 to limit our fund sizes to $100mm to $150mm and that has worked out really well for us. We can return the entire fund on one investment if we own 20% of the company and it sells for $500mm to $750mm. I think it’s very reasonable to expect at least one of our 20-25 companies per fund to do that.
CM: Historically, as the economy comes out of recession, it creates transformation and change. Which segments have the potential for transformation in an eventual recovery?
FW: Every industry that is based on knowledge or information or some other form of non-physical matter (atoms vs bits) is going to fundamentally transform and this downturn will be the darwinian forcing function. Think about energy and power systems, banking, media, education. They all have that aspect to them.
CM: While there’s a lot of gloom and doom about, there are always bright spots. What are you optimistic about in 2009 (professionally or personally)?
FW: I am optimistic that we now have an administration that is pro-technology and gets the internet and the power of tech/web to create new ways of doing things. I am optimistic that our culture in this country is starting to change its orientation away from borrowing and living beyond its means to saving and investment. I am optimistic that many parts of the rest of the world are adopting more open and free governments and economies and developing quickly. I could go on and on. There is a lot to be optimistic about right now.
Thanks, Fred. And for those who missed the Mats in the early 80's, here's a quick clip: