Ethan Kurzweil on Venture Investing in the Post-ZIRP, AI Era

Tracy Alloway (0:03)

Bloomberg Audio Studios, podcasts, radio, news.

Joe Weisenthal (0:20)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:25)

And I'm Tracy Alloway.

Joe Weisenthal (0:26)

Odd Lots listeners, you are gonna be listening to a special recording of the podcast, one that we recorded live in San Francisco.

Tracy Alloway (0:34)

Yep, that's right. This was a conversation that we had at the San Francisco MoMA on November 20th. It was an event sponsored by Principal Asset Management. And our guest is Ethan Kurzweil, the Founder and Managing Partner of Chemistry VC.

Joe Weisenthal (0:51)

Yep, we talked about all things tech, software, investing, how investing today is different than it was, say, in 2014, when rates are at zero. We obviously talked about AI and how that changes the game of software investing. Take a listen. Thrilled to be here with the perfect guest, Ethan Kurzweil and his new fund, Chemistry. It basically launched like three weeks ago or something like that. Prior to that, 16 years at Bessemer.

Literally, the perfect guest to talk about, VCs, the landscape changing over time or something like that.

Ethan Kurzweil (1:29)

Well, thanks for having me. This is actually the first episode of anything we've done since we launched Chemistry.

Joe Weisenthal (1:35)

Very excited. Nice. Thrilled. There is obviously so much, there's so much we could talk about. Talk about the macro environment, talk about AI, we could talk about the political environment. Maybe we'll touch a little bit on all of it. So I'm just going to ask a really simple question to kick it off, which is in the 2010s, people talked about the Zerp era and some people even look on that period quite fondly right now with nostalgia, even though at the time, Zerp was seen as like this negative thing.

It didn't seem that bad out here though. Strictly from a macro standpoint, you've been in this game, so to speak, for a long time. What's the difference right now versus say, we were having this conversation in 2014?

Ethan Kurzweil (2:19)

Oh, the good old days of 2014 I miss those days too. I wish we could go back. So right now, there's lots of things happening in sort of the tech landscape broadly, as well as like venture. And so maybe just taking a few around venture, you had this era of explosion of different things, there's lots of different funds, new products, money being kind of invested in the asset class beyond what it could take, beyond the capacity of those companies to absorb the capital and do good things with it. I'm an optimist about tech and venture. I think more is generally better, but there's a limit to that. I think everyone would now agree kind of in hindsight, we went a little bit beyond that limit. Now we're in this kind of new era where that's happened. We're kind of digesting the impact of that, of all this capital coming into the space. And you have this kind of new technology phenomenon. And by the way, it's not really new. It's maybe new as it applied to startups.

Joe Weisenthal (3:11)

You've heard about it for a while.

Ethan Kurzweil (3:12)

I've been hearing about AI for, I don't know, a few decades or something like that.

Joe Weisenthal (3:16)

We'll talk about that.

Ethan Kurzweil (3:17)

We'll get there. But that's now kind of, the building blocks are now there, the technology startups, without a lot of capital can take advantage of it. And so that's getting people kind of very, very excited again. Even as everyone knows, there's still this fresh memory in everyone's head of how we kind of overcapitalized everything. And so those two forces are sort of countervailing. And it's having some interesting impacts that I think we'll probably get into.

Tracy Alloway (3:41)

We definitely will. The new fund, why does the world need a new venture capital fund? Or if I was going to phrase it more diplomatically, like what is it that you can do at chemistry that you couldn't do at Bessemer?

Ethan Kurzweil (3:54)

The world does not need a new venture capital fund. That's the last thing the world needs.

Joe Weisenthal (3:58)

After chemistry launched, that was the last one we needed.

Ethan Kurzweil (4:01)

Even before chemistry launched, we were oversupplied on venture capital funds. But the world does need the right venture capital fund. And I'll get to why we launched chemistry in a second. But I do think the effect of the capital that came into the asset class over the past five to 10 years has been to create a little bit of a misalignment, a misalignment between LPs, that's whose invest in venture firms, and the venture managers, and then a misalignment with founders, ultimately. And that's what got us this sort of passionate idea to bring venture back to its roots. Chemistry is sort of a simple idea. It's a boutique venture firm. It's small, it's designed to scale very slowly. It's that we are not a hyper gross startup, even though we try to find those to invest in. We want to bring some sort of personal service back to venture capital. We don't have big teams of people. We are the portfolio services team that works kind of hands on with our startups. And that ethos we felt like was missing from a lot of the way that kind of as the asset cuts got institutionalized, you lost a little bit of the personality and the personal relationships. And we felt like it didn't have to be that way. There's nothing bad about the way venture used to be practiced. And that really it just became so missing that we felt like, okay, we'll go do this.