Melting the Ice: Menlo Ventures' Approach to VC Winter with Matt Murphy | 2024 Upfront Summit

**Kobie Fuller** (0:00)
Matt, I'm super excited to welcome you to the upfront stage.

**Matt Murphy** (0:04)
Thank you. Awesome to be here.

**Kobie Fuller** (0:06)
Yeah, we're going to have a good conversation here.
Being able to hear all of Matt's wisdom for a couple of decades plus, not to age you, but I think that's incredibly important to put in context in terms of the history you've had in this field and in this industry. And lots of people are saying venture is really hard right now, that it's hard to raise a fund, it's hard to manage portfolio companies, burn rates, internal partner dynamics. And I'd love to maybe start off by just getting a sense from you, just your mindset right now as it relates to just this overall world of venture capital that you're living and operating in.

**Matt Murphy** (0:52)
Sure.
Well, first of all, it's not unusual for it to be hard. It's supposed to be hard, right? Like this is a hard business, and we go through these cycles when people think the business is overly easy.
You know, anecdotally, when I started in the venture business, firms used to spend about 80% of their time on the portfolio. And that kind of ebbs and flows with cycles when companies seem like they need less help and less energy when everything's kind of working. And then you get back to those cycles where it's really true. But over the last several years, it flipped to more be more firms spending more like 80% of the time sourcing, 20% of the time on portfolio. And that's just not what the business is about. So this is creating the rigor where we all get back to what makes helps make this industry stronger, which is investors digging in, really adding value with their entrepreneurs, building trust, things of that nature.

**Kobie Fuller** (1:43)
Yeah, that's great. And just kind of getting back to work, which I'm excited to do. And I'd love to maybe put today's era in the context of the overall just cycles we've seen over the years. And, you know, the session is called Melting the Ice. And, you know, we've seen many, many winters over the last couple of decades. You know, this is a new winter or maybe not, depending on how you look at things. So how are you perceiving the current venture climate as it relates to past cycles you've been a part of?

**Matt Murphy** (2:14)
Sure. This one's unusual.
Like, 2000 was the ice age. Like, anything you invested in just wasn't going to work.
Even if you were spending 80% of your time on a portfolio, just there weren't, there wasn't some new platform cycle.
Buyers were on strike, all those kind of things.
2008 was more like of a flash freeze. It kind of came and went, and before companies ran out of money, things got better. This one's unusual because it's kind of like a long winter, but then spring is abounding around that. Green shoots are popping through the permafrost, and that's really because of what's going on in AI. But basically, if you look at the landscape of portfolio companies, companies decelerated their growth by 50% to 60% to 70%. So you went from a world where VCs thought every company should be growing at 100%, right? We like to invest in outlier companies. The problem is right now, there just aren't that many companies growing at 100%, and you've got massive portfolios of companies growing 30% to 50%. And so there's this kind of strange dynamic where VCs have enough of those in their own portfolio. So companies that would like to go out and raise, it's like, well, if you're growing 20% to 50%, I got enough of those. I don't need another one of those. So the kind of bid ask in the market is like, no, no, I only want the outlier. There aren't many outliers at 100% right now. So what do you do with those portfolio companies? That's what we're really all digging in on.

**Kobie Fuller** (3:40)
Yeah, and so you mentioned this whole hope that the spring is coming, you're seeing green shoots.
And I imagine, again, there's those companies you have where the founder feels like there's green shoots coming and there's being patient. But sometimes there's a delusional nature to what's actually happening. So how do you manage the dynamic of a founder trying to wait for those green shoots, continuing to do the same thing, but it's like, hey, something's going wrong here. How do you manage that dynamic?

**Matt Murphy** (4:07)
The main green shoot I was talking about was Generative AI. That's like just a brand new plant. But you take the old plant and now it's got some green shoots coming off. I mean, I think, first of all, when everything hit the fan in 2021, it was abrupt.