Last week, I sat down with Connie Chan, a general partner with Andreessen Horowitz who focuses on investing in consumer tech. She joined the firm in 2011 after working at HP in China.
From her temporary offices located in a modest skyscraper with unobscured views of San Francisco, we talked about where she sees the biggest opportunities right now, along with how big of an impact fears over coronavirus could have on the startup industry — and for how long.
Our conversation has been edited for length. You can also find a longer version of our chat in podcast form.
TechCrunch: There’s so much money flowing into the Bay Area and startups generally from all over the world. What happens if that slows down because of the coronavirus?
Connie Chan: It’s interesting, I was just talking to a friend of mine who is an investor in Asia, in China. And she said that some industries are going to suffer significantly. Restaurants, for example, are hurting [along with] any store that relies on foot traffic [like] bookstores and so forth. Yet you see a lot of companies also doing really well in this time. You’ll see grocery delivery as something that’s in high demand. Insurance is in very high demand. People are spending more time at home, so whether it’s games or streaming or whatever they’re doing at home is doing well. Lots of my counterparts in China are also taking all their pitches via video conference. They’re still doing work, but they’re all just working from home.
Where do you think we’ll see the biggest impact most immediately?
Travel is a big one. People might not be wearing face masks at airports [yet in the U.S.], but I think people are thinking twice whether or not they want to go on vacation to certain parts of the world.
You also have a new investment, an online events startup, that relates to travel getting canceled.
It’s very relevant… I’ve always thought that the world needed a better way for people to find like-minded folks online to connect with [others] outside of traditional social networks. And so I met these two founders who are former Facebookers who also had this vision of creating a digital version of going beyond just [event] speakers streaming from one to many but [that allows] you to also sell [a variety] of tickets, you get to talk to the speaker, maybe jointly stream to everyone… But really, interestingly, how do you recreate the social-networking aspect of networks and conferences, because a big reason why we go to conferences is to get to talk to that speaker [or] to connect with other attendees. So their expertise, coming from Facebook, has really been: How do you recreate that kind of social environment where you can interact with the speaker and also interact with attendees…?
Did they react quickly to what’s happening in the world now, or have they been working on this for some time?
They’ve been working on this for some time. We made this investment last year. But, of course, with the virus, it’s really accelerated a lot of things where a lot of conference organizers have had to cancel their conferences, or people who are planning to host the conference in the spring are now saying, “Hey, maybe I can do an online alternative.”
Let’s talk about another type of e-commerce; direct-to-consumer brands. Last week, the Business of Fashion reported that Outdoor Voices is [slowing down on the growth front]. How does a brand compete when it’s forever getting crowded out by even newer brands?
Marketing and branding is absolutely key to stand out amongst the competition. And I think the ones that do well are ones that also capitalize on kind of general sentiment that’s changing. So, for example, if you talk to a lot of younger millennials or [members of] Gen Z, the idea of inclusiveness is very important to them, embracing people of all different body sizes, all different types of genders and so forth. So companies that are changing their messaging for that kind of idea of inclusiveness are taking a very different stance versus existing companies like Victoria’s Secret, which you saw recently was valued at [just] $1.1 billion.
Part of that is you’re seeing a rejection from younger audiences of one single standard of beauty.
But is it harder to continue to be heard when the platforms where these newer brands are reaching their audience are so saturated?
Given that there are so many new [direct-to-consumer] brands out there, your customer acquisition cost is basically going up for most brands [and] I don’t see that slowing down. And I do think that is something that all investors are thinking about when they make these investments, They’re very cognizant that your CAC today is likely to go up next year and the year after that, so you really have to find these categories that have really good margins to work with and that can sustain that rise in customer acquisition costs.
Are you interested in new items that are maybe untested, maybe like Birdies‘ slippers for outdoors, which wasn’t something that consumers had maybe heard of before, or else just a much better version of something already in the market?
As a firm, we tend to not invest in many of these companies; we more gravitate toward software-driven, technology-driven companies. I will say if I were to pick a [direct-to-consumer] space, I would be picking a space where I thought the market was where consumption of a particular type of product was growing across the board. Some of that might be generational; some of it might just be societal change.
For example, I think about Perfect Diary, which is a Chinese makeup brand that has really taken off and is now worth several billion dollars in China. A large part of that is because makeup consumption has risen dramatically in the last couple of years in China, where a lot of the younger teenagers readily buy makeup now. They also have another trend on top of that, which is they’re willing to buy domestic brands as opposed to the European brands that we’ve all grown up on. And so there, you have a growing market; you have also this changing sentiment of what that brand stands for — and where it had to originate from — that allows a company to grow very quickly.
So I think for DTC, it’s less specific almost about what the product is, but the market they’re going after, and what kind of margins you have to play with from a marketing standpoint.
I know you’re also interested in this idea of super apps. Want to explain to readers what that term means?
This super app theory is basically that you can take a product that used to be only used for a singular purpose and can add on other things that might be ancillary or might actually seem completely unrelated but are still relevant for that particular user from a business definition. Oftentimes it’s using either a long-term engagement or a high-frequency-use app to lead-gen for these lower-frequency but very high-margin products.
From a consumer standpoint it’s really, “what else would I need from the internet or from another service provider that this app can also provide me in the same place so I don’t have to go download another app?”
Uber is a great example of this; it brings you food, it takes you places. [Founding CEO] Travis [Kalanick] always sort of imagined it being a logistics company that did all these things for you.
The idea that you can order food and hail a car from one app is a perfect example. You tend not to need both things at the same time, but it’s great not to have to download two apps.
When you look across the next 18, 24, 36 months, do you imagine people using a much smaller set of apps then?
I think it’s possible. A lot of that will come down to the execution of these existing companies and how well they integrate those kinds of services. But I definitely think that kind of world is possible. I look at China and how you can basically live your entire day in WeChat. You can function in China without using a single other application because that one application is connected to everything, just like a mobile browser can connect you to everything. And that world is technically possible. It really is just, how do you execute on it and how will society adopt it in other countries.
Who in the U.S. do you think is the closest to WeChat or has the best chance to become the WeChat of the U.S.?
WeChat started as a communications platform, so naturally you would think communication is a great place. But the other big ingredient of a super app is the payments layer, or some kind of connection to either your credit card credentials or your bank account. So in that sense, anything else that powers transactions also has a really good shot of doing it right. Like, if I’m using DoorDash to order food, why not also use it to order X and Y and Z that also requires a credit card checkout or also requires some kind of logistical delivery.
If you look at GoJek or Grab in Southeast Asia, that’s exactly what they’ve done. They started in transportation, but they also do grocery, they do food, they do loans, they do fintech. They do everything in one place.
I know you’re also tracking how technology is showing up in the physical world and facial recognition, which people have such a conflicted relationship with. It makes things a lot easier — you open your phone with it, you can get scanned into [places] more easily [like an office] where you feel comfortable. But obviously there are huge concerns around privacy, around racial profiling.
The trick I hear is to cover your ears. The ears are actually a big identifier. Everyone’s ears are so different.
You’re kidding… that is really fascinating; I had no idea. But what do you make of this conversation we [as a country are] having about facial recognition technology?
It’s controversial, for sure. And there are a lot of people who see the good and the bad of it, though I think what people don’t realize is it’s already being implemented in places in the United States. There are schools that are already using it to protect their campuses. There are some airports that are already using it to allow people to check in. And it’s unclear where the sentiment will ultimately land, but we have seen so many cases where decreasing friction and ease of use oftentimes trumps privacy concerns, for better or worse.
Given that it’s controversial, as an investor, is it tricky terrain for you?
What’s interesting is the technology is just not around the face. I mean, there are parking garages where they can scan your license plate and now you don’t have to take that paper ticket… and you can go in and out of a garage in 10 seconds. Lots of things are increasing efficiency. But it’s unclear how the public is going to take to that kind of change in privacy.