Todd Chaffee has long been one of the most senior members of the late-stage venture firm Institutional Venture Partners. Chaffee joined IVP in 2000 after logging six years at Visa, and went on to lead rounds in numerous prominent later-stage companies, many (but not all) of which have gone public, including Coinbase, Compass, Klarna, Kayak, Omniture, Pandora and Twitter.
It’s a good business to be in, particularly when companies are going public at that clip. Given that the IPO window is now shut indefinitely, we wondered what that might mean for the firm’s model.
Chaffee — who, like contemporary Bill Gurley, won’t be making new investments out of his firm’s next fund — talked with us about that question and what else the pandemic means to the venture industry and to him personally. Our chat has been edited for length and clarity.
TechCrunch: IVP last announced a fund in 2017. I assume one is coming soon that you cannot talk about — unless you can talk about it?
Todd Chaffee: Yeah, we’re currently investing Fund 16. That’s all I can tell you right now.
Do you think it’s time to bulk up even more, or size down? There’s maybe more opportunity but also check sizes are going to get smaller, seemingly.
I think it’s time to be very careful as a VC. I think all the venture capitalists are right now extremely busy tending to their portfolios. Like most firms, we’ve gone through our portfolio and put the companies into green, yellow and red categories. We’re fortunate because we’re later-stage growth investors, so our portfolio is very big and strong… we have the luxury of cherry-picking the best companies in the venture pipeline.
In terms of capital deployment, you know, my input is to be very careful with deployment of capital right now because we don’t know where we are in this recovery. We don’t know if this is some sort of modified V-shaped recovery. We don’t know if this is a U. I mean, there is also the L-shaped recovery that people talk about where we’re just in this general decline. [Either way] we are moving into the great reset of valuation. It’s what happens. The public markets will correct. And it takes usually a couple quarters for the private market to really realize that the game has changed. And that’s what’s happened. So any capital that’s deployed right now, you have to be really certain that there’s a strong rationale for making that investment right now.
What does the downturn mean for IVP’s model? In your words, you cherry-pick the best high-growth companies. Will you have fewer targets to choose from moving forward?
The situation we just had right prior to the COVID crisis was way too much capital in the market chasing too few opportunities. It’s not that hard to spot companies that are exceptional, right? And anytime you have that attractive venture investment, there has been a tremendous amount of capital chasing that opportunity. And guess what? The valuations have been crazy off the charts.
Now we have a situation where we have this valuation reset going on. For us, we just get more access to the top companies. They’re a little more open to taking capital from another firm. And any smart CEO out there right now should be — if they can raise the capital — [doing that] because the valuation trend is going to go down here for quite some time.
How does IVP think about the IPO market? Obviously, it was open and then it started to swing in the other direction last year. Now it’s shut for who knows how long.
I think the IPO market is completely shut and it’s going to be shut for a while. So your exit environment really becomes the M&A world. The good news is the big tech giants out there have significant balance sheets with a lot of cash on hand, and the smart ones will start making acquisitions.
[M&A] actually sometimes — believe it or not — makes it easier as a VC, because the company gets acquired, and boom, done, you know, [you get] a nice return and time to go home.
Frankly, some of the hardest decisions we have is when you have a company like a Twitter or a Snap. It’s easy to figure out whether you want to invest. It’s a fight to get into that deal. The hard part on those investments is that once it’s gone public and you’ve had a great return, then you’re really in a situation [where you think], ‘Wow, do we keep riding this growth or do we step aside?’ Those decisions are hard, and so in some respects, it becomes a lot easier when your exit is just handled for you through an M&A event.
IVP is not an investor in Airbnb, so can you share what you think of the $2 billion in debt that the company has taken on?
I haven’t gotten into the details. I saw it kind of at a headline level. But I think there is a lesson there for any entrepreneurs or CEOs who are listening. I mean, Airbnb is a great company, right? The qualities of Airbnb are incredibly strong on many fronts and the [newest] valuation is essentially half their last round, plus the terms around it. So that should be a message to other CEOs about this valuation reset that we’re talking about.
Over the years, I’ve always been amazed that CEOs always have a tendency to overvalue their company. I think it’s just a natural trait of being an entrepreneur and being optimistic. But there’s a new reality that’s starting to set in here today.
Your title is now advisory partner with IVP. What does that mean? Are you still actively involved in the firm and voting on deals? Do you lead deals?
That’s a program that we established a couple of months ago, and essentially, the way our firm operates is each of the partners are managing directors and general partners of each fund. And then we built this program where you could be a managing director and advisory partner once you’ve kind of done your time, so to speak, [meaning] you’ve been through many funds. And then you have the luxury of stepping back to pursue things like philanthropy, like I have been.
You recently formed a foundation called True Hero Fund that’s trying to get more equipment in the hands of the people who need it — the first responders, healthcare workers, others on the front lines.
We basically put together a pipeline for people to donate directly to medical professionals on the front lines. It was hard to just sit there and watch our best and brightest go into battle unarmed. And so I looked around for organizations that were directly supporting doctors, nurses and other front-line medical professionals and couldn’t find anything [that was going far enough]. So [my wife Kat and I] decided, well, let’s just create something.
You’ve donated $1 million to the effort and will match up to another $1 million. Do you have a personal connection to this crisis? Was it mostly driven by news reports?
It was mostly driven from news reports [though] I’m acutely aware and sensitive to the situation owing to a mountain biking accident about five years ago.
I broke my neck in seven places and broke seven ribs and both shoulders and was in intensive care for three days. And I’ve had six surgeries since — spinal surgeries and shoulder surgeries, et cetera. So I’ve actually spent quite a bit of time around doctors and nurses and been in that vulnerable state. And I really came to appreciate just how heroic and amazing these people are. From my perspective, they’re the best and brightest of humanity. They’re the most evolved, they’ve chosen to care for other people. And so I’m very sensitive to those people being in trouble.
