Jeffrey Katzenberg, the media mogul turned venture capitalist, said he and his technology investment team at WndrCo have grown “cautious” about the U.S. economy and have begun pulling back a bit on their investments.
Katzenberg and fellow WndrCo founder Sujay Jaswa stressed in a joint interview with CRN that they’re still optimistic about the technology market in general and the security sector in particular.
But the two said they’ve grown anxious about aspects of the U.S. economy and have begun to make small adjustments in their investment tactics moving forward.
“The macro economy is certainly concerning,” Katzenberg told CRN. “I would say we have turned cautious as opposed to pessimistic.”
Jaswa, who oversees Los Angeles-based WndrCo’s overall investments and operations, said the VC firm has been making investment adjustments for a while now in reaction to market activity.
“We actually got cautious about a year and a half ago,” he said.
The net result has been that WndrCo, which was founded in 2017 and raised $750 million in its first fund, “deployed less capital” last year than in prior years, said Jaswa, the former head of global business and CFO at Dropbox.
“Speaking roughly, my guess is we deployed 50 [percent] to 65 percent [less], so half to two-thirds of our usual pace from a dollars-out-the-door standpoint.” said Jaswa. “We still did a number of investments. We just did smaller dollars per deal.”
Jaswa said WndrCo’s cautious attitude has been “definitely very different” from the attitude of the VC industry in general.
Indeed, the National Venture Capital Association reports that venture investments hit $329.9 billion last year, double the level in 2020, via 17,054 deals, a new record.
“Our view is when there‘s significant exuberance we get cautious,” Jaswa said. “And we’ve just, I think, stayed cautious as the public markets have turned.”
Over the past two years, the U.S. and global economies have been rocked by the worldwide coronavirus pandemic and the resulting supply chain woes, labor disruptions and other economic setbacks.
Early last year, the U.S. economy seemed to be rebounding, as new COVID-19 vaccines were rolled out and companies began aggressively hiring again. But inflation started reeling its head and is now at its highest rate in 40 years.
The bottom line: An increasing number of experts are concerned a recession may be around corner as the Federal Reserve prepares to regularly raise interest rates to combat inflation, as NPR recently reported.
Paco Lebron, president and CEO of ProdigyTeks, a Chicago-based MSP, said he’s not too surprised to hear that a venture capital firm like WndrCo is getting nervous about the U.S. economy.
He said MSPs have been struggling for a while now with an acute labor shortage that many attribute to the so-called Great Resignation, or workers who are declining to stay at or return to their old jobs now that the crisis stage of the pandemic seems to have passed.
“It’s just become so much more difficult to attract and retain talent,” said Lebron, who co-hosts a weekly podcast called “MSP Unplugged.”
Lebron also said many MSP customers, especially manufacturers, are still suffering from severe supply chain woes that are harming individual companies and the economy as a whole.
But even if a recession hits, Katzenberg, the co-founder of DreamWorks SKG and former chairman of Walt Disney Studios, said the cybersecurity sector—and WndrCo’s investments in security companies—should fare well moving forward.
Among the security companies in WndrCo’s portfolio are Aura, Twingate, Pango, 1Password, Id.me and ThreatOptix.
“Security is something that tends to be strong, no matter what the economy,” Katzenberg said. “And you can look at many aspects around the macro trends of security, they actually improve in difficult financial [times]. I don‘t think this will be any different.”
Due to recent high-profile cyberattacks and fears of yet more attacks, Jaswa said he doubts institutions will be quick to slash security spending should the economy tumble.
“If you‘re thinking about tightening your budgets in certain areas, security is going to be at the bottom of your list,” said Jaswa. “You’re not going to tighten that [security] budget unless the world is ending or something.”
Both Katzenberg and Jaswa said WndrCo has every intention of maintaining its heavy investment in cybersecurity.
“I think that cybersecurity on pretty much every level, whether it’s enterprise, SMB or consumer, it continues to be a massively important part of all of our lives,” he said.
Jaswa agreed cybersecurity will remain a major focus of WndrCo, but the firm will be shifting its invesmtnet focus moving forward, from consumer-targeted security to enterprise security.
“We started on the consumer side and that’s where our biggest bets historically were,” he said. “But
as we’ve gotten more deep in this market, I think you will see us do more and more on the enterprise side as well.”