Table of Contents
Jay Hoag of TCV, who led investments in Netflix and Spotify, reveals why he's skeptical of AI enthusiasm and explains the timeless principles that built a 30-year investment franchise worth billions.
After three decades of technology investing, this veteran VC warns against chasing shiny objects and shares the contrarian strategies that generated outsized returns through multiple market cycles.
Key Takeaways
- TCV's 30-year track record proves that growth investing between early-stage venture and buyout private equity offers superior risk-adjusted returns
- Every great technology company goes through a "desert of disillusionment" where investors lose faith before ultimate success emerges
- AI enthusiasm has distracted investors from fundamental business metrics like commercialization timelines and defensible monetization models
- Consumer internet businesses represent undervalued opportunities as venture capital herds toward enterprise software and AI infrastructure
- Technology commercialization consistently takes longer than predicted, with autonomous vehicles and AR/VR still seeking scalable business models
- TCV's concentrated portfolio approach (20-25 investments per fund) requires high conviction rather than early-stage spray-and-pray strategies
- The firm's data intelligence system tracks 11 million technology companies but ultimately invests in only 6-10 annually through rigorous selection
- Long-term holding strategies prove most rewarding despite public market volatility and second-guessing during downturns
The Contrarian Case Against AI Investment Frenzy
Jay Hoag has witnessed every technology hype cycle over three decades, from the internet bubble to mobile computing to today's AI explosion. His perspective on current AI enthusiasm reflects hard-earned wisdom about distinguishing transformative technology from investment opportunities.
"I kind of wish that the AI enthusiasm hadn't distracted everybody," Hoag admits, expressing concern that widespread AI focus has created dangerous blind spots across the venture industry. His skepticism isn't about AI's potential—it's about timing, commercialization challenges, and the human tendency to overestimate near-term impact while underestimating long-term transformation.
The core issue lies in confusing technological capability with business opportunity. Many AI companies today showcase impressive technical demonstrations but struggle with fundamental questions about customer adoption, pricing power, and sustainable competitive advantages. Hoag has seen this pattern repeatedly: breakthrough technologies that capture investor imagination years before generating meaningful revenue.
This phenomenon extends beyond AI to autonomous vehicles and AR/VR technologies, where "pure technologists said it was ready for prime time five to seven years ago" but commercial scale remains elusive. The lesson isn't to avoid emerging technologies—it's to distinguish between technological readiness and market readiness.
The Growth Investing Sweet Spot Between Risk and Returns
TCV's three-decade success stems from identifying a specific opportunity gap in venture capital markets. While early-stage investors make high-risk bets on unproven technologies and private equity firms focus on mature businesses with financial engineering potential, growth investing targets companies after technology risk has been eliminated but before growth potential is fully realized.
This positioning offers unique advantages for risk-adjusted returns. "We're investing after the technology risk has been eliminated," Hoag explains. "A product or service is available, consumers are touching it or enterprises are touching it. Our job then is to evaluate the rate of market adoption and help grow those companies."
The strategy requires different skills than early-stage pattern recognition or buyout operational expertise. Growth investors must assess market dynamics, competitive positioning, and scalability factors for businesses already demonstrating initial product-market fit. Success depends more on execution analysis than technological vision.
TCV's track record validates this approach through companies like Netflix, Spotify, Expedia, and Revolut. Each investment occurred after proving core technology capabilities but before achieving massive scale. The firm's ability to identify and support exceptional management teams during crucial growth inflection points has generated consistently strong returns across multiple market cycles.
Consumer Internet: The Overlooked Opportunity
While venture capital herds toward enterprise software and AI infrastructure, Hoag sees significant opportunity in overlooked consumer internet businesses. The mass exodus from consumer investing creates exactly the contrarian conditions that historically generate outsized returns.
"Everyone can be contrarian and we continue to see interest in private opportunities that most of the world's not focused on," he observes. The fundamental opportunity set remains compelling: 5 billion smartphone users with incredibly high engagement across gaming, music, entertainment, and social platforms should create enormous opportunities for new consumer franchises.
The challenge isn't market size—it's breaking through established players' virtual shelf space and user attention. However, this has always been difficult in consumer markets. The current lack of investor attention simply means less competition for the best opportunities and more reasonable valuations for companies that achieve breakthrough traction.
Historical perspective supports this contrarian view. Many of today's dominant consumer platforms faced similar skepticism during their growth phases. Instagram sold for $1 billion when many considered it overvalued. TikTok emerged despite numerous failed short-video predecessors. Consumer markets reward authentic innovation and superior user experience regardless of investor sentiment.
The Desert of Disillusionment: Learning from Netflix's Journey
TCV's Netflix investment exemplifies the "desert of disillusionment" that every great technology company traverses. Founded in 1998 as a DVD-by-mail service, Netflix initially struggled with unattractive unit economics from its rental model before subscription unlocked growth potential and profitability.
The company filed to go public in 2000 just as markets collapsed. "It went down 60% twice—that's not very fun," Hoag recalls. The 2001 restructuring financing TCV led required conviction when "there was no bid—zero equity providers" for Netflix shares. This period tested fundamental beliefs about the business model and management team quality.
Even after going public in 2002, Netflix "traded down for a while and traded sideways for like six years" while building streaming capabilities and content library. Public market investors couldn't envision the transformation from physical media to digital entertainment that would eventually make Netflix worth nearly $500 billion.
The lesson isn't specific to Netflix—every major technology company faces similar periods where growth stalls, competition intensifies, or market conditions create doubt about long-term prospects. Microsoft "wandered in that desert for more than a decade" from an investor perspective. Apple "was left for dead in 2000" before mobile transformation.
Successful long-term investing requires distinguishing between temporary challenges and fundamental business problems. This skill develops through pattern recognition across multiple market cycles and deep understanding of specific company competitive dynamics.
Systematic Sourcing in an Information-Abundant World
TCV's evolution from manual sourcing to AI-powered data intelligence reflects broader technology industry transformation. The firm now tracks 11 million technology companies through automated systems that analyze employee growth, app downloads, product usage metrics, and other leading indicators of potential investment opportunities.
This systematic approach solves a fundamental venture capital problem: how to identify promising companies before competitors while maintaining rigorous evaluation standards. Traditional sourcing relied on personal networks, trade shows, and manual research that couldn't scale effectively across global markets.
The current system ingests massive data streams and scores companies based on growth trajectories and other success predictors. However, technology serves decision-making rather than replacing human judgment. "We're much better as humans allocating our time and prioritizing certain companies over others" using data-driven insights.
The firm's weekly sector meetings and global pipeline discussions create structured processes for translating data insights into investment actions. The goal is building relationships with tomorrow's growth-stage companies while they're still developing—"working today on what might be a 2026 investment" for companies not yet ready for growth capital.
This long-term relationship building distinguishes successful growth investors from opportunistic capital. By the time companies need significant expansion funding, the best opportunities typically go to investors who demonstrated interest and provided value during earlier development phases.
The Three-Person Investment Committee and Concentrated Conviction
TCV's investment decision-making reflects the firm's concentrated portfolio strategy through a unanimous three-person investment committee. This structure ensures high conviction for every investment while preventing groupthink that might emerge from larger committees.
"It has to be unanimous on investments," Hoag explains, describing the final approval process that filters 11 million tracked companies down to 6-10 annual investments. This concentration ratio seems extreme but reflects growth investing's fundamental difference from early-stage venture capital approaches.
Early-stage investors often make 30-50 investments per fund, knowing most will fail but hoping a few generate extraordinary returns. Growth investors can't rely on power law dynamics because they're paying higher prices for more mature businesses. Success requires being right more often, which demands deeper conviction about each opportunity.
The three-person committee balances different risk tolerances and perspectives while maintaining decision-making efficiency. Hoag describes himself as "more on the aggressive side" regarding non-consensus opportunities, recognizing that "if you're right, it's often where the excess returns are."
This approach has enabled TCV to back category-defining companies while avoiding the dilution effects of over-diversification. When Netflix represented 43% of the fund at IPO, concentration created both enormous returns and enormous risk. Managing this tension requires exceptional company selection and the temperament to maintain conviction during inevitable market volatility.
Long-Term Holding Through Public Market Turbulence
TCV's strategy of holding successful investments through public market transitions creates unique challenges around timing, portfolio management, and external pressures. The firm typically retains stakes in portfolio companies after IPO, believing the best businesses compound value over decades rather than quarters.
This philosophy proved rewarding with Netflix and Spotify, where continued holding generated far greater returns than immediate post-IPO liquidation. However, it requires withstanding periodic market corrections and constant second-guessing about timing decisions.
"When they go through periods of material revaluation in the public market, you get second-guessed at the wazoo and sometimes you second-guess yourself," Hoag admits. The 2022 technology correction prompted widespread questions about why TCV hadn't sold everything at 2021 peaks.
The answer reflects fundamental beliefs about market timing impossibility and compound growth power. "If you could predict when the market's going to sell off, that'd be a productive discussion to have. But I don't think one can predict that." Instead, TCV focuses on identifying businesses capable of sustained growth regardless of market conditions.
Fund structure limitations eventually require distributions, preventing indefinite holding of the best performers. Netflix at $480 billion market cap would represent an impossibly large position if TCV still owned its original 43% stake. This tension between economic optimization and structural constraints affects every venture capital firm managing successful investments.
Consumer Behavior Insights and Market Timing
Hoag's consumer internet optimism stems from observing fundamental user behavior changes that create new business model opportunities. Despite dominant platforms' network effects, consumer preferences continue evolving in ways that enable breakthrough companies to achieve massive scale.
The smartphone revolution enabled entirely new categories of consumer engagement, from ridesharing to food delivery to short-form video. These weren't incremental improvements to existing services—they were novel experiences impossible without mobile computing, location services, and ubiquitous connectivity.
Similar infrastructure improvements continue creating consumer opportunity. 5G networks, augmented reality capabilities, and improved AI interfaces will likely enable new consumer experiences that seem obvious in hindsight but remain unimaginable today. The key is identifying early signals of behavior change rather than extrapolating from current usage patterns.
TCV's data intelligence capabilities provide unique visibility into consumer adoption patterns across global markets. Employee growth at consumer companies, app download trends, and user engagement metrics often signal breakout potential months or years before financial metrics reflect underlying strength.
This analytical approach complements intuitive pattern recognition developed through decades of consumer investing experience. Success requires both systematic data analysis and qualitative judgment about product-market fit sustainability and competitive positioning.
Macro Factors and Technology Investment Strategy
Unlike previous decades when technology operated largely independently from broader economic and regulatory trends, today's venture investing must account for geopolitical tensions, trade policy, and regulatory oversight of large technology platforms.
"The focus on macro, which is not something I spent a lot of time focusing on, really is different," Hoag observes. "Regulation of tech, how do tariffs impact global trade—all those issues which really were never part of the lexicon or focus for technology is probably something that's pretty new."
These macro considerations affect company operations, market access, and exit strategies in ways that purely technological analysis cannot capture. Supply chain disruptions, data privacy regulations, and national security concerns influence business model viability for many technology companies.
However, Hoag maintains skepticism about macro forecasting accuracy: "It's very difficult to figure out. A lot of people are talking with great authority about that which I think they know very little—that includes myself." This humility about prediction capabilities reinforces focus on fundamental business quality rather than macro timing.
The best technology companies historically demonstrated resilience across various economic and regulatory environments. Companies like Netflix showed minimal churn rate differences during recessions, suggesting high-quality technology services maintain customer loyalty regardless of broader conditions.
Building an Enduring Investment Partnership
TCV's 30-year evolution from startup to established franchise offers lessons about building sustainable investment businesses beyond individual track records. The firm's survival through multiple market cycles required adapting to changing competitive dynamics while maintaining core investment philosophy.
"It requires a lot of resilience because we've been through so many crises," Hoag reflects. "Like a company founder, you have to be ready to deal with adversity, to deal with people thinking you don't know what you're doing." This parallel between founding companies and building investment firms highlights similar psychological demands for long-term vision despite short-term setbacks.
Succession planning becomes crucial for multi-decade partnerships. TCV's transition to John Dorne as day-to-day leader reflects systematic development of next-generation leadership while maintaining institutional knowledge and relationships. The 20-year age gap provides natural transition timing while ensuring continuity.
Talent development and retention challenge every successful investment firm as experienced professionals launch independent ventures or join larger organizations. TCV's approach emphasizes identifying "stunning colleagues" who operate at order-of-magnitude performance differences rather than incremental improvements over average performers.
The firm's decision to remain focused on technology rather than expanding into other growth categories reflects belief that specialization enables superior returns despite narrower market opportunities. This contrarian approach to business development prioritizes excellence over scale, betting that deep expertise compounds value more effectively than diversified mediocrity.
Common Questions
Q: Why is Jay Hoag skeptical about current AI investment enthusiasm?
A: He believes AI enthusiasm has distracted investors from fundamental business metrics and commercialization timelines, similar to previous technology hype cycles.
Q: What makes growth investing different from early-stage venture capital?
A: Growth investing targets companies after technology risk is eliminated but before full market potential is realized, offering better risk-adjusted returns.
Q: How does TCV identify investment opportunities among millions of companies?
A: The firm uses AI-powered data intelligence to track 11 million technology companies, then applies human judgment through systematic evaluation processes.
Q: Why does TCV focus on consumer internet when most VCs avoid it?
A: Hoag sees contrarian opportunity in overlooked consumer businesses, believing 5 billion engaged smartphone users create enormous potential for new franchises.
Q: What is the "desert of disillusionment" that great companies face?
A: It's the period where successful companies face investor skepticism and market doubt before achieving long-term
