WEBVTT - A16Z's David George on How Private and Public Markets Fused Into One 0:00:02.720 --> 0:00:16.480 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.560 --> 0:00:22.280 Hello and welcome to another episode of the Odd Lots podcast. 0:00:22.360 --> 0:00:24.000 I'm Jill Wisenthal. 0:00:23.560 --> 0:00:24.639 And I'm Tracy Alloway. 0:00:24.960 --> 0:00:27.960 Tracy, it feels like twenty twenty six could be a 0:00:27.960 --> 0:00:31.320 big year for some mega IPOs that have been private 0:00:31.360 --> 0:00:34.720 for a while. There's talk about a SpaceX IPO possibly 0:00:34.840 --> 0:00:37.680 maybe some of the big AI labs, like some pretty 0:00:37.720 --> 0:00:40.800 massive companies that might be hitting the market soon. 0:00:41.000 --> 0:00:44.560 Someone recently gave me a Facebook ipo, yeah, from JP 0:00:44.680 --> 0:00:47.360 Mortgane and they worked on it. Like, I'm very proud. 0:00:47.400 --> 0:00:49.680 I need to start wearing it around the office. Yeah, 0:00:49.880 --> 0:00:52.120 but that was like that was a mega Yeah, that 0:00:52.200 --> 0:00:53.880 was a mega ipo at the time, and there was 0:00:53.880 --> 0:00:56.600 so much hype about it and then like technical difficulty, Yes, 0:00:57.480 --> 0:00:59.840 so many people eager to get in on that. 0:01:00.400 --> 0:01:02.480 It's so many funny people called that a flop, I 0:01:02.520 --> 0:01:05.200 guess because the technical difficulties and it didn't do that 0:01:05.240 --> 0:01:06.840 great for a little bit. That would have been a 0:01:06.880 --> 0:01:07.640 great time to buy it. 0:01:07.720 --> 0:01:08.039 Yeah. 0:01:08.080 --> 0:01:11.640 And the interesting thing about the market, or one of 0:01:11.640 --> 0:01:13.720 the interesting things about the market is you have these 0:01:13.720 --> 0:01:17.520 companies that are gonna IPO when they're already gigantic. So 0:01:17.720 --> 0:01:20.640 like people point out that in earlier eras they might 0:01:20.680 --> 0:01:22.840 have I piled when they're like billion dollar companies, and 0:01:22.880 --> 0:01:25.760 now they're like Octacorons or whatever. And then you have 0:01:25.800 --> 0:01:28.720 other companies that are also enormous, and there's no it's 0:01:28.760 --> 0:01:30.720 not clear that they're going to ipo it up at 0:01:30.720 --> 0:01:31.280 all at all. 0:01:31.400 --> 0:01:31.600 You know. 0:01:31.640 --> 0:01:34.760 I saw a headline about Stripe perhaps raising more money 0:01:34.760 --> 0:01:37.560 people they could have probably iPod years ago. And one 0:01:37.560 --> 0:01:40.800 of the questions I have is our companies choosing not 0:01:40.920 --> 0:01:44.440 to IPO or delaying IPO because the public market is 0:01:44.440 --> 0:01:47.880 not that fun, or because the private market has gotten 0:01:47.920 --> 0:01:50.880 so much richer, so much more liquid, et cetera, that 0:01:50.880 --> 0:01:53.680 that impulse to go public just isn't the same way 0:01:53.760 --> 0:01:55.440 as it might have been in a different generation. 0:01:55.640 --> 0:01:58.120 Yeah, this has kind of been a long running question 0:01:58.280 --> 0:02:00.640 in the market for a while now. But one thing 0:02:00.680 --> 0:02:02.320 I would just point out on the last point, it 0:02:02.360 --> 0:02:05.080 feels to me like companies in the private market, even 0:02:05.120 --> 0:02:07.640 though they're in the private market where presumably the pool 0:02:07.680 --> 0:02:11.400 of capital is smaller, Yeah, it feels like they're always fundraising. 0:02:11.800 --> 0:02:13.960 This is the only thing too, that like it used 0:02:13.960 --> 0:02:16.560 to be when I started covering tech companies is like 0:02:16.960 --> 0:02:19.079 your Series A round and Series B round and c. 0:02:19.560 --> 0:02:22.120 And now it just seems like this permanent round, especially 0:02:22.160 --> 0:02:25.480 with some of the AI can always be raising, always raising. Anyway, 0:02:25.840 --> 0:02:28.799 we need to learn more about how giant companies are 0:02:28.800 --> 0:02:32.280 thinking about capital markets, both public and private. And I'm 0:02:32.280 --> 0:02:35.040 really excited to say we do, in fact, absolutely have 0:02:35.120 --> 0:02:37.720 the perfect guest. We're gonna be speaking with David George. 0:02:37.720 --> 0:02:40.160 He is the head of the Growth Fund and in 0:02:40.240 --> 0:02:44.280 dres and Horowitz, a sixteen Z someone perfectly situated to 0:02:44.400 --> 0:02:47.080 explain of all these things that's going on. So, David, 0:02:47.120 --> 0:02:48.360 thank you so much for coming on. 0:02:48.400 --> 0:02:50.120 Odd lots, Hey, great to be with you all. 0:02:50.280 --> 0:02:51.280 What is a growth fund? 0:02:51.320 --> 0:02:51.600 What is that? 0:02:51.760 --> 0:02:54.239 I thought all VC was growth. What does it mean 0:02:54.520 --> 0:02:56.919 when we talk about a growth fund or a growth 0:02:56.960 --> 0:02:58.480 round when we're talking about private markets. 0:02:58.639 --> 0:03:00.440 Yeah, so our first of all, great to be with 0:03:00.480 --> 0:03:03.280 you all, Thanks for having me, excited to have this conversation. 0:03:03.880 --> 0:03:06.920 So our early stage funds invest in companies that are 0:03:06.919 --> 0:03:09.440 growing fast too, So if that's not clear, that is 0:03:09.480 --> 0:03:11.839 what we seek to do across Allipole's capital for us. 0:03:12.120 --> 0:03:14.919 The Growth Fund is a fund that invest in companies 0:03:15.000 --> 0:03:17.120 at the later stage of their life cycles, so typically 0:03:17.160 --> 0:03:20.600 once they found product market fit, and our early stage 0:03:20.600 --> 0:03:23.600 funds investing companies early stage when they're kind of trying 0:03:23.639 --> 0:03:26.240 to find product market fit, we invest in companies once 0:03:26.280 --> 0:03:29.040 they have found product market fit. So that's the delineation. 0:03:29.760 --> 0:03:32.640 Right now. We're investing out of our fifth growth fund. 0:03:32.639 --> 0:03:35.840 It's about a seven billion dollar fund. If you combine 0:03:35.960 --> 0:03:38.200 the committed capital of our five funds, it's about twenty 0:03:38.240 --> 0:03:40.880 two billion dollars in overall committed capital. 0:03:41.520 --> 0:03:46.080 What percentage of the Growth fund is sort of directly 0:03:46.120 --> 0:03:50.120 obtained from the early stage funds because I imagine that's like, 0:03:50.200 --> 0:03:52.760 that's a good pipeline for you guys, right, Yeah, it's. 0:03:52.640 --> 0:03:54.880 A great pipeline for us. We do both. So we 0:03:54.920 --> 0:03:57.960 have examples of investments out of the early stage and 0:03:58.200 --> 0:04:00.839 in companies that, for whatever reason, we were not early 0:04:00.880 --> 0:04:03.960 stage investors. So some of our largest investments in the 0:04:03.960 --> 0:04:07.360 Growth fund are companies like Data Bricks and Stripe that 0:04:07.440 --> 0:04:09.760 we were early stage investors in. And then some of 0:04:09.800 --> 0:04:13.440 the largest investments are companies like SpaceX and open Ai 0:04:13.560 --> 0:04:16.200 and Waimo and Roadblocks and Pigma that we were not 0:04:16.279 --> 0:04:18.479 early stage investors in. And The first time that we 0:04:18.520 --> 0:04:21.280 invested was in the growth fund, so it's about fifty 0:04:21.279 --> 0:04:23.800 to fifty. We love to invest in companies where we 0:04:23.839 --> 0:04:25.400 know the founders really well. One of the things we 0:04:25.400 --> 0:04:27.760 talked about all the time is game film. This is 0:04:27.800 --> 0:04:31.200 something that public market investors are very familiar with. They 0:04:31.200 --> 0:04:33.760 look for game film. They want to back CEOs management 0:04:33.800 --> 0:04:37.320 teams that have demonstrated continued success, and we seek to 0:04:37.360 --> 0:04:38.760 do the same thing the private markets. 0:04:39.000 --> 0:04:43.400 I like how Andrisian Horowitz is so influential and dominant 0:04:43.640 --> 0:04:46.600 that if you just name a bunch of random, big 0:04:46.640 --> 0:04:49.839 companies that are all sort of like the most important, 0:04:50.040 --> 0:04:52.840 like growing tech companies, they're actually just going to all 0:04:52.880 --> 0:04:56.920 be you know, like when I said SpaceX, Data, Bricks, Stripe, etc. 0:04:57.120 --> 0:04:59.800 I didn't purposely say they try to name a bunch 0:04:59.839 --> 0:05:03.560 of by sixteen Ze family companies. They just incidentally happened 0:05:03.600 --> 0:05:03.760 to me. 0:05:04.040 --> 0:05:04.599 What are you like? 0:05:04.680 --> 0:05:08.520 Let's start big picture with this question of companies staying 0:05:08.560 --> 0:05:12.480 private for longer, especially thriving companies, companies that are doing 0:05:13.000 --> 0:05:16.200 very well, ipoling if at all, much later in their 0:05:16.200 --> 0:05:18.520 life cycle. There are a lot of specific questions, but 0:05:18.600 --> 0:05:21.800 big picture, what's the story, what's the main cause of this, 0:05:22.040 --> 0:05:23.240 the evolution of this trend. 0:05:23.839 --> 0:05:26.840 Yeah, absolutely, Well, first, I would love to just set 0:05:26.880 --> 0:05:30.320 the stage with what the what the data actually is, like, 0:05:30.400 --> 0:05:31.360 what's actually happened. 0:05:31.400 --> 0:05:33.400 If I'm totally wrong, that's also interesting. 0:05:33.640 --> 0:05:35.839 No, no, no, you're not totally wrong. I have a 0:05:35.880 --> 0:05:39.039 bunch of supporting facts to your statement. But the numbers 0:05:39.080 --> 0:05:41.240 are pretty eye popping. So if you look at the 0:05:41.240 --> 0:05:44.640 private market's highly value technology companies represent about five trillion 0:05:44.680 --> 0:05:47.559 dollars of market cap in the private markets, that's almost 0:05:47.600 --> 0:05:49.520 a quarter of the S and P five hundred. Wow, 0:05:50.040 --> 0:05:52.480 it's fifteen percent of Nasdaq. It's forty percent if you 0:05:52.520 --> 0:05:56.359 exclude the MAG seven. So it's just staggering numbers. To 0:05:56.440 --> 0:05:58.400 your point about some of the biggest and best companies 0:05:58.400 --> 0:06:00.760 in the world being in the private markets, the ten 0:06:00.920 --> 0:06:05.800 largest private companies represent forty percent of that five trillion 0:06:05.839 --> 0:06:08.920 of market cap. So this is a massive power law game, 0:06:09.120 --> 0:06:11.440 and the best of the best companies at that stage 0:06:11.680 --> 0:06:13.320 of their life cycle just happened to be in the 0:06:13.320 --> 0:06:15.599 private markets and not in the public markets. Right now, 0:06:16.279 --> 0:06:19.279 that private market kind of five trillion of market cap, 0:06:19.360 --> 0:06:21.880 that sector of the economy has grown ten x in 0:06:21.960 --> 0:06:25.960 ten years. At the same time, the number of public companies. 0:06:25.960 --> 0:06:28.080 You guys have probably covered this before. The number of 0:06:28.080 --> 0:06:30.840 public companies has been cut in half over the last 0:06:30.880 --> 0:06:34.960 twenty years. So this is just a massive shift in 0:06:35.000 --> 0:06:37.600 the composition of the public markets and the private markets, 0:06:38.040 --> 0:06:40.359 and the best of the best companies, as you said, 0:06:40.800 --> 0:06:44.280 largely are sitting in the private markets today. The other 0:06:44.320 --> 0:06:46.920 thing that we look for, you know, we're a growth fund, 0:06:46.960 --> 0:06:48.800 but growth means a lot of things. We look for 0:06:48.839 --> 0:06:51.360 companies that are growing, you know, sort of hyper growth. 0:06:51.360 --> 0:06:53.720 We call it hyper growth, growing very very fast. You know, 0:06:53.760 --> 0:06:55.760 the average investment in our growth fund has grown about 0:06:55.800 --> 0:06:58.760 one hundred percent. If you look at the public markets today, 0:06:59.240 --> 0:07:01.960 there's only three companies in our universe that are growing 0:07:02.000 --> 0:07:06.040 over thirty percent. So if you actually want to invest 0:07:06.080 --> 0:07:09.760 in the highest growth, most promising companies that could be 0:07:09.800 --> 0:07:13.400 that next mag seven, chances are they're in the private market. 0:07:13.520 --> 0:07:15.760 So this is this is just a big shift in 0:07:15.840 --> 0:07:18.560 the dynamics. You know, certainly in the last twenty years, 0:07:18.600 --> 0:07:21.560 but even the last ten or fifteen. So that's the 0:07:21.640 --> 0:07:26.680 numbers behind the trend. The question is why, and you know, 0:07:26.720 --> 0:07:28.480 there's there's lots of reasons why this is the case. 0:07:28.480 --> 0:07:30.560 I mean, you mentioned it right at the outset. There 0:07:30.600 --> 0:07:32.800 are structural reasons in the public markets that make it 0:07:32.840 --> 0:07:34.560 harder to be a public company now than it was 0:07:34.600 --> 0:07:37.160 twenty years ago. I think the biggest thing is the 0:07:37.160 --> 0:07:39.800 private capital markets are deeper and more liquid than before, 0:07:40.240 --> 0:07:42.440 so there's less of a need for a company to 0:07:42.480 --> 0:07:45.320 go public until they need much, much, much much more 0:07:45.360 --> 0:07:47.800 capital In the private markets. For the best of the 0:07:47.840 --> 0:07:49.880 best companies, they kind of have the access to the 0:07:49.880 --> 0:07:53.560 capital that they need. It's a pretty compelling pitch for 0:07:53.640 --> 0:07:55.920 the founder to be able to stay in the private markets, 0:07:56.280 --> 0:07:59.440 have liquidity over time, if you're one of a select 0:07:59.480 --> 0:08:03.920 few can access capital, you know, in the private markets cheaply, 0:08:04.520 --> 0:08:07.000 you can kind of steadily control the stock price movements, 0:08:07.040 --> 0:08:11.040 you can regularly run tender offers, and you know, for 0:08:11.120 --> 0:08:13.720 a company, probably the hardest thing aside from access to 0:08:13.760 --> 0:08:16.880 capital is employee management. And if you can get pretty 0:08:16.920 --> 0:08:19.040 close to the dynamics that you get in the public 0:08:19.040 --> 0:08:22.520 markets without volatility, it's pretty compelling to remain in the 0:08:22.520 --> 0:08:23.280 private markets. 0:08:23.720 --> 0:08:25.640 So I have a bunch of questions on just the 0:08:25.680 --> 0:08:28.520 growth of private capital. But before we get to that, 0:08:28.560 --> 0:08:32.000 you said there are structural challenges in going public, and 0:08:32.400 --> 0:08:34.400 I guess the one we always hear is like, oh, 0:08:34.440 --> 0:08:37.800 you have to file quarterly paperwork. Like not the paperwork, 0:08:37.920 --> 0:08:40.719 which I actually sympathize with because I hate filling out 0:08:40.760 --> 0:08:43.680 forms and things like that, but like, what are the 0:08:43.760 --> 0:08:46.960 reasons that the public market is perceived to be so 0:08:47.040 --> 0:08:50.520 much more difficult or so much more of an operational 0:08:50.600 --> 0:08:52.400 headache I guess than private. 0:08:53.080 --> 0:08:55.880 Well, there is a cost. So you know, for a 0:08:55.880 --> 0:08:58.679 company the size of SpaceX or Data Bricks or open 0:08:58.720 --> 0:09:01.920 aer Strike, you know, it's not hugely meaningful, but for 0:09:01.960 --> 0:09:03.880 a smaller company, you know, it could be ten to 0:09:03.920 --> 0:09:06.720 twenty million bucks. And you know, if you're a company 0:09:06.720 --> 0:09:09.440 that would have gone public fifteen years ago, you know, 0:09:09.520 --> 0:09:11.840 five years into your life doing one hundred million bucks 0:09:11.840 --> 0:09:14.160 of revenue, that's pretty meaningful. Like that's a major change, 0:09:14.160 --> 0:09:18.359 and so you'll want to wait longer. Public markets, investors, 0:09:18.559 --> 0:09:23.120 investment banks, research organizations are tilted much more toward large 0:09:23.120 --> 0:09:26.040 cap companies or at least mid sized companies today and 0:09:26.360 --> 0:09:28.320 less so towards small cap. So if you're a small 0:09:28.320 --> 0:09:30.360 cap company, it's just very hard to get the attention 0:09:31.000 --> 0:09:34.800 of investors. You know, they can't write very large checks 0:09:34.800 --> 0:09:37.160 and build huge positions in you. You know, it may 0:09:37.200 --> 0:09:39.120 not be worth the investment banks time or the research 0:09:39.120 --> 0:09:41.760 analyst time to cover you. And so you know, if 0:09:41.760 --> 0:09:43.320 that's the case, it's hard to get the attention of 0:09:43.320 --> 0:09:45.640 good investors and make your stock price grow over time. 0:09:46.360 --> 0:09:49.319 So those are a couple examples of the structural challenges. 0:09:49.960 --> 0:09:50.120 You know. 0:09:50.160 --> 0:09:53.040 The other one is just volatility. You know, this generation 0:09:53.080 --> 0:09:56.040 of founders has seen the twenty twenty one run up 0:09:56.160 --> 0:09:58.800 and then the certainly in the technology market, and then 0:09:58.800 --> 0:10:01.800 the falloff in twenty two twenty three, and some of 0:10:01.840 --> 0:10:04.840 them have reset their stock prices in the private markets. 0:10:05.120 --> 0:10:07.079 But that was a volatile time. Like if you were 0:10:07.120 --> 0:10:10.520 issuing stock to an employee at the peak and then 0:10:10.920 --> 0:10:13.080 you know that employee was looking at their stock grants 0:10:13.080 --> 0:10:15.520 and saying, oh my gosh, these are down seventy percent, 0:10:16.040 --> 0:10:18.800 Like my comp just got cut by seventy percent. That's 0:10:18.840 --> 0:10:21.000 a hard dynamic for a founder to have to deal with. 0:10:21.040 --> 0:10:23.480 And if you can minimize some of that volatility in 0:10:23.520 --> 0:10:25.880 the private markets as a founder, I understand why you 0:10:25.880 --> 0:10:26.360 would do it. 0:10:26.640 --> 0:10:31.520 Talk to us about employee retention, employee management. Employees, you know, 0:10:31.559 --> 0:10:35.160 they love an IPO, they love liquidity, and okay, now 0:10:35.200 --> 0:10:37.760 you can have tender offers where they sell some of 0:10:37.760 --> 0:10:41.640 their stock to new investors. And then there's other dynamics too, 0:10:41.760 --> 0:10:44.880 like because there's all the SPVs out there, and maybe 0:10:44.920 --> 0:10:48.120 like tokens where someone can hedge their holdings in a 0:10:48.160 --> 0:10:51.760 private market on hyper liquid or something like that. Talk 0:10:51.800 --> 0:10:53.880 to us a little bit about the sort of the 0:10:53.920 --> 0:10:58.400 plethora of options that employees have now in private companies 0:10:58.679 --> 0:11:01.080 and getting that liquid and so they actually get some 0:11:01.120 --> 0:11:01.600 real money. 0:11:01.880 --> 0:11:03.760 Let me start by just explaining the way it works 0:11:03.760 --> 0:11:06.240 in the public markets, and you know, we can contrast 0:11:06.240 --> 0:11:09.000 the private markets with that. If you're a public market 0:11:09.040 --> 0:11:11.880 employee and you have RSU grants, this is basically the 0:11:11.880 --> 0:11:15.480 way it works. You get a quarterly deposit of net 0:11:15.679 --> 0:11:20.199 stock net of taxes in your account every quarter. And 0:11:20.240 --> 0:11:23.440 so if you're a highly paid employee at Meta or 0:11:23.640 --> 0:11:27.679 Alphabet or Apple, it's like clockwork you can get these grants. 0:11:27.760 --> 0:11:30.079 They hit your account. You have for some of the 0:11:30.120 --> 0:11:32.280 highest paid people, you know, hundreds of thousands or millions 0:11:32.320 --> 0:11:34.480 of dollars that hit you hit your account every quarter, 0:11:34.520 --> 0:11:37.120 and that's liquid. It's already netted of tax and so 0:11:37.160 --> 0:11:38.520 you can turn around and sell it and it's like 0:11:38.520 --> 0:11:41.560 cash comp or in the case of those companies, they've 0:11:41.840 --> 0:11:45.440 appreciated tremendously in value over the last ten years, and 0:11:45.520 --> 0:11:48.160 so the employees you know, who help the stock have 0:11:48.240 --> 0:11:52.040 been handsomely rewarded. Then they get RSU grants stacked on 0:11:52.080 --> 0:11:53.720 top of those, so you kind of have this like 0:11:53.880 --> 0:11:59.040 waterfall of RSU grants over time and increasingly, you know, 0:11:59.160 --> 0:12:02.840 over time, your orderly net deposit can go up. And 0:12:02.920 --> 0:12:07.960 so if you're a private CEO competing for talent, that's 0:12:07.960 --> 0:12:11.760 what you're competing with. And those companies are flushed with cash, 0:12:11.800 --> 0:12:13.920 and so they're able to pay a lot in stock 0:12:13.920 --> 0:12:16.160 based comp to their employees, and so that's a difficult 0:12:16.240 --> 0:12:19.480 dynamic to compete with. That's one of the strongest forms 0:12:19.480 --> 0:12:23.280 of the argument for telling a private company CEO that 0:12:23.280 --> 0:12:26.040 they should go public, because that is a very compelling 0:12:26.160 --> 0:12:29.880 financial reward for your employees in that public market situation. 0:12:30.320 --> 0:12:32.960 In the private markets, the way it typically works is 0:12:32.960 --> 0:12:35.440 you get you know, you get these RSU grants. Sometimes 0:12:35.440 --> 0:12:38.480 they stock up over time, but generally they're ill liquid 0:12:38.559 --> 0:12:41.400 until you go public. Now, what's happened over the last 0:12:41.800 --> 0:12:44.560 I'd say six or eight years. Is companies will do 0:12:44.640 --> 0:12:47.440 tender offers in the private markets where they offer to 0:12:47.520 --> 0:12:51.640 buy a certain percentage of employees vested stock in the 0:12:51.679 --> 0:12:54.520 private markets, so they'll set the price, they'll work with 0:12:54.520 --> 0:12:57.640 somebody like us, and they'll say something like, hey, you 0:12:57.679 --> 0:13:00.840 can sell twenty five percent of your vesteds doc that 0:13:00.920 --> 0:13:03.600 you have in this tender offer, and you know, we'll 0:13:03.640 --> 0:13:06.960 do it once a year. And so that's a decent 0:13:07.120 --> 0:13:10.319 substitute for what I described in the public markets. It's 0:13:10.360 --> 0:13:13.840 not a perfect substitute, but for you know, the employees 0:13:14.040 --> 0:13:16.960 or potential new hires who are true believers, I think 0:13:16.960 --> 0:13:20.280 it's enough to combat that RSU public market dynamic in 0:13:20.400 --> 0:13:24.480 compensation scheme. And you know, it's worked pretty well. SpaceX has, 0:13:24.600 --> 0:13:27.559 you know, famously done a really good job running twice 0:13:27.559 --> 0:13:30.480 a year tender offers for their employees, and you know 0:13:30.520 --> 0:13:34.920 they've had tremendous employee satisfaction, ability to hire, retention, et cetera. 0:13:35.280 --> 0:13:37.080 And some of the biggest tech companies have followed suit. 0:13:37.120 --> 0:13:40.240 And I would argue that there's a trade off that 0:13:40.720 --> 0:13:43.920 the founders and the private markets are making, where often 0:13:44.040 --> 0:13:46.320 if they were public, they probably would have a higher 0:13:46.360 --> 0:13:49.000 stock price, so maybe they're taking a little bit more dilution, 0:13:49.440 --> 0:13:52.720 and so maybe employees would benefit a little bit more 0:13:53.160 --> 0:13:56.040 in valuation in the public markets. But it's not a 0:13:56.080 --> 0:13:58.400 massive gap, and it's a it's a pretty compelling. 0:13:58.000 --> 0:14:17.600 Alternative just culturally out in San Francisco. Do people still 0:14:17.800 --> 0:14:21.240 expect like the default exit to be an IPO or 0:14:21.280 --> 0:14:22.920 has that mindset kind of gone away? 0:14:23.520 --> 0:14:27.200 The best of the best companies want to IPM and 0:14:27.520 --> 0:14:30.720 I think you mentioned some of the big name companies 0:14:30.720 --> 0:14:33.040 out there who may stay private for a really long time. 0:14:33.720 --> 0:14:36.720 You know, I think the ambition for most founders is still, 0:14:36.920 --> 0:14:40.040 you know, to have an IPO and to be a large, established, 0:14:40.080 --> 0:14:43.400 important public company. You know, we talked about the pools 0:14:43.400 --> 0:14:45.360 of private capital and how they've grown over the last 0:14:45.360 --> 0:14:48.000 ten years. The pools of capital and the public markets 0:14:48.000 --> 0:14:50.160 are still much deeper. So if you need to raise 0:14:50.760 --> 0:14:53.160 fifty one hundred, two hundred billion dollars like some of 0:14:53.160 --> 0:14:56.200 the big big companies may want to do to pursue 0:14:56.200 --> 0:14:58.480 some of their goals, chances are they'll end up in 0:14:58.520 --> 0:14:59.440 the public markets. 0:15:00.000 --> 0:15:02.160 The reason we wanted to have this conversation a few 0:15:02.200 --> 0:15:05.680 months ago, Tracy and I interviewed the Perplexity CEO, and 0:15:05.720 --> 0:15:08.960 he was talking about the rise of SPVs and wanting 0:15:09.000 --> 0:15:11.520 to say no to money. You know, people come to 0:15:11.560 --> 0:15:15.360 him with investment opportunities and then it's clear that they 0:15:15.440 --> 0:15:17.760 just want to package up that equity in some way 0:15:17.800 --> 0:15:20.520 and create a secondary instrument. And I know, you know, 0:15:20.680 --> 0:15:22.880 someone messaged me recently and they're like, I could get 0:15:22.880 --> 0:15:25.560 you some pre ipo anthropic shares and like that. I 0:15:25.560 --> 0:15:27.320 don't do that, but like, I know that there's a 0:15:27.360 --> 0:15:30.000 lot of interest in there. And you mentioned that if 0:15:30.040 --> 0:15:33.080 you really want massive growth at this level, that it's 0:15:33.120 --> 0:15:35.200 the only ones that are growing super big are the 0:15:35.200 --> 0:15:39.120 private companies. Talk to us about the emergence of SPVs 0:15:39.400 --> 0:15:41.960 and these third party entities, and you don't even know 0:15:42.000 --> 0:15:45.480 who's on your cap table and how founders are thinking 0:15:45.480 --> 0:15:46.440 about this phenomenon. 0:15:46.760 --> 0:15:49.560 I think founders for the most part, really don't like it, okay, 0:15:49.720 --> 0:15:52.440 because they want to know who is on their cap table. 0:15:52.600 --> 0:15:55.120 And there are certain types of investors who will come 0:15:55.120 --> 0:16:00.000 to the founders and misrepresent I think, what what vehicle 0:16:00.480 --> 0:16:02.280 or where the capital is actually going to come from. 0:16:02.560 --> 0:16:04.640 In our case, we don't do those. What we do 0:16:04.680 --> 0:16:07.280 is we invest directly out of our funds. You know, 0:16:07.320 --> 0:16:09.640 we make that a point of pride with the founders 0:16:09.680 --> 0:16:11.560 to say, hey, you know exactly what you're getting. We're 0:16:11.560 --> 0:16:15.760 going to shoot you straight for the SPB industry, you know. Look, 0:16:15.840 --> 0:16:19.360 it works when you know times are good, and it 0:16:19.400 --> 0:16:22.400 can be horrendous and bad. You know when times are bad. 0:16:22.480 --> 0:16:25.520 You know, Androl is one of our companies very close 0:16:25.560 --> 0:16:29.040 with we're one of the largest investors, and they have famously, 0:16:29.200 --> 0:16:30.880 you know, gone to war with some of the SPV 0:16:31.480 --> 0:16:34.680 hucksters who are trying to assemble capital to do a 0:16:34.720 --> 0:16:39.680 deal through some obfuscated way around them, and they say, look, 0:16:39.720 --> 0:16:41.480 we want to know exactly who's on our cap table. 0:16:41.840 --> 0:16:43.800 You know, we want to make sure that we're doing 0:16:43.840 --> 0:16:47.120 right by our shareholders. And so it's a risky maneuver. 0:16:47.400 --> 0:16:48.840 You know. It's not to say that there's not some 0:16:48.960 --> 0:16:51.120 that are good, but we try to avoid it and 0:16:51.160 --> 0:16:53.640 we try to counsel our founders to stay away from 0:16:53.680 --> 0:16:54.800 it as much as possible. 0:16:54.840 --> 0:16:59.040 So you mentioned Anderill, and can founders completely lock them 0:16:59.080 --> 0:17:01.120 out or like, how how does it work such that 0:17:01.200 --> 0:17:04.800 the founder doesn't want to have these vehicles get access 0:17:04.800 --> 0:17:07.080 to their equity and yet somehow they do. Anyway, what 0:17:07.200 --> 0:17:10.159 is the path into the company that these entities are taking. 0:17:10.480 --> 0:17:13.919 The example would be a fund shows up to the 0:17:13.960 --> 0:17:15.720 founder and says, yeah, we're going to invest out of 0:17:15.720 --> 0:17:19.080 this fund, and they have some legal entity name that 0:17:19.119 --> 0:17:23.359 they have is the fund, and then it's not fully 0:17:23.400 --> 0:17:26.600 clear to the founder that that legal entity actually will 0:17:26.640 --> 0:17:29.399 just be an assembly of a bunch of new investors 0:17:29.720 --> 0:17:33.200 that are only investing in that single vehicle. I would 0:17:33.200 --> 0:17:35.520 say the SPV interests is one other you know, sort 0:17:35.520 --> 0:17:38.760 of additional risk that comes with it. You know, our 0:17:39.119 --> 0:17:41.880 large investors are LPs. There's some of the largest institutions 0:17:41.880 --> 0:17:44.480 in the world. They trust us to make investments, and 0:17:45.040 --> 0:17:47.280 they actually like the fact that they're investing in a 0:17:47.320 --> 0:17:51.800 fund that has some degree of diversification. SPVs are inherently 0:17:52.119 --> 0:17:55.919 risky because they're they're single company and so you know, 0:17:55.920 --> 0:17:57.720 if that company happens to not go well and you 0:17:57.760 --> 0:18:00.760 invest in a sixteen ZES funds, you can live to 0:18:00.760 --> 0:18:02.399 fight another day because we have a number of other 0:18:02.440 --> 0:18:04.240 companies that are going to do really well at the 0:18:04.240 --> 0:18:06.480 fun level of returns will be good in an SPV. 0:18:06.600 --> 0:18:09.439 If that happens to not work for whatever reason, it 0:18:09.440 --> 0:18:11.600 could be devastating if you put a large amount of 0:18:11.600 --> 0:18:12.280 capital into it. 0:18:12.680 --> 0:18:15.240 Talk to us a little bit about pricing, because something 0:18:15.520 --> 0:18:18.000 you tend to hear is that, well, if you go 0:18:18.040 --> 0:18:20.920 to the private market, there are some benefits to that, 0:18:20.960 --> 0:18:23.080 but on the other hand, you're probably going to pay 0:18:23.160 --> 0:18:26.720 you a little bit more in terms of cost of capital. 0:18:26.760 --> 0:18:29.320 And then the other thing you hear is that, well, 0:18:29.359 --> 0:18:32.399 if everything is private, it's not necessarily being marked to 0:18:32.440 --> 0:18:36.359 market as often as the public market. So maybe there's 0:18:36.400 --> 0:18:39.639 some concern around pricing. You're not getting that wisdom of 0:18:39.680 --> 0:18:42.920 the crowds effect. You're just getting a bunch of tech 0:18:42.920 --> 0:18:45.600 bros investing in tech bros, and that can kind of 0:18:45.640 --> 0:18:47.520 be a self reinforcing cycle. 0:18:48.080 --> 0:18:48.320 Yeah. 0:18:48.359 --> 0:18:51.199 Look, I can always speak to our own business that 0:18:51.280 --> 0:18:55.040 we're in. I'd make two observations. One, I feel pretty 0:18:55.040 --> 0:18:57.040 strongly that if you took our portfolio and put it 0:18:57.040 --> 0:19:00.080 in the public markets, it would trade higher than the 0:19:00.080 --> 0:19:03.280 private markets, and so that speaks to the cost of 0:19:03.280 --> 0:19:06.120 capital trade off that the founders are making. It's benefited 0:19:06.160 --> 0:19:08.160 us tremendously because we've been able to invest in companies 0:19:08.200 --> 0:19:09.600 that we think are some of the best companies in 0:19:09.640 --> 0:19:12.879 the world. Later into their life cycle, then you know, 0:19:12.920 --> 0:19:15.000 we would have been able to ten years or so ago. 0:19:15.760 --> 0:19:20.879 Interesting data point if you look at the returns generated 0:19:20.920 --> 0:19:25.440 by dollars in the private markets historically over the last 0:19:25.600 --> 0:19:30.320 call it like seven years of good IPOs. About fifty 0:19:30.359 --> 0:19:33.600 percent of the dollars of gain in an IPO come 0:19:33.720 --> 0:19:37.640