1 00:00:04,840 --> 00:00:09,360 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:10,800 --> 00:00:14,000 Speaker 2: I'm excited with for today's episode. I'm only really excited to 3 00:00:14,000 --> 00:00:16,480 Speaker 2: talk about search funds if I'm being honest, because. 4 00:00:16,239 --> 00:00:18,720 Speaker 1: I want to get straight into you your future as 5 00:00:18,760 --> 00:00:19,480 Speaker 1: an h VAC tech. 6 00:00:19,640 --> 00:00:19,800 Speaker 3: Yeah. 7 00:00:19,800 --> 00:00:22,599 Speaker 2: I was reading this article as a guide, you know, right. 8 00:00:22,960 --> 00:00:25,319 Speaker 1: The appeal to the search fund is that, like, who 9 00:00:25,360 --> 00:00:29,160 Speaker 1: among us hasn't wanted to own a lucrative HVAC business 10 00:00:29,160 --> 00:00:29,880 Speaker 1: in New Jersey? 11 00:00:30,760 --> 00:00:35,120 Speaker 2: Just run into the swamps of New Jersey and get 12 00:00:35,120 --> 00:00:40,599 Speaker 2: into waste management. Wait, that's a different thing. It is similar, 13 00:00:41,040 --> 00:00:46,800 Speaker 2: I'm sorry about Yeah, right right, right, right, right, right right. 14 00:00:47,760 --> 00:00:50,520 Speaker 1: Hello, and welcome to the Money Stuff Podcast, your weekly 15 00:00:50,560 --> 00:00:55,200 Speaker 1: podcast where we talk about stuff related to money. I'm 16 00:00:55,240 --> 00:00:57,400 Speaker 1: Matt Levien, and I write the Money Stuff column. 17 00:00:57,200 --> 00:01:00,560 Speaker 2: For Bloomberg Opinion, and I'm Katie Greifeld, a reporter for 18 00:01:00,600 --> 00:01:02,920 Speaker 2: Bloomberg News and an anchor for Bloomberg Television. 19 00:01:04,520 --> 00:01:06,200 Speaker 1: Wouldn't that be a great story, though, if you're like 20 00:01:06,240 --> 00:01:08,560 Speaker 1: some twenty eight year old Harvard MBA and you're like, 21 00:01:08,560 --> 00:01:11,480 Speaker 1: I'm gonna start a search fund, and you scour the 22 00:01:11,480 --> 00:01:13,120 Speaker 1: earth and you send cold emails to a bunch of 23 00:01:13,160 --> 00:01:15,600 Speaker 1: people and you end up getting into the waste management 24 00:01:15,640 --> 00:01:18,800 Speaker 1: business in New Jersey, and you're like, oh great, now 25 00:01:18,840 --> 00:01:20,760 Speaker 1: I can be my own boss and like run this 26 00:01:20,840 --> 00:01:22,840 Speaker 1: licrative business. And then like the mob shows up. 27 00:01:23,640 --> 00:01:27,000 Speaker 2: Yeah, surprise, Yeah, now you have you have many bosses, 28 00:01:27,080 --> 00:01:33,199 Speaker 2: and they'll kill you. I'd never heard of search funds before, 29 00:01:34,120 --> 00:01:37,400 Speaker 2: even as a dedicated money stuff reader. I guess I 30 00:01:37,440 --> 00:01:41,600 Speaker 2: never absorbed it, but I was so charmed by this piece. 31 00:01:41,720 --> 00:01:43,959 Speaker 2: This is probably the longest article I've read in a 32 00:01:44,000 --> 00:01:46,240 Speaker 2: long time, but I wrote it start to finish in 33 00:01:46,319 --> 00:01:47,160 Speaker 2: Business Insider. 34 00:01:47,880 --> 00:01:50,320 Speaker 1: Right, there's a Business Insider story about search funds. I 35 00:01:50,320 --> 00:01:53,240 Speaker 1: love search funds so much because search funds are like 36 00:01:54,120 --> 00:01:57,200 Speaker 1: if you get a business degree from a fancy school, 37 00:01:58,720 --> 00:02:05,520 Speaker 1: the highest calling could be running a duct cleaning business, 38 00:02:06,000 --> 00:02:08,519 Speaker 1: or I always say pest control. Like pest control to 39 00:02:08,560 --> 00:02:10,360 Speaker 1: me is the archetypal search fund. I don't know if 40 00:02:10,360 --> 00:02:14,520 Speaker 1: it's actually that common search fund use, but basically, right, 41 00:02:14,560 --> 00:02:16,840 Speaker 1: a search fund is like you go to business school, 42 00:02:17,000 --> 00:02:21,240 Speaker 1: you graduate, you raise a like six or seven figure 43 00:02:21,919 --> 00:02:25,400 Speaker 1: fund from investors. The investors, I think are often like 44 00:02:25,480 --> 00:02:29,120 Speaker 1: your family, but sometimes are professional investors. Because the returns 45 00:02:29,120 --> 00:02:32,000 Speaker 1: on search ones are really good. And then you go 46 00:02:32,040 --> 00:02:35,440 Speaker 1: out and search for years to find a boring small 47 00:02:35,480 --> 00:02:40,119 Speaker 1: business who's somewhat aging owner is looking to get out 48 00:02:40,120 --> 00:02:44,079 Speaker 1: of the business and sell to some young whipper snapper, 49 00:02:44,760 --> 00:02:47,160 Speaker 1: and then you buy it and then you run it, 50 00:02:47,440 --> 00:02:50,840 Speaker 1: and you use the tips and tricks that you learned 51 00:02:50,840 --> 00:02:54,200 Speaker 1: in your two years of business school to like optimize it, 52 00:02:54,680 --> 00:02:57,480 Speaker 1: and you're like a little private equity king pin. Except 53 00:02:57,480 --> 00:02:59,720 Speaker 1: instead of being like an associated a big private equity 54 00:02:59,720 --> 00:03:03,400 Speaker 1: fund is just you. And instead of like rolling up 55 00:03:03,400 --> 00:03:06,520 Speaker 1: a giant business, you like buy one pest control company 56 00:03:06,760 --> 00:03:08,440 Speaker 1: and then you run the pest control company. 57 00:03:08,639 --> 00:03:12,200 Speaker 2: It's so good, it is so charming. And I mean 58 00:03:12,440 --> 00:03:16,160 Speaker 2: reading this Business Insider article, Okay, so it's told through 59 00:03:16,200 --> 00:03:19,600 Speaker 2: the lens of this man, Dan Schweber, I believe his 60 00:03:19,720 --> 00:03:23,160 Speaker 2: name is. And I mean I thought that I deal 61 00:03:23,280 --> 00:03:25,680 Speaker 2: with a lot of rejection as a journalist. Being a 62 00:03:25,720 --> 00:03:28,680 Speaker 2: search fund founder, what do you call them? Just a 63 00:03:28,720 --> 00:03:35,160 Speaker 2: search fundor a searcher. Being a searcher sounds absolutely grueling 64 00:03:35,200 --> 00:03:37,320 Speaker 2: in terms of dealing with the word no. By the 65 00:03:37,400 --> 00:03:41,440 Speaker 2: end of it, he sent thirty six hundred initial emails, 66 00:03:41,440 --> 00:03:44,280 Speaker 2: three hundred and seventy five introductory calls, just thirty intro 67 00:03:44,400 --> 00:03:48,640 Speaker 2: meetings and six signed letters of intent and this business 68 00:03:48,640 --> 00:03:51,240 Speaker 2: that he ended up buying, which is an HVAC company. 69 00:03:51,520 --> 00:03:54,040 Speaker 2: He emailed the guy twelve times, as you pointed out 70 00:03:54,120 --> 00:03:56,800 Speaker 2: in your column, And I don't think I've ever made 71 00:03:56,840 --> 00:03:58,960 Speaker 2: it to the twelve email. But I don't think I've 72 00:03:59,000 --> 00:04:03,560 Speaker 2: sent twelve emails to the same person pitching them, which 73 00:04:03,600 --> 00:04:06,760 Speaker 2: is I don't know. It was inspiring. It was inspiring 74 00:04:06,800 --> 00:04:08,240 Speaker 2: on so many different levels, Matt. 75 00:04:08,960 --> 00:04:11,880 Speaker 1: How persistence pays off by getting you an HVAC. 76 00:04:11,600 --> 00:04:17,120 Speaker 2: Company exactly, but just sends a dozen emails. Maybe I 77 00:04:17,440 --> 00:04:19,279 Speaker 2: can own an HVAC company. 78 00:04:20,200 --> 00:04:23,320 Speaker 1: What I love about it is that this was a 79 00:04:23,360 --> 00:04:25,760 Speaker 1: sort of novel idea at some point, you know, twenty 80 00:04:25,839 --> 00:04:29,960 Speaker 1: years ago, and it has now really like pervaded the 81 00:04:30,000 --> 00:04:32,640 Speaker 1: top business schools, so that a lot of people are 82 00:04:32,680 --> 00:04:35,960 Speaker 1: doing this, which means that if you run an h 83 00:04:36,040 --> 00:04:40,440 Speaker 1: BAC company, you are constantly, constantly getting cold emails from 84 00:04:40,560 --> 00:04:42,680 Speaker 1: searchers and so like. Of course you had to email 85 00:04:42,760 --> 00:04:44,640 Speaker 1: I twelve times because the guy who was like, ah 86 00:04:44,880 --> 00:04:46,360 Speaker 1: more search funds. 87 00:04:46,640 --> 00:04:47,280 Speaker 2: Yeah, it is. 88 00:04:47,279 --> 00:04:50,200 Speaker 1: Such an amazing time to be in an unglamorous business 89 00:04:50,240 --> 00:04:53,040 Speaker 1: because there are so many people with MBAs who want 90 00:04:53,040 --> 00:04:55,159 Speaker 1: your glamorous business. Right. A lot of them are searchers, 91 00:04:55,200 --> 00:04:56,880 Speaker 1: but some of them are like private equity funds doing 92 00:04:57,000 --> 00:04:59,080 Speaker 1: roll ups of like pest control or whatever. Right, Like, 93 00:04:59,360 --> 00:05:01,440 Speaker 1: there are a lot of buyers to choose from if 94 00:05:01,480 --> 00:05:05,159 Speaker 1: you happen to own an HVAC company. And I don't know, 95 00:05:05,200 --> 00:05:06,680 Speaker 1: it's just so strange to me to think, like, you're 96 00:05:06,720 --> 00:05:09,839 Speaker 1: a plumber, you like work in plumbing for twenty years, 97 00:05:09,920 --> 00:05:12,640 Speaker 1: you start your own plumbing company, you like go around 98 00:05:12,720 --> 00:05:15,719 Speaker 1: doing plumbing, and then like you occasionally check your email 99 00:05:15,720 --> 00:05:18,000 Speaker 1: and there's like four hundred emails from private equity firms 100 00:05:18,000 --> 00:05:20,720 Speaker 1: and MBAs. It's just like a strange dynamic. 101 00:05:21,360 --> 00:05:23,600 Speaker 2: It's a seller's market. I wish I had a plumbing 102 00:05:23,600 --> 00:05:24,160 Speaker 2: company to. 103 00:05:24,160 --> 00:05:27,159 Speaker 1: Sell, right, And Like, one thing I wondered about is like, 104 00:05:27,160 --> 00:05:29,400 Speaker 1: if you are a search funder and you buy yourself 105 00:05:29,440 --> 00:05:31,640 Speaker 1: a plumbing company in a year, do you flip it 106 00:05:31,680 --> 00:05:34,880 Speaker 1: to another search funder, because like the demand keeps growing. 107 00:05:35,520 --> 00:05:37,600 Speaker 2: I do want to talk about that how you exit 108 00:05:37,640 --> 00:05:41,520 Speaker 2: it as a searcher. But you seemed charmed by particular 109 00:05:41,640 --> 00:05:44,520 Speaker 2: from getting into the shoes of the man who owned 110 00:05:44,560 --> 00:05:47,960 Speaker 2: this HVAC company. The article also got into the shoes 111 00:05:48,040 --> 00:05:50,800 Speaker 2: of the employees who worked there. I think that's another 112 00:05:50,839 --> 00:05:54,080 Speaker 2: interesting level. Like, Okay, the founder and owner of the 113 00:05:54,080 --> 00:05:56,440 Speaker 2: business is getting a bunch of emails. How do the 114 00:05:56,480 --> 00:05:59,600 Speaker 2: employees react when you tell them this thirty two year 115 00:05:59,600 --> 00:06:03,320 Speaker 2: old now owns the business and you work for him 116 00:06:03,320 --> 00:06:08,120 Speaker 2: and he's the CEO, and you know he's some Harvard MBA. 117 00:06:08,560 --> 00:06:10,800 Speaker 1: Okay, here's how I think about this. I think in 118 00:06:10,839 --> 00:06:14,320 Speaker 1: the olden days, people would start businesses and they would 119 00:06:14,320 --> 00:06:16,400 Speaker 1: be like, you know, high school educated, like you know, 120 00:06:16,440 --> 00:06:19,400 Speaker 1: they start a business because like they're just scrappy entrepreneurs, 121 00:06:20,400 --> 00:06:22,039 Speaker 1: and then they would run the business for a while. 122 00:06:22,200 --> 00:06:25,000 Speaker 1: They'd have employees, and they would have like a kid, 123 00:06:25,480 --> 00:06:27,080 Speaker 1: and they'd be like, well, of course the kid is 124 00:06:27,080 --> 00:06:29,279 Speaker 1: going to take over the family business. But because they're 125 00:06:29,360 --> 00:06:32,520 Speaker 1: rich now, instead of like the kid just like you know, 126 00:06:32,600 --> 00:06:35,000 Speaker 1: starting at the family business. After high school, they send 127 00:06:35,040 --> 00:06:37,680 Speaker 1: the kid to Harvard Business School and the kid gets 128 00:06:37,680 --> 00:06:40,200 Speaker 1: all these like new fangled business ideas and he comes 129 00:06:40,240 --> 00:06:42,960 Speaker 1: back at age twenty eight and he's like, I'm going 130 00:06:43,000 --> 00:06:44,480 Speaker 1: to take over the family business and run it in 131 00:06:44,520 --> 00:06:47,920 Speaker 1: a modern way, and like, you know that's good, right, 132 00:06:47,960 --> 00:06:50,160 Speaker 1: Like you have like the scrappy founder, and then you 133 00:06:50,160 --> 00:06:53,919 Speaker 1: have the next generations like professional and educated. But the 134 00:06:54,040 --> 00:06:56,520 Speaker 1: chain has been broken. So now like the founder gets 135 00:06:56,600 --> 00:06:58,080 Speaker 1: rich and the kids are like, well, I don't want 136 00:06:58,080 --> 00:07:00,960 Speaker 1: to work at the family h fact business sounds terrible, right, 137 00:07:01,000 --> 00:07:03,560 Speaker 1: So the kids go off and like become documentary filmmakers. 138 00:07:04,080 --> 00:07:07,279 Speaker 1: And meanwhile, like, it's really hard to get into Harvard 139 00:07:07,320 --> 00:07:09,279 Speaker 1: Business School now, So you can't just get into Harvard 140 00:07:09,279 --> 00:07:12,000 Speaker 1: Business School by being the like shiftless child of an 141 00:07:12,120 --> 00:07:15,280 Speaker 1: h back founder. But all the people in Harvard Business School, 142 00:07:15,440 --> 00:07:17,600 Speaker 1: you know, there's still a demand for Harvard MBAs to 143 00:07:17,680 --> 00:07:19,680 Speaker 1: run h back companies. So now instead of it like 144 00:07:19,720 --> 00:07:21,200 Speaker 1: being the kid of the founder, it's just like some 145 00:07:21,360 --> 00:07:24,200 Speaker 1: random person who happened to get a Harvard MBA and 146 00:07:24,280 --> 00:07:27,480 Speaker 1: now wants to run the you know, hvac business in Peoria. 147 00:07:27,680 --> 00:07:32,480 Speaker 1: So it's disaggregated the like family you know family family air. Yeah, 148 00:07:32,560 --> 00:07:34,960 Speaker 1: instead of like the son taking over the family business 149 00:07:34,960 --> 00:07:37,560 Speaker 1: with his fancy Harvard degree, it's like some random person 150 00:07:37,600 --> 00:07:40,160 Speaker 1: takes over the family business with his fancy Harvard degree. 151 00:07:40,720 --> 00:07:42,640 Speaker 1: But you know, it's like still kind of the same. 152 00:07:42,760 --> 00:07:44,600 Speaker 1: It's like the employees still have to work for a 153 00:07:44,640 --> 00:07:47,080 Speaker 1: thirty two year old who hasn't marked the back. You know, 154 00:07:47,200 --> 00:07:49,320 Speaker 1: it's like it all makes a kind of sense. It's 155 00:07:49,360 --> 00:07:53,000 Speaker 1: just become more like coldly logical and market driven. 156 00:07:53,400 --> 00:07:55,840 Speaker 2: Something that I kept thinking about while reading this article 157 00:07:56,080 --> 00:07:59,120 Speaker 2: for some reason, a meme that keeps popping into my 158 00:07:59,240 --> 00:08:02,960 Speaker 2: various algorithm is, you know, a cartoon guy hand in 159 00:08:03,000 --> 00:08:05,080 Speaker 2: his face in the middle of the circle, and it's like, 160 00:08:05,200 --> 00:08:08,120 Speaker 2: I meet a girl. Her dad owns like a twenty 161 00:08:08,120 --> 00:08:11,480 Speaker 2: million dollar a year, like waste management company or pest 162 00:08:11,480 --> 00:08:14,280 Speaker 2: control or something, but he doesn't want to like hand 163 00:08:14,320 --> 00:08:17,160 Speaker 2: the keys to his ambitious future son in law, and 164 00:08:17,200 --> 00:08:20,000 Speaker 2: then we stop talking, which it would be a lot 165 00:08:20,040 --> 00:08:22,080 Speaker 2: funnier if I could show the meme, but I promise 166 00:08:22,080 --> 00:08:23,920 Speaker 2: it's funny, but it kind of reminded me of this 167 00:08:24,200 --> 00:08:29,000 Speaker 2: sure anyway, I thought also it was interesting. You know, 168 00:08:29,200 --> 00:08:33,520 Speaker 2: this article described it as a phenomenon happening around like 169 00:08:34,080 --> 00:08:37,319 Speaker 2: late twenty year old and like graduates in their thirties, 170 00:08:37,320 --> 00:08:40,520 Speaker 2: and I think it speaks to something about millennial culture, 171 00:08:40,640 --> 00:08:44,200 Speaker 2: that there is that desire to run into the woods 172 00:08:44,280 --> 00:08:48,240 Speaker 2: or go to Peoria and run an HVAC company, versus 173 00:08:50,280 --> 00:08:54,000 Speaker 2: stay in a city and try to climb the corporate ladder. 174 00:08:54,040 --> 00:08:56,680 Speaker 2: Like this probably happens with every single generation, but it 175 00:08:56,679 --> 00:08:59,079 Speaker 2: does feel like it speaks to some sort of disillusionment. 176 00:08:59,400 --> 00:09:01,440 Speaker 1: Yeah, I don't know. You think about like what you 177 00:09:01,480 --> 00:09:03,520 Speaker 1: can do with your MBA, right, Like if you're a 178 00:09:03,559 --> 00:09:05,960 Speaker 1: sort of corporate type, like you can go work in 179 00:09:05,960 --> 00:09:09,160 Speaker 1: private equity, and you can start by building models and 180 00:09:09,480 --> 00:09:12,160 Speaker 1: doing kind of grunt work, and your hope is that 181 00:09:12,200 --> 00:09:15,120 Speaker 1: in ten or fifteen years you'll be you know, kind 182 00:09:15,160 --> 00:09:17,679 Speaker 1: of leading big deals and sitting on boards of companies 183 00:09:17,679 --> 00:09:21,960 Speaker 1: and kind of running portfolio companies. Or you can just 184 00:09:23,000 --> 00:09:27,319 Speaker 1: do deals and run companies yourself immediately, with the trade 185 00:09:27,320 --> 00:09:30,920 Speaker 1: off being that those companies are small pest control companies 186 00:09:30,920 --> 00:09:33,680 Speaker 1: in Peoria. But like maybe that's good trade, right, Like 187 00:09:33,679 --> 00:09:35,840 Speaker 1: maybe you want that trade, right, Like I am sure 188 00:09:36,480 --> 00:09:40,280 Speaker 1: that in like ten years you'll be reading about people 189 00:09:40,360 --> 00:09:43,959 Speaker 1: who started as search funders and bought like one HVAC 190 00:09:44,000 --> 00:09:46,280 Speaker 1: company and then bought another HVAC company and then became 191 00:09:46,400 --> 00:09:49,679 Speaker 1: like billionaire private equity kingpins by like doing roll ups 192 00:09:49,720 --> 00:09:53,280 Speaker 1: of their industries. There's kind of two paths to that outcome, right, 193 00:09:53,320 --> 00:09:55,480 Speaker 1: There's like the outcome of being a private equity associated 194 00:09:55,480 --> 00:09:57,640 Speaker 1: and there's the outcome of taking over an HVAC company. 195 00:09:58,000 --> 00:10:00,520 Speaker 1: And I bet the second path is more we're likely 196 00:10:00,559 --> 00:10:03,720 Speaker 1: to get you to the billionaire Kington outcome at this 197 00:10:03,760 --> 00:10:06,040 Speaker 1: point than like being a private equity associate. 198 00:10:06,760 --> 00:10:13,079 Speaker 2: Well, I think you have to have some ridiculous amount 199 00:10:13,320 --> 00:10:17,480 Speaker 2: of just self confidence or real earned ego to think 200 00:10:17,600 --> 00:10:20,600 Speaker 2: like I'm going to go in and I am going 201 00:10:20,679 --> 00:10:25,080 Speaker 2: to ceo this small company, like it hasn't been ceoed before. 202 00:10:25,640 --> 00:10:28,079 Speaker 1: Yeah, it's here like a little bit more confident, a 203 00:10:28,120 --> 00:10:31,040 Speaker 1: little bit more risk taking. You're not like just following 204 00:10:31,080 --> 00:10:34,600 Speaker 1: the expected prestigious path of going to a private equity 205 00:10:34,640 --> 00:10:36,480 Speaker 1: fram and you're like, I'm going to strike out on 206 00:10:36,480 --> 00:10:39,120 Speaker 1: my own and see what happens. Well, you know, it's 207 00:10:39,120 --> 00:10:41,760 Speaker 1: interesting because like also in ten years, this will be 208 00:10:41,800 --> 00:10:44,280 Speaker 1: such a like well trodden path, you know, they'll be 209 00:10:44,320 --> 00:10:47,360 Speaker 1: like incubators for search funds and like it'll be so 210 00:10:48,320 --> 00:10:52,520 Speaker 1: standardized that it won't be like particularly entrepreneurial and risky anymore. 211 00:10:52,559 --> 00:10:54,840 Speaker 1: But right now it's still a little entrepreneurial and risky. 212 00:10:54,960 --> 00:10:56,920 Speaker 2: So you're saying I should get it now, is what 213 00:10:56,960 --> 00:10:57,480 Speaker 2: I'm hearing. 214 00:10:58,080 --> 00:10:59,520 Speaker 1: I don't know I was gonna say you should have 215 00:10:59,520 --> 00:11:01,200 Speaker 1: gotten in five years ago. I have no idea what 216 00:11:01,240 --> 00:11:03,280 Speaker 1: the market is like. I think you shouldn't get in 217 00:11:03,400 --> 00:11:03,959 Speaker 1: ten years. 218 00:11:03,760 --> 00:11:06,079 Speaker 2: But yeah, get really pandemic. 219 00:11:06,480 --> 00:11:08,080 Speaker 1: I think this is great. I feel like we've had 220 00:11:08,120 --> 00:11:11,160 Speaker 1: a number of like career ideas for each other during 221 00:11:11,200 --> 00:11:14,560 Speaker 1: the course of this podcast. But you like taking you 222 00:11:14,760 --> 00:11:17,160 Speaker 1: raising money from friends and family to take over an 223 00:11:17,240 --> 00:11:19,920 Speaker 1: HHAC company. I like it. I didn't know that you 224 00:11:20,000 --> 00:11:23,160 Speaker 1: had such an intense interest in HPAC. 225 00:11:23,720 --> 00:11:28,720 Speaker 2: I'm not specifically h we're using a horse barn, but yes, 226 00:11:29,040 --> 00:11:29,680 Speaker 2: that's the thing. 227 00:11:29,760 --> 00:11:31,880 Speaker 1: I don't know if that works. I think like the 228 00:11:31,920 --> 00:11:34,080 Speaker 1: whole point of this is that you're taking over like 229 00:11:34,559 --> 00:11:38,839 Speaker 1: non glamorous family businesses from like aging founders who don't 230 00:11:38,840 --> 00:11:43,240 Speaker 1: want to do it anymore, not like people's like delightful 231 00:11:43,679 --> 00:11:45,000 Speaker 1: lifestyle businesses. 232 00:11:45,480 --> 00:11:48,920 Speaker 2: But there's there's plenty of people who would think that 233 00:11:49,000 --> 00:11:50,200 Speaker 2: a barn is un glamorous. 234 00:11:50,679 --> 00:11:52,120 Speaker 1: Do any of them own barns? 235 00:11:53,040 --> 00:11:54,560 Speaker 2: No, they don't. 236 00:11:54,600 --> 00:11:56,840 Speaker 1: It's your problem. You have to buy the barn from 237 00:11:56,920 --> 00:11:59,200 Speaker 1: someone who runs the barn. I don't know. 238 00:11:59,280 --> 00:12:03,480 Speaker 2: I'm reading this have like a renewed I'm reinvigorated, and 239 00:12:03,679 --> 00:12:06,280 Speaker 2: you know, I thought I wanted to be a podcaster 240 00:12:06,360 --> 00:12:10,840 Speaker 2: or I did that, It's okay. I wanted to be 241 00:12:10,880 --> 00:12:13,160 Speaker 2: a novelist, still working on that, but I think that 242 00:12:13,320 --> 00:12:16,600 Speaker 2: what I really want to be is a searcher. I've 243 00:12:16,600 --> 00:12:18,800 Speaker 2: always wanted to buy a trissage barn, but now I 244 00:12:18,840 --> 00:12:23,280 Speaker 2: have a fancy, not yet saturated sort of term to 245 00:12:23,360 --> 00:12:24,040 Speaker 2: apply to it. 246 00:12:24,360 --> 00:12:26,080 Speaker 1: Yeah, I mean that is really like. The thing about 247 00:12:26,120 --> 00:12:28,880 Speaker 1: the Search Funding is like it's given people a set 248 00:12:28,880 --> 00:12:32,360 Speaker 1: of concepts to sort of standardize and think about and 249 00:12:33,000 --> 00:12:36,520 Speaker 1: justify this thing of like I want to buy an 250 00:12:36,559 --> 00:12:40,080 Speaker 1: existing small business and run it according to my own 251 00:12:40,240 --> 00:12:43,200 Speaker 1: you know ideas. I think like a while ago, if 252 00:12:43,240 --> 00:12:45,000 Speaker 1: you're in business school and you're like, I want to 253 00:12:45,040 --> 00:12:47,680 Speaker 1: run an HVAC company, people would be like, that's a 254 00:12:47,720 --> 00:12:50,000 Speaker 1: strange thing to want to do with your forward MBA, 255 00:12:50,400 --> 00:12:52,560 Speaker 1: Whereas now it's like totally standardized. I was like, oh, 256 00:12:52,600 --> 00:12:55,160 Speaker 1: of course the Search fund. And similarly, I feel like 257 00:12:55,160 --> 00:12:57,240 Speaker 1: this is going to be like season two of the 258 00:12:57,240 --> 00:12:59,560 Speaker 1: podcast is going to be You're going to go to 259 00:12:59,600 --> 00:13:02,360 Speaker 1: investor meetings. We're going to record them. People are going 260 00:13:02,400 --> 00:13:04,880 Speaker 1: to be like, of course, here's a million dollars you're 261 00:13:04,920 --> 00:13:07,960 Speaker 1: going to people. I think send every horse barn in 262 00:13:08,000 --> 00:13:09,320 Speaker 1: America at. 263 00:13:09,320 --> 00:13:13,760 Speaker 2: Least twelve at least twelve. If anyone listening right now. 264 00:13:14,000 --> 00:13:16,200 Speaker 1: You own cold email, you'll show up on a horse. 265 00:13:16,040 --> 00:13:20,160 Speaker 2: That's true, and they'll know I'm the real deal. They won't. 266 00:13:22,240 --> 00:13:24,439 Speaker 1: Yeah, That's like one thing in this h RAG article 267 00:13:24,520 --> 00:13:25,920 Speaker 1: is like, you know, the guy who owned the h 268 00:13:26,000 --> 00:13:29,040 Speaker 1: RAG company was like, all these search funders emailed me 269 00:13:29,400 --> 00:13:31,000 Speaker 1: and I was like, all right, come out and they're like, 270 00:13:31,280 --> 00:13:33,120 Speaker 1: let me check my schedule. But this guy and the 271 00:13:33,120 --> 00:13:34,520 Speaker 1: guy who bought the company from him, I was like, 272 00:13:34,520 --> 00:13:36,840 Speaker 1: I'll be there tomorrow, right, You're going to show your 273 00:13:36,960 --> 00:13:38,680 Speaker 1: enthusiasm by like showing up on a horse. 274 00:13:39,240 --> 00:13:41,680 Speaker 2: That's the other thing I found charming is that it's 275 00:13:41,800 --> 00:13:45,000 Speaker 2: just like old fashioned sort of you know, I'm going 276 00:13:45,040 --> 00:13:47,000 Speaker 2: to come up and meet you in person. I'm going 277 00:13:47,080 --> 00:13:48,800 Speaker 2: to shake your hand and I'm going to look you 278 00:13:48,840 --> 00:13:51,200 Speaker 2: in the eye. And that has a lot of currency 279 00:13:51,240 --> 00:13:55,400 Speaker 2: with the people who are selling these un sexy businesses. 280 00:13:55,160 --> 00:13:58,320 Speaker 1: Right because these are people who have built businesses over 281 00:13:58,679 --> 00:14:01,120 Speaker 1: years and they are the owner, but they also like 282 00:14:01,200 --> 00:14:04,680 Speaker 1: work closely with the employees, and they are not just 283 00:14:04,760 --> 00:14:07,440 Speaker 1: maximizing shareholder value. And if they were to sell to 284 00:14:07,480 --> 00:14:09,600 Speaker 1: a private equity firm that laid off all the employees, 285 00:14:09,640 --> 00:14:12,760 Speaker 1: they'd be sad and like they live in the community, 286 00:14:12,880 --> 00:14:14,719 Speaker 1: they'd be looked down upon. So if they can sell 287 00:14:14,800 --> 00:14:17,560 Speaker 1: to someone who gives them a firm handshake and looks 288 00:14:17,600 --> 00:14:18,719 Speaker 1: them in the eye, and so they'll take care of 289 00:14:18,760 --> 00:14:21,120 Speaker 1: your employee. You know, it's a very family business oriented, 290 00:14:21,280 --> 00:14:24,360 Speaker 1: you know, kind of tool making environment, and you're not 291 00:14:24,440 --> 00:14:26,880 Speaker 1: just paying the highest price to maximize shareolder value. You're 292 00:14:26,960 --> 00:14:28,720 Speaker 1: kind of taking over a business that has lies to 293 00:14:28,760 --> 00:14:29,360 Speaker 1: a community. 294 00:14:29,960 --> 00:14:33,360 Speaker 2: Yeah, I do want to talk about how Schweber is 295 00:14:33,440 --> 00:14:36,960 Speaker 2: going to get this big payout. The business insider says 296 00:14:36,960 --> 00:14:39,640 Speaker 2: that he's in for so if all of this goes 297 00:14:39,640 --> 00:14:41,880 Speaker 2: according to plan, he's in for a big payout. Of 298 00:14:41,920 --> 00:14:45,560 Speaker 2: the search entrepreneurs who eventually sell their business, just under 299 00:14:45,600 --> 00:14:48,640 Speaker 2: a quarter of them get nothing. Another twenty seven percent 300 00:14:49,120 --> 00:14:51,960 Speaker 2: get less than four million dollars in equity, twenty eight 301 00:14:51,960 --> 00:14:54,800 Speaker 2: percent get four million dollars to ten million dollars. The 302 00:14:54,880 --> 00:14:59,480 Speaker 2: luckiest eighteen percent get more than ten million dollars. So, 303 00:15:00,520 --> 00:15:03,160 Speaker 2: you know, after I buy the horse barn, I have 304 00:15:03,280 --> 00:15:05,760 Speaker 2: to stay there and make it better and grow it. 305 00:15:05,800 --> 00:15:07,400 Speaker 2: And then the idea is that I'm going to sell 306 00:15:07,440 --> 00:15:10,480 Speaker 2: it in like a decade and make a big profit. 307 00:15:10,960 --> 00:15:13,000 Speaker 1: I can imagine some people go into it thinking like 308 00:15:13,240 --> 00:15:15,680 Speaker 1: I'm going to make my life in p area running 309 00:15:15,680 --> 00:15:18,400 Speaker 1: an HRC company. But you know, most of them are 310 00:15:18,440 --> 00:15:20,840 Speaker 1: like business school people, and like they're choosing between this 311 00:15:20,920 --> 00:15:23,920 Speaker 1: and private equity, and yeah, they want to do a flip, right. 312 00:15:23,920 --> 00:15:27,400 Speaker 1: They want to like buy a sleepy family business that 313 00:15:27,480 --> 00:15:31,720 Speaker 1: isn't you know, optimizing everything, and they want to spruce 314 00:15:31,800 --> 00:15:34,040 Speaker 1: up the financials and maybe do a few like tuck 315 00:15:34,120 --> 00:15:38,680 Speaker 1: in acquisitions and then sell it to you know, a 316 00:15:38,680 --> 00:15:40,680 Speaker 1: sort of more scale buyer, sell it to you know, 317 00:15:40,840 --> 00:15:43,760 Speaker 1: private equity roll up or something for you know, if 318 00:15:43,760 --> 00:15:46,760 Speaker 1: you can buy it at like one time's revenue and 319 00:15:46,800 --> 00:15:49,400 Speaker 1: sell it at you know, five times revenue, then they 320 00:15:49,480 --> 00:15:51,080 Speaker 1: you know, make a lot of money. 321 00:15:51,560 --> 00:15:53,080 Speaker 2: And so the investors who. 322 00:15:55,280 --> 00:15:57,080 Speaker 1: You know, or you retire or something on it. 323 00:15:57,480 --> 00:16:00,960 Speaker 2: Or you become an investor in search funds. Sure, so 324 00:16:01,000 --> 00:16:02,760 Speaker 2: if you invest in a search fund, you're in it 325 00:16:02,800 --> 00:16:05,720 Speaker 2: for the long haul. You're in it until there's a flip. 326 00:16:06,040 --> 00:16:08,600 Speaker 1: I don't really know the terms, right, Like you could imagine, 327 00:16:08,920 --> 00:16:10,640 Speaker 1: you know, the investors just getting a share of the 328 00:16:10,640 --> 00:16:13,720 Speaker 1: cash loough and being happy with never flipping it. But no, 329 00:16:13,920 --> 00:16:16,160 Speaker 1: most of them want to cash out, and yeah, you're 330 00:16:16,160 --> 00:16:17,560 Speaker 1: in it for a flip, and you know, you say 331 00:16:17,600 --> 00:16:20,720 Speaker 1: the long term. I don't know what the holding periods are. 332 00:16:20,760 --> 00:16:23,680 Speaker 1: But like you know, again, the sort of alternative to 333 00:16:23,720 --> 00:16:27,760 Speaker 1: this is private equity funds. And so yeah, you might 334 00:16:27,800 --> 00:16:30,040 Speaker 1: think I'm going to take over an HVAC company. I'm 335 00:16:30,040 --> 00:16:34,280 Speaker 1: gonna learn hvac, I'm gonna do some deals. I'm gonna 336 00:16:34,320 --> 00:16:38,160 Speaker 1: spruce things up that won't take me more than five 337 00:16:38,280 --> 00:16:40,480 Speaker 1: years until I can flip the company, right Like, it's 338 00:16:40,520 --> 00:16:43,480 Speaker 1: not necessarily your family business for the rest of your life. 339 00:16:44,200 --> 00:16:47,320 Speaker 2: I have to imagine a lot of these fail I 340 00:16:47,320 --> 00:16:47,800 Speaker 2: don't know. 341 00:16:48,320 --> 00:16:50,680 Speaker 1: I don't know what fail means. I mean, right like, 342 00:16:50,800 --> 00:16:53,800 Speaker 1: probably some of them, at least of them, they don't 343 00:16:53,800 --> 00:16:55,280 Speaker 1: scurce them up, and then they get bored and then 344 00:16:55,280 --> 00:16:56,880 Speaker 1: they're like, I were shutting this down and I'm going 345 00:16:56,920 --> 00:17:00,240 Speaker 1: back to New York. But right like, you're taking were 346 00:17:00,280 --> 00:17:04,560 Speaker 1: like a stable business with customers, and you know, you 347 00:17:05,320 --> 00:17:08,200 Speaker 1: like that, You're not founding a business, right like, your 348 00:17:08,200 --> 00:17:10,600 Speaker 1: downside is not as bad as if you were founding 349 00:17:10,600 --> 00:17:13,280 Speaker 1: a business from scratch, right you know that this company 350 00:17:13,359 --> 00:17:17,160 Speaker 1: already has a business and customers and you know, revenue 351 00:17:17,240 --> 00:17:22,400 Speaker 1: and employees, and probably in many cases it could operate 352 00:17:22,480 --> 00:17:24,880 Speaker 1: on its own that much from you, So you might 353 00:17:24,920 --> 00:17:26,520 Speaker 1: not be able to do a flip. You might like 354 00:17:27,040 --> 00:17:30,800 Speaker 1: get bored and close it down rather than eke out 355 00:17:30,800 --> 00:17:32,960 Speaker 1: a very small profit for yourself every year. But like 356 00:17:33,320 --> 00:17:34,720 Speaker 1: you're not going to lose all your money. 357 00:17:35,640 --> 00:17:38,320 Speaker 2: Yeah, that's true. I mean to your point that they're 358 00:17:38,359 --> 00:17:40,400 Speaker 2: not founding a brand new business. So I was thinking 359 00:17:40,400 --> 00:17:42,920 Speaker 2: about this in terms of, like, you know, maybe these 360 00:17:43,480 --> 00:17:47,800 Speaker 2: smart young people with these big degrees, maybe their brain 361 00:17:47,880 --> 00:17:52,080 Speaker 2: power would better serve the economy by putting that towards 362 00:17:52,119 --> 00:17:52,760 Speaker 2: new ideas. 363 00:17:52,880 --> 00:17:58,920 Speaker 1: Why degrees are not in astrophysics, right, there's there masters 364 00:17:58,920 --> 00:18:02,480 Speaker 1: of business administration, right, they've learned to administer businesses. I 365 00:18:02,480 --> 00:18:04,360 Speaker 1: think it's like a really good thing for the economy 366 00:18:04,400 --> 00:18:07,440 Speaker 1: if like the local sort of mid sized businesses get 367 00:18:07,520 --> 00:18:11,600 Speaker 1: really good business administration, Right, if like the Harvard MBA 368 00:18:11,720 --> 00:18:14,840 Speaker 1: is instead of just going to work in finance, like 369 00:18:14,960 --> 00:18:17,240 Speaker 1: actually go and work for real companies that do you 370 00:18:17,280 --> 00:18:18,399 Speaker 1: know HVAC. 371 00:18:19,040 --> 00:18:23,480 Speaker 2: This reminded me, I know these people who there was 372 00:18:23,520 --> 00:18:27,040 Speaker 2: a bed and breakfast for sale in a small Pennsylvania town, 373 00:18:27,240 --> 00:18:31,160 Speaker 2: really charming, and it was an existing business with existing 374 00:18:31,640 --> 00:18:34,320 Speaker 2: customer base who they had a lot of repeat customers 375 00:18:34,680 --> 00:18:36,960 Speaker 2: and the owners were retiring and they bought the business 376 00:18:37,000 --> 00:18:38,240 Speaker 2: and it's going really well. 377 00:18:38,600 --> 00:18:41,080 Speaker 1: And those people are named. 378 00:18:41,640 --> 00:18:44,159 Speaker 2: Bob and Julia. And Friday is my dad's birthday, So 379 00:18:44,359 --> 00:18:46,560 Speaker 2: happy birthday, Dad, Happy. 380 00:18:46,240 --> 00:18:50,359 Speaker 1: Birthday, Bob. I meant to tell you that I saw someone. 381 00:18:51,720 --> 00:18:55,320 Speaker 1: Hold on, that's you, Okay, that is me. I mean 382 00:18:55,320 --> 00:19:04,280 Speaker 1: it's your's your home studio. You need to go to 383 00:19:04,320 --> 00:19:04,640 Speaker 1: the ville. 384 00:19:08,640 --> 00:19:27,560 Speaker 2: It's literally a hairball. He's fine, he's fine. Windsurf windsurf 385 00:19:28,200 --> 00:19:34,280 Speaker 2: man buying companies, Yeah, but not really, not really buying 386 00:19:34,400 --> 00:19:37,800 Speaker 2: the company. Well kind of set the scene. 387 00:19:38,200 --> 00:19:41,320 Speaker 1: Windsurf is like an AI coding assistant company, and of 388 00:19:41,320 --> 00:19:44,400 Speaker 1: course it was in talks to be acquired by open 389 00:19:44,440 --> 00:19:46,680 Speaker 1: Ai for a while. The rumor was that open Eye 390 00:19:46,760 --> 00:19:48,679 Speaker 1: was going to pay three billion dollars to acquire it, 391 00:19:49,240 --> 00:19:51,680 Speaker 1: which I think means to acquired in the normal way, 392 00:19:51,760 --> 00:19:53,840 Speaker 1: like buy all the stock of the company. But they 393 00:19:53,880 --> 00:19:57,120 Speaker 1: couldn't get to an agreement on some weird terms, including 394 00:19:57,160 --> 00:20:00,840 Speaker 1: like sharing the technology with Microsoft. It's open I walked 395 00:20:00,840 --> 00:20:05,320 Speaker 1: away and then Google did this weird deal where it 396 00:20:05,520 --> 00:20:09,960 Speaker 1: paid two point four billion dollars to Windsurf for basically 397 00:20:10,040 --> 00:20:14,320 Speaker 1: like some but not all, of Windsurf's employees. Like basically 398 00:20:14,359 --> 00:20:16,239 Speaker 1: Google was trying to acquire like the top talent from 399 00:20:16,280 --> 00:20:19,840 Speaker 1: Windsurf to feed into the mall of like having AI 400 00:20:19,880 --> 00:20:24,240 Speaker 1: researchers do AI at Google. And they've got like a 401 00:20:24,280 --> 00:20:27,119 Speaker 1: non exclusive license to Windserf's product. But it seemed pretty 402 00:20:27,119 --> 00:20:29,200 Speaker 1: clear that it was a talent acquisition, but they didn't 403 00:20:29,200 --> 00:20:31,560 Speaker 1: buy the company. They got no stake in the company, 404 00:20:32,280 --> 00:20:35,360 Speaker 1: but the shareholders of the company mostly got cashed out, 405 00:20:35,400 --> 00:20:38,840 Speaker 1: like the venture capitalists got paid off for their stock. 406 00:20:39,440 --> 00:20:42,119 Speaker 1: So Google paid for the stock of the company, but 407 00:20:42,160 --> 00:20:44,400 Speaker 1: didn't acquire the stock of the company. They just got 408 00:20:44,440 --> 00:20:46,840 Speaker 1: the talent and like left of the company on its own. 409 00:20:47,760 --> 00:20:51,480 Speaker 1: And this is kind of a weird outcome, in particular 410 00:20:51,520 --> 00:20:54,160 Speaker 1: for the employees of Windsurf who didn't go over to Google, 411 00:20:54,240 --> 00:20:56,720 Speaker 1: because they were kind of left in this company that 412 00:20:56,840 --> 00:21:00,159 Speaker 1: had some cash and like a business, but no more 413 00:21:00,200 --> 00:21:02,840 Speaker 1: of its founders. And it's kind of like it loose ends. 414 00:21:03,560 --> 00:21:06,439 Speaker 1: And then a couple of days later, Cognition, another AI company, 415 00:21:06,720 --> 00:21:11,320 Speaker 1: bought the rest of Windsurf for an unspecified price that 416 00:21:11,960 --> 00:21:14,040 Speaker 1: might have been just like here, you're gonna have a job, 417 00:21:14,640 --> 00:21:16,200 Speaker 1: and so yeah, that was the deal. It was like 418 00:21:16,280 --> 00:21:19,479 Speaker 1: quite controversial. There'should a lot of the deals kind of 419 00:21:19,600 --> 00:21:24,879 Speaker 1: like this in the AI space, where you know, you 420 00:21:24,960 --> 00:21:27,600 Speaker 1: have very big tech companies that want to pay a 421 00:21:27,840 --> 00:21:32,679 Speaker 1: very large amount of money for AI talent, and the 422 00:21:32,720 --> 00:21:36,640 Speaker 1: top AI talent often has their own startups, and their 423 00:21:36,680 --> 00:21:41,120 Speaker 1: startups often have the effect of proving that their founders 424 00:21:41,160 --> 00:21:44,200 Speaker 1: are good at AI stuff but do not have products 425 00:21:44,280 --> 00:21:47,840 Speaker 1: that the big tech companies want. And historically the way 426 00:21:47,880 --> 00:21:50,200 Speaker 1: that ended was the big tech companies would buy the startup, 427 00:21:50,560 --> 00:21:53,040 Speaker 1: shut down the product that they didn't want, and like 428 00:21:53,040 --> 00:21:57,000 Speaker 1: give the employees jobs. But that has changed, like that 429 00:21:57,119 --> 00:22:03,200 Speaker 1: aqui hier model has changed, and I don't quite know why. 430 00:22:03,440 --> 00:22:05,879 Speaker 1: Like the leading theory for why it has changed is 431 00:22:05,920 --> 00:22:07,840 Speaker 1: that in the Biden administration there was a lot of 432 00:22:07,880 --> 00:22:12,240 Speaker 1: anti trust scrutiny of big tech companies buying even small startups, 433 00:22:12,560 --> 00:22:17,600 Speaker 1: and so they stopped doing aqui hiers and started doing 434 00:22:17,640 --> 00:22:21,600 Speaker 1: just hires. Yeah, but the other thing that is happening 435 00:22:21,760 --> 00:22:26,679 Speaker 1: is if you're Google or Meta whoever, it's sort of 436 00:22:26,760 --> 00:22:28,960 Speaker 1: dawning on you, like, well, we don't really have to 437 00:22:29,400 --> 00:22:32,600 Speaker 1: acquire the company. We just have to pay the founders 438 00:22:32,600 --> 00:22:34,520 Speaker 1: to come work for us. And we have to pay 439 00:22:34,520 --> 00:22:36,280 Speaker 1: them a lot because they have the startup. I have 440 00:22:36,280 --> 00:22:38,080 Speaker 1: equity in the startup, so like they have to give 441 00:22:38,160 --> 00:22:39,520 Speaker 1: up the equity in the startups, we have to pay 442 00:22:39,560 --> 00:22:43,440 Speaker 1: them a lot. But like, do we need to acquire 443 00:22:43,440 --> 00:22:46,679 Speaker 1: all of the employees. Do we need to pay the 444 00:22:46,800 --> 00:22:49,320 Speaker 1: vcs the full value of the company or can we 445 00:22:49,359 --> 00:22:51,280 Speaker 1: just like acquire the founders and like let the rest go. 446 00:22:51,960 --> 00:22:55,880 Speaker 1: So there's a lot of talk about like the social 447 00:22:55,880 --> 00:22:59,360 Speaker 1: contract of startups and vcs being violated by these deals, 448 00:22:59,760 --> 00:23:02,400 Speaker 1: and I feel like, so far, actually the social contract 449 00:23:02,440 --> 00:23:05,359 Speaker 1: holds up pretty well. We're like the vcs who fund 450 00:23:05,359 --> 00:23:08,320 Speaker 1: it Windsurf. You know, they got several times their money, right, 451 00:23:08,400 --> 00:23:12,439 Speaker 1: Like they got rewarded for funding Windsurf, even though I 452 00:23:12,480 --> 00:23:14,919 Speaker 1: think people would say in a sense like the product 453 00:23:15,000 --> 00:23:17,040 Speaker 1: isn't what's making the money. It's just like the founders 454 00:23:17,080 --> 00:23:18,879 Speaker 1: are going somewhere else is what's making them the money. 455 00:23:19,480 --> 00:23:21,560 Speaker 1: But you know, and the employees ultimately ended up his jobs, 456 00:23:21,560 --> 00:23:24,120 Speaker 1: although not at Google, So like the social contract sort 457 00:23:24,119 --> 00:23:25,720 Speaker 1: of held, but it's like it just feels like it's 458 00:23:25,720 --> 00:23:28,000 Speaker 1: a little bit under pressure, where like, you know, the 459 00:23:28,040 --> 00:23:31,320 Speaker 1: next deal Google could just be like, we're going to 460 00:23:31,359 --> 00:23:33,639 Speaker 1: pay the founders, you know, a billion dollars each, and 461 00:23:33,680 --> 00:23:35,200 Speaker 1: we're not going to cash out of the vcs. 462 00:23:36,359 --> 00:23:41,840 Speaker 2: Yeah, reading this and just thinking about similar circumstances, my 463 00:23:41,920 --> 00:23:45,080 Speaker 2: thought was, why don't they just try to poach people 464 00:23:45,160 --> 00:23:48,160 Speaker 2: the normal way? Like why is tech this special, weird 465 00:23:48,160 --> 00:23:50,880 Speaker 2: place where there is acqua hiring, Like why can't they 466 00:23:50,960 --> 00:23:54,520 Speaker 2: just offer the founder one hundred million dollars or something 467 00:23:54,560 --> 00:23:56,960 Speaker 2: like that, similar to what Mark Zuckerberg is doing. Why 468 00:23:56,960 --> 00:23:58,280 Speaker 2: do we have to go through all the hoops of 469 00:23:59,119 --> 00:24:02,400 Speaker 2: you know, buying the company or doing whatever Google just did. 470 00:24:03,480 --> 00:24:05,120 Speaker 1: I think that part of it is like you can 471 00:24:05,200 --> 00:24:08,919 Speaker 1: now pay AI researchers one hundred million dollars, but you 472 00:24:08,920 --> 00:24:11,240 Speaker 1: can't pay them five hundred million dollars because all the 473 00:24:11,240 --> 00:24:15,120 Speaker 1: other A researchers would be mad. And like if they 474 00:24:15,119 --> 00:24:17,320 Speaker 1: have a startup, you know, that has raised money at 475 00:24:17,320 --> 00:24:19,479 Speaker 1: a four billion dollar valuation and they own you know, 476 00:24:19,480 --> 00:24:21,520 Speaker 1: whatever they own twenty five they own a billion dollars 477 00:24:21,520 --> 00:24:24,280 Speaker 1: worth of it, right, you have to lure them away 478 00:24:24,280 --> 00:24:26,119 Speaker 1: from that startup by giving them a lot of money. 479 00:24:26,440 --> 00:24:28,280 Speaker 1: Maybe it's not a billion dollars, maybe they don't think 480 00:24:28,320 --> 00:24:31,439 Speaker 1: it's worth what, you know, what it raised that, but 481 00:24:31,520 --> 00:24:33,520 Speaker 1: you have to give them something like a billion dollars. 482 00:24:34,280 --> 00:24:38,600 Speaker 1: And the way to do that is to have some 483 00:24:38,680 --> 00:24:42,040 Speaker 1: sort of M and A like transaction. Right Like, if 484 00:24:42,040 --> 00:24:43,639 Speaker 1: you're just saying I'm going to give you a salary 485 00:24:43,680 --> 00:24:46,479 Speaker 1: of a billion dollars, that's tough to sell to your 486 00:24:46,520 --> 00:24:48,240 Speaker 1: other employees. But if you say I'm going to do 487 00:24:48,280 --> 00:24:51,399 Speaker 1: an M and A transaction that technically doesn't involve buying 488 00:24:51,440 --> 00:24:53,840 Speaker 1: any of the company, but like there's a licensing deal 489 00:24:53,880 --> 00:24:56,600 Speaker 1: and it's like an agreement with Windsurf, then you can 490 00:24:57,119 --> 00:25:00,000 Speaker 1: do a transaction that effectively gives the founders a billion dollars. 491 00:25:00,640 --> 00:25:02,119 Speaker 1: And so I think that's part of it. Where Like, 492 00:25:02,920 --> 00:25:09,000 Speaker 1: the going rate for poaching an employee from like open 493 00:25:09,040 --> 00:25:12,000 Speaker 1: Ai to Meta is you know, one hundred million dollars. 494 00:25:12,200 --> 00:25:14,080 Speaker 1: But the going rate for poaching a founder of a 495 00:25:14,160 --> 00:25:16,320 Speaker 1: startup that like was valued at a lot of money 496 00:25:16,359 --> 00:25:18,280 Speaker 1: by a VC, the going rate for that might be 497 00:25:18,320 --> 00:25:20,639 Speaker 1: billions of dollars. And the only way to pay that 498 00:25:20,760 --> 00:25:22,920 Speaker 1: is in something that looks like an MNA transaction. 499 00:25:24,640 --> 00:25:26,879 Speaker 2: The other thought I had was that there is still 500 00:25:27,000 --> 00:25:31,080 Speaker 2: some acquihiring going on. If you think about the recent 501 00:25:31,080 --> 00:25:35,440 Speaker 2: example of also Meta with skill AI. 502 00:25:35,960 --> 00:25:39,000 Speaker 1: These are the same thing, Like these are not quite acquisitions. Yeah, 503 00:25:39,040 --> 00:25:42,360 Speaker 1: sometimes they're like state acquisitions, but not one hundred percent acquisitions. 504 00:25:42,600 --> 00:25:44,720 Speaker 1: And sometimes they're more like the Windsurf deal where it's 505 00:25:44,720 --> 00:25:46,960 Speaker 1: like a commercial license and a big payment, but not 506 00:25:47,960 --> 00:25:49,160 Speaker 1: one hundred percent acquisition. 507 00:25:49,480 --> 00:25:49,720 Speaker 3: Yeah. 508 00:25:49,760 --> 00:25:52,320 Speaker 2: I was just thinking about the employees who didn't get 509 00:25:52,640 --> 00:25:55,600 Speaker 2: picked to go to Google, and that's probably a pretty 510 00:25:55,600 --> 00:25:58,880 Speaker 2: lousy feeling, but maybe they're happy a cognition. 511 00:25:59,520 --> 00:26:03,280 Speaker 1: Yeah. It's like there's this incredible gold rush for AI, 512 00:26:03,600 --> 00:26:08,080 Speaker 1: and there's incredible variance in people's perceived market value, right, 513 00:26:08,119 --> 00:26:11,840 Speaker 1: Like there are people who are you like, there are 514 00:26:11,840 --> 00:26:14,159 Speaker 1: people who are multi billionaires because they like were in 515 00:26:14,240 --> 00:26:16,399 Speaker 1: earlier and AI, and then there are people who are 516 00:26:16,400 --> 00:26:18,520 Speaker 1: paid like, you know, six hundred thousand dollars a year 517 00:26:18,520 --> 00:26:21,840 Speaker 1: and they're like, oh my god, I'm so poor, like 518 00:26:21,840 --> 00:26:24,760 Speaker 1: like there's a huge range. And some of that is 519 00:26:26,040 --> 00:26:28,520 Speaker 1: the sort of classic startup like were you there at 520 00:26:28,520 --> 00:26:31,080 Speaker 1: the founding of a hot company? But some of it 521 00:26:31,119 --> 00:26:34,160 Speaker 1: is like people's perceived value to the big tech companies, 522 00:26:34,160 --> 00:26:37,000 Speaker 1: where like, if you are really really good, a big 523 00:26:37,040 --> 00:26:39,840 Speaker 1: tech company will pay you, you know, much much, much 524 00:26:39,840 --> 00:26:41,679 Speaker 1: more than one hundred million dollars if they have to. 525 00:26:42,480 --> 00:26:44,320 Speaker 1: And then if you're less good, it's like, yeah, you're 526 00:26:44,320 --> 00:26:45,120 Speaker 1: on salary. It's fine. 527 00:26:46,760 --> 00:26:48,400 Speaker 2: And where we are in the world right now, I mean, 528 00:26:48,480 --> 00:26:53,040 Speaker 2: is this uniquely a tech industry phenomenon and specifically in 529 00:26:53,160 --> 00:26:54,920 Speaker 2: AI industry. 530 00:26:54,520 --> 00:26:58,159 Speaker 1: Phenomenally, Like given in tech people have normal jobs like 531 00:26:58,720 --> 00:27:02,399 Speaker 1: this is very localized to AI, you know, like they're 532 00:27:02,480 --> 00:27:05,280 Speaker 1: not these kinds of bidding wars for people who do 533 00:27:05,840 --> 00:27:09,320 Speaker 1: non AI tech business man. 534 00:27:09,240 --> 00:27:12,439 Speaker 2: If I had any practical skills, I'd be thinking I 535 00:27:12,520 --> 00:27:14,880 Speaker 2: need to be an AI person somehow, But I think 536 00:27:14,920 --> 00:27:17,360 Speaker 2: search fund founder is more realistic. 537 00:27:19,119 --> 00:27:35,879 Speaker 3: Yeah. 538 00:27:36,000 --> 00:27:38,880 Speaker 2: You know who else is in the business of buying 539 00:27:38,960 --> 00:27:44,199 Speaker 2: up a lot of companies is it's Vanguard. They are 540 00:27:44,240 --> 00:27:48,840 Speaker 2: an index company all the companies. As much as Vanguard 541 00:27:48,960 --> 00:27:52,240 Speaker 2: likes to talk specifically to me and everyone else about 542 00:27:52,240 --> 00:27:56,600 Speaker 2: their you know, active management ambitions, they are huge. That 543 00:27:56,720 --> 00:28:00,160 Speaker 2: means that they own a lot of the shares outstanding 544 00:28:00,200 --> 00:28:03,840 Speaker 2: of a lot of companies, including companies that you might 545 00:28:03,880 --> 00:28:05,840 Speaker 2: not expect I. 546 00:28:05,800 --> 00:28:08,359 Speaker 1: Would expect, Wait, can I ask you, are they the 547 00:28:08,359 --> 00:28:13,240 Speaker 1: biggest total stock market index fund? Oh my god, God 548 00:28:13,280 --> 00:28:15,280 Speaker 1: runs you know, a big S and P five hundred 549 00:28:15,320 --> 00:28:18,080 Speaker 1: and index fund, and so does everyone else. But like, 550 00:28:18,680 --> 00:28:21,160 Speaker 1: I definitely own some of the Vanguard Total stock Market 551 00:28:21,200 --> 00:28:24,040 Speaker 1: Index fund, which is not the S and P five hundred. 552 00:28:24,119 --> 00:28:29,080 Speaker 1: It's everything, including small companies and including bigcern treasure companies. 553 00:28:30,000 --> 00:28:31,840 Speaker 2: I'm trying to find out because I don't want to 554 00:28:31,880 --> 00:28:35,119 Speaker 2: miscall myself, but I think that the Vanguard Total stock 555 00:28:35,119 --> 00:28:39,920 Speaker 2: Market Index fund is the largest. I mean, it's it's 556 00:28:39,920 --> 00:28:43,200 Speaker 2: in the trillions, so I would imagine that that's it. 557 00:28:43,800 --> 00:28:45,760 Speaker 1: So when you say Vanguard owns is one of the 558 00:28:45,760 --> 00:28:48,120 Speaker 1: biggest sholders of companies, you wouldn't expect. I would expect 559 00:28:48,160 --> 00:28:51,080 Speaker 1: them to be the big sholder of every single public company. 560 00:28:51,800 --> 00:28:52,200 Speaker 1: That's what I. 561 00:28:52,160 --> 00:28:56,400 Speaker 2: Would and they are, and they are, including Strategy in. 562 00:28:56,320 --> 00:28:58,000 Speaker 1: Particular, I'd expect them to be one of the biggest 563 00:28:58,000 --> 00:29:02,080 Speaker 1: holders of every non P five hundred company because like, 564 00:29:02,520 --> 00:29:05,160 Speaker 1: there are a lot of SMP index funds, but like, yeah, 565 00:29:05,320 --> 00:29:08,520 Speaker 1: Vanguard is really into total stock market index ones. But anyway, 566 00:29:08,720 --> 00:29:11,920 Speaker 1: but yeah, they're the biggest holder of Strategy micro Strategy 567 00:29:12,280 --> 00:29:13,240 Speaker 1: now called strategy. 568 00:29:14,160 --> 00:29:17,880 Speaker 2: I guess I did not appreciate that strategy isn't in 569 00:29:17,920 --> 00:29:20,880 Speaker 2: the S and P five hundred, but we're also talking 570 00:29:20,880 --> 00:29:23,360 Speaker 2: about a non S and P five hundred tracking fund. 571 00:29:23,440 --> 00:29:26,120 Speaker 2: Because I don't know, it just feels like increasingly the 572 00:29:26,160 --> 00:29:28,400 Speaker 2: whole world revolves around the S and P five hundred, 573 00:29:28,440 --> 00:29:33,600 Speaker 2: but the Vanguard Total Stock Market funds biggest shareholder of strategy. 574 00:29:34,400 --> 00:29:39,520 Speaker 2: I say that you might not expect it because the 575 00:29:39,560 --> 00:29:44,000 Speaker 2: personality of Vanguard is an asset manager that is deeply, 576 00:29:44,120 --> 00:29:48,280 Speaker 2: deeply skeptical slash repulse by cryptocurrencies. 577 00:29:48,880 --> 00:29:50,720 Speaker 1: I know. This is the thing about running index fund. 578 00:29:50,760 --> 00:29:52,840 Speaker 1: It's like it doesn't matter what you think, you just 579 00:29:52,880 --> 00:29:56,400 Speaker 1: buy it. Yeah, It's like a really good, like disciplining mechanism. Right, 580 00:29:56,440 --> 00:29:57,920 Speaker 1: Like you consider that and be like, wow, I think 581 00:29:57,960 --> 00:30:00,280 Speaker 1: this company is overvalued, but it doesn't matter to buy 582 00:30:00,320 --> 00:30:02,280 Speaker 1: it because you're an index one manager and like that's 583 00:30:02,320 --> 00:30:03,840 Speaker 1: what people are paying you for, and they're not paying 584 00:30:03,880 --> 00:30:06,880 Speaker 1: you very much. Right, If they're paying you a lot, 585 00:30:07,040 --> 00:30:08,480 Speaker 1: then you might be like, well, I'm going to short 586 00:30:08,480 --> 00:30:10,800 Speaker 1: this company because like I think it's overvalued and I'm 587 00:30:10,880 --> 00:30:13,080 Speaker 1: you know, getting paid a lot from my wisdom. But 588 00:30:13,120 --> 00:30:15,480 Speaker 1: they're paying you like two basis points to buy every company, 589 00:30:15,520 --> 00:30:17,680 Speaker 1: so you buy every company. It's a really good pass. 590 00:30:18,360 --> 00:30:21,760 Speaker 2: The thing that's slightly different here is that Vanguard obviously 591 00:30:21,800 --> 00:30:24,040 Speaker 2: has control over what products that it launches. 592 00:30:24,160 --> 00:30:26,800 Speaker 1: Yeah, but like it's it's products or index ones. 593 00:30:27,520 --> 00:30:30,400 Speaker 2: I know, I know, but this is a relatively new 594 00:30:30,440 --> 00:30:34,240 Speaker 2: phenomenon where you have equity companies that just hold bitcoin 595 00:30:34,920 --> 00:30:38,760 Speaker 2: and you think about like commodities. For example, Vanguard for 596 00:30:38,800 --> 00:30:42,680 Speaker 2: a long time would not launch a commodities fund. They're 597 00:30:42,720 --> 00:30:47,560 Speaker 2: never going to launch their own cryptocurrency funds. And okay, 598 00:30:47,640 --> 00:30:50,160 Speaker 2: yes they're going to buy every single stock out there, 599 00:30:50,160 --> 00:30:53,960 Speaker 2: but it's a new phenomenon where that means you're also 600 00:30:54,040 --> 00:30:55,960 Speaker 2: buying crypto indirectly. 601 00:30:57,160 --> 00:31:00,040 Speaker 1: Yeah. Well, the things I like about it is that 602 00:31:00,120 --> 00:31:03,000 Speaker 1: a little inside baseball but not really. Bloomberg has this 603 00:31:03,120 --> 00:31:05,600 Speaker 1: like view that you shouldn't own stock in companies that 604 00:31:05,640 --> 00:31:07,720 Speaker 1: you write about. So like I don't own stock in 605 00:31:07,840 --> 00:31:11,920 Speaker 1: you know, Goldman or Apollo or whatever, but I own 606 00:31:11,960 --> 00:31:14,440 Speaker 1: index funds they own stock in those companies, and so 607 00:31:14,560 --> 00:31:18,680 Speaker 1: I e right, and like in some ways it would 608 00:31:18,720 --> 00:31:21,920 Speaker 1: be weird if I didn't. Right, Like to me, like 609 00:31:22,120 --> 00:31:25,280 Speaker 1: I should have my savings in like the global financial portfolio, 610 00:31:25,520 --> 00:31:29,160 Speaker 1: and if I owned like all of the stocks except Goldman, 611 00:31:29,720 --> 00:31:32,600 Speaker 1: then like in theory, that would create a financial bias 612 00:31:32,680 --> 00:31:34,360 Speaker 1: against Goldman. I would be like, well, I don't want 613 00:31:34,360 --> 00:31:36,040 Speaker 1: any of their stock, but I own every other stocks. 614 00:31:36,040 --> 00:31:37,600 Speaker 1: I want their stock to go down relative to the 615 00:31:37,640 --> 00:31:39,960 Speaker 1: rest of the market. And then like crypto is kind 616 00:31:39,960 --> 00:31:42,240 Speaker 1: of the same, right, Like, you know, we have like 617 00:31:42,280 --> 00:31:44,000 Speaker 1: sort of rules that you shouldn't own crypto if you're 618 00:31:44,000 --> 00:31:47,120 Speaker 1: writing about it, but like if I own zero crypto, 619 00:31:47,680 --> 00:31:51,000 Speaker 1: then I'm sort of biased against crypto, right Like I 620 00:31:51,120 --> 00:31:53,920 Speaker 1: you know, I own like all of these stocks, and 621 00:31:53,960 --> 00:31:55,240 Speaker 1: I want the stocks to go out, but I don't 622 00:31:55,280 --> 00:31:57,080 Speaker 1: want crypto to go because I don't want any crypto. 623 00:31:57,760 --> 00:32:00,560 Speaker 1: But now, because on the Vanguard Total Stock Market Fund, 624 00:32:00,680 --> 00:32:03,240 Speaker 1: I own some bitcoin indirectly, but like I have some 625 00:32:03,320 --> 00:32:06,200 Speaker 1: exposure to bitcoin through strategy, and I think, like more generally, 626 00:32:06,240 --> 00:32:09,600 Speaker 1: like it is good for ordinary investors to be able 627 00:32:09,640 --> 00:32:13,240 Speaker 1: to get low cost access to like market cap weighted 628 00:32:14,200 --> 00:32:17,600 Speaker 1: ownership of like the entire global financial portfolio, right like, 629 00:32:17,720 --> 00:32:20,760 Speaker 1: just as like it's probably good for you to not 630 00:32:20,920 --> 00:32:22,800 Speaker 1: have to pick which stocks will go up and just 631 00:32:22,840 --> 00:32:25,040 Speaker 1: buy all the stocks, like you shouldn't even have to 632 00:32:25,120 --> 00:32:27,240 Speaker 1: like pick like which asset classes will go You just 633 00:32:27,240 --> 00:32:28,920 Speaker 1: like be able to be like I'm going to buy 634 00:32:29,120 --> 00:32:31,040 Speaker 1: the market right, And you can't really do that that 635 00:32:31,120 --> 00:32:33,200 Speaker 1: It's not really a thing like people try. It's not 636 00:32:33,240 --> 00:32:35,240 Speaker 1: really a thing because like, you know, how do you 637 00:32:35,280 --> 00:32:37,400 Speaker 1: decide how much real estate to have in that? But 638 00:32:37,640 --> 00:32:40,560 Speaker 1: by smuggling a little bitcoin into your you know, total 639 00:32:40,560 --> 00:32:42,480 Speaker 1: stock market fund, it means you have like a little 640 00:32:42,480 --> 00:32:45,640 Speaker 1: bit closer to exposure to the entire financial portfolio. And 641 00:32:45,680 --> 00:32:47,760 Speaker 1: if you don't like crypto, you'll be mad about that. 642 00:32:47,960 --> 00:32:50,360 Speaker 1: But if you're buying the total stock market fund, your 643 00:32:50,400 --> 00:32:52,480 Speaker 1: thesis has to be I don't know what I want 644 00:32:52,480 --> 00:32:54,920 Speaker 1: to buy. I have no strong views about which companies 645 00:32:54,960 --> 00:32:57,360 Speaker 1: will go up, So like you have some bitcoin, why not? 646 00:32:58,080 --> 00:33:02,120 Speaker 2: Yeah? Occasionally Tom Keane invites me on radio and just 647 00:33:02,600 --> 00:33:05,040 Speaker 2: kind of bullies me about crypto for a couple of minutes, 648 00:33:05,080 --> 00:33:10,520 Speaker 2: and then I get off air and super I don't 649 00:33:10,640 --> 00:33:13,240 Speaker 2: I would not describe him as pro christ I'm not 650 00:33:13,240 --> 00:33:16,840 Speaker 2: surprised yet he famously calls it bitdog. But in trying 651 00:33:16,840 --> 00:33:18,800 Speaker 2: to make him care, I have tried to make the 652 00:33:18,800 --> 00:33:21,680 Speaker 2: case that you should care because it's probably in your 653 00:33:21,760 --> 00:33:25,880 Speaker 2: retirement account through this sort of indirect exposure, Like your 654 00:33:25,960 --> 00:33:30,440 Speaker 2: fortunes in a small way are tied to bitcoin now, right. 655 00:33:30,360 --> 00:33:33,040 Speaker 1: I would reverse that. I would say that, like, if 656 00:33:33,080 --> 00:33:35,440 Speaker 1: you don't have a strong reason to be short crypto, 657 00:33:36,000 --> 00:33:39,920 Speaker 1: you should be long crypto in proportion to it's like 658 00:33:40,040 --> 00:33:42,960 Speaker 1: weight in the market, right, and like that weight has 659 00:33:42,960 --> 00:33:44,719 Speaker 1: gone up a lot in the last ten years, right 660 00:33:44,880 --> 00:33:49,560 Speaker 1: now trillion dollars. And if you are just like completely 661 00:33:49,640 --> 00:33:52,600 Speaker 1: on a blank slate, completely agnostic about everything, like your 662 00:33:52,600 --> 00:33:54,720 Speaker 1: weight should not be zero and now it's in your 663 00:33:54,720 --> 00:33:58,240 Speaker 1: retirement fund. Great problem solved. I'm not saying you should 664 00:33:58,240 --> 00:34:00,479 Speaker 1: buy crypto of like by all means, this is not 665 00:34:00,560 --> 00:34:03,440 Speaker 1: investing advice, but like you know, I'm just saying, if 666 00:34:03,480 --> 00:34:07,880 Speaker 1: you have no views, like the default weight in your 667 00:34:07,920 --> 00:34:10,919 Speaker 1: portfolio for every asset is not zero. The default weight 668 00:34:11,040 --> 00:34:13,839 Speaker 1: is like it's market weight, right, And so if you're 669 00:34:14,360 --> 00:34:17,120 Speaker 1: just setting it to defaults, you should have some crypto. 670 00:34:17,360 --> 00:34:20,200 Speaker 1: And the way to have some crypto is either like, ah, 671 00:34:20,360 --> 00:34:22,400 Speaker 1: you go create an account on coinbase, or like you 672 00:34:22,480 --> 00:34:24,640 Speaker 1: just you know, own a total stock market index one 673 00:34:24,640 --> 00:34:25,880 Speaker 1: that happens to have some crypto. 674 00:34:26,920 --> 00:34:28,879 Speaker 2: So you're a marked cap weighted guy. 675 00:34:29,680 --> 00:34:31,839 Speaker 1: I'm not saying that's the best way to invest. I'm 676 00:34:31,880 --> 00:34:35,839 Speaker 1: saying that's the neutral way to invest. I'm saying that, 677 00:34:35,920 --> 00:34:41,239 Speaker 1: like anything that you do to deviate from like the 678 00:34:41,280 --> 00:34:46,040 Speaker 1: market cap weighted global financial portfolio, should ideally have every 679 00:34:46,080 --> 00:34:51,560 Speaker 1: reason ideally not that, not that I you know, follow that. 680 00:34:51,600 --> 00:34:54,880 Speaker 1: I'm just you know, as a theoretical matter, like you 681 00:34:54,920 --> 00:34:57,120 Speaker 1: should own the market unless you have some reason to 682 00:34:57,120 --> 00:34:58,360 Speaker 1: think that something else is better. 683 00:34:58,640 --> 00:35:00,480 Speaker 2: And that is investment advice. 684 00:35:01,440 --> 00:35:05,960 Speaker 1: No, I mean, I don't know how I could get 685 00:35:06,000 --> 00:35:09,000 Speaker 1: suit over that, but no, it's not investment advice. The 686 00:35:09,000 --> 00:35:12,160 Speaker 1: bitcoin treasury companies are interesting in part because they give 687 00:35:12,320 --> 00:35:16,719 Speaker 1: you away to own crypto if your only investment is 688 00:35:16,760 --> 00:35:20,040 Speaker 1: the total stock market. But more broadly, they're interesting because 689 00:35:20,080 --> 00:35:24,160 Speaker 1: they are a way for equity investors to own crypto 690 00:35:24,239 --> 00:35:26,879 Speaker 1: without owning crypto. And I think that there's a lot 691 00:35:26,920 --> 00:35:29,800 Speaker 1: of demand for that. Some of it is from like Vanguard, Right, Vanguard, 692 00:35:29,800 --> 00:35:33,480 Speaker 1: which let's hypothesize does not want to own crypto, nonetheless 693 00:35:33,480 --> 00:35:35,680 Speaker 1: owns a lot of micro strategy. It's like that's like 694 00:35:35,719 --> 00:35:38,680 Speaker 1: a good arbitrage, right, Like you have like bitcoin, which 695 00:35:38,719 --> 00:35:40,600 Speaker 1: like Vanguard doesn't want to buy and you have micro Strategy, 696 00:35:40,640 --> 00:35:43,040 Speaker 1: which Vanguard, against its will does want to buy, and 697 00:35:43,080 --> 00:35:46,360 Speaker 1: so like you can like transport bitcoin into Vanguard and 698 00:35:46,400 --> 00:35:49,960 Speaker 1: make some money on it. But like, more broadly, I 699 00:35:50,000 --> 00:35:52,600 Speaker 1: mean there's a lot of like equity investors who for 700 00:35:52,680 --> 00:35:56,799 Speaker 1: one reason or another can or want to buy micro 701 00:35:56,880 --> 00:36:01,520 Speaker 1: strategy for bitcoin exposure, can't buy like just bitcoin for 702 00:36:01,560 --> 00:36:04,360 Speaker 1: bitcoin exposure. They get an email from one guy saying, 703 00:36:04,520 --> 00:36:07,759 Speaker 1: like my hedge fund, our prime broker will give us 704 00:36:08,000 --> 00:36:11,640 Speaker 1: sixteen to one leverage on micro strategy, and they'll give 705 00:36:11,719 --> 00:36:15,960 Speaker 1: us no leverage on I bet like the bitcoin ETF. Right, 706 00:36:16,160 --> 00:36:18,800 Speaker 1: So if you want to get exposure to bitcoin, getting 707 00:36:18,880 --> 00:36:21,440 Speaker 1: it in the form of a stock, like a real stock, 708 00:36:21,480 --> 00:36:24,520 Speaker 1: not an ETF, like a corporate stock. Getting in the 709 00:36:24,560 --> 00:36:26,800 Speaker 1: formu of a corporate stock is in many ways preferable 710 00:36:26,840 --> 00:36:29,399 Speaker 1: to other forms of owning it. And that's why that's 711 00:36:29,440 --> 00:36:32,239 Speaker 1: part of why the bitcoin treasury companies often traded a 712 00:36:32,360 --> 00:36:34,839 Speaker 1: premium to their underlying bitcoin, because like there's a whole 713 00:36:34,880 --> 00:36:38,480 Speaker 1: class of investors who can get crypto that way, but 714 00:36:38,600 --> 00:36:42,000 Speaker 1: can get it as easily or as efficiently in other forms. 715 00:36:43,040 --> 00:36:46,600 Speaker 2: That's really interesting because after the spot bitcoin ETF's launched, 716 00:36:46,640 --> 00:36:50,359 Speaker 2: I think a lot of people, perhaps myself, questioned what 717 00:36:50,440 --> 00:36:54,759 Speaker 2: the use case for micro Strategy was. 718 00:36:55,400 --> 00:36:59,279 Speaker 1: Yeah, and the number one answer is index funds. Vanguard's 719 00:36:59,320 --> 00:37:03,280 Speaker 1: total stock more good fund does not own ETFs. Yeah, 720 00:37:03,400 --> 00:37:07,560 Speaker 1: it owns companies, and micro Strategy is still a company 721 00:37:07,680 --> 00:37:09,480 Speaker 1: even though it's a pot of bitcoins. Like that's the 722 00:37:09,560 --> 00:37:11,960 Speaker 1: number one answer. There are other answers, because like someone 723 00:37:12,120 --> 00:37:14,360 Speaker 1: at some prime brokerage is like, we'll give more leverage 724 00:37:14,360 --> 00:37:16,520 Speaker 1: on corporates than we will on ETFs, even though the 725 00:37:16,520 --> 00:37:18,920 Speaker 1: corporate is like more volatile than the ATF. But like 726 00:37:18,960 --> 00:37:21,959 Speaker 1: the number one answers index ones, and like, yeah, micro 727 00:37:22,000 --> 00:37:23,960 Speaker 1: Strategy is not in the S and P five hundred. 728 00:37:24,560 --> 00:37:26,799 Speaker 1: It wants to be in the SP five hundred. That's 729 00:37:26,880 --> 00:37:28,880 Speaker 1: like the next that's the next frontier. 730 00:37:29,440 --> 00:37:31,880 Speaker 2: It did make it into the NASTAC one hundred, and 731 00:37:31,960 --> 00:37:35,400 Speaker 2: that's a big d. It was somewhat controversial. 732 00:37:35,239 --> 00:37:38,759 Speaker 1: Yeah, because like these indexes don't include ETFs, They don't 733 00:37:38,760 --> 00:37:42,279 Speaker 1: include investment vehicles with like rare interesting exceptions, right, Like 734 00:37:43,680 --> 00:37:46,000 Speaker 1: there's like an argument that Berkshire Hathaway is an investment 735 00:37:46,080 --> 00:37:48,279 Speaker 1: vehicle and like you know and then you I don't 736 00:37:48,280 --> 00:37:50,120 Speaker 1: if you remember, but friend of the show Bill Ackman 737 00:37:50,160 --> 00:37:52,879 Speaker 1: of perching Square Capital Management. Uh, when he. 738 00:37:52,920 --> 00:37:56,359 Speaker 2: Found his way into another episode when he was so not. 739 00:37:56,360 --> 00:37:58,959 Speaker 1: The bird but the actual Bilackman when he was. 740 00:37:58,880 --> 00:38:02,239 Speaker 2: Trying to trow Yeah. 741 00:38:01,520 --> 00:38:04,440 Speaker 1: I haven't even talked about that long. When he was 742 00:38:04,520 --> 00:38:06,120 Speaker 1: launching his clothes un fund, he's like, it's going to 743 00:38:06,160 --> 00:38:07,400 Speaker 1: be in the S and P five hundred. It was 744 00:38:07,440 --> 00:38:08,440 Speaker 1: not going to be in the S and P five 745 00:38:08,480 --> 00:38:10,160 Speaker 1: hundred because the S and P five hundred does not 746 00:38:10,200 --> 00:38:13,320 Speaker 1: include clothes down funds, but it does include Berkshire Hathaway 747 00:38:13,320 --> 00:38:15,080 Speaker 1: because it's not quite a closed un fund, it's a 748 00:38:15,120 --> 00:38:18,839 Speaker 1: company and microshrate is the same deal, right, Like, if 749 00:38:18,840 --> 00:38:21,600 Speaker 1: you're like, I'm going to launch a fund that holds bitcoin, 750 00:38:22,160 --> 00:38:23,759 Speaker 1: that will not be in the S and P five 751 00:38:23,840 --> 00:38:25,960 Speaker 1: hundred or even the Nazak one hundred. But if you're like, 752 00:38:26,520 --> 00:38:29,799 Speaker 1: I am a tech company, I'm going to almost exclusively 753 00:38:29,840 --> 00:38:31,600 Speaker 1: hold bitcoin and talk about it a lot, you can 754 00:38:31,640 --> 00:38:33,320 Speaker 1: be in the S five hundred at least the Nazak 755 00:38:33,320 --> 00:38:35,160 Speaker 1: one hundred, and that's different. 756 00:38:35,239 --> 00:38:38,560 Speaker 2: Well, that was the controversy around its NASDAQ one hundred. 757 00:38:39,200 --> 00:38:42,840 Speaker 2: NASTACK one hundred does not hold financial companies and it 758 00:38:42,880 --> 00:38:46,839 Speaker 2: feels like micro strategy. It was micro strategy at the time, 759 00:38:46,960 --> 00:38:49,640 Speaker 2: like it was sort of grandfathered in because it is 760 00:38:49,719 --> 00:38:53,040 Speaker 2: nominally still a tech company, very nominally. 761 00:38:53,440 --> 00:38:56,080 Speaker 1: Yeah, you're right, that's the arbitrage, right, It's like, we're 762 00:38:56,080 --> 00:38:58,719 Speaker 1: not a financial company, we're not an investment company. We're 763 00:38:58,760 --> 00:39:01,439 Speaker 1: just the tech company that happens own seventy billion dollars 764 00:39:01,480 --> 00:39:06,239 Speaker 1: a bit quin. Yeah, it's a good trade. I'm sorry 765 00:39:06,239 --> 00:39:08,359 Speaker 1: that Bill Lackman caught so many strays at the end 766 00:39:08,360 --> 00:39:09,040 Speaker 1: of this episode. 767 00:39:09,080 --> 00:39:10,920 Speaker 2: It's okay. I don't think he listened to the end 768 00:39:11,360 --> 00:39:12,440 Speaker 2: if you want to say that. 769 00:39:12,600 --> 00:39:15,680 Speaker 1: Like when we mentioned last week that we're going to 770 00:39:15,920 --> 00:39:18,560 Speaker 1: name your bird friend of the show, Bill Lackman, we 771 00:39:18,640 --> 00:39:23,560 Speaker 1: got approximately twenty emails saying of Perching Square Capital Management. 772 00:39:25,120 --> 00:39:27,040 Speaker 1: A lot of people will I know I did that joke, 773 00:39:27,080 --> 00:39:29,000 Speaker 1: and we did not, and I'm sorry. 774 00:39:29,960 --> 00:39:31,120 Speaker 2: But very clever. 775 00:39:31,280 --> 00:39:33,880 Speaker 1: We'll do better next time. Perching Square. Yeah, he just 776 00:39:33,960 --> 00:39:42,880 Speaker 1: learned to perch. And that was the Money Stuff podcast. 777 00:39:43,040 --> 00:39:45,360 Speaker 2: I'm Matt Livian and I'm Katie Greifeld. 778 00:39:45,440 --> 00:39:47,439 Speaker 1: You can find my work by subscribing to the Money 779 00:39:47,440 --> 00:39:50,000 Speaker 1: Stuff newsletter on Bloomberg dot com. 780 00:39:49,719 --> 00:39:52,200 Speaker 2: And you can find me on Bloomberg TV every day 781 00:39:52,280 --> 00:39:55,360 Speaker 2: on Open Interest between nine to eleven am Eastern. 782 00:39:55,520 --> 00:39:57,200 Speaker 1: We'd love to hear from you. You can send an 783 00:39:57,200 --> 00:40:00,440 Speaker 1: email to Moneypod at Bloomberg dot net, ask us a 784 00:40:00,520 --> 00:40:01,879 Speaker 1: question and we might answer it on air. 785 00:40:02,760 --> 00:40:04,960 Speaker 2: You can also subscribe to our show wherever you're listening 786 00:40:05,000 --> 00:40:07,040 Speaker 2: right now and leave us a review. It helps more 787 00:40:07,040 --> 00:40:07,919 Speaker 2: people find the show. 788 00:40:08,239 --> 00:40:10,920 Speaker 1: The Money Stuff Podcast is produced by Ana ma Aserakus 789 00:40:10,960 --> 00:40:12,600 Speaker 1: and Moses onm Our. 790 00:40:12,640 --> 00:40:15,480 Speaker 2: Theme music was composed by Blake Maples and Stage Bauman 791 00:40:15,560 --> 00:40:16,880 Speaker 2: is Bloomberg's head of Podcasts. 792 00:40:17,080 --> 00:40:19,440 Speaker 1: Thanks for listening to The Money Stuff Podcast. We'll be 793 00:40:19,480 --> 00:40:21,040 Speaker 1: back next week with more stuff