1 00:00:11,560 --> 00:00:14,720 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:14,800 --> 00:00:17,759 Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't all Joe. It 3 00:00:17,920 --> 00:00:22,320 Speaker 1: is brutal out there, Yeah, it really, It really is wild. 4 00:00:22,400 --> 00:00:28,280 Speaker 1: It's relentless, it's compounding. There's a lot of fear um 5 00:00:28,360 --> 00:00:31,960 Speaker 1: I guess do do elevated inflation. People are really sort 6 00:00:31,960 --> 00:00:34,080 Speaker 1: of like feeling like we'd sort of no man's land, 7 00:00:34,400 --> 00:00:36,720 Speaker 1: at least with respect to the last several decades of 8 00:00:36,760 --> 00:00:39,120 Speaker 1: how the economy work. People don't know, people don't have 9 00:00:39,200 --> 00:00:42,120 Speaker 1: confidence that anything is working. So people are dumping stuff 10 00:00:42,120 --> 00:00:45,280 Speaker 1: and they're buying dollars. Yeah. We are recording this on June. 11 00:00:45,920 --> 00:00:49,360 Speaker 1: It's Monday. Black Monday is trending on Twitter. It's not 12 00:00:49,479 --> 00:00:53,120 Speaker 1: like it. It seems like a little exaggeration. It's early 13 00:00:53,200 --> 00:00:57,200 Speaker 1: in the day. Yeah, so we'll see what happens. But 14 00:00:57,200 --> 00:00:59,200 Speaker 1: what I will say is on Friday, I think the 15 00:00:59,320 --> 00:01:02,720 Speaker 1: SP five hun was down to point nine percent something 16 00:01:02,760 --> 00:01:06,600 Speaker 1: like that, And it has been just incredibly painful for 17 00:01:06,680 --> 00:01:10,520 Speaker 1: a lot of stocks out there, but tech stocks in particular. Yeah, 18 00:01:10,600 --> 00:01:13,160 Speaker 1: tech stocks in particular, as everyone knows, have gotten crushed. 19 00:01:13,440 --> 00:01:16,760 Speaker 1: And then of course that feeds in a very linear 20 00:01:16,800 --> 00:01:19,240 Speaker 1: way to private tech companies. Of course, we've had this 21 00:01:19,280 --> 00:01:22,920 Speaker 1: big private tech boom VC, all these startups and everything, 22 00:01:23,280 --> 00:01:27,040 Speaker 1: and every late stage private company you know, aspires to 23 00:01:27,120 --> 00:01:28,680 Speaker 1: I p O, so off the I p O windows 24 00:01:28,680 --> 00:01:31,440 Speaker 1: plunging or falling. Then that hurts their values. And every 25 00:01:31,440 --> 00:01:33,759 Speaker 1: mid stage company expires to be an age stage company, 26 00:01:33,760 --> 00:01:35,680 Speaker 1: and every early stage company expires to be a mid 27 00:01:35,720 --> 00:01:39,040 Speaker 1: stage company. So there's no way to like avoid this 28 00:01:39,160 --> 00:01:42,760 Speaker 1: sort of follow on effect. Like individual companies can do fun, 29 00:01:42,800 --> 00:01:45,080 Speaker 1: but as a whole, what we see in the stock 30 00:01:45,120 --> 00:01:50,280 Speaker 1: market I think pretty straightforwardly translates down into less liquid, 31 00:01:50,360 --> 00:01:53,920 Speaker 1: riskier private tech. Right, So you would assume there's some effect. 32 00:01:54,080 --> 00:01:57,000 Speaker 1: But obviously because a lot of these companies, while all 33 00:01:57,040 --> 00:02:00,000 Speaker 1: of these companies are not listed, you can't actually see 34 00:02:00,040 --> 00:02:03,080 Speaker 1: what's happening to their valuations in real time. So we 35 00:02:03,120 --> 00:02:05,480 Speaker 1: can look up the S and P five hundred or 36 00:02:05,640 --> 00:02:08,560 Speaker 1: you know, Amazon or Alphabet or whatever and see what's happening. 37 00:02:08,680 --> 00:02:11,440 Speaker 1: It's a little bit harder with some of these startups. 38 00:02:11,480 --> 00:02:13,920 Speaker 1: The only thing you can do, you know, you can 39 00:02:13,960 --> 00:02:17,080 Speaker 1: see VC returns and what they tell their investors. But 40 00:02:17,160 --> 00:02:19,600 Speaker 1: even still, the only time you'll often like get like 41 00:02:19,639 --> 00:02:22,360 Speaker 1: a true like mark as in mark to market. I 42 00:02:22,400 --> 00:02:24,080 Speaker 1: think is like when they do a raise, and of 43 00:02:24,120 --> 00:02:26,680 Speaker 1: course no one wants to actually do a down round raise, 44 00:02:27,320 --> 00:02:30,080 Speaker 1: so you never actually get it. So anyway, this is 45 00:02:30,120 --> 00:02:32,760 Speaker 1: the irony, right when when valuations are going up and 46 00:02:32,840 --> 00:02:37,040 Speaker 1: people are doing repeated fundraising rounds at higher valuations, everyone 47 00:02:37,520 --> 00:02:39,960 Speaker 1: issues a press release and talks about it, and then 48 00:02:40,000 --> 00:02:42,120 Speaker 1: when things are going in the other direction, it's just 49 00:02:42,240 --> 00:02:45,560 Speaker 1: silence and crickets. So I'm very pleased to say that 50 00:02:45,600 --> 00:02:48,040 Speaker 1: today we're going to try to figure out what's been 51 00:02:48,080 --> 00:02:52,079 Speaker 1: happening in the world of venture capital and startups. We're 52 00:02:52,080 --> 00:02:54,919 Speaker 1: going to be speaking with Tyler Tringus. He's the founder 53 00:02:54,919 --> 00:02:58,440 Speaker 1: and general partner of Calm Fund. So Tyler, welcome to 54 00:02:58,440 --> 00:03:02,359 Speaker 1: the show. Hey, thanks so much for having me. Tyler, 55 00:03:02,400 --> 00:03:05,040 Speaker 1: maybe just to begin, you can tell us a bit 56 00:03:05,080 --> 00:03:07,600 Speaker 1: more about Calm Fund. What is it and how does 57 00:03:07,600 --> 00:03:14,040 Speaker 1: it differ from a traditional venture capital firm. Yeah, so, um, 58 00:03:14,160 --> 00:03:17,600 Speaker 1: we are an early stage investor in technology companies, so 59 00:03:17,680 --> 00:03:20,000 Speaker 1: in a lot of ways we we look a lot 60 00:03:20,080 --> 00:03:22,840 Speaker 1: like um, you know, a venture capital firm in the 61 00:03:22,919 --> 00:03:26,080 Speaker 1: sense of we you know, invest early, we partner with 62 00:03:26,120 --> 00:03:29,799 Speaker 1: the founders, we provide community, mentorship resources, all that kind 63 00:03:29,800 --> 00:03:32,119 Speaker 1: of stuff, and we're with them kind of the whole 64 00:03:32,160 --> 00:03:35,640 Speaker 1: way until they eventually either exit the company or or 65 00:03:35,760 --> 00:03:38,920 Speaker 1: UM I p O UM. But UM so, so we 66 00:03:38,960 --> 00:03:41,240 Speaker 1: share a lot in common terms of the structure. UM. 67 00:03:41,320 --> 00:03:43,720 Speaker 1: Where we differ is we are one of the only 68 00:03:43,720 --> 00:03:47,240 Speaker 1: funds doing early stage tech investing with a different thesis 69 00:03:47,280 --> 00:03:51,680 Speaker 1: than the traditional venture model of basically you could colloquially 70 00:03:51,720 --> 00:03:54,400 Speaker 1: call it like unicorn hunting, right looking for you know, 71 00:03:54,480 --> 00:03:58,120 Speaker 1: billion and ten billion dollar outcomes UM, and our model 72 00:03:58,200 --> 00:04:00,560 Speaker 1: is based around the idea that you can, now, for 73 00:04:00,640 --> 00:04:03,600 Speaker 1: maybe the first time in you know, tech investing history, 74 00:04:03,920 --> 00:04:06,800 Speaker 1: you can invest pretty early stage in companies that are 75 00:04:06,880 --> 00:04:10,560 Speaker 1: substantially de risked and going after sort of um, slightly 76 00:04:10,560 --> 00:04:13,800 Speaker 1: more niche opportunities where it's just not the same kind 77 00:04:13,800 --> 00:04:17,600 Speaker 1: of risk profile as a traditional kind of venture UM, 78 00:04:17,640 --> 00:04:20,200 Speaker 1: you know, winner take all kind of model, and you 79 00:04:20,200 --> 00:04:22,560 Speaker 1: can build an entirely different sort of approach to portfolio 80 00:04:22,560 --> 00:04:27,160 Speaker 1: construction around that. So, can you explain why the typical 81 00:04:27,400 --> 00:04:30,800 Speaker 1: VC approach is as you say, unicorn hunting, And of 82 00:04:30,839 --> 00:04:33,520 Speaker 1: course for years there's like, yeah, well, you know, nine 83 00:04:33,560 --> 00:04:35,800 Speaker 1: of ten of our portfolio companies are going to fail, 84 00:04:35,839 --> 00:04:37,440 Speaker 1: but one of them is going to be the next 85 00:04:37,480 --> 00:04:40,560 Speaker 1: Airbnb or Uber or Facebook. And that's how that's the 86 00:04:40,640 --> 00:04:43,600 Speaker 1: game is like just you just gotta hit one. Why 87 00:04:43,720 --> 00:04:47,200 Speaker 1: has that become or why especially over the last decade, 88 00:04:47,200 --> 00:04:51,440 Speaker 1: but probably before, how did that become the dominant strategy 89 00:04:51,480 --> 00:04:55,520 Speaker 1: that so many firms settled on? I mean, I think 90 00:04:55,560 --> 00:04:58,320 Speaker 1: the very simple answer is that's the strategy that worked 91 00:04:58,560 --> 00:05:01,320 Speaker 1: right um in the sen that you know, people sort 92 00:05:01,320 --> 00:05:04,520 Speaker 1: of reverse engineer the portfolios that were very successful and 93 00:05:04,560 --> 00:05:06,640 Speaker 1: they looked back and they said, hey, you know, it 94 00:05:06,640 --> 00:05:10,040 Speaker 1: turns out we had this power law distribution where you know, 95 00:05:10,120 --> 00:05:13,440 Speaker 1: almost all the returns came from um, you know, our 96 00:05:13,440 --> 00:05:16,839 Speaker 1: biggest winners getting into Airbnb or Uber that sort of thing, 97 00:05:16,960 --> 00:05:20,080 Speaker 1: and nothing else really mattered. So what we should do 98 00:05:20,160 --> 00:05:23,680 Speaker 1: is really shift our strategy to be completely focused on 99 00:05:24,000 --> 00:05:27,320 Speaker 1: maximizing our chance of getting you know, one or a 100 00:05:27,320 --> 00:05:31,880 Speaker 1: few of those huge outlier returns in our portfolio, because 101 00:05:32,080 --> 00:05:34,480 Speaker 1: that's what's worked for you know, the best venture funds 102 00:05:34,480 --> 00:05:39,280 Speaker 1: in the past. Um. The maybe slightly more um uh 103 00:05:39,440 --> 00:05:42,280 Speaker 1: theoretically sound version of that's just when you have very 104 00:05:42,360 --> 00:05:45,560 Speaker 1: very high risk ventures, which is what venture capital is 105 00:05:45,600 --> 00:05:48,600 Speaker 1: built to do right. It comes out of the semiconductor 106 00:05:48,600 --> 00:05:52,120 Speaker 1: era of building you know, massive factories and and launching 107 00:05:52,120 --> 00:05:54,280 Speaker 1: semi conductor products and things like that, where you had 108 00:05:54,360 --> 00:05:58,920 Speaker 1: huge upfront costs, high risk, no real ability to predict 109 00:05:58,960 --> 00:06:02,840 Speaker 1: sort of market demand. You needed to be compensated for 110 00:06:02,839 --> 00:06:06,400 Speaker 1: that risk with very very very outsized returns um at 111 00:06:06,440 --> 00:06:09,320 Speaker 1: both the company level and at the sort of overall 112 00:06:09,360 --> 00:06:11,719 Speaker 1: fund portfolio level. Right, you needed to make sure that 113 00:06:11,800 --> 00:06:14,159 Speaker 1: you couldn't just generate a two x fund. You needed 114 00:06:14,160 --> 00:06:16,440 Speaker 1: a five x fund or something to to really move 115 00:06:16,440 --> 00:06:18,960 Speaker 1: the needle, and so you needed hundred x outcomes to 116 00:06:19,000 --> 00:06:22,600 Speaker 1: get to that five n UM. So that's the that's 117 00:06:22,640 --> 00:06:26,400 Speaker 1: the general UM I guess history of of that approach. 118 00:06:26,760 --> 00:06:29,960 Speaker 1: It's interesting, Tracy. You know, you know something we talked 119 00:06:30,040 --> 00:06:32,160 Speaker 1: we've been talking more and more about on the podcast, 120 00:06:32,279 --> 00:06:35,480 Speaker 1: like this idea of like capital investment coming back and 121 00:06:35,560 --> 00:06:38,080 Speaker 1: actually spending and then thinking about like all these companies 122 00:06:38,120 --> 00:06:40,200 Speaker 1: over the last ten years, like what capital did they 123 00:06:40,240 --> 00:06:42,480 Speaker 1: really need? Like software? It's like they didn't need to 124 00:06:42,480 --> 00:06:45,040 Speaker 1: build a job factory or a chip founder. I was 125 00:06:45,080 --> 00:06:48,479 Speaker 1: just gonna say, I call this the UM, this overall dynamic, 126 00:06:48,600 --> 00:06:51,280 Speaker 1: the peace dividend of the sas wars. Right, So the 127 00:06:51,320 --> 00:06:53,920 Speaker 1: idea of like a peace dividend where you know, you 128 00:06:53,920 --> 00:06:55,599 Speaker 1: you just are left with all of this kind of 129 00:06:55,640 --> 00:06:58,760 Speaker 1: infrastructure and stuff after the kind of bubbly phase of things, 130 00:06:59,160 --> 00:07:02,080 Speaker 1: and um, you get to use all that stuff for free. 131 00:07:02,360 --> 00:07:04,240 Speaker 1: Right and so now, yeah, you're right, It's like the 132 00:07:04,320 --> 00:07:06,480 Speaker 1: software companies that are going to market are really not 133 00:07:07,040 --> 00:07:10,760 Speaker 1: They're not venture opportunities in multiple respects, and one of 134 00:07:10,760 --> 00:07:13,640 Speaker 1: which is they're just not that capital intensive before you 135 00:07:13,680 --> 00:07:15,720 Speaker 1: can start to de risk and see if people actually 136 00:07:15,760 --> 00:07:18,160 Speaker 1: want this thing. Well, presumably a lot of the money 137 00:07:18,240 --> 00:07:22,640 Speaker 1: just went into trying to gain market share, right and right, 138 00:07:22,720 --> 00:07:26,000 Speaker 1: that was it. Um. But okay, so here's my big 139 00:07:26,080 --> 00:07:29,000 Speaker 1: question based on that. I can't imagine anyone going out 140 00:07:29,120 --> 00:07:32,600 Speaker 1: and sort of saying explicitly that their unicorn hunting. In 141 00:07:32,640 --> 00:07:35,800 Speaker 1: the current environment, it just doesn't feel like an environment 142 00:07:35,840 --> 00:07:38,920 Speaker 1: conducive to finding those types of companies and getting the 143 00:07:39,000 --> 00:07:42,160 Speaker 1: funding for those types of companies. So what are venture 144 00:07:42,200 --> 00:07:48,000 Speaker 1: capital firms traditional vcs doing right now? I don't know 145 00:07:48,040 --> 00:07:50,000 Speaker 1: if they would agree with the premise of your question, 146 00:07:50,080 --> 00:07:51,960 Speaker 1: To be honest, Um, I think a lot of venture 147 00:07:52,000 --> 00:07:55,480 Speaker 1: funds still think that, um, you know, the fundamental sort 148 00:07:55,520 --> 00:07:59,200 Speaker 1: of approaches is more or less the same. I mean, 149 00:07:59,240 --> 00:08:02,680 Speaker 1: they're they're still looking for those kind of large outlier returns, 150 00:08:02,760 --> 00:08:07,160 Speaker 1: especially if you're investing early stage, and their view is just, hey, 151 00:08:07,360 --> 00:08:10,280 Speaker 1: you know, I think, uh maybe Mark Andreson kind of 152 00:08:10,320 --> 00:08:12,120 Speaker 1: said this a while back, and it's become kind of 153 00:08:12,240 --> 00:08:14,840 Speaker 1: an ethos throughout the industry, which is that you know, 154 00:08:14,920 --> 00:08:19,320 Speaker 1: there's only a few huge outlier companies that matter every year, 155 00:08:19,600 --> 00:08:21,520 Speaker 1: and your job is just to try to get into 156 00:08:21,560 --> 00:08:23,920 Speaker 1: those right and you know, the valuation you do it 157 00:08:23,920 --> 00:08:26,880 Speaker 1: at doesn't really matter. Um, It's all about you know, 158 00:08:26,920 --> 00:08:29,120 Speaker 1: making sure that you get into the coin base or 159 00:08:29,160 --> 00:08:31,000 Speaker 1: whatever thing that's going to generate a hundred x or 160 00:08:31,000 --> 00:08:33,640 Speaker 1: five x return for your fund. UM. I don't think 161 00:08:33,679 --> 00:08:38,600 Speaker 1: that that approach has changed a ton right now for UM, 162 00:08:38,720 --> 00:08:41,600 Speaker 1: for the traditional early stage venture funds who've been at 163 00:08:41,600 --> 00:08:45,360 Speaker 1: it for a while. So what are they doing right now? Though? What? 164 00:08:45,480 --> 00:08:47,040 Speaker 1: Or what? You know? So it's like you have this 165 00:08:47,280 --> 00:08:50,400 Speaker 1: incredible ten years in which the strategies have just worked 166 00:08:50,760 --> 00:08:55,120 Speaker 1: so well and so beautifully, uh for you know, at 167 00:08:55,160 --> 00:08:57,240 Speaker 1: least ten years, but probably more. But you know, thinking 168 00:08:57,240 --> 00:08:59,360 Speaker 1: about the big you know you mentioned Mark and reason 169 00:08:59,720 --> 00:09:03,120 Speaker 1: I inc. A sixtenen Z was two thousand and eight, 170 00:09:03,120 --> 00:09:06,240 Speaker 1: two thousand nine, like essentially like right at the bottom 171 00:09:06,280 --> 00:09:10,080 Speaker 1: of the last crisis, So just like truly an incredible decade. 172 00:09:10,240 --> 00:09:13,320 Speaker 1: Where do things stand now in terms of like strategy 173 00:09:13,440 --> 00:09:19,240 Speaker 1: on June third two, Well, I think the dominant strategic 174 00:09:19,280 --> 00:09:22,800 Speaker 1: consideration right now for VCS has a little bit less 175 00:09:22,800 --> 00:09:25,760 Speaker 1: to do with what's happening exactly now and about what's 176 00:09:25,800 --> 00:09:28,320 Speaker 1: happened over the last few years, because you know, like 177 00:09:28,360 --> 00:09:30,640 Speaker 1: you guys were talking about in terms of private valuations, 178 00:09:30,720 --> 00:09:32,440 Speaker 1: you know, there's a bit of a of a one 179 00:09:32,480 --> 00:09:35,280 Speaker 1: way ratchet right where once you invested a company at 180 00:09:35,280 --> 00:09:39,199 Speaker 1: a particular valuation, there's really a humongous amount of incentives 181 00:09:39,679 --> 00:09:43,160 Speaker 1: not to generate it down round, not to raise more 182 00:09:43,240 --> 00:09:46,640 Speaker 1: capital at a lower valuation and lock in that sort 183 00:09:46,640 --> 00:09:49,640 Speaker 1: of negative return. Like you know, stocks go up and down. 184 00:09:49,960 --> 00:09:53,160 Speaker 1: Why is it that in private markets they're like down 185 00:09:53,280 --> 00:09:58,960 Speaker 1: rounds are like, so do everything to avoid a down round? Um? Well, 186 00:09:59,000 --> 00:10:00,520 Speaker 1: I mean it kind of like trades you alluded to, 187 00:10:00,600 --> 00:10:03,120 Speaker 1: there's a real sort of um, you know, heads I 188 00:10:03,200 --> 00:10:06,720 Speaker 1: win tails you lose dynamic in private valuations, which is 189 00:10:06,760 --> 00:10:09,720 Speaker 1: just you know, when they're going up, you're able to 190 00:10:09,800 --> 00:10:14,800 Speaker 1: report those quote unquote paper returns to your LPs as markups. Right, 191 00:10:14,840 --> 00:10:18,600 Speaker 1: so you're sending these updates to your LPs um, you know, saying, hey, 192 00:10:18,640 --> 00:10:21,040 Speaker 1: you know, our our fund is now worth two x 193 00:10:21,080 --> 00:10:23,079 Speaker 1: what you invested. It's worth two point five. Now it's 194 00:10:23,080 --> 00:10:25,839 Speaker 1: worth three. And those are all based on those up grounds, right. 195 00:10:25,880 --> 00:10:28,920 Speaker 1: Each time a new priced round happens, you mark your 196 00:10:29,400 --> 00:10:34,120 Speaker 1: existing ownership up. And there's just a lot of sort 197 00:10:34,160 --> 00:10:37,520 Speaker 1: of incentive not to want to send a quarterly report 198 00:10:37,559 --> 00:10:40,720 Speaker 1: that says, hey, we're now a two point to fund 199 00:10:40,840 --> 00:10:42,800 Speaker 1: versus the two point five because we took a really 200 00:10:42,800 --> 00:10:45,400 Speaker 1: big mark down. Um. It's just part of the overall 201 00:10:45,440 --> 00:10:49,400 Speaker 1: psychology I think between you know, venture funds and their LPs, 202 00:10:49,720 --> 00:10:52,640 Speaker 1: which is that those returns always go up, and you're 203 00:10:52,640 --> 00:10:55,400 Speaker 1: going to really stand out as an anomalous sort of 204 00:10:55,440 --> 00:10:58,120 Speaker 1: thing for them if you're one of the few funds 205 00:10:58,120 --> 00:11:01,440 Speaker 1: in their portfolio that's returning or that's you know, marking 206 00:11:01,480 --> 00:11:05,360 Speaker 1: sort of negative returns for a particular quarter or year. Um. 207 00:11:05,400 --> 00:11:07,280 Speaker 1: So that's that's really it. It's like there's just a 208 00:11:07,280 --> 00:11:12,520 Speaker 1: lot of incentive to to really navigate around that um 209 00:11:12,559 --> 00:11:16,760 Speaker 1: to try and either convince the company to completely shift 210 00:11:16,840 --> 00:11:20,320 Speaker 1: gears and you know, cut their burn layoff staff, start 211 00:11:20,360 --> 00:11:23,520 Speaker 1: to focus on profitability so that they can quote unquote 212 00:11:23,520 --> 00:11:26,720 Speaker 1: grow into those valuations, right, so that you know, maybe 213 00:11:26,720 --> 00:11:28,600 Speaker 1: they would never have gotten there in the typical sort 214 00:11:28,640 --> 00:11:31,160 Speaker 1: of twelve to eighteen months, but if they can extend 215 00:11:31,160 --> 00:11:33,920 Speaker 1: their runway to three years, well then they can spend 216 00:11:33,960 --> 00:11:35,679 Speaker 1: that three years getting to the point where they can 217 00:11:35,760 --> 00:11:38,760 Speaker 1: raise at least a flat round or or an upground 218 00:11:39,320 --> 00:11:41,960 Speaker 1: um or There'll be a lot of incentives to sort 219 00:11:41,960 --> 00:11:45,840 Speaker 1: of structure around a down round because you know, if 220 00:11:45,840 --> 00:11:47,520 Speaker 1: somebody comes in and says, hey, I want to miss 221 00:11:47,520 --> 00:11:49,280 Speaker 1: more capital in this company, but you know, the last 222 00:11:49,320 --> 00:11:51,760 Speaker 1: valuation was was sort of bananas. We're not going to 223 00:11:51,840 --> 00:11:54,200 Speaker 1: invest at that. Your your options are you can either 224 00:11:54,360 --> 00:11:56,080 Speaker 1: to the down round, right, you can say, fine, let's 225 00:11:56,080 --> 00:11:58,480 Speaker 1: find a new price, or you can add in all 226 00:11:58,600 --> 00:12:02,120 Speaker 1: kinds of you know, liquid a scan preferences and special 227 00:12:02,240 --> 00:12:04,960 Speaker 1: terms and things like that to keep the nominal sort 228 00:12:04,960 --> 00:12:07,840 Speaker 1: of headline price you know, the same or up uh, 229 00:12:07,880 --> 00:12:10,880 Speaker 1: and everybody is kind of happier that way. There's there's 230 00:12:10,880 --> 00:12:13,959 Speaker 1: also the dynamic of employee options right there, sort of 231 00:12:14,080 --> 00:12:19,599 Speaker 1: um um a little bit of dynamic there where employees 232 00:12:19,640 --> 00:12:22,680 Speaker 1: don't want to see the headline valuation going down because 233 00:12:22,960 --> 00:12:25,480 Speaker 1: their stock options are you know, on a strike price 234 00:12:25,520 --> 00:12:27,719 Speaker 1: from the last round and things like that. So it's 235 00:12:27,720 --> 00:12:30,640 Speaker 1: a huge amount of incentives to um to sort of 236 00:12:30,880 --> 00:12:34,600 Speaker 1: not really accept the reality of lower valuations. So can 237 00:12:34,640 --> 00:12:36,640 Speaker 1: you talk to us a little bit more than about 238 00:12:36,679 --> 00:12:41,760 Speaker 1: how lower valuations are down rounds, how those actually come about, like, 239 00:12:41,960 --> 00:12:44,760 Speaker 1: because as you say, there are so many incentives to 240 00:12:44,960 --> 00:12:47,880 Speaker 1: keep the valuation up as much as possible. And then 241 00:12:47,880 --> 00:12:49,839 Speaker 1: the other thing that tends to happen is because these 242 00:12:49,880 --> 00:12:53,280 Speaker 1: are a liquid markets, it feels like you could sort 243 00:12:53,320 --> 00:12:56,720 Speaker 1: of resist the new pricing for quite a while. So 244 00:12:56,880 --> 00:13:00,640 Speaker 1: what what is typically the process or the er that 245 00:13:00,720 --> 00:13:04,520 Speaker 1: will lead to a lower valuation for a startup for instance? 246 00:13:04,559 --> 00:13:08,160 Speaker 1: Is it just the company can't get any money without 247 00:13:08,600 --> 00:13:11,000 Speaker 1: taking a lower valuation and they need the money, Like 248 00:13:11,040 --> 00:13:13,600 Speaker 1: I'm just trying to understand exactly, like what the trigger 249 00:13:13,800 --> 00:13:17,040 Speaker 1: is that will have one company except a lower valuation 250 00:13:17,160 --> 00:13:21,520 Speaker 1: versus another that's able to hold on for longer. Yeah, 251 00:13:21,559 --> 00:13:23,440 Speaker 1: So the first thing is that it's very very rare, 252 00:13:23,559 --> 00:13:27,680 Speaker 1: So so we're we're basically trying to UM generalize about 253 00:13:27,720 --> 00:13:32,720 Speaker 1: an incredibly small anecdotal data set. It seems to me like, UM, 254 00:13:32,760 --> 00:13:35,600 Speaker 1: you know, as I think about the few instances I've 255 00:13:35,600 --> 00:13:38,720 Speaker 1: heard of this, UM, the most common scenario would be 256 00:13:38,800 --> 00:13:42,160 Speaker 1: when a sort of new investor of a completely different 257 00:13:42,240 --> 00:13:45,560 Speaker 1: archetype wants to come in and get involved. Right, So 258 00:13:45,600 --> 00:13:47,160 Speaker 1: this would be like when you would see sort of 259 00:13:47,320 --> 00:13:50,360 Speaker 1: pe or hedge funds and things like that can involved 260 00:13:50,559 --> 00:13:54,280 Speaker 1: UM because if you are an investor in technology companies 261 00:13:54,360 --> 00:13:57,199 Speaker 1: regularly and this is your business, you know, you really 262 00:13:57,240 --> 00:13:59,840 Speaker 1: just are highly incentivized to make sure that there's not 263 00:13:59,880 --> 00:14:02,599 Speaker 1: a down round. In fact, you know, I wrote a 264 00:14:02,600 --> 00:14:05,560 Speaker 1: little thread to founders basically talking about how you know, 265 00:14:05,679 --> 00:14:08,960 Speaker 1: if you are UM, you know, running a company that 266 00:14:09,120 --> 00:14:12,120 Speaker 1: just raised a very very large, high valuation venture around, 267 00:14:12,920 --> 00:14:15,880 Speaker 1: you are sort of misaligned with your investors. They're they're 268 00:14:15,920 --> 00:14:20,400 Speaker 1: quite incentivized to UM to want you to sort of 269 00:14:20,640 --> 00:14:24,160 Speaker 1: really double down and go big or go home, right, Like, 270 00:14:24,240 --> 00:14:26,640 Speaker 1: doing it down round is kind of like the worst option. 271 00:14:26,680 --> 00:14:29,120 Speaker 1: They would rather you either sort of you know, gut 272 00:14:29,120 --> 00:14:31,640 Speaker 1: it out and and somehow hit the metrics that you 273 00:14:31,680 --> 00:14:34,840 Speaker 1: need to raise an upground or just fail right, Um, 274 00:14:34,960 --> 00:14:38,320 Speaker 1: you know, and so there's a lot of counter incentives 275 00:14:38,360 --> 00:14:41,000 Speaker 1: to what would be the sort of rational strategy, which 276 00:14:41,000 --> 00:14:43,440 Speaker 1: is to try and you know, pivot to profitability, even 277 00:14:43,480 --> 00:14:45,280 Speaker 1: though you are seeing some folks start to sort of 278 00:14:45,480 --> 00:14:49,360 Speaker 1: preach about that as well. Um, you know, it's it's 279 00:14:49,360 --> 00:14:51,400 Speaker 1: just there's a ton of incentives against it, and you 280 00:14:51,400 --> 00:14:54,480 Speaker 1: would probably do it if you had no other choice. Um, 281 00:14:54,600 --> 00:14:57,760 Speaker 1: And you know you've got an offer from some sort 282 00:14:57,840 --> 00:15:00,720 Speaker 1: of you know, private equity and d or something like 283 00:15:00,760 --> 00:15:03,240 Speaker 1: that to do a bridge around um, where it can 284 00:15:03,320 --> 00:15:06,240 Speaker 1: kind of be justified. Hey, we're working with these folks, um, 285 00:15:06,280 --> 00:15:08,640 Speaker 1: because they're just you know, different types of investors. So 286 00:15:08,680 --> 00:15:10,840 Speaker 1: of course there's gonna be worse terms with it. But 287 00:15:10,880 --> 00:15:27,760 Speaker 1: it's a real negative signal in the industry. Can you 288 00:15:27,800 --> 00:15:31,400 Speaker 1: talk about from your perspective, So your investments are you're 289 00:15:31,440 --> 00:15:34,200 Speaker 1: not taking the unicorn hunting approach because, as you've said, 290 00:15:34,560 --> 00:15:38,840 Speaker 1: you believe that it's possible to invest in relatively early 291 00:15:38,960 --> 00:15:43,479 Speaker 1: stage tech companies but that don't have like high downside 292 00:15:43,520 --> 00:15:45,760 Speaker 1: risk and so that actually you're not just trying to 293 00:15:46,040 --> 00:15:48,520 Speaker 1: oh nine go to zero and one goes to a 294 00:15:48,600 --> 00:15:51,800 Speaker 1: hundred billion or whatever it is that being said, I'm 295 00:15:51,840 --> 00:15:54,040 Speaker 1: sure this is you know, there's some of the same 296 00:15:54,120 --> 00:15:57,080 Speaker 1: macro stresses are going to apply to every company's Can 297 00:15:57,160 --> 00:15:59,920 Speaker 1: you talk to us about like the advice you're giving 298 00:16:00,040 --> 00:16:02,280 Speaker 1: is it the same as like, you know, because everyone 299 00:16:02,360 --> 00:16:04,680 Speaker 1: VC puts out these memos cut caught, you know, this 300 00:16:04,760 --> 00:16:07,240 Speaker 1: is the time, profitability, etcetera. But can you talk about 301 00:16:07,240 --> 00:16:10,040 Speaker 1: what those conversations are like beyond just the sort of 302 00:16:10,080 --> 00:16:15,000 Speaker 1: like the press released memo tweet thread level. Sure, yeah, 303 00:16:15,040 --> 00:16:16,840 Speaker 1: I mean so, to be clear, the reason that we 304 00:16:16,920 --> 00:16:20,840 Speaker 1: think our thesis works is less about any kind of 305 00:16:20,920 --> 00:16:24,800 Speaker 1: change in the validity of the venture capital model and 306 00:16:24,840 --> 00:16:28,000 Speaker 1: more just about the ground sort of shifting under everyone's 307 00:16:28,040 --> 00:16:31,520 Speaker 1: feet where a lot of software and kind of software 308 00:16:31,640 --> 00:16:34,720 Speaker 1: enabled the e commerce and things like that, uh sass, 309 00:16:34,840 --> 00:16:37,560 Speaker 1: all these kinds of products they sort of shifted out 310 00:16:37,600 --> 00:16:40,520 Speaker 1: of the venture profile right where they just became de 311 00:16:40,640 --> 00:16:42,880 Speaker 1: risk like we were talking about before. So it's more 312 00:16:43,000 --> 00:16:46,600 Speaker 1: just that there's this segment over here that we think, 313 00:16:46,800 --> 00:16:49,280 Speaker 1: you know, at least our strategy is valid, if not 314 00:16:49,400 --> 00:16:52,200 Speaker 1: more applicable to these opportunities because they're not as capital 315 00:16:52,240 --> 00:16:55,680 Speaker 1: intensive and quite frankly not as risky. It doesn't change 316 00:16:55,680 --> 00:16:57,280 Speaker 1: the fact that, you know, if you want to build 317 00:16:57,320 --> 00:16:59,960 Speaker 1: factories in space or launch rockets you know that are 318 00:17:00,040 --> 00:17:02,120 Speaker 1: reusable and all this kind of stuff, you really do 319 00:17:02,240 --> 00:17:05,600 Speaker 1: need to still, um, you know, go on that traditional 320 00:17:05,680 --> 00:17:08,320 Speaker 1: venture capital approach as long as you're really having those 321 00:17:08,400 --> 00:17:11,600 Speaker 1: winner take all dynamics at the at the other end. Um. 322 00:17:11,640 --> 00:17:14,560 Speaker 1: But in terms of like the conversations we're having UM 323 00:17:14,600 --> 00:17:20,200 Speaker 1: with companies, I mean, we honestly like our overarching UM 324 00:17:20,280 --> 00:17:22,520 Speaker 1: message has been sort of stay the course, Like we 325 00:17:22,520 --> 00:17:24,639 Speaker 1: we were sort of fighting a little bit of against 326 00:17:24,640 --> 00:17:27,240 Speaker 1: the tide um for the last couple of years as 327 00:17:27,280 --> 00:17:30,560 Speaker 1: capital became really easy. So even founders that maybe not 328 00:17:30,680 --> 00:17:33,199 Speaker 1: really a fit for traditional venture we're getting term sheets 329 00:17:33,240 --> 00:17:34,920 Speaker 1: and saying, hey, this guy wants to give me six 330 00:17:34,960 --> 00:17:37,960 Speaker 1: million dollars, should I take it? Um? And we were saying, well, 331 00:17:38,000 --> 00:17:40,960 Speaker 1: you know, maybe, but um, you know, you're going after 332 00:17:41,000 --> 00:17:44,840 Speaker 1: a fairly niche market. You think, but how much did 333 00:17:44,840 --> 00:17:49,160 Speaker 1: the appeal for these founders to take that how much 334 00:17:49,280 --> 00:17:54,080 Speaker 1: was it affected by opportunities to cash out early some 335 00:17:54,160 --> 00:17:57,399 Speaker 1: of their shares, some of which even in probably the 336 00:17:57,440 --> 00:18:00,639 Speaker 1: opportunity to make life changing amounts of money even in 337 00:18:00,720 --> 00:18:04,680 Speaker 1: a relatively early round. Yeah, it's a really good question. 338 00:18:04,720 --> 00:18:08,280 Speaker 1: We have not seen that very much in our portfolio, 339 00:18:08,760 --> 00:18:11,439 Speaker 1: in part because you know, most of our companies are 340 00:18:11,480 --> 00:18:14,200 Speaker 1: optimizing for being capital efficient, the vast majority of them 341 00:18:14,200 --> 00:18:16,480 Speaker 1: have not raised additional capital, So so we haven't seen 342 00:18:16,520 --> 00:18:18,520 Speaker 1: a ton of that. But you did see, you know, 343 00:18:18,680 --> 00:18:21,680 Speaker 1: quite a lot of that going on in the market, um, 344 00:18:21,720 --> 00:18:25,000 Speaker 1: the last couple of years. And UM, I think it's 345 00:18:25,040 --> 00:18:27,399 Speaker 1: a real function of the fact that, you know, the 346 00:18:28,080 --> 00:18:31,040 Speaker 1: entire venture community for the last two years was just 347 00:18:31,040 --> 00:18:34,760 Speaker 1: getting completely squeezed UM. And there was just a supply 348 00:18:34,840 --> 00:18:37,360 Speaker 1: and demand dynamic going on where there was just an 349 00:18:37,400 --> 00:18:41,720 Speaker 1: oversupply of of capital relative to um you know, the 350 00:18:41,800 --> 00:18:45,520 Speaker 1: number of real venture scale game changing opportunities, or at 351 00:18:45,560 --> 00:18:48,600 Speaker 1: least the perceived set of those. And so there was 352 00:18:48,600 --> 00:18:51,600 Speaker 1: this competition to compete, right all for better terms and 353 00:18:51,640 --> 00:18:55,200 Speaker 1: to offer more attractive kind of secondary sales for the founders. UM. 354 00:18:55,240 --> 00:18:58,520 Speaker 1: And you saw some sort of truly um so, some 355 00:18:58,640 --> 00:19:00,840 Speaker 1: truly crazy stuff. I think the first one that kind 356 00:19:00,880 --> 00:19:03,199 Speaker 1: of hit the news was was Clubhouse early on and 357 00:19:03,200 --> 00:19:06,520 Speaker 1: the founders too million dollars off the table. Yeah, I 358 00:19:06,520 --> 00:19:10,240 Speaker 1: remember that, and uh, and everyone was like, oh man, 359 00:19:10,359 --> 00:19:12,840 Speaker 1: like they're barely you know, they barely launched, and they 360 00:19:12,880 --> 00:19:15,919 Speaker 1: just raised this huge third round. And however, many months 361 00:19:15,920 --> 00:19:18,280 Speaker 1: and the founders took two million dollars off the table 362 00:19:18,320 --> 00:19:20,960 Speaker 1: and that was news. And then later over a couple 363 00:19:21,000 --> 00:19:23,960 Speaker 1: of years, you saw you know, founders taking five million, 364 00:19:24,000 --> 00:19:28,680 Speaker 1: ten million, and two hundred million off the table. Million 365 00:19:28,760 --> 00:19:33,159 Speaker 1: off the table as a founder UM fact check beyond that, 366 00:19:33,200 --> 00:19:35,040 Speaker 1: but I believe it was reported that the founder of 367 00:19:35,080 --> 00:19:39,880 Speaker 1: hop in the virtual conference software they kind of went 368 00:19:39,920 --> 00:19:43,240 Speaker 1: from they went from z you know, they were they 369 00:19:43,280 --> 00:19:46,200 Speaker 1: got probably the biggest COVID boost of maybe any company, 370 00:19:46,280 --> 00:19:50,879 Speaker 1: uh maybe Zoom aside um where they basically run virtual 371 00:19:50,920 --> 00:19:54,399 Speaker 1: conference software, and UM, they're one of the sort of 372 00:19:54,440 --> 00:19:57,879 Speaker 1: like steepest valuation trajectories I think anyone has ever seen. 373 00:19:57,920 --> 00:20:00,440 Speaker 1: They went from kind of you know, very o seed 374 00:20:00,520 --> 00:20:03,480 Speaker 1: round to six billion dollar valuation and over the course 375 00:20:03,520 --> 00:20:07,040 Speaker 1: of basically COVID less than two years UM. And I 376 00:20:07,080 --> 00:20:10,280 Speaker 1: believe it was reported that the founder took UM two 377 00:20:10,640 --> 00:20:13,840 Speaker 1: million or more UM off the table. Amazing. Good for them, 378 00:20:13,880 --> 00:20:18,040 Speaker 1: Good for them. I mean, it's hard to blame people 379 00:20:18,119 --> 00:20:21,520 Speaker 1: for taking it right. I mean, it's um, it's hugely 380 00:20:21,560 --> 00:20:25,840 Speaker 1: misaligned with you know, your your employees, um, who certainly 381 00:20:25,880 --> 00:20:29,159 Speaker 1: were not offered that same level of liquidity, um, you know, 382 00:20:29,200 --> 00:20:31,920 Speaker 1: and and now have a bunch of their stock options 383 00:20:31,960 --> 00:20:34,760 Speaker 1: locked up at this kind of like very very high valuation. 384 00:20:34,840 --> 00:20:37,320 Speaker 1: And we'll see what happens to those I think, um, 385 00:20:37,359 --> 00:20:39,920 Speaker 1: you know, we're going to see a huge wave of employees. 386 00:20:40,080 --> 00:20:43,600 Speaker 1: See millions of dollars of equity wiped out hoppin founder 387 00:20:44,280 --> 00:20:48,000 Speaker 1: in June. This is, according to the Financial Times nets 388 00:20:48,080 --> 00:20:51,120 Speaker 1: a hundred million pounds so dty millions something and share 389 00:20:51,160 --> 00:20:55,280 Speaker 1: sales amazing. I had no idea that's good for him anyway, Sorry, Tracy, 390 00:20:55,320 --> 00:20:58,320 Speaker 1: what we get say, well, sorry to press on this, 391 00:20:58,440 --> 00:21:03,400 Speaker 1: but just on valuations, okay. So so in an up cycle, 392 00:21:03,680 --> 00:21:06,960 Speaker 1: I guess you have this pressure on valuations and lots 393 00:21:06,960 --> 00:21:10,000 Speaker 1: of money competing for the same thing, and so prices 394 00:21:10,040 --> 00:21:13,000 Speaker 1: tend to get squeezed even higher. And actually we spoke 395 00:21:13,000 --> 00:21:16,080 Speaker 1: to Howard Lindson about this back in February. But you 396 00:21:16,160 --> 00:21:19,160 Speaker 1: also had, you know, particularly big players like soft Bank, 397 00:21:19,160 --> 00:21:21,960 Speaker 1: who would come in and squeeze a company much much 398 00:21:22,000 --> 00:21:25,639 Speaker 1: higher than it would be otherwise. What happens on the 399 00:21:25,640 --> 00:21:29,320 Speaker 1: flip side of that, when everything starts going down. Is 400 00:21:29,359 --> 00:21:32,920 Speaker 1: it you know, people hold on because their incentive is 401 00:21:33,000 --> 00:21:37,680 Speaker 1: to hold on and avoid booking these companies at lower valuations, 402 00:21:37,840 --> 00:21:41,600 Speaker 1: or does like a bunch of money get pulled and 403 00:21:41,840 --> 00:21:45,160 Speaker 1: the cycle is even worse on the way down. Yeah, 404 00:21:45,200 --> 00:21:47,479 Speaker 1: good question. I mean there's a bunch of different effects 405 00:21:47,560 --> 00:21:49,760 Speaker 1: going on all at once right now. So maybe the 406 00:21:49,840 --> 00:21:54,280 Speaker 1: biggest one is the pullback of the multi stage hedge 407 00:21:54,280 --> 00:21:57,400 Speaker 1: funds that got into VC over the last couple of years. UM. 408 00:21:57,520 --> 00:22:00,359 Speaker 1: So notably like Tiger Global and co To were to 409 00:22:00,560 --> 00:22:05,119 Speaker 1: hedge funds that you know built um very large technology 410 00:22:05,119 --> 00:22:07,640 Speaker 1: practices and race dedicated funds for those and that sort 411 00:22:07,680 --> 00:22:10,720 Speaker 1: of thing. And and they were deploying billions of dollars 412 00:22:10,720 --> 00:22:13,560 Speaker 1: into the space up and down, everything from seed rounds 413 00:22:13,560 --> 00:22:16,600 Speaker 1: to Series A to late stage. And that was one 414 00:22:16,640 --> 00:22:19,160 Speaker 1: of the primary things if you think about like the 415 00:22:19,160 --> 00:22:22,119 Speaker 1: the sort of you know, marginal demand in the in 416 00:22:22,200 --> 00:22:26,360 Speaker 1: the suppliker for for startup valuations, they were really providing 417 00:22:26,680 --> 00:22:29,480 Speaker 1: a large portion of that marginal demand where they were 418 00:22:29,520 --> 00:22:32,520 Speaker 1: the last people who would come in at two x 419 00:22:32,680 --> 00:22:36,080 Speaker 1: you know, the price of the next best offer UM. 420 00:22:36,119 --> 00:22:37,920 Speaker 1: And so that was doing a lot of the work 421 00:22:38,000 --> 00:22:42,280 Speaker 1: to really push up those valuations. Um, you know, it's 422 00:22:42,280 --> 00:22:44,560 Speaker 1: been sort of reported that and certainly seems to be 423 00:22:44,600 --> 00:22:47,560 Speaker 1: the case that, um, those folks, you know, they're they're 424 00:22:47,560 --> 00:22:51,280 Speaker 1: not dedicated venture funds, they're sort of you know, multi 425 00:22:51,359 --> 00:22:54,399 Speaker 1: stage cross asset hedge funds, and so they do seem 426 00:22:54,440 --> 00:22:57,040 Speaker 1: to be pulling back quite a bit. So I definitely 427 00:22:57,040 --> 00:23:00,560 Speaker 1: think you will see that dynamic play out where um, 428 00:23:00,600 --> 00:23:03,399 Speaker 1: you know, they they basically won't be coming into these 429 00:23:03,480 --> 00:23:05,840 Speaker 1: rounds and marking them up in a huge way. Um, 430 00:23:05,880 --> 00:23:09,880 Speaker 1: in terms of otherwise what happens, I mean, I think 431 00:23:09,880 --> 00:23:13,440 Speaker 1: we're going to see a bit of a delayed blood bath, 432 00:23:13,520 --> 00:23:16,800 Speaker 1: to be honest, right, there's an ability to sort of 433 00:23:17,240 --> 00:23:20,239 Speaker 1: just hold on and wait it out. You know, if 434 00:23:20,280 --> 00:23:23,359 Speaker 1: the company, you know, a company has raised at you know, 435 00:23:23,880 --> 00:23:27,479 Speaker 1: ten times the valuation that they really should have and 436 00:23:27,600 --> 00:23:31,080 Speaker 1: they have eleven months runway in the bank, you know, 437 00:23:31,160 --> 00:23:32,960 Speaker 1: what do you do. Well, it's going to be such 438 00:23:33,000 --> 00:23:36,240 Speaker 1: a trivial amount of money relative to what people invested 439 00:23:36,400 --> 00:23:39,040 Speaker 1: that you don't just like return the funds. You just 440 00:23:39,200 --> 00:23:42,360 Speaker 1: kinda try to make it work, right, You just kind 441 00:23:42,359 --> 00:23:44,480 Speaker 1: of hang on and see if you can get lucky 442 00:23:44,520 --> 00:23:47,480 Speaker 1: and hit that inflection point and maybe raise some more capital, 443 00:23:47,560 --> 00:23:50,240 Speaker 1: or maybe the market turns around. But if things stay 444 00:23:50,440 --> 00:23:52,639 Speaker 1: as they are, I think, you know, over the rest 445 00:23:52,640 --> 00:23:55,000 Speaker 1: of the year, you're going to see a lot, lot, 446 00:23:55,080 --> 00:23:58,680 Speaker 1: lot of high flying you know, late stage companies. UM. 447 00:23:58,720 --> 00:24:00,680 Speaker 1: Maybe even the ones that just eight big rounds of 448 00:24:00,800 --> 00:24:03,760 Speaker 1: layoffs and things like that to try and stay alive. Um. 449 00:24:03,840 --> 00:24:06,399 Speaker 1: You know, they're just not gonna make it, you know. 450 00:24:06,520 --> 00:24:09,440 Speaker 1: Tracy asked about the soft banks, and you of course 451 00:24:09,520 --> 00:24:13,080 Speaker 1: mentioned the uh, you know, the Tiger globals and all those, 452 00:24:13,359 --> 00:24:15,640 Speaker 1: but then the other phenomenon and again there's something that 453 00:24:16,040 --> 00:24:19,159 Speaker 1: we chatted with in one of our previous chats with 454 00:24:19,400 --> 00:24:22,840 Speaker 1: Howard Linson is like and he's talking about this, and 455 00:24:22,880 --> 00:24:25,359 Speaker 1: you mentioned the squeeze that all these obviously are feeling 456 00:24:25,480 --> 00:24:31,359 Speaker 1: that like in March when uh the when the pandemic 457 00:24:31,440 --> 00:24:35,520 Speaker 1: hit and everyone was at home and very quickly asset 458 00:24:35,560 --> 00:24:39,360 Speaker 1: prices started going up and Zoom started taking up. That Actually, 459 00:24:39,440 --> 00:24:41,520 Speaker 1: like you had this situation where like everyone became an 460 00:24:41,600 --> 00:24:44,400 Speaker 1: angel investor and everyone was like started like, hey, let's 461 00:24:44,400 --> 00:24:45,920 Speaker 1: do a Zoom meeting. We don't even have to fly 462 00:24:46,040 --> 00:24:49,000 Speaker 1: to meet you anymore. Let's chat for fifteen minutes. And 463 00:24:49,040 --> 00:24:50,960 Speaker 1: also maybe I have like a substack so I can 464 00:24:51,040 --> 00:24:54,120 Speaker 1: promote your company and my investment. Let's let's try check. 465 00:24:54,280 --> 00:24:58,320 Speaker 1: You have all these like fang rich people like Facebook, Google, 466 00:24:58,560 --> 00:25:01,080 Speaker 1: Amazon employees who probably of you know, maybe a few 467 00:25:01,119 --> 00:25:03,200 Speaker 1: million but in the bank or something or several million, 468 00:25:03,320 --> 00:25:07,159 Speaker 1: and want to cut fifty hundred thousand dollar checks. Can 469 00:25:07,200 --> 00:25:09,280 Speaker 1: you talk like how big of a phenomenon was that 470 00:25:09,480 --> 00:25:12,240 Speaker 1: and how much how did that let's say new money 471 00:25:12,400 --> 00:25:15,440 Speaker 1: or inexperienced money. Can you talk about the effect that 472 00:25:15,440 --> 00:25:20,560 Speaker 1: that had and sort of like competition and valuations. Yeah, so, 473 00:25:20,840 --> 00:25:23,080 Speaker 1: I mean you're right, and that there was just a 474 00:25:23,200 --> 00:25:25,320 Speaker 1: huge you know, it was everybody has a venture fund 475 00:25:25,320 --> 00:25:27,560 Speaker 1: now was the kind of joke, and um, you know 476 00:25:27,600 --> 00:25:31,520 Speaker 1: everybody started doing angel investing um angel list that the 477 00:25:31,520 --> 00:25:34,600 Speaker 1: platform for angel investing really contributed to this where they 478 00:25:34,720 --> 00:25:39,399 Speaker 1: launched a pretty um neat fund product that allowed you know, 479 00:25:39,440 --> 00:25:42,359 Speaker 1: your your sub stackers and things like that to really 480 00:25:42,440 --> 00:25:46,560 Speaker 1: easily and cheaply spin up a venture fund. Yeah, the 481 00:25:46,640 --> 00:25:49,000 Speaker 1: rolling funds does that work? I never looked up like 482 00:25:49,000 --> 00:25:50,760 Speaker 1: how did the rolling funds work and talk to us 483 00:25:50,760 --> 00:25:54,359 Speaker 1: about like what that the fact that had Yeah, rolling 484 00:25:54,359 --> 00:25:57,520 Speaker 1: fund was basically angelist. Did you know, did this whole 485 00:25:57,600 --> 00:26:01,360 Speaker 1: product ized version of event your fund, where traditionally you'd 486 00:26:01,359 --> 00:26:03,960 Speaker 1: have to pull in you know, lawyers to do your docs, 487 00:26:04,000 --> 00:26:05,959 Speaker 1: and you need a fund administrator to your back end 488 00:26:06,000 --> 00:26:07,960 Speaker 1: and tax people to do your tax and all the 489 00:26:07,960 --> 00:26:09,919 Speaker 1: stuff that we have to do. Actually we have like, 490 00:26:10,200 --> 00:26:13,240 Speaker 1: you know, a team of thirty people that we fractionally 491 00:26:13,359 --> 00:26:15,760 Speaker 1: use to sort of run our fund. Angela said, Hey, 492 00:26:15,800 --> 00:26:18,080 Speaker 1: if you want to do traditional venture investing, will do 493 00:26:18,119 --> 00:26:20,840 Speaker 1: the whole back office, and by the way, will also 494 00:26:20,880 --> 00:26:24,720 Speaker 1: make it really really approachable for individuals to be LPs 495 00:26:24,920 --> 00:26:28,160 Speaker 1: in your fund. LPs are the limited partners who who 496 00:26:28,200 --> 00:26:31,919 Speaker 1: invest the capital into your fund. Um by basically setting 497 00:26:31,920 --> 00:26:34,160 Speaker 1: it up to where it's more of a subscription product, 498 00:26:34,280 --> 00:26:36,800 Speaker 1: so you can actually just invest you know, ten thousand 499 00:26:36,880 --> 00:26:40,359 Speaker 1: dollars a quarter and it's a fixed, you know, flat number. 500 00:26:40,480 --> 00:26:42,880 Speaker 1: You can make it up down every quarter that you want, 501 00:26:42,920 --> 00:26:44,639 Speaker 1: you can change it to. Just added a lot more 502 00:26:44,640 --> 00:26:47,640 Speaker 1: flexibility that I think brought in not just a whole 503 00:26:47,640 --> 00:26:51,879 Speaker 1: bunch of new funds, but also a huge new influx 504 00:26:51,960 --> 00:26:55,000 Speaker 1: at least in volume, maybe not in total dollars of 505 00:26:55,359 --> 00:26:58,160 Speaker 1: LPs from folks who had, you know, done really well 506 00:26:58,200 --> 00:27:00,159 Speaker 1: in crypto and done really well, and they're you know, 507 00:27:00,160 --> 00:27:03,239 Speaker 1: stock portfolios, decided to diversify a hundred k of that 508 00:27:03,320 --> 00:27:06,560 Speaker 1: into um, you know, a venture fund from someone that 509 00:27:06,680 --> 00:27:09,399 Speaker 1: you know they admired on the internet. Um, you know. 510 00:27:09,480 --> 00:27:13,879 Speaker 1: So so that dynamic really overall increased the There was 511 00:27:13,920 --> 00:27:16,119 Speaker 1: sort of a bottoms up to effect where there was 512 00:27:16,160 --> 00:27:19,200 Speaker 1: a huge increase in the volume of capital out there 513 00:27:19,280 --> 00:27:22,160 Speaker 1: chasing opportunities. And then but the thing is, like, these 514 00:27:22,160 --> 00:27:25,119 Speaker 1: are not price setters, right, So a lot of these 515 00:27:25,160 --> 00:27:28,399 Speaker 1: funds that were set up, you know, they're writing relatively 516 00:27:28,400 --> 00:27:33,200 Speaker 1: small checks and they're also not sort of super experienced vcs, 517 00:27:33,240 --> 00:27:35,840 Speaker 1: and so when they go into a round, all they 518 00:27:35,840 --> 00:27:39,240 Speaker 1: want to do is find an already priced and mostly 519 00:27:39,320 --> 00:27:41,720 Speaker 1: full round, you know, and put their fifty k or 520 00:27:41,800 --> 00:27:44,119 Speaker 1: hundred k into that round, and they just kind of 521 00:27:44,160 --> 00:27:47,320 Speaker 1: take the price as okay, well that's somebody else's problem. 522 00:27:47,359 --> 00:27:49,400 Speaker 1: But the problem is you had this top down effect, 523 00:27:49,640 --> 00:27:53,000 Speaker 1: which is all of these huge multi stage funds getting involved. 524 00:27:53,040 --> 00:27:55,520 Speaker 1: And that's the hedge funds as well as some of 525 00:27:55,520 --> 00:27:58,840 Speaker 1: these really really big funds like Sequoia and recent Horowitz. 526 00:27:58,840 --> 00:28:01,520 Speaker 1: These kind of folks, they were the ones in many 527 00:28:01,560 --> 00:28:05,280 Speaker 1: cases coming down and setting the price at you know, 528 00:28:05,480 --> 00:28:08,240 Speaker 1: seed or or Series A some of these early rounds. 529 00:28:08,400 --> 00:28:10,320 Speaker 1: So you have these angels coming in with lots of 530 00:28:10,359 --> 00:28:12,840 Speaker 1: new cash and they're saying, hey, we want to get 531 00:28:12,840 --> 00:28:14,840 Speaker 1: into this round, but we don't want to set the price. 532 00:28:15,240 --> 00:28:17,560 Speaker 1: And then you have something like Tiger coming in and 533 00:28:17,600 --> 00:28:19,840 Speaker 1: saying cool, like, we'll set the price, No big deal. 534 00:28:20,280 --> 00:28:26,000 Speaker 1: The problem is those two groups are completely not aligned 535 00:28:26,000 --> 00:28:28,680 Speaker 1: with each other, and in fact they're actually selling different 536 00:28:28,720 --> 00:28:31,640 Speaker 1: products to their LPs. The angels and the venture funds. 537 00:28:31,800 --> 00:28:33,560 Speaker 1: They're trying to do the traditional thing. They're trying to 538 00:28:33,600 --> 00:28:35,800 Speaker 1: put in their hundred k and get you know, a 539 00:28:35,840 --> 00:28:38,360 Speaker 1: hundred x outcome on that right there, looking for those 540 00:28:38,400 --> 00:28:45,040 Speaker 1: real outlier returns. The very very large funds had essentially become, 541 00:28:45,360 --> 00:28:47,920 Speaker 1: even though nominally they would be sort of venture funds, 542 00:28:48,120 --> 00:28:51,280 Speaker 1: they were basically growth private equity right they were raising 543 00:28:51,320 --> 00:28:54,720 Speaker 1: billion dollar, multibillion dollar funds. And the way that you 544 00:28:54,760 --> 00:28:57,360 Speaker 1: move the needle on a multibillion dollar fund is when 545 00:28:57,400 --> 00:29:00,240 Speaker 1: you put you know, fifty million, a hundred million in 546 00:29:00,240 --> 00:29:02,920 Speaker 1: into these companies at late stage and then the I 547 00:29:03,080 --> 00:29:05,440 Speaker 1: p O at three x, and that's how you generate 548 00:29:05,480 --> 00:29:09,640 Speaker 1: your sort of reasonable growth equity type of of returns, right, 549 00:29:09,680 --> 00:29:11,400 Speaker 1: and that those would be sort of like two x 550 00:29:11,440 --> 00:29:14,360 Speaker 1: to three X kind of outcomes, not your hundred X outcomes. 551 00:29:14,800 --> 00:29:19,080 Speaker 1: And what these huge funds were doing is they were 552 00:29:19,120 --> 00:29:22,640 Speaker 1: basically viewing the seed rounds and the series A rounds 553 00:29:23,160 --> 00:29:27,120 Speaker 1: as um just kind of optionality. Right. They were going 554 00:29:27,160 --> 00:29:29,760 Speaker 1: in and they were buying the option, sometimes explicitly in 555 00:29:29,800 --> 00:29:32,440 Speaker 1: the form of pro rata, which is I invest in 556 00:29:32,480 --> 00:29:34,920 Speaker 1: your seed round, and I have special terms that say, 557 00:29:35,000 --> 00:29:36,800 Speaker 1: you know, I get to invest you know, more and 558 00:29:36,840 --> 00:29:39,960 Speaker 1: more at each subsequent round um, and then sometimes just 559 00:29:40,040 --> 00:29:42,160 Speaker 1: kind of implicitly just by saying, hey, look, you know 560 00:29:42,200 --> 00:29:44,400 Speaker 1: we lead your seed round, so let us lead your 561 00:29:44,400 --> 00:29:46,200 Speaker 1: A and B and see and all that sort of stuff. 562 00:29:46,560 --> 00:29:50,680 Speaker 1: And so you have these these large players who are 563 00:29:50,720 --> 00:29:54,400 Speaker 1: not really that concerned about the price at seed because 564 00:29:54,440 --> 00:29:57,080 Speaker 1: that's not their game, right, But they're the ones setting 565 00:29:57,120 --> 00:29:59,480 Speaker 1: the price. And so that people who are trying to 566 00:29:59,520 --> 00:30:02,360 Speaker 1: make all returns on this difference between the seed round 567 00:30:02,400 --> 00:30:06,280 Speaker 1: valuation and the ultimate valuation. Now they're investing at four times, 568 00:30:06,360 --> 00:30:08,680 Speaker 1: five times, ten times higher than they were just several 569 00:30:08,760 --> 00:30:11,760 Speaker 1: years ago, and so their returns are you know, if 570 00:30:11,800 --> 00:30:14,120 Speaker 1: all things are equal, unless the world kind of magically 571 00:30:14,200 --> 00:30:16,520 Speaker 1: changes and and everybody I p O s at a 572 00:30:16,600 --> 00:30:19,239 Speaker 1: hundred x higher, you're just going to have you know, 573 00:30:20,160 --> 00:30:23,120 Speaker 1: ten x five x, you know, two x lower returns 574 00:30:23,200 --> 00:30:25,840 Speaker 1: at seed. Um. So that was like one of the 575 00:30:25,840 --> 00:30:28,360 Speaker 1: big dynamics right there, which was that people who were 576 00:30:28,400 --> 00:30:33,720 Speaker 1: basically nominally vcs but we're actually running different products that 577 00:30:33,760 --> 00:30:36,880 Speaker 1: were more like private equity were the ones setting the price. 578 00:30:37,000 --> 00:30:39,880 Speaker 1: And then you had this huge influx of new capital 579 00:30:39,920 --> 00:30:41,880 Speaker 1: that was just very happy to go along with the 580 00:30:41,960 --> 00:31:05,240 Speaker 1: price and with capital work. Yeah exactly. Yeah, So this 581 00:31:05,320 --> 00:31:08,400 Speaker 1: was actually going to be my next question, But I'm 582 00:31:08,440 --> 00:31:10,480 Speaker 1: so used to thinking of Silicon Valley at this point 583 00:31:10,560 --> 00:31:14,280 Speaker 1: as like you know, aggressive pricing, lots of cash pouring 584 00:31:14,320 --> 00:31:18,080 Speaker 1: in the sort of excesses of venture capital. If we 585 00:31:18,240 --> 00:31:22,600 Speaker 1: get a big downturn in the market, would you expect 586 00:31:22,640 --> 00:31:25,320 Speaker 1: to see some of that behavior or some of the 587 00:31:25,360 --> 00:31:33,000 Speaker 1: way that the industry is structured and incentivized start to change. Yeah, 588 00:31:33,160 --> 00:31:35,960 Speaker 1: for sure. I mean the so some of the stuff 589 00:31:36,000 --> 00:31:38,719 Speaker 1: that you maybe are thinking of in terms of just 590 00:31:38,960 --> 00:31:42,480 Speaker 1: you know, negative unit economics and things like that, I 591 00:31:42,600 --> 00:31:46,600 Speaker 1: don't know how much those will go away. Um, you know, 592 00:31:46,760 --> 00:31:50,080 Speaker 1: if you are in if you're in a winner take 593 00:31:50,120 --> 00:31:53,520 Speaker 1: all market, sometimes it does make sense to you know, 594 00:31:53,640 --> 00:31:56,280 Speaker 1: under price your product and grow really really fast, right, 595 00:31:56,560 --> 00:31:59,120 Speaker 1: So there's always going to be incentives for that. Some 596 00:31:59,200 --> 00:32:03,720 Speaker 1: things that I think definitely will change UM are a 597 00:32:04,040 --> 00:32:06,440 Speaker 1: lot of the stuff around the way that UM the 598 00:32:06,440 --> 00:32:09,840 Speaker 1: competition for employees has sort of evolved, where you know, 599 00:32:10,040 --> 00:32:14,640 Speaker 1: competition structures for senior engineers have just are just absolutely 600 00:32:14,640 --> 00:32:16,360 Speaker 1: eye popping. I don't I don't know if you if 601 00:32:16,360 --> 00:32:18,440 Speaker 1: you've seen any data there, but you know you have 602 00:32:18,480 --> 00:32:22,200 Speaker 1: folks just getting you know, six K based salary and 603 00:32:22,280 --> 00:32:24,520 Speaker 1: four hundred K year in stock options and all this 604 00:32:24,600 --> 00:32:27,000 Speaker 1: kind of stuff for for sort of mid level engineers, 605 00:32:27,040 --> 00:32:30,880 Speaker 1: like just really truly bananas offers going on on top 606 00:32:30,960 --> 00:32:33,040 Speaker 1: of you know, tons of perks and and all kinds 607 00:32:33,080 --> 00:32:35,080 Speaker 1: of stuff like that. So I do think you'll start 608 00:32:35,120 --> 00:32:38,000 Speaker 1: to see a pretty significant softening in terms of UM 609 00:32:38,040 --> 00:32:41,600 Speaker 1: the competition for for employees. I think, you know, it's 610 00:32:41,640 --> 00:32:45,400 Speaker 1: hard to sort of uh cry crocodile here is for UM, 611 00:32:45,440 --> 00:32:47,840 Speaker 1: you know, really really well paid tech employees, but they 612 00:32:47,840 --> 00:32:49,960 Speaker 1: are going to suffer the brunt. I think of this 613 00:32:50,080 --> 00:32:54,000 Speaker 1: with UM, you know, pretty significant losses to to UM 614 00:32:54,080 --> 00:32:56,600 Speaker 1: the value of their their stock options as well as 615 00:32:56,640 --> 00:33:01,480 Speaker 1: probably um, you know, much less competitive offers as they 616 00:33:01,480 --> 00:33:03,440 Speaker 1: were able to kind of sort of jump from big 617 00:33:03,480 --> 00:33:05,880 Speaker 1: TechCo to big tech COO kind of doubling their salary 618 00:33:05,960 --> 00:33:08,440 Speaker 1: every two or three years. Um. You know, I think 619 00:33:08,480 --> 00:33:11,240 Speaker 1: that that's something that you'll see um pair back quite 620 00:33:11,240 --> 00:33:13,400 Speaker 1: a bit. Yeah, you know, I want to actually press 621 00:33:13,600 --> 00:33:16,640 Speaker 1: further on that. You know, it almost seems to me 622 00:33:16,880 --> 00:33:18,400 Speaker 1: and I don't know if this is true, but one 623 00:33:18,480 --> 00:33:23,320 Speaker 1: might speculate that in a sense even and I'm just guessing, 624 00:33:23,360 --> 00:33:25,480 Speaker 1: like I wonder, like, you know, in a sense, are 625 00:33:25,520 --> 00:33:29,800 Speaker 1: even employees of a sort of startups essentially become deef 626 00:33:30,040 --> 00:33:33,440 Speaker 1: you know, start taking um an angel investor mindset, Like 627 00:33:33,480 --> 00:33:36,720 Speaker 1: if you think that equity in a startup is going 628 00:33:36,760 --> 00:33:39,960 Speaker 1: to potentially ten x or hundred x or potentially you know, 629 00:33:40,000 --> 00:33:43,120 Speaker 1: you're thinking like you have multiple options for where're gonna 630 00:33:43,160 --> 00:33:45,560 Speaker 1: go work because you're a talented engineer, and then you 631 00:33:45,600 --> 00:33:47,440 Speaker 1: start thinking like, well, which one is going to be 632 00:33:47,480 --> 00:33:49,080 Speaker 1: the hundred x or which one is going to be 633 00:33:49,120 --> 00:33:51,280 Speaker 1: the ten x and actually like make a fortune on 634 00:33:51,360 --> 00:33:53,440 Speaker 1: some of this early stage stock. But I'm just like 635 00:33:53,480 --> 00:33:55,560 Speaker 1: wondering if you can like talk a little bit more 636 00:33:55,600 --> 00:33:59,080 Speaker 1: about like how this relationship is going to change. And 637 00:33:59,120 --> 00:34:02,560 Speaker 1: you know, even like fang level if if if the 638 00:34:02,600 --> 00:34:07,120 Speaker 1: assumption no longer exists that stocks automatically go up that 639 00:34:07,280 --> 00:34:08,640 Speaker 1: it's like, yeah, of course I want to get paid 640 00:34:08,640 --> 00:34:10,840 Speaker 1: in the stock because stocks will go up, you know, 641 00:34:10,960 --> 00:34:13,200 Speaker 1: year after year off yearf did that is sumption goes away? 642 00:34:13,200 --> 00:34:16,800 Speaker 1: Like how do some of the employee the company employee 643 00:34:16,800 --> 00:34:20,239 Speaker 1: relationships start to change or people thinking about their own careers. Yeah, 644 00:34:20,280 --> 00:34:23,160 Speaker 1: I mean I think the folks who are at you know, 645 00:34:23,480 --> 00:34:25,440 Speaker 1: Google and Amazon, it's a little bit about my pay 646 00:34:25,480 --> 00:34:27,719 Speaker 1: grade to say much about how that dynamic is gonna 647 00:34:27,760 --> 00:34:30,080 Speaker 1: play out. Um, But you know, because I just I 648 00:34:30,120 --> 00:34:32,520 Speaker 1: am not really that familiar with how um, you know, 649 00:34:32,560 --> 00:34:35,839 Speaker 1: the public market prices affect kind of employee compensation things 650 00:34:35,920 --> 00:34:38,240 Speaker 1: like that. But in the private market this is really 651 00:34:38,239 --> 00:34:41,160 Speaker 1: really acute. UM. I think you're right that there was 652 00:34:41,239 --> 00:34:45,480 Speaker 1: this similar kind of just you know, everything goes up 653 00:34:45,520 --> 00:34:48,480 Speaker 1: a little bit like Yolo mentality over the last few years, 654 00:34:48,640 --> 00:34:51,920 Speaker 1: um with employees as they were evaluating their comp packages. 655 00:34:52,120 --> 00:34:54,279 Speaker 1: And you know, one of the things we're seeing as 656 00:34:54,320 --> 00:34:57,960 Speaker 1: a realization from a lot of folks where you know, basically, 657 00:34:58,000 --> 00:35:00,960 Speaker 1: if you were issued a ton, maybe millions of dollars 658 00:35:00,960 --> 00:35:03,839 Speaker 1: worth of stock options at some of the kind of 659 00:35:03,920 --> 00:35:07,480 Speaker 1: crazy valuations in a private company that we saw over 660 00:35:07,480 --> 00:35:10,279 Speaker 1: the last you know, a couple of years, um, you 661 00:35:10,360 --> 00:35:12,640 Speaker 1: actually not only do you need to mark those down 662 00:35:12,680 --> 00:35:14,360 Speaker 1: a little bit, you know, like if you have a 663 00:35:14,400 --> 00:35:16,880 Speaker 1: public company, you actually might need to mark those down 664 00:35:16,920 --> 00:35:20,560 Speaker 1: to zero um. And the reason being if your company 665 00:35:20,760 --> 00:35:23,319 Speaker 1: lays you off. In private markets you often have this 666 00:35:23,440 --> 00:35:26,279 Speaker 1: this very difficult and silly rule where you have a 667 00:35:26,360 --> 00:35:29,640 Speaker 1: ninety day option exercise window, right, and so you need 668 00:35:29,680 --> 00:35:32,839 Speaker 1: to not only if you get laid off to even 669 00:35:32,920 --> 00:35:35,560 Speaker 1: retain any of that equity, you actually need to go 670 00:35:35,640 --> 00:35:37,480 Speaker 1: out and buy it. You need to either have the 671 00:35:37,520 --> 00:35:41,279 Speaker 1: capital or borrow it to buy that actually on it 672 00:35:41,360 --> 00:35:44,160 Speaker 1: if if it's still if the price that you're buying 673 00:35:44,160 --> 00:35:47,399 Speaker 1: it at is above the price you're the options you're 674 00:35:47,440 --> 00:35:51,399 Speaker 1: listening at, right exactly. I mean, it's so financially sort 675 00:35:51,440 --> 00:35:54,759 Speaker 1: of owners that very very few employees. You have to 676 00:35:54,800 --> 00:35:57,320 Speaker 1: already be someone who had a previous exit or something 677 00:35:57,360 --> 00:35:59,000 Speaker 1: and have you know, many tens of millions in the 678 00:35:59,000 --> 00:36:01,719 Speaker 1: bank to be able to to make and then like 679 00:36:01,800 --> 00:36:03,920 Speaker 1: with the exact thing like give them a deal. It's like, oh, well, 680 00:36:04,000 --> 00:36:05,840 Speaker 1: like we'll give you a year or you you know, 681 00:36:05,920 --> 00:36:08,000 Speaker 1: you could keep your I know, it always seems like 682 00:36:08,120 --> 00:36:12,799 Speaker 1: very like very cruel to the employee level. Anyway, it is, 683 00:36:12,920 --> 00:36:15,560 Speaker 1: it's really it's really bananas. And then you layer so 684 00:36:15,600 --> 00:36:17,920 Speaker 1: it's difficult even in normal times for it to work. 685 00:36:18,120 --> 00:36:20,239 Speaker 1: And then you layer in the fact that you know, 686 00:36:20,400 --> 00:36:23,960 Speaker 1: the company just raised at a five billion dollar valuation 687 00:36:24,320 --> 00:36:26,560 Speaker 1: and you know the whispers and the private markets are 688 00:36:26,560 --> 00:36:29,880 Speaker 1: that it's worth you know, million, and so now you 689 00:36:29,960 --> 00:36:32,319 Speaker 1: have to make this bet to buy that equity and 690 00:36:32,360 --> 00:36:34,920 Speaker 1: then gut it out and wait and hope that it 691 00:36:35,000 --> 00:36:37,440 Speaker 1: I p O s at you over that five billion 692 00:36:37,440 --> 00:36:41,520 Speaker 1: dollar valuation that your options are issued at right, And 693 00:36:41,520 --> 00:36:43,600 Speaker 1: it doesn't work exactly that way, but that's the basic 694 00:36:43,680 --> 00:36:46,560 Speaker 1: dynamics of it, where you're making this this fundamental bet 695 00:36:46,600 --> 00:36:49,560 Speaker 1: on the company that just laid you off in order 696 00:36:49,600 --> 00:36:51,759 Speaker 1: to just sort of get your equity, and you you're 697 00:36:51,800 --> 00:36:54,239 Speaker 1: even seeing sort of you know, and so basically all 698 00:36:54,320 --> 00:36:57,000 Speaker 1: that adds up to most of these folks are just 699 00:36:57,000 --> 00:36:59,520 Speaker 1: gonna walk away from that equity, right, It's just not 700 00:36:59,600 --> 00:37:01,400 Speaker 1: ever going to be valuable and In fact, you saw 701 00:37:02,000 --> 00:37:06,920 Speaker 1: UM recently there was a very extreme example of this. 702 00:37:07,000 --> 00:37:11,160 Speaker 1: But uh so Bolt, which is sort of famously high 703 00:37:11,160 --> 00:37:14,640 Speaker 1: flying UM some would say overvalued. UM. I would say 704 00:37:14,640 --> 00:37:19,000 Speaker 1: that companies UM that uh you know they did. They 705 00:37:19,040 --> 00:37:21,920 Speaker 1: sort of came up with this quote unquote solution for this, 706 00:37:22,040 --> 00:37:25,400 Speaker 1: which is that they would actually loan their employees the 707 00:37:25,480 --> 00:37:29,560 Speaker 1: money to go ahead and buy that equity so that 708 00:37:29,640 --> 00:37:31,680 Speaker 1: they would own it so they wouldn't have this ninety 709 00:37:31,760 --> 00:37:35,800 Speaker 1: day option exercise window. The problem is they're then taking 710 00:37:35,800 --> 00:37:40,600 Speaker 1: out personal recourse loans, right, so you know this loans 711 00:37:40,719 --> 00:37:43,320 Speaker 1: have have the rights to go and seize their employees 712 00:37:43,400 --> 00:37:47,960 Speaker 1: assets from the company to own this equity. And if 713 00:37:48,000 --> 00:37:52,399 Speaker 1: there is a down round, right or something like that, Um, there, 714 00:37:52,560 --> 00:37:54,880 Speaker 1: their loans are going to be underwater and they're going 715 00:37:54,920 --> 00:37:58,440 Speaker 1: to have personal recourse against that. Right. It's absolutely crazy. 716 00:37:58,520 --> 00:38:00,839 Speaker 1: And and there was a feature recently of at least 717 00:38:00,880 --> 00:38:03,799 Speaker 1: one employee because they did that, and then a couple 718 00:38:03,880 --> 00:38:05,920 Speaker 1: months later they announced a big round of layoffs. And 719 00:38:05,960 --> 00:38:08,359 Speaker 1: so there was an example at least one of an 720 00:38:08,360 --> 00:38:10,719 Speaker 1: employee who took out you know, sort of six figures 721 00:38:10,760 --> 00:38:14,520 Speaker 1: of of debt to buy that equity, then got laid 722 00:38:14,560 --> 00:38:17,239 Speaker 1: off and now has you know, ninety days to pay 723 00:38:17,280 --> 00:38:19,520 Speaker 1: it basically to come up with that money and to 724 00:38:19,520 --> 00:38:23,040 Speaker 1: buy it. It's it's it's absolutely crazy. Wow. UM. Well, okay, 725 00:38:23,080 --> 00:38:25,279 Speaker 1: So on this topic of leverage, So this is a 726 00:38:25,360 --> 00:38:29,719 Speaker 1: question I have about I guess the market overall at 727 00:38:29,719 --> 00:38:33,080 Speaker 1: the moment, like how much leverage is actually embedded in 728 00:38:33,120 --> 00:38:36,280 Speaker 1: the system, especially as we see you know, UM crypto 729 00:38:36,360 --> 00:38:39,680 Speaker 1: prices go down and things like that. But UM, when 730 00:38:39,680 --> 00:38:41,759 Speaker 1: it comes to venture capital, I mean, there was an 731 00:38:41,840 --> 00:38:44,360 Speaker 1: article that Bloomberg published last week. I think it was 732 00:38:44,480 --> 00:38:48,319 Speaker 1: about UM the D one hedge fund borrowing billions of 733 00:38:48,360 --> 00:38:53,239 Speaker 1: dollars in order to purchase stakes in private companies. How 734 00:38:53,320 --> 00:38:56,040 Speaker 1: much of that is going on, Like how much leverage 735 00:38:56,160 --> 00:38:59,600 Speaker 1: is embedded in venture capital such that when valuations start 736 00:38:59,640 --> 00:39:05,960 Speaker 1: going it could become problematic? I think very little. UM, 737 00:39:06,000 --> 00:39:09,600 Speaker 1: even the largest sort of venture funds. UM. You know 738 00:39:09,719 --> 00:39:12,279 Speaker 1: that the sequoias and injuries ince of the world. UM 739 00:39:12,480 --> 00:39:15,799 Speaker 1: don't really use leverage. You you use sort of UM 740 00:39:16,000 --> 00:39:19,080 Speaker 1: sort of convenience products in terms of like capital call 741 00:39:19,160 --> 00:39:22,280 Speaker 1: lines of credits and things like that. UM just basically 742 00:39:22,360 --> 00:39:24,640 Speaker 1: kind of bridging the gap between when you invest in 743 00:39:24,640 --> 00:39:26,640 Speaker 1: a company and when you call the capital from your 744 00:39:26,960 --> 00:39:31,200 Speaker 1: from your LPs um. But the vast majority of traditional 745 00:39:31,320 --> 00:39:34,799 Speaker 1: venture players are using, you know, no debt, so I 746 00:39:34,840 --> 00:39:37,480 Speaker 1: think it would just be you know, the few folks 747 00:39:38,080 --> 00:39:40,000 Speaker 1: you know, coming from the sort of hedge fund world 748 00:39:40,040 --> 00:39:43,719 Speaker 1: and that sort of thing, that um might be using leverage. 749 00:39:43,760 --> 00:39:45,719 Speaker 1: But I mean it's kind of crazy because they're they're 750 00:39:45,719 --> 00:39:49,319 Speaker 1: not cash flowing assets, so you really are taking a 751 00:39:49,440 --> 00:39:52,879 Speaker 1: very very high risk bet um by by levering those up, 752 00:39:52,920 --> 00:39:55,520 Speaker 1: and traditionally most investors in the space are not doing that. 753 00:39:55,600 --> 00:39:58,360 Speaker 1: You know, I'm curious you mentioned the folks the crossover 754 00:39:58,400 --> 00:40:00,800 Speaker 1: funds that came from the hedge fund world. Of course, 755 00:40:00,960 --> 00:40:03,800 Speaker 1: the pre eminent one that everyone talks about is Tiger Global, 756 00:40:03,840 --> 00:40:08,280 Speaker 1: And it seems to me that, you know, as you mentioned, 757 00:40:08,480 --> 00:40:10,840 Speaker 1: they're not really the c in a sense, they're not 758 00:40:10,880 --> 00:40:13,240 Speaker 1: really hedge funds sense they're sort of late stage private 759 00:40:13,320 --> 00:40:14,720 Speaker 1: you know, if you think of like a hedge fund, 760 00:40:14,719 --> 00:40:18,440 Speaker 1: it's like, okay, like we're gonna pivot to uh energy 761 00:40:18,480 --> 00:40:22,560 Speaker 1: investing this this quarter because the macro environments changed. It 762 00:40:22,640 --> 00:40:25,440 Speaker 1: seems to me like you cannot do that with a 763 00:40:25,520 --> 00:40:28,479 Speaker 1: late stage growth investing. You are all in on one 764 00:40:28,760 --> 00:40:31,719 Speaker 1: strategy and you can't just like pivot. It's like we're 765 00:40:32,080 --> 00:40:34,960 Speaker 1: we're value investors this year, We're oil investors this year. 766 00:40:35,000 --> 00:40:36,480 Speaker 1: Like you're all in, Like what do you think is 767 00:40:36,520 --> 00:40:40,600 Speaker 1: like how important were they had those entities become like 768 00:40:41,000 --> 00:40:43,799 Speaker 1: to the overall start up ecosystem, and like do you 769 00:40:43,800 --> 00:40:46,000 Speaker 1: think they're gonna like what what do you see is 770 00:40:46,040 --> 00:40:48,680 Speaker 1: like the future of them? I mean I think, like, 771 00:40:48,719 --> 00:40:53,040 Speaker 1: I think Tiger is down extraordinarily amount of money loss, 772 00:40:53,239 --> 00:40:55,640 Speaker 1: especially when you think probably think about the inflows that 773 00:40:55,719 --> 00:40:59,160 Speaker 1: came in in recent years, huge dollars up in smoke, 774 00:40:59,239 --> 00:41:01,839 Speaker 1: Like what is this or like does that model come 775 00:41:01,880 --> 00:41:05,440 Speaker 1: back in the downturn or does it get rethought? Yeah? 776 00:41:05,480 --> 00:41:07,840 Speaker 1: I mean also a bear in mind that, um, you 777 00:41:07,880 --> 00:41:11,440 Speaker 1: know those headline lost figures that are being reported for Tiger, 778 00:41:11,560 --> 00:41:15,360 Speaker 1: that's their public markets right there. That's not even factoring 779 00:41:15,400 --> 00:41:18,239 Speaker 1: in all the venture investing that they've done. For for 780 00:41:18,280 --> 00:41:20,000 Speaker 1: all the reasons we've been talking about, there just haven't 781 00:41:20,000 --> 00:41:23,279 Speaker 1: been down rounds. So you have this dynamic where you know, 782 00:41:23,680 --> 00:41:27,239 Speaker 1: you have these realized losses on your public portfolio and 783 00:41:27,400 --> 00:41:30,440 Speaker 1: unrealized losses on your private portfolio, and it's it's a 784 00:41:30,480 --> 00:41:34,520 Speaker 1: real tough situation. Um, you know, I I I do. 785 00:41:34,680 --> 00:41:36,279 Speaker 1: I think this is going to be a bit of 786 00:41:36,320 --> 00:41:41,720 Speaker 1: a one off anomaly. Um, My macro kind of basic 787 00:41:41,840 --> 00:41:44,320 Speaker 1: view is that for the last couple of years, in 788 00:41:44,360 --> 00:41:47,760 Speaker 1: these zero interest rate environments, you had these really really 789 00:41:47,880 --> 00:41:50,880 Speaker 1: vast pools of capital, right, these just you know, sovereign 790 00:41:50,920 --> 00:41:53,880 Speaker 1: wealth level kind of pools of capital that we're sitting 791 00:41:53,920 --> 00:41:56,319 Speaker 1: on hundreds of billions of dollars and just sort of 792 00:41:56,320 --> 00:42:00,960 Speaker 1: frantically looking for anything that would generate old right, because 793 00:42:01,000 --> 00:42:03,799 Speaker 1: there was just nothing right, Bonds were used, let's come like, 794 00:42:03,800 --> 00:42:06,279 Speaker 1: everything was just useless. And you know, if you need 795 00:42:06,320 --> 00:42:09,239 Speaker 1: to put ten billion dollars to work and get some 796 00:42:09,360 --> 00:42:11,719 Speaker 1: kind of good return on it, your options were just 797 00:42:11,760 --> 00:42:15,120 Speaker 1: incredibly limited. And I think into that space stepped in 798 00:42:15,200 --> 00:42:17,600 Speaker 1: a couple of hedge funds who said, hey, yeah, we 799 00:42:17,640 --> 00:42:20,440 Speaker 1: can put you know, I mean I think Tiger invested 800 00:42:20,480 --> 00:42:24,160 Speaker 1: an entire multibillion dollar fund in less than a year, right, 801 00:42:24,200 --> 00:42:25,799 Speaker 1: They said, hey, we can put that money to work 802 00:42:25,840 --> 00:42:30,959 Speaker 1: and we can generally right, Like that was like just yeah, 803 00:42:31,000 --> 00:42:33,200 Speaker 1: and just very large checks as well. But I think 804 00:42:33,239 --> 00:42:35,520 Speaker 1: it was I have to look at them. It was 805 00:42:35,560 --> 00:42:37,759 Speaker 1: a three billion or six billion dollar fund that they 806 00:42:38,120 --> 00:42:40,359 Speaker 1: deployed in like under a year or plus remind us 807 00:42:40,360 --> 00:42:42,719 Speaker 1: a year, um. And and that was the product they 808 00:42:42,719 --> 00:42:44,279 Speaker 1: were selling right at the end of the day. You know, 809 00:42:44,320 --> 00:42:46,879 Speaker 1: all funds are selling a product to their LPs, and 810 00:42:46,880 --> 00:42:49,080 Speaker 1: and the product they were selling was, you know, we're 811 00:42:49,080 --> 00:42:52,280 Speaker 1: going to take huge, huge pots of money. We're gonna 812 00:42:52,320 --> 00:42:56,520 Speaker 1: absolutely fire hose it into technology companies at the late stage. Um, 813 00:42:56,560 --> 00:42:59,680 Speaker 1: we have a bunch of people who have some venture experience. So, 814 00:42:59,719 --> 00:43:01,880 Speaker 1: like I said, we're gonna we're gonna be investing early 815 00:43:01,960 --> 00:43:04,600 Speaker 1: to get that optionality to put a lot more capital 816 00:43:04,640 --> 00:43:07,799 Speaker 1: in later. But ultimately they were there to serve this 817 00:43:08,120 --> 00:43:12,400 Speaker 1: you know, this this demand for some amount of yield 818 00:43:12,600 --> 00:43:16,200 Speaker 1: in a very uncompetitive market, and that dynamic is changing 819 00:43:16,280 --> 00:43:17,719 Speaker 1: right now. Right Like, if you look at the public 820 00:43:17,800 --> 00:43:19,960 Speaker 1: markets now, you're like, hey, actually there's probably quite a 821 00:43:19,960 --> 00:43:21,879 Speaker 1: lot of yield to be had here, and interest rates 822 00:43:21,920 --> 00:43:23,960 Speaker 1: are going up, so maybe maybe bonds are going to 823 00:43:24,000 --> 00:43:26,120 Speaker 1: be more attractive and stuff like that. So I think 824 00:43:26,160 --> 00:43:28,879 Speaker 1: that while the model is not necessarily going to be 825 00:43:28,960 --> 00:43:32,840 Speaker 1: like disproven or or abandoned, I just think the demand 826 00:43:33,000 --> 00:43:35,719 Speaker 1: for it is going to get dispersed across a whole 827 00:43:35,760 --> 00:43:38,399 Speaker 1: bunch of other assets, and I really doubt that we'll 828 00:43:38,440 --> 00:43:43,720 Speaker 1: see you know, multi stage hedge funds raising more further 829 00:43:44,120 --> 00:43:48,640 Speaker 1: incredibly large kind of late stage tech um funds and 830 00:43:48,640 --> 00:43:50,239 Speaker 1: and doing what they've been doing over the last couple 831 00:43:50,320 --> 00:43:53,279 Speaker 1: of years. Uh. You know, Joe and I started the 832 00:43:53,280 --> 00:43:56,440 Speaker 1: conversation talking about how when things are going badly in 833 00:43:56,520 --> 00:43:58,640 Speaker 1: the public market, we we kind of see just how 834 00:43:58,680 --> 00:44:00,680 Speaker 1: badly because we can pull up at chart and watch 835 00:44:00,760 --> 00:44:03,680 Speaker 1: the line go down. It's a little bit trickier with 836 00:44:03,960 --> 00:44:07,600 Speaker 1: um the world of startups and private equity and private 837 00:44:07,640 --> 00:44:11,480 Speaker 1: money and venture capital and things like that. What, in 838 00:44:11,520 --> 00:44:14,280 Speaker 1: your opinion, is the best thing to watch out for 839 00:44:14,480 --> 00:44:17,960 Speaker 1: to to try to gauge how bad things are getting. 840 00:44:19,600 --> 00:44:23,319 Speaker 1: It's a good question. I mean, the one interesting dynamic here, 841 00:44:23,560 --> 00:44:27,840 Speaker 1: which is the valuation is going down, but software companies 842 00:44:27,880 --> 00:44:30,279 Speaker 1: are still doing very well. You can even look in 843 00:44:30,360 --> 00:44:33,960 Speaker 1: the public markets. Yeah, you see these companies that are, hey, 844 00:44:34,000 --> 00:44:36,799 Speaker 1: we've got you know, another record year for you know, 845 00:44:36,880 --> 00:44:39,920 Speaker 1: revenue is up, you know, losses are down, et cetera. 846 00:44:40,080 --> 00:44:44,360 Speaker 1: Like they're the fundamental business of most technology companies. And 847 00:44:44,400 --> 00:44:46,279 Speaker 1: we see that in our portfolio as well. Even at 848 00:44:46,320 --> 00:44:48,799 Speaker 1: the earlier stage that we're investing in. Like, you know, 849 00:44:49,480 --> 00:44:53,520 Speaker 1: companies are not affected by this kind of macro change 850 00:44:53,760 --> 00:44:56,239 Speaker 1: um in terms of their underlying business. It's purely a 851 00:44:56,320 --> 00:44:58,560 Speaker 1: question of the fact that the same assets are being 852 00:44:58,880 --> 00:45:03,719 Speaker 1: you know, repriced much much lower and so UM. You know, 853 00:45:03,760 --> 00:45:06,279 Speaker 1: I guess the thing you want to look out for 854 00:45:06,440 --> 00:45:09,520 Speaker 1: is basically just that squeeze right wherein otherwise good business 855 00:45:09,600 --> 00:45:12,400 Speaker 1: that is actually still growing and still getting closer to 856 00:45:12,400 --> 00:45:14,440 Speaker 1: product market fit and still growing their customer base and 857 00:45:14,480 --> 00:45:17,319 Speaker 1: all that sort of stuff. UM, they just you know 858 00:45:17,560 --> 00:45:20,719 Speaker 1: raised there there, they raised too much, and so they 859 00:45:20,719 --> 00:45:23,560 Speaker 1: have to hit certain you know, growth trajectory targets to 860 00:45:23,560 --> 00:45:27,040 Speaker 1: to raise their next round and um, and they just 861 00:45:27,120 --> 00:45:28,919 Speaker 1: kind of have to do that. But there there really 862 00:45:28,920 --> 00:45:32,799 Speaker 1: aren't leading indicators for this kind of thing, because you're 863 00:45:32,840 --> 00:45:38,640 Speaker 1: just so incentivized to just try to hit those hurdles 864 00:45:38,719 --> 00:45:41,640 Speaker 1: up until the last possible second and then you say, oh, 865 00:45:41,760 --> 00:45:44,040 Speaker 1: we couldn't raise around, you know, like you saw that 866 00:45:44,120 --> 00:45:47,879 Speaker 1: with UM with Fast recently, where you know, they were 867 00:45:48,800 --> 00:45:51,160 Speaker 1: the week before they were talking about all their plans 868 00:45:51,160 --> 00:45:53,320 Speaker 1: and everything, and it's like you're you're trying to create 869 00:45:53,360 --> 00:45:56,040 Speaker 1: this forward looking you know, up into the right curve 870 00:45:56,400 --> 00:45:59,919 Speaker 1: and the perception of that until you just can't raise 871 00:45:59,920 --> 00:46:02,319 Speaker 1: the capital and then you shut down, right. Um, So 872 00:46:02,440 --> 00:46:04,640 Speaker 1: it's gonna be a lot of surprises, I think, So 873 00:46:05,160 --> 00:46:07,640 Speaker 1: real quick questions. I have two questions. One is a 874 00:46:07,680 --> 00:46:10,120 Speaker 1: short one. You know, you say, like the fundamentals by 875 00:46:10,120 --> 00:46:12,719 Speaker 1: and large look strong. This is c Would you say 876 00:46:12,760 --> 00:46:15,920 Speaker 1: this is distinctly different from the dot com era, in 877 00:46:15,960 --> 00:46:20,120 Speaker 1: which is sort of infamously all these different dot coms 878 00:46:20,440 --> 00:46:23,000 Speaker 1: they were each other's customers, so to speak, and so 879 00:46:23,120 --> 00:46:25,120 Speaker 1: one company would raise a bunch of VC and then 880 00:46:25,160 --> 00:46:27,520 Speaker 1: take out a bunch of ads on Yahoo dot com 881 00:46:27,640 --> 00:46:30,000 Speaker 1: or whatever, and so they were sort of all the same. Like, 882 00:46:30,040 --> 00:46:32,960 Speaker 1: would you say like that phenomenon, just like this is 883 00:46:33,000 --> 00:46:36,320 Speaker 1: not as significant when you look at the underlying business 884 00:46:36,360 --> 00:46:40,160 Speaker 1: quality of you know, some of these software companies. I 885 00:46:40,200 --> 00:46:43,680 Speaker 1: think it's far far less prevalent um, you know, especially 886 00:46:43,680 --> 00:46:46,279 Speaker 1: if you look at a portfolio, like within our portfolio, 887 00:46:46,360 --> 00:46:49,520 Speaker 1: we are primarily investing in SaaS companies, and those sas 888 00:46:49,520 --> 00:46:53,880 Speaker 1: companies are usually selling too different verticals or industries, so 889 00:46:53,880 --> 00:46:56,799 Speaker 1: we're really sort of diversified across you know, the underlying 890 00:46:56,840 --> 00:47:00,480 Speaker 1: customer base of our portfolio companies customers. UM. You do 891 00:47:00,640 --> 00:47:04,200 Speaker 1: have a little bit of the circularity there. UM. You know, 892 00:47:04,600 --> 00:47:06,960 Speaker 1: I think I saw this kind of a jokey headline 893 00:47:07,000 --> 00:47:09,640 Speaker 1: or something, but it was like somebody launches a fintech 894 00:47:09,680 --> 00:47:12,719 Speaker 1: for fintech's UM coming out. I do think fintech is 895 00:47:12,760 --> 00:47:14,440 Speaker 1: one area where you do have a little bit of 896 00:47:14,440 --> 00:47:17,920 Speaker 1: that circularity where you know, everybody is everybody else's customer 897 00:47:18,160 --> 00:47:22,320 Speaker 1: and they may all sort of go down um simultaneously. UM. 898 00:47:22,320 --> 00:47:24,720 Speaker 1: But there's a lot lot lot less of that effect 899 00:47:24,719 --> 00:47:26,400 Speaker 1: then than the dot com era. So I just have 900 00:47:26,480 --> 00:47:30,240 Speaker 1: one last question and that is UH conversations with LPs. 901 00:47:30,280 --> 00:47:33,040 Speaker 1: My understanding is when a fund raise, you know, and 902 00:47:33,160 --> 00:47:36,239 Speaker 1: you here's a multi billion dollar fund. I don't think 903 00:47:36,280 --> 00:47:38,399 Speaker 1: they get all the money wired to them right away 904 00:47:38,400 --> 00:47:40,680 Speaker 1: and then over time they collected from the LPs. We 905 00:47:40,719 --> 00:47:43,799 Speaker 1: have made these commitments, do any of those are? How 906 00:47:43,880 --> 00:47:48,720 Speaker 1: strong are those commitments? And you know you mentioned that 907 00:47:48,840 --> 00:47:51,400 Speaker 1: there are alternatives and that may be part of the 908 00:47:51,480 --> 00:47:53,879 Speaker 1: issue going forward, is going to be like no, they're 909 00:47:54,400 --> 00:47:57,279 Speaker 1: late stage. Growth is enough the only place to get returns. 910 00:47:57,640 --> 00:48:00,400 Speaker 1: And so how do you see like the relationship evolving 911 00:48:00,480 --> 00:48:05,319 Speaker 1: between funds and their LPs in this environment? I think 912 00:48:05,320 --> 00:48:07,080 Speaker 1: this is going to be one of the most interesting 913 00:48:07,200 --> 00:48:10,280 Speaker 1: dynamics to play out over the next kind of eighteen months, 914 00:48:10,360 --> 00:48:13,000 Speaker 1: and I'm really not sure which way it goes. Which 915 00:48:13,080 --> 00:48:15,839 Speaker 1: is the fact that, um, you will hear a lot 916 00:48:15,840 --> 00:48:18,839 Speaker 1: of folks commentating on on the venture markets say there's 917 00:48:18,880 --> 00:48:21,399 Speaker 1: never been so much dry powder. Right if you look 918 00:48:21,440 --> 00:48:23,040 Speaker 1: and and and that's what you're referring to. Right, you 919 00:48:23,080 --> 00:48:25,800 Speaker 1: go out and you raise a billion dollar fund, you 920 00:48:25,840 --> 00:48:27,560 Speaker 1: don't you don't get it wired. In fact, you get 921 00:48:27,600 --> 00:48:29,759 Speaker 1: almost none of it wired to you. You go out, 922 00:48:29,800 --> 00:48:32,080 Speaker 1: you make commitment to invest in startups, and then you 923 00:48:32,160 --> 00:48:35,160 Speaker 1: call that capital from LPs and you assume that they're 924 00:48:35,160 --> 00:48:38,120 Speaker 1: going to be able to fulfill those those commitments. Um. 925 00:48:38,239 --> 00:48:40,799 Speaker 1: And so people are sort of adding up those headline 926 00:48:40,880 --> 00:48:43,359 Speaker 1: fund sizes and saying like, Wow, there's just a ton 927 00:48:43,400 --> 00:48:46,319 Speaker 1: of you know, uninvested funds out there. But it's not 928 00:48:46,600 --> 00:48:49,439 Speaker 1: literal piles of cash sitting around waiting to be put 929 00:48:49,440 --> 00:48:53,719 Speaker 1: into startups. It's commitments from LPs. And those LPs are 930 00:48:53,840 --> 00:48:56,719 Speaker 1: under a lot of pressure right now. Right they're diversified 931 00:48:56,719 --> 00:49:01,000 Speaker 1: across public markets, maybe crypto, etcetera. They're seeing quidity squeezes 932 00:49:01,040 --> 00:49:04,439 Speaker 1: and so you know, hopefully they're they're doing their job 933 00:49:04,480 --> 00:49:06,960 Speaker 1: and they have you know, good risk management and they 934 00:49:07,000 --> 00:49:09,680 Speaker 1: have UM a ton of you know, or they have 935 00:49:09,760 --> 00:49:12,400 Speaker 1: the capital sort of set aside UM. But I do 936 00:49:12,480 --> 00:49:14,560 Speaker 1: think there's going to be a very interesting sort of 937 00:49:15,160 --> 00:49:20,320 Speaker 1: UM implicit and explicit negotiation between fund managers and LPs 938 00:49:20,760 --> 00:49:23,600 Speaker 1: UM that that raised or you know, had committed very 939 00:49:23,680 --> 00:49:27,240 Speaker 1: very large funds right now to sort of say, hey, 940 00:49:27,400 --> 00:49:30,480 Speaker 1: you know, maybe let's slow down the pace here a 941 00:49:30,480 --> 00:49:34,360 Speaker 1: little bit UM you know, coming from the LPs, because UM, 942 00:49:34,400 --> 00:49:37,200 Speaker 1: these are long term relationships, like, yes, you they did 943 00:49:37,239 --> 00:49:42,080 Speaker 1: sign an UM limited partner agreement that obligates them to 944 00:49:42,080 --> 00:49:44,400 Speaker 1: to meet your capital calls, but also you want to 945 00:49:44,480 --> 00:49:47,399 Speaker 1: keep them around and investing in you for the next 946 00:49:47,719 --> 00:49:50,359 Speaker 1: twenty years, and you don't like now is not the 947 00:49:50,400 --> 00:49:52,600 Speaker 1: time to really put the squeeze to them and say, 948 00:49:52,680 --> 00:49:55,919 Speaker 1: you know, you committed this capital, we have to invest it, UM, 949 00:49:56,080 --> 00:49:58,480 Speaker 1: live up to your end of the deal or else. UM. 950 00:49:58,520 --> 00:50:01,640 Speaker 1: There will be some amount of that, but it's gonna 951 00:50:01,640 --> 00:50:03,400 Speaker 1: be very interesting to see how that plays out. And 952 00:50:03,440 --> 00:50:05,759 Speaker 1: I think there's a real risk that there's actually not 953 00:50:05,880 --> 00:50:10,080 Speaker 1: nearly as much dry powder as everyone is UM predicting 954 00:50:10,560 --> 00:50:12,640 Speaker 1: because of this dynamic where LP's are going to really 955 00:50:12,680 --> 00:50:14,560 Speaker 1: push back and say, hey, like, let's slow this paste 956 00:50:14,560 --> 00:50:16,960 Speaker 1: down a lot, let's deploy this over three years instead 957 00:50:16,960 --> 00:50:20,680 Speaker 1: of one year, right, that sort of thing. Alright, Tyler 958 00:50:20,719 --> 00:50:23,800 Speaker 1: sringas of Calm Fund, thank you so much for joining 959 00:50:23,800 --> 00:50:30,239 Speaker 1: all thoughts. Thanks, that was great. Yeah, thanks cool, Yeah, 960 00:50:30,280 --> 00:50:46,200 Speaker 1: thanks guys, that's what's really cool. So, yeah, Joe, I 961 00:50:46,239 --> 00:50:48,600 Speaker 1: thought that was a really interesting conversation. And one of 962 00:50:48,640 --> 00:50:50,560 Speaker 1: the things I really like about it is, I guess 963 00:50:50,560 --> 00:50:55,840 Speaker 1: Tyler's emphasis on incentives, right, And like, I mean, obviously 964 00:50:55,880 --> 00:50:59,560 Speaker 1: in traditional finance in public markets, there are different players 965 00:50:59,600 --> 00:51:02,640 Speaker 1: with different incentives, but I feel like that's just magnified 966 00:51:02,880 --> 00:51:05,120 Speaker 1: in venture capital. And I feel like when you look 967 00:51:05,160 --> 00:51:07,720 Speaker 1: at the ecosystem of how it works with the funds 968 00:51:07,760 --> 00:51:13,080 Speaker 1: and the LPs, everyone has slightly altered incentives, and so 969 00:51:13,160 --> 00:51:15,799 Speaker 1: it leads to these interesting dynamics like the ones that 970 00:51:15,960 --> 00:51:19,719 Speaker 1: Tyler was describing. Well, there's so many, uh yeah, so 971 00:51:19,800 --> 00:51:22,240 Speaker 1: many that he described that I hadn't really thought about 972 00:51:22,360 --> 00:51:26,920 Speaker 1: or understood until you articulated them. But you know, for example, obviously, 973 00:51:27,040 --> 00:51:29,719 Speaker 1: if you're the founder of a startup that can raise 974 00:51:29,760 --> 00:51:32,080 Speaker 1: it a five billion dollar valuation and take a hundred 975 00:51:32,120 --> 00:51:35,680 Speaker 1: million dollars off the table early in your career. That's 976 00:51:35,680 --> 00:51:38,719 Speaker 1: really great, but it is really problematic for employees that 977 00:51:38,760 --> 00:51:41,880 Speaker 1: potentially have years and years and years before they're going 978 00:51:41,920 --> 00:51:45,000 Speaker 1: to see any liquidity on their equity, and in the 979 00:51:45,000 --> 00:51:46,840 Speaker 1: meantime maybe they want to switch careers and have to 980 00:51:46,880 --> 00:51:50,400 Speaker 1: buy back their stocks. So you know, that's just one example. 981 00:51:50,440 --> 00:51:53,359 Speaker 1: But also you know the issue with do you really 982 00:51:53,400 --> 00:51:55,520 Speaker 1: want to like call your LPs right now and tell 983 00:51:55,600 --> 00:51:58,440 Speaker 1: them they have to pony up the cash. That's going 984 00:51:58,480 --> 00:52:00,440 Speaker 1: to be a sort of an awkward converse. Stan At 985 00:52:00,440 --> 00:52:03,279 Speaker 1: a minimum, Yeah, I guess like the older I get, 986 00:52:03,400 --> 00:52:05,640 Speaker 1: the more experienced I get in the financial industry, I 987 00:52:05,680 --> 00:52:08,239 Speaker 1: just think everything is ruled by people not wanting to 988 00:52:08,280 --> 00:52:11,799 Speaker 1: have to make that one phone call. It's just right. 989 00:52:12,239 --> 00:52:14,839 Speaker 1: Everyone loves cash at key times, and no one wasn't 990 00:52:14,840 --> 00:52:18,040 Speaker 1: called where they have to. It's all about the phone calls. 991 00:52:18,280 --> 00:52:21,040 Speaker 1: It was the other thing that I thought, well, there 992 00:52:21,120 --> 00:52:24,160 Speaker 1: was numerous things, you know, the the I don't know, 993 00:52:24,360 --> 00:52:28,520 Speaker 1: unholy marriage between the sort of like sub stack angel 994 00:52:28,600 --> 00:52:30,880 Speaker 1: list vcs at the low end or sort of like 995 00:52:31,040 --> 00:52:34,680 Speaker 1: let's do the VC thing and then except basically being 996 00:52:34,719 --> 00:52:37,720 Speaker 1: priced takers for what these sort of like big funds 997 00:52:37,760 --> 00:52:40,239 Speaker 1: was like a really interesting dynamic. And you could just 998 00:52:40,280 --> 00:52:42,800 Speaker 1: see how like someone in the middle, or someone who's 999 00:52:42,840 --> 00:52:45,279 Speaker 1: like a kind of normal VC that's not one of 1000 00:52:45,280 --> 00:52:48,600 Speaker 1: these mega funds, but also not someone who's just sort 1001 00:52:48,640 --> 00:52:51,480 Speaker 1: of like spun up an angel list fund in April, 1002 00:52:52,840 --> 00:52:55,239 Speaker 1: would like get really squeezed, as he put it, by 1003 00:52:55,239 --> 00:53:00,360 Speaker 1: this sort of huge influction of cash coming into the market. Yeah, well, 1004 00:53:00,160 --> 00:53:03,239 Speaker 1: I guess like it's just gonna be really interesting to 1005 00:53:03,239 --> 00:53:05,880 Speaker 1: watch the next year or so, I imagine, Yeah, what 1006 00:53:05,920 --> 00:53:09,680 Speaker 1: did he's a good term? I don't basically just the 1007 00:53:09,760 --> 00:53:12,799 Speaker 1: delayed blood path, Yeah, I think really, And so it's 1008 00:53:12,840 --> 00:53:14,799 Speaker 1: like we don't really know yet how this is going 1009 00:53:14,840 --> 00:53:16,680 Speaker 1: to be play out, but everyone is an incentive to 1010 00:53:16,760 --> 00:53:19,279 Speaker 1: keep the numbers up nominally right, And this is the 1011 00:53:19,280 --> 00:53:22,680 Speaker 1: classic thing about I liquid markets. Right when things start 1012 00:53:22,719 --> 00:53:25,360 Speaker 1: going badly, it can take a while for that to 1013 00:53:25,520 --> 00:53:28,880 Speaker 1: play out because people have the ability to resist some 1014 00:53:28,920 --> 00:53:32,759 Speaker 1: of the pricing pressures um but not forever. So the 1015 00:53:32,800 --> 00:53:34,759 Speaker 1: timing of it is also going to be interesting. I 1016 00:53:34,800 --> 00:53:39,040 Speaker 1: think totally lots lots more to talk about on this topic. Alright, 1017 00:53:39,280 --> 00:53:41,200 Speaker 1: shall we leave it there? Let's leave it there. This 1018 00:53:41,239 --> 00:53:44,000 Speaker 1: has been another episode of the All Thoughts podcast. I'm 1019 00:53:44,040 --> 00:53:46,680 Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy 1020 00:53:46,680 --> 00:53:49,360 Speaker 1: Alloway and I'm Joe Isn't All. You can follow me 1021 00:53:49,600 --> 00:53:52,680 Speaker 1: on Twitter at the Stalwart. Follow our guests on Twitter. 1022 00:53:52,719 --> 00:53:56,040 Speaker 1: Tyler Tringus of the Calm Fund he is at Tyler Trinus. 1023 00:53:56,320 --> 00:53:59,880 Speaker 1: Follow our producer Carmen Rodriguez at Carmen Irmann. Follow The 1024 00:54:00,000 --> 00:54:03,880 Speaker 1: Boomberg had a podcast, Francesco Levy at Francesco Today, and 1025 00:54:04,080 --> 00:54:07,200 Speaker 1: check off all of our podcasts on Twitter onto the 1026 00:54:07,239 --> 00:54:09,560 Speaker 1: handle at podcasts. Thanks for listening.