Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't all Joe. It
Speaker 1: is brutal out there, Yeah, it really, It really is wild.
Speaker 1: It's relentless, it's compounding. There's a lot of fear um
Speaker 1: I guess do do elevated inflation. People are really sort
Speaker 1: of like feeling like we'd sort of no man's land,
Speaker 1: at least with respect to the last several decades of
Speaker 1: how the economy work. People don't know, people don't have
Speaker 1: confidence that anything is working. So people are dumping stuff
Speaker 1: and they're buying dollars. Yeah. We are recording this on June.
Speaker 1: It's Monday. Black Monday is trending on Twitter. It's not
Speaker 1: like it. It seems like a little exaggeration. It's early
Speaker 1: in the day. Yeah, so we'll see what happens. But
Speaker 1: what I will say is on Friday, I think the
Speaker 1: SP five hun was down to point nine percent something
Speaker 1: like that, And it has been just incredibly painful for
Speaker 1: a lot of stocks out there, but tech stocks in particular. Yeah,
Speaker 1: tech stocks in particular, as everyone knows, have gotten crushed.
Speaker 1: And then of course that feeds in a very linear
Speaker 1: way to private tech companies. Of course, we've had this
Speaker 1: big private tech boom VC, all these startups and everything,
Speaker 1: and every late stage private company you know, aspires to
Speaker 1: I p O, so off the I p O windows
Speaker 1: plunging or falling. Then that hurts their values. And every
Speaker 1: mid stage company expires to be an age stage company,
Speaker 1: and every early stage company expires to be a mid
Speaker 1: stage company. So there's no way to like avoid this
Speaker 1: sort of follow on effect. Like individual companies can do fun,
Speaker 1: but as a whole, what we see in the stock
Speaker 1: market I think pretty straightforwardly translates down into less liquid,
Speaker 1: riskier private tech. Right, So you would assume there's some effect.
Speaker 1: But obviously because a lot of these companies, while all
Speaker 1: of these companies are not listed, you can't actually see
Speaker 1: what's happening to their valuations in real time. So we
Speaker 1: can look up the S and P five hundred or
Speaker 1: you know, Amazon or Alphabet or whatever and see what's happening.
Speaker 1: It's a little bit harder with some of these startups.
Speaker 1: The only thing you can do, you know, you can
Speaker 1: see VC returns and what they tell their investors. But
Speaker 1: even still, the only time you'll often like get like
Speaker 1: a true like mark as in mark to market. I
Speaker 1: think is like when they do a raise, and of
Speaker 1: course no one wants to actually do a down round raise,
Speaker 1: so you never actually get it. So anyway, this is
Speaker 1: the irony, right when when valuations are going up and
Speaker 1: people are doing repeated fundraising rounds at higher valuations, everyone
Speaker 1: issues a press release and talks about it, and then
Speaker 1: when things are going in the other direction, it's just
Speaker 1: silence and crickets. So I'm very pleased to say that
Speaker 1: today we're going to try to figure out what's been
Speaker 1: happening in the world of venture capital and startups. We're
Speaker 1: going to be speaking with Tyler Tringus. He's the founder
Speaker 1: and general partner of Calm Fund. So Tyler, welcome to
Speaker 1: the show. Hey, thanks so much for having me. Tyler,
Speaker 1: maybe just to begin, you can tell us a bit
Speaker 1: more about Calm Fund. What is it and how does
Speaker 1: it differ from a traditional venture capital firm. Yeah, so, um,
Speaker 1: we are an early stage investor in technology companies, so
Speaker 1: in a lot of ways we we look a lot
Speaker 1: like um, you know, a venture capital firm in the
Speaker 1: sense of we you know, invest early, we partner with
Speaker 1: the founders, we provide community, mentorship resources, all that kind
Speaker 1: of stuff, and we're with them kind of the whole
Speaker 1: way until they eventually either exit the company or or
Speaker 1: UM I p O UM. But UM so, so we
Speaker 1: share a lot in common terms of the structure. UM.
Speaker 1: Where we differ is we are one of the only
Speaker 1: funds doing early stage tech investing with a different thesis
Speaker 1: than the traditional venture model of basically you could colloquially
Speaker 1: call it like unicorn hunting, right looking for you know,
Speaker 1: billion and ten billion dollar outcomes UM, and our model
Speaker 1: is based around the idea that you can, now, for
Speaker 1: maybe the first time in you know, tech investing history,
Speaker 1: you can invest pretty early stage in companies that are
Speaker 1: substantially de risked and going after sort of um, slightly
Speaker 1: more niche opportunities where it's just not the same kind
Speaker 1: of risk profile as a traditional kind of venture UM,
Speaker 1: you know, winner take all kind of model, and you
Speaker 1: can build an entirely different sort of approach to portfolio
Speaker 1: construction around that. So, can you explain why the typical
Speaker 1: VC approach is as you say, unicorn hunting, And of
Speaker 1: course for years there's like, yeah, well, you know, nine
Speaker 1: of ten of our portfolio companies are going to fail,
Speaker 1: but one of them is going to be the next
Speaker 1: Airbnb or Uber or Facebook. And that's how that's the
Speaker 1: game is like just you just gotta hit one. Why
Speaker 1: has that become or why especially over the last decade,
Speaker 1: but probably before, how did that become the dominant strategy
Speaker 1: that so many firms settled on? I mean, I think
Speaker 1: the very simple answer is that's the strategy that worked
Speaker 1: right um in the sen that you know, people sort
Speaker 1: of reverse engineer the portfolios that were very successful and
Speaker 1: they looked back and they said, hey, you know, it
Speaker 1: turns out we had this power law distribution where you know,
Speaker 1: almost all the returns came from um, you know, our
Speaker 1: biggest winners getting into Airbnb or Uber that sort of thing,
Speaker 1: and nothing else really mattered. So what we should do
Speaker 1: is really shift our strategy to be completely focused on
Speaker 1: maximizing our chance of getting you know, one or a
Speaker 1: few of those huge outlier returns in our portfolio, because
Speaker 1: that's what's worked for you know, the best venture funds
Speaker 1: in the past. Um. The maybe slightly more um uh
Speaker 1: theoretically sound version of that's just when you have very
Speaker 1: very high risk ventures, which is what venture capital is
Speaker 1: built to do right. It comes out of the semiconductor
Speaker 1: era of building you know, massive factories and and launching
Speaker 1: semi conductor products and things like that, where you had
Speaker 1: huge upfront costs, high risk, no real ability to predict
Speaker 1: sort of market demand. You needed to be compensated for
Speaker 1: that risk with very very very outsized returns um at
Speaker 1: both the company level and at the sort of overall
Speaker 1: fund portfolio level. Right, you needed to make sure that
Speaker 1: you couldn't just generate a two x fund. You needed
Speaker 1: a five x fund or something to to really move
Speaker 1: the needle, and so you needed hundred x outcomes to
Speaker 1: get to that five n UM. So that's the that's
Speaker 1: the general UM I guess history of of that approach.
Speaker 1: It's interesting, Tracy. You know, you know something we talked
Speaker 1: we've been talking more and more about on the podcast,
Speaker 1: like this idea of like capital investment coming back and
Speaker 1: actually spending and then thinking about like all these companies
Speaker 1: over the last ten years, like what capital did they
Speaker 1: really need? Like software? It's like they didn't need to
Speaker 1: build a job factory or a chip founder. I was
Speaker 1: just gonna say, I call this the UM, this overall dynamic,
Speaker 1: the peace dividend of the sas wars. Right, So the
Speaker 1: idea of like a peace dividend where you know, you
Speaker 1: you just are left with all of this kind of
Speaker 1: infrastructure and stuff after the kind of bubbly phase of things,
Speaker 1: and um, you get to use all that stuff for free.
Speaker 1: Right and so now, yeah, you're right, It's like the
Speaker 1: software companies that are going to market are really not
Speaker 1: They're not venture opportunities in multiple respects, and one of
Speaker 1: which is they're just not that capital intensive before you
Speaker 1: can start to de risk and see if people actually
Speaker 1: want this thing. Well, presumably a lot of the money
Speaker 1: just went into trying to gain market share, right and right,
Speaker 1: that was it. Um. But okay, so here's my big
Speaker 1: question based on that. I can't imagine anyone going out
Speaker 1: and sort of saying explicitly that their unicorn hunting. In
Speaker 1: the current environment, it just doesn't feel like an environment
Speaker 1: conducive to finding those types of companies and getting the
Speaker 1: funding for those types of companies. So what are venture
Speaker 1: capital firms traditional vcs doing right now? I don't know
Speaker 1: if they would agree with the premise of your question,
Speaker 1: To be honest, Um, I think a lot of venture
Speaker 1: funds still think that, um, you know, the fundamental sort
Speaker 1: of approaches is more or less the same. I mean,
Speaker 1: they're they're still looking for those kind of large outlier returns,
Speaker 1: especially if you're investing early stage, and their view is just, hey,
Speaker 1: you know, I think, uh maybe Mark Andreson kind of
Speaker 1: said this a while back, and it's become kind of
Speaker 1: an ethos throughout the industry, which is that you know,
Speaker 1: there's only a few huge outlier companies that matter every year,
Speaker 1: and your job is just to try to get into
Speaker 1: those right and you know, the valuation you do it
Speaker 1: at doesn't really matter. Um, It's all about you know,
Speaker 1: making sure that you get into the coin base or
Speaker 1: whatever thing that's going to generate a hundred x or
Speaker 1: five x return for your fund. UM. I don't think
Speaker 1: that that approach has changed a ton right now for UM,
Speaker 1: for the traditional early stage venture funds who've been at
Speaker 1: it for a while. So what are they doing right now? Though? What?
Speaker 1: Or what? You know? So it's like you have this
Speaker 1: incredible ten years in which the strategies have just worked
Speaker 1: so well and so beautifully, uh for you know, at
Speaker 1: least ten years, but probably more. But you know, thinking
Speaker 1: about the big you know you mentioned Mark and reason
Speaker 1: I inc. A sixtenen Z was two thousand and eight,
Speaker 1: two thousand nine, like essentially like right at the bottom
Speaker 1: of the last crisis, So just like truly an incredible decade.
Speaker 1: Where do things stand now in terms of like strategy
Speaker 1: on June third two, Well, I think the dominant strategic
Speaker 1: consideration right now for VCS has a little bit less
Speaker 1: to do with what's happening exactly now and about what's
Speaker 1: happened over the last few years, because you know, like
Speaker 1: you guys were talking about in terms of private valuations,
Speaker 1: you know, there's a bit of a of a one
Speaker 1: way ratchet right where once you invested a company at
Speaker 1: a particular valuation, there's really a humongous amount of incentives
Speaker 1: not to generate it down round, not to raise more
Speaker 1: capital at a lower valuation and lock in that sort
Speaker 1: of negative return. Like you know, stocks go up and down.
Speaker 1: Why is it that in private markets they're like down
Speaker 1: rounds are like, so do everything to avoid a down round? Um? Well,
Speaker 1: I mean it kind of like trades you alluded to,
Speaker 1: there's a real sort of um, you know, heads I
Speaker 1: win tails you lose dynamic in private valuations, which is
Speaker 1: just you know, when they're going up, you're able to
Speaker 1: report those quote unquote paper returns to your LPs as markups. Right,
Speaker 1: so you're sending these updates to your LPs um, you know, saying, hey,
Speaker 1: you know, our our fund is now worth two x
Speaker 1: what you invested. It's worth two point five. Now it's
Speaker 1: worth three. And those are all based on those up grounds, right.
Speaker 1: Each time a new priced round happens, you mark your
Speaker 1: existing ownership up. And there's just a lot of sort
Speaker 1: of incentive not to want to send a quarterly report
Speaker 1: that says, hey, we're now a two point to fund
Speaker 1: versus the two point five because we took a really
Speaker 1: big mark down. Um. It's just part of the overall
Speaker 1: psychology I think between you know, venture funds and their LPs,
Speaker 1: which is that those returns always go up, and you're
Speaker 1: going to really stand out as an anomalous sort of
Speaker 1: thing for them if you're one of the few funds
Speaker 1: in their portfolio that's returning or that's you know, marking
Speaker 1: sort of negative returns for a particular quarter or year. Um.
Speaker 1: So that's that's really it. It's like there's just a
Speaker 1: lot of incentive to to really navigate around that um
Speaker 1: to try and either convince the company to completely shift
Speaker 1: gears and you know, cut their burn layoff staff, start
Speaker 1: to focus on profitability so that they can quote unquote
Speaker 1: grow into those valuations, right, so that you know, maybe
Speaker 1: they would never have gotten there in the typical sort
Speaker 1: of twelve to eighteen months, but if they can extend
Speaker 1: their runway to three years, well then they can spend
Speaker 1: that three years getting to the point where they can
Speaker 1: raise at least a flat round or or an upground
Speaker 1: um or There'll be a lot of incentives to sort
Speaker 1: of structure around a down round because you know, if
Speaker 1: somebody comes in and says, hey, I want to miss
Speaker 1: more capital in this company, but you know, the last
Speaker 1: valuation was was sort of bananas. We're not going to
Speaker 1: invest at that. Your your options are you can either
Speaker 1: to the down round, right, you can say, fine, let's
Speaker 1: find a new price, or you can add in all
Speaker 1: kinds of you know, liquid a scan preferences and special
Speaker 1: terms and things like that to keep the nominal sort
Speaker 1: of headline price you know, the same or up uh,
Speaker 1: and everybody is kind of happier that way. There's there's
Speaker 1: also the dynamic of employee options right there, sort of
Speaker 1: um um a little bit of dynamic there where employees
Speaker 1: don't want to see the headline valuation going down because
Speaker 1: their stock options are you know, on a strike price
Speaker 1: from the last round and things like that. So it's
Speaker 1: a huge amount of incentives to um to sort of
Speaker 1: not really accept the reality of lower valuations. So can
Speaker 1: you talk to us a little bit more than about
Speaker 1: how lower valuations are down rounds, how those actually come about, like,
Speaker 1: because as you say, there are so many incentives to
Speaker 1: keep the valuation up as much as possible. And then
Speaker 1: the other thing that tends to happen is because these
Speaker 1: are a liquid markets, it feels like you could sort
Speaker 1: of resist the new pricing for quite a while. So
Speaker 1: what what is typically the process or the er that
Speaker 1: will lead to a lower valuation for a startup for instance?
Speaker 1: Is it just the company can't get any money without
Speaker 1: taking a lower valuation and they need the money, Like
Speaker 1: I'm just trying to understand exactly, like what the trigger
Speaker 1: is that will have one company except a lower valuation
Speaker 1: versus another that's able to hold on for longer. Yeah,
Speaker 1: So the first thing is that it's very very rare,
Speaker 1: So so we're we're basically trying to UM generalize about
Speaker 1: an incredibly small anecdotal data set. It seems to me like, UM,
Speaker 1: you know, as I think about the few instances I've
Speaker 1: heard of this, UM, the most common scenario would be
Speaker 1: when a sort of new investor of a completely different
Speaker 1: archetype wants to come in and get involved. Right, So
Speaker 1: this would be like when you would see sort of
Speaker 1: pe or hedge funds and things like that can involved
Speaker 1: UM because if you are an investor in technology companies
Speaker 1: regularly and this is your business, you know, you really
Speaker 1: just are highly incentivized to make sure that there's not
Speaker 1: a down round. In fact, you know, I wrote a
Speaker 1: little thread to founders basically talking about how you know,
Speaker 1: if you are UM, you know, running a company that
Speaker 1: just raised a very very large, high valuation venture around,
Speaker 1: you are sort of misaligned with your investors. They're they're
Speaker 1: quite incentivized to UM to want you to sort of
Speaker 1: really double down and go big or go home, right, Like,
Speaker 1: doing it down round is kind of like the worst option.
Speaker 1: They would rather you either sort of you know, gut
Speaker 1: it out and and somehow hit the metrics that you
Speaker 1: need to raise an upground or just fail right, Um,
Speaker 1: you know, and so there's a lot of counter incentives
Speaker 1: to what would be the sort of rational strategy, which
Speaker 1: is to try and you know, pivot to profitability, even
Speaker 1: though you are seeing some folks start to sort of
Speaker 1: preach about that as well. Um, you know, it's it's
Speaker 1: just there's a ton of incentives against it, and you
Speaker 1: would probably do it if you had no other choice. Um,
Speaker 1: And you know you've got an offer from some sort
Speaker 1: of you know, private equity and d or something like
Speaker 1: that to do a bridge around um, where it can
Speaker 1: kind of be justified. Hey, we're working with these folks, um,
Speaker 1: because they're just you know, different types of investors. So
Speaker 1: of course there's gonna be worse terms with it. But
Speaker 1: it's a real negative signal in the industry. Can you
Speaker 1: talk about from your perspective, So your investments are you're
Speaker 1: not taking the unicorn hunting approach because, as you've said,
Speaker 1: you believe that it's possible to invest in relatively early
Speaker 1: stage tech companies but that don't have like high downside
Speaker 1: risk and so that actually you're not just trying to
Speaker 1: oh nine go to zero and one goes to a
Speaker 1: hundred billion or whatever it is that being said, I'm
Speaker 1: sure this is you know, there's some of the same
Speaker 1: macro stresses are going to apply to every company's Can
Speaker 1: you talk to us about like the advice you're giving
Speaker 1: is it the same as like, you know, because everyone
Speaker 1: VC puts out these memos cut caught, you know, this
Speaker 1: is the time, profitability, etcetera. But can you talk about
Speaker 1: what those conversations are like beyond just the sort of
Speaker 1: like the press released memo tweet thread level. Sure, yeah,
Speaker 1: I mean so, to be clear, the reason that we
Speaker 1: think our thesis works is less about any kind of
Speaker 1: change in the validity of the venture capital model and
Speaker 1: more just about the ground sort of shifting under everyone's
Speaker 1: feet where a lot of software and kind of software
Speaker 1: enabled the e commerce and things like that, uh sass,
Speaker 1: all these kinds of products they sort of shifted out
Speaker 1: of the venture profile right where they just became de
Speaker 1: risk like we were talking about before. So it's more
Speaker 1: just that there's this segment over here that we think,
Speaker 1: you know, at least our strategy is valid, if not
Speaker 1: more applicable to these opportunities because they're not as capital
Speaker 1: intensive and quite frankly not as risky. It doesn't change
Speaker 1: the fact that, you know, if you want to build
Speaker 1: factories in space or launch rockets you know that are
Speaker 1: reusable and all this kind of stuff, you really do
Speaker 1: need to still, um, you know, go on that traditional
Speaker 1: venture capital approach as long as you're really having those
Speaker 1: winner take all dynamics at the at the other end. Um.
Speaker 1: But in terms of like the conversations we're having UM
Speaker 1: with companies, I mean, we honestly like our overarching UM
Speaker 1: message has been sort of stay the course, Like we
Speaker 1: we were sort of fighting a little bit of against
Speaker 1: the tide um for the last couple of years as
Speaker 1: capital became really easy. So even founders that maybe not
Speaker 1: really a fit for traditional venture we're getting term sheets
Speaker 1: and saying, hey, this guy wants to give me six
Speaker 1: million dollars, should I take it? Um? And we were saying, well,
Speaker 1: you know, maybe, but um, you know, you're going after
Speaker 1: a fairly niche market. You think, but how much did
Speaker 1: the appeal for these founders to take that how much
Speaker 1: was it affected by opportunities to cash out early some
Speaker 1: of their shares, some of which even in probably the
Speaker 1: opportunity to make life changing amounts of money even in
Speaker 1: a relatively early round. Yeah, it's a really good question.
Speaker 1: We have not seen that very much in our portfolio,
Speaker 1: in part because you know, most of our companies are
Speaker 1: optimizing for being capital efficient, the vast majority of them
Speaker 1: have not raised additional capital, So so we haven't seen
Speaker 1: a ton of that. But you did see, you know,
Speaker 1: quite a lot of that going on in the market, um,
Speaker 1: the last couple of years. And UM, I think it's
Speaker 1: a real function of the fact that, you know, the
Speaker 1: entire venture community for the last two years was just
Speaker 1: getting completely squeezed UM. And there was just a supply
Speaker 1: and demand dynamic going on where there was just an
Speaker 1: oversupply of of capital relative to um you know, the
Speaker 1: number of real venture scale game changing opportunities, or at
Speaker 1: least the perceived set of those. And so there was
Speaker 1: this competition to compete, right all for better terms and
Speaker 1: to offer more attractive kind of secondary sales for the founders. UM.
Speaker 1: And you saw some sort of truly um so, some
Speaker 1: truly crazy stuff. I think the first one that kind
Speaker 1: of hit the news was was Clubhouse early on and
Speaker 1: the founders too million dollars off the table. Yeah, I
Speaker 1: remember that, and uh, and everyone was like, oh man,
Speaker 1: like they're barely you know, they barely launched, and they
Speaker 1: just raised this huge third round. And however, many months
Speaker 1: and the founders took two million dollars off the table
Speaker 1: and that was news. And then later over a couple
Speaker 1: of years, you saw you know, founders taking five million,
Speaker 1: ten million, and two hundred million off the table. Million
Speaker 1: off the table as a founder UM fact check beyond that,
Speaker 1: but I believe it was reported that the founder of
Speaker 1: hop in the virtual conference software they kind of went
Speaker 1: from they went from z you know, they were they
Speaker 1: got probably the biggest COVID boost of maybe any company,
Speaker 1: uh maybe Zoom aside um where they basically run virtual
Speaker 1: conference software, and UM, they're one of the sort of
Speaker 1: like steepest valuation trajectories I think anyone has ever seen.
Speaker 1: They went from kind of you know, very o seed
Speaker 1: round to six billion dollar valuation and over the course
Speaker 1: of basically COVID less than two years UM. And I
Speaker 1: believe it was reported that the founder took UM two
Speaker 1: million or more UM off the table. Amazing. Good for them,
Speaker 1: Good for them. I mean, it's hard to blame people
Speaker 1: for taking it right. I mean, it's um, it's hugely
Speaker 1: misaligned with you know, your your employees, um, who certainly
Speaker 1: were not offered that same level of liquidity, um, you know,
Speaker 1: and and now have a bunch of their stock options
Speaker 1: locked up at this kind of like very very high valuation.
Speaker 1: And we'll see what happens to those I think, um,
Speaker 1: you know, we're going to see a huge wave of employees.
Speaker 1: See millions of dollars of equity wiped out hoppin founder
Speaker 1: in June. This is, according to the Financial Times nets
Speaker 1: a hundred million pounds so dty millions something and share
Speaker 1: sales amazing. I had no idea that's good for him anyway, Sorry, Tracy,
Speaker 1: what we get say, well, sorry to press on this,
Speaker 1: but just on valuations, okay. So so in an up cycle,
Speaker 1: I guess you have this pressure on valuations and lots
Speaker 1: of money competing for the same thing, and so prices
Speaker 1: tend to get squeezed even higher. And actually we spoke
Speaker 1: to Howard Lindson about this back in February. But you
Speaker 1: also had, you know, particularly big players like soft Bank,
Speaker 1: who would come in and squeeze a company much much
Speaker 1: higher than it would be otherwise. What happens on the
Speaker 1: flip side of that, when everything starts going down. Is
Speaker 1: it you know, people hold on because their incentive is
Speaker 1: to hold on and avoid booking these companies at lower valuations,
Speaker 1: or does like a bunch of money get pulled and
Speaker 1: the cycle is even worse on the way down. Yeah,
Speaker 1: good question. I mean there's a bunch of different effects
Speaker 1: going on all at once right now. So maybe the
Speaker 1: biggest one is the pullback of the multi stage hedge
Speaker 1: funds that got into VC over the last couple of years. UM.
Speaker 1: So notably like Tiger Global and co To were to
Speaker 1: hedge funds that you know built um very large technology
Speaker 1: practices and race dedicated funds for those and that sort
Speaker 1: of thing. And and they were deploying billions of dollars
Speaker 1: into the space up and down, everything from seed rounds
Speaker 1: to Series A to late stage. And that was one
Speaker 1: of the primary things if you think about like the
Speaker 1: the sort of you know, marginal demand in the in
Speaker 1: the suppliker for for startup valuations, they were really providing
Speaker 1: a large portion of that marginal demand where they were
Speaker 1: the last people who would come in at two x
Speaker 1: you know, the price of the next best offer UM.
Speaker 1: And so that was doing a lot of the work
Speaker 1: to really push up those valuations. Um, you know, it's
Speaker 1: been sort of reported that and certainly seems to be
Speaker 1: the case that, um, those folks, you know, they're they're
Speaker 1: not dedicated venture funds, they're sort of you know, multi
Speaker 1: stage cross asset hedge funds, and so they do seem
Speaker 1: to be pulling back quite a bit. So I definitely
Speaker 1: think you will see that dynamic play out where um,
Speaker 1: you know, they they basically won't be coming into these
Speaker 1: rounds and marking them up in a huge way. Um,
Speaker 1: in terms of otherwise what happens, I mean, I think
Speaker 1: we're going to see a bit of a delayed blood bath,
Speaker 1: to be honest, right, there's an ability to sort of
Speaker 1: just hold on and wait it out. You know, if
Speaker 1: the company, you know, a company has raised at you know,
Speaker 1: ten times the valuation that they really should have and
Speaker 1: they have eleven months runway in the bank, you know,
Speaker 1: what do you do. Well, it's going to be such
Speaker 1: a trivial amount of money relative to what people invested
Speaker 1: that you don't just like return the funds. You just
Speaker 1: kinda try to make it work, right, You just kind
Speaker 1: of hang on and see if you can get lucky
Speaker 1: and hit that inflection point and maybe raise some more capital,
Speaker 1: or maybe the market turns around. But if things stay
Speaker 1: as they are, I think, you know, over the rest
Speaker 1: of the year, you're going to see a lot, lot,
Speaker 1: lot of high flying you know, late stage companies. UM.
Speaker 1: Maybe even the ones that just eight big rounds of
Speaker 1: layoffs and things like that to try and stay alive. Um.
Speaker 1: You know, they're just not gonna make it, you know.
Speaker 1: Tracy asked about the soft banks, and you of course
Speaker 1: mentioned the uh, you know, the Tiger globals and all those,
Speaker 1: but then the other phenomenon and again there's something that
Speaker 1: we chatted with in one of our previous chats with
Speaker 1: Howard Linson is like and he's talking about this, and
Speaker 1: you mentioned the squeeze that all these obviously are feeling
Speaker 1: that like in March when uh the when the pandemic
Speaker 1: hit and everyone was at home and very quickly asset
Speaker 1: prices started going up and Zoom started taking up. That Actually,
Speaker 1: like you had this situation where like everyone became an
Speaker 1: angel investor and everyone was like started like, hey, let's
Speaker 1: do a Zoom meeting. We don't even have to fly
Speaker 1: to meet you anymore. Let's chat for fifteen minutes. And
Speaker 1: also maybe I have like a substack so I can
Speaker 1: promote your company and my investment. Let's let's try check.
Speaker 1: You have all these like fang rich people like Facebook, Google,
Speaker 1: Amazon employees who probably of you know, maybe a few
Speaker 1: million but in the bank or something or several million,
Speaker 1: and want to cut fifty hundred thousand dollar checks. Can
Speaker 1: you talk like how big of a phenomenon was that
Speaker 1: and how much how did that let's say new money
Speaker 1: or inexperienced money. Can you talk about the effect that
Speaker 1: that had and sort of like competition and valuations. Yeah, so,
Speaker 1: I mean you're right, and that there was just a
Speaker 1: huge you know, it was everybody has a venture fund
Speaker 1: now was the kind of joke, and um, you know
Speaker 1: everybody started doing angel investing um angel list that the
Speaker 1: platform for angel investing really contributed to this where they
Speaker 1: launched a pretty um neat fund product that allowed you know,
Speaker 1: your your sub stackers and things like that to really
Speaker 1: easily and cheaply spin up a venture fund. Yeah, the
Speaker 1: rolling funds does that work? I never looked up like
Speaker 1: how did the rolling funds work and talk to us
Speaker 1: about like what that the fact that had Yeah, rolling
Speaker 1: fund was basically angelist. Did you know, did this whole
Speaker 1: product ized version of event your fund, where traditionally you'd
Speaker 1: have to pull in you know, lawyers to do your docs,
Speaker 1: and you need a fund administrator to your back end
Speaker 1: and tax people to do your tax and all the
Speaker 1: stuff that we have to do. Actually we have like,
Speaker 1: you know, a team of thirty people that we fractionally
Speaker 1: use to sort of run our fund. Angela said, Hey,
Speaker 1: if you want to do traditional venture investing, will do
Speaker 1: the whole back office, and by the way, will also
Speaker 1: make it really really approachable for individuals to be LPs
Speaker 1: in your fund. LPs are the limited partners who who
Speaker 1: invest the capital into your fund. Um by basically setting
Speaker 1: it up to where it's more of a subscription product,
Speaker 1: so you can actually just invest you know, ten thousand
Speaker 1: dollars a quarter and it's a fixed, you know, flat number.
Speaker 1: You can make it up down every quarter that you want,
Speaker 1: you can change it to. Just added a lot more
Speaker 1: flexibility that I think brought in not just a whole
Speaker 1: bunch of new funds, but also a huge new influx
Speaker 1: at least in volume, maybe not in total dollars of
Speaker 1: LPs from folks who had, you know, done really well
Speaker 1: in crypto and done really well, and they're you know,
Speaker 1: stock portfolios, decided to diversify a hundred k of that
Speaker 1: into um, you know, a venture fund from someone that
Speaker 1: you know they admired on the internet. Um, you know.
Speaker 1: So so that dynamic really overall increased the There was
Speaker 1: sort of a bottoms up to effect where there was
Speaker 1: a huge increase in the volume of capital out there
Speaker 1: chasing opportunities. And then but the thing is, like, these
Speaker 1: are not price setters, right, So a lot of these
Speaker 1: funds that were set up, you know, they're writing relatively
Speaker 1: small checks and they're also not sort of super experienced vcs,
Speaker 1: and so when they go into a round, all they
Speaker 1: want to do is find an already priced and mostly
Speaker 1: full round, you know, and put their fifty k or
Speaker 1: hundred k into that round, and they just kind of
Speaker 1: take the price as okay, well that's somebody else's problem.
Speaker 1: But the problem is you had this top down effect,
Speaker 1: which is all of these huge multi stage funds getting involved.
Speaker 1: And that's the hedge funds as well as some of
Speaker 1: these really really big funds like Sequoia and recent Horowitz.
Speaker 1: These kind of folks, they were the ones in many
Speaker 1: cases coming down and setting the price at you know,
Speaker 1: seed or or Series A some of these early rounds.
Speaker 1: So you have these angels coming in with lots of
Speaker 1: new cash and they're saying, hey, we want to get
Speaker 1: into this round, but we don't want to set the price.
Speaker 1: And then you have something like Tiger coming in and
Speaker 1: saying cool, like, we'll set the price, No big deal.
Speaker 1: The problem is those two groups are completely not aligned
Speaker 1: with each other, and in fact they're actually selling different
Speaker 1: products to their LPs. The angels and the venture funds.
Speaker 1: They're trying to do the traditional thing. They're trying to
Speaker 1: put in their hundred k and get you know, a
Speaker 1: hundred x outcome on that right there, looking for those
Speaker 1: real outlier returns. The very very large funds had essentially become,
Speaker 1: even though nominally they would be sort of venture funds,
Speaker 1: they were basically growth private equity right they were raising
Speaker 1: billion dollar, multibillion dollar funds. And the way that you
Speaker 1: move the needle on a multibillion dollar fund is when
Speaker 1: you put you know, fifty million, a hundred million in
Speaker 1: into these companies at late stage and then the I
Speaker 1: p O at three x, and that's how you generate
Speaker 1: your sort of reasonable growth equity type of of returns, right,
Speaker 1: and that those would be sort of like two x
Speaker 1: to three X kind of outcomes, not your hundred X outcomes.
Speaker 1: And what these huge funds were doing is they were
Speaker 1: basically viewing the seed rounds and the series A rounds
Speaker 1: as um just kind of optionality. Right. They were going
Speaker 1: in and they were buying the option, sometimes explicitly in
Speaker 1: the form of pro rata, which is I invest in
Speaker 1: your seed round, and I have special terms that say,
Speaker 1: you know, I get to invest you know, more and
Speaker 1: more at each subsequent round um, and then sometimes just
Speaker 1: kind of implicitly just by saying, hey, look, you know
Speaker 1: we lead your seed round, so let us lead your
Speaker 1: A and B and see and all that sort of stuff.
Speaker 1: And so you have these these large players who are
Speaker 1: not really that concerned about the price at seed because
Speaker 1: that's not their game, right, But they're the ones setting
Speaker 1: the price. And so that people who are trying to
Speaker 1: make all returns on this difference between the seed round
Speaker 1: valuation and the ultimate valuation. Now they're investing at four times,
Speaker 1: five times, ten times higher than they were just several
Speaker 1: years ago, and so their returns are you know, if
Speaker 1: all things are equal, unless the world kind of magically
Speaker 1: changes and and everybody I p O s at a
Speaker 1: hundred x higher, you're just going to have you know,
Speaker 1: ten x five x, you know, two x lower returns
Speaker 1: at seed. Um. So that was like one of the
Speaker 1: big dynamics right there, which was that people who were
Speaker 1: basically nominally vcs but we're actually running different products that
Speaker 1: were more like private equity were the ones setting the price.
Speaker 1: And then you had this huge influx of new capital
Speaker 1: that was just very happy to go along with the
Speaker 1: price and with capital work. Yeah exactly. Yeah, So this
Speaker 1: was actually going to be my next question, But I'm
Speaker 1: so used to thinking of Silicon Valley at this point
Speaker 1: as like you know, aggressive pricing, lots of cash pouring
Speaker 1: in the sort of excesses of venture capital. If we
Speaker 1: get a big downturn in the market, would you expect
Speaker 1: to see some of that behavior or some of the
Speaker 1: way that the industry is structured and incentivized start to change. Yeah,
Speaker 1: for sure. I mean the so some of the stuff
Speaker 1: that you maybe are thinking of in terms of just
Speaker 1: you know, negative unit economics and things like that, I
Speaker 1: don't know how much those will go away. Um, you know,
Speaker 1: if you are in if you're in a winner take
Speaker 1: all market, sometimes it does make sense to you know,
Speaker 1: under price your product and grow really really fast, right,
Speaker 1: So there's always going to be incentives for that. Some
Speaker 1: things that I think definitely will change UM are a
Speaker 1: lot of the stuff around the way that UM the
Speaker 1: competition for employees has sort of evolved, where you know,
Speaker 1: competition structures for senior engineers have just are just absolutely
Speaker 1: eye popping. I don't I don't know if you if
Speaker 1: you've seen any data there, but you know you have
Speaker 1: folks just getting you know, six K based salary and
Speaker 1: four hundred K year in stock options and all this
Speaker 1: kind of stuff for for sort of mid level engineers,
Speaker 1: like just really truly bananas offers going on on top
Speaker 1: of you know, tons of perks and and all kinds
Speaker 1: of stuff like that. So I do think you'll start
Speaker 1: to see a pretty significant softening in terms of UM
Speaker 1: the competition for for employees. I think, you know, it's
Speaker 1: hard to sort of uh cry crocodile here is for UM,
Speaker 1: you know, really really well paid tech employees, but they
Speaker 1: are going to suffer the brunt. I think of this
Speaker 1: with UM, you know, pretty significant losses to to UM
Speaker 1: the value of their their stock options as well as
Speaker 1: probably um, you know, much less competitive offers as they
Speaker 1: were able to kind of sort of jump from big
Speaker 1: TechCo to big tech COO kind of doubling their salary
Speaker 1: every two or three years. Um. You know, I think
Speaker 1: that that's something that you'll see um pair back quite
Speaker 1: a bit. Yeah, you know, I want to actually press
Speaker 1: further on that. You know, it almost seems to me
Speaker 1: and I don't know if this is true, but one
Speaker 1: might speculate that in a sense even and I'm just guessing,
Speaker 1: like I wonder, like, you know, in a sense, are
Speaker 1: even employees of a sort of startups essentially become deef
Speaker 1: you know, start taking um an angel investor mindset, Like
Speaker 1: if you think that equity in a startup is going
Speaker 1: to potentially ten x or hundred x or potentially you know,
Speaker 1: you're thinking like you have multiple options for where're gonna
Speaker 1: go work because you're a talented engineer, and then you
Speaker 1: start thinking like, well, which one is going to be
Speaker 1: the hundred x or which one is going to be
Speaker 1: the ten x and actually like make a fortune on
Speaker 1: some of this early stage stock. But I'm just like
Speaker 1: wondering if you can like talk a little bit more
Speaker 1: about like how this relationship is going to change. And
Speaker 1: you know, even like fang level if if if the
Speaker 1: assumption no longer exists that stocks automatically go up that
Speaker 1: it's like, yeah, of course I want to get paid
Speaker 1: in the stock because stocks will go up, you know,
Speaker 1: year after year off yearf did that is sumption goes away?
Speaker 1: Like how do some of the employee the company employee
Speaker 1: relationships start to change or people thinking about their own careers. Yeah,
Speaker 1: I mean I think the folks who are at you know,
Speaker 1: Google and Amazon, it's a little bit about my pay
Speaker 1: grade to say much about how that dynamic is gonna
Speaker 1: play out. Um, But you know, because I just I
Speaker 1: am not really that familiar with how um, you know,
Speaker 1: the public market prices affect kind of employee compensation things
Speaker 1: like that. But in the private market this is really
Speaker 1: really acute. UM. I think you're right that there was
Speaker 1: this similar kind of just you know, everything goes up
Speaker 1: a little bit like Yolo mentality over the last few years,
Speaker 1: um with employees as they were evaluating their comp packages.
Speaker 1: And you know, one of the things we're seeing as
Speaker 1: a realization from a lot of folks where you know, basically,
Speaker 1: if you were issued a ton, maybe millions of dollars
Speaker 1: worth of stock options at some of the kind of
Speaker 1: crazy valuations in a private company that we saw over
Speaker 1: the last you know, a couple of years, um, you
Speaker 1: actually not only do you need to mark those down
Speaker 1: a little bit, you know, like if you have a
Speaker 1: public company, you actually might need to mark those down
Speaker 1: to zero um. And the reason being if your company
Speaker 1: lays you off. In private markets you often have this
Speaker 1: this very difficult and silly rule where you have a
Speaker 1: ninety day option exercise window, right, and so you need
Speaker 1: to not only if you get laid off to even
Speaker 1: retain any of that equity, you actually need to go
Speaker 1: out and buy it. You need to either have the
Speaker 1: capital or borrow it to buy that actually on it
Speaker 1: if if it's still if the price that you're buying
Speaker 1: it at is above the price you're the options you're
Speaker 1: listening at, right exactly. I mean, it's so financially sort
Speaker 1: of owners that very very few employees. You have to
Speaker 1: already be someone who had a previous exit or something
Speaker 1: and have you know, many tens of millions in the
Speaker 1: bank to be able to to make and then like
Speaker 1: with the exact thing like give them a deal. It's like, oh, well,
Speaker 1: like we'll give you a year or you you know,
Speaker 1: you could keep your I know, it always seems like
Speaker 1: very like very cruel to the employee level. Anyway, it is,
Speaker 1: it's really it's really bananas. And then you layer so
Speaker 1: it's difficult even in normal times for it to work.
Speaker 1: And then you layer in the fact that you know,
Speaker 1: the company just raised at a five billion dollar valuation
Speaker 1: and you know the whispers and the private markets are
Speaker 1: that it's worth you know, million, and so now you
Speaker 1: have to make this bet to buy that equity and
Speaker 1: then gut it out and wait and hope that it
Speaker 1: I p O s at you over that five billion
Speaker 1: dollar valuation that your options are issued at right, And
Speaker 1: it doesn't work exactly that way, but that's the basic
Speaker 1: dynamics of it, where you're making this this fundamental bet
Speaker 1: on the company that just laid you off in order
Speaker 1: to just sort of get your equity, and you you're
Speaker 1: even seeing sort of you know, and so basically all
Speaker 1: that adds up to most of these folks are just
Speaker 1: gonna walk away from that equity, right, It's just not
Speaker 1: ever going to be valuable and In fact, you saw
Speaker 1: UM recently there was a very extreme example of this.
Speaker 1: But uh so Bolt, which is sort of famously high
Speaker 1: flying UM some would say overvalued. UM. I would say
Speaker 1: that companies UM that uh you know they did. They
Speaker 1: sort of came up with this quote unquote solution for this,
Speaker 1: which is that they would actually loan their employees the
Speaker 1: money to go ahead and buy that equity so that
Speaker 1: they would own it so they wouldn't have this ninety
Speaker 1: day option exercise window. The problem is they're then taking
Speaker 1: out personal recourse loans, right, so you know this loans
Speaker 1: have have the rights to go and seize their employees
Speaker 1: assets from the company to own this equity. And if
Speaker 1: there is a down round, right or something like that, Um, there,
Speaker 1: their loans are going to be underwater and they're going
Speaker 1: to have personal recourse against that. Right. It's absolutely crazy.
Speaker 1: And and there was a feature recently of at least
Speaker 1: one employee because they did that, and then a couple
Speaker 1: months later they announced a big round of layoffs. And
Speaker 1: so there was an example at least one of an
Speaker 1: employee who took out you know, sort of six figures
Speaker 1: of of debt to buy that equity, then got laid
Speaker 1: off and now has you know, ninety days to pay
Speaker 1: it basically to come up with that money and to
Speaker 1: buy it. It's it's it's absolutely crazy. Wow. UM. Well, okay,
Speaker 1: So on this topic of leverage, So this is a
Speaker 1: question I have about I guess the market overall at
Speaker 1: the moment, like how much leverage is actually embedded in
Speaker 1: the system, especially as we see you know, UM crypto
Speaker 1: prices go down and things like that. But UM, when
Speaker 1: it comes to venture capital, I mean, there was an
Speaker 1: article that Bloomberg published last week. I think it was
Speaker 1: about UM the D one hedge fund borrowing billions of
Speaker 1: dollars in order to purchase stakes in private companies. How
Speaker 1: much of that is going on, Like how much leverage
Speaker 1: is embedded in venture capital such that when valuations start
Speaker 1: going it could become problematic? I think very little. UM,
Speaker 1: even the largest sort of venture funds. UM. You know
Speaker 1: that the sequoias and injuries ince of the world. UM
Speaker 1: don't really use leverage. You you use sort of UM
Speaker 1: sort of convenience products in terms of like capital call
Speaker 1: lines of credits and things like that. UM just basically
Speaker 1: kind of bridging the gap between when you invest in
Speaker 1: a company and when you call the capital from your
Speaker 1: from your LPs um. But the vast majority of traditional
Speaker 1: venture players are using, you know, no debt, so I
Speaker 1: think it would just be you know, the few folks
Speaker 1: you know, coming from the sort of hedge fund world
Speaker 1: and that sort of thing, that um might be using leverage.
Speaker 1: But I mean it's kind of crazy because they're they're
Speaker 1: not cash flowing assets, so you really are taking a
Speaker 1: very very high risk bet um by by levering those up,
Speaker 1: and traditionally most investors in the space are not doing that.
Speaker 1: You know, I'm curious you mentioned the folks the crossover
Speaker 1: funds that came from the hedge fund world. Of course,
Speaker 1: the pre eminent one that everyone talks about is Tiger Global,
Speaker 1: And it seems to me that, you know, as you mentioned,
Speaker 1: they're not really the c in a sense, they're not
Speaker 1: really hedge funds sense they're sort of late stage private
Speaker 1: you know, if you think of like a hedge fund,
Speaker 1: it's like, okay, like we're gonna pivot to uh energy
Speaker 1: investing this this quarter because the macro environments changed. It
Speaker 1: seems to me like you cannot do that with a
Speaker 1: late stage growth investing. You are all in on one
Speaker 1: strategy and you can't just like pivot. It's like we're
Speaker 1: we're value investors this year, We're oil investors this year.
Speaker 1: Like you're all in, Like what do you think is
Speaker 1: like how important were they had those entities become like
Speaker 1: to the overall start up ecosystem, and like do you
Speaker 1: think they're gonna like what what do you see is
Speaker 1: like the future of them? I mean I think, like,
Speaker 1: I think Tiger is down extraordinarily amount of money loss,
Speaker 1: especially when you think probably think about the inflows that
Speaker 1: came in in recent years, huge dollars up in smoke,
Speaker 1: Like what is this or like does that model come
Speaker 1: back in the downturn or does it get rethought? Yeah?
Speaker 1: I mean also a bear in mind that, um, you
Speaker 1: know those headline lost figures that are being reported for Tiger,
Speaker 1: that's their public markets right there. That's not even factoring
Speaker 1: in all the venture investing that they've done. For for
Speaker 1: all the reasons we've been talking about, there just haven't
Speaker 1: been down rounds. So you have this dynamic where you know,
Speaker 1: you have these realized losses on your public portfolio and
Speaker 1: unrealized losses on your private portfolio, and it's it's a
Speaker 1: real tough situation. Um, you know, I I I do.
Speaker 1: I think this is going to be a bit of
Speaker 1: a one off anomaly. Um, My macro kind of basic
Speaker 1: view is that for the last couple of years, in
Speaker 1: these zero interest rate environments, you had these really really
Speaker 1: vast pools of capital, right, these just you know, sovereign
Speaker 1: wealth level kind of pools of capital that we're sitting
Speaker 1: on hundreds of billions of dollars and just sort of
Speaker 1: frantically looking for anything that would generate old right, because
Speaker 1: there was just nothing right, Bonds were used, let's come like,
Speaker 1: everything was just useless. And you know, if you need
Speaker 1: to put ten billion dollars to work and get some
Speaker 1: kind of good return on it, your options were just
Speaker 1: incredibly limited. And I think into that space stepped in
Speaker 1: a couple of hedge funds who said, hey, yeah, we
Speaker 1: can put you know, I mean I think Tiger invested
Speaker 1: an entire multibillion dollar fund in less than a year, right,
Speaker 1: They said, hey, we can put that money to work
Speaker 1: and we can generally right, Like that was like just yeah,
Speaker 1: and just very large checks as well. But I think
Speaker 1: it was I have to look at them. It was
Speaker 1: a three billion or six billion dollar fund that they
Speaker 1: deployed in like under a year or plus remind us
Speaker 1: a year, um. And and that was the product they
Speaker 1: were selling right at the end of the day. You know,
Speaker 1: all funds are selling a product to their LPs, and
Speaker 1: and the product they were selling was, you know, we're
Speaker 1: going to take huge, huge pots of money. We're gonna
Speaker 1: absolutely fire hose it into technology companies at the late stage. Um,
Speaker 1: we have a bunch of people who have some venture experience. So,
Speaker 1: like I said, we're gonna we're gonna be investing early
Speaker 1: to get that optionality to put a lot more capital
Speaker 1: in later. But ultimately they were there to serve this
Speaker 1: you know, this this demand for some amount of yield
Speaker 1: in a very uncompetitive market, and that dynamic is changing
Speaker 1: right now. Right Like, if you look at the public
Speaker 1: markets now, you're like, hey, actually there's probably quite a
Speaker 1: lot of yield to be had here, and interest rates
Speaker 1: are going up, so maybe maybe bonds are going to
Speaker 1: be more attractive and stuff like that. So I think
Speaker 1: that while the model is not necessarily going to be
Speaker 1: like disproven or or abandoned, I just think the demand
Speaker 1: for it is going to get dispersed across a whole
Speaker 1: bunch of other assets, and I really doubt that we'll
Speaker 1: see you know, multi stage hedge funds raising more further
Speaker 1: incredibly large kind of late stage tech um funds and
Speaker 1: and doing what they've been doing over the last couple
Speaker 1: of years. Uh. You know, Joe and I started the
Speaker 1: conversation talking about how when things are going badly in
Speaker 1: the public market, we we kind of see just how
Speaker 1: badly because we can pull up at chart and watch
Speaker 1: the line go down. It's a little bit trickier with
Speaker 1: um the world of startups and private equity and private
Speaker 1: money and venture capital and things like that. What, in
Speaker 1: your opinion, is the best thing to watch out for
Speaker 1: to to try to gauge how bad things are getting.
Speaker 1: It's a good question. I mean, the one interesting dynamic here,
Speaker 1: which is the valuation is going down, but software companies
Speaker 1: are still doing very well. You can even look in
Speaker 1: the public markets. Yeah, you see these companies that are, hey,
Speaker 1: we've got you know, another record year for you know,
Speaker 1: revenue is up, you know, losses are down, et cetera.
Speaker 1: Like they're the fundamental business of most technology companies. And
Speaker 1: we see that in our portfolio as well. Even at
Speaker 1: the earlier stage that we're investing in. Like, you know,
Speaker 1: companies are not affected by this kind of macro change
Speaker 1: um in terms of their underlying business. It's purely a
Speaker 1: question of the fact that the same assets are being
Speaker 1: you know, repriced much much lower and so UM. You know,
Speaker 1: I guess the thing you want to look out for
Speaker 1: is basically just that squeeze right wherein otherwise good business
Speaker 1: that is actually still growing and still getting closer to
Speaker 1: product market fit and still growing their customer base and
Speaker 1: all that sort of stuff. UM, they just you know
Speaker 1: raised there there, they raised too much, and so they
Speaker 1: have to hit certain you know, growth trajectory targets to
Speaker 1: to raise their next round and um, and they just
Speaker 1: kind of have to do that. But there there really
Speaker 1: aren't leading indicators for this kind of thing, because you're
Speaker 1: just so incentivized to just try to hit those hurdles
Speaker 1: up until the last possible second and then you say, oh,
Speaker 1: we couldn't raise around, you know, like you saw that
Speaker 1: with UM with Fast recently, where you know, they were
Speaker 1: the week before they were talking about all their plans
Speaker 1: and everything, and it's like you're you're trying to create
Speaker 1: this forward looking you know, up into the right curve
Speaker 1: and the perception of that until you just can't raise
Speaker 1: the capital and then you shut down, right. Um, So
Speaker 1: it's gonna be a lot of surprises, I think, So
Speaker 1: real quick questions. I have two questions. One is a
Speaker 1: short one. You know, you say, like the fundamentals by
Speaker 1: and large look strong. This is c Would you say
Speaker 1: this is distinctly different from the dot com era, in
Speaker 1: which is sort of infamously all these different dot coms
Speaker 1: they were each other's customers, so to speak, and so
Speaker 1: one company would raise a bunch of VC and then
Speaker 1: take out a bunch of ads on Yahoo dot com
Speaker 1: or whatever, and so they were sort of all the same. Like,
Speaker 1: would you say like that phenomenon, just like this is
Speaker 1: not as significant when you look at the underlying business
Speaker 1: quality of you know, some of these software companies. I
Speaker 1: think it's far far less prevalent um, you know, especially
Speaker 1: if you look at a portfolio, like within our portfolio,
Speaker 1: we are primarily investing in SaaS companies, and those sas
Speaker 1: companies are usually selling too different verticals or industries, so
Speaker 1: we're really sort of diversified across you know, the underlying
Speaker 1: customer base of our portfolio companies customers. UM. You do
Speaker 1: have a little bit of the circularity there. UM. You know,
Speaker 1: I think I saw this kind of a jokey headline
Speaker 1: or something, but it was like somebody launches a fintech
Speaker 1: for fintech's UM coming out. I do think fintech is
Speaker 1: one area where you do have a little bit of
Speaker 1: that circularity where you know, everybody is everybody else's customer
Speaker 1: and they may all sort of go down um simultaneously. UM.
Speaker 1: But there's a lot lot lot less of that effect
Speaker 1: then than the dot com era. So I just have
Speaker 1: one last question and that is UH conversations with LPs.
Speaker 1: My understanding is when a fund raise, you know, and
Speaker 1: you here's a multi billion dollar fund. I don't think
Speaker 1: they get all the money wired to them right away
Speaker 1: and then over time they collected from the LPs. We
Speaker 1: have made these commitments, do any of those are? How
Speaker 1: strong are those commitments? And you know you mentioned that
Speaker 1: there are alternatives and that may be part of the
Speaker 1: issue going forward, is going to be like no, they're
Speaker 1: late stage. Growth is enough the only place to get returns.
Speaker 1: And so how do you see like the relationship evolving
Speaker 1: between funds and their LPs in this environment? I think
Speaker 1: this is going to be one of the most interesting
Speaker 1: dynamics to play out over the next kind of eighteen months,
Speaker 1: and I'm really not sure which way it goes. Which
Speaker 1: is the fact that, um, you will hear a lot
Speaker 1: of folks commentating on on the venture markets say there's
Speaker 1: never been so much dry powder. Right if you look
Speaker 1: and and and that's what you're referring to. Right, you
Speaker 1: go out and you raise a billion dollar fund, you
Speaker 1: don't you don't get it wired. In fact, you get
Speaker 1: almost none of it wired to you. You go out,
Speaker 1: you make commitment to invest in startups, and then you
Speaker 1: call that capital from LPs and you assume that they're
Speaker 1: going to be able to fulfill those those commitments. Um.
Speaker 1: And so people are sort of adding up those headline
Speaker 1: fund sizes and saying like, Wow, there's just a ton
Speaker 1: of you know, uninvested funds out there. But it's not
Speaker 1: literal piles of cash sitting around waiting to be put
Speaker 1: into startups. It's commitments from LPs. And those LPs are
Speaker 1: under a lot of pressure right now. Right they're diversified
Speaker 1: across public markets, maybe crypto, etcetera. They're seeing quidity squeezes
Speaker 1: and so you know, hopefully they're they're doing their job
Speaker 1: and they have you know, good risk management and they
Speaker 1: have UM a ton of you know, or they have
Speaker 1: the capital sort of set aside UM. But I do
Speaker 1: think there's going to be a very interesting sort of
Speaker 1: UM implicit and explicit negotiation between fund managers and LPs
Speaker 1: UM that that raised or you know, had committed very
Speaker 1: very large funds right now to sort of say, hey,
Speaker 1: you know, maybe let's slow down the pace here a
Speaker 1: little bit UM you know, coming from the LPs, because UM,
Speaker 1: these are long term relationships, like, yes, you they did
Speaker 1: sign an UM limited partner agreement that obligates them to
Speaker 1: to meet your capital calls, but also you want to
Speaker 1: keep them around and investing in you for the next
Speaker 1: twenty years, and you don't like now is not the
Speaker 1: time to really put the squeeze to them and say,
Speaker 1: you know, you committed this capital, we have to invest it, UM,
Speaker 1: live up to your end of the deal or else. UM.
Speaker 1: There will be some amount of that, but it's gonna
Speaker 1: be very interesting to see how that plays out. And
Speaker 1: I think there's a real risk that there's actually not
Speaker 1: nearly as much dry powder as everyone is UM predicting
Speaker 1: because of this dynamic where LP's are going to really
Speaker 1: push back and say, hey, like, let's slow this paste
Speaker 1: down a lot, let's deploy this over three years instead
Speaker 1: of one year, right, that sort of thing. Alright, Tyler
Speaker 1: sringas of Calm Fund, thank you so much for joining
Speaker 1: all thoughts. Thanks, that was great. Yeah, thanks cool, Yeah,
Speaker 1: thanks guys, that's what's really cool. So, yeah, Joe, I
Speaker 1: thought that was a really interesting conversation. And one of
Speaker 1: the things I really like about it is, I guess
Speaker 1: Tyler's emphasis on incentives, right, And like, I mean, obviously
Speaker 1: in traditional finance in public markets, there are different players
Speaker 1: with different incentives, but I feel like that's just magnified
Speaker 1: in venture capital. And I feel like when you look
Speaker 1: at the ecosystem of how it works with the funds
Speaker 1: and the LPs, everyone has slightly altered incentives, and so
Speaker 1: it leads to these interesting dynamics like the ones that
Speaker 1: Tyler was describing. Well, there's so many, uh yeah, so
Speaker 1: many that he described that I hadn't really thought about
Speaker 1: or understood until you articulated them. But you know, for example, obviously,
Speaker 1: if you're the founder of a startup that can raise
Speaker 1: it a five billion dollar valuation and take a hundred
Speaker 1: million dollars off the table early in your career. That's
Speaker 1: really great, but it is really problematic for employees that
Speaker 1: potentially have years and years and years before they're going
Speaker 1: to see any liquidity on their equity, and in the
Speaker 1: meantime maybe they want to switch careers and have to
Speaker 1: buy back their stocks. So you know, that's just one example.
Speaker 1: But also you know the issue with do you really
Speaker 1: want to like call your LPs right now and tell
Speaker 1: them they have to pony up the cash. That's going
Speaker 1: to be a sort of an awkward converse. Stan At
Speaker 1: a minimum, Yeah, I guess like the older I get,
Speaker 1: the more experienced I get in the financial industry, I
Speaker 1: just think everything is ruled by people not wanting to
Speaker 1: have to make that one phone call. It's just right.
Speaker 1: Everyone loves cash at key times, and no one wasn't
Speaker 1: called where they have to. It's all about the phone calls.
Speaker 1: It was the other thing that I thought, well, there
Speaker 1: was numerous things, you know, the the I don't know,
Speaker 1: unholy marriage between the sort of like sub stack angel
Speaker 1: list vcs at the low end or sort of like
Speaker 1: let's do the VC thing and then except basically being
Speaker 1: priced takers for what these sort of like big funds
Speaker 1: was like a really interesting dynamic. And you could just
Speaker 1: see how like someone in the middle, or someone who's
Speaker 1: like a kind of normal VC that's not one of
Speaker 1: these mega funds, but also not someone who's just sort
Speaker 1: of like spun up an angel list fund in April,
Speaker 1: would like get really squeezed, as he put it, by
Speaker 1: this sort of huge influction of cash coming into the market. Yeah, well,
Speaker 1: I guess like it's just gonna be really interesting to
Speaker 1: watch the next year or so, I imagine, Yeah, what
Speaker 1: did he's a good term? I don't basically just the
Speaker 1: delayed blood path, Yeah, I think really, And so it's
Speaker 1: like we don't really know yet how this is going
Speaker 1: to be play out, but everyone is an incentive to
Speaker 1: keep the numbers up nominally right, And this is the
Speaker 1: classic thing about I liquid markets. Right when things start
Speaker 1: going badly, it can take a while for that to
Speaker 1: play out because people have the ability to resist some
Speaker 1: of the pricing pressures um but not forever. So the
Speaker 1: timing of it is also going to be interesting. I
Speaker 1: think totally lots lots more to talk about on this topic. Alright,
Speaker 1: shall we leave it there? Let's leave it there. This
Speaker 1: has been another episode of the All Thoughts podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy
Speaker 1: Alloway and I'm Joe Isn't All. You can follow me
Speaker 1: on Twitter at the Stalwart. Follow our guests on Twitter.
Speaker 1: Tyler Tringus of the Calm Fund he is at Tyler Trinus.
Speaker 1: Follow our producer Carmen Rodriguez at Carmen Irmann. Follow The
Speaker 1: Boomberg had a podcast, Francesco Levy at Francesco Today, and
Speaker 1: check off all of our podcasts on Twitter onto the
Speaker 1: handle at podcasts. Thanks for listening.