WEBVTT - The Behind-the-Scenes Mess Now Facing the VC Industry 0:00:11.560 --> 0:00:14.720 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:14.800 --> 0:00:17.759 I'm Tracy Alloway and I'm Joe. Wasn't all Joe. It 0:00:17.920 --> 0:00:22.320 is brutal out there, Yeah, it really, It really is wild. 0:00:22.400 --> 0:00:28.280 It's relentless, it's compounding. There's a lot of fear um 0:00:28.360 --> 0:00:31.960 I guess do do elevated inflation. People are really sort 0:00:31.960 --> 0:00:34.080 of like feeling like we'd sort of no man's land, 0:00:34.400 --> 0:00:36.720 at least with respect to the last several decades of 0:00:36.760 --> 0:00:39.120 how the economy work. People don't know, people don't have 0:00:39.200 --> 0:00:42.120 confidence that anything is working. So people are dumping stuff 0:00:42.120 --> 0:00:45.280 and they're buying dollars. Yeah. We are recording this on June. 0:00:45.920 --> 0:00:49.360 It's Monday. Black Monday is trending on Twitter. It's not 0:00:49.479 --> 0:00:53.120 like it. It seems like a little exaggeration. It's early 0:00:53.200 --> 0:00:57.200 in the day. Yeah, so we'll see what happens. But 0:00:57.200 --> 0:00:59.200 what I will say is on Friday, I think the 0:00:59.320 --> 0:01:02.720 SP five hun was down to point nine percent something 0:01:02.760 --> 0:01:06.600 like that, And it has been just incredibly painful for 0:01:06.680 --> 0:01:10.520 a lot of stocks out there, but tech stocks in particular. Yeah, 0:01:10.600 --> 0:01:13.160 tech stocks in particular, as everyone knows, have gotten crushed. 0:01:13.440 --> 0:01:16.760 And then of course that feeds in a very linear 0:01:16.800 --> 0:01:19.240 way to private tech companies. Of course, we've had this 0:01:19.280 --> 0:01:22.920 big private tech boom VC, all these startups and everything, 0:01:23.280 --> 0:01:27.040 and every late stage private company you know, aspires to 0:01:27.120 --> 0:01:28.680 I p O, so off the I p O windows 0:01:28.680 --> 0:01:31.440 plunging or falling. Then that hurts their values. And every 0:01:31.440 --> 0:01:33.759 mid stage company expires to be an age stage company, 0:01:33.760 --> 0:01:35.680 and every early stage company expires to be a mid 0:01:35.720 --> 0:01:39.040 stage company. So there's no way to like avoid this 0:01:39.160 --> 0:01:42.760 sort of follow on effect. Like individual companies can do fun, 0:01:42.800 --> 0:01:45.080 but as a whole, what we see in the stock 0:01:45.120 --> 0:01:50.280 market I think pretty straightforwardly translates down into less liquid, 0:01:50.360 --> 0:01:53.920 riskier private tech. Right, So you would assume there's some effect. 0:01:54.080 --> 0:01:57.000 But obviously because a lot of these companies, while all 0:01:57.040 --> 0:02:00.000 of these companies are not listed, you can't actually see 0:02:00.040 --> 0:02:03.080 what's happening to their valuations in real time. So we 0:02:03.120 --> 0:02:05.480 can look up the S and P five hundred or 0:02:05.640 --> 0:02:08.560 you know, Amazon or Alphabet or whatever and see what's happening. 0:02:08.680 --> 0:02:11.440 It's a little bit harder with some of these startups. 0:02:11.480 --> 0:02:13.920 The only thing you can do, you know, you can 0:02:13.960 --> 0:02:17.080 see VC returns and what they tell their investors. But 0:02:17.160 --> 0:02:19.600 even still, the only time you'll often like get like 0:02:19.639 --> 0:02:22.360 a true like mark as in mark to market. I 0:02:22.400 --> 0:02:24.080 think is like when they do a raise, and of 0:02:24.120 --> 0:02:26.680 course no one wants to actually do a down round raise, 0:02:27.320 --> 0:02:30.080 so you never actually get it. So anyway, this is 0:02:30.120 --> 0:02:32.760 the irony, right when when valuations are going up and 0:02:32.840 --> 0:02:37.040 people are doing repeated fundraising rounds at higher valuations, everyone 0:02:37.520 --> 0:02:39.960 issues a press release and talks about it, and then 0:02:40.000 --> 0:02:42.120 when things are going in the other direction, it's just 0:02:42.240 --> 0:02:45.560 silence and crickets. So I'm very pleased to say that 0:02:45.600 --> 0:02:48.040 today we're going to try to figure out what's been 0:02:48.080 --> 0:02:52.079 happening in the world of venture capital and startups. We're 0:02:52.080 --> 0:02:54.919 going to be speaking with Tyler Tringus. He's the founder 0:02:54.919 --> 0:02:58.440 and general partner of Calm Fund. So Tyler, welcome to 0:02:58.440 --> 0:03:02.359 the show. Hey, thanks so much for having me. Tyler, 0:03:02.400 --> 0:03:05.040 maybe just to begin, you can tell us a bit 0:03:05.080 --> 0:03:07.600 more about Calm Fund. What is it and how does 0:03:07.600 --> 0:03:14.040 it differ from a traditional venture capital firm. Yeah, so, um, 0:03:14.160 --> 0:03:17.600 we are an early stage investor in technology companies, so 0:03:17.680 --> 0:03:20.000 in a lot of ways we we look a lot 0:03:20.080 --> 0:03:22.840 like um, you know, a venture capital firm in the 0:03:22.919 --> 0:03:26.080 sense of we you know, invest early, we partner with 0:03:26.120 --> 0:03:29.799 the founders, we provide community, mentorship resources, all that kind 0:03:29.800 --> 0:03:32.119 of stuff, and we're with them kind of the whole 0:03:32.160 --> 0:03:35.640 way until they eventually either exit the company or or 0:03:35.760 --> 0:03:38.920 UM I p O UM. But UM so, so we 0:03:38.960 --> 0:03:41.240 share a lot in common terms of the structure. UM. 0:03:41.320 --> 0:03:43.720 Where we differ is we are one of the only 0:03:43.720 --> 0:03:47.240 funds doing early stage tech investing with a different thesis 0:03:47.280 --> 0:03:51.680 than the traditional venture model of basically you could colloquially 0:03:51.720 --> 0:03:54.400 call it like unicorn hunting, right looking for you know, 0:03:54.480 --> 0:03:58.120 billion and ten billion dollar outcomes UM, and our model 0:03:58.200 --> 0:04:00.560 is based around the idea that you can, now, for 0:04:00.640 --> 0:04:03.600 maybe the first time in you know, tech investing history, 0:04:03.920 --> 0:04:06.800 you can invest pretty early stage in companies that are 0:04:06.880 --> 0:04:10.560 substantially de risked and going after sort of um, slightly 0:04:10.560 --> 0:04:13.800 more niche opportunities where it's just not the same kind 0:04:13.800 --> 0:04:17.600 of risk profile as a traditional kind of venture UM, 0:04:17.640 --> 0:04:20.200 you know, winner take all kind of model, and you 0:04:20.200 --> 0:04:22.560 can build an entirely different sort of approach to portfolio 0:04:22.560 --> 0:04:27.160 construction around that. So, can you explain why the typical 0:04:27.400 --> 0:04:30.800 VC approach is as you say, unicorn hunting, And of 0:04:30.839 --> 0:04:33.520 course for years there's like, yeah, well, you know, nine 0:04:33.560 --> 0:04:35.800 of ten of our portfolio companies are going to fail, 0:04:35.839 --> 0:04:37.440 but one of them is going to be the next 0:04:37.480 --> 0:04:40.560 Airbnb or Uber or Facebook. And that's how that's the 0:04:40.640 --> 0:04:43.600 game is like just you just gotta hit one. Why 0:04:43.720 --> 0:04:47.200 has that become or why especially over the last decade, 0:04:47.200 --> 0:04:51.440 but probably before, how did that become the dominant strategy 0:04:51.480 --> 0:04:55.520 that so many firms settled on? I mean, I think 0:04:55.560 --> 0:04:58.320 the very simple answer is that's the strategy that worked 0:04:58.560 --> 0:05:01.320 right um in the sen that you know, people sort 0:05:01.320 --> 0:05:04.520 of reverse engineer the portfolios that were very successful and 0:05:04.560 --> 0:05:06.640 they looked back and they said, hey, you know, it 0:05:06.640 --> 0:05:10.040 turns out we had this power law distribution where you know, 0:05:10.120 --> 0:05:13.440 almost all the returns came from um, you know, our 0:05:13.440 --> 0:05:16.839 biggest winners getting into Airbnb or Uber that sort of thing, 0:05:16.960 --> 0:05:20.080 and nothing else really mattered. So what we should do 0:05:20.160 --> 0:05:23.680 is really shift our strategy to be completely focused on 0:05:24.000 --> 0:05:27.320 maximizing our chance of getting you know, one or a 0:05:27.320 --> 0:05:31.880 few of those huge outlier returns in our portfolio, because 0:05:32.080 --> 0:05:34.480 that's what's worked for you know, the best venture funds 0:05:34.480 --> 0:05:39.280 in the past. Um. The maybe slightly more um uh 0:05:39.440 --> 0:05:42.280 theoretically sound version of that's just when you have very 0:05:42.360 --> 0:05:45.560 very high risk ventures, which is what venture capital is 0:05:45.600 --> 0:05:48.600 built to do right. It comes out of the semiconductor 0:05:48.600 --> 0:05:52.120 era of building you know, massive factories and and launching 0:05:52.120 --> 0:05:54.280 semi conductor products and things like that, where you had 0:05:54.360 --> 0:05:58.920 huge upfront costs, high risk, no real ability to predict 0:05:58.960 --> 0:06:02.840 sort of market demand. You needed to be compensated for 0:06:02.839 --> 0:06:06.400 that risk with very very very outsized returns um at 0:06:06.440 --> 0:06:09.320 both the company level and at the sort of overall 0:06:09.360 --> 0:06:11.719 fund portfolio level. Right, you needed to make sure that 0:06:11.800 --> 0:06:14.159 you couldn't just generate a two x fund. You needed 0:06:14.160 --> 0:06:16.440 a five x fund or something to to really move 0:06:16.440 --> 0:06:18.960 the needle, and so you needed hundred x outcomes to 0:06:19.000 --> 0:06:22.600 get to that five n UM. So that's the that's 0:06:22.640 --> 0:06:26.400 the general UM I guess history of of that approach. 0:06:26.760 --> 0:06:29.960 It's interesting, Tracy. You know, you know something we talked 0:06:30.040 --> 0:06:32.160 we've been talking more and more about on the podcast, 0:06:32.279 --> 0:06:35.480 like this idea of like capital investment coming back and 0:06:35.560 --> 0:06:38.080 actually spending and then thinking about like all these companies 0:06:38.120 --> 0:06:40.200 over the last ten years, like what capital did they 0:06:40.240 --> 0:06:42.480 really need? Like software? It's like they didn't need to 0:06:42.480 --> 0:06:45.040 build a job factory or a chip founder. I was 0:06:45.080 --> 0:06:48.479 just gonna say, I call this the UM, this overall dynamic, 0:06:48.600 --> 0:06:51.280 the peace dividend of the sas wars. Right, So the 0:06:51.320 --> 0:06:53.920 idea of like a peace dividend where you know, you 0:06:53.920 --> 0:06:55.599 you just are left with all of this kind of 0:06:55.640 --> 0:06:58.760 infrastructure and stuff after the kind of bubbly phase of things, 0:06:59.160 --> 0:07:02.080 and um, you get to use all that stuff for free. 0:07:02.360 --> 0:07:04.240 Right and so now, yeah, you're right, It's like the 0:07:04.320 --> 0:07:06.480 software companies that are going to market are really not 0:07:07.040 --> 0:07:10.760 They're not venture opportunities in multiple respects, and one of 0:07:10.760 --> 0:07:13.640 which is they're just not that capital intensive before you 0:07:13.680 --> 0:07:15.720 can start to de risk and see if people actually 0:07:15.760 --> 0:07:18.160 want this thing. Well, presumably a lot of the money 0:07:18.240 --> 0:07:22.640 just went into trying to gain market share, right and right, 0:07:22.720 --> 0:07:26.000 that was it. Um. But okay, so here's my big 0:07:26.080 --> 0:07:29.000 question based on that. I can't imagine anyone going out 0:07:29.120 --> 0:07:32.600 and sort of saying explicitly that their unicorn hunting. In 0:07:32.640 --> 0:07:35.800 the current environment, it just doesn't feel like an environment 0:07:35.840 --> 0:07:38.920 conducive to finding those types of companies and getting the 0:07:39.000 --> 0:07:42.160 funding for those types of companies. So what are venture 0:07:42.200 --> 0:07:48.000 capital firms traditional vcs doing right now? I don't know 0:07:48.040 --> 0:07:50.000 if they would agree with the premise of your question, 0:07:50.080 --> 0:07:51.960 To be honest, Um, I think a lot of venture 0:07:52.000 --> 0:07:55.480 funds still think that, um, you know, the fundamental sort 0:07:55.520 --> 0:07:59.200 of approaches is more or less the same. I mean, 0:07:59.240 --> 0:08:02.680 they're they're still looking for those kind of large outlier returns, 0:08:02.760 --> 0:08:07.160 especially if you're investing early stage, and their view is just, hey, 0:08:07.360 --> 0:08:10.280 you know, I think, uh maybe Mark Andreson kind of 0:08:10.320 --> 0:08:12.120 said this a while back, and it's become kind of 0:08:12.240 --> 0:08:14.840 an ethos throughout the industry, which is that you know, 0:08:14.920 --> 0:08:19.320 there's only a few huge outlier companies that matter every year, 0:08:19.600 --> 0:08:21.520 and your job is just to try to get into 0:08:21.560 --> 0:08:23.920 those right and you know, the valuation you do it 0:08:23.920 --> 0:08:26.880 at doesn't really matter. Um, It's all about you know, 0:08:26.920 --> 0:08:29.120 making sure that you get into the coin base or 0:08:29.160 --> 0:08:31.000 whatever thing that's going to generate a hundred x or 0:08:31.000 --> 0:08:33.640 five x return for your fund. UM. I don't think 0:08:33.679 --> 0:08:38.600 that that approach has changed a ton right now for UM, 0:08:38.720 --> 0:08:41.600 for the traditional early stage venture funds who've been at 0:08:41.600 --> 0:08:45.360 it for a while. So what are they doing right now? Though? What? 0:08:45.480 --> 0:08:47.040 Or what? You know? So it's like you have this 0:08:47.280 --> 0:08:50.400 incredible ten years in which the strategies have just worked 0:08:50.760 --> 0:08:55.120 so well and so beautifully, uh for you know, at 0:08:55.160 --> 0:08:57.240 least ten years, but probably more. But you know, thinking 0:08:57.240 --> 0:08:59.360 about the big you know you mentioned Mark and reason 0:08:59.720 --> 0:09:03.120 I inc. A sixtenen Z was two thousand and eight, 0:09:03.120 --> 0:09:06.240 two thousand nine, like essentially like right at the bottom 0:09:06.280 --> 0:09:10.080 of the last crisis, So just like truly an incredible decade. 0:09:10.240 --> 0:09:13.320 Where do things stand now in terms of like strategy 0:09:13.440 --> 0:09:19.240 on June third two, Well, I think the dominant strategic 0:09:19.280 --> 0:09:22.800 consideration right now for VCS has a little bit less 0:09:22.800 --> 0:09:25.760 to do with what's happening exactly now and about what's 0:09:25.800 --> 0:09:28.320 happened over the last few years, because you know, like 0:09:28.360 --> 0:09:30.640 you guys were talking about in terms of private valuations, 0:09:30.720 --> 0:09:32.440 you know, there's a bit of a of a one 0:09:32.480 --> 0:09:35.280 way ratchet right where once you invested a company at 0:09:35.280 --> 0:09:39.199 a particular valuation, there's really a humongous amount of incentives 0:09:39.679 --> 0:09:43.160 not to generate it down round, not to raise more 0:09:43.240 --> 0:09:46.640 capital at a lower valuation and lock in that sort 0:09:46.640 --> 0:09:49.640 of negative return. Like you know, stocks go up and down. 0:09:49.960 --> 0:09:53.160 Why is it that in private markets they're like down 0:09:53.280 --> 0:09:58.960 rounds are like, so do everything to avoid a down round? Um? Well, 0:09:59.000 --> 0:10:00.520 I mean it kind of like trades you alluded to, 0:10:00.600 --> 0:10:03.120 there's a real sort of um, you know, heads I 0:10:03.200 --> 0:10:06.720 win tails you lose dynamic in private valuations, which is 0:10:06.760 --> 0:10:09.720 just you know, when they're going up, you're able to 0:10:09.800 --> 0:10:14.800 report those quote unquote paper returns to your LPs as markups. Right, 0:10:14.840 --> 0:10:18.600 so you're sending these updates to your LPs um, you know, saying, hey, 0:10:18.640 --> 0:10:21.040 you know, our our fund is now worth two x 0:10:21.080 --> 0:10:23.079 what you invested. It's worth two point five. Now it's 0:10:23.080 --> 0:10:25.839 worth three. And those are all based on those up grounds, right. 0:10:25.880 --> 0:10:28.920 Each time a new priced round happens, you mark your 0:10:29.400 --> 0:10:34.120 existing ownership up. And there's just a lot of sort 0:10:34.160 --> 0:10:37.520 of incentive not to want to send a quarterly report 0:10:37.559 --> 0:10:40.720 that says, hey, we're now a two point to fund 0:10:40.840 --> 0:10:42.800 versus the two point five because we took a really 0:10:42.800 --> 0:10:45.400 big mark down. Um. It's just part of the overall 0:10:45.440 --> 0:10:49.400 psychology I think between you know, venture funds and their LPs, 0:10:49.720 --> 0:10:52.640 which is that those returns always go up, and you're 0:10:52.640 --> 0:10:55.400 going to really stand out as an anomalous sort of 0:10:55.440 --> 0:10:58.120 thing for them if you're one of the few funds 0:10:58.120 --> 0:11:01.440 in their portfolio that's returning or that's you know, marking 0:11:01.480 --> 0:11:05.360 sort of negative returns for a particular quarter or year. Um. 0:11:05.400 --> 0:11:07.280 So that's that's really it. It's like there's just a 0:11:07.280 --> 0:11:12.520 lot of incentive to to really navigate around that um 0:11:12.559 --> 0:11:16.760 to try and either convince the company to completely shift 0:11:16.840 --> 0:11:20.320 gears and you know, cut their burn layoff staff, start 0:11:20.360 --> 0:11:23.520 to focus on profitability so that they can quote unquote 0:11:23.520 --> 0:11:26.720 grow into those valuations, right, so that you know, maybe 0:11:26.720 --> 0:11:28.600 they would never have gotten there in the typical sort 0:11:28.640 --> 0:11:31.160 of twelve to eighteen months, but if they can extend 0:11:31.160 --> 0:11:33.920 their runway to three years, well then they can spend 0:11:33.960 --> 0:11:35.679 that three years getting to the point where they can 0:11:35.760 --> 0:11:38.760 raise at least a flat round or or an upground 0:11:39.320 --> 0:11:41.960 um or There'll be a lot of incentives to sort 0:11:41.960 --> 0:11:45.840 of structure around a down round because you know, if 0:11:45.840 --> 0:11:47.520 somebody comes in and says, hey, I want to miss 0:11:47.520 --> 0:11:49.280 more capital in this company, but you know, the last 0:11:49.320 --> 0:11:51.760 valuation was was sort of bananas. We're not going to 0:11:51.840 --> 0:11:54.200 invest at that. Your your options are you can either 0:11:54.360 --> 0:11:56.080 to the down round, right, you can say, fine, let's 0:11:56.080 --> 0:11:58.480 find a new price, or you can add in all 0:11:58.600 --> 0:12:02.120 kinds of you know, liquid a scan preferences and special 0:12:02.240 --> 0:12:04.960 terms and things like that to keep the nominal sort 0:12:04.960 --> 0:12:07.840 of headline price you know, the same or up uh, 0:12:07.880 --> 0:12:10.880 and everybody is kind of happier that way. There's there's 0:12:10.880 --> 0:12:13.959 also the dynamic of employee options right there, sort of 0:12:14.080 --> 0:12:19.599 um um a little bit of dynamic there where employees 0:12:19.640 --> 0:12:22.680 don't want to see the headline valuation going down because 0:12:22.960 --> 0:12:25.480 their stock options are you know, on a strike price 0:12:25.520 --> 0:12:27.719 from the last round and things like that. So it's 0:12:27.720 --> 0:12:30.640 a huge amount of incentives to um to sort of 0:12:30.880 --> 0:12:34.600 not really accept the reality of lower valuations. So can 0:12:34.640 --> 0:12:36.640 you talk to us a little bit more than about 0:12:36.679 --> 0:12:41.760 how lower valuations are down rounds, how those actually come about, like, 0:12:41.960 --> 0:12:44.760 because as you say, there are so many incentives to 0:12:44.960 --> 0:12:47.880 keep the valuation up as much as possible. And then 0:12:47.880 --> 0:12:49.839 the other thing that tends to happen is because these 0:12:49.880 --> 0:12:53.280 are a liquid markets, it feels like you could sort 0:12:53.320 --> 0:12:56.720 of resist the new pricing for quite a while. So 0:12:56.880 --> 0:13:00.640 what what is typically the process or the er that 0:13:00.720 --> 0:13:04.520 will lead to a lower valuation for a startup for instance? 0:13:04.559 --> 0:13:08.160 Is it just the company can't get any money without 0:13:08.600 --> 0:13:11.000 taking a lower valuation and they need the money, Like 0:13:11.040 --> 0:13:13.600 I'm just trying to understand exactly, like what the trigger 0:13:13.800 --> 0:13:17.040 is that will have one company except a lower valuation 0:13:17.160 --> 0:13:21.520 versus another that's able to hold on for longer. Yeah, 0:13:21.559 --> 0:13:23.440 So the first thing is that it's very very rare, 0:13:23.559 --> 0:13:27.680 So so we're we're basically trying to UM generalize about 0:13:27.720 --> 0:13:32.720 an incredibly small anecdotal data set. It seems to me like, UM, 0:13:32.760 --> 0:13:35.600 you know, as I think about the few instances I've 0:13:35.600 --> 0:13:38.720 heard of this, UM, the most common scenario would be 0:13:38.800 --> 0:13:42.160 when a sort of new investor of a completely different 0:13:42.240 --> 0:13:45.560 archetype wants to come in and get involved. Right, So 0:13:45.600 --> 0:13:47.160 this would be like when you would see sort of 0:13:47.320 --> 0:13:50.360 pe or hedge funds and things like that can involved 0:13:50.559 --> 0:13:54.280 UM because if you are an investor in technology companies 0:13:54.360 --> 0:13:57.199 regularly and this is your business, you know, you really 0:13:57.240 --> 0:13:59.840 just are highly incentivized to make sure that there's not 0:13:59.880 --> 0:14:02.599 a down round. In fact, you know, I wrote a 0:14:02.600 --> 0:14:05.560 little thread to founders basically talking about how you know, 0:14:05.679 --> 0:14:08.960 if you are UM, you know, running a company that 0:14:09.120 --> 0:14:12.120 just raised a very very large, high valuation venture around, 0:14:12.920 --> 0:14:15.880 you are sort of misaligned with your investors. They're they're 0:14:15.920 --> 0:14:20.400 quite incentivized to UM to want you to sort of 0:14:20.640 --> 0:14:24.160 really double down and go big or go home, right, Like, 0:14:24.240 --> 0:14:26.640 doing it down round is kind of like the worst option. 0:14:26.680 --> 0:14:29.120 They would rather you either sort of you know, gut 0:14:29.120 --> 0:14:31.640 it out and and somehow hit the metrics that you 0:14:31.680 --> 0:14:34.840 need to raise an upground or just fail right, Um, 0:14:34.960 --> 0:14:38.320 you know, and so there's a lot of counter incentives 0:14:38.360 --> 0:14:41.000 to what would be the sort of rational strategy, which 0:14:41.000 --> 0:14:43.440 is to try and you know, pivot to profitability, even 0:14:43.480 --> 0:14:45.280 though you are seeing some folks start to sort of 0:14:45.480 --> 0:14:49.360 preach about that as well. Um, you know, it's it's 0:14:49.360 --> 0:14:51.400 just there's a ton of incentives against it, and you 0:14:51.400 --> 0:14:54.480 would probably do it if you had no other choice. Um, 0:14:54.600 --> 0:14:57.760 And you know you've got an offer from some sort 0:14:57.840 --> 0:15:00.720 of you know, private equity and d or something like 0:15:00.760 --> 0:15:03.240 that to do a bridge around um, where it can 0:15:03.320 --> 0:15:06.240 kind of be justified. Hey, we're working with these folks, um, 0:15:06.280 --> 0:15:08.640 because they're just you know, different types of investors. So 0:15:08.680 --> 0:15:10.840 of course there's gonna be worse terms with it. But 0:15:10.880 --> 0:15:27.760 it's a real negative signal in the industry. Can you 0:15:27.800 --> 0:15:31.400 talk about from your perspective, So your investments are you're 0:15:31.440 --> 0:15:34.200 not taking the unicorn hunting approach because, as you've said, 0:15:34.560 --> 0:15:38.840 you believe that it's possible to invest in relatively early 0:15:38.960 --> 0:15:43.479 stage tech companies but that don't have like high downside 0:15:43.520 --> 0:15:45.760 risk and so that actually you're not just trying to 0:15:46.040 --> 0:15:48.520 oh nine go to zero and one goes to a 0:15:48.600 --> 0:15:51.800 hundred billion or whatever it is that being said, I'm 0:15:51.840 --> 0:15:54.040 sure this is you know, there's some of the same 0:15:54.120 --> 0:15:57.080 macro stresses are going to apply to every company's Can 0:15:57.160 --> 0:15:59.920 you talk to us about like the advice you're giving 0:16:00.040 --> 0:16:02.280 is it the same as like, you know, because everyone 0:16:02.360 --> 0:16:04.680 VC puts out these memos cut caught, you know, this 0:16:04.760 --> 0:16:07.240 is the time, profitability, etcetera. But can you talk about 0:16:07.240 --> 0:16:10.040 what those conversations are like beyond just the sort of 0:16:10.080 --> 0:16:15.000 like the press released memo tweet thread level. Sure, yeah, 0:16:15.040 --> 0:16:16.840 I mean so, to be clear, the reason that we 0:16:16.920 --> 0:16:20.840 think our thesis works is less about any kind of 0:16:20.920 --> 0:16:24.800 change in the validity of the venture capital model and 0:16:24.840 --> 0:16:28.000 more just about the ground sort of shifting under everyone's 0:16:28.040 --> 0:16:31.520 feet where a lot of software and kind of software 0:16:31.640 --> 0:16:34.720 enabled the e commerce and things like that, uh sass, 0:16:34.840 --> 0:16:37.560 all these kinds of products they sort of shifted out 0:16:37.600 --> 0:16:40.520 of the venture profile right where they just became de 0:16:40.640 --> 0:16:42.880 risk like we were talking about before. So it's more 0:16:43.000 --> 0:16:46.600 just that there's this segment over here that we think, 0:16:46.800 --> 0:16:49.280 you know, at least our strategy is valid, if not 0:16:49.400 --> 0:16:52.200 more applicable to these opportunities because they're not as capital 0:16:52.240 --> 0:16:55.680 intensive and quite frankly not as risky. It doesn't change 0:16:55.680 --> 0:16:57.280 the fact that, you know, if you want to build 0:16:57.320 --> 0:16:59.960 factories in space or launch rockets you know that are 0:17:00.040 --> 0:17:02.120 reusable and all this kind of stuff, you really do 0:17:02.240 --> 0:17:05.600 need to still, um, you know, go on that traditional 0:17:05.680 --> 0:17:08.320 venture capital approach as long as you're really having those 0:17:08.400 --> 0:17:11.600 winner take all dynamics at the at the other end. Um. 0:17:11.640 --> 0:17:14.560 But in terms of like the conversations we're having UM 0:17:14.600 --> 0:17:20.200 with companies, I mean, we honestly like our overarching UM 0:17:20.280 --> 0:17:22.520 message has been sort of stay the course, Like we 0:17:22.520 --> 0:17:24.639 we were sort of fighting a little bit of against 0:17:24.640 --> 0:17:27.240 the tide um for the last couple of years as 0:17:27.280 --> 0:17:30.560 capital became really easy. So even founders that maybe not 0:17:30.680 --> 0:17:33.199 really a fit for traditional venture we're getting term sheets 0:17:33.240 --> 0:17:34.920 and saying, hey, this guy wants to give me six 0:17:34.960 --> 0:17:37.960 million dollars, should I take it? Um? And we were saying, well, 0:17:38.000 --> 0:17:40.960 you know, maybe, but um, you know, you're going after 0:17:41.000 --> 0:17:44.840 a fairly niche market. You think, but how much did 0:17:44.840 --> 0:17:49.160 the appeal for these founders to take that how much 0:17:49.280 --> 0:17:54.080 was it affected by opportunities to cash out early some 0:17:54.160 --> 0:17:57.399 of their shares, some of which even in probably the 0:17:57.440 --> 0:18:00.639 opportunity to make life changing amounts of money even in 0:18:00.720 --> 0:18:04.680 a relatively early round. Yeah, it's a really good question. 0:18:04.720 --> 0:18:08.280 We have not seen that very much in our portfolio, 0:18:08.760 --> 0:18:11.439 in part because you know, most of our companies are 0:18:11.480 --> 0:18:14.200 optimizing for being capital efficient, the vast majority of them 0:18:14.200 --> 0:18:16.480 have not raised additional capital, So so we haven't seen 0:18:16.520 --> 0:18:18.520 a ton of that. But you did see, you know, 0:18:18.680 --> 0:18:21.680 quite a lot of that going on in the market, um, 0:18:21.720 --> 0:18:25.000 the last couple of years. And UM, I think it's 0:18:25.040 --> 0:18:27.399 a real function of the fact that, you know, the 0:18:28.080 --> 0:18:31.040 entire venture community for the last two years was just 0:18:31.040 --> 0:18:34.760 getting completely squeezed UM. And there was just a supply 0:18:34.840 --> 0:18:37.360 and demand dynamic going on where there was just an 0:18:37.400 --> 0:18:41.720 oversupply of of capital relative to um you know, the 0:18:41.800 --> 0:18:45.520 number of real venture scale game changing opportunities, or at 0:18:45.560 --> 0:18:48.600 least the perceived set of those. And so there was 0:18:48.600 --> 0:18:51.600 this competition to compete, right all for better terms and 0:18:51.640 --> 0:18:55.200 to offer more attractive kind of secondary sales for the founders. UM. 0:18:55.240 --> 0:18:58.520 And you saw some sort of truly um so, some 0:18:58.640 --> 0:19:00.840 truly crazy stuff. I think the first one that kind 0:19:00.880 --> 0:19:03.199 of hit the news was was Clubhouse early on and 0:19:03.200 --> 0:19:06.520 the founders too million dollars off the table. Yeah, I 0:19:06.520 --> 0:19:10.240 remember that, and uh, and everyone was like, oh man, 0:19:10.359 --> 0:19:12.840 like they're barely you know, they barely launched, and they 0:19:12.880 --> 0:19:15.919 just raised this huge third round. And however, many months 0:19:15.920 --> 0:19:18.280 and the founders took two million dollars off the table 0:19:18.320 --> 0:19:20.960 and that was news. And then later over a couple 0:19:21.000 --> 0:19:23.960 of years, you saw you know, founders taking five million, 0:19:24.000 --> 0:19:28.680 ten million, and two hundred million off the table. Million 0:19:28.760 --> 0:19:33.159 off the table as a founder UM fact check beyond that, 0:19:33.200 --> 0:19:35.040 but I believe it was reported that the founder of 0:19:35.080 --> 0:19:39.880 hop in the virtual conference software they kind of went 0:19:39.920 --> 0:19:43.240 from they went from z you know, they were they 0:19:43.280 --> 0:19:46.200 got probably the biggest COVID boost of maybe any company, 0:19:46.280 --> 0:19:50.879 uh maybe Zoom aside um where they basically run virtual 0:19:50.920 --> 0:19:54.399 conference software, and UM, they're one of the sort of 0:19:54.440 --> 0:19:57.879 like steepest valuation trajectories I think anyone has ever seen. 0:19:57.920 --> 0:20:00.440 They went from kind of you know, very o seed 0:20:00.520 --> 0:20:03.480 round to six billion dollar valuation and over the course 0:20:03.520 --> 0:20:07.040 of basically COVID less than two years UM. And I 0:20:07.080 --> 0:20:10.280 believe it was reported that the founder took UM two 0:20:10.640 --> 0:20:13.840 million or more UM off the table. Amazing. Good for them, 0:20:13.880 --> 0:20:18.040 Good for them. I mean, it's hard to blame people 0:20:18.119 --> 0:20:21.520 for taking it right. I mean, it's um, it's hugely 0:20:21.560 --> 0:20:25.840 misaligned with you know, your your employees, um, who certainly 0:20:25.880 --> 0:20:29.159 were not offered that same level of liquidity, um, you know, 0:20:29.200 --> 0:20:31.920 and and now have a bunch of their stock options 0:20:31.960 --> 0:20:34.760 locked up at this kind of like very very high valuation. 0:20:34.840 --> 0:20:37.320 And we'll see what happens to those I think, um, 0:20:37.359 --> 0:20:39.920 you know, we're going to see a huge wave of employees. 0:20:40.080 --> 0:20:43.600 See millions of dollars of equity wiped out hoppin founder 0:20:44.280 --> 0:20:48.000 in June. This is, according to the Financial Times nets 0:20:48.080 --> 0:20:51.120 a hundred million pounds so dty millions something and share 0:20:51.160 --> 0:20:55.280 sales amazing. I had no idea that's good for him anyway, Sorry, Tracy, 0:20:55.320 --> 0:20:58.320 what we get say, well, sorry to press on this, 0:20:58.440 --> 0:21:03.400 but just on valuations, okay. So so in an up cycle, 0:21:03.680 --> 0:21:06.960 I guess you have this pressure on valuations and lots 0:21:06.960 --> 0:21:10.000 of money competing for the same thing, and so prices 0:21:10.040 --> 0:21:13.000 tend to get squeezed even higher. And actually we spoke 0:21:13.000 --> 0:21:16.080 to Howard Lindson about this back in February. But you 0:21:16.160 --> 0:21:19.160 also had, you know, particularly big players like soft Bank, 0:21:19.160 --> 0:21:21.960 who would come in and squeeze a company much much 0:21:22.000 --> 0:21:25.639 higher than it would be otherwise. What happens on the 0:21:25.640 --> 0:21:29.320 flip side of that, when everything starts going down. Is 0:21:29.359 --> 0:21:32.920 it you know, people hold on because their incentive is 0:21:33.000 --> 0:21:37.680