Latest / trading places / TP10: Blackbird VC + Canva 🎨 | OpenAI $1T IPO😱 | Tether $500B Val | EquityZen Acquisition

Transcript

TP10: Blackbird VC + Canva 🎨 | OpenAI $1T IPO😱 | Tether $500B Val | EquityZen Acquisition · trading places

• 0:00
  So this week we're going to cover the biggest stable coin
• 0:03
  issuer in the world, and that is Tether.
• 0:06
  We're going to talk about a rumor about a new valuation
• 0:09
  round that they're working on now at a $500 billion number.
• 0:13
  And everyone thought we were crazy.
• 0:15
  You know, there's this general view.
• 0:16
  If you can't do venture in Australia, that's the fun.
• 0:19
  Yeah, but in the early days of Cam.
• 0:21
  But you know, it's about 40 times TVPI now and about 10
• 0:25
  times but on CPI, so. That's amazing.
• 0:29
  Is Figma overvalued or is Canva undervalued?
• 0:34
  Big Tech is spending more money than ever on AI data centers in
• 0:38
  particular. These four companies, Microsoft,
• 0:41
  Amazon, Alphabet and Meta, are now spending over $100 billion a
• 0:46
  quarter, almost $125 billion a quarter.
• 1:12
  All right, folks, welcome to another week's edition of
• 1:15
  Trading Places, a very bad podcast about secondaries.
• 1:19
  BC topics Aman, we've had a another busy week of news.
• 1:24
  What's what's happening in the news this week?
• 1:26
  The topic that seems to come up every week, we're just open AI
• 1:29
  and they're the latest financing and structuring and in
• 1:32
  particular their relationship now with Microsoft.
• 1:36
  I guess the, I guess the big news this week is that they are
• 1:40
  cleaning up their governance and their ownership and they are
• 1:43
  leaking that they are ready to think about an IPO in the next
• 1:47
  12 to a. Trillion dollar IPO, not just
• 1:50
  any IPO amount $1 trillion. That's the, that is the, I guess
• 1:57
  the inflation adjusted, you know, $1,000,000 used to be
• 2:01
  cool, there was a billion dollars was cool and now it's
• 2:03
  got to be got to be a trillion dollars to be cool.
• 2:06
  I guess when you have a private round valuation at 500 million,
• 2:09
  the IPO that makes makes that makes sense.
• 2:12
  It's got to be a trillion or north of that.
• 2:15
  And remember when we talked about one of the big obstacles
• 2:17
  of that last time was Microsoft and the relationship with the
• 2:19
  Microsoft and the governance and and who owns what non.
• 2:23
  Profit structure. Yeah, it was at a non profit,
• 2:26
  not-for-profit structure which did have a for profit
• 2:28
  subsidiary, but the the earnings or the potential profits on for
• 2:33
  profit, the for profit piece was capped for investors at 100 X of
• 2:36
  which you initially put in. So there were some limitations
• 2:40
  on on how that governance works and none of that works for a
• 2:43
  public company because in a public company, all shareholders
• 2:45
  have to be treated the same in some kind of a common equity
• 2:48
  structure. So it looks like now they've
• 2:50
  agreed to move to a for profit structure.
• 2:52
  Microsoft will now renew ownership from 49 to 27% of the
• 2:57
  company. So I guess Microsoft is giving
• 3:01
  up something in the deal, but they're also getting some
• 3:04
  benefits. So there's also a continue
• 3:07
  they'll, they'll continue to collect 20% of revenues from
• 3:09
  Open AI at least until 2032 and made this may have to get
• 3:14
  restructured again. And they have access to Open a
• 3:16
  is technology and their models at least through 2032.
• 3:20
  So a good win for Microsoft. I think the strategic strategic
• 3:23
  locking in that partnership with Open AI and sets Open AI in a
• 3:27
  path to be a public company. I think one thing that was maybe
• 3:30
  a little bit lost here was there was some news about the
• 3:33
  relationship with Open a Eyes and California.
• 3:37
  I guess somewhat key to that restructuring was California
• 3:41
  State Attorney General Rob Bonta blessing that restructuring and
• 3:47
  maybe there's a little bit of pressure on Sam to keep Open a
• 3:51
  eye in California. I don't know if that was really
• 3:53
  any risk given how much AI activity is happening,
• 3:57
  California and San Francisco particular, but perhaps the
• 4:00
  previous issues with Elon taking Tesla out of state made we were
• 4:04
  top of mind. And California certainly has had
• 4:07
  its challenges. Try to keep companies in
• 4:10
  California. Well, it's good that California
• 4:13
  is trying to keep business here. That's, that's a that's a
• 4:15
  positive. And if they are able to like
• 4:18
  some legal cover or blessing, they don't really have to
• 4:21
  provide legal blessing of the cover if it's a federally
• 4:23
  regulated company or, or, or entity on the, on the listing.
• 4:27
  But California does have requirements for
• 4:28
  california-based companies. And so I guess if they can make
• 4:31
  those something that Sam can work with, that's that's great
• 4:34
  for California. And it seems there's so much of
• 4:36
  the talent is here in the Bay Area and maybe in specifically
• 4:39
  San Francisco that it's, it's hard to imagine them leaving
• 4:41
  anytime soon. But maybe over the next, you
• 4:43
  know, 5 or 10 years, who knows? Well, it certainly seems like
• 4:46
  Sam continues to wheel and deal. And you know, I, I think people
• 4:52
  are starting to believe that that $500 billion valuation
• 4:55
  isn't quite so crazy. There's certainly plenty of
• 4:57
  demand. The employees aren't selling
• 4:59
  everything at the recent tender price.
• 5:02
  I think there was even some commentary by Sam recently that
• 5:06
  the twelve $13 billion in revenue for the current year was
• 5:10
  underreported. How can the company with 13
• 5:12
  billion in revenues make 1.4 trillion of spend commitments?
• 5:18
  You know, and, and, and you've heard the criticism, Sam.
• 5:21
  We're doing well, more revenue than that.
• 5:23
  If you guys were, you know are are are doing in excess of $100
• 5:26
  billion of revenue in 28 or 29 that you at least would be in.
• 5:32
  What? How about 27?
• 5:34
  Yeah, 27. Even better.
• 5:36
  You seem to be suggesting that them making a lot more money in
• 5:40
  2627 was right around the corner.
• 5:43
  I guess since he's not a public company, he can make those
• 5:45
  speculations without any repercussions.
• 5:47
  I'm going to get this out of a system now because if he truly
• 5:50
  wants to be a public company, promises promises, you can still
• 5:54
  you can still make him. But when you get them wrong, you
• 5:56
  can, you know yourself up to a different level of liability and
• 5:59
  scrutiny. So he will begin to, I think,
• 6:01
  you know, moderate that a little bit.
• 6:03
  But you know, but it's nice to hear this sweet nothings being
• 6:07
  whispered in your ear, isn't? It, I think there's also
• 6:09
  recently interesting article that was talking about what the
• 6:14
  expenses were for Open AI. This is some writing by Matt
• 6:18
  Rosoff at the Register and then later also reported on the Wall
• 6:22
  Street Journal. I guess he was looking at
• 6:24
  Microsoft's reported earnings and he did some math and sort of
• 6:28
  suggested that there was almost $12 billion in expenses for Open
• 6:34
  AI. That would sort of put them on
• 6:35
  about a 4445 billion dollar annual expense rate.
• 6:39
  Kind of gives you some sense of like how much fundraising Sam
• 6:42
  has to do to keep the doors open.
• 6:45
  Do you feel comfortable? I guess they're making 10,
• 6:48
  twelve, $13 billion in revenue, but if you're spending close to
• 6:51
  50, that means you got to be raising 40 billion ish per year
• 6:56
  and maybe that number is even growing.
• 6:58
  How do you feel about raising forty, $50 billion in new
• 7:02
  financing every year? It seems like an awful lot in
• 7:04
  1/4 the last time we talked about open AI and just looking
• 7:07
  at his contractual commitments and and doing the math on what
• 7:11
  they were going to spend at the Oracle and and NVIDIA, I think
• 7:15
  we'd internally done the math at 100 billion plus and burned
• 7:18
  between now and 2029 so. That is, that puts it on a
• 7:21
  level, yeah. Well, I'm sure Sam can spend
• 7:25
  more if Sidney can raise the money.
• 7:28
  Just to put this in context, I can't think of a lot of other
• 7:30
  corporate investments in history that are on that $100 billion /
• 7:34
  4 five years like AR Mark Zuckerberg almost made a sink
• 7:38
  the ship bet on ARVR and I think Reality Labs losses on on Meta
• 7:44
  in in Meta is something like 70 billion, 73 billion year to
• 7:48
  date. And shareholders were very, very
• 7:50
  angry with with Facebook over that amount of money.
• 7:52
  I guess AI is definitely from. We're talking about one of the
• 7:55
  largest public companies and people losing it over that kind
• 7:58
  of spend. This is a private company
• 8:00
  spending, you know, forty, $50 billion a year.
• 8:04
  Yeah, that's just kind of unheard of.
• 8:06
  The revenues you have to generate in those next few years
• 8:09
  to offset that or just to make that return are kind of mind
• 8:12
  mind boggling, but it does it does signify that this is the
• 8:14
  cut. This level of investment is is
• 8:16
  maybe unprecedented in in corporate history, even among
• 8:19
  the big public companies. I must go South now to consult
• 8:23
  with the wizard Arrowman, the head of my order.
• 8:26
  Be careful, Frodo. Speaking of big public
• 8:34
  companies, this was big earnings week for all the Big Tech
• 8:38
  companies, and particularly the hyperscalers.
• 8:41
  Big Tech is spending more money than ever on AI data centers in
• 8:45
  particular. These four companies, Microsoft,
• 8:48
  Amazon, Alphabet and Meta are now spending over $100 billion a
• 8:52
  quarter, almost $125 billion a quarter.
• 8:55
  We're not even counting Oracle or anybody else in that
• 8:58
  category, but just those four companies.
• 9:00
  Look at that ramp in the last 2-3 years, we've gone from
• 9:03
  maybe, I guess around 30-40 billion in spend to over $100
• 9:07
  billion in spend, so kind of tripling in the last two years
• 9:11
  alone. It's actually amazing.
• 9:12
  You know, one way to put this in context is we've talked about
• 9:15
  U.S. economic growth and GDP growth and what's going on.
• 9:18
  Why are we, why are we slowing or what's caused a bit of an
• 9:21
  acceleration last couple of quarters?
• 9:23
  So USGDP all of GDP grew at 3.8% in the last quarter.
• 9:28
  Something if this is right, something like 1% of that 3.8%
• 9:33
  is just AI investment. So the the economy has
• 9:36
  accelerated by 1% as a result of these AI investments.
• 9:41
  But I guess the good news is if you look at how these
• 9:43
  hyperscalers reported Q3, they all had great results.
• 9:46
  So these are the three big ones. And Amazon, this is sort of the,
• 9:50
  they're the biggest 132 billion run rate.
• 9:53
  And you can see from these charts, which is a credit to jam
• 9:56
  and ball altimeter, the accelerated revenue growth at,
• 10:01
  at a huge run rate from last quarter.
• 10:03
  And then the same for Azure because of a $90 billion run
• 10:07
  rate and growing much faster than Amazon Web Services and
• 10:10
  even Google, which has been the, the, the number 3.
• 10:13
  And to, to some extent the slowpoke is growing at 34% now
• 10:17
  year over year. They're all accelerating.
• 10:19
  Every single one of them talked in their earnings calls about
• 10:21
  being short on capacity, meaning that the minute that they
• 10:25
  actually build these, these data centers, demand is eating it up.
• 10:28
  And that's, that's a very different dynamic and actually
• 10:31
  really heartening dynamic. Because if you look at the last
• 10:33
  couple of tech bubbles that we've had, the exact opposite
• 10:36
  thing happens, right? Like a book coming out at the
• 10:40
  end of this year called A Brief History of Financial Bubbles.
• 10:42
  And they go through 10 balls. And the two big tech ones
• 10:45
  werethe.com bubble IN992000 and the UK railway mania.
• 10:48
  And in both cases there was a lot of investment made that just
• 10:51
  didn't. It wasn't driven by
• 10:53
  demandsothe.com bubble. We had dark fiber late in the
• 10:55
  1990s. That 90% was unused in 2000.
• 11:00
  And even even a decade later, most of it was unused.
• 11:02
  And in the UK, they built railroads.
• 11:05
  Revenue from the railroads doubled from 1845 to 1849.
• 11:08
  It doubled again by 1859, the end of the 1850s, but the
• 11:12
  expectations for investors was just that they were going to
• 11:15
  build so much track that even that pace of growth didn't
• 11:19
  justify the the investment in the UK.
• 11:22
  But they didn't get to the number of miles in of railroad
• 11:25
  expected until the 1920s when they when they peaked and then
• 11:29
  the airlines took over and then people didn't need railroads
• 11:31
  anymore. But the the difference here are
• 11:34
  we in a bubble? Yes, I think so.
• 11:36
  There's definitely top your market action, but the
• 11:38
  difference is this one is every single data center, every single
• 11:41
  GPU that's getting built is getting used immediately.
• 11:45
  So it's a demand driven phenomenon which I think is a
• 11:47
  very different dynamic than we've seen before.
• 11:49
  Another sort of interesting news item here is not just the amount
• 11:53
  of spend, but the amount of debt that's being raised to finance
• 11:57
  that spend. And Meta, the company with a a
• 12:01
  lot of cash on its books, just recently raised $30 billion from
• 12:05
  the corporate bond market to sort of subsidized their
• 12:08
  spending, I guess, or at least facilitate some of their spend.
• 12:12
  Does that strike you as kind of interesting?
• 12:14
  I think this is one of the largest corporate bond sales
• 12:17
  ever. This is following on sort of the
• 12:20
  announcement last week of Oracle raising $38 billion to finance
• 12:25
  its spend. So like these, these companies
• 12:28
  with large amounts of cash are still tapping into debt, or at
• 12:33
  least, you know, Meta and Oracle are tapping into debt to finance
• 12:37
  this expansion. Do the public markets think
• 12:39
  that's OK or think that's a good idea?
• 12:42
  Yeah, I think so. Oracle and met are two different
• 12:45
  stories. Meta has a very clean balance
• 12:47
  sheet meeting. They don't have a lot of debt.
• 12:49
  Their debt to equity is probably under 20% right now and they
• 12:52
  have 44 between 44 and 45 billion in in cash and cash
• 12:56
  equivalents on hand right now. So they've got, they have plenty
• 12:59
  of cash and if you actually, if you actually broaden the
• 13:02
  definition of cash codes for short term investments, they're
• 13:04
  over 75 billion. So why does a company with 75
• 13:07
  billion line around need this much debt?
• 13:10
  I guess the short answer is they're going to spend a lot of
• 13:11
  it on, on CapEx one, but also two, interest rates are super
• 13:15
  low right now, right and and falling at the COR credit
• 13:17
  spreads are tight. So they can get away with the
• 13:19
  corporate bond offering this big at a 6% yield and then use that
• 13:24
  for some of this necessary CapEx.
• 13:26
  I guess that, I guess that makes sense.
• 13:28
  So I think the, the fact that they're able to do it is a, it's
• 13:31
  a, it's a very positive sign for the investment story.
• 13:33
  And for them, it makes a lot more sense to raise debt if you
• 13:35
  can at a 6% yield rather than issuing equity, which is a lot
• 13:39
  more dilutive. So it's just a good, I think for
• 13:41
  them, it's a really good corporate financing decision.
• 13:44
  Right. So it seems like the big hyper
• 13:46
  scalers are spending a ton of money on AI buildup.
• 13:49
  You're saying it's demand driven, so it's not crazy.
• 13:53
  It's so rational that at least two companies, Meta and Oracle
• 13:57
  are tapping into bond markets to finance some of that spend.
• 14:01
  That all sounds great. Are there any constraints?
• 14:04
  I guess one, one thing that's come up is that is there
• 14:07
  actually enough power available to make all this spending and
• 14:11
  expansion possible? And particularly, I think Open
• 14:14
  AI, which was planning to build out 30 gigawatts of capacity in
• 14:18
  the next, you know, four or five years, is that realistic or even
• 14:23
  possible? Do we feel like there might be
• 14:24
  power constraints? That to me is feels like the big
• 14:27
  one. It's I would say it doesn't seem
• 14:29
  like there are any financial constraints in the offing.
• 14:31
  The market seems right. I think that bond offering you
• 14:35
  were that article say that they're oversubscribed in the
• 14:36
  bond offering. Record offering oversubscribed,
• 14:39
  Yeah. Yeah, and they haven't seen
• 14:41
  credit spreads widening. Normally if there's a, when you
• 14:44
  get a financial hiccup, the first thing to go is the credit
• 14:46
  spreads begin to widen out and then your stock price because
• 14:49
  it's a trade off. And then it kind of cascades out
• 14:50
  of the cap structure. Haven't seen any any signs of
• 14:52
  that. So, you know, with no financial
• 14:54
  constraints, it becomes a question of can we build, is
• 14:57
  there sufficient power to power it?
• 14:58
  And it's going to require the equivalent to like 4 Hoover
• 15:02
  Dams, you know, over the next couple years just to power this
• 15:04
  piece of what we know of the AI boom.
• 15:07
  So that to me is in yes, the US and and or its allies have got
• 15:11
  to get their their. Power built and even if we can
• 15:14
  you know do that much power expansion, does that have any
• 15:16
  impact on pricing for consumer use of power?
• 15:20
  And I think we're seeing at least in a couple states that AI
• 15:23
  data center build out and power usage is increasing the price of
• 15:28
  normal everyday power for people.
• 15:29
  And I wonder if that raises any concerns as well.
• 15:32
  That's got to be a trade off. It sounds like there's limit
• 15:34
  with constraints on power. The price of it has got to go up
• 15:37
  unless you can build offsetting supply and right now we're we're
• 15:40
  behind right demand is outstripping supply right now
• 15:42
  all. Right.
• 15:53
  We're going to flip over a little bit to a couple of other
• 15:56
  topics. Morgan Stanley is acquiring
• 15:59
  Equity Zen that was announced last week.
• 16:02
  I don't think we have a number on what that acquisition was.
• 16:05
  This sort of a close to home story, I guess Equity Zen was a
• 16:08
  company we invested in at 500 start-ups about 12 years back.
• 16:12
  And we we just interviewed Phil Hazlett from Equity Zen on our
• 16:17
  show about a week or two ago and he did not mention a word of
• 16:20
  this. So I guess don't be playing
• 16:25
  poker with Phil, but this is following on another acquisition
• 16:31
  in the secondary market. Goldman Sachs acquired Industry
• 16:35
  Ventures a few weeks ago. Seems like there's continuing
• 16:39
  interest in the secondary market.
• 16:41
  And these are big companies that are kind of jumping in acquiring
• 16:44
  smaller companies. You'd think this sort of signals
• 16:47
  expansion for the secondary market when these larger
• 16:50
  companies are acquiring existing players to, you know, move into
• 16:54
  what they see as a trend. Do you think we're going to see
• 16:57
  more acquisitions in the secondary market a month?
• 17:01
  Yeah. It feels like the win here for
• 17:02
  Morgan Stanley is as an investment bank, they really
• 17:06
  make money when companies list and go public because you get
• 17:09
  IPO fees from that, advisory fees or getting some kind of M&A
• 17:14
  or acquisition down the road. And I guess the third path that
• 17:17
  we've talked about when those two sources of exits dry up, the
• 17:21
  third path is secondary and equity Zen is one of the big
• 17:23
  places where you have real liquidity.
• 17:25
  So I guess if I'm Morgan Stanley or Goldman Sachs and I'm
• 17:28
  thinking, well, the IP OS are you know, not not what they once
• 17:31
  were coming back, but not what it was three years ago and M&A
• 17:34
  is slowing down. Well, why not get into secondary
• 17:36
  as the third leg of that stool and then be able to offer that
• 17:39
  to all, all three of those legs to all my companies.
• 17:41
  And then all my private client, both advisors who you know or,
• 17:44
  or the clients that are on my platform who want to buy into IP
• 17:47
  OS and want to buy into public companies now can get into
• 17:51
  private companies through equities M And so it helps your
• 17:54
  private client service business. And so it feels like that's a
• 17:56
  natural extension for for these guys.
• 17:59
  So and then the world, Goldman is the other company that
• 18:01
  acquired Industry Ventures and I think that's taking the same
• 18:03
  thing. So I think those are really
• 18:05
  positive signs for the secondary market.
• 18:06
  Yeah. Let's switch to the IPO market.
• 18:09
  I guess travel firm Devon did its public offering.
• 18:13
  How did that go? This was what I would call it, a
• 18:16
  fairly high quality company choosing to price in the middle
• 18:19
  of a government shutdown, which didn't have a huge impact, but
• 18:23
  did affects the timing and maybe the disclosure on some of their
• 18:27
  some of their listings and filings.
• 18:28
  They went through a little bit of a different process with the
• 18:30
  SEC where they can issue their financials, get them out to
• 18:33
  investors and then the SEC because it'll be short staffed.
• 18:36
  We'll do a a subsequent review. I don't think that really had
• 18:40
  much of an impact, but it's hard to tell.
• 18:41
  The bottom line is they did trade down on day one of their
• 18:44
  IPO, about 20%. They had priced at $25 a share.
• 18:48
  They ended the week at around 2021.
• 18:52
  I was doing some math on just their their market cap and I
• 18:54
  think what it, I think where this takes them to they were
• 18:56
  targeting the 6 billion market cap.
• 18:57
  They ended up around 4.7. If I add in the amount of debt
• 19:01
  they have, which is initially high for a company like this,
• 19:03
  they're about 9 times trailing revenues.
• 19:06
  Their their enterprise value to revenues.
• 19:09
  If I told you, if I just told you out of the gate, hey, forget
• 19:12
  about where they were pricing or what they were trying to do.
• 19:15
  Where do you think a company like like this, 600 million
• 19:19
  revenue growing 30% year over year, definitely not profitable
• 19:22
  losing, losing a lot of money. Do you where do you think they
• 19:25
  would trade? Does 9X seem like a reasonable
• 19:27
  number? I think you might have said,
• 19:29
  yeah, that seems OK. The median SAS company right now
• 19:32
  in the US is about 7X, has been for last couple of quarters.
• 19:35
  There are some companies that are up 12 to 15X, but these are
• 19:38
  very high quality companies that are making money profitable,
• 19:41
  growing quickly. I'm talking about Figma, I'm
• 19:44
  talking about Datadog and Shopify, like you're in some
• 19:46
  pretty rarefied territory. So the fact that we're the fact
• 19:49
  that they ended at NYNEX, I don't think it's the end of the
• 19:51
  world. Maybe the problem was they set
• 19:53
  expectations a little bit too high.
• 19:55
  I guess we'll see where they go. It seems like that the knock on
• 19:57
  this company is that even though they are growing quickly, they
• 19:59
  do have a lot of operating losses.
• 20:02
  And I think it's AI think it's a sign that the IPO market is, you
• 20:06
  know, it's distinguishing between these really high Flyers
• 20:08
  that are that are highlighted in this chart.
• 20:10
  And and everybody else and your story has got to be really,
• 20:13
  really good and time has got to be perfect to get into that
• 20:15
  category. And Ivan was aiming, aiming for
• 20:17
  that and just missed by a little bit.
• 20:20
  Well, it still seems like the IPO market is healthy, if even
• 20:24
  companies with some, you know, a little bit questionable or
• 20:26
  challenging metrics. I think this company, StubHub
• 20:29
  also maybe had a little bit of trouble in the aftermarket, but
• 20:32
  they still went out, you know, So I, I think in general, it
• 20:35
  feels like we're going to see more IP OS coming, whether
• 20:38
  they're both, you know, good or bad.
• 20:41
  Yeah, I think that's right. This is a, it's a very, it's
• 20:44
  definitely a vibrant market. So the fact they got out is
• 20:47
  good. You know, we'll see how they
• 20:49
  trade, but I think that's going to depend a lot on just
• 20:51
  expectation setting and and the performance. 15 birds in fiber
• 21:05
  trees in a fiery. All right, Well, another news
• 21:12
  story, not an IPO, but a primary round happened this week.
• 21:16
  A company called Mercor raised at a $10 billion valuation,
• 21:21
  350,000,000 Series C. This was led by Felice's
• 21:25
  Ventures with participation from Benchmark and General Catalyst.
• 21:28
  Also Robin Hood joined in. Somewhat notable was this was a
• 21:32
  5X step up from the previous valuation, which was just
• 21:36
  earlier this year. That's pretty crazy, right?
• 21:38
  5X increase in value in less than a year.
• 21:41
  And this company provides access to talent in AI to people
• 21:46
  working on foundational AI models.
• 21:47
  So I guess the the build outs in AI is not just in data centers,
• 21:51
  but also in people and we're seeing somewhat pretty crazy
• 21:55
  numbers coming from that side of the table as well.
• 21:59
  Yeah, I wonder if some of the same investors were in both
• 22:01
  rounds. I wonder how you feel about it
• 22:02
  when you you pay one thing in February, you pay 5X in October.
• 22:07
  The company did, apparently they told investors in this round
• 22:10
  they're at a they were going to be on track for 500 million in
• 22:13
  ARR by the end of the year. And this would this would mean
• 22:16
  they're only a three-year old company, I think not even They
• 22:19
  were founded by high school students in Bellarmine.
• 22:23
  You guys were. Teal fellows, right?
• 22:26
  They were part of the Teal Fellowship, I think.
• 22:29
  Know that actually I I know they I know a couple had gone to
• 22:31
  Harvard and Georgetown then dropped out.
• 22:33
  So they're they're now part of Harvard's anti portfolios.
• 22:36
  All the Harvard drop outs are probably doing but this company
• 22:40
  had found me bladder revenue. I mean they would they would get
• 22:42
  there faster than like Ennisphere, who was the that's
• 22:45
  start up behind cursor. So they're getting humans to
• 22:49
  help train AI chat bots. And so obviously that, you know,
• 22:53
  they are hitting on the in the last year they've had a huge
• 22:55
  directory in in growth and success and the youngest
• 22:58
  self-made billionaires in the world now I think they're all 21
• 23:00
  and 22 years old. Isn't the three founders a good
• 23:02
  get on them? OK.
• 23:04
  And then one last item here, A company called Securitize is
• 23:09
  going public via SPAC at $1.2 billion.
• 23:13
  This company Securitize, I think we've actually met the founder
• 23:17
  Aman, you and I have met Carlos Domingo a few years back down in
• 23:22
  Miami. But BlackRock is behind the
• 23:24
  company. They're going publicly is back
• 23:26
  at $1.25 billion valuation. I guess the company helps
• 23:31
  BlackRock do digital tokenization of their money
• 23:34
  market fund and other real world assets.
• 23:37
  Seems like real world assets is a term that is starting to be
• 23:41
  thrown around and tokenization has been thrown around for a
• 23:44
  while. What is this?
• 23:45
  What does this all mean? Well, I think Scared Eyes has
• 23:47
  found an area where you can create digital ownership and
• 23:51
  things like financial securities or financial assets.
• 23:54
  You might ask yourself why would people want to buy a digital
• 23:56
  token in like a BlackRock money market fund?
• 23:59
  Does that really valuable? I guess the short answer is a
• 24:02
  lot of these money market funds and someone like BlackRock is
• 24:05
  managing their valuable. They're making money, but you
• 24:08
  know they have like this complexity and and getting into
• 24:11
  them, there's the minimums to invest.
• 24:14
  Maybe you have to have a relationship with BlackRock.
• 24:16
  They're closed and funds, so they issue them.
• 24:18
  You put money in, but you can't trade them, right?
• 24:19
  You can't buy and sell on a like a daily, weekly and monthly
• 24:24
  basis. You can only redeem at certain
• 24:25
  times. There may be some KYC or
• 24:27
  accreditation challenges and getting into some of those
• 24:29
  funds. And so maybe there's value in,
• 24:32
  in creating this digital ownership, which then disperses
• 24:34
  ownership to to other people. In theory, money market funds
• 24:37
  and then stock funds and ETF's are example of it.
• 24:40
  Maybe even stocks for companies could be fair game for privately
• 24:45
  held assets that are then listed on the exchange.
• 24:47
  So I think it's an interesting play.
• 24:50
  It's great that Securitize is able to get, you know, an
• 24:52
  investor like BlackRock, because that's a very sophisticated
• 24:54
  financial backer to, to help them through and now they're in
• 24:57
  the spot. So we'll see how it how it
• 24:59
  trades. So I guess what you're saying is
• 25:01
  that this is expanding ownership options for both institutional
• 25:05
  and retail market into, you know, categories that may
• 25:08
  already have been public or accessible, but just not as
• 25:11
  widely available. I think we've seen companies
• 25:14
  like Robin Hood and maybe even a few others also try and start
• 25:18
  offering some kind of tokenization of private
• 25:20
  companies as well as public companies to, you know, increase
• 25:24
  exposure. Certainly seems like more people
• 25:27
  are playing around with different financial
• 25:30
  securitization into these and trying to make that accessible
• 25:33
  to lots and lots of folks. I guess related to that, what's
• 25:37
  happening with Tether lately? A month?
• 25:39
  Well, we're going to do a deep dive on Tether in our evaluation
• 25:42
  corner, but they are the largest US stable coin issuer.
• 25:47
  The interesting thing about them is with all the growth of
• 25:50
  stablecoins in the last couple years, which is a massive new
• 25:53
  asset class. Now a couple of $100 billion and
• 25:56
  and counting, they said they generated over $10 billion in
• 25:59
  profits last year and have they have done 10 billion year to
• 26:02
  date now or actually 15 billion year to date as of Q3.
• 26:05
  So that makes them the most profitable asset manager in the
• 26:08
  world, probably twice as profitable as BlackRock.
• 26:11
  We just mentioned who manages all these funds and, and real
• 26:14
  estate fund, real estate assets and, and money market funds and
• 26:17
  everything else. So definitely a, a highly
• 26:20
  profitable company. They're also thinking about
• 26:22
  evaluation of $500 billion. And so that that would put them
• 26:25
  again in the, in the big leagues of private companies.
• 26:28
  And we'll talk in our evaluation corner this week as to whether
• 26:30
  we think that's too high or too low or just right.
• 26:33
  OK. And then one last item in the
• 26:35
  sort of digital asset world, Coinbase is reportedly a rumored
• 26:40
  to be interested in pursuing a $2 billion acquisition of a
• 26:44
  company called BVNK. And I guess why are stable coins
• 26:51
  interesting to company like Coinbase a lot?
• 26:54
  That's a great question. They're a crypto exchange, so
• 26:57
  anything that can trade on the exchange is going to be
• 27:00
  interesting to Coinbase. If they can make a market net or
• 27:03
  make some fees on it, it's interesting.
• 27:05
  And if they can stake it or provide some financing around
• 27:08
  it, like, you know, think of like a margin loan on a stock
• 27:11
  market account and generate profits that way, I think it's
• 27:15
  going to be interesting for them.
• 27:16
  So I'm not surprised to see them stepping into this market.
• 27:19
  I guess if we looked at Coinbase's revenue from
• 27:22
  stablecoin, that seems to be growing, correct.
• 27:25
  I guess it's not surprising that they start looking at companies
• 27:28
  provide stable coin infrastructure.
• 27:30
  Looks like they're doing over 300,000,350 million 1/4 recently
• 27:35
  and. That's going to be a function of
• 27:37
  trading activity and just market market demand for it.
• 27:39
  And so as long as that's going to be something that buyers want
• 27:42
  to buy and sellers want to sell, it's something that Coinbase can
• 27:45
  be in the middle of. And I think this this company if
• 27:47
  they're acquiring will provide them the technology to be able
• 27:50
  to custody of the trade those things.
• 27:53
  Well, it certainly seems like stable coins continue to be a
• 27:56
  growth market and I think we're going to see more and more
• 27:59
  people jump into that world as well, not just Tether and
• 28:03
  Circle. Right, exactly.
• 28:14
  Welcome to another episode of Trading Places Very Bad
• 28:19
  Secondary podcast about VCs. And in this case, Rick Baker is
• 28:24
  not a very bad VC. He's a really awesome VC.
• 28:27
  Rick, welcome to the show. Thank you, Dave.
• 28:30
  Good to be here. Rick is the managing partner at
• 28:33
  Blackbird Venture Capital. Rick and I have been friends for
• 28:36
  1314 years. I do remember jumping off a
• 28:40
  yacht in Sydney Harbour with you and some other miscreants way
• 28:44
  back in the day. How did you get into Venture?
• 28:47
  Of course, we'd love to hear the canvas story and maybe you can
• 28:50
  tell us a little bit about the Australian venture market as
• 28:53
  you're discussing that. Well, I started my life in
• 28:57
  investment banking over in London, but in 2000, like many
• 29:01
  people did, I started a software company, did that for a while
• 29:04
  and then ended up starting a second business back in
• 29:07
  Australia to do that for a few years before we sold it.
• 29:09
  That was really when at that point that I, I was looking for
• 29:12
  something to do next and was lucky to stumble across one of
• 29:16
  the pension funds here called MLC and joined their private
• 29:19
  equity team and after a little while ended up running their
• 29:24
  venture program. And so a bunch of LP investments
• 29:27
  and then a a sort of Co invest direct program as well.
• 29:31
  And I got really lucky. It was around 2008 that I was
• 29:36
  sort of stepping up to build this new portfolio.
• 29:39
  And you might remember that was a time when Outlook leaks.
• 29:43
  Challenged. It was a little bit of a crash
• 29:46
  there. Global financial crisis.
• 29:49
  But I would happen to be the right person, right time, right
• 29:51
  place running over the Silicon Valley.
• 29:53
  And we managed to get into a bunch of firms that, you know,
• 29:57
  had been closed and, you know, had been hard to get into.
• 30:00
  So in the end, we built this this portfolio of Accel,
• 30:05
  Sequoia, Benchmark, Andreessen, Kleiner, probably one or two
• 30:09
  more amazing. It was just a great little sort
• 30:13
  of pocket of time. And you know, what an honour to
• 30:17
  sort of, you know, my job was really to study how those firms
• 30:21
  operated, you know, how they made investment decisions.
• 30:24
  And that was just some amazing learning experience.
• 30:27
  Kind of lived in Silicon Valley for a little while.
• 30:29
  Co investing with those firms or were you like were you getting
• 30:32
  at each stage and they were falling on or you were just Co
• 30:35
  investing, letting them, letting them lead and you were just
• 30:37
  falling in? Yeah, we were just following and
• 30:39
  we're just taking pieces of rounds that they were leading.
• 30:42
  You know, I got to know them. If it's, if it's really lucky, I
• 30:44
  sort of, I went and had a, a meeting with Sequoia and I
• 30:48
  remember meeting, you know, sitting opposite Mike Moritz and
• 30:52
  Doug Leone, which was for a little old Aussie was sort of
• 30:56
  like seeing my, my superstars and I, I met them that day.
• 31:01
  I had a really great conversation and sort of left
• 31:03
  thinking, you know, oh, not much will happen and jumped on the
• 31:05
  plane that night back to Sydney and I was, I was getting my
• 31:08
  baggage, you know, as I got off the plane and turned my phone
• 31:11
  on. I think it might have been a
• 31:12
  BlackBerry at that time. And I got message from from Doug
• 31:16
  saying, hey, you know, we've got this endowment that's having
• 31:20
  some liquidity problems and what needs to sell a bunch of their
• 31:23
  funds, a bunch of Sequoia funds. And, you know, if you'd like to
• 31:28
  quietly do that deal, we'd be, you know, we'd be very happy to
• 31:31
  make that happen. You were doing secondary before
• 31:34
  secondary was cool. You were.
• 31:36
  Actually. Secondary was cool.
• 31:39
  And so, you know, I said, hey, yes, we'd love to do that.
• 31:42
  And he said, oh, when? Well, you know, and I said, oh,
• 31:44
  I'd really love to just have a little bit more time to kind of,
• 31:46
  you know, write my investment paper.
• 31:48
  He said, when can you, when can you be back?
• 31:51
  We want to do this quickly. So I turned around and the next
• 31:53
  day I jumped back on the plane and one back in my meeting and
• 31:57
  we ended up buying a bunch of those funds and then continuing
• 32:00
  to invest in in the Sequoia funds.
• 32:02
  So that was, you know, you're right, an early, early secondary
• 32:05
  success story, you know, back in the day.
• 32:09
  Well, I, I remember back in the global financial crisis, there
• 32:12
  were a number of LP's that probably decided to exit because
• 32:17
  they're, I guess they're, they were upside down a little bit on
• 32:21
  their allocation to venture since everything else had been
• 32:24
  marked down, but venture hadn't been.
• 32:26
  I think people learned a lesson from that time because I've I've
• 32:28
  talked to a few other folks who said, yeah, there were several
• 32:31
  larger LP's that had to sell or decided to sell.
• 32:35
  I wish they hadn't, at least in that, in those set of funds.
• 32:38
  Yeah. Well, that's that's an
• 32:39
  interesting story. I don't think I'd actually heard
• 32:41
  that before. That's that's pretty amazing.
• 32:43
  And then, you know, we did a Co investment benchmark.
• 32:45
  I think it was around, it was around an engine yard actually.
• 32:48
  And it was a, you know, it was a hard round to fill and it's
• 32:50
  rather than being there B or C And I needed an extra 5 or 10
• 32:54
  million bucks. And we popped that in alongside
• 32:57
  them. Again, I'd, I'd sort of, you
• 32:58
  know, managed to get a meeting with, with the team.
• 33:01
  And yeah, that then parlayed into, you know, a, a fund
• 33:05
  investment, which I think the, the was the Uber fund.
• 33:08
  So did very nicely for MLC. Amazing.
• 33:12
  Good portfolio. Anyway, I did that for 6 1/2
• 33:16
  years and then felt the pull of my third start up which, which
• 33:21
  was blackfooted. And actually, Dave, you, you
• 33:23
  were a, a, a, a pivotal little piece in, in the founding of
• 33:27
  Blackford Oz. I met Nikki Shivak, my, my Co
• 33:31
  founder of Blackbird through an introduction of yours.
• 33:34
  And that was, I was overcoming to, to the 500 startups office.
• 33:38
  And there was a little Aussie company in there called Gravel
• 33:41
  that had just done things with this program.
• 33:44
  And he said, ah, there's some other Aussies in the building.
• 33:46
  You got to come and meet the other Aussies.
• 33:49
  So I came and met the guys and they were like, oh, you've got
• 33:53
  to meet this guy, Nicky Chavac back in Sydney.
• 33:56
  And that was how I first met. He was running Start Mate.
• 33:59
  That means through the first, I think the very first Start Mate
• 34:02
  program, which is Start Mates, an accelerator out here in
• 34:07
  Australia, that Mickey, Mickey found it.
• 34:10
  And so I went and had a coffee with Nicky and that was the
• 34:12
  really the start of the of the Blackbird.
• 34:15
  Story amazing that was. I'm guessing that was around
• 34:18
  2000, 11 or so, or 12 I don't remember when. 10 or 11?
• 34:23
  Yeah. OK, 10 or 11.
• 34:24
  OK. Yeah.
• 34:25
  And then I, I guess I came down to Australia probably after or
• 34:29
  during, I can't remember when we had made the kind of investment
• 34:32
  in the LP investment in you guys, but around 2013 I think.
• 34:35
  Yeah, yeah. Well, we, well, we decided,
• 34:38
  Nikki and I decided to team up in 2012 and you know, I so quit
• 34:43
  my job, told my wife I'm quitting my job again doing
• 34:46
  this. She's she's long-suffering.
• 34:50
  And we, you know, Nikki and I set up, set off to raise this
• 34:55
  fund. And really we at home Australia
• 34:58
  venture was shot to pieces at that time.
• 35:00
  Unfortunately, there was just not much, there was capital left
• 35:03
  in the system and we'd had about a dozen great companies that
• 35:07
  popped up out of the start up ecosystem.
• 35:09
  So led by Atlassian, which everyone will know and obviously
• 35:12
  huge. It was probably, I don't know,
• 35:14
  worth hundreds of millions of that at that stage.
• 35:17
  You know, companies like Aconix, red bubble and Vato, half brick
• 35:20
  studios, AUS Forex and a bunch of others and not one Aussie VC
• 35:26
  in any of them, which was obviously a tragedy at the time.
• 35:28
  And actually excel was probably the best Aussie venture investor
• 35:32
  at the time. They'd come down at about the
• 35:34
  series B stage and swooped into five or six of those companies
• 35:37
  and they did really well out of them.
• 35:39
  I know they're at last seen investment was a was a huge win
• 35:42
  for them, right. And but Nikki and I thought this
• 35:45
  is crazy. There's got to be, yeah, an
• 35:47
  opportunity here, a gap in the market to to capture the next
• 35:51
  group of companies that we're going to get started.
• 35:53
  And so we, we set off to do this and everyone thought we were
• 35:56
  crazy. You know, there's this general
• 35:58
  view of you can't do venture in Australia.
• 36:02
  It took us 22 months to raise this fund, our first fund.
• 36:06
  It's $29 million Aussie. So it's about 20 US and we have
• 36:10
  97 partners. We have about 500 meetings and
• 36:12
  we got 97 limited partners winning Dave, you and and
• 36:18
  through 500 start-ups. Thank you.
• 36:21
  You're one of the one of the early people who said yes and
• 36:24
  gave us the credibility to kind of get it rolling.
• 36:26
  And you know, that fund has been this awesome fund.
• 36:29
  That's the fund. Yeah, that in the early days of
• 36:32
  canvas, safety culture, culture and propeller, the list goes on.
• 36:36
  And you know, it's about 40 * t BPI now and about 10 times so it
• 36:42
  comes TPI. So it's been a pretty good, it's
• 36:45
  amazing, pretty happy with that early.
• 36:48
  That's fantastic. Yeah.
• 36:50
  And I, I, you know, again, thanks.
• 36:51
  I, I believe we got introduced to Canada, you know, through you
• 36:55
  guys and also Bill Tie and some other folks from Silicon Valley
• 36:58
  who investing at the time. But certainly that and Bill's a
• 37:02
  pretty amazing, amazing story himself.
• 37:04
  I guess he had left CRV a few years earlier.
• 37:08
  He started doing, I guess, kite surfing, windsurfing all over
• 37:13
  the world and Australia was one of those places that he ended
• 37:17
  up. Was that how he got connected
• 37:19
  with you guys? And yeah.
• 37:20
  Through, through. Well, I met him when I was over
• 37:22
  in Silicon Valley and just went in to see how these offices kind
• 37:25
  of say hello. And we ended up talking
• 37:28
  windsurfing and then karting. And then I'd been windsurfing a
• 37:31
  lot when I was a kid, and he said how you got to try this
• 37:34
  karting thing. And I sort of left that, you
• 37:36
  know, he said, oh, we would do this great thing in Maui called
• 37:39
  Mai Tai. And you know, it's all this
• 37:40
  technical. Trade right?
• 37:42
  You got to come along and I'll send you an invite.
• 37:43
  And I was like, Oh yeah, you know, oh, not, not expecting
• 37:46
  you. Sure.
• 37:47
  Not until I get this invite that arrives.
• 37:49
  I'm like, oh, quick, I got to learn how to kite.
• 37:52
  I madly rushed out to try and get some karting lessons.
• 37:55
  But that was it was through that that Mai Tai crew and and Bill
• 37:59
  that that we met Mel and Cliff actually on a kiting trip down
• 38:03
  in Perth in Australia. Wow.
• 38:06
  Yeah. I was always wondering because
• 38:07
  the connection to Perth, which is where the founders of Canada
• 38:11
  were from, which is pretty far away from Sydney, from Saint
• 38:15
  Melbourg, yeah. It's it's pretty much as waste
• 38:17
  guys sort of distance so from the US.
• 38:20
  Right. Not right around the corner.
• 38:22
  Yeah. Well, Bill had certainly been
• 38:25
  one of the few people who was, you know, interested in, had
• 38:29
  invested outside the US and plenty of unusual places.
• 38:32
  And I know you guys have invested in a bunch of
• 38:34
  companies, but obviously canvas one of the bigger success
• 38:37
  stories. And I was wondering if you can
• 38:39
  tell us a little bit about kind of what, what you saw in the
• 38:42
  company, how you guys got started with them.
• 38:44
  And then obviously you leaned in really hard.
• 38:48
  I, I do remember, you know, you guys starting a continuity
• 38:51
  vehicle and putting I think almost all of that capital into,
• 38:55
  into Canada and subsequent rounds.
• 38:57
  And I, I must admit, at the time I thought you were crazy.
• 39:00
  You'd. Be able to.
• 39:03
  Turns out you were crazy smart. But I'd love to, I'd love to
• 39:06
  hear that story again. And then maybe we could talk a
• 39:09
  little bit about some of the other secondary transactions.
• 39:12
  Yeah, absolutely. So I met Melon Cliff, as I said,
• 39:14
  down in Perth. I'm literally on a cardboarding
• 39:16
  trip with Dylan one day. They were doing, they were going
• 39:19
  out wakeboarding on the Swan River, which is the river that
• 39:21
  runs through through Perth. And Cliff had, you know, found a
• 39:25
  boat and took everyone out and I decided I didn't really want to
• 39:31
  go wake boarding and Mel didn't want to go wake make boarding.
• 39:33
  So Mel and I sat on the the riverbank of this sort of
• 39:37
  beautiful river that runs through Perth on a sort of
• 39:39
  picnic bench and just chatted about what we wanted to do.
• 39:43
  And she was telling me how she really wanted to turn the
• 39:47
  business she had, which was designing school yearbooks into
• 39:51
  this generalist graphic design platform.
• 39:53
  And I was telling her how I would love to quit my job at the
• 39:56
  superannuation fund, the pension fund and start a vector fund.
• 40:00
  And you know, it's, it's kind of nice to look back what sort of
• 40:05
  12 or 13 years after that moment and think kind of how we've, we
• 40:10
  both managed to do that and. So that night Mel and Cliff
• 40:14
  pitched formally to this group this the idea of Canva for the
• 40:18
  first time. At the time it was called Canvas
• 40:19
  Chef and it was done this sort of pizza montage the the
• 40:24
  presentation. I you know, I, Mel, won't be,
• 40:28
  you know, offended when I say it was not the very best graphic
• 40:32
  designed pitch design company. My first paces of advice is if
• 40:37
  you're going to be, you know, your graphic design company,
• 40:40
  make sure the graphic design is awesome.
• 40:43
  Probably good. Advice.
• 40:44
  And that was soon fixed. But it was there was just
• 40:47
  something there was really something about in the early
• 40:49
  days, Mel and Cliff and the kind of insights that they brought to
• 40:53
  what they wanted to do, the passion.
• 40:56
  They were hugely resilient. You know, their, their, the
• 40:59
  story of them getting that first round together, which really was
• 41:01
  a cobbling together of, you know, maybe 20 people to put in
• 41:06
  sort of, you know, a few $100,000 here or there.
• 41:09
  That cobbling together that first round took the, you know,
• 41:13
  many, many 100, you know, meetings, hundreds of meetings
• 41:16
  probably and, and multiple trips to Silicon Valley and hustling
• 41:20
  and you know it it, it was not an easier easy round to race
• 41:24
  because who was going to bat Young, you know, 2020 year olds
• 41:28
  from Perth in Australia. OK.
• 41:32
  I remember, I think I remember seeing a little map or layout of
• 41:36
  the different connections that they got for folks who were
• 41:40
  investors that I believe George Kellerman was on our team at the
• 41:43
  time at 500 Startups and you know, he was the person that
• 41:46
  helped make the connection for us with Mel and Cliff.
• 41:49
  Yeah, yeah. So there was a, you know, there
• 41:51
  was a great. So in the end that round sort of
• 41:53
  come came together and that you know, that round's amazing.
• 41:55
  It's, you know, it's sort of 1000 times it's capital, you
• 41:59
  know that, that first round. So you're, you're those, that
• 42:03
  group of sort of, you know, maybe you know, 15 or 20 people
• 42:07
  are, you know, very happy people.
• 42:10
  And we at Blackbird, it was the very first investment that I
• 42:14
  made at Blackbird and we managed our first, our first close,
• 42:21
  which I think was about $12 million Aussie.
• 42:24
  So it was tiny and I managed to commit.
• 42:27
  Oh, I asked Mel and Cliff to leave that round open for us to
• 42:30
  give us a 250K slot in that round.
• 42:33
  Great, great. Idea and yeah, it was a great
• 42:37
  idea and I, I cringe when I read the e-mail because it's this
• 42:39
  formal sort of business sounding saying subject to this object to
• 42:45
  that we will we will invest, you know, 250K, which seems
• 42:47
  ridiculous now because what an investment.
• 42:50
  So we're very lucky to to get in that very first round.
• 42:53
  The other fun story about that time was my very first
• 42:55
  investment. It took almost a year, not quite
• 42:59
  maybe, you know, 10 months to get the product out and I was
• 43:04
  sort of like, you know, there are moments when I was like, oh,
• 43:06
  you know, my first investment is going to be a dad.
• 43:09
  And to give Mel credit, you know, while we were saying, as
• 43:12
  it was the lean startup time, right, it was like, come on, get
• 43:15
  your MVP totally cracked, just get it out.
• 43:19
  And Mel's like, no, I'm not putting anything out until I'm
• 43:22
  really happy with it and I really like it.
• 43:25
  And so the months tipped by, you know, Mel just making sure that
• 43:28
  this was something she loved. And in hindsight, what a great
• 43:31
  bit of insight there, because I do think those early days of a
• 43:34
  product are so, so important. And canvas, he just hit, you
• 43:40
  know, a real vein of people, particularly in the digital
• 43:43
  marketing space at that time who were creating content.
• 43:47
  A lot of that was because Mel had built this beautiful product
• 43:50
  alongside, I should say, Cam Cam Adams, who, you know, joined us
• 43:54
  the as the third were in the group and really was responsible
• 43:57
  for turning a lot of Mel's dreams and ideas into, you know,
• 44:01
  the actual design UX and and then, you know, getting the team
• 44:04
  to build it. Gandalf beyond all hope,
• 44:11
  Gandalf. Yeah.
• 44:18
  If I were remember correctly when the product launched, they
• 44:21
  weren't actually charging right away, right there were, it was a
• 44:24
  free product and so they had a fair amount of usage, but very
• 44:27
  much if any revenue I think for the first year or so.
• 44:30
  Yeah, Usage went up really quickly.
• 44:31
  No revenue, you're right. And there's very much this sort
• 44:34
  of let's win the market mentality, which was actually
• 44:38
  quite unique in Australia. And because it was always
• 44:41
  Australia, you know, always about revenue.
• 44:43
  Come on, revenue, revenue, revenue, you know, and, and God
• 44:46
  learned too much because, you know, how can you, how can you
• 44:48
  make losses? You know, I can remember going
• 44:50
  to an accelerator program that Miller got into and someone
• 44:53
  heard something, it was a judging or something thing for
• 44:56
  it. And one of the people there
• 44:58
  said, oh, you know, I don't know who's advising or invested in
• 45:00
  this company as it wasn't in it because they're just not, you
• 45:03
  know, it's not really doing their job here because they're
• 45:05
  not making it, honey, they're. Not making any money.
• 45:07
  That might be me. So yeah, not making much money,
• 45:11
  but we saw the metrics were really great and and a bunch of
• 45:13
  metrics obviously the growth, user growth, the sort of
• 45:17
  frequency of use and then the the sort of power usage that was
• 45:20
  starting to come through it. And then we were looking, we
• 45:23
  were particularly focused in the early days on this sort of
• 45:26
  metric that was percentage of of designs that were actually
• 45:30
  published. And at that stage, the only way
• 45:33
  you could use a design out of Canva was to press published
• 45:36
  APDF. And so we were looking and we
• 45:39
  were figure we figured that people, yeah, you got real value
• 45:43
  out of it if you actually published it.
• 45:46
  And so that that was as high as like 80 something, you know, low
• 45:49
  80s to 80% of designs getting published.
• 45:52
  And we thought this is, you know, looks as though it's
• 45:54
  something that people are actually using to, to create
• 45:57
  things that are useful for them out, out in the real world.
• 46:02
  And so we started getting excited about it.
• 46:03
  We invested in the second round, which still wasn't a, you know,
• 46:07
  that competitive around. And that second round, you know,
• 46:12
  I literally we were sending out to all our LP's saying, who
• 46:16
  wants to invest a little bit in Camber?
• 46:18
  It was about a sort of $12 million valuation or something.
• 46:22
  So a fantastic round. And we we put three and a half
• 46:26
  million dollars of our $29 million fund into Camber, the
• 46:30
  first fund and that is worth about a billion dollars.
• 46:34
  So that was a really great, amazing.
• 46:41
  I wonder if you could talk about if you kind of remember the
• 46:44
  mindset because I, I know there was, you know, a period of time
• 46:46
  we started to have a similar experience when I was investor
• 46:50
  in Twilio where the company had a very difficult time, you know,
• 46:53
  getting the seed round started and convinced Union squares to
• 46:57
  get involved in the A. But even after that, there was
• 46:59
  still, you know, some challenges in raising the B&C rounds.
• 47:02
  And I wonder if you can talk about, you know, when did it
• 47:05
  seem like, you know, it was still a work in progress?
• 47:08
  When did it seem like, OK, it was a lock?
• 47:10
  And how did that factor into your decision about, I mean,
• 47:13
  maybe at some point we'll talk about the secondary transaction
• 47:16
  for the fund? Yeah, We're following very
• 47:19
  closely the progress and just loving the way this was working.
• 47:22
  It's always been this kind of organic super product LED growth
• 47:27
  and this flywheel of both. And even today when you know a
• 47:32
  lot of people, I think investors are looking for Canva to have
• 47:34
  this sort of enterprise movement sales model and really looking
• 47:39
  like, oh, we love enterprises of sticky long contracts and
• 47:42
  things. What's really driving and
• 47:45
  continue to drive canvas growth, even at the multi billion dollar
• 47:48
  revenue scale is this organic growth engine where people
• 47:51
  discover Canva, they start using it for free, they get a whole
• 47:56
  lot of value out of it and then they start, you know, paying for
• 48:00
  the for the extra features that come through.
• 48:03
  And it's it's just that that flywheel is, you know, was from
• 48:07
  the very early days and it's just sort of continued to
• 48:10
  snowball. So I think we realized that and
• 48:11
  we really loved that it was everything we wanted out of
• 48:14
  Australia. I think one of the things that
• 48:16
  we we were looking for is sort of and we, we were quite
• 48:20
  influenced by Atlassian. Mike and Scott were both
• 48:23
  investors and had been sort of really instrumental in sort of
• 48:26
  like I think shaping the Aussie ecosystem here.
• 48:29
  And so we were really looking for this really bottoms up
• 48:32
  product LED growth motion and Camber had that in space and we
• 48:36
  loved it. So we started investing, you
• 48:38
  know, pretty much in every single round.
• 48:40
  We rested in every single round up to the 40 bill rounds.
• 48:43
  And you're right, we raised, we raised a follow on fund, which
• 48:49
  is a sort of I guess a, you know, it's, it's an early growth
• 48:51
  fund because it does a lot of sort of BS, even some light A's
• 48:56
  and CS and things. And you're in our first one of
• 48:59
  those. We put, I think our limit was
• 49:03
  24% in anyone company and we put 20, sorry 25% in anyone company
• 49:07
  and we put 24% into cap. That fund is also done.
• 49:11
  Is that $100 million continuity vehicle or something around
• 49:15
  there? A. $127 million.
• 49:18
  OK. 20 times it's capital at the moment.
• 49:21
  So it's it's done really well as well.
• 49:23
  I should say we, we talk a lot about Canva and I, I do need to
• 49:26
  say we had a bunch of other awesome companies that came in
• 49:29
  through respond and the, and the follow on fund, a company called
• 49:32
  Zoox, which is the driver's car company that was bought by
• 49:36
  Amazon. We didn't make a huge multiple
• 49:38
  on that, but it was an amazing story to be on the on the
• 49:42
  journey with safety culture has been another really great
• 49:46
  success. That's a a great SAS company
• 49:48
  here in Australia that has driven, you know, really good
• 49:51
  returns on those first two funds.
• 49:54
  And then Cultram is another one. So there was some really good.
• 49:58
  You can strip Canberra out of that fund And if, you know, it's
• 50:01
  not a, an, an as big a win, obviously, but it's still a
• 50:06
  still a strong, we're still strong funds with without
• 50:09
  cameras. So there's, there was so much
• 50:11
  happening in the Aussie ecosystem, you know, at that
• 50:13
  time and we were pretty much there's hardly any capital
• 50:16
  around. It was such a, a great period.
• 50:19
  These were SAS companies growing up, and that's in that time.
• 50:24
  I think you had connected me with some of the folks at MOC at
• 50:27
  one point when I was down there. And I remember talking with them
• 50:29
  and a few other RCDCS and LPS. And it was really interesting
• 50:34
  hearing their perspective because I guess there had been a
• 50:38
  lot of money put into the late 90s, you know, DC world in
• 50:42
  Aussie that obviously didn't perform well like it did
• 50:44
  everywhere. But there was a very negative
• 50:47
  perspective on venture capital, at least what I've been talking
• 50:50
  to folks there even, you know, 2011, 1213 I think and you know,
• 50:56
  I think you guys and perhaps a few others locally may have
• 51:01
  turned that around, but it's really kind of night and day
• 51:03
  perspectives on venture capital in Australia.
• 51:07
  Yeah, it's been, it's been a wonderful like, you know, 10-15
• 51:12
  years in the ecosystem here literally from something that
• 51:16
  was, you know, as I said, four shots pieces to something that's
• 51:18
  a really vibrant both venture and and startup ecosystem here.
• 51:23
  So, yeah, back in, back when we first raised, you know, people
• 51:27
  didn't really believe you could do it.
• 51:28
  The, the, the main LP's here in Australia are pension funds,
• 51:32
  which is called superannuation. So super funds and they have
• 51:37
  kind of had invested in the, I'd say sort of early 2000s.
• 51:42
  There are a few funds that popped up and they just hadn't
• 51:45
  really delivered the the returns that that they were looking for.
• 51:50
  And so the first fund for us was all, all individuals, you know,
• 51:54
  now the institutions are ready to jump into to Aussie venture
• 51:57
  by the second fund. We, we managed to get two of
• 52:01
  those super funds to come in, which was just wonderful.
• 52:04
  And really that was just I guess perseverance, you know, going
• 52:08
  and talking to them about the first fund and then talking to
• 52:10
  them along the way and delivering on what you said they
• 52:12
  do. And in creating this, you know,
• 52:14
  I think they could start to see the returns coming through.
• 52:17
  And actually they really loved the follow on fund and we do an
• 52:20
  early stage fund and a follow on fund and, you know, around the
• 52:24
  world mainly. And and even, you know, today
• 52:26
  there's sort of more push towards early stage funds.
• 52:28
  But back then they're actually really excited in the following
• 52:31
  fund because they got we don't we don't invested in 20 these in
• 52:34
  that first fund or a basic like this is going to be canvas
• 52:37
  zooks, safety culture, culture, and you can see the companies
• 52:41
  it's going to be. And they laughed that and jumped
• 52:42
  in and gave us a, you know, kind of wealth then 127 mils, quite a
• 52:46
  large chunk of money back then for that.
• 52:49
  Since then, look, you know, the Super funds are now investing,
• 52:52
  you know, quite strongly and consistently into Aussie venture
• 52:56
  and in venture around the world. And their teams of, you know,
• 53:00
  really I think sort of grown up and become quite, quite
• 53:03
  sophisticated at investing in venture.
• 53:06
  They're a great source of capital.
• 53:07
  They are very demanding. They are highly regulated and
• 53:10
  those regulations get pushed down to us, particularly around
• 53:12
  reporting and valuation methodologies and things like
• 53:15
  that. But they're wonderful, you know,
• 53:17
  long term it's a huge full of capital and is.
• 53:21
  I was wondering if you could explain that a little bit
• 53:23
  because I, I think most people don't always understand, you
• 53:26
  know, Australia not being a huge country, but really has an
• 53:29
  outsized presence with those funds.
• 53:32
  It's it's because that the savings is mandated at the
• 53:35
  government level is that. Correct.
• 53:36
  Yep. So 12% of everyone's salary
• 53:39
  before you get it gets siphoned off and put into a
• 53:42
  superannuation fund. And there are many
• 53:44
  superannuation funds. Some are run by sort of the
• 53:47
  industry bodies, some are run by banks.
• 53:50
  And so you know, they, they're big, they're sort of multi $100
• 53:53
  billion organizational funds now and then, you know, all the way
• 53:57
  down to smaller ones. And then you can actually set up
• 54:01
  your own Superfund and run it yourself called a self managed
• 54:04
  Superfund. Obviously you need to have a
• 54:05
  certain scale of of capital to do that and make it worthwhile.
• 54:09
  But this has been this huge pool of capital that is kind of self
• 54:14
  growing and means that even in tough times, you know, like
• 54:18
  downturns when you get denominator effect, they grow
• 54:21
  themselves out of that denominator effect because of
• 54:23
  this constant inflow of 12% of everyone's, the whole country's
• 54:27
  salary going into this site pool.
• 54:29
  And it's, I think it's about $4 trillion Aussie at the moment
• 54:32
  and just growing, you know. Yeah.
• 54:35
  So it is a beautiful long term pool of capital.
• 54:38
  Has has that pool of capital always been available in
• 54:41
  venture, Has it always been allocated in venture or has that
• 54:43
  changed over the years? So back when I was at, you know,
• 54:46
  MLC and, you know, the early 2000s and, you know, we were
• 54:50
  investing from that subgranulation pool, but mainly
• 54:52
  offshore. And then as I said, a bunch of
• 54:55
  them came in in the early 2000s into a bunch of Aussie firms
• 54:57
  that didn't quite make it. And then now we have this kind
• 55:00
  of, I guess you know, maybe you know, 15 old years ago, this
• 55:04
  sort of reset of the system and the new group of VCs popping up
• 55:07
  in Australia, larger ones like us, the Blackbird air tree
• 55:11
  square peg main sequence, sort of the larger funds.
• 55:15
  And then you have a bunch sort of that are growing up below
• 55:19
  that. And then we have, you know,
• 55:20
  probably 50 or 60 sort of different groups and Angel
• 55:23
  groups and things underneath that.
• 55:24
  So it's become this quiet, vibrant ecosystem here, which is
• 55:28
  fantastic. I wonder if you could talk a
• 55:31
  little bit about the other VC firms that are active in
• 55:34
  Australia. I know I've met.
• 55:37
  I'm sorry, Paul Bassett, I guess is one of the folks at.
• 55:40
  At Square Peg, yeah, So Square Peg.
• 55:42
  So General's firm focuses both in Australia and Southeast Asia,
• 55:46
  a little bit in Israel, a little bit in Silicon Valley.
• 55:48
  So maybe has a little bit more of an international bench as
• 55:51
  well as the Aussie market. Air tree, it's probably the most
• 55:55
  similar to us. So generalist tech, but sort of
• 55:58
  tends to be more so software and tech, a Blackbird, really big
• 56:03
  focus on global businesses. So everything we invest in, we
• 56:08
  want to be global rather than sort of focused on the Aussie
• 56:11
  market, whereas the other two will sort of do Aussie Aussie
• 56:16
  plays as well. And then we also do deep tech
• 56:19
  stuff. So everything from sort of
• 56:21
  rockets back to Gilmore Space, the, the first Aussie rocket
• 56:26
  company that the, the first Aussie orbital attempt a few
• 56:29
  months ago, which was amazing through the robotics and yeah,
• 56:33
  things like drivers, cars and things like that.
• 56:35
  So we're happy to do the, the sort of deep tech stuff as well
• 56:38
  as the, the software stuff. And then main sequence comes
• 56:41
  actually out of our government laboratories, the CSIRO, some
• 56:45
  people don't know, but it was actually invented the Wi-Fi
• 56:47
  protocol actually gets a lot of royalties from that Wi-Fi
• 56:50
  protocol and that use some of those royalties to put in and
• 56:53
  create this venture fund, which is really cool.
• 56:55
  So they do deep tech stuff only mainly coming out of the
• 56:58
  government laboratories, the universities, things like that.
• 57:02
  So that they're, they're the, the bigger funds and then a
• 57:03
  whole heap, holy problems coming up underneath.
• 57:07
  Gentlemen, we do not stop till nightfall.
• 57:10
  What about breakfast? We've already had it.
• 57:13
  We've had one, yes. What about second breakfast?
• 57:20
  Don't think he knows about second breakfast Pip.
• 57:24
  I know there was a transaction you guys did 20/19 was when you
• 57:28
  guys sold a piece of one of the first funds.
• 57:31
  Maybe if you could talk a little bit about what you're thinking
• 57:33
  was at that time, I think the fund had done very well
• 57:36
  obviously Cam and others, but what was the, you know, the
• 57:39
  thinking about the secondary component?
• 57:41
  So this is that was our first fund.
• 57:42
  It's called the 2012 fund, but slightly embarrassingly, we
• 57:46
  didn't get the first close of 2013.
• 57:48
  So it's actually 2013 vintage. So we're we were getting to
• 57:52
  2019. So we were, you know what in the
• 57:56
  sort of six seventh year of the of the fund, the fund was
• 57:59
  sitting at 13 * t VPI. So he like obviously unrealized
• 58:04
  game. We'd sold a little bit, I think
• 58:06
  we're at .3 DPI before we did it.
• 58:10
  But we really felt at 12 * t VPI it was time to kind of take some
• 58:15
  of the profits of the portfolio and we decided to do it as a
• 58:20
  what what we call the slice transaction.
• 58:22
  So we sold a slice of the whole portfolio into a GP, you know,
• 58:30
  Blackbird managed fund. I don't call it a continuation
• 58:34
  vehicle because it actually had the same, it has the same as the
• 58:39
  same expiry date as the original fund.
• 58:41
  So it was more just a, was more a liquidity vehicle rather than
• 58:47
  a, a continuation vehicle. What we sell, we sold about 120
• 58:50
  mil out of that fund into what we call a Chapter 2 fund that
• 58:57
  you know, was a really good transaction.
• 58:59
  We ended up selling at 93% of NAV.
• 59:02
  So it was a good, it's only a small so 7% discount, which is
• 59:06
  pretty good by by global standards.
• 59:09
  Obviously had a bunch of great companies in there.
• 59:11
  Yeah. So it was a, it was a good
• 59:13
  transaction. So ultimately that you sold
• 59:15
  about 1/3 of the position locked in about four X for the fund.
• 59:20
  Maybe, Yeah, yeah. 3.5 X of the funds they still had, you know,
• 59:26
  9.5 to 10, you know, 9.5 times the funds being in the ground.
• 59:32
  So that 9.5 Times Now ground to 40 times the actually the, the
• 59:39
  the secondary fund has done really well as well.
• 59:42
  It's done well for the, for the buyers.
• 59:45
  And you know, maybe we'll talk a little bit about the, the
• 59:47
  process we used, we used Lazar to to help us.
• 59:52
  So this is what we would call AGP LED transaction where you
• 59:55
  hired someone to come in value the portfolio from a third party
• 59:59
  perspective. And then I guess the acquiring
• 1:00:02
  entity or whoever bought that piece was using them as kind of
• 1:00:05
  the official price setter for the for the transaction.
• 1:00:08
  Is that correct? I think a little different, well
• 1:00:12
  maybe a little different in the less I'd really ran the process
• 1:00:16
  for us in terms of OK, going out to all the, you know, the
• 1:00:20
  classic secondary funds, helping us write the pitch deck.
• 1:00:24
  And then Nikki and I really did this process, you know, from
• 1:00:29
  Australia, you know, at all hours of the night sitting up,
• 1:00:32
  talking to various secondary funds, talking through all of
• 1:00:34
  the companies pretty much selling the funds.
• 1:00:37
  And then we were asking the potential buyers to be to such a
• 1:00:43
  set the price. I see.
• 1:00:45
  And it ended up ended up being Stepstone over in the US and
• 1:00:49
  then one of their clients, which was a actually an Aussie
• 1:00:52
  Superfund together jointly bid for it and ended up buying,
• 1:00:57
  buying it. So it was really good actually
• 1:00:58
  in that Superfund has ended up, you know, continuing investing
• 1:01:02
  in Blackbird. So it worked.
• 1:01:04
  It worked really well. That's great.
• 1:01:06
  Been a been a really good partner as well.
• 1:01:09
  John Ketnich over there LED that and I think I think it might be
• 1:01:14
  one of their very best secondary investments actually I.
• 1:01:17
  Would not be surprised at all. But at the time, and you know,
• 1:01:20
  at the time our, you know, returning 3.5 times to the fund,
• 1:01:23
  our LP's were ecstatic. And remembering that all of
• 1:01:26
  those LP's are individuals of, you know, varying wealth, but a
• 1:01:30
  whole load of them were like, you know, my mum was in the
• 1:01:32
  fund, you know, you know. Lucky and 3.5 X for only 7 year
• 1:01:39
  old fund is a pretty great story from AVC perspective.
• 1:01:42
  So obviously I think that was that was a good call and you
• 1:01:46
  know you only sold 1/3 of your overall position.
• 1:01:50
  So you still have to kind of a ton of upside there that was
• 1:01:52
  going through the rest of that. Absolutely.
• 1:01:54
  Did that, did that inform your thinking for any future
• 1:01:58
  secondary sales? How did how did that sort of
• 1:02:00
  shape your thinking about, you know, your subsequent funds and
• 1:02:04
  any other transactions in the? Future.
• 1:02:06
  Yeah, so we, we, we've done a, a bunch of sort of secondary, no
• 1:02:11
  other GP LED secondaries, although we, we started off a
• 1:02:16
  project at the end of 21 might remember Canva had just raised a
• 1:02:23
  40 bill valuation and obviously everyone knows what was
• 1:02:27
  happening at the end of 2021. The world, the, the, you know,
• 1:02:30
  prices were, were damn high so we thought that was a great time
• 1:02:34
  to sell down another chunk of camber and we we haul camber in
• 1:02:38
  multiple funds by then and we were going to sell down sort of
• 1:02:41
  a chunk at that 40. But we started the process again
• 1:02:43
  with you know the guys at Lazard helped us when we got maybe 3/4
• 1:02:47
  of the way through the process and the markets all started to
• 1:02:50
  tumble and in the beginning of 2022 happened and we just didn't
• 1:02:55
  quite get it away in time. So that we ended up pulling that
• 1:02:59
  because we didn't think we'd get the pricing that we wanted on
• 1:03:02
  that was just a Canva, A Canva secondary.
• 1:03:05
  Since then we've done some some bilateral secondaries and we've
• 1:03:09
  participated in canvas tender tender offer process and sold
• 1:03:13
  down a little bit. We did own 15% of Canva we now
• 1:03:17
  own it's about 11:00-ish. So we sold about 4% from our
• 1:03:21
  peak ownership of of Canberra really just to to start giving
• 1:03:25
  capital back, you know, in that 2012.
• 1:03:27
  So, so 13 vintage restarted, we're obviously giving it back.
• 1:03:31
  We started giving it back in our 15 vintage and our 18 vintage
• 1:03:35
  through that. So we thought that was kind of
• 1:03:37
  nice to get, get some of those funds up to sort of that one
• 1:03:41
  times DPI point. And you know, that's real.
• 1:03:45
  Always a really nice moment when you get to that one times DPI
• 1:03:48
  for a funk 'cause it stops the IRR.
• 1:03:50
  Your IRR because you know it goes.
• 1:03:54
  Yeah. How do your LP's feel about
• 1:03:56
  that? Like on the one hand, you're
• 1:03:57
  getting capital back and they're, they're benefiting and
• 1:03:59
  there's, there's a de risking of the portfolio, but is there a
• 1:04:02
  recognition that they are potentially leaving a higher
• 1:04:06
  multiple or a higher IRR on the table if you're, if you're
• 1:04:10
  exiting too early or how do you balance that tension and how do
• 1:04:14
  your LP's, how do they advise you or how do they see this?
• 1:04:18
  Well, firstly, I'd say there's a, a very wide dispersion of
• 1:04:21
  views amongst ALP's, both from institutions and individuals.
• 1:04:26
  And some people come to me and say, please sell every single
• 1:04:29
  share of Canva. You know, you've made enough
• 1:04:32
  money, We've all made enough money, just sell it and move on.
• 1:04:35
  And I'm like, no crazy. I, I hate selling even one, I
• 1:04:39
  every share of Canva that we sell.
• 1:04:41
  I, you know, I, I shed a little tear because I don't want to
• 1:04:44
  sell any. On the other hand, I think, you
• 1:04:46
  know, our, our thesis is that, you know, this is a spectrum
• 1:04:50
  here and you've got to, you've got to sit on the right spot on
• 1:04:53
  that spectrum. You know, it's not our job to
• 1:04:56
  maximize returns at the expense of, you know, taking all risks,
• 1:05:01
  like unmitigated risk. And particularly when you get
• 1:05:04
  such huge paper returns, we think it's right to start just
• 1:05:10
  returning capital along the way. Because you have, you have some
• 1:05:14
  concentration risk there at that point, right?
• 1:05:16
  Because you know, even if the company is doing fabulously, if
• 1:05:19
  they have one position, which is now, I don't know, fifty, 6070%
• 1:05:23
  or more of your funds, you're it's kind of a big bet.
• 1:05:27
  Yeah, absolutely. And and so you know, we felt it
• 1:05:30
  was it was right to do that. And we we're very much every
• 1:05:34
  time we do it, we're we're looking at the opportunity cost.
• 1:05:37
  You know, what if camera goes to this, this, this and this and
• 1:05:39
  how much are we trading off? And you know, there's no right
• 1:05:43
  answer, of course, but we're trying to get something that we
• 1:05:45
  think sort of probably sits towards the hold end of the
• 1:05:50
  spectrum, maybe 3/4 of the way towards the hold and, and you
• 1:05:54
  know, long term and go for it. But you know, is is not, is not
• 1:05:58
  just hold 100% no matter what. Well, now given that the IP OS
• 1:06:02
  are taking you know, 12 to 15 years and I guess Cam itself is
• 1:06:06
  now probably what, 14 years old, 1314 years old?
• 1:06:11
  Yep. Most BC funds are only 10 + 2,
• 1:06:13
  so that math is becoming problematic for a lot of seed
• 1:06:17
  funds where they're pulled, period.
• 1:06:20
  You know, it's actually exceeding the time frame for the
• 1:06:22
  life of the fund unless they extend the life of the fund or
• 1:06:25
  something. Yeah, have you?
• 1:06:27
  Guys had to do that. Yeah, we, we've extended 2000 13
• 1:06:32
  fund and our 2015 funds, you know, the 2012 fund is easy to
• 1:06:36
  extend because we've given back 10 times the fund that
• 1:06:38
  everyone's seriously let let Canva run and where, you know,
• 1:06:41
  our plan is to be selling off the other positions and then,
• 1:06:43
  you know, hold for this IPO moment in Canberra.
• 1:06:46
  But I do think I mean that that 10 year thing is such an
• 1:06:49
  artificial thing, right? It grew up, you know, in the
• 1:06:52
  early days of of Silicon Valley, right when VC funds were
• 1:06:55
  starting and when. The IP OS were only taking five
• 1:06:58
  to seven years instead of 12 to 15.
• 1:07:01
  When you wanted to raise, you know, more than 20 million
• 1:07:04
  bucks, you had to IPO, right, you know, go to the public, I
• 1:07:07
  can raise or whatever billion, multi billion dollars in the
• 1:07:11
  private markets. And you know, unfortunately we
• 1:07:13
  don't have enough market power yet to try and change that model
• 1:07:17
  and say we want 15, we want more.
• 1:07:19
  Our, our LP's are very much all, let's keep you to 10, which I,
• 1:07:22
  you know, is, is obviously, you know, out of, as you said, out
• 1:07:25
  of sync with what's happening in, in the market.
• 1:07:28
  And I, I do think, you know, part of starting to sell down
• 1:07:31
  bits is that we, we have sort of made this promise to, to try and
• 1:07:35
  get liquidity in 10 years. And then we're obviously going
• 1:07:38
  to use the, the extensions in most cases.
• 1:07:40
  But to, to really start wrapping things up at the end of that.
• 1:07:44
  Do you see that affecting the role of venture capital?
• 1:07:47
  Because I. We've had this conversation with
• 1:07:49
  a few other folks in the show. Where again, they're, they're
• 1:07:52
  trying to manage for a 10 to 12 year liquidity expected horizon,
• 1:07:56
  but you know, unless you're getting acquisitions or
• 1:07:59
  secondaries, IP OS are taking longer than that.
• 1:08:02
  And so people almost necessarily have to go to the secondary
• 1:08:05
  market if they want to generate liquidity before their funds
• 1:08:08
  fund life is over unless, unless they extend I.
• 1:08:11
  I think it is it is one of the. You know, biggest drivers of the
• 1:08:16
  the rising sort of secondary, the secondary market and you
• 1:08:19
  know that sort of direct secondary of selling, selling
• 1:08:22
  pieces of of our holdings, you know to another VC firm or P
• 1:08:27
  firm or other financial buyer. And we've been doing that quite
• 1:08:31
  a lot now. You know, we've sold down pieces
• 1:08:34
  in multiple companies in our 2012 fund and some in our 15
• 1:08:38
  fund, you know, really alongside, you know, we, we, we
• 1:08:44
  like it when we're, when there's a round happening and we start
• 1:08:48
  talking to the founders ahead of time that, you know, these are
• 1:08:50
  the reasons why we need to sell some.
• 1:08:53
  And you always get the best price when you do this secondary
• 1:08:56
  tacked on to a, the primary round because the founders are
• 1:09:00
  out there pitching right And they're setting the price at
• 1:09:02
  that, at that primary round. And it's actually was quite well
• 1:09:07
  in Australia. I think we've got a nice little
• 1:09:09
  tailwind in that the, the, the companies are often wanting to
• 1:09:14
  raise these sort of maybe CS or DS, but they only really need, I
• 1:09:18
  don't know, 20, thirty, $40 million.
• 1:09:20
  But they're going over to the US and and talking to the growth
• 1:09:24
  firms who really want to want to invest fifty, 100.
• 1:09:28
  And so this is nice mismatch there where we can come in with
• 1:09:32
  a secondary piece and sort of create a win win situation for
• 1:09:35
  the, for the founder, because it unlocks those larger growth
• 1:09:40
  buyers who, who would not be investing, you know, if it was
• 1:09:43
  just the small round. And for those, you know, growth
• 1:09:46
  buyers, obviously it gives them the opportunity to, to access
• 1:09:49
  these companies and, and build a larger stake in.
• 1:09:51
  So it's actually worked quite, it's worked well for us.
• 1:09:54
  We've done a done a few of them. Do you have requests from your
• 1:10:00
  LP's that? Sort of parallel that and how do
• 1:10:02
  you guys handle those requests if if LP's want, you know,
• 1:10:06
  partial or full liquidity before the end of the fund life, how do
• 1:10:10
  you how do you handle that or how do you handle that?
• 1:10:14
  So if it's so, we do get a request to.
• 1:10:16
  You know, can you, can you start getting more liquidity?
• 1:10:18
  And it's, it is actually particularly around Camber
• 1:10:21
  where, you know, one super fund, for example, you know, they have
• 1:10:26
  more Canva than they do Commonwealth Bank, Commonwealth
• 1:10:29
  Bank's the largest company in Australia on the Stock Exchange.
• 1:10:33
  And so they're like, we're a little overloaded with Canva
• 1:10:35
  here. Can you sell the this is
• 1:10:38
  actually selling within the fund.
• 1:10:39
  We've been trying to resist heavily the sort of being
• 1:10:42
  influenced by LP's saying, you know, some saying sell, some
• 1:10:44
  saying buy, some saying hold whatever and try and do what we
• 1:10:47
  really think is best for the fund.
• 1:10:49
  Of course, the way then LP can solve that is through a, you
• 1:10:52
  know, an LP secondary knowing their, their limited partnership
• 1:10:56
  holding. And we've not had a we, we, we
• 1:10:59
  get lots of small trades from sort of just individuals selling
• 1:11:02
  a few 100K here and there. And there are some secondary
• 1:11:05
  funds in Australia like second quarter who have sort of set
• 1:11:08
  themselves up and are happy to buy.
• 1:11:10
  We know them, they know our funds really spoken to Ian a few
• 1:11:12
  times there. Yeah, but he's great.
• 1:11:14
  So. That's sort of, you know, got a
• 1:11:16
  little bit of a standing. That they'll buy sort of, you
• 1:11:19
  know, smaller amounts. We haven't had a big sort of
• 1:11:23
  Insto LP sale yet, so we haven't been through that sort of
• 1:11:28
  process. But you know, I guess we would
• 1:11:31
  just be as cooperative as we can if that needs to happen.
• 1:11:35
  Well, Rick, we covered a lot and I.
• 1:11:37
  Appreciate all the time you've given us.
• 1:11:39
  I, I wonder if there's anything that you see happening, you
• 1:11:42
  know, in Australia or over the horizon, things that you're
• 1:11:45
  looking at as blackbirds grown in size now.
• 1:11:47
  What's, what's kind of on your mind for the next three, 4-5
• 1:11:51
  years and what what do you think of all the AI craziness that's
• 1:11:54
  been happening over here? How can we have a podcast
• 1:11:57
  without talking about AI? Yeah, exactly.
• 1:11:59
  Right. We've got 45 minutes.
• 1:12:01
  I haven't talked about it. Look, I, I would just say, you
• 1:12:03
  know, what's happening in Australia is.
• 1:12:05
  Is pretty awesome from a pretty small ecosystem.
• 1:12:10
  It's grown considerably. We've now got this really nice
• 1:12:14
  circle of life thing happening, which of course has been
• 1:12:17
  happening for decades in Silicon Valley, but where, you know,
• 1:12:19
  people who were early employees at Canberra and safety culture
• 1:12:22
  and go on and Eucalyptus and you name it and Alasian are now, you
• 1:12:28
  know, leaving and starting their own businesses.
• 1:12:30
  And that is a really awesome sort of flywheel.
• 1:12:33
  We're getting sort of larger teams and much more expertise
• 1:12:37
  here. So everything's growing really,
• 1:12:39
  really nicely. We have a nice situation here
• 1:12:42
  where, you know, the venture, you know, ecosystem that, you
• 1:12:46
  know, there's not too much capital.
• 1:12:48
  It's kind of a, a right sizing of capital in the early stages,
• 1:12:51
  particularly in seed. And then there's still a gap in
• 1:12:54
  the, in the sort of later stages growth, growth state.
• 1:12:59
  And then I, I look, you know, you know, just touching on it
• 1:13:01
  very briefly, but you're always in Australia and yeah, we cover
• 1:13:04
  New Zealand as well. So Australia and New Zealand,
• 1:13:07
  you sort of when there's a new wave of technology, AI is
• 1:13:11
  obviously the, the monster wave, you always hold your breath and
• 1:13:17
  think is, you know, is our region going to play and how are
• 1:13:19
  they going to play in this new wave?
• 1:13:22
  And I'm really excited and, you know, happy that Aussies and
• 1:13:27
  Kiwis have really started to step up in the AI ecosystem.
• 1:13:31
  You know, we don't have a, a, a generalist LLM out here.
• 1:13:34
  There's a couple of groups trying to do an Australian
• 1:13:36
  version of that and we'll see how, how they go.
• 1:13:39
  But what we're seeing here on the, on the sort of model area
• 1:13:43
  is the specialist models that are growing up and some really
• 1:13:45
  nice data sets in Australia. So, and for example, Harrison
• 1:13:49
  AI, which is, has built models for reading X-rays, CT scans,
• 1:13:55
  Mris, you know, medical diagnostics and builds on these
• 1:13:58
  sort of pools of data where and private equity came through and
• 1:14:02
  privatized and rolled up all of our radiology in Australia.
• 1:14:07
  And so we have some really great big pools of data that they've
• 1:14:09
  managed to get access to. So things like that.
• 1:14:12
  And then you come up through the tool layer, we've got a bunch of
• 1:14:16
  companies sort of doing picks and shovel stuff and then up to
• 1:14:18
  the application layer. And there's been a real
• 1:14:20
  explosion of, of application sort of industry vertical
• 1:14:26
  functional set sort of SAS built on, on AI that's, that's
• 1:14:30
  marching up here. So we're pretty excited about
• 1:14:33
  what's happening here. Some awesome companies that are
• 1:14:36
  playing on the global stage. Well, I I know you probably
• 1:14:40
  can't tell. Us too much about the Canva.
• 1:14:42
  IPO, but we're all hoping that that happens next year, sometime
• 1:14:46
  next year. Yeah, I'm still odds are on next
• 1:14:49
  year. I guess at a recent valuation
• 1:14:52
  corner, Ahmad. And I were looking at Canva
• 1:14:55
  valuation and also comparing it to the recent Figma IPOI guess
• 1:15:01
  the question for you is, is Figma overvalued or is Canva
• 1:15:05
  undervalued? I will, I will be diplomatic and
• 1:15:10
  say I think that. What's come out of the Figma IPO
• 1:15:14
  is kind of an indication of how well Canberra will will be
• 1:15:19
  received by the public markets. And then I'll leave it at that.
• 1:15:23
  Sounds like a fair sidestep. We'll.
• 1:15:25
  We'll appreciate and come back. To that next year or sometime, I
• 1:15:28
  guess absolutely, Rick, thanks for.
• 1:15:32
  Spending some time with us? Really.
• 1:15:33
  Appreciate it. And next time that Bill Tie
• 1:15:36
  comes down to go windsurfing, kite surfing in Australia, maybe
• 1:15:40
  I should join him and find the next start up coming down there.
• 1:15:43
  All right. OK, we're back with Valuation
• 1:15:55
  Corner and Professor Virgie. Aman, what are we going to be
• 1:15:58
  covering this week? So this week we're going to
• 1:16:00
  cover the biggest stable coin. Issuer in the world and that is
• 1:16:06
  Tether. We've mentioned them a little
• 1:16:08
  bit on this pod before, but we're going to eat dive on them
• 1:16:12
  now and talk about a rumor about a new valuation round that
• 1:16:16
  they're working on now at a $500 billion number.
• 1:16:20
  So we'll determine whether that's worth it, whether it's
• 1:16:23
  too high, too low or just right in in this week's corner.
• 1:16:28
  So let's start with what they are.
• 1:16:29
  They are at a a stable coin. They are a stable coin issuer.
• 1:16:33
  So what they do is they issue a cryptocurrency to individuals or
• 1:16:38
  institutions. They'll get more focus on than
• 1:16:40
  on individuals and institutions. And that converts into U.S.
• 1:16:45
  dollars. So it's just a way to hold a
• 1:16:47
  equivalent of AUS dollar. As of today, there's something
• 1:16:51
  like $183 billion in total value of Tether.
• 1:16:55
  The company has not done a financing round in quite a
• 1:16:58
  while. The last time was in November of
• 1:17:00
  24 and they were valued at $12 billion.
• 1:17:03
  That was the land round led by Cantor Fitzgerald.
• 1:17:05
  And in the past 12 months a lot has changed.
• 1:17:08
  The company now generates $13 billion in profit.
• 1:17:12
  They they, they said that in 2024 they make 13 billion in
• 1:17:15
  profit. As of Q2, they said there were
• 1:17:17
  10 billion year to date. As of Q3, they're now saying 15
• 1:17:20
  billion year to date. And so they are a highly
• 1:17:23
  profitable company. In fact, this makes them more
• 1:17:25
  profitable than any other asset manager in the world, including
• 1:17:28
  BlackRock. They're probably twice as
• 1:17:29
  valuable or twice as profitable as BlackRock.
• 1:17:32
  And now they're talking about raising 20 billion at a $500
• 1:17:36
  billion valuation. So I want to talk about whether
• 1:17:38
  this seems to, you know, make sense or not.
• 1:17:41
  First, just on stable coins in general, it's a very fast
• 1:17:44
  growing asset class. It had its moment in 2022 and
• 1:17:49
  then through the downturn of the market and some regulatory
• 1:17:52
  concerns, they had a couple of down years in 23 and 24 and the
• 1:17:56
  industry was almost cut in half. But it's since rebounded and
• 1:17:59
  over the past six months is now back to all time highs.
• 1:18:03
  Little over 260 billion in stable coin issuance worldwide.
• 1:18:07
  Most of that is Tether. Tether has about a 75% market
• 1:18:11
  share Circle which just went public earlier this year is
• 1:18:15
  about 20% market share. And then you have a note.
• 1:18:18
  Yeah, three or four other smaller folks like Maker, Dow
• 1:18:20
  and and finance as a as a currency and true and Gemini
• 1:18:25
  have different currencies, but that's basically the universe of
• 1:18:29
  stable coin issuers right now. So Tether is definitely the the
• 1:18:31
  dominant player. Let's do a comparison of Tether
• 1:18:34
  and then we talked about circle, who is the, the, the first one
• 1:18:38
  to brave the public markets and just start with a side by side
• 1:18:41
  and maybe see if this valuation makes sense.
• 1:18:43
  So Tether is seeking a $500 billion evaluation Circle as if
• 1:18:47
  yesterday in the stock market is worth about 36 billion.
• 1:18:50
  So that's just a sense of what the relative valuations are
• 1:18:54
  worth. Let's start with profits or
• 1:18:56
  Tether last year 2024 made 13.7 billion in profit Circle only
• 1:19:01
  $150 million in profit. So if I were to do a price
• 1:19:05
  earnings ratio, it looks like tethers about 36 times the
• 1:19:10
  earnings that they generate, and that's way better than circle is
• 1:19:14
  a is a profitable company, but at about a 240X PE ratio.
• 1:19:19
  So just based on the metrics and the profitability of the
• 1:19:21
  company, Tether seems to be like a much better, a much better
• 1:19:25
  deal. So we'll get the edge to tether
• 1:19:27
  just on profitability, but let's explore why they're more
• 1:19:29
  profitable and and what else matters to a consumer who wants
• 1:19:33
  to get into the stable coin market and buy one.
• 1:19:37
  Tether has, I'd say medium transparency.
• 1:19:40
  They do have quarterly reports that they issue on what they
• 1:19:44
  hold with their money, but they're not very detailed.
• 1:19:48
  Circle is a public company. They're doing weekly updates.
• 1:19:51
  They're doing monthly attestations, which means you
• 1:19:54
  describe what you were holding and what your reserves are like,
• 1:19:57
  and then they have to now pass like USSEC compliance, which
• 1:20:01
  means, among other things, audits.
• 1:20:03
  Tether has one thing in common with the Department of Defense,
• 1:20:08
  sorry, the Department of War in the US and the Pentagon.
• 1:20:10
  They have not passed any audits in the past couple of years.
• 1:20:14
  So they are, they have faced much more criticism and concerns
• 1:20:18
  about their transparency and their the quality of their
• 1:20:21
  financials. And so I think that is going to
• 1:20:24
  be a big edge for Circle in terms of regulation.
• 1:20:28
  Let's get the edge to Circle. They're AUS company.
• 1:20:30
  They listen to the US exchange. They're they're regulated
• 1:20:33
  therefore by the US Tether is not regulated by the US.
• 1:20:37
  They're offshore, they're in BVI.
• 1:20:38
  They do have other jurisdictions that regulate them, but nothing
• 1:20:41
  quite like the the US. OK, so let's talk about the
• 1:20:45
  reserve policy now. So when you go to a company like
• 1:20:47
  Tether or Circle and you're a consumer and you give them a
• 1:20:50
  American dollar, they pledged to give you back an American dollar
• 1:20:54
  at some feature date. And that's based on redemption
• 1:20:56
  rules and that's based on certain routes, certain policies
• 1:20:59
  and timing that that they have in their terms and conditions.
• 1:21:03
  They have to do something with that money.
• 1:21:05
  The question is what do they do with that money?
• 1:21:06
  And that is governed by the reserve policy.
• 1:21:09
  Well, in the case of Tether, you have a very, let's call it an
• 1:21:12
  aggressive and more diversified reserve policy.
• 1:21:15
  So they take your money and they put it into some cash and some
• 1:21:18
  treasuries, but also corporate bonds.
• 1:21:21
  They put some of it in Bitcoin, they put some of it in precious
• 1:21:24
  metals and other assets that they're not, they're not fully
• 1:21:27
  disclosed on their website. The only thing that circle does
• 1:21:30
  is they put it into cash and treasuries.
• 1:21:33
  It's a much more conservative, a much more safe policy in terms
• 1:21:38
  of what they do with their assets, which is much better for
• 1:21:40
  a consumer. On the flip side, tethered,
• 1:21:42
  because they're more aggressive, they're investing in more risky
• 1:21:45
  items, they can generate higher profits on those reserves.
• 1:21:48
  And so that is why they are able to generate higher profits.
• 1:21:52
  So that's something to think about.
• 1:21:54
  When you as an investor, you look at something called their
• 1:21:57
  revenue to assets ratio. You can look at, you can think
• 1:21:59
  of it like an ROA, basically when you are an investor and you
• 1:22:02
  have all this money sitting in a company like Tether that's
• 1:22:05
  sitting on reserves, what is their yields going to be like?
• 1:22:08
  What is their income? What is their ability to
• 1:22:09
  generate income? Tethers generating almost by my
• 1:22:11
  math, 11% of a 11% of income to assets on an annualized basis.
• 1:22:16
  And that's guys they're investing in things like
• 1:22:18
  corporate bonds or Bitcoin or digital crypto assets, which are
• 1:22:23
  generating relatively higher yields.
• 1:22:25
  Circle is very conservative. They're putting it into cash and
• 1:22:29
  money market funds and treasuries.
• 1:22:31
  And so they're only yielding 4% on their assets.
• 1:22:33
  So Tethers got a lot, a lot better asset utilization and
• 1:22:37
  therefore a lot more profits than Circle.
• 1:22:40
  But at the same time, Circle's a lot safer.
• 1:22:42
  And so now, now the question is, as a consumer and as an
• 1:22:45
  investor, which side of this do you want to do you want to play?
• 1:22:48
  I think that's where that's where Tethers got some work to
• 1:22:51
  do. And the reason I say that is
• 1:22:54
  Tether, as I said before, it doesn't really have a lot of
• 1:22:56
  transparency in terms of what they're holding.
• 1:22:58
  If you go to their website, you can see a high level breakdown
• 1:23:02
  of the reserves. That's on the page right here.
• 1:23:03
  Just from their from their website, they will tell you
• 1:23:06
  they'll put a lot of it into cash and cash equivalents.
• 1:23:08
  So things like commercial paper and trim deposits, that's 80% of
• 1:23:11
  what they do. But they're putting a lot of
• 1:23:13
  money into corporate bonds, They're putting a lot of money
• 1:23:15
  into secured loans. And then they just have this
• 1:23:18
  other category called, they call it other investments.
• 1:23:21
  And you don't really know what's in there, but they do, they do
• 1:23:23
  highlight digital coins. So I don't know what is in that,
• 1:23:26
  what is in that final category or how much of their income
• 1:23:29
  comes from that area. But you got to think there's
• 1:23:31
  going to be a fair amount of risk in that.
• 1:23:34
  And so if I compare that to Circle, which is very clear
• 1:23:37
  about where they put their money, they put this in their
• 1:23:39
  10K. So their annual report, they put
• 1:23:41
  this into their queues, they put this onto a weekly report they
• 1:23:44
  put out. You can see where they hold
• 1:23:45
  their money. The blue amount here is
• 1:23:48
  basically treasury bill. So that's, you know, that's a
• 1:23:51
  very safe investment. The yellow amount as cash,
• 1:23:54
  that's again a very safe investment.
• 1:23:56
  And so most of their holdings are in the the red and yellow
• 1:23:59
  areas are very safe. There's a big chunk in what they
• 1:24:02
  call a Tri party repos repurchase agreements, which is
• 1:24:05
  usually like overnight to a high quality corporation or AAA
• 1:24:09
  credits with banks. So again, very, very high
• 1:24:11
  quality. And then, you know, the rest of
• 1:24:13
  it is basically being held with banks.
• 1:24:16
  And so unless they're holding money with Silicon Valley Bank
• 1:24:19
  or or someone like that, very, very, very safe, right.
• 1:24:24
  So again, as a circle investor, you got to be thinking, OK, it's
• 1:24:27
  going to have a lower return, but a lower risk and the
• 1:24:29
  customers are going to feel a lot better off.
• 1:24:32
  So I think the interesting thing now going forward for.
• 1:24:34
  Tether is where? How, how do they want to play
• 1:24:36
  this risk spectrum? And one of the things they have
• 1:24:39
  to figure out is regulation. If they want to come to the US,
• 1:24:42
  they're going to be regulated by probably 51, at least 51
• 1:24:46
  different people, one important person at the federal
• 1:24:50
  government. That would be whoever the
• 1:24:52
  federal government decides. It's going to be the chief
• 1:24:54
  regulator. But then 50 states are also
• 1:24:56
  going to be going after the disclosures and treating Tether
• 1:25:01
  like a company operating in the company, going after their
• 1:25:03
  customers. So are they engaging in fraud?
• 1:25:05
  Are they engaging in the requisite number of disclosures?
• 1:25:09
  Tether had a little bit of trouble a few years ago now, I
• 1:25:11
  guess in April 19, there was the lawsuit they went into with the
• 1:25:14
  New York attorney general, Letitia James, and she went
• 1:25:18
  after them basically for a Co meddling client funds and not
• 1:25:21
  doing proper disclosures. And they ended up getting fined
• 1:25:24
  $18 million. And where New York goes, often
• 1:25:27
  times a lot of other states go right behind.
• 1:25:29
  So they had a hard time getting into an opera in the US because
• 1:25:32
  of this, this legal filing, which I think was resolved
• 1:25:35
  properly and, and, and settled at the time, but it does create
• 1:25:38
  legal uncertainty. So now the question for Tether
• 1:25:41
  is how do they get regulated on a go forward basis?
• 1:25:44
  And, and can they use that to then raise this big round?
• 1:25:47
  So let's go through these three possibilities and how crypto
• 1:25:50
  currencies in general could be regulated.
• 1:25:52
  You could be a currency, you could be a commodity, you could
• 1:25:54
  be security. If you're a currency, you're
• 1:25:56
  probably into the purview of the Federal Reserve or the Treasury.
• 1:25:59
  If you're a commodity, you get regulated by the CFTC.
• 1:26:02
  These are commodities are basically things you, you buy or
• 1:26:05
  sell that can be sold or traded. And then securities are things
• 1:26:08
  where you, you have an investment, you, you can buy and
• 1:26:10
  sell them, but it's a, it's an investment in a common
• 1:26:13
  enterprise with a profit expectation.
• 1:26:16
  So that's a very different regime and a much more stringent
• 1:26:19
  one as far as disclosures and liability and risk.
• 1:26:22
  Let me try something else, just as a as a as an experiment, a
• 1:26:25
  thought experiment. Maybe Dave, take you as an
• 1:26:28
  example of somebody who knows these areas pretty well.
• 1:26:30
  Where do you think gold might fall?
• 1:26:32
  Is it a currency? Is it a commodity or is it a
• 1:26:35
  security? Just based on our history and
• 1:26:37
  how the US has regulated gold in the past, What's your what's
• 1:26:40
  your intuition? Seems like that's probably a
• 1:26:42
  currency. I guess it could be considered.
• 1:26:45
  A commodity in some sense, but definitely been a store of value
• 1:26:47
  at a medium of exchange for thousands of years.
• 1:26:51
  Yes, I think your intuition is you got.
• 1:26:53
  I think you got. Two out of three, correct?
• 1:26:55
  The the actual answer is all three of them.
• 1:26:59
  It depends on oh, really, law school, by the way, the answer
• 1:27:03
  is always. This is advice for your one.
• 1:27:04
  LS out there the answer is always it depends.
• 1:27:07
  Then you got to talk about what are the answer on your first one
• 1:27:11
  L exam is it depends. For many years at Wells, a story
• 1:27:15
  value and medium of exchange legal tender in the US 'cause we
• 1:27:17
  were on a gold standard until 1971 and the Fed did regulate it
• 1:27:21
  as such. It's also a commodity.
• 1:27:24
  You can buy and sell gold. You can, you can buy it at about
• 1:27:27
  $4200 an ounce right now. You can sell it, you can store
• 1:27:30
  it. You can break it down, make them
• 1:27:31
  do jewelry or whatever else. But if you have a gold ETF,
• 1:27:35
  meaning I'm going to raise a fund, right, and put a
• 1:27:37
  prospectus behind it, and that fund's going to invest in gold
• 1:27:40
  and hold gold and wherever you want, I can redeem the value of
• 1:27:43
  gold. It now gets traded on an
• 1:27:45
  exchange and it's a security. So this is exactly where Tether
• 1:27:48
  was a year ago. It's like what I'm what am I am
• 1:27:50
  I, am I under the Fed? Am I under the CFTC in my
• 1:27:54
  commodity where I just have to, you know, basically obey rules
• 1:27:58
  around manipulation and fair disclosure or am IA security, in
• 1:28:01
  which case I have to do quarterly filings, quarterly
• 1:28:03
  updates to my investors. I can't talk about the price of
• 1:28:06
  my entity without doing a Reg FD roadshow.
• 1:28:10
  Very, very complicated and a very different set of
• 1:28:12
  liabilities. And so Tether didn't really know
• 1:28:14
  where it was. And to be fair, a lot of crypto
• 1:28:15
  currencies didn't really know what they were either.
• 1:28:18
  So we were all looking for clarity until about a year ago
• 1:28:21
  as to where crypto currencies would fall.
• 1:28:24
  And I guess the good news for Tether is there now is an act
• 1:28:28
  that passed in July of 25. It's called the Genius Act.
• 1:28:31
  And it basically says, hey, here's here's the answer.
• 1:28:34
  It is neither a security nor a commodity, OK.
• 1:28:39
  It is going to be regular by the Department of Treasury like a
• 1:28:41
  currency, but with very, very simple rules that you can you
• 1:28:44
  can satisfy. And so that at least gives you
• 1:28:47
  the answers to what lane you're going to be in, how it can be
• 1:28:49
  regulated. There are some challenges to it
• 1:28:51
  though. You have to have a one to one
• 1:28:52
  U.S. dollar peg. You must have liquid reserves in
• 1:28:56
  U.S. dollars. So if you're investing in now,
• 1:28:57
  you know, Bitcoin or other assets that don't count, you,
• 1:29:02
  you can't do that anymore and, and still fall under the Genius
• 1:29:04
  Act. You have to have monthly
• 1:29:06
  disclosures on your reserves, you have to have audits and you
• 1:29:09
  have to have fast redemption rules.
• 1:29:10
  So I think where we're headed as Tether is going to have to now
• 1:29:13
  comply with these new rules from the Genius Act.
• 1:29:16
  I think that would probably mean a lot of that probably means
• 1:29:20
  their profits go down over time because I don't think they can
• 1:29:22
  generate the kinds of yields they have been yielding.
• 1:29:24
  They'll look a lot more like Circle than like what they are
• 1:29:26
  right now. But I think if they pull it off
• 1:29:29
  then they can come USA lot of US products and maybe that you
• 1:29:32
  know, maybe they can become the leader in the US as well.
• 1:29:35
  I don't know that their $500 billion evaluation makes sense.
• 1:29:37
  If if circles at 30 billion and they get 500, that seems like a
• 1:29:41
  huge gap. We also talked in the last
• 1:29:43
  segment about Coinbase and other competition coming into space.
• 1:29:46
  It's going to be a very competitive space.
• 1:29:48
  So I don't know that Tether remains the market leader for
• 1:29:51
  very long or at least has a 75% market share for very long.
• 1:29:54
  So I think those are some of the headwinds heading in.
• 1:29:57
  So my my guess would be they get the deal done.
• 1:29:59
  They they really clean up the rack around these rules to get
• 1:30:03
  compliant with the new US government rules.
• 1:30:05
  I'm not sure that valuation makes sense though, given
• 1:30:08
  because the profit bill is going to shrink.
• 1:30:09
  I'm not sure that the valuation entirely makes sense, but I do
• 1:30:12
  think they're more valuable than circle, probably by an order of
• 1:30:14
  magnitude. I guess I wonder a couple of
• 1:30:17
  things. What is both companies?
• 1:30:19
  Make a fair amount of money on float, is that correct?
• 1:30:22
  And certainly Tether makes a lot of it.
• 1:30:24
  And it seems like in the future, in the future, I guess if
• 1:30:28
  there's competition that some of that float might be shared back
• 1:30:32
  with customers. So I, I wonder, you know, with
• 1:30:35
  competition, even though the market is dominated by Tether
• 1:30:38
  and a little bit by Circle with other entrants coming in, you
• 1:30:42
  might see, you know, price competition and potentially
• 1:30:46
  those margins might shrink a little bit if there's more of
• 1:30:50
  that float being shared back with customers across the
• 1:30:53
  industry. The other thing I wonder about
• 1:30:56
  is how much of tethers business is in the US because you know,
• 1:31:01
  given that they are stable coin customer, I think your comments
• 1:31:04
  last week was most of that stablecoin usage was outside the
• 1:31:07
  US, right? The US is maybe only 1012% of
• 1:31:11
  that. Overall, I think you're exactly
• 1:31:12
  right in both points. I think they're U.S. dollar.
• 1:31:16
  The USDC business, you got to think is mostly non-us because
• 1:31:19
  that's the reason for people to want U.S. dollar exposure is
• 1:31:23
  you're you want to peg to the US currency.
• 1:31:26
  Americans can do that very easily already.
• 1:31:28
  So what do you need someone like Tether for?
• 1:31:31
  But a lot of the new business might be like Tether gold or
• 1:31:34
  it'll be some other, you know, commodity based fund or
• 1:31:36
  commodity based coin. And I think you have to be in
• 1:31:38
  the US to to really play in that market.
• 1:31:41
  But I think you're right, there's still going to be so
• 1:31:42
  much competition now that now that the rules are getting more
• 1:31:44
  clear. And for the regulators,
• 1:31:46
  Coinbase, like, why not, you know, PayPal, Why not Square?
• 1:31:50
  Why not, you know, Wells Fargo? What, what is holding up all
• 1:31:53
  these other financial players from now issuing for the Stripe
• 1:31:58
  or Kraken or Robin Hood, right? Yeah, Total Robin is right down
• 1:32:02
  Robin Hood's alley. So there's got to be a lot of
• 1:32:04
  price competition where, where I think you're now going to have
• 1:32:06
  to pay yields on your reserves. You're, you're right about the
• 1:32:08
  float. They're all making money on
• 1:32:09
  float right now. But that's going to get
• 1:32:11
  compressed as consumers demand some kind of return on the money
• 1:32:14
  or, you know, or, or some kind of a, a cut of whatever's being
• 1:32:18
  generated off those assets. So that ROA has got to shrink
• 1:32:21
  overtime for sure. Well, certainly seems like a lot
• 1:32:23
  of the usage is happening in Asia.
• 1:32:25
  I don't know how much of that is in countries like China, Korea
• 1:32:28
  and Japan versus other countries, younger populations
• 1:32:31
  in Southeast Asia, but I guess still people view the US market
• 1:32:36
  as, you know, valuable and, you know, maybe that usage expands
• 1:32:40
  over time in the US and Europe as well.
• 1:32:44
  Well, I guess Tether is certainly a valuable company,
• 1:32:48
  whether whether it's worth 500 billion or not.
• 1:32:50
  I, I think we're going to see, you know, more and more usage of
• 1:32:54
  stable coins. I think stablecoin payments
• 1:32:57
  growth has doubled in the last year or so.
• 1:32:59
  Certainly seems like expectations are that stable
• 1:33:02
  coin usage will increase globally and companies like
• 1:33:06
  Tether are likely to still remain significant players in
• 1:33:08
  that market. Yeah, of of that I think we can
• 1:33:11
  be certain. The question is how?
• 1:33:12
  Much value. Accrues to those companies,
• 1:33:14
  those infrastructure providers over time as they competition
• 1:33:18
  heats up and whether Someone Like You know, Circle or Tether
• 1:33:21
  can maintain that kind of market share, I, I very much doubt
• 1:33:24
  without without really having to generate a lot of that money
• 1:33:27
  back to their consumers. So I think it, I think it means
• 1:33:30
  compressing profits over time. But you know, Tether's very
• 1:33:33
  innovative if we'll get into gold in other other areas too,
• 1:33:35
  other maybe, you know, commodity coins that that maybe make
• 1:33:38
  sense. And so there's probably a lot of
• 1:33:41
  opportunities for them as well. Well, it certainly seems like
• 1:33:43
  they're going to be in the list of top five or. 10 companies
• 1:33:46
  that are private and valuable. All right, Well, thanks for that
• 1:33:49
  summary of Tether. And I guess we'll be watching
• 1:33:52
  both Tether and the stable coin market as we go forward.
• 1:33:56
  Absolutely. Thank you, Dave.