Latest / trading places / SpaceX $2T IPO ?!? 🚀 Shield AI = next Anduril 🛩️ Shri Bhashyam Sydecar grows to $4B SPVs | Ep29

Transcript

SpaceX $2T IPO ?!? 🚀 Shield AI = next Anduril 🛩️ Shri Bhashyam Sydecar grows to $4B SPVs | Ep29 · trading places

0:00
The aperture of who can be a venture capitalist has been
0:03
widening. There are now multiple viable
0:05
models to be AVC beyond just the traditional, you know, committed
0:10
capital blind fund. Anthropic has been on a
0:13
generational heater since January and everything seems to
0:15
be working for them. Open AI just seems to have
0:17
misfired on at least three things.
0:20
People are starting to sell the opportunity whether or not they
0:24
have access, and then try to connect the dots to the access
0:27
later. All right, Iran, welcome to
0:50
another week in Trading Places. The world's worst.
0:54
Nah. Nah.
0:56
We're the world's best DC secondary podcast.
0:59
Soft brands. We're the only BC secondary
1:03
podcast. So we're best and burst all at
1:05
the same time. I guess we're going to start off
1:07
this week just by talking a little bit about the Private Mag
1:10
7. We've done this a few times
1:12
before. This is using the Augment Power
1:15
20 list. So I would, I would agree with
1:16
the top 2. I think SpaceX and Anthropic, I
1:19
think those are the top 2. I would actually demote open AI
1:22
after the last couple of weeks. I think Anthropic's not a real
1:26
heater and I think AI is now it's back foot a bit.
1:28
So I I would not, wouldn't knock them out of the top seven.
1:30
I'd probably demote them to like 6 or 7 and promote.
1:33
I think Anderol is a very easy story and could be the the
1:37
number 3. So I'd shuffle the order a
1:39
little bit. But otherwise, I think those are
1:41
probably the the A+ IPO candidates right now.
1:45
And then I think probably if we had to pick an up and Comer, I'm
1:49
gonna go with Sironic. I think probably Sironic is
1:52
getting a lot of attention as being the underwater version of
1:55
Anderol. Yeah.
1:57
Aman, what do you think is in your up and coming list?
2:00
I was torn between Cerebrus, which I think is right to the
2:03
edge of that top 20, but I think the one that's about to break in
2:06
is Shield AI. They just raised a new round
2:08
this week. We're gonna deep dive on them in
2:11
Valuation Corner, but I think they've got between their
2:14
military agreements they've now been able to sign and their
2:16
demonstrated technological capability, I think they're
2:18
they're about to break into the top 20, I think.
2:21
No major disagreements. Maybe in those top seven.
2:23
Anything happening in the Middle East a month?
2:25
Every day is a new story from the current demonstration on
2:29
what the what the negotiation looks like and who they're
2:31
talking to. So I think, I think the odds of
2:32
this ending within four to six weeks just seem to be a little
2:35
bit, you know, with each passing week, it gets a little bit
2:37
tougher to see that timeline materializing.
2:40
Yeah, I think we looked at this Poly market prediction market on
2:43
when the Strait of Hormuz traffic returns to normal and
2:46
this is talking about the end of April, which seems highly
2:49
unlikely. Last week that was at a little
2:52
over 30%, now it's down to 23%. So seems like it's getting
2:56
worse, not better. In terms of timing for when that
2:59
might reopen, I would, I would guess probably not before May
3:03
and maybe not even until June. That might that might push up
3:08
oil prices quite a bit Aman and inflation and I guess that has
3:12
an impact on the IPO market, right?
3:15
Yeah, we're hovering over $100 a barrel right now.
3:18
The futures markets are still pricing in a decline, but really
3:22
over the next six months and we've definitely seen after the
3:26
last Fed meeting, I think we've seen the Fed pretty much on, on
3:28
hold for the time being. So my, my expectations, we're
3:31
not going to get any rate cuts between now and September.
3:35
Yeah. So I guess that's probably gonna
3:37
knock a few IPOs off the radar for the current year, but but
3:41
probably not the top two or three.
3:44
And I guess if we look at some prediction market info on SpaceX
3:48
IPO, that one seems to be on track for June.
3:53
But I think we had a better than 50% shot of June previously.
3:57
Now this seems to be saying definitely looks like June.
4:00
That's also, I think, Elon's birthday and some alignment of
4:04
seven planetary bodies or something crazy like that.
4:08
Well, that's just for something crazy like that.
4:10
That's the planetary parade that we're all looking forward to.
4:13
That's the, the, the rare alignment of, you know, of
4:16
basically a bunch of planets. It's, it's that early part of
4:19
June that you get 6 planets between Jupiter, Mercury,
4:22
Uranus, Mars, Neptune and Saturn.
4:24
And, and this, this momentary alignment on the ecliptic path
4:27
with what better date than June 3rd to go public.
4:30
They filed their prospectus this week, Dave, their 424 B it's all
4:33
confidential. So they're, they're leaking
4:35
information selectively, but that just means that they've now
4:37
got their story straight. They're going to be able to
4:40
roadshow and and talked about and sort of test the waters on
4:43
the valuation. The really interesting bet is
4:46
what the valuation will be once at prices.
4:49
Can they crack 2 trillion? I think there's a, I wouldn't
4:53
say that's a little bit of a stretch.
4:55
Yeah, I don't think it's quite 5050, but I think there's a
4:57
decent shot maybe one in three chances to crack 2 trillion at
5:01
least on opening day. And then of course the price
5:03
will bounce around bubble lock up period or if there is a lock
5:05
up period, we don't even know. But I think there seems to be
5:08
they seem to be moving forward on on all cylinders to I guess
5:12
to coin a automotive metaphor, I don't think they're rockets have
5:16
cylinders exactly, but they are moving.
5:19
They are moving forward at full speed in order to get this thing
5:21
done in June for sure the Mig has.
5:25
You in his gun sight? What were you thinking at this
5:27
point? You don't have time to think up
5:30
there if you think you're dead. Getting back to our discussion
5:36
about Open AI and Tropic, it looks like the prediction
5:40
markets are starting to push for the Anthropic IPO happening
5:44
sooner. You'll notice the blue and green
5:47
lines have switched places in the last few months and it seems
5:50
like Anthropic is more likely to go IPO first ahead by 6040 odds.
5:57
Does that sound right to you, Aman?
5:59
Seems like I guess Anthropics, Financials and Progress are a
6:03
little bit more stable than opening eyes, right?
6:05
Now it was only three weeks ago we covered them in a valuation
6:09
corner where we debated which one seem to be the better bet at
6:12
the valuation and we both picked and profit.
6:14
They're on a generational run. They're on a heater and what's
6:17
the line from the hangover? You never walk away from the
6:19
table when you're on a heater. But you they launched, they
6:22
launched Co work back in January.
6:24
That was a big success. They were, you know, you can
6:27
basically use that to connect to Gmail and Notion and stuff like
6:30
that. They've launched Opus 4.6.
6:32
That was a huge success. They seem to have gotten into
6:35
coding as the as their breakthrough into the enterprise
6:39
IT budgets. That's been a big success.
6:41
And I think open AI is a little bit on its back foot.
6:44
They seem to be, you know, struggling to gain traction
6:46
among businesses. They're they're cutting
6:49
priorities right now and trying to focus the business a little
6:51
bit. So and drop seems like a cleaner
6:53
story. It's more of an enterprise focus
6:55
story. They don't need to raise as so
6:57
much money as open AI. They're not raising as much
6:59
money, don't have the cash burn that Open AI does, and the
7:02
evaluation is half of what Open AI is.
7:04
So they, they just seem to be a little bit more of a
7:06
straightforward story right now. I I think that makes sense for
7:08
them to go first. Yeah.
7:10
And I think the other story is that Entropic seems to be
7:13
catching up with Open AI in terms of revenue.
7:17
Certainly growth rate is ahead of Open AI, right?
7:20
Probably not raising as much money, not burning as much
7:23
money. So Nick, if you had to sort of
7:25
base this on financials alone, you'd probably be more
7:27
comfortable with Anthropic. But at the same time, some
7:31
interesting news. SoftBank just raised $40 billion
7:34
to invest more in Open AI. That's a 12 month loan with no
7:41
other collateral behind it, which sort of points to, I guess
7:44
Open AI having to file an an IPO within 12 months or you know,
7:49
SoftBank having to come up with that money in other ways that
7:52
are maybe not not so palatable. What do you think about that?
7:55
I don't know, that is what the tech crunch headline suggests.
7:57
It it's an unsecured loan. It is a 12 month term.
8:00
So that much at least tells you that SoftBank has to repay in 12
8:04
months. It's not and they are investing
8:06
in open AI but it's not necessarily true that they have
8:09
to pay back through open AI proceeds.
8:11
They also remember own a chunk of ARM Holdings, which is a
8:14
publicly traded company. They could also raise money and
8:18
equity at the SoftBank holding company.
8:20
So there are other ways they could refinance or extend that
8:22
loan. I wouldn't read too much into
8:24
the loan term. I I would guess they probably do
8:26
think open AI is a 12 month story and it's that probably
8:30
makes sense to align the term of the loan along with that the
8:34
duration of that asset. I think that's reading a lot
8:36
into it. I think SoftBank has other ways
8:37
to financially engineer and repay that loan if they wanted
8:39
to. Some other Open AI news, I guess
8:43
Open AI based on Fiji, Simo's no more side quest comments are
8:48
starting to try and you know, cut backside projects that
8:51
aren't as critical and looks like Sora, the video component
8:55
of Open AI is one of those victims and along without a wind
8:59
out of the Disney deal that they had announced a few months back.
9:03
This was a billion dollar licensing partnership with the
9:05
Disney and AI text to video application, which it's one of
9:09
like 9 things they've done. Whereas Anthropic has been on a
9:13
generational heater since January and everything seems to
9:16
be working for them. Open AI just seems to have
9:18
misfired on at least three things.
9:20
I think the Sora is probably just one big priority.
9:22
They also brought in Johnny Ives to work on hardware, remember?
9:26
Haven't heard much about that recently.
9:28
They're going after Google, they're battling for search
9:31
dominance, they're fighting, you know, cursor coding assistance
9:34
and they just don't seem to be very focused.
9:35
And I guess this is just, you know, a victim of the new, of
9:38
the new focus and desire to really limit what they're doing.
9:41
So what they can do well and and maybe preserve cash in advance
9:44
of a a new fundraising, we're planning out their IPOI.
9:47
Wonder if there is a different perspective internally, You
9:50
know, whereas, you know, previously Sam has always been
9:53
about, you know, storytelling and cheerleading and raising
9:56
money. But now Fiji Simo has maybe got
9:59
to run the ship and make sure the bills get paid.
10:02
And maybe she's starting to say, hey, let's, let's get our house
10:05
in order here and let's focus on, you know, the core business
10:08
that we're running. Top Gun was created to teach ACM
10:13
air combat maneuvering dog fighting.
10:17
Excuse me a hard on it. But the end of Vietnam that.
10:19
Ratio was back up to 12 to one. Don't tease me.
10:23
Well, an interesting announcement by Mr. Bezos, who
10:28
didn't seem to have a job recently.
10:30
He had retired or stepped down from running Amazon a few years
10:34
back, although I'm sure he's still involved at some level as
10:36
chairman. But he announced recently that
10:39
he was raising 100 billion dollars, $100 billion for an AI
10:46
manufacturing BC fund. And I'm not sure this even was
10:51
that big news. Everybody seemed to like say,
10:53
yeah, that seems like a great idea, kind of straightforward.
10:56
I'll, I'll rewind just a little bit from maybe 2017 when
11:01
somebody else announced $100 billion fund, the SoftBank
11:05
Vision Fund, which at the time seemed absolutely crazy and
11:09
incredible in size, I think 10 times larger than any other BC
11:12
fund at the moment at that time. But now $100 billion, yeah, no
11:18
big deal. All cool.
11:20
No problem, right? I mean, it's certainly a lot of
11:22
money. It would dwarf all these other
11:24
projects we've been talking to. But for the Vision Fund, it's it
11:26
would be, I guess it'd be the biggest venture fund or the
11:29
biggest tech fund ever. What do you think this odds are
11:32
of being able to raise that kind of money for this?
11:34
Do do you feel like? Odds are 100% Aman can I, can I
11:38
bet 100 and 10120% that that will happen?
11:40
Absolutely. This is going to happen.
11:43
OK, if he. Doesn't have his own money and
11:45
he's worth 200 billion, so I guess he could probably just
11:47
write the check himself. But do you think he can raise it
11:48
from other people and other other people's money or do you
11:51
think he's going? To have to I am very sure he can
11:53
raise that from other people and I would not be surprised at all
11:57
to see that be oversubscribed at $100 billion.
12:00
Wow. OK, so you're not you're not the
12:03
AI skeptic. You don't think skepticism about
12:05
AI returns is going to affect his his chances?
12:07
Do you think he's going to? I think this is a little bit
12:09
more about the hardware and manufacturing side of AI and I
12:13
think that's a shift that we're starting to see.
12:15
We talked a little bit about this last week with
12:17
announcements in robotics and Travis coming back to the market
12:21
with Atoms or at least rebranding to Atoms and talking
12:24
about physical, you know, transport and robotics and
12:27
hardware. You see Elon talking about, you
12:30
know, the hardware robotics component of Tesla and SpaceX.
12:34
So I, I think we're seeing a shift from software based AI to
12:39
hardware based AI. Not that there's a lack of
12:42
interest in software based AI, but I think there's going to be
12:44
a lot more investing in hardware, robotics,
12:47
manufacturing, automation, the physical bits component of AI.
12:51
Yeah, you may be. Right.
12:52
Well, somewhat related to all that, do you think we're going
12:56
to see a lot more defense startups now with hardware
13:00
taking precedence and the Iran war and everything?
13:03
Defense budgets are increasing. the US today spends around 3% of
13:08
its GDP on defense. That was 6% and the Reagan years
13:12
and closer to 9% when Kennedy was in office.
13:14
So it's still in a relative basis a a smaller budget than
13:18
historically, but it's increasing year over year and
13:20
Europe is increasing their budgets year over year.
13:22
And it's there's a shift away from people to software driven
13:27
technology, drones and autonomous combat vehicles.
13:30
And I think, I think that is where startups are going to be
13:33
at an advantage over some of the more traditional suppliers.
13:36
So that's that's a big part of the Androl Shield Seronic thesis
13:40
and I think that's going to continue for next for the next
13:42
decade or more. Actually, we've only done this
13:48
twice. Oh, how'd you do?
13:51
Crashed and burned on the first one.
13:53
It wasn't pretty. 2nd I don't know, I'll tell you tomorrow,
13:57
but it's looking good so far. Well, Speaking of defense, it
14:04
seems like Meta and YouTube have not had a great defense in court
14:09
lately. They've both been found liable
14:11
for social media addiction. And I think a lot of people
14:15
thought this was going to get blown by the wayside quickly and
14:17
not be a big deal. But it seems like it's becoming
14:20
a little bit more of a big deal. It is a big deal.
14:22
At the end of last week, just the last two days, Meadow was
14:25
down on 14% over the over Thursday, Friday, and even
14:29
Alphabet was down 9%. It really, I think there was a
14:32
bit of a tech downdraft. There's one case in California
14:34
we should talk about and anyone in tech should should understand
14:37
the holding. The case you're mentioning is
14:39
KGM versus men in Google. The the plaintiff is, we don't
14:42
know what her name is because it's anonymous, but her name in
14:45
the court documents is Kaylee. The legal holding here is
14:49
basically that she claimed mental health issues, anxiety,
14:53
body dysmorphia and depression and a jury found Meta and Google
14:56
guilty of, of building a negligent product that was
14:59
addictive and that was the cause of her anxiety and her issues.
15:05
This is a really problematic verdict to me.
15:08
I'll, I'll tell you why. One, I mean, I have teenage
15:10
girls just but every other teenage girl I know has these
15:12
issues, body insecurity issues to to say that they're an
15:15
actionable harm, like with the tobacco companies, the harmless
15:18
cancer and emphysema and premature death.
15:20
That's not what the that's not what's happening to teenagers
15:24
who are using social media. On top of that, there's a real
15:27
causation problem, which would we had addressed.
15:29
How do you how do you blame things like body dysmorphia or
15:33
mental insecurity on using social media?
15:35
This plaintiff, just so we understand the facts, she came
15:37
from a broken home. Her mother had fact shamed her
15:40
and abused her. Her father abandoned her own
15:42
sister, tried to commit side. Yet somehow the liability gets
15:45
assigned to YouTube. So that's the second thing
15:47
that's problematic with this jury.
15:49
And the last one that has, I think, resonance across all
15:51
attack is for 30 years, American Internet companies have been
15:56
protected by something called Section 2:30 at the
15:58
Communications Decency Act. I learned this example in in law
16:02
school, and it was what if a mafia boss calls in a hit to hit
16:06
man using a telephone? Well, the mafia boss is libel,
16:09
right? The hit man to commit commits
16:10
the murder is libel. The owner of the telephone or
16:13
the telephone company or Verizon shouldn't be liable for that
16:16
communication. They can't be held liable for
16:18
the for the illegal doings that happened with their legal
16:20
products. And so that was the premise
16:23
behind protecting Internet platforms from content put up by
16:26
their users. Well, the, the jury got around
16:28
that got around Section 230 and they said it's not the content
16:32
that makes, you know, teenagers hooked to social media.
16:35
It's stuff like the autoplay of the infinite scroll and the, the
16:38
like buttons, the features. And so imagine now if you're at
16:41
a tech company or tech developer and you're building these things
16:44
in your products. So polymarket, you don't think
16:45
polymarket or Cauchy should pay attention?
16:48
You don't think gambling or prediction markets are
16:50
addictive. Online gaming make e-commerce
16:54
more fun, but like features, you know, buy this, you bought that
16:58
comment sections, anything that encourages if you're, if you're
17:01
doing anything that encourages retention or making a product
17:03
more fun, you're, you're now going to get caught up in this
17:06
holding. So I think this will get
17:08
challenged in Congress or, you know, there'll be some laws
17:11
passed around what kids and cannot do with the Internet and
17:13
people should follow the law because there are harms done by
17:15
social media. But but this kind of creating
17:18
these laws by jury verdicts is very dangerous.
17:20
And I think it actually put a few IP OS on hold in these in
17:23
these categories where it now seems like if you have an
17:25
addictive product quote, UN quote, you may be liable.
17:28
I think there's probably something to be said for this.
17:30
Certainly the ideas of retention and morality are things that
17:34
people have been focusing on for, you know, over 10/15/20
17:37
years on Internet usage and just even Internet usage is just
17:41
general product usage. You know, to use your analogy
17:45
before about, you know, is the hitman, is the phone company
17:48
responsible for the hitman. Well, suppose that the phone
17:51
company looked at your search history, knew you were looking
17:55
for a hitman, and then called it up and said, hey, we've got
17:58
three hitman available for you to hire.
18:01
Where that's different, that's different.
18:03
Yeah. I think there's a case to be
18:04
made for if you want to regulate these things and especially
18:07
around kids. I think Congress has, or maybe
18:09
the states have a, a, placed a role to play where they could
18:12
ban, they could put interest restrictions or they could put
18:15
laws in place that say as long as you follow these rules and
18:18
you're protecting kids who are susceptible to these kinds of
18:20
features or content. To me, that's, that's great.
18:23
We should have that debate. But I, what I get concerned
18:25
about is when the jury takes a perfectly legal product and then
18:29
says after the fact, after, you know, after the somebody comes
18:32
forward and, and claims mental distress.
18:34
Well, now you're going to be on the hook for potentially
18:36
hundreds of millions of damages. But I actually don't know what
18:38
the damages are. The damages came back to only $6
18:40
million in this jury trial, but there's a discussion about
18:43
punitive damages. But I think it might be
18:44
different if you just had the videos, you know, on those
18:47
platforms, that's one thing. But if the algorithm is
18:50
encouraging playback and watching up more of those
18:53
videos, that's where maybe you're on a little bit of a
18:55
slippery slope there. And certainly, you know,
18:58
products like sports betting and prediction markets sure seem
19:01
like they might fall into this category.
19:04
Yeah, online gaming I think would.
19:08
Son, your ego is writing checks your body can't cash.
19:13
Well, Speaking of prediction markets, we have one last news
19:16
item today, which is there's a new VC fund that started by some
19:20
expedition market employees. That fund is called 5CC.
19:25
It's a $35 million fund, which wouldn't normally be big news,
19:28
except that the backers of that fund are the CE OS of both
19:32
Polymarket and Calci. Pretty interesting folks to get
19:35
behind your, your fund and a, a number of other high visibility
19:41
VIP investors are also involved in this fund, Mickey Malka,
19:46
Rivet Capital, Dreesen. So some very, very high level
19:50
notable investors. I guess we're seeing a whole
19:53
market for prediction markets and SO5CC Capital is the new
19:58
fund. And I guess you better hurry up
20:00
if you want to get into that fund.
20:01
It sounds like there's a lot of people trying to get in.
20:05
Yeah, since seemed a bit weird to you though, so I, I applaud
20:08
them for raising the fund that can trade in prediction markets.
20:11
I'm sure there are arbitrages and clever things that you know
20:14
these former Kalashi employees can do to make money.
20:17
Is it weird though that the Polymarket and Kalashi CEO are
20:19
betting somebody who's, who's like trading their site?
20:22
They'd be like going to a casino and knowing that the casino
20:24
owner, like Humphrey Bogart in Casablanca is the casino owner
20:29
and he's like staking participants at his tables.
20:32
Some of them, not all of them. Like wouldn't you, don't you
20:34
want Humphrey Bogart to like, hey, you know what, just I went
20:35
to the casino, serve the drinks, stay out of the way, don't pick
20:38
and choose winners, don't stake or you know, don't stake people.
20:41
That just seems like weird that Polymarket and college, she's CE
20:44
OS, especially when we just talked about the regulation in
20:46
the space and how that's going to be an issue with the IP OS.
20:48
Now they're out there betting on people who are betting on their
20:50
sites. I think there seems to be a very
20:52
active story here and I would bet that they're going to be
20:56
oversubscribed. Good luck to Adi Rajaprabh,
21:00
Karan and Noah's English Sternig and I guess Ella Papnick.
21:03
So. As long as the game stays clean,
21:06
I guess I'm, you know, I just, I'm, I'm hoping for them.
21:08
I'm hoping, I'm rooting for them.
21:10
How can they close me up on what ground?
21:11
I'm shocked, shocked to find the gambling is going on in here.
21:15
You're winning so. Thank you very much.
21:17
It's. Been another interesting week in
21:19
tech and VC and secondary Amman and we'll be looking forward to
21:23
the profile of Shield AI and Valuation Corner later today.
21:38
Today we're interviewing Sri Bashiyam, who's CEO at Sidecar
21:41
and Sri and I go back, way back, we actually met when he was one
21:45
of the Co founders at Equisen. Sri, welcome to the program.
21:49
What's going on in your world lately?
21:50
Hardly anything happening in SPBS, right?
21:53
Howdy you guys, Nice to be here. It's a fun time to be in SPBS.
21:56
It's a fun time to be in private markets.
21:59
Lots going on. Excited to get into it.
22:01
Absolutely. And Sri, I know that you started
22:05
probably in a lot of different worlds in finance, but you spent
22:08
a good bit of time at Equities end, which was in the news not
22:10
too long ago for getting acquired.
22:12
And then you also spend some time at Forge.
22:15
What's kind of been similar or different about your journeys at
22:18
those two companies as well as here now at Sidecar?
22:21
If there's a a common thread, it's that I've been chasing a
22:25
couple themes and theses along the way.
22:28
One of them is this idea of private markets for the public
22:32
and that alts will go more and more retail over time, which
22:37
we're starting to see a lot of action in in the recent past.
22:42
So like I was here looking at this 1314 years ago, maybe a bit
22:46
early, but it seems like it's it's coming around.
22:49
And the other one is there's a structural shift in capital
22:53
formation away from public markets and towards private
22:57
markets. And what does that mean for all
23:00
the people who participate, all the people who want to stake a
23:03
claim and growth and other types of stakeholders and issues that
23:06
need to be solved along the way. So I'd say those are some of the
23:10
things that are common. I think some of the things that
23:12
we've seen change are one of them I'd say is an attitude
23:17
about liquidity overall. When I joined this world, you
23:22
know, we were like moonlighting on the business in 2012.
23:24
We launched Equity Zen in 2013. So it was like right in the
23:29
shadows of the Facebook IPO. And that, you know, was a messy
23:34
IPO in some ways because of pre IPO trading in Facebook shares,
23:39
they were forced to go public. And there was a bit of a
23:43
retrenchment in Silicon Valley at that time where a lot of
23:46
boards and VCs would discourage founders from liquidity.
23:52
And liquidity was seen a little bit more as and like misaligning
23:56
incentives between employees and the company's mission.
24:00
And I think what we've seen overtime is there's more
24:03
understanding and nuance around how to think about liquidity,
24:06
with the biggest through line being if companies are going to
24:08
stay private longer and if they want to kind of control their
24:11
destiny in that regard, then there's a little bit of push and
24:15
pull with liquidity. You kind of have to solve
24:17
liquidity along the way if you want to stay private for
24:20
12/14/15 years. Originally I think Psycho was
24:24
created to help people do primary investment, but are you
24:26
seeing more activity in secondary than primary round
24:30
now? No, we're still seeing a
24:31
majority of primary activity, but we are seeing an uptick in
24:36
secondary activity. So it's an increasing part of
24:39
our transaction mix. I'm going to just try to get
24:41
some quick data here, but it might be something around 30% of
24:47
our, you know, deal flow by count, but actually more 40 plus
24:51
percent of our flow by dollar volume is now coming from
24:56
secondary deals. And that's gone up overtime for
25:01
sure as we've seen the secondary market kind of bounce back in a
25:04
big way over the last few years. But like zooming out about
25:08
Sidecar, like what what we really do is we make it simple
25:13
and efficient to spin up and maintain an SPV to hold a single
25:18
venture asset. And so when you zoom out and
25:21
think about what does that mean in like plain English?
25:23
It's like we, we looked at all the point of sale high touch
25:28
service provider solutions that you need to do this if you're
25:31
someone trying to be a deal maker, right?
25:35
So you can imagine legal compliance, accounting flow of
25:38
funds and banking. And we said, what do you need to
25:41
do? Ultimately the job is around
25:43
sourcing and closing on a deal in time.
25:46
And so how can we collapse these high touch jobs via technology
25:50
and just help the deal organizer get their transaction done?
25:54
And at the same time they can then instead of focusing on
25:57
middle and back office OPS stuff, they can go and focus on
26:01
relationship building with founders and relationship
26:04
building and cultivation with investors.
26:08
Yeah. I think, you know, probably when
26:09
the SPD industry was getting started, let's just say
26:12
somewhere in the last five to 10 years maybe it's gotten to a
26:15
much larger awareness and level. Has your perspective and Nick's
26:20
perspective changed on who the initial customers you were
26:23
serving were? Where it started was this
26:26
origins in the company started in 21.
26:28
So the market dynamics then were that the aperture of who can be
26:32
a venture capitalist has been widening and people who might be
26:37
moonlighting because they have deal flow, right?
26:40
Maybe they're a tech executive or an engineer, but they have
26:42
deal flow. So as a side hustle, they could
26:44
do some investing work or maybe you know, they have a large
26:48
audience on Twitter or sub stack and they can monetize that
26:51
audience and following who has trust in them and monetize their
26:54
deal flow accordingly. And so we started seeing
26:57
different versions of who can be AVC emerge and we started seeing
27:01
more and more folks who would do deal by deal investing as a
27:05
business, right? So not just blind pool, draw
27:09
down capital, committed multi asset funds, but deal by deal
27:13
investing with a with an audience will be responsive to
27:16
the deals you're sourcing. And so that was like the
27:19
original kind of sweet spot was imagine tech bro who has some
27:25
access and this isn't aspiring DC is doing stuff with it.
27:30
And then emerging managers were able to build a track record on
27:33
a deal by deal basis along the way.
27:37
And then what we've seen over time is it's, you know being
27:40
increasingly used. So some of the there's some
27:43
interesting I would say like dynamics that have that have
27:45
helped us, which is, you know there have been headwinds in
27:48
venture. But what that means is there are
27:51
smaller funds, less reserves and fewer opportunity funds.
27:56
So pro rata and things like that and other follow on
28:00
opportunities are now monetized via SPV.
28:02
So we're seeing established managers, managers who are
28:06
emerging, but maybe fund 234, they're using SPVS for these
28:09
situations. We're seeing secondary
28:12
transactions be more part of what happens in the mandate.
28:19
And so SPVS are being leveraged there as well.
28:22
And then again, there are folks who they could run a business
28:26
doing deal by deal investing just on its own.
28:30
So these are the use cases. Established managers are now
28:33
looking to set up SPV programs. In the past, Co investment was
28:38
really used as a relationship tool with institutional LP's.
28:42
And now they're realizing that no, this is bigger than that.
28:45
In fact, we can maybe monetize it and set it up
28:47
programmatically. So the LP push for not just
28:52
being passive but wanting to come in direct has also helped
28:55
the evolution of how SPV's are being used.
28:59
I'll just show this post that Nick or Holly put up maybe just
29:02
a couple months ago and you know, took a first three or four
29:05
years to get to the first billion dollars on Sidecar, then
29:08
less than a year for the next 2 billion, then less than six
29:11
months for the next billion and then less than four months, I
29:15
guess in in the last, you know, since October, you already hit
29:18
another billion. Something seems like it's worth
29:21
it and. We're now at 4 1/2 billion in
29:26
AUA and I think one of the headlines here is SPV's are a
29:31
growing and permanent part of an investment managers toolkit.
29:35
So I think that's for sure, you know, one of those stories.
29:39
And then when you focus on venture, if you are an emerging
29:42
manager or someone who's in the early stage part of the market,
29:46
you can't overlook this. I think it's almost like it's
29:49
going to be a tool that helps you survive with the trends that
29:52
we're seeing in the market today.
29:53
So if mega funds are going to keep coming downstream into
29:57
early stage, be less price sensitive in how they write
30:01
checks. And then you kind of have the
30:03
hegemony of Y Combinator on the other side, and you have these,
30:08
you know, what used to be like an artisanal craft of seed stage
30:12
and early stage investors. They're getting squeezed.
30:15
And I think the smart ones are increasingly looking at how they
30:20
can use SP VS to reformulate a business model that is under
30:25
pressure right now. I feel the need the need for
30:33
speed. I guess maybe if we can lay out
30:38
a few common scenarios and customers.
30:40
So one scenario that maybe was where people started was kind of
30:45
an amateur VC person who is an entrepreneur or in the
30:48
ecosystem, had a little bit of access.
30:51
It was like, hey, you know what, I can get a little bit of money
30:54
into this, you know, companies, you know, seed round or Series A
30:58
round. And I don't have a lot of money
31:00
myself, but let me see if I can pull together A250K, maybe up to
31:04
$1,000,000, you know, position into somebody else's, you know,
31:09
1,000,005 million, $10 million route.
31:11
And in that scenario, they would say, hey, let me go find some
31:15
friends who can write 25 to 100K checks.
31:18
And I'll use Sidecar as my platform for pulling together a
31:21
small position to put into a route.
31:24
That's probably still a use case, but that maybe was an
31:27
initial use case. Another one is a fund manager
31:33
who is running a fund, made a bunch of, you know, preceded
31:37
seed investments. And then they got to a point
31:40
where some of their companies got the Series A or B and
31:43
they've got Proretta opportunities, but they don't
31:45
have enough money in their initial fund.
31:48
And now they're going to use SPVS to do follow-ups.
31:51
And I'm assuming that's also become a pretty big business.
31:55
And again, when you think of someone who might have gone out
31:58
and the last cycle, they could have no problems, raised a $50
32:02
million fund one or fund 2 and turns out that's maybe a 10 or
32:06
$20 million fund or the folks that were able to raise
32:10
opportunity funds alongside the flagship fund, those dynamics
32:15
have shifted and those are much harder to do.
32:18
And so like where there used to be a 6040 reserve policy, they
32:23
don't have that kind of room anymore and then you don't.
32:26
So this becomes the valve for how you can leverage pro rata or
32:30
other allocation for follow on. Right.
32:33
And then I think there's a third scenario, which is the one we're
32:35
starting to, you know, get more into, which is this person is a
32:39
professional investor, but maybe they're not focused on running a
32:43
fund, but they're doing larger secondary deals, bigger volume
32:49
deals, you know, 1, five, $10 million sort of deals.
32:52
And it's their daily business. So let's talk about those three
32:55
sort of customers. One that's kind of like the, you
32:58
know, scrappy side hustle doing small SPVS.
33:03
The other one which is an emerging fund manager or seed
33:05
fund manager who's using SP VS to do follow ONS in their
33:09
winners. And a third scenario, which is,
33:11
you know, maybe the professional, you know,
33:13
secondary investor who's organizing, you know, SP VS into
33:17
hot companies. You know, between those 3
33:20
scenarios, is that kind of a breakdown of your customers or
33:22
are there others that I'm missing there?
33:25
I think that's it. But then the lines blur and then
33:28
the folks who are doing pro rata and follow on, they're also like
33:34
multi $100 million AUM or multi billion dollar AUM established
33:39
managers, they're also doing this and that's because there's
33:44
institutional LP desire to go direct.
33:47
So it's above and beyond pro rata.
33:50
A way that managers can deliver value now to LP's is giving,
33:55
letting them double down on winners more directly through
33:59
through SPV's for for direct investment.
34:03
Got it. So maybe we I was focusing a
34:04
little bit too much on the SPV manager as opposed to the SPV
34:07
customer there where there's also that segmentation of SPV
34:11
customer being little guy, medium sized guy and you know,
34:15
big, big institutional. Investor guy or the other bit of
34:20
when you want that ad also is like that first bucket.
34:24
I think it includes the folks that are like side hustling, but
34:28
there are many folks that I think maybe for a while it was
34:33
called like, you know, like a regular syndicate lead, but
34:37
they're just venture managers now effectively and they're
34:40
generating fees and generating returns and making
34:43
distributions. But what they're they just don't
34:45
run a committed capital fund. It's all just deal by deal
34:49
sourcing. But we have folks on our
34:51
platform who run 20 plus deals a year.
34:54
So they're they're getting access, they're deploying checks
34:57
and they're into meaningful companies with like meaningful
35:00
Co investors in the rounds and being led by institutional
35:03
checks. They're putting in, you know,
35:05
like 500 KSPDS into them. And they're able to doing this,
35:09
do this as a going concern, which I think it's like really
35:12
interesting as like, hey, there are now multiple viable models
35:16
to be AVC beyond just the, the, the traditional, you know,
35:20
committed capital blind. What do you see as kind of your
35:24
customer base percentage wise? Which of those is the biggest
35:27
portion? Which of those is growing the
35:29
fastest? The biggest portion is going to
35:32
be the emerging manager who uses us for the Co invest and pro
35:38
rata as well as the professional syndicate lead who's running
35:42
deal by deal investment model regularly.
35:45
Now we're what we're seeing is growing cohorts are really
35:48
interesting ones. So one of them as I mentioned is
35:51
like established managers and again the signal here is we
35:57
think there's a monetization opportunity by setting up an SPV
36:01
program and not nearly relationship building with LP's.
36:06
And then we are seeing a strong growth in secondary sponsors as
36:12
well. And then lastly, we're starting
36:15
to see signal from, I would say like regulated gatekeepers, so
36:19
like wealth channels or starting to pull us towards them and they
36:23
want to put their wealth customers in some of these deals
36:26
because the customers want into those deals.
36:31
You guys really are Cowboys. What's your problem, Kozanski?
36:36
You're everyone's problem. That's because every time you go
36:39
up in the air, you're unsafe. I don't like you because you're
36:42
dangerous. That's right.
36:45
Nice. Man, I am dangerous.
36:51
I want to start diving into a little bit of the mechanics of
36:53
SPV's and some of the, you know, issues and challenges that
36:57
people have with with running them.
36:59
I also wanted to give Aman a chance to jump in because he's
37:02
actually currently executing an SPV on Sidecart and so he's got
37:06
some hands on experience and questions that maybe we can also
37:09
cover as well. It seems like the, the growth in
37:13
the Stephanie market has been really concentrated among top
37:16
names. And if you've seen in your SPDS,
37:19
have you seen like a handful of companies driving that 30 to 40%
37:23
now market market share? Because is it like, is it like
37:26
the top five or ten names or is it actually like a a broad and
37:30
and fairly healthy diverse selection of companies that
37:33
people are getting into? So there is definitely
37:35
concentration. AI is kind of dominating the
37:39
attention is something like 7 of the top ten companies that are
37:44
transaction on the platform are the AI ones.
37:47
Now we have a policy where we don't talk about specific names
37:51
on the platform, but we're also seeing a fair amount of interest
37:55
in defense tech and robotics as well.
37:58
There's a lot of action there. The capital base is now
38:01
shifting, right? And I think this is part of a
38:04
more global phenomenon where you move from institutional capital
38:08
based sources towards retail ones.
38:10
And again where there's an insufficient capital to fill
38:13
some of these needs for data centers and LLM and hyper
38:17
scalers, retail checks can start helping to fill the gap.
38:21
There's something like $36 trillion in investable assets in
38:26
US households and that is growing.
38:28
And then when you think about the shift in allocation to alts
38:32
changing over time towards more towards private markets, then
38:36
how much of that pie also goes into private markets is also
38:40
increasing. So like these are some of the
38:42
trends we're really interested in inside car, which is a bigger
38:45
story of private markets and how SPVS can be like this atomic
38:50
built building block to, you know, scale up private markets
38:55
into retail. Now it seems like there's so
38:57
much demand in the top ten 20-30 names that that opportunity is
39:03
oversubscribed. And as a result of that, you
39:06
know, amount of demand, it can be sold multiple times.
39:12
And so let's just say that there's, you know, a billion
39:14
dollar round that is oversubscribed by 5X.
39:18
You know, there's no problem for the venture managers to fill
39:20
that route. But then I wonder if other
39:23
people might say, well, let's just resell that same billion
39:26
dollars at a 30% premium to the retail market or some portion of
39:31
it. And whether or not that's
39:32
actually authorized or not maybe becomes a question now.
39:36
Because I think what we're seeing is there's so much demand
39:38
for some names. People are starting to sell the
39:42
opportunity, whether or not they have access and then try and
39:46
connect the dots to the access later.
39:47
And I, I noticed on your website now you even have layered SP VS
39:53
as a feature, not a problem. And, and let's maybe just jump
39:59
into that because I, I guess the perception of the market has
40:01
been, oh, these layered SP VS are a bad thing.
40:05
And you know, I might say, well, you know, if you have the option
40:08
to go direct, yeah, they're a bad thing.
40:09
But if you don't have the option, it's, it might be your
40:12
only option to get access to SpaceX or Anthropic or some of
40:15
these bigger names is via two layer or heaven forbid, even a
40:19
three layer SPV. Is that sort of how you see the
40:22
business evolving now? And I guess what?
40:25
What kind of challenges do you face in trying to make sure that
40:28
multi layered SP VS are played by the rules are playing
40:31
ethically? Great question.
40:32
I think it's very timely in terms of what's going on in the
40:36
market and what, what are the hot topics.
40:38
I'm with you in the idea that you you laid out, which is like,
40:43
I don't think layered SP VS are inherently bad.
40:48
I think they're more. Expensive, yeah.
40:50
Whether that's bad or not is up to the buyer.
40:52
Promoter, who's the sponsor? But there's a value they're
40:55
providing, right? Which is like, this is a way to
40:58
broaden and increase access. This is a way to allocate
41:02
capital. And it can be done right or it
41:05
can be done in sloppy ways. So one thing I want to observe
41:08
is this is like a nascent industry, right?
41:11
So how SP VS are being used? How layered SP VS are being
41:15
used? This is all pretty nascent.
41:17
The market hasn't found its footing in best practices.
41:20
But I'm not necessarily deterred by that, right?
41:22
Like we just talked to the top of the show about what was it
41:26
like in the early innings of secondaries generally, to be
41:31
sure, as with anything that's in a hype cycle like we might have
41:34
seen with crypto some years ago, the grifters are going to chase
41:38
that opportunity and try to do what they can.
41:40
And there's always a small cohort of of those folks.
41:45
But where are the issues and the pitfalls that I think people
41:48
should look out for? I think it's really in 2
41:50
dimensions. One of them are fees and one of
41:53
them is transparency. What are the things you, you you
41:56
would want them to disclose and how do you how do you combat
41:59
that in your platform? How do you police it, if you
42:01
will, to make sure that the transparency issue is is
42:04
something that's being addressed or do you do you police it?
42:07
Yeah. So a few, a few points there,
42:09
right. So transparency you could
42:11
roughly equate to disclosures and making sure that you're
42:16
disclosing what a reasonable investor would want to know to
42:19
make an informed decision. You're not leaving out material
42:22
things and the things you do disclose are accurately
42:24
described, right? Starting with what the fees are
42:27
and how many layers there are in the SPV and, and where are all
42:32
the fees, just as an example, right?
42:35
Like stacking management fees that needs to be disclosed and
42:39
known. Same thing with Carrie.
42:42
If they're like 20% carry on 2 layers.
42:45
If you, I don't know if it's like $1,000,000 in profits,
42:48
that's subject to Carrie. You go through 2 layers, 3% for
42:52
that's 800K, then another 20% and you're distributing like 74K
42:58
or or whatever or sorry, 64 K and that's 37% or 36% profit
43:03
erosion. And if that's not disclosed,
43:06
like that's really important and investor needs to understand how
43:09
much upside they're giving up with fees, right?
43:12
Like in the investment world, what you don't pay is what you
43:15
get, right? Unlike other.
43:17
Places like the. More fees you pay, that's coming
43:19
right out of your pocket, right? And so disclosing those fees I
43:25
think is important and then disclosing properly and creating
43:28
transparency around what the structures are, what are we
43:31
investing into what, what is the setup of the other SPV that
43:36
you're investing into? Are there waterfall nuances that
43:39
ought to be known there? Maybe there are hurdles in
43:41
there, maybe there are other governance things in there
43:45
relating to who has what rights and things along those lines.
43:50
So I think that piece is important.
43:51
And then the last component, I'd say on transparency is like,
43:54
what is the underlying asset and where does it live, right?
43:57
Are you investing in open AI common shares or preferred
44:01
shares? Or if you're saying, oh, you're
44:03
investing in open AI shares, are you investing in, is the SPV
44:06
getting open AI shares or is it investing in another SPV that
44:10
has the shares? Or might it be some derivative
44:12
structure? So I think these things are
44:15
important to know and then also making sure that whoever is has
44:19
the access, they have actual access, right?
44:22
Like sometimes it might be, oh, we might have access and then
44:25
the allocation's gone. Sometimes it might be, oh, the
44:29
company didn't approve the transaction, right?
44:31
So like understanding these pieces.
44:33
So I think that's a lot of, and the other element is fees, like
44:37
we really need to know how much fees are involved along the way.
44:41
And I think we can all draw subjective lines around what are
44:44
appropriate fees and what are not, but making sure at a
44:48
minimum that they're properly disclosed.
44:49
And there's going to be a point at which there's just, you know,
44:52
the fees are like, pretty high. And like, someone wouldn't want
44:55
to participate at that. At that level, you are still
45:06
dangerous. You can be my wing man anytime.
45:15
Bullshit, you can be mine. I just got this question from a
45:24
friend of mine the other day who, you know, first time
45:27
running an SPV. Like hey, what should I be
45:29
charging? You know, do I charge a normal 2
45:32
and 20 that a fund manager does on, you know, 2% per year fee
45:36
structure and 20% carry? Or is it a one time fee?
45:40
Or is it all over the map And you know, what do you see in the
45:43
market these days? You know what's the range of
45:46
scenarios people are charging? It's definitely still all over
45:51
the map and it depends on the the situation and the
45:56
relationship. So there are 00 SPSSPVS out
46:00
there and then there are SP VS that have management fee and
46:03
carry. And of course just, you know, in
46:06
my own personal network, right, I've been floated or pitched SPV
46:12
deals into quote UN quote hot AI companies with a 15% fee load
46:17
and a 20 or 30% carry. And I'm a very quick thanks.
46:20
No thanks on that one. So the, you know, the market is
46:26
all over the place. I think for the really hot
46:28
companies, the market is testing what the bounds of fees are
46:33
depending on the type of player you are.
46:37
And but I would say it is common to charge a 0 and 10 depending
46:43
on you know kind of like the bona fide efforts in sourcing
46:47
and maintenance that are required associated with that
46:49
deal. Sometimes people like charge A1
46:51
and A10 and. When you're saying one there, is
46:54
that a one time one or is that a recurring 1?
46:58
It can be a one time and it could also be for a few years.
47:02
So often you might see like 2 to three years of management fees
47:06
charged. Sometimes all it could all be
47:08
charged upfront, sometimes they're paid out over time, but
47:13
it would correspond to, you know what might be considered
47:16
investment or maintenance period after which it kind of goes
47:19
right into harvest mode. But you won't see it charged for
47:23
like 10 years of the SPD cycle really that that would be off
47:27
market in my view. It feels like outside the hot
47:30
deals and crazy deals that we're starting to see some movement
47:34
towards more of a one time fee than a recurring fee.
47:38
And I guess what we've been seeing in the market is probably
47:40
in the range of 2 to 5% one time fee seems like you know market
47:45
standards and that carry is more towards 10 to 15 than 20% these
47:52
for a single asset. So I don't I don't think the
47:54
industry is explicitly one time 1% fee, 10% carry, but I think
48:00
it's not typically a 2% per year structure 20% carry either.
48:05
It's sort of in between those two worlds of maybe it's 1% for
48:09
five years, maybe it's a one time fee of 2 to 5% and carry is
48:14
probably more in the 10 to 15% side than the 20% side is.
48:18
Is that generally accurate from what you're seeing?
48:21
I would say that's right. A very, very common.
48:23
But again there's like a wide dispersion.
48:25
Let's say a very common fee set up might be a 1% management fee
48:29
charged over two or three years collected all upfront along with
48:33
a 10% carry on on the deal. Got it.
48:37
So maybe let's say you know, retail standard of 1% per year
48:40
for five years or 5% all upfront, 3, four, 5% all upfront
48:44
is a more typical fee structure carry at 10 to 15, maybe not 20.
48:50
And then the other thing I think we've seen is folks who are more
48:54
in a broker level role charge fee, no carry.
48:58
And and it seems like there's some underlying reasons for that
49:01
where some of their customers charge a carry, but wouldn't
49:05
allow a double carry structure, but fees are OK.
49:08
And have you seen that as well? So again, just to clarify that
49:13
where the primary person who's running the SPV is a broker and
49:17
they're just charging fees, no carry, but their underlying
49:21
customers might be funds or people who do charge a carry to
49:25
their customers. Yes, yes, that we definitely see
49:30
that there's sensitivity on the carry multiplication and so we
49:36
definitely see. But less sensitivity to fees,
49:38
right? Like.
49:39
Yeah, no. No double carry but any anything
49:44
goes in terms of fees if you get access to a hot deal.
49:47
Sponsors are basically saying, yes, you can help me fill out
49:52
the deal and I'll pay you more or less like a Finder fee type
49:57
of thing for that. But I'm sensitive to how they
50:01
the carry erosion might work. So let's arrange something that
50:05
that is more aligned with the value you're providing, which
50:08
you didn't source the deal. You're going to source me some
50:10
capital. And so I'll pay you a Commission
50:13
for finding that capital. We've covered a lot of ground.
50:16
What do you see happening in the next couple years, maybe in the
50:19
next 5 years? What's going to continue in the
50:22
same direction? What do you see maybe changing
50:24
given where the business is heading?
50:27
Yeah. So I think high level, the theme
50:29
I'm interested in is also going retail.
50:32
I think that's going to make bring some big changes into the
50:36
world of venture. As an example, I think the the
50:39
chairman of BlackRock wrote in his chairman's letter for 2025,
50:44
and they're the world's largest asset manager, that the
50:47
traditional 6040 portfolio for a retail investor that has 60%
50:51
stocks, 40% bonds is going to move to 5030 twenty with 20%
50:56
going to privates. Today that number is like 2%.
51:00
So imagine, you know, as as again, I'm 10.
51:04
X increase. Of of a $36 trillion pie that's
51:08
growing on A at a kegger itself of probably 4 to 5%.
51:13
And then you have the double compounding of increased
51:15
allocation to alts. And then you have a couple other
51:18
interesting things where I think we might start seeing more
51:21
privates in four O 1 KS based on an executive order from web
51:24
store. And then we might see what can
51:27
be invested in by a venture capital firm without having to
51:31
become an RIA to include more fund of funds and secondaries.
51:35
If this deal act goes through where then you won't be limited
51:38
to 20% non qualifying investments, which which
51:41
includes secondaries, but you might be able to invest into
51:44
secondaries and fund of funds up to 49% of commitments and
51:49
investments. So I think we're there's a lot
51:52
of potential tailwinds over time that will create an infusion of
51:58
capital coming in to private markets from retail sources.
52:03
And so I think we're going to keep seeing this, the investor
52:06
base starting to turn over and move towards retail.
52:10
And I think that's going to have a lot of interesting impacts on
52:13
VC and on VC secondaries. You know, in addition to the
52:16
things that you just mentioned, I think we saw Robin Hood come
52:19
out with their, you know, public venture fund.
52:22
Think that was maybe 607 hundred million.
52:25
You have Kathy Woods arc venture fund, which is a combination of
52:28
public and privates. I think there's a few others
52:31
like the Fundrise innovation fund and Yep, guest in the XYZ
52:36
and then a few on the horizon that I think we haven't heard
52:39
about. We had Ben Black from Acadian on
52:41
the show a few months back and I, I think this is now semi
52:44
public information, but he's filed for a company called Power
52:48
Law Corporation, which also sounds like it's going to be 3
52:51
or 400 million. And aside from 5 or 6 names
52:54
right now, you can't buy into, you know, private assets as a
52:58
public investor. Yeah, but I think we're going to
53:01
see an explosion of that the next couple of years.
53:03
Is that, you know, sort of your story, what you think is going
53:06
to happen? Too.
53:07
Yeah, I think, I think we're gonna see it in different
53:11
structures. I think we'll see privates go
53:13
directly into wealth channels. I think we'll see these listed
53:16
entities continue to proliferate.
53:18
I wanna see, you know, like what will happen with, you know, I
53:21
heard Fundrise traded up a lot, but let's see where they settle
53:24
out after initial A. Lot a lot like I think a 2000%
53:28
premium on the underlying assets.
53:31
I wanna say Destiny was trading below NAV for a while.
53:35
So let's see where this this stuff shakes out.
53:40
But I think these themes are going to continue from a wonky
53:44
side. I think if SpaceX goes public, I
53:48
think it's going to be interesting to see, you know,
53:51
how distributions are figured out across all the different
53:56
layers and entanglements of SP. VS But it might be a lot of
53:59
lawsuits coming as those distributions happen or don't
54:02
happen. We'll, we'll see.
54:04
Oh, you know, the shot and SPV schadenfreude if you're into
54:08
that. I would look at what happens
54:09
with the SpaceX distributions in 2026.
54:13
SPV, Schadenfreude. That's the new term.
54:16
Well, Sri, thanks for all the time and insight.
54:20
I'm, I'm sure we're going to talk to you guys again in the
54:22
future. It seems like Sidecar is really
54:24
becoming an institution of sorts, and Congrats on on
54:29
leading the way. Awesome.
54:31
Thanks for the kind words. Always good to connect with you
54:33
guys and thanks for what you guys are doing for our corner of
54:37
the market as well with improving price discovery,
54:40
liquidity and also just education and interest in in the
54:43
in the space. Thank you.
54:45
Lot to figure out, but hopefully we are shedding a little bit of
54:47
light into the dark corner of the market.
54:55
What do we have up for Valuation Corner this week?
54:58
We're going to look at Shield AI, which is an aerospace and
55:02
defence tech company. It's one that I've been looking
55:04
at for a while. We're we're investors in
55:07
Andaril, so we know a little bit about the defence tech space.
55:11
They just raced around this week with JP Morgan in the lead and
55:14
Blackstone participating with a $12.7 billion evaluation.
55:19
That's about a 2X step up from where they were a year ago.
55:22
They've had a lot of strategics in the past.
55:24
So the last round was led by Hanwa, you probably know, but
55:27
maybe a lot of our listeners don't.
55:29
It's one of the large tables over in Korea.
55:31
So they've done a really good job of raising money from
55:33
strategics. They also have some early
55:35
venture capital from folks like a 16 and .72 and Briar Capital.
55:40
What's interesting about them is that their revenues this year
55:42
are projected at 540 million. So that's a pretty expensive
55:47
valuation. It's about a 25 times revenue
55:50
evaluation for a defense technology company.
55:53
Just as an example, Andoro is something like 12 to 13 X
55:56
revenues for this year. Now, in the case Andoro, I think
55:59
there's some secondary market activity above their last round,
56:03
but Even so, this seems like it's pricing at a premium to
56:05
Angel. So I wanted to go into this and
56:07
see what we what we thought of this, whether the valuation was
56:09
right. OK, what is SHIELD?
56:11
SHIELD is in the Marvel comic universe, they work with The
56:14
Avengers on defending the the country.
56:16
Where was that? That's a wrong shield, right?
56:18
What is the real SHIELD? That's a that's a copyright
56:20
violation. The real shield is the defense
56:23
tech company, which like the Marvel Universe, they are
56:25
selling to the military and working with the military to
56:27
protect America and its allies. The overarching goal in this
56:31
context is to have AI piloting everything.
56:34
It's all military assets, aircraft and drones and ships
56:37
and submarines and above the water and below the water and in
56:39
the air. They think AI will will
56:42
eventually be a piling piloting all of this stuff.
56:44
And they're on the cutting edge of that.
56:47
How is that maybe different from Andrel, which I think it's just
56:49
a maybe a more well known story. So SHIELD really has a focus
56:54
right now on autonomous aviation.
56:57
Andrel is much broader. They're really a broad ecosystem
56:59
that just cuts across military domains.
57:02
The shield business model kind of began with hardware, but it's
57:06
now 2/3 one third software and hardware.
57:08
So their software product is called Hivemind.
57:11
That's their flagship AI pilot program and it's really designed
57:14
to fly aircraft autonomously. And they do that in very
57:17
challenged, what they call very challenged environments.
57:19
So where GPS and and radio is not working, it's being jammed
57:22
by the enemy. Their software enables their
57:25
hardware, but other hardware as well like F sixteens to fly in
57:28
those environments. They do have some hardware.
57:31
They have AV bat that's their highly specialized autonomous
57:34
aircraft sells for about $1,000,000 a unit.
57:37
They're launching and rolling out the expat this year and next
57:40
year. So, you know, contrast that to
57:42
Andrew, which has this add powered command control software
57:45
platform called Lattice, a lot much more, much more broad and
57:48
much more across different types of autonomous interceptors and
57:52
fighter jets and fixed and drones and helicopters.
57:55
It's a much richer platform that Angel offers.
57:58
But shield is a little bit more specialized and and very
58:00
advanced in terms of what they do.
58:02
The primary hardware that they sell right now is this the the
58:07
expat that's launching this year.
58:09
It's the first airplane in the world ever that is both AI
58:12
piloted and vertical take off and landing.
58:16
It's a very advanced technology both in the hardware and
58:18
software side. Just to think about now how that
58:22
translates into revenue, They've been growing pretty quickly over
58:25
the past couple years. The companies began in around
58:28
2016 and got their first contract beginning in 2000 and
58:31
2021. They began to get real revenue.
58:33
They got to 12 and 31 million revenue in 20 and 21
58:36
respectively. In 24, they closed to
58:38
267,000,000 revenue growing at 64% a year early in March of
58:44
2025. SACRA, this is a chart from
58:46
Sacra. SACRA estimated they're at 300
58:48
million in revenue. So, but that's only in March of
58:51
2025 and that's a revenue run rate.
58:53
So we don't really know where they landed at the end of 2025.
58:56
But in their most recent press release for their fundraising,
59:00
they said they were forecasting 540 million for 2026.
59:05
So this is an updated revenue chart, but the growth rates, it
59:07
just shows where they are now and where they're headed over
59:09
the next couple years. They're projecting to be a
59:11
billion dollars in revenue by 2028.
59:15
So I guess if you think of their evaluation that way, it's a 12
59:18
or 13 X 28 revenues. So you get, you got to give them
59:21
a lot of credit for their ability to achieve that revenue.
59:23
But on that kind of a multiple they, they look a lot more like
59:26
where Andrew is right now, maybe a little bit of a premium.
59:30
Most of the revenue is still from physical hardware, the
59:33
expat and the V bat 30% is from Hivemind, but it's flipping over
59:37
the next couple years to about two thirds, 1 thirds software
59:40
versus hardware. And the software is all license
59:42
fees for hive mind that basically powers helicopters and
59:45
combat vehicles. So they look a lot more like
59:47
Andro in the next couple of years.
59:50
What they do like about them is in 2022 they were they really
59:54
had one major contract for the Air Force, a $60 million
59:57
contract in 2425. They just signed.
1:00:00
In the last 12 months they've signed a bunch of new contracts.
1:00:02
Now half of them are outside the US.
1:00:06
What is interesting, they've got contracts to the Romanian Navy.
1:00:08
They just signed in the last. Six months have signed deals
1:00:10
with Japan and Canada, Greece, Ukraine, Egypt, some of those
1:00:15
are NATO countries I guess. I guess Japan is not, Ukraine is
1:00:18
not. But these are all called NATO
1:00:20
adjacent, so allied by the US military interests and they are
1:00:24
now able to demonstrate their technology works not just for
1:00:27
the US but also for all of the American allies.
1:00:30
And so half the revenues will be international and outside the US
1:00:33
the next couple of years. And you know, that feels to me
1:00:36
like a really good story. It's it's it they actually have
1:00:38
more customers in Andrew. They've probably a a dozen
1:00:41
customers making up the majority their revenue.
1:00:43
Andrew, I think it's only four or five customers that have half
1:00:46
their revenue. In the case of Andrew, they're
1:00:48
signing billion dollar contracts.
1:00:50
Shield is not there yet, but the technology is incredible.
1:00:54
I think their fundraising has been really good.
1:00:55
And I think with these new contracts, it seems to be under
1:00:57
trajectory to be a a billion dollar company in a couple
1:00:59
years. So I think this is 1 to watch in
1:01:02
a very exciting space. In our NEWS UPDATE we also
1:01:05
talked about military defense budgets. the US is increasing
1:01:08
their military defense budget. Last year they budgeted they
1:01:11
spent 895 billion on defense. This will be the first trillion
1:01:15
dollar a year for the US ever. Europe is definitely increasing
1:01:19
their defense budgets. Seems like shield is cracking
1:01:21
some of those European and NATO allies and the technology seems
1:01:25
to be working. So it feels like an up and Comer
1:01:27
and a really exciting company in the space that just closed
1:01:30
around with some really, really good early stage investors and
1:01:33
some have some good strategics. Well, it seems like defense tech
1:01:36
is on the continued rise and seems like this company is now
1:01:42
cracking the top 20 for privately traded secondary
1:01:45
companies and Andrew is now pretty much in the top 7 or at
1:01:50
least we have discussed it being in the top 7 as well.
1:01:53
Well, thanks for another week on Valuation Corner, Aman.
1:01:56
OK. Thank you.
1:02:02
Is that news? Well, you and I were making
1:02:05
jokes about this before. You were saying that South Bank
1:02:08
is running out of money because they're borrowing $40 billion.
1:02:10
And I was like, well, if they're able to borrow $40 billion, I
1:02:12
don't think they're running out of money.
1:02:14
I. Have to borrow. $40 billion, I
1:02:17
guess that's. Interesting.