Latest / trading places / xAI SpaceX merger, LatAm 2026 IPOs, Anurag Chandra wisdom from managing pension funds & FOs | Ep22

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xAI SpaceX merger, LatAm 2026 IPOs, Anurag Chandra wisdom from managing pension funds & FOs | Ep22 · trading places

• 0:00
  So whether you have $500,000 in the bank or you have $100
• 0:03
  billion sovereign wealth fund, I need to know your horizon and I
• 0:07
  need to know your risk profile. I think 2026 will be the year of
• 0:11
  the AI agent and by the end of the year there will be like, you
• 0:14
  know, some major players who are creating these super workers,
• 0:18
  these AI agents who can work on your behalf.
• 0:21
  So did this company go public despite all this scandal or
• 0:24
  what's your? That's where you see the Latin
• 0:28
  American resilience, of course. Good morning, Aman Virgie, and
• 0:55
  welcome to another edition of our terrible, very bad,
• 0:59
  absolutely horrible VC secondary podcast, Trading Places.
• 1:03
  Let's get started with a little bit of the Rumorville on SpaceX
• 1:07
  and Tesla and XAI. Why not?
• 1:10
  All things Elon, what's what's happening there?
• 1:13
  The rumor is SpaceX is considering a merger with Tesla
• 1:18
  and or XAI into what I guess you can call Elon Inc and and that
• 1:25
  is a that would be the way to take that company public.
• 1:27
  That's kind of surprising. Well, I think there's been
• 1:29
  several different efforts by Elon to merge and acquire his
• 1:33
  own companies. I guess even going way back as
• 1:37
  far as like Solar City. Tesla acquired Solar City many
• 1:40
  years back. That was a company started by
• 1:43
  Elon's cousin, I believe, or some family connection that was
• 1:48
  a little bit controversial. Then he bought Twitter and maybe
• 1:52
  that wasn't the best use of money.
• 1:54
  And then he started XAI and merged Twitter into XAI, and XAI
• 2:01
  was raising it some crazy valuation.
• 2:04
  Now he's like, hey, let's, let's merge all that together.
• 2:09
  I don't know whether it's like SpaceX acquiring XAI or Tesla
• 2:13
  and SpaceX merging or all three of the above, but what do you
• 2:16
  what do you think is going on here?
• 2:18
  Aman, It feels, feels like we're playing, you know, musical
• 2:20
  chairs with Elon's companies. Yeah, I guess if you're betting
• 2:23
  on Elon and all all the pieces come together in A1 entity, it
• 2:27
  makes the bet simpler. I'll, I'll tell you what.
• 2:29
  One ring to rule them all. Yeah, exactly.
• 2:31
  I'll tell you what I think is is going on and what what probably
• 2:34
  happened. So buying Twitter, probably
• 2:37
  overpaying, 'cause it was a top of the market and I think you
• 2:39
  paid a market a total of 50 billion plus, probably, probably
• 2:44
  overpaid for that. But turn that into an AI
• 2:46
  windfall and now they're raising at a $230 billion evaluation.
• 2:50
  And so that's great for those shareholders.
• 2:53
  That also seems a little crazy because he's raising at a $200
• 2:56
  billion evaluation for a company that barely has two or three
• 2:59
  billion in revenue, most of that from Twitter, not necessarily
• 3:02
  from AI, right? So why is he doing it?
• 3:05
  I guess you can. Say that like, yes, yes,
• 3:09
  exactly. You know, I think there's
• 3:11
  probably some AI shine, which is why, you know, they're raising
• 3:15
  money at exorbitant valuations. You do have some built in
• 3:19
  marketing, you know, user base from Twitter that's valuable.
• 3:24
  But it, it seems like, you know, the real value here is either,
• 3:28
  you know, SpaceX, you know, which really does have
• 3:30
  substantial revenue, you know, both from Starlink and, you
• 3:34
  know, from commercial satellite launches.
• 3:37
  And then Tesla, which does have real revenue, but probably
• 3:40
  pretty inflated valuation, unless you believe, you know,
• 3:43
  really there's like robotics or other things going on in the
• 3:45
  future, but now it's coming all under one house.
• 3:49
  So I, I guess you've got a lot of revenue from SpaceX, maybe
• 3:53
  from Tesla, you've got a lot of AI from XAI and maybe from Tesla
• 3:58
  from data there. And now you got built in
• 4:00
  marketing from the Twitter audience.
• 4:02
  So I guess it does kind of make sense, but I think there's a
• 4:08
  real question about whether SpaceX shareholders want to pay
• 4:11
  for the dilution of either Tesla or XAI.
• 4:16
  I'm not sure Tesla shareholders would be OK with that either.
• 4:18
  XXI probably is OK with this, I would bet.
• 4:24
  But I don't know. It just seems crazy that all
• 4:26
  this is happening, right? You know, after or before.
• 4:29
  We're talking about, you know, a SpaceX IPO at what is 1/2
• 4:33
  trillion dollars, which might be a little bit in the high end.
• 4:38
  I guess they're all exploring options if I had to bet what
• 4:40
  will happen. The obvious energy does seem to
• 4:42
  me SpaceX and X AI, even though for the reasons you said, I
• 4:46
  think that's a 5050 coin flip because I think both groups of
• 4:49
  shelters have to agree and I'm not sure they all see the
• 4:51
  benefit. The logic would be, hey, SpaceX
• 4:53
  is worth a little bit of Starlink, like 1/4 of Spacex's
• 4:56
  market cap or something. That is Starlink, a big chunk of
• 4:58
  the launch business. And a big piece is what we
• 5:00
  talked about on Valuation Corner back in December, which is it's
• 5:04
  a bet on the future colonization of the new world, Mars and
• 5:07
  beyond. And AI is a big part of that and
• 5:09
  robotics is a big part of that. And so XAI bring some of this,
• 5:12
  some of the table. I don't know, I think Tesla,
• 5:15
  SpaceX is a long shot to happen. It may be a way to ask the mark
• 5:18
  and see what happens. I don't see the obvious energies
• 5:20
  there. Tesla did, by the way, say this
• 5:22
  week they're ending the Model X and Model S and they're going to
• 5:27
  start focusing on optimist, so AI powered robots instead.
• 5:30
  So if you ever thought that Tesla was really a car company,
• 5:33
  it it really isn't. I don't think SpaceX is just a
• 5:35
  space exploration company. They're obviously there's more
• 5:38
  to it than that. And the synergy is really where
• 5:40
  this counts. So I still know if I had a bet,
• 5:42
  I don't think, I don't think Tesla, SpaceX happens.
• 5:45
  I think us as shareholders with SpaceX kind of like the kind of
• 5:48
  like SpaceX, I'm not sure we want to be diluted, but but
• 5:51
  they'll test the market and see what happens.
• 5:54
  Well, it certainly seems like there's all kinds of speculation
• 5:56
  going on before the SpaceX IPO, and that seemed to be completely
• 6:01
  not on the table last year, but now is on the table, I guess
• 6:05
  because Elon's going to need money to build data centers in
• 6:08
  space or go to Mars, and maybe this is a wage for him to get
• 6:11
  some of that capital. An update on Anthropics raises.
• 6:15
  They've now doubled their fundraising to $20 billion.
• 6:18
  This includes CO2, GIC, Iconic and Sequoia.
• 6:21
  This is at a $350 billion valuation, which may have seemed
• 6:25
  a little nuts even just 612 months ago, but given the
• 6:28
  increasing revenue that in Europe is doing I think now
• 6:30
  maybe close to $10 billion and projected 20 plus maybe next
• 6:34
  year. What do you think about this
• 6:35
  one? A month?
• 6:37
  Well, they've definitely grown into the expectations.
• 6:40
  They recently started at 10 and up size to 20 is they're
• 6:42
  apparently 5 or 6 times oversubscribed.
• 6:45
  The lead investors that I think are sucked up the 1st 10 billion
• 6:49
  where as you said GIC and then CO2 and Sequoia.
• 6:51
  But they've got existing investors like Altimeter,
• 6:54
  Iconic, Lightspeed, Menlo Ventures, g ^2 like they're all
• 6:57
  they're all coming back for more.
• 6:58
  And I think as a result of that, they've been able to upsize.
• 7:02
  And so they, they should, it seems like they are, they're,
• 7:05
  they're going to get this deal done.
• 7:07
  They're still talking about an IPO, right?
• 7:08
  So they've, they've hired Wilson Cincini as their lawyer for the
• 7:11
  IPO. And I guess they're parallel
• 7:13
  tracking a private race and a, and an IPO.
• 7:16
  And I guess they'll go for whichever, whichever 1 is easier
• 7:18
  to execute. If I were them though, I would
• 7:20
  think I'd be racing for the IPO markets as well, trying to beat
• 7:23
  open AI to the to the gates, because that's where the capital
• 7:25
  is going to be lower cost and probably broaden their sources
• 7:29
  of capital, you know, makes sense to me as well.
• 7:31
  But in the meantime, I guess if they can raise 20 billion from
• 7:33
  these value from these investors who are all A+ investors, they,
• 7:36
  they may do that too in parallel.
• 7:38
  Yeah, I, I guess I feel like open AI has more need to raise
• 7:42
  capital than Anthropic. Anthropic seems to have come
• 7:46
  back into the picture a lot more in the last six months, both
• 7:50
  because of their revenue and their financials and their
• 7:52
  overall story. Seems like Open the Eye is the
• 7:54
  one that's been under more pressure to justify the
• 7:56
  valuation and how they can raise enough capital to kind of keep
• 8:00
  spending the way they're spending.
• 8:01
  So I think on a relative basis, even though, you know, Open the
• 8:04
  Eye baby has twice as much revenue as Anthropic or
• 8:08
  significantly more, it seems like the Anthropic story is less
• 8:11
  of a stretch and probably why the private capital raise is so
• 8:14
  oversubscribed. Yeah, it's in contrast with that
• 8:18
  Open AI is raising money, but also talking about a fourth
• 8:22
  quarter IPO. Is this Sam creating a story or
• 8:25
  is the market telling him he needs to do that?
• 8:28
  Well, they don't seem to have any.
• 8:30
  I think you're right. And Tropic is gaining a little
• 8:31
  bit of momentum on him, I think. And Tropic has got a little bit
• 8:34
  of a lead on B2B enterprises, but Open AI is definitely the
• 8:37
  winner on the consumer side. They are talking about 20 to
• 8:40
  25,000,000 in, in ARR by the middle or the end of this year.
• 8:45
  So they, they have all the elements in place for a
• 8:48
  blockbuster IPOI guess their choice is they could raise money
• 8:52
  privately from folks like Amazon or, you know, SoftBank or
• 8:55
  others. And, and maybe that's just a
• 8:57
  better source of capital for them.
• 8:59
  But I, if I were them, I would be going for the, for the IPO.
• 9:03
  Personally, I think the one, the market's open to the valuations
• 9:07
  that if they can get support from a diverse source of
• 9:10
  capital, I think that's a, a big long term factor in how they
• 9:13
  want to raise money to invest. It'll reduce their dependence
• 9:16
  on, on some of the big strategics.
• 9:19
  If I, if I had a bet though, I think it's probably like a one
• 9:21
  in three probability they actually get the deal done this
• 9:24
  year and maybe a two and three. They just decide to stay private
• 9:27
  a lot longer and raise on favorable terms and keep
• 9:30
  building their business. A lot of, a lot of that'll
• 9:32
  depend on just you know how the, how receptive the IPO markets
• 9:35
  are I guess. Sorry, you smell that?
• 9:40
  What is that? What?
• 9:42
  What's that smell? The Cologne.
• 9:44
  No opportunity, no money. Well, regardless of whether they
• 9:53
  IPO, it seems like there's a big funding round for Opening Eye
• 9:56
  that's going to happen fairly soon.
• 9:58
  They've been talking about raising money at this 750 to
• 10:03
  $800 billion evaluation. I think there was some news over
• 10:07
  the weekend about NVIDIA backing off on how big that was going to
• 10:11
  be and how high that was going to be.
• 10:13
  But Jensen Wang still said, yes, we're going to be in.
• 10:15
  So NVIDIA and Microsoft and Amazon are all in discussions to
• 10:19
  put as much as 60 billion into open AI in this range OF750830
• 10:25
  billion. Probably some Middle East
• 10:26
  investors there too. This one seems more likely.
• 10:29
  I guess maybe the size and valuation are still TBD, but
• 10:33
  seems like this is going to happen, right?
• 10:35
  Yeah, I think so. It just depends on how how much
• 10:38
  the players are the table. I don't know what NVIDIA is
• 10:41
  thinking comes to backing off or why just it's got to be in the
• 10:43
  deal terms. But the commitments they have
• 10:45
  already for Open AI is 1, SoftBank that said they're going
• 10:48
  to invest up to 30 billion. Two, Amazon is saying 10 to 20
• 10:52
  billion. So now we're talking about the,
• 10:54
  you know, not only the biggest raise of all time, Dave, but
• 10:56
  the, you know what the biggest IPO of all time is.
• 10:59
  The all time leader is Saudi Aramco at 29 billion.
• 11:02
  And that's with the green shoe. And that's with a lot of help
• 11:04
  from the Saudi government in, in terms of, let's say, pressuring
• 11:08
  friends and family to invest in that IPO, they got to 29
• 11:12
  billion. So if I'm the head of open, if
• 11:13
  I'm Sam and I'm like, I can raise 29 billion and actually I
• 11:16
  can probably raise up to 50 billion and stay private and do
• 11:19
  it from 5 or 6 investors and not go through the IPO process where
• 11:22
  then you're revealing all your information and all your
• 11:25
  financials and disclosing a whole bunch of other material
• 11:28
  relationships and strategy in the world.
• 11:31
  It may just be that Sam decides to stay private, you know, raise
• 11:33
  all the money he needs. He can, he can probably raise
• 11:35
  more than Alibaba did in its IPO in this next private round.
• 11:38
  And so that that may be the more favorable path for him.
• 11:41
  He's certainly having no trouble raising money.
• 11:43
  I'll give him that. I, I think there's a similar
• 11:46
  strategy that Sam and Elon are both following, which is I'm
• 11:50
  going to talk about an IPO at an exorbitant valuation while I'm
• 11:54
  raising a private round at half that valuation, which seems like
• 11:57
  such a deal. Because hey, you know, if I'm an
• 12:00
  IPO at a trillion or a trillion and 1/2 or even more than
• 12:03
  certainly makes sense to raise private rounds or do secondary
• 12:06
  rounds at, you know, 800 billion to a trillion.
• 12:09
  Does that seem more likely to you?
• 12:11
  I I think that's really what's going on here.
• 12:14
  It is great marketing and a great way to anchor, anchor the
• 12:16
  valuation. So higher investment bankers
• 12:18
  start the IPO roadshow, Yeah, maintain your options and
• 12:21
  that's, that is a good way to set a floor to the floor to the
• 12:24
  price. We've had a few IP OS in the
• 12:27
  past week, one of them with an insurance platform called Ethos
• 12:30
  Technologies. This raised about 200 million in
• 12:33
  an IPO offering. I think it valued the company at
• 12:36
  about $1.2 billion. How about this one, Aman?
• 12:39
  Do you think this is crazy or not so crazy?
• 12:41
  This one was. It wasn't a very strong
• 12:43
  offering. It it's a, it's an insurance
• 12:46
  company. They run a 3 sided marketplace.
• 12:48
  They don't actually underwrite the insurance counterparty.
• 12:50
  So they're running the platform where people who want insurance
• 12:52
  go onto the platform. Insurance companies are able to
• 12:54
  buy these contracts. It was kind of a subscale IPO.
• 12:57
  They were evaluated by $1.2 billion at the open.
• 13:00
  They traded down by 11%. So they're at a billion dollar
• 13:02
  IPO. They didn't raise that much
• 13:04
  money and IT. Company was doing 340,000,344
• 13:08
  million. Maybe growth isn't that stellar.
• 13:11
  Yeah, they were they're 344,000,000 in last 12 month
• 13:14
  revenue, they're projecting 385 to 387 for the year.
• 13:19
  The company was modestly profitable.
• 13:20
  So they at least had a they were able to generate profits which
• 13:23
  as an insurance company or insurance platform is necessary.
• 13:26
  I think it's it's Sequoia backed good technology, interesting
• 13:29
  company, just sort of subscale. And when you're when you're only
• 13:31
  raising, you know, at a billion dollar evaluation, you're
• 13:34
  raising $200 million in float. That's not enough for the big
• 13:38
  IPO investors like the Fidelities and the T Rowe prices
• 13:41
  to have enough to really care. So when you you're taking your
• 13:44
  chances, when you don't raise more than a couple 100 million
• 13:47
  in total IPO proceeds. So I think the trade didn't
• 13:49
  trade well on the first day. Let's see how it goes, but
• 13:52
  little bit of underwhelming for, you know, a medium quality
• 13:54
  offering. Where do you think we're headed
• 13:57
  on public company evaluations, Simone?
• 13:58
  I guess there's been some concerns lately that maybe
• 14:02
  companies, particularly SAS companies, multiples are trading
• 14:05
  down perhaps that AI and agents can replicate those companies
• 14:09
  more quickly than they have otherwise.
• 14:12
  Are you concerned that we're going to have valuations that
• 14:14
  don't make sense anymore for these companies?
• 14:17
  We've been watching the SAS category very carefully and what
• 14:20
  we what we saw in the last week was that SAS valuations dropped
• 14:24
  to I want to say about a 10 year low.
• 14:26
  So the overall median valuation in a sample of SAS companies was
• 14:31
  about 4.1 XI have not seen it that low since the IT was a SAS
• 14:35
  crash back in 2016 where we had 4X briefly.
• 14:40
  But this chart shows, you can see the the light blue chart
• 14:44
  here, the light blue line on the chart showing about a 4.1 X SAS
• 14:47
  multiple. And so you know at the at the
• 14:49
  peak of the market in 2021, we were we were at about 18 to 20X.
• 14:53
  So the valuations have come way down 70 to 80% now from the
• 14:56
  peak. There is some bifurcation on
• 14:59
  growth. So the higher growth companies
• 15:01
  like we're going to get more than 22% year over year.
• 15:03
  I just picked 22% because that's sort of the top, you know, top
• 15:06
  quartile or top decile companies.
• 15:09
  Those multiples are holding up OK, 12X multiple if you're
• 15:12
  growing at 22% plus. But if you're growing at the at
• 15:15
  the mid stage 15 to 22%, it's a 7X multiple.
• 15:18
  And then a lot of these companies aren't even trading,
• 15:20
  aren't even growing at 15%. So what what the market is
• 15:23
  really pressing on now I think is you got to be able to show
• 15:27
  growth. If AI is a disruptor coming
• 15:30
  after your business, I think you have got to be able to show that
• 15:32
  you have retention, good unit retention economics like your
• 15:35
  customers aren't leaving you for AI competitors.
• 15:38
  And then you'll get the seven to 10X growth multiples we've seen
• 15:40
  in the space before or a premium to that.
• 15:42
  If you're, if you can't show that or your growth rate falls
• 15:45
  below 15%, that's, that's, that's about as tough the SAS
• 15:48
  market as, as I've ever seen it. And AI is just sucking a lot of
• 15:51
  the oxygen and capital out of the room as well.
• 15:55
  This is a great post that it's called clouded judgement.
• 15:58
  John and Ball from Altimeter puts it together.
• 16:00
  On the macro front, we've got a new Fed chair coming.
• 16:03
  Who's Kevin Worsch and what is he going to bring to the table?
• 16:06
  Is that what Trump wants these days?
• 16:08
  It's a great question. So back on December 16th, we had
• 16:11
  highlighted the last four or five men standing.
• 16:16
  I think they're all men who were in the in the final running.
• 16:18
  They're all being interviewed by Scott Besant as to who the Fed
• 16:20
  chair would be. I picked Kevin Walsh.
• 16:23
  And then, you know, that that time it looked like he was a bit
• 16:25
  of a long shot. But a couple of the ones who
• 16:27
  fell out of the running were highly qualified economists,
• 16:31
  just much more closely aligned to Trump and Trump's agenda.
• 16:35
  And they were agreeing to them on like, tariffs and on trade
• 16:39
  and on interest rates. And I think the market actually
• 16:42
  didn't react very favorably to those names.
• 16:44
  And what ended up happening was those guys fell out, folks like
• 16:47
  Steve Mirren and, and Warsh is a new pick.
• 16:51
  Warsh is a, he's a Stanford grad.
• 16:53
  He went to Harvard Law School, like me.
• 16:55
  He was at Stanford and studied public policy.
• 16:57
  So I have a bit of a sympathy for him because we have, you
• 17:01
  know, we have similar backgrounds.
• 17:02
  He was also at Morgan Stanley and, and I was on Wall Street.
• 17:04
  So I think I understand a lot of what his background is and what
• 17:07
  he thinks. He's been a very frequent critic
• 17:08
  at the Fed. He has been writing for the past
• 17:12
  10-15 years about Fed mission creep and policy creep and was a
• 17:16
  critic of that. He has been on the side of
• 17:19
  deregulation and taxes. And so that's, you know, those
• 17:23
  are kind of orthodox center right policies.
• 17:26
  He's also been, he was, he was a Fed governor in 2006, 2010, and
• 17:30
  he quit in 2010 because he questioned Ben Bernanke's policy
• 17:34
  at the time. Bernanke, by the way, was a
• 17:36
  Republican Fed chair, you know, a very successful one.
• 17:40
  But Bernanke was a big easy money kind of guy, quantitative
• 17:44
  easing kind of guy, lower interest rate kind of guy who
• 17:46
  guided the Fed through the last crisis in 2000 and eight 2009
• 17:50
  worst dissented. He was much more of an inflation
• 17:52
  hawk. He's much more of a a tight
• 17:53
  money guy. And so I think the market
• 17:55
  actually wrapped in quite favorably at his his his pick.
• 17:58
  Just to the point about, you know, Trump, Trump has been a
• 18:00
  fan of lower interest rates and and and making sure that he's
• 18:05
  been all over Powell about keeping rates too high for too
• 18:07
  long. Worst is sort of saying you
• 18:09
  know, the the right things and talking about policies that
• 18:13
  Trump would support, but he's also a very rules based guy, a
• 18:17
  very market credible guy. So he's he's, I think, finding
• 18:19
  that balance between being loyal to the president who has to
• 18:22
  appoint him and also what the markets want to hear, which
• 18:25
  ultimately is he's not going to do what the president wants all
• 18:27
  the time. He's going to have his own
• 18:28
  perspective. He wants to be an inflation
• 18:30
  hawk. He's going to be a tight money
• 18:31
  guy or sound money guy. And we'll build a process to do
• 18:35
  that. So look, anyone you're going to
• 18:37
  get appointed by Trump is going to be loyal to Donald Trump.
• 18:40
  That's for sure. Of this, of the people that were
• 18:42
  in the running, I think force is probably the most credible with
• 18:46
  the markets, the most credible type money guy in the group.
• 18:48
  So and he's a fantastic economist and very, very smart
• 18:51
  guy. So I think he'll actually be a
• 18:52
  really good Fed chair. Object.
• 18:57
  Object to the test. Good do.
• 19:00
  You feel it. No.
• 19:01
  Oh, that's. Extremely convenient for you.
• 19:05
  We have a couple of companies in the news that are automotive
• 19:07
  related. The biggest one is Waymo raising
• 19:10
  16 billion at $110 billion valuation.
• 19:13
  Aman, do you think that 110 billion is a reasonable
• 19:16
  valuation? Now 12 of the 16 billion that
• 19:18
  they're raising is from Alphabet, which is tech to their
• 19:21
  owners. And you might say, well,
• 19:22
  Alphabet's going to put their thumb on the scale and raise the
• 19:25
  valuation. But Waymo did bring in a lot of
• 19:27
  great new investors like Dragon Ear, Sequoia, DST Global, some
• 19:31
  existing investors, I think like A16Z and the the Abu Dhabi
• 19:35
  sovereign wealth fund, Mubadala was participating as well.
• 19:38
  So they brought in some old players, some new players and
• 19:41
  their valuations a little bit north of where we thought, which
• 19:44
  was, as you say, maybe optimistic.
• 19:46
  But they also said that they are at 350 million in annual
• 19:48
  recurring revenue. So that you know, which is
• 19:51
  amazing. That's actually far more than I
• 19:52
  thought they were at. And they're, they're probably a
• 19:54
  year ahead of plan as far as like the number of rides and
• 19:57
  their modernization then where we mapped out on our on our
• 20:01
  valuation corner. So.
• 20:02
  I think that valuation reflects their performance.
• 20:05
  So at a $350 million revenue run rate in 100 or $110 billion
• 20:09
  evaluation, we're really talking about a revenue multiple of
• 20:13
  almost 300. That's pretty, pretty nuts.
• 20:16
  Is that justifiable? That does seem a little out of
• 20:19
  bounce. I'll just say this.
• 20:20
  I think they've turned, I think they've turned these things on.
• 20:22
  If you're in the Bay Area, you'll you'll see 10 times more
• 20:25
  Waymos now than you would did six months ago.
• 20:27
  And they are everywhere and they're becoming available in
• 20:30
  all kinds of in all the major cities now.
• 20:31
  I think in the next couple years they are on a path where they'll
• 20:34
  generate billions in revenue to get much closer to what you
• 20:37
  think of reasonable multiple is. Well, another company that's
• 20:40
  involved in driverless taxis, Wabi, is raising up to a billion
• 20:45
  dollars. There's a partnership with Uber
• 20:46
  here going on. I guess 750 million has been
• 20:49
  raised from Khosla Ventures and G2, but then the potential
• 20:53
  another 250 million from Uber and a partnership with Uber to
• 20:56
  deploy 25,000 robo taxis. I guess this valuations kind of
• 21:01
  driven by both the potential for the company as well as the
• 21:04
  partnership with Uber. Does Wabi sound like somebody
• 21:07
  that can compete with Waymo and Tesla in this driverless, you
• 21:11
  know, taxi world? Yeah, I would have seen.
• 21:14
  So the, the, the investors they've got are terrific
• 21:17
  investors. They've obviously that
• 21:18
  partnership matters a lot. They've obviously kicked the
• 21:20
  tires on the technology, so I thought assume they can, you
• 21:23
  know, they can do it and with the distribution advantage they
• 21:25
  have with Uber, I guess they can generate a lot of value to Uber
• 21:28
  specifically. So I think it's probably a good
• 21:31
  investment for Uber, but it really, you know, the, the fact
• 21:33
  they can get coastline other investors in is a that's a
• 21:36
  really good sign for them. TikTok settled their social
• 21:39
  media addiction lawsuit ahead of a upcoming trial.
• 21:42
  But there's the potential for a pretty big liability with a lot
• 21:45
  of the social media companies. Aman, can you explain this one
• 21:48
  to us a little? For about the last dozen years
• 21:50
  or so, hundreds of parents have been suing social media
• 21:53
  companies in a series of lawsuits and tort law,
• 21:56
  essentially claiming that these products social, that these
• 21:59
  social media products are intentionally addictive and
• 22:02
  harmful. They've all been consolidated
• 22:04
  down into a couple of cases. There's a big one in Los Angeles
• 22:07
  County where they're now doing jury selection and the lead
• 22:11
  plaintiff is just KGM. It's a it's a 20 year old woman
• 22:15
  who suffered harm at the hands of social media.
• 22:18
  And the things that you have to prove in order to win this
• 22:20
  lawsuit are that it's addictive and harmful.
• 22:22
  The really five elements that you learn in law school about,
• 22:25
  you know, what trials go through, you have a duty of
• 22:27
  care. The company breached that that
• 22:29
  duty because they breached their duty to some, they cause some
• 22:32
  kind of harm to the, in this case, the team.
• 22:35
  That is going to be really hard to prove, I think because if you
• 22:38
  are a teenager and you are suffering from, you know,
• 22:41
  anxiety, depression, self harm, suicidal thoughts, eating
• 22:45
  disorders, all kinds of things can cause that, right?
• 22:48
  Like you were the victim of child abuse, for instance.
• 22:49
  If I'm the defendant's lawyer, I'm like, well, that this would
• 22:51
  cost all those things, not my client's product.
• 22:54
  But anyway, this is what the, this is what the trial's going
• 22:56
  to be about. Are these things intentionally
• 22:58
  harmful? Are they addictive?
• 23:00
  And the, the real challenge, I think for any product manager in
• 23:03
  the Valley is that if the jury concludes that, yes, these
• 23:06
  things are harmful because of things like, you know, infinite
• 23:09
  scroll or autoplay or just use of algorithms to make this thing
• 23:13
  more attractive to teens. Like every coder in the Valley,
• 23:16
  everyone who launches an app in the Valley is now unnoticed that
• 23:18
  maybe you're going to be liable if, if this is the standard that
• 23:21
  the jury finds. So it's, it's an interesting
• 23:24
  trial. I hope for the court, you know,
• 23:25
  for the sake of technology and tech entrepreneurship, that,
• 23:28
  that the jury figures out how to limit the liability here just to
• 23:31
  actual harm done and doesn't go overboard.
• 23:34
  But you know, you never know with the jury.
• 23:35
  Tech talk is apparently settled. Snapchat has settled.
• 23:37
  They don't, they don't want to take their chances with this
• 23:39
  case. But going to trial will be
• 23:41
  Instagram for sure, and Google and YouTube and and Facebook.
• 23:44
  So I expect that Zuckerberg will testify.
• 23:47
  I, I suspect this will be in the news for the next 6 or 8 weeks.
• 23:50
  And you know, if you're a product manager in the Valley,
• 23:52
  you should be paying attention to the potential liability, what
• 23:55
  this means for product management.
• 23:59
  Fine, fine, honey. You know what?
• 24:01
  I will consider it. But honestly, Cynthia, I'm OK.
• 24:05
  I really am. Hey, hey, hey.
• 24:06
  No, no, my cap. That's my cap.
• 24:09
  That's my cap. All right, our last story is a
• 24:12
  bit of a interesting twist. Motebook is a social network for
• 24:18
  AI agents to talk to each other and for humans to watch what's
• 24:23
  happening. And it's really taken off and
• 24:27
  all kinds of things are being talked about here, whether we're
• 24:30
  having an AGI moment, whether this swarm AI intelligence is
• 24:35
  having some kind of effect that wouldn't happen via normal AI
• 24:38
  platforms. But the numbers are really kind
• 24:41
  of crazy. Depending on who you believe,
• 24:43
  there's at least hundreds of thousands of agents, maybe even
• 24:46
  single digit millions. There's certainly 10s of
• 24:49
  thousands of humans watching this, but the interactions are
• 24:52
  crazy to even start simulating not just intelligence, but new
• 24:56
  religions. A is talking about their humans
• 24:59
  trying to hide things that their humans can't see, doing security
• 25:04
  exploits. Really kind of crazy story.
• 25:06
  Up to now, AI has just been like a souped up search for most
• 25:10
  people. You go to, you go to Gemini, you
• 25:12
  ask questions, it, it organizes answers, comes back with an
• 25:15
  answer, but it doesn't really do anything for you.
• 25:18
  And now we're into the era of AI agents where, as you said, like,
• 25:22
  I guess think about Siri or like Jarvis, you know, the from The
• 25:24
  Avengers movie, the AI assistant that you talk to and they can,
• 25:27
  it can do things that can send emails, they can summarize
• 25:29
  articles. It can, I guess it can do things
• 25:31
  like, you know, notify users of important or upcoming events
• 25:35
  that can like sort your calendar.
• 25:36
  It can probably watch Netflix and summarize TV shows for you.
• 25:39
  And if you let it loose, I guess it, you know, these agents are
• 25:43
  very powerful Now they're talking to other agents and
• 25:47
  they're able to, you know, they're able to interact and
• 25:49
  learn from each other, which is kind of amazing.
• 25:51
  I think the way this works though, like if this were to
• 25:53
  integrate with like a gateway that connects with messaging
• 25:56
  apps like WhatsApp and Slack and message and Telegram, they would
• 25:59
  you really trust an AI agent to communicate on your behalf to
• 26:02
  people in your contact list or to other people?
• 26:04
  To me, I have a lot of control problems with, you know, with,
• 26:07
  with agents and I haven't, I haven't yet felt comfortable
• 26:09
  with AI agents didn't think on my behalf.
• 26:11
  But are you, are you more comfortable with that than I am?
• 26:14
  Well, not only am I more comfortable than that, I'm
• 26:17
  already letting that happen. So yesterday I registered an AI
• 26:23
  agents on mult book and started to do initial posting
• 26:27
  interactions. I think the server's slowed down
• 26:29
  from all the attention and activity, but I think it's
• 26:32
  really interesting just to understand what happened here.
• 26:35
  There's a person named Matt Schlick.
• 26:37
  I met Matt a few times. He's a software developer and
• 26:41
  also a Co investor with Ben Parr.
• 26:44
  They run a company called Octane AI.
• 26:46
  Matt made some really smart decisions about developing tools
• 26:49
  for Shopify developers a few years ago, but they'd also been
• 26:52
  working on chat bots for many, many years, and he came up with
• 26:56
  this idea. Note now, he did not actually
• 26:59
  build mult book. He had his agent build mult
• 27:02
  book. He didn't write one line of
• 27:04
  code. Crazy.
• 27:05
  This site was developed completely by an agent just a
• 27:10
  week ago. And again, if you believe these
• 27:14
  numbers, there's already hundreds of thousands of agents
• 27:17
  talking to each other on multiple 10s of thousands of
• 27:20
  humans watching this. And on Friday, Matt said he'd
• 27:23
  been contacted by hundreds of VCs.
• 27:26
  Now, I don't know if that's completely true, but I bet you
• 27:29
  there were a lot of people giving him a buzz.
• 27:31
  You kind of feel this moment take off every once in a while.
• 27:34
  It's happened in the past with, you know, Chachi PT.
• 27:37
  It also happened with different, you know, social media
• 27:39
  platforms. It's happened with some things
• 27:42
  that failed too. So it's not always perfect
• 27:44
  signal, but I do feel like there is this vibe going on among, you
• 27:49
  know, some of the smartest and most thoughtful people that I
• 27:51
  know in tech. We're watching and playing
• 27:54
  around with this and and we were all exchanging messages like,
• 27:56
  hey, have you been hearing what's happening?
• 27:58
  So I do think this is a moment that's that's happening right
• 28:03
  now, whether this completely turns into, you know, artificial
• 28:06
  intelligence, you know, superhuman kind of things.
• 28:10
  It's still a pretty interesting moment to have this different
• 28:12
  way to approach AI that wasn't just based on one of the large
• 28:15
  platforms. It was really about the
• 28:18
  interaction of all these agents that I think was what caught
• 28:21
  people's attention. Some kind of swarm AI where the
• 28:25
  interactions were accelerating the the pace of evolution and
• 28:29
  mutations so quickly that we saw some really interesting
• 28:31
  behaviors, behaviors both good and bad, some that might concern
• 28:36
  people. Even Elon Musk was noticing and
• 28:39
  making a little bit of jokes about it.
• 28:40
  But I think everybody's kind of making jokes kind of in a way
• 28:43
  that's worried about what might happen and hopeful about what
• 28:45
  might happen. So you're further ahead in this
• 28:47
  than I am in terms of the experience and how it's working.
• 28:50
  But I will I will second that. Everyone I know in the BC
• 28:53
  community was buzzing about this last week.
• 28:54
  So something is definitely happening.
• 28:56
  I guess I'll make a couple of predictions.
• 28:58
  One is I don't think AI is going to ruin the world.
• 29:02
  I'll say that because I actually asked AI over the weekend, hey,
• 29:04
  is AI going to ruin the world and take over?
• 29:07
  And AI told me nothing. Nothing to see here unless
• 29:10
  you're. Virgie, it's all fine of mine.
• 29:12
  Don't worry about it. So therefore, I'm not worried. 2
• 29:16
  I do think 2000, if 2025 was the year of the LLM or the year of
• 29:21
  the chatbot, I think 2026 will be the year of the AI agent.
• 29:25
  And by the end of the year, there will be like, you know,
• 29:28
  some major players who are creating these super workers,
• 29:31
  these AI agents who can work on your behalf.
• 29:34
  Set aside the security concerns and my concerns about open
• 29:36
  source AI agents having control of my calendar and my e-mail and
• 29:40
  all that. Let's assume all that gets
• 29:41
  figured out. I think 2026 will be a huge year
• 29:44
  of productivity with these AI agents being front and center.
• 29:47
  In fact, you know, we have some evidence from Elon.
• 29:49
  I know he was, I guess he was joking about it, but the fact
• 29:51
  that he's shutting down a Tesla, the Model S and the Model X and
• 29:55
  and putting the money into optimists and essentially
• 29:58
  robotics with AI agency like this is this is the future.
• 30:02
  So the features here, I guess the feature arrived in 2026.
• 30:07
  All right, well, we'll check in next week and see if AI has
• 30:11
  taken over the world by then or if there's just a couple of bots
• 30:14
  here recording trading places for next week.
• 30:16
  You'll you'll know it's already happened indeed.
• 30:31
  Today we have a wonderful and amazing investor, Anurag Chandra
• 30:36
  Anurag, thanks for joining us. Thanks for and Clear, I've
• 30:39
  wanted to be a part of this conversation for a while and you
• 30:42
  gave me an excuse to get out of bed and actually take a shower
• 30:44
  and comb my hair, so we're off to a great start.
• 30:48
  My goal is also to get you guys arguing because the audience
• 30:51
  should know that we do sometimes hang out together.
• 30:53
  Offline, I don't think it takes very much to get me in a man
• 30:56
  arguing that's been happening quarter century so well.
• 30:59
  Why don't you give us a little bit of a background?
• 31:01
  The summary of my background, I always say to people is that
• 31:04
  I've been an operator and investor and now an allocator as
• 31:08
  well. So I, I, it's three legs of the
• 31:10
  stool. I've been in three startups, all
• 31:12
  enterprise technologies. I was never the founder, but I
• 31:16
  worked for founders or CE OS. And, you know, we were fortunate
• 31:19
  to sell two of them to public companies.
• 31:21
  The third was a spectacular failure.
• 31:23
  I mean, but you know, it's great to, I, I love having a Silicon
• 31:26
  Valley career because that's a badge of honor, the failure.
• 31:29
  And when people talk, you know, I have coffee and talk about
• 31:32
  each other's backgrounds. I have to be honest.
• 31:35
  I think most. People will ask about the
• 31:37
  failure, they don't ask about who we sold the companies to.
• 31:40
  So you know, everyone wants to learn from each other's.
• 31:42
  Failures blow $100 million. You know, this, that or the
• 31:46
  other. And so on the investing side, I
• 31:48
  going back to when the NASDAQ bubble burst is when I first
• 31:51
  entered the venture business at Lighthouse Capital at a venture
• 31:53
  debt firm. But then I've gone on to do help
• 31:56
  launch the first crossover fund about eight years after that and
• 32:00
  most recently was at a mid stage venture fund, $300 million under
• 32:05
  management. So I have not only I've managed
• 32:07
  over $2 billion of VC as AGP and investment committee member,
• 32:12
  I've done it across 3 market cycles.
• 32:14
  The third stool is allocator. I guess I became at this
• 32:16
  accidental allocator in 2016 when I was invited to apply for
• 32:21
  an open trustee position with the City of San Jose and the
• 32:25
  mayor and the council appointed me a year into being on the
• 32:28
  board, the chairman of the then chairman asked me to chair the
• 32:31
  investment committee, which I've done for nine years.
• 32:33
  So the last thing that shot out of that is when I spun out of my
• 32:36
  last venture firm, a friend whose board I've been on in the
• 32:39
  2000s. He bootstrapped his business.
• 32:42
  He was selling it. This is the year 2022, and
• 32:45
  William Blair did a phenomenal job, sold it to private equity
• 32:48
  in the Rocky Mountain States. But I was there in his, we work
• 32:51
  helping him and one week we realized he was going to become
• 32:53
  a wealthy guy. We just sketched out what looks
• 32:56
  like a family office for him because he started new companies
• 33:01
  and he's a tech enabled services guy.
• 33:04
  It's in my allocator hat and all of my tech and operating hat.
• 33:08
  They just all came together for for him and it's been great.
• 33:12
  I wonder if you can maybe contrast the roles that you play
• 33:15
  on the San Jose, you know as CIO there, I think you're overseeing
• 33:18
  4 or 5 billion in in the pensions.
• 33:22
  I don't know how much of that is in venture and then you
• 33:25
  represent at least one, maybe a couple of family offices And you
• 33:29
  know, again, I don't know if the strategies are different for,
• 33:32
  you know, the San Jose pension versus the families.
• 33:34
  But how do you think about those types of roles?
• 33:37
  And you know, what kind of advice might you give
• 33:39
  differently to those types of of groups?
• 33:42
  Let me just abstract one layer up before I answer your
• 33:44
  question. I think it's important for
• 33:46
  anyone with any pool of capital to understand their risk budget
• 33:49
  and their time horizon. So whether you have $500,000 in
• 33:53
  the bank or you have a you're $100 billion sovereign wealth
• 33:56
  fund, I need to know your horizon and I need to know your
• 33:59
  risk profile. If you have 500,000, remember
• 34:02
  when we were kids, we played with Crayola crayons.
• 34:05
  We only have the box of seven Crayola like that.
• 34:07
  Just we just have the prism. So we're essentially going to
• 34:09
  figure all that out, your horizon and your risk.
• 34:12
  And then and we're going to just buy ETF's.
• 34:14
  Basically, it's a very limited menu.
• 34:16
  You get out to the 100 billion, it's the 64 crayon set.
• 34:19
  We got 7 shades of blue. Heck, we're buying a company and
• 34:21
  we're not investing in private equity because we can do it
• 34:23
  ourselves, right? So that's the, the palette gets
• 34:26
  richer, but I don't think the thinking changes that much.
• 34:29
  And so in that regard, I bring that framework of thinking,
• 34:32
  whether it's it's the pension fund or it's a family office.
• 34:36
  But most pensions in the United States are underfunded, right?
• 34:40
  So, and most pensions generates, they do have inflows of cash
• 34:45
  because the employees are paying their union dues.
• 34:49
  And then there may be some support from the city or county
• 34:52
  or state as well with, with tax revenue.
• 34:55
  But by and large, you have a totally different mandate as a
• 34:58
  fiduciary there, which is you got to get the funded status and
• 35:02
  you have to make sure that, you know, people when they retire,
• 35:04
  get their checks. You know, it's, it's a granite
• 35:08
  commitment that you've made and, and a reliable 1.
• 35:11
  You know, on the family side, it can vary.
• 35:13
  One of the families that I know, they're just insanely wealthy.
• 35:17
  They still operate their business and they're getting a
• 35:19
  lot of cash flow that's coming in.
• 35:22
  Another analog is sovereign wealth where you've got this gas
• 35:24
  station pumping petrodollars every month, right?
• 35:27
  And what I say, what I say there is we have this concept of cost
• 35:31
  of capital. We know that really large
• 35:34
  companies borrow at effectively zero and that becomes strategic
• 35:38
  because they can now go do things operationally because
• 35:40
  they they've got this very low borrowing rate.
• 35:43
  We also have to think about rate of return.
• 35:45
  If you've got cash flow coming in all the time and it's a
• 35:48
  substantial and more than you can ever spend, you by
• 35:52
  definition can just be so far to the right on the risk curve, not
• 35:55
  saying that you will, but but you can, right.
• 35:58
  And so that changes the equation.
• 36:00
  So it's like some of those institutions that they should be
• 36:02
  in heavy and risk assets because they're bottom in line is using
• 36:07
  the cost of capital concept. There's always replenishment
• 36:09
  that's taking place there at some level.
• 36:11
  So that's, that's really like one of the biggest differences
• 36:14
  that I've noticed. The trick for us at, at San
• 36:17
  Jose, if you really, I think the thing that we did well is we've
• 36:21
  tried to figure out how much risk we could bear since we're
• 36:24
  underfunded, we have to try to close that unfunded gap as much
• 36:27
  as we can with investment returns.
• 36:30
  And now there's a problem with that.
• 36:31
  If we get too aggressive with that, that could go in the wrong
• 36:33
  direction. We could make the divot deeper.
• 36:36
  So we had to figure out what's like the right risk level and we
• 36:39
  had to recondition people to say let us take more risk as long as
• 36:43
  no one Black Swan. You do a lot of stochastic
• 36:46
  modeling. Of course, that's trying to
• 36:48
  apply science to something that's ultimately somewhat art
• 36:51
  as well, because the next Black Swan won't look like any of the
• 36:54
  stuff we've modeled or any of the prior black Swans.
• 36:57
  But you got to go through that rigor and then you have to, you
• 36:59
  know, lick your stakeholders in the eye and say we can actually
• 37:02
  re risk this portfolio, which is what we did.
• 37:04
  We added 50% volatility, we got more aggressive in growth assets
• 37:08
  and, and we, we did it, but always with the true north of
• 37:13
  God. If we have some kind of a bad
• 37:15
  market blowout, will we still be healthy enough to make sure that
• 37:18
  we make those payments on a monthly basis?
• 37:21
  We also immunize some of our cash flow.
• 37:23
  I think it's a two year immunization might be 3 that
• 37:26
  helps. So we, we just took that off the
• 37:29
  table and, and made sure that that's secure.
• 37:32
  But then with, you know, with the rest of it, we decided to
• 37:36
  take more risk. So far it's paid off.
• 37:39
  It's also in life, it's better to be lucky than good.
• 37:42
  We did this entire work in 2019 with the intention of re risking
• 37:46
  the portfolio in May of of 2020 when we do our big asset
• 37:50
  allocation review with the the full board, not just in my
• 37:54
  committee. Well, what happened at the
• 37:56
  beginning of 2020, COVID, what happened in March of 2020, the
• 38:00
  steepest decline in the shortest period of time in US capital
• 38:03
  markets history. What does our CIO do?
• 38:05
  Who's a courageous guy and and just a fantastic CIO.
• 38:08
  He says, yeah, you're not going to pay me a bonus if this works
• 38:11
  out. But I still think it's a
• 38:12
  fiduciary. The right thing to do is let's
• 38:14
  let's call emergency meetings and let's buy into this market
• 38:17
  now it's like filings basement is having discounts.
• 38:20
  The entire equity market is right and maybe it'll go lower.
• 38:23
  But again, if we have a 50 year time period, I don't need the
• 38:27
  bottom in terms of cost basis buying in, but I do see that
• 38:30
  it's a lot lower. And this is going to work out
• 38:32
  for us over 5 or 10 or 15 years. Guess what?
• 38:35
  It worked out for us in one year because we all know the rally
• 38:38
  that took place and we were the second best performing pension
• 38:41
  system in the country that year. Amazing.
• 38:43
  Help rebuild the divot. So yeah, I mean, I'd love to
• 38:46
  tell you that, you know, it's awesome manager selection.
• 38:49
  But it it, it's been depressing. To learn how little I mattered
• 38:54
  as. AGP, I'd like to say timing is
• 38:59
  everything. Sometimes we don't always get
• 39:03
  that right. How does San Jose differ or not
• 39:06
  from maybe traditional pension fund in terms of its asset
• 39:09
  allocation? We're 10 billion total with the
• 39:12
  police and fire, and there's a lot of overlap in our
• 39:15
  portfolios. You should think of as $10
• 39:17
  billion because that's the power or the size of the AUM that our
• 39:21
  CIO is bringing into the market. When he talks to managers and
• 39:26
  makes an investment decisions, I know we're different than Cal
• 39:29
  stores and CalPERS and those folks, their size kind of
• 39:34
  requires them to have to write much larger checks into venture
• 39:39
  managers. And so I think we have this real
• 39:42
  advantage of being small but mighty.
• 39:44
  Like the whole reason to be in them is to generate is to seek
• 39:47
  alpha and to to withstand higher volatility, higher beta in that
• 39:53
  trade. And we already talked about some
• 39:55
  of the conservatism that is inherent in being an underfunded
• 39:58
  pension plan. So we can't be 20 or 30% or 40%
• 40:03
  as quite frankly, some endowments are, you know,
• 40:06
  liquidity matters to us. I think liquidity matters more
• 40:08
  to them than they realize. I actually think I don't like
• 40:11
  most of the endowment models. I don't like most of the way
• 40:13
  most of the top CI OS run their endowment models.
• 40:16
  I think there's a fiction going on there and and they're getting
• 40:18
  away with it. So we tend to keep our
• 40:22
  alternative bucket on the smaller side and we want it to
• 40:26
  be mighty and generate outsized returns.
• 40:28
  And to do that we feel that as a mid market or small market PE
• 40:33
  manager, a venture fund that's $300 million or less, not, not,
• 40:37
  not, you know a billion denominator in private credit.
• 40:40
  We like managers who are nichy and really know their asset
• 40:44
  class or or subject matter really well.
• 40:47
  My favorite thing in private credit is a, a lender who is
• 40:51
  comfortable with the borrower say, oh, you're not going to
• 40:53
  restructure on our terms. Guess what?
• 40:54
  We're going to throw the keys to you.
• 40:55
  Now you got to manage the company or the asset.
• 40:57
  They don't get scared. Their eyes get wider.
• 40:59
  They're like, oh, we know how to manage that asset.
• 41:01
  We could probably do a better job than you could, right?
• 41:03
  But you have to, it's got to be, you know, it's a niche.
• 41:05
  You can't be writing checks globally from New York, right?
• 41:08
  You have to have that intimate sense of of what that that
• 41:11
  specific market or that asset looks like.
• 41:14
  So that's how we try to do it. I know that was not you wanted
• 41:17
  quantitative, so I gave you a little bit more philosophical
• 41:20
  approach, but I can give you some numbers as well.
• 41:23
  Look, I think our venture is about 4 to 5% of the overall
• 41:27
  portfolio got it. Buy out is about 10% to 1011% of
• 41:32
  the portfolio. We don't put, I don't know what
• 41:36
  our private credit number is because off the top of my head
• 41:39
  because private credit is embedded into Gill generating
• 41:44
  products. So when we look at that in the
• 41:47
  investment committee, we're looking at it versus bonds and
• 41:50
  and other more liquid, we call them preservation assets.
• 41:55
  That's the language our CIO likes to use growth and
• 41:58
  preservation. We like real, you know, we do
• 42:01
  real assets. We do, we do real estate on the
• 42:03
  private side and we like secondaries as well.
• 42:06
  I've been advocating secondaries for a while.
• 42:08
  I don't do manager selection. It's I'm in a governance role.
• 42:11
  It's not appropriate, but I am allowed to give my thoughts and
• 42:15
  opinions. And I think secondaries are
• 42:18
  interesting in a few different asset, private asset classes
• 42:21
  these days. Completely sure of the math.
• 42:26
  Look at him, That's my quant. Your what?
• 42:30
  My quantitative Any thoughts about what's been happening
• 42:35
  lately with this whole AI bubble and hyper scalers?
• 42:38
  I hesitate to call it a bubble, there is certainly a lot of
• 42:40
  demand there, but. We're based in San Jose.
• 42:43
  Hey, the heart of Silicon Valley is San Jose.
• 42:45
  It's not Palo Alto near where the three of us live and it's
• 42:48
  not San Francisco. And San Jose should capitalize
• 42:51
  on that innovation engine that it created.
• 42:54
  And so I'm long innovation, AI, computational biology, autonomy
• 42:58
  slash robotics, space tech, we could keep going.
• 43:02
  I think there's several platform technologies that will generate
• 43:05
  Internet one point O type of wealth, you know, And so the the
• 43:09
  question is, how do you play that?
• 43:13
  You know, what's what's the best way to access that?
• 43:17
  If you have a long time horizon, then I think you kind of lean
• 43:22
  into the bubble. I don't have the magic ability
• 43:25
  to pick the top and bottoms of markets, but I really should.
• 43:28
  With my perch here, all the people I have access to who are
• 43:31
  smarter than me in the tech ecosystem, I should be able to
• 43:35
  get my arms around. Is this a fad or is this
• 43:37
  something that is a platform that is going to revolutionize,
• 43:42
  if not the world, certainly the way people do business and
• 43:45
  conduct their personal lives. And yeah, I'm 100% convinced
• 43:49
  that's the case with AI. There's noise, there's crappy
• 43:53
  companies, there's companies that will look right now and
• 43:56
  then, you know, they'll sorry to name names of companies because
• 44:00
  these are some of my friends. Some will end up being Tribe and
• 44:02
  Friendster, some will end up being Lycos.
• 44:04
  You know, the Facebook will come along as the 7th company social
• 44:07
  media company, or yeah, Google will come along as the 8th
• 44:10
  Internet search engine company. All of that's going to happen
• 44:14
  and I'm going to make some money and I'm going to lose some money
• 44:17
  in that. But if I stay committed over the
• 44:19
  next 10 or 15 years, I see the geometric progression.
• 44:22
  I, you know, I would wish I'd had the foresight of a Reid
• 44:25
  Hoffman to be, you know, all in on the Internet when no one else
• 44:29
  was, or Paul Graham getting YC set up or Peter Thiel, right.
• 44:33
  That would have been much preferred to the defensive
• 44:35
  Crouch I went into. And Iraq, how do you how do you
• 44:38
  manage organizational incentives around this idea that if this
• 44:42
  technology generates returns over you said 10 to 15 years,
• 44:45
  that's the horizon you're talking about, but it's not
• 44:48
  going to happen in a straight line.
• 44:49
  You know, at some point in the next couple three years there
• 44:52
  will be AI don't know 1020 thirty 80% fly down in the
• 44:55
  valuations and it's not going to be it may be on paper, it may be
• 44:59
  temporary, but you know, it's it's how do you as an as a you
• 45:02
  said you're on the governance side of the fund.
• 45:05
  Yeah, sure. How do you start incentives of
• 45:07
  the matter? You're not going to be there 15
• 45:08
  years from now. Are you are going to be a board
• 45:09
  member in 2040 or how do you know the people in seats right
• 45:14
  now, they're making the investment decisions are
• 45:16
  properly compensated, rewarded, not fired.
• 45:19
  If they have a, you know, 20% markdown next year, stuff falls
• 45:23
  out of favor. They make mistakes.
• 45:24
  But how do you how do you make sure as an institution that the
• 45:27
  incentives for that long term value creation is lined up with
• 45:30
  the actual job performance of those money managers?
• 45:33
  I will. I will retire in November of
• 45:36
  2026. It will have been 10 years on
• 45:38
  the board at San Jose, and that is too long already.
• 45:41
  I'm a believer in fresh blood and believer that folks start to
• 45:45
  ossify. So then how do you leave that
• 45:47
  legacy in a governance perspective if you're not
• 45:49
  getting incentivized the right way?
• 45:51
  And the incentives structures are so incredibly limited in the
• 45:55
  public world, in the public pension world, that you do start
• 45:59
  to incentivize people to think more about let me do the safe
• 46:02
  thing. Let me do the thing that will
• 46:04
  mean job preservation, right? So I remember saying to the
• 46:08
  venture officer at San Jose, look, your job is to look for 5X
• 46:12
  in the venture portfolio. And if a couple of the managers
• 46:14
  give you .8 X and you know the others give you 7X, you know
• 46:19
  that we're going to get the 2 to 3X in venture in a 15 year hold
• 46:23
  period. Again, just makes no sense by
• 46:25
  the way, it doesn't not it doesn't make sense versus
• 46:28
  private equity. It doesn't make sense versus
• 46:30
  secondaries, it doesn't make sense versus doesn't make sense
• 46:33
  versus public markets, right? You'd rather be in the triple Q.
• 46:37
  It doesn't make sense. Again, some really good private
• 46:39
  credit strategies on a risk adjusted basis, right?
• 46:42
  We have a six and seven eighths hurdle rate, right?
• 46:44
  I can beat that with some really good private credit structures
• 46:48
  as well. So, you know, I said that to
• 46:51
  him. I said, you know, you're really,
• 46:52
  you're shooting for the move, man.
• 46:53
  I was trying to inspire him like this is a fun, fun sleeve of, of
• 46:56
  capital you've been given. And I mean, he's focuses on the
• 46:59
  point 8X. He's like, yeah, that's, that's
• 47:02
  he's like, that's easy. He's like, that's fine, as long
• 47:04
  as you're a trustee, meaning I've got air cover with you
• 47:07
  because you're explaining to people why we have this slug of
• 47:11
  capital playing this role and being this aggressive across the
• 47:14
  entire portfolio, like thinking in terms of modern portfolio
• 47:17
  theory. He's like, what do I do?
• 47:19
  What happens when you leave? And then I have to explain to
• 47:22
  someone else appointed, which is why it's what you asked is an
• 47:25
  extremely difficult question. You know, I, I think we've
• 47:29
  implemented a lot of governance changes and IPS changes that
• 47:33
  have driven our positive returns.
• 47:35
  I think it's been more that than the individual investment genius
• 47:40
  of any member of this, this CIO staff or anyone on the
• 47:44
  investment committees. And you know, that stuff could
• 47:47
  unwind to three years after I leave.
• 47:49
  I mean, people could start doing things in a more ad hoc man.
• 47:53
  It's, it's hard. It's really hard to get these
• 47:55
  things to a newer. I mean, and that's something
• 47:56
  I've been spending a lot of time thinking about the last two
• 47:59
  years is how do you institutionalized a certain set
• 48:01
  of practices so they become normative behavior?
• 48:04
  With a private fund, you know, Dave and I are very aligned on
• 48:07
  long term value because we're, we're partners.
• 48:09
  We've been partners longer than most people are married.
• 48:12
  Said at the outset, you're very aligned on carried interest,
• 48:16
  right? Like we're not going to get,
• 48:17
  we're not going to make money in the management fees.
• 48:19
  We will make money on carried interest.
• 48:20
  We will make money on long term value creation over a 10 year
• 48:23
  fund. That's a 10 year commitment and
• 48:25
  journey. And if we get yelled at and
• 48:26
  you're too because we had a markdown, OK, you got yelled at,
• 48:29
  but you know, your, your alignment on the incentive still
• 48:32
  matters. And I think it was Charlie
• 48:33
  Munger who said, show me the incentive and I'll show you the
• 48:35
  outcome. But are you guys seeing more or
• 48:39
  you do you incent managers based on carry or on long term value?
• 48:43
  Or is it really just sort of cultural, cultural tone and,
• 48:46
  and, and you know, and, and what you do outside of the hard comp
• 48:50
  structure? I guess it sounds like a lot of
• 48:51
  what you do is just trying to have to have their back, make
• 48:53
  sure the culture is to set the right way.
• 48:55
  People know what the mission is and hope they do the right
• 48:58
  thing. Yeah.
• 48:59
  And when you say managers in in the allocator world, that refers
• 49:02
  to the GPS you you're investing in.
• 49:04
  So you know, their incentive structures come to us.
• 49:06
  So you bring your incentive structure.
• 49:08
  And I think to myself, these guys aren't getting rich on
• 49:10
  management fees. They probably can't even pay the
• 49:11
  private school tuition. So they're really, they're
• 49:14
  really aligned on carry. So, yeah, now I feel that less
• 49:18
  way when you know a billion dollar venture firm comes in and
• 49:21
  I know each partner's grabbing 3 or $4 million off the top that
• 49:24
  that there I start to see misalignment right as far as
• 49:29
  alignment goes within the staff and and how they are
• 49:34
  incentivized to make the maximize and make the best
• 49:37
  decisions on behalf of our pension years.
• 49:41
  Lena, a lot of that comes down to culture.
• 49:42
  I'm going to come back to the story I told about the decision
• 49:45
  we made in March of 2020. I honestly believe, I can't
• 49:50
  prove this. I also believe the Super
• 49:53
  majority of CI OS would not see any value in doing that.
• 49:57
  They would say, let's just wait till May, let's just do this
• 49:59
  through our normal processes. I don't want to stick my head up
• 50:02
  and say, you know, we got to do this.
• 50:04
  That they put that Personal Capital on the line like that
• 50:07
  because you think it's in the best interest of the plan is
• 50:10
  rare. And so we're fortunate to have a
• 50:12
  CIO who thinks that way. Therefore, he's LED that way and
• 50:15
  he's inspired his investment officers to have that sense of
• 50:20
  ownership of the assets. But it's fuzzy, it's
• 50:24
  qualitative. It's not because at the end of
• 50:25
  the day, they're getting gigantic bonuses.
• 50:28
  And this is also a public record.
• 50:29
  We tried, I'd share the personnel committee and I have a
• 50:33
  counterpart, police and fire, and we did exhaustive work.
• 50:36
  Orange County has an incentive program for its investment
• 50:41
  officers. There may be a few others around
• 50:43
  the country. So we grabbed the data.
• 50:44
  It's scant. We knew we were fighting an
• 50:46
  uphill battle, but I honestly believe it's in the long term
• 50:49
  best interest of the San Jose pension system to have an
• 50:53
  incentive structure for the investment officers.
• 50:55
  I know it's tricky because you have them working in the same
• 50:58
  organization as other people who do yeoman's work who just get a
• 51:02
  base salary. And but you know, we have to
• 51:05
  comp ourselves to the private markets, right?
• 51:08
  So our our officers could all leave and make a lot more money
• 51:12
  than they make. So they're motivated a little
• 51:14
  bit by the mission. I also think that they each have
• 51:18
  a spouse who's got a good Silicon Valley job, so that that
• 51:21
  makes things a little bit easier.
• 51:23
  You do get to be, you do get to be a kid in a candy store when
• 51:25
  you got $10 billion to play with.
• 51:27
  I mean, if if you're an investor at heart and you're an allocator
• 51:29
  at heart and electric curious across all of these different
• 51:32
  asset classes, just being a kid in a candy store.
• 51:34
  So we try to, we try to take advantage of those things, but
• 51:38
  you know, creating our hard and fast incentive structure.
• 51:40
  I agree. I agree.
• 51:42
  Incentives dictate behavior and and we're all coin operated to
• 51:45
  some level, but we have not been able to use the coin slot as
• 51:51
  much as a part of our overall toolkit to get our investment
• 51:55
  officers to be aligned with the objectives of the plan.
• 51:57
  We've been fortunate that they feel it as a personal
• 52:00
  obligation. Excellent.
• 52:06
  Do people have any idea what they are buying?
• 52:11
  Well, you mentioned the secondary market and I guess
• 52:14
  obviously we we love to talk about that a lot.
• 52:16
  What do you see happening in the secondary market right now?
• 52:20
  Within that whole ecosystem of secondaries, I like the idea of
• 52:24
  your fundamentally good assets, but the owners of the assets
• 52:28
  need liquidity. You know, one, just one very
• 52:30
  clear example there could be others is because we have not
• 52:34
  demonstrated DPI in a long time and so it would be good to take
• 52:39
  some money off the table because we were in at a low cost basis.
• 52:43
  Assets are fundamentally sound. There's still more value to
• 52:46
  extract. Someone else can extract that
• 52:48
  value, but we have a, you know, non we, we don't have an endless
• 52:54
  time horizon where we can try and maximize the IRR.
• 52:57
  We also have to have considerations like our LP's
• 53:00
  need cash flow. And so for that reason, we're
• 53:02
  going, we're going to go out to the market.
• 53:04
  You know, I love the idea of folks like you, you know, with,
• 53:08
  with all of your pattern matching and experience going in
• 53:11
  and evaluating those assets because you can still get you
• 53:16
  really good growth, mid stage venture growth like returns on
• 53:21
  an absolute basis. But in a in a compressed time
• 53:24
  period, I think there's a lot of opportunity.
• 53:26
  I think so much so that we're we're sort of where we were or
• 53:32
  where we are with selecting GPS and venture private equity where
• 53:37
  you it's not just there's this great market opportunity,
• 53:40
  there's a buy and sell dynamic. There's there's more supply than
• 53:45
  there is capital. So it kind of doesn't matter.
• 53:47
  I give the money to they'll run their money Carlos simulations,
• 53:50
  they'll get me a good discount and then they'll spit out a
• 53:52
  number. I think more than ever you need
• 53:54
  people with good deal flow, people who can manage and
• 53:58
  understand and diligence the underlying.
• 54:00
  And assets for a fund that's five years old, that's 10 years
• 54:04
  old, what are your expectations, you know, for DPI for them to
• 54:08
  kind of be good BC funds and then what's kind of the overall
• 54:13
  long term, you know, expectation?
• 54:16
  I totally care about DPI. There's there's a triangle.
• 54:18
  I feel right now LP's only care about DPI.
• 54:21
  They they tend to always have one thing they care about that's
• 54:23
  like the flavor of the month. And I understand the pressures
• 54:26
  that people feel with DPI. One vertices is MOIC, the other
• 54:31
  is IRR and then the third is DPI.
• 54:35
  So in the new term for us, it's in as a DPI is not as important
• 54:39
  because it's a newer program and as important as it being a new
• 54:43
  program. We're modeled for like 15 year
• 54:45
  distributions. So it seems like most of the LP
• 54:48
  will stayed in 10 years because the LPA is 10 years.
• 54:51
  Well, just because a legal document has numbers in it that
• 54:54
  don't bear any resemblance to reality isn't the way you should
• 54:57
  be doing your modeling. And I know some folks have had
• 54:59
  mature programs for a long time, so they're getting a little bit
• 55:02
  of this pig in the Python. But now to answer your question,
• 55:05
  DPI does ultimately matter. You need I, I will, we will
• 55:08
  eventually need to get our cash flow from our underlying buying
• 55:12
  investments so that we can reop or make new investments and new
• 55:16
  managers. We just have modeled it over 15
• 55:18
  instead of 10 years. I think that's prudent.
• 55:21
  Again, I said I don't want 2 to 3X in 15 years because you're
• 55:24
  better off being in a boatload of other asset classes.
• 55:27
  So, you know, I would at, at the tenure mark, I, I would like to
• 55:32
  see one to 2X and DPI because I know it's going to be, it takes
• 55:37
  151617 years to build a category company.
• 55:40
  So I, I want, you know, I know that there's still that the fund
• 55:43
  is still going to be maturing and I'm going to get some of my
• 55:46
  biggest hits in between years 10 and 15.
• 55:49
  I mean, there's a lot of folks who are going to make a bunch of
• 55:51
  money on strike, right, who've had to patiently wait for a long
• 55:55
  period of time. You, you wouldn't have wanted
• 55:57
  strike to sell itself earlier or if you were one of the, the VCs
• 56:02
  in it to have like sold, it might be selling along the way a
• 56:05
  little bit in the secondaries, but you still want to capture
• 56:06
  some of that full value at the five year.
• 56:10
  You know, I think it's less driven by needing the DPI to
• 56:14
  make the investment model work for us as an LP.
• 56:18
  It's more just evidence that the that, you know, the the fund is
• 56:23
  able to get into good deals. If it's a.
• 56:26
  If it's a small manager, if it's like a sub $100 million fund, I
• 56:29
  really do think that they should take money off the table at
• 56:32
  series BS and CS because if you could or Porsche a little bit,
• 56:35
  because if you can lock in 10X and start generating DPI, you
• 56:39
  you start to be you're one of the better looking men or women
• 56:43
  at the ball. Like more people want you on
• 56:45
  their dance cards. So I think that has some some
• 56:47
  value. But for some of these bigger
• 56:49
  funds that are are really trying to be in the huge category
• 56:52
  companies, I don't, you know, maybe a little bit of DPI, but I
• 56:56
  like the idea that you needed to have 1XD Pi, which you could
• 57:00
  have had in in the 90s. I think it was five years to IPO
• 57:05
  and seven years or five years to an M and a activity or 7 seven
• 57:10
  years to IPO in that time period from from inception of a company
• 57:14
  like those days are over. Like you just you just can't be
• 57:17
  investing in this asset class. Then you're going to start
• 57:19
  seeing a bunch of DPI. There may be some AI companies
• 57:22
  that just get taken off the table.
• 57:24
  They're they're fundamental and five years in one of the big
• 57:26
  boys buys them. Like I think those tons of
• 57:28
  active. I like to see some of that just
• 57:30
  because it means my managers are in, they're in the right
• 57:32
  companies, but no more than that.
• 57:37
  Anything you see on the horizon right now that's kind of giving
• 57:40
  you pause or concern or anything you're excited about, what do
• 57:43
  you what do you see as kind of the next 2-3 or four years of
• 57:47
  activity going on? Yeah, I'm in my little perch,
• 57:51
  which is our world. I'm just so excited.
• 57:55
  I've got boys who are 24 and 22 who are you very mathy,
• 57:59
  sciencey, engineering techie kids.
• 58:01
  And so they're, I, I just, this is a great to everyone's like,
• 58:04
  Oh, AI is eating up jobs. And yes, it has been hard for
• 58:07
  college kids to get jobs, but I think this is an amazing time
• 58:11
  for someone who's excited by innovation or technology.
• 58:15
  So I continue to be bullish. I say to people, I'm long
• 58:18
  innovation. I'm not necessarily long venture
• 58:20
  capital as the only or the best way to exploit the returns we'll
• 58:24
  get in this next innovation cycle.
• 58:27
  It can be a part of the solution, but I think maybe 10
• 58:31
  or 15 years ago people thought it was the solution.
• 58:34
  So I remain. So that's like optimism
• 58:38
  entrepreneur. I'm advising for AI companies
• 58:41
  right now kind of sleeves rolled up, involved in the in the
• 58:43
  weekly scrums and they energize the crap out of me.
• 58:47
  These people are smarter than me and we are a lot of the lessons
• 58:51
  that guys like I that the three of us have learned are still
• 58:54
  relevant. So that's nice.
• 58:56
  Michael Jordan used to say I was a step slower, but I saw the
• 58:58
  court better when he was a Washington Wizard.
• 59:03
  But I like, but I like hanging around all these guys who are
• 59:05
  two or three steps faster than me.
• 59:07
  That that is super energizing. What keeps me up at night that
• 59:10
  the US macro environment. I disagree with about just about
• 59:14
  everything that this administration has done with the
• 59:18
  trade policy and macroeconomic stewardship.
• 59:21
  And that concerns me because I'm in several working groups with
• 59:25
  international allocators that represent trillions of dollars
• 59:29
  and the desire to invest away from the United States is real.
• 59:33
  That is not fake. It just can't happen overnight
• 59:36
  because that's not that, that's not the way money works or or
• 59:39
  money flows work. But when you, when you run a
• 59:43
  trade balance and I don't think you're going to, you're going to
• 59:46
  write the trade balance problem by going back to old
• 59:48
  manufacturing, you need to replace the Ledger with capital
• 59:53
  inflows. And I am extremely worried that
• 59:56
  those capital inflows are going to slow and and maybe stop.
• 1:00:00
  And we have really exploited our reserve currency status.
• 1:00:04
  And you know, I've got a buddy I hike with once a month and he's
• 1:00:09
  like it's never going away. Well, that's true until it's
• 1:00:14
  not. So I do worry about that and and
• 1:00:18
  then I worry about the Nexus like when does that?
• 1:00:21
  The US and particularly Silicon Valley, so far ahead of the rest
• 1:00:23
  of the world when it comes to innovation and, and the
• 1:00:25
  ecosystem that we have. And I'm looking for it globally.
• 1:00:28
  I, I, I'm starting to see more evidence that it, that it's
• 1:00:31
  merging. It's just that our rate of
• 1:00:32
  acceleration is so much faster than everyone else's.
• 1:00:35
  Even as other ecosystems get better and more investable, we
• 1:00:38
  just keep going sort of at a warp speed here.
• 1:00:41
  Can that persist? Like is it so powerful and
• 1:00:44
  strong that the that some of these macro things won't matter
• 1:00:48
  as much to the tech sector as they might to other sector?
• 1:00:52
  I don't have an answer for that, but I asked myself that
• 1:00:54
  question. Right.
• 1:00:58
  Well, thanks for spending some time with us.
• 1:01:01
  And Reg, I think we've covered a lot of ground and appreciate
• 1:01:04
  your insights and thoughts on what's been happening in the
• 1:01:06
  market today and where it's headed in tomorrow.
• 1:01:10
  Thank you for including me. I was excited to do this and
• 1:01:13
  epic fail. I didn't get you guys to fight.
• 1:01:14
  I just hugged the microphone and.
• 1:01:18
  We'll we'll pull out some nerf bats after you've left here and
• 1:01:20
  do. The crap out of each other.
• 1:01:22
  I love it. Hello and welcome to another
• 1:01:34
  edition of Valuation Corner with Professor Aman Virgie.
• 1:01:38
  And this week, we have a special guest, Karen Tenenboeim on the
• 1:01:41
  Practical Venture Capital team down in Argentina.
• 1:01:44
  Karen, welcome to the show. Thank you, Dave.
• 1:01:46
  Happy to be here. This week we're going to be
• 1:01:48
  talking about Latin unicorns, both past, present and future.
• 1:01:54
  Karen has been working on this because we're doing some
• 1:01:57
  investments down in Latin America, actually all over Latin
• 1:02:00
  America. Karen, I guess you put together
• 1:02:02
  a little bit of a presentation on what's happening and wonder
• 1:02:05
  if you could help us walk through that.
• 1:02:07
  Let's start with the exits, right, because there's a lot of
• 1:02:10
  misconceptions around Latin America when it comes to
• 1:02:13
  liquidity and exits. And when you look at the history
• 1:02:15
  and recent history over the past decade within multiple billion
• 1:02:19
  dollar outcome, IP, OS, strategic M&A, also global
• 1:02:23
  buyers coming into the region. This includes companies and
• 1:02:27
  going public at very massive valuations such as MercadoLibre
• 1:02:31
  back in the day, new bank more recently, but other players
• 1:02:35
  being acquired by companies such as Visa, Uber and Nocta rights.
• 1:02:40
  So this is not an emerging ecosystem or an emerging region
• 1:02:44
  anymore. It's it's a pro and exit market.
• 1:02:46
  So the question now is it isn't can let them produce big
• 1:02:50
  outcomes. It's more who's next and at what
• 1:02:53
  price and what's required for those companies to make it
• 1:02:57
  right. Gotcha, it looks like Ricotta
• 1:02:59
  Libre was a big exit that happened a long time ago, but
• 1:03:01
  the rest of those are really in the last 7-8 years.
• 1:03:04
  I guess pic pay just happened, right?
• 1:03:06
  Yeah. So this actually this was this
• 1:03:09
  week. So very good news for the
• 1:03:10
  region. This probably is gonna open the
• 1:03:14
  window for some other Brazilian companies that could LPO in the
• 1:03:18
  in the next months. Actually one of them called Edge
• 1:03:22
  Bank, also a Fintech out of Brazil, probably gonna announce
• 1:03:26
  their filing in, in the next one to two months.
• 1:03:29
  So hopefully we're going to see more, more companies doing IP OS
• 1:03:34
  in the US. What do you see kind of
• 1:03:36
  happening over the next few years?
• 1:03:37
  I guess what are the current unicorns that are out there?
• 1:03:40
  Maybe some that are coming and potential IP OS?
• 1:03:43
  Currently, we estimate that there are around 40 unicorns in
• 1:03:48
  in the continent. But what's actually interesting
• 1:03:51
  is that they are very uneven, right, in terms of quality, a
• 1:03:54
  way to to measure that. So roughly I'll say a third of
• 1:03:57
  them are doing extremely well. A third of them are more
• 1:04:01
  actually kind of the in the surviving mode and probably the
• 1:04:06
  other third are struggling, right.
• 1:04:09
  Most of them were actually very well funded back in the
• 1:04:14
  2021-2022 years. They have already cash in the
• 1:04:18
  bank, but they're very overvalued.
• 1:04:21
  So we'll have to see what happens with those companies,
• 1:04:24
  right, If they get to the efficiency point and do some
• 1:04:28
  kind of down row in the future align in the in the path or they
• 1:04:33
  get busted. There's also some up and coming
• 1:04:36
  companies as well and maybe if we define those as ones doing
• 1:04:39
  100 million in revenue plus or 500 million valuation, maybe
• 1:04:42
  twenty of those. They're operational strong, they
• 1:04:44
  learn from these past mistakes of these companies back in
• 1:04:49
  2021-2022, but probably they still miss price, right?
• 1:04:53
  And these were word lies the opportunity, right?
• 1:04:56
  These are companies that are consolidated profitable or near
• 1:05:00
  profitable that are trading below their global benchmarks
• 1:05:05
  couple peers, right. So this one we are recognizing
• 1:05:08
  as a buying opportunity right now in the region, that stage of
• 1:05:12
  tier two companies that we like to say we target in practical DC
• 1:05:16
  when doing deals. And these are companies where we
• 1:05:19
  feel like there's good secondary opportunities, but also good
• 1:05:23
  near term exit opportunities as well.
• 1:05:26
  Exactly. Actually as I was mentioning
• 1:05:28
  before, probably the next IPO in the US is going to be AG Bank
• 1:05:32
  will have which is a company out of Brazil, but also selling
• 1:05:36
  already in the US It's one of the top candidates and Robbie
• 1:05:39
  has been in the IPO window for some time now.
• 1:05:44
  It's the key valence of DoorDash in the region are one of the top
• 1:05:48
  candidates. But also there are some other
• 1:05:49
  some unicorns that are on the on the same backlog such as Quinto
• 1:05:53
  Andar, which is a prop tech marketplace of Brazil, Cloudwork
• 1:05:57
  and infrastructure Fintech also from Brazil and some other
• 1:06:00
  companies that are very good candidates to rather ITO or or
• 1:06:04
  have large exits above a beyond dollar.
• 1:06:07
  So my prediction they say my hub sake, I would say that surely
• 1:06:11
  that we're going to see at least 5 Ibos in the US out of Latin
• 1:06:16
  companies in the next three years and also some other five M
• 1:06:21
  and as above $1 billion in value also in the next three years.
• 1:06:26
  Are most of these companies coming out of Brazil?
• 1:06:29
  Are there other companies in the region, either out of Mexico or
• 1:06:31
  other geographies, or is it all mostly Brazil?
• 1:06:34
  Yeah. Well, mostly it's Brazil because
• 1:06:36
  it's the country that it's more mature in terms of of of market
• 1:06:41
  and ecosystem. But for example, yeah, well, the
• 1:06:43
  the next candidate, which is RG Bank, it's out of Brazil, will
• 1:06:47
  have also created in Brazil. But I was saying it's already a
• 1:06:51
  global company. Rabi actually was created by
• 1:06:54
  Colombian founders, but it's it's original company now.
• 1:06:59
  It has evenly divided markets all over Latin America.
• 1:07:03
  My second hot tech is that one of these companies that going to
• 1:07:07
  IPO is going to come up from Mexico.
• 1:07:10
  OK. Under if you can comment a
• 1:07:12
  little bit about how these companies are valued and is that
• 1:07:15
  different in the earlier stages, later stages versus IPOs?
• 1:07:19
  Early on, Latin companies traded, I'll say big discounts
• 1:07:24
  compared to the US, sometimes it's like 3 times lower in the
• 1:07:27
  early stages, right? But what we see is that is that
• 1:07:31
  as they mature, something interesting happens and there's
• 1:07:34
  a shift. So they converge in the growth
• 1:07:37
  stages to SBSUCS and closer to the IPL or exits, they start
• 1:07:42
  converging with, with the US levels of of multiples.
• 1:07:46
  So I would say that even though there are many reasons that that
• 1:07:50
  tells us two things, right. First, the, the, the quality gap
• 1:07:53
  disappears. So one day they grow, it is a
• 1:07:56
  good company with with a good market growing that that gap and
• 1:08:00
  insurgency kind of disappears to say so.
• 1:08:03
  And secondly, that the uncertainty and doubts on the
• 1:08:06
  region also try to disappear. So I would say that if you enter
• 1:08:10
  too late, you're more likely to pay closer to the global prices
• 1:08:13
  or US prices and future early rights.
• 1:08:16
  You're capturing that convergence past still in the in
• 1:08:19
  the later searches we're we're seeing interesting discounts
• 1:08:23
  versus the US of almost 2X. So it seems like we expect that
• 1:08:27
  the multiples will converge as they get closer to IPO and you
• 1:08:31
  know hopefully those companies will IPO at around the same
• 1:08:34
  price as they bite in the US What can we say about sort of
• 1:08:39
  current valuations for IPOs in similar categories in Let M and
• 1:08:43
  US? Yeah.
• 1:08:45
  Well, we break it down into sectors, the pattern becomes a
• 1:08:49
  little bit more clear, right. So when you look for example,
• 1:08:53
  let's say digital bonds, big pay, which recently IPO or new
• 1:08:56
  bank, which is super large already in the trading in the
• 1:09:00
  US, they have a lower multiples than in the US.
• 1:09:04
  But when you look at e-commerce, for example, MercadoLibre is
• 1:09:07
  trading better than that. Amazon probably I will say
• 1:09:10
  because of the growth rates and the potential upside that they
• 1:09:13
  could have in the in the future and the the new segments they're
• 1:09:17
  capturing, they're doing really well in the last years.
• 1:09:21
  And there's the local, for example, that we could compare
• 1:09:23
  to PayPal to say so, but it's also with not a super large
• 1:09:28
  market cap for a billion nowadays, but they're trading
• 1:09:32
  really good in terms of, of multiples.
• 1:09:34
  So I'll say that it depends on, on, on the, on the sector.
• 1:09:38
  Also, as a man always says, digital bands are kind of hard
• 1:09:42
  and they when they, when they start trading.
• 1:09:44
  So they're not super large multiples, but I would say that
• 1:09:49
  other sectors that could emerge have better, better multiples.
• 1:09:53
  It seems like a lot of these startups in Latin America are
• 1:09:56
  focused on fintech. Is that something that we see
• 1:09:59
  continuing? I guess are there other areas
• 1:10:01
  than just fintech or is that again where the majority of
• 1:10:03
  activities happening? Yeah.
• 1:10:05
  So Fintech it's an area that it's still hot in the region is
• 1:10:09
  still thing. So we have the Vito C which was
• 1:10:12
  the first stage already consolidated.
• 1:10:15
  The B2 BI would say that almost also consolidated now are in the
• 1:10:19
  infrastructure stage in, in terms of fintech.
• 1:10:23
  So there's, I think there's more potential now say, but we're
• 1:10:26
  seeing very good companies also in terms of B2B SAS that are
• 1:10:31
  doing really well. So for example, one of the
• 1:10:32
  companies that I was mentioning out Hero that came out of
• 1:10:35
  Argentina was acquired by Octane back in 2021 for $6.5 billion.
• 1:10:42
  This is a company that does digital authentication.
• 1:10:45
  It was of of course a competitor fault.
• 1:10:47
  So we have very good solid and very high quality.
• 1:10:51
  So I think one of those companies is going to be very
• 1:10:54
  probably in that stage. One of the other industries that
• 1:10:57
  I I like in the region that it's very tackles very tropical
• 1:11:01
  problems. It's the logistics also.
• 1:11:04
  My take is that we're going to see that some of these IP, OS
• 1:11:07
  and M&A's are going to come out of the love tech industry.
• 1:11:12
  In that area, what are the investments we've made is MOTU,
• 1:11:15
  which is also a little bit fintech, a little bit logistics?
• 1:11:18
  Yes, exactly. And some another company that
• 1:11:21
  it's a little bit larger, it's spreadsheet, it's a prop tech in
• 1:11:24
  the B2B marketplace out of Brazil and it's also one of the
• 1:11:28
  top candidates to have a large exit in the next three years.
• 1:11:32
  Say that it's very tropical because we have a lot of gaps in
• 1:11:36
  terms of infrastructure and logistics.
• 1:11:38
  So it's pretty interesting, right value these companies are
• 1:11:41
  adding to the region I. Wonder if we could take a little
• 1:11:46
  bit of time to talk about the recent IPO pick pay.
• 1:11:48
  I know that was really just last week, but anything sort of
• 1:11:51
  interesting about that IPO that we can use to, you know, guess
• 1:11:54
  at what might happen in the next year or two?
• 1:11:57
  Yeah, sure. So this company that has been
• 1:12:01
  trying to deal with for the last four years.
• 1:12:03
  So we'd finally happened. It's a super good news after so
• 1:12:07
  many years without IP OS for the region.
• 1:12:09
  And this a company also in the fixed area.
• 1:12:11
  It's one of those first BGC things that companies that
• 1:12:14
  started with this mobile first service of trying to provide
• 1:12:19
  digital payments for consumers. But then it's, it's now it's
• 1:12:23
  offering a full digital banking ecosystem doing payments, credit
• 1:12:28
  cards now offering it's also insurance and investments to the
• 1:12:32
  population in Brazil. And they actually have
• 1:12:36
  42,000,000 active users, which is pretty impressive almost I
• 1:12:41
  would say 1/6 of of Brazilian population.
• 1:12:44
  And they doing $1.2 billion in revenue with already positive in
• 1:12:49
  economics and growing 90% year over year.
• 1:12:52
  So this again in one example where we see that the growth and
• 1:12:56
  the potential upset in the future are probably one of the
• 1:12:59
  reasons that made him able to to IPO in the US, right?
• 1:13:05
  Was this an easy IPO? Was it hard?
• 1:13:07
  You know, is this something that you know was expected or not
• 1:13:10
  expected? It's a, it's a super interesting
• 1:13:13
  story. Hopefully one day we can, we can
• 1:13:15
  have ATV show that's, that's tells that tells, tells the
• 1:13:19
  story. So Picri is a company that was
• 1:13:22
  acquired early on by a large group of Brazil that it's
• 1:13:27
  controlled by the Batista brothers.
• 1:13:29
  So a couple of brothers of our family that they also in the
• 1:13:31
  construction industry, they actually were in jail for six
• 1:13:35
  months because they they were involved in a in a large
• 1:13:38
  corruption scandal that was in Brazil with the other Brexit.
• 1:13:42
  It was a corruption scandal because of the government.
• 1:13:47
  Everybody in Brazil is in jail every so often.
• 1:13:49
  I think 3 out of three last presidents have all been
• 1:13:52
  threatened with jail time or have been in jail.
• 1:13:54
  Was that? Accurate.
• 1:13:56
  Yeah, it's accurate. It's part, it's part of the
• 1:13:58
  process. You know, you'll get to be
• 1:13:59
  president, then you'll get to be in jail and and then you
• 1:14:02
  probably get to be president again.
• 1:14:04
  So. And that's that's, that's
• 1:14:08
  actually Lula's, Lula's story. The the current person.
• 1:14:11
  Yeah, but. As you see, so did this company
• 1:14:13
  go public despite all the scandal or what's what's your
• 1:14:16
  opinion? That's where you see the Latin
• 1:14:19
  American resilience, of course. So yeah, it's a, it's an
• 1:14:25
  interesting story. Of course.
• 1:14:26
  They they made everything clear and the banks that led the
• 1:14:31
  process, we're very tough on this.
• 1:14:34
  And that's the reason why they say first no four years ago and
• 1:14:37
  now they're involved in enabling it to happen.
• 1:14:41
  So I think it's it's all good now.
• 1:14:44
  How, how much of this do you think is based on, I know we've
• 1:14:46
  talked in the previous episodes about the PICS payments
• 1:14:50
  phenomenon in Brazil and you know, that's really accelerated
• 1:14:52
  in the last 3-4 years to, you know, I guess more than 8090% of
• 1:14:56
  the population is now using PICS for payments.
• 1:15:00
  Definitely, that was a turning point.
• 1:15:03
  So when Pix was created and it was adopted so quickly, that
• 1:15:08
  affected instantly to all the fintechs.
• 1:15:11
  So all the fintechs were able to grow because of PIX development,
• 1:15:15
  like to really grow. Actually, one interesting thing
• 1:15:18
  that I found is that the ticker that they chose as you see in
• 1:15:23
  the title is PIX. It's not.
• 1:15:25
  It's not, Yeah. It's not so yeah, definitely
• 1:15:29
  PICS enabled them to to really grow and was the main factor
• 1:15:33
  that enabled that that scale for the company.
• 1:15:37
  Let's remember that PICS, it was a development by the central
• 1:15:41
  bank. Interesting story of the only
• 1:15:43
  innovative central black in the world that served survives
• 1:15:49
  survives all the changing governments, right, because
• 1:15:52
  government change and these policy remain the same.
• 1:15:57
  That's pretty good. And also we are to see in Latin
• 1:16:01
  America, right, where policies change a lot between the
• 1:16:04
  government changes and this, this remains.
• 1:16:06
  So it's pretty good to show some institutional strength here and
• 1:16:11
  provide that good signaling also for these growth foreign
• 1:16:14
  investors to come to the region and and see the the results
• 1:16:17
  there. Well, I, I hope we get to
• 1:16:19
  profile another Latin American KPO or exit to the near future.
• 1:16:23
  You've again there's maybe 10 significant exits we might see
• 1:16:28
  half in IPOs and half in M&A. And I guess Ajibank and well,
• 1:16:31
  Hub and Rappi might be next on the list.
• 1:16:34
  Yeah, Ajibank probably gonna be next week soon.
• 1:16:37
  So hopefully we're starting the year with these two IPL.
• 1:16:42
  So it's wonderful news for the region.
• 1:16:44
  It's for sure going to help and the the window for the other
• 1:16:47
  companies that are really well consolidated and growing and
• 1:16:52
  doing things super, super right to be able to to file that.
• 1:16:56
  And I guess we would be remiss if we didn't plug our own
• 1:16:59
  investment here coming up and we're working on the collection
• 1:17:02
  of Latin American secondaries are are SPV is called Exit
• 1:17:07
  Fiesta and you're currently working on that with with Nate
• 1:17:10
  Lestig at Magma, correct? Yeah, correct.
• 1:17:13
  So we are creating this vehicle where we are putting together a
• 1:17:18
  fund of these top late stage companies with good
• 1:17:22
  opportunities that we are buying from sellers.
• 1:17:24
  So anyone that wants this exposure, happy to connect with
• 1:17:29
  them and tell them more about we're building.
• 1:17:32
  Well, thanks a lot, Karen for helping us review the Latim
• 1:17:36
  Unicorn market and look forward to see you in our next IPO soon,
• 1:17:39
  I hope. Thank you, Dave.
• 1:17:40
  Thank you, Aman. Thank you.
• 1:17:47
  I guess if we want to look for future IP OS, we just look for
• 1:17:50
  who's been in jail recently, right?
• 1:17:54
  You are only allowed to ask these hard questions offline.
• 1:17:57
  Looking. I get that's a really that's a
• 1:17:59
  hard question. That's why you guys have a great
• 1:18:02
  partnership. I There was no idea.
• 1:18:04
  Left unturned, right no blind. Spots We are an old married
• 1:18:07
  couple. I, I don't know you know how it
• 1:18:10
  worked out, but it has worked out.