Latest / trading places / OpenAI Path To Profitability, Anduril Valuation, & India Unicorns | Qapita Ravi Ravulaparthi | Ep21

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OpenAI Path To Profitability, Anduril Valuation, & India Unicorns | Qapita Ravi Ravulaparthi | Ep21 · trading places

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There are 120 unicorns in the Indian market.
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The roughly half of those use the Capita platform today.
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So we can say we have a dominant share of the Indian private
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market ecosystem. Are you seeing more and more
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people utilize SP VS. Are you seeing more layered SP
0:17
VS? Welcome to another edition of
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our Very Bad, Terrible, Horrible No Good podcast, the Trading
0:43
Places Secondary Podcast. What are you seeing in the
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public markets right now? So it was a pretty crazy week
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last week in the Public Markets Day, but we had MLK off on
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Monday, then the market went down by between 2 and 3% on
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Wednesday, Tuesday and Wednesday and they rallied in the
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second-half of the week. And you want to know why it
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rallied in the second-half of the week?
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I would have tried to because. We weren't invading Greenland.
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Perhaps I. Was going to try to say that
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with a straight face and and not sound like an idiot.
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But yes, the president went to Davos where he addressed the
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assembled leaders of all the allied governments and said that
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we are not going to take Greenland by force.
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And so the market rallied. Wow, 3 News item and we're
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sitting at like an all time record today and in the major
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markets. So I guess, I guess that's where
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the markets are. They're kind of ready to ready
1:33
to rally or we've, we've all lost our minds.
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But well, here's what I think is going on.
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You know, underneath the geopolitical turmoil, we're
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getting some earnings news coming in from Q4 from tech and
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other sectors. This is the S&P 500 EPS and you
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can see the growth rates and the sources of the growth rates.
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It's either revenue increases or profit margin increases or just
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companies buying back shares. And those are the three sources.
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And you can see what's what's happened in the last couple
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years. COVID, it was 2020 we the EPS
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and the S&P 500 dropped 14% had bounced back in 21 and then it's
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had a couple of low single digit years and the forecast coming in
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from earnings in the EPS now is 10/11/12 percent for 2026.
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And so you can see where we're talking about, you know, mid,
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mid double digit returns on the EPS, which means.
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Sounds very strong. That's it.
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That's, that's a very strong earnings performance for sure.
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And so that's undergirding a lot of the optimism in the stock
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market, I think. And it's even better for tech.
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So if you're in the tech space like we happen to be the, this
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is a breakdown of the expected earnings growth by sector.
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So you can see tech on the far left at 25% earnings growth,
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tech components in the S&P 500 NASDAQ versus the S&P at 14%.
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So overall, yeah, how? Much of that is AI exuberance.
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In your opinion, Aman is that most of it?
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Some of it. Every time I hear ACFO talk now
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earnings report, AI is always a a featured story.
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So I don't know how much of that 25% is is AI specifically.
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It's sort of attributed, but it seems like I've just based on
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the words they're talking about. If I did a word bubble, it's
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like over half of the sentiment is coming from AI or AI adjacent
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initiatives. For the moment, that'll be a
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good thing, but it does seem like the IPO market is feeling
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pretty good. And not that we had a ton of IP
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OS this week, but let's talk about a few of them.
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I guess equipment share went public this week.
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We knew that they had filed and listed and they were valued at I
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guess around 7 billion, a little bit of a bump, rose 16% I guess
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on Friday. This is a company, I believe
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it's AYC company. So 4 billion in revenue and
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growth at over 40% seems like a pretty decent story.
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Another company that went public was Bitco.
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Unfortunately, Bitco did not have quite a great day in the
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market after listing that fell 12%.
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I think it might even be falling a little bit more today.
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Let's see, we're kind of one for two in the IPO market.
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The first one you mentioned equipment share is kind of AI,
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don't know boring, stodgy, you know, down the middle of the
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fairway construction tech company, they do equipment
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rentals, but they have a good business.
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The four billion revenue growing 47% year over year.
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The gross margins are reasonably good for a, for a hardware
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equipment rental company in the mid 30s, not profitable.
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They've raised 5 billion in debt.
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So when you think about enterprise value, you usually
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add debt to equity. So they're $11 billion in market
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cap, but you know, three times sales.
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But for a growing for a growing company in the space, I think
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that's a win. And they popped on IPO day by 32
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percent or we're trading up 32% as as of today.
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So that's a, I'd say that one was a win.
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Bitco is sort of the crypto sexy crypto exchange newfangled
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business. It's really crypto wallet in an
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exchange in a world where we have a lot of exchanges already,
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right? You've got Coinbase and you've
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got Kraken and you have a bunch of others that are in Binance
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that are in the space. And so I think the market was a
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little bit more hit or miss on Bitco.
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They might have chosen a tough day to trade.
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I know we talked about the overall markets and the
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volatility last week. So maybe that wasn't the best
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time to price, but they're down about 22% now.
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They're they had been valued at 2 billion on IPO day.
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They're now in the 1/2 to 1/3 range.
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They actually have 10 billion in revenue and they are a
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profitable company. So I guess that's, you know,
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that's good. You might ask, well, what, what
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is it that why is it that the market didn't treat it better?
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And I think it just comes down to a crypto exchange that has
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the majority of its revenue from digital asset sales, like just
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trading fees on asset sales and selling stuff on its own balance
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sheet is a little bit more of a tenuous business model than
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subscriptions and staking and other types of recurring
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revenue. And Bitco's working on that, but
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they're not there yet. That's a that's just a small
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minority of their business. So they didn't didn't trade all
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that well. But you know, to get out and
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have a billion dollar evaluation for a company like that that's
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making only a 35 million profit, I guess is, I guess it's an OK
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when you know, and maybe a tough week and we'll see how they how
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they trade from here. If they if they perform, I think
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they should be fine. John, one thing I can promise
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you, even in this market, is that I never asked my clients to
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judge me on my winners. I asked them to judge me on my
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losers because I have so few. Couple of acquisition announced
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this week, Capital One announced they were acquiring Breck's for
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a little over 5 billion in cash and stock.
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That might sound impressive, but I guess it wasn't as exciting
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for people in the market because their last round, I guess in 22
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was 12 billion. So that's down kind of
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substantially from the valuation a few years ago.
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Like I think that wasn't unexpected, but still people
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seem to be less than excited about a $5 billion acquisition
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when when normally you would say that's a pretty big win.
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This might not be seen as that much of A win.
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Let me ask you a question if you, if I said to you, hey, you
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can start a company Dave and in about 10 years you can take the
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company public or rather have it be acquired by Capital One at a
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$5 billion evaluation. I think you'd say I'll take
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that. That sounds pretty good to me
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about. I'll take that.
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So you're right that the only reason why the market's a little
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bit, you know, some of the press was, was down on it because
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their last round was 12 billion in 2021 when everything was
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overvalued. But the number, if you think of
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it as ACEO and a, you know, a stakeholder, 99% of the
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stakeholders on, on Inbrex did fine.
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The only 1% of people who lost money on the deal would have
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been, let's see, who was it that led the last last round.
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Green Oaks and TCVI think Tiger was in in a prior round at A at
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a slightly more than 5 billion valuation.
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So I'm not going to lose sleep over what happened to TCB, Green
7:41
Oaks and Tiger If I had a nickel for every time Cliger.
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They still got, just to be clear, they still got their
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money back, they just didn't make a huge gain on it.
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Is that correct? Because the preference is at
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least One X back for folks. Yeah, I guess so.
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I don't know how the preference works on a in an acquisition.
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Sometimes the preference, I guess the preference will get
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honored. And so they'll at least at least
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they'll return to capital. And in the case of, you know,
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this later investors, that's, that's a 1X return.
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But all the earlier guys made money, employees made money,
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management team made money. And so I, I would say that's a
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win for 98% of their stakeholders, maybe a, a tie for
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the other 2%. And let's you know, let's not
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focus on the down. At least for, you know, Rivets,
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YC, Kleiner Perkins, DST and some individual investors who we
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used to work with, Peter Thiel and Max Levchin sounds like they
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got a multiple 100 X return. That seems pretty good.
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It may be some of the later stage folks in Zerp didn't make
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money or didn't make a lot of money, but still seems like the
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other folks did. All right.
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I I think a $5 billion exit is probably just fine.
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I think it's just great and their employees did did fine and
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I think that's, you know that's the other and the customers will
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that's now in the hands of Capital One, which is a great, a
8:52
great firm. So I think that's I think that's
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a win. All right.
8:56
Well, another acquisition that was sort of big news last week
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was EQT. That's a Swedish firm buying
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Color Capital for $3.7 billion. Color Capital is a company that
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we're familiar with them on because they're in the secondary
9:08
market for Jeremy Color, who I guess had been running the
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company for more than 20 years. Seems like a pretty nice payday,
9:15
huh? Yeah, I think that's great for
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him. He as he said is a $3.7 billion
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acquisition for I think he's the principal owner of the firm.
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He's been, as he said, he's been at it for a while.
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He had been looking at going public.
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That firm if you look at the valuation they they paid
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something like the 3.7 billion is about 7% of Color Capitals
9:36
AOM that industry ventures deal, but with Goldman had been a
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little bit different. It was about a billion dollars
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in it was the value of the deal. And I think industry has maybe 4
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to 5 billion in AOM. So that was 20% of AOM.
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But they also this is this is private equity, that's a
9:53
venture. And so I wonder to what extent
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just the economics of those categories are different and and
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PE doesn't get the same multiple on AOM.
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Well, so it seems like there there's continue to be
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acquisitions of the secondary market, although this one's
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maybe a little bit more in the PE world, it was a record year.
10:10
Evercore has reported that private assets and secondary
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sales were 226 billion last year and that was up maybe 35%.
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Portfolio sales overall volume jumped about 50% from last year.
10:24
This seems like this is getting a lot more accepted.
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It's becoming a lot more institutionalized.
10:28
Someone like EQT, what is a public company, you know, buying
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an asset like this in order to increase their secondary
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offering is obviously that's, that's a, that's a good signal
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for the institutionalization of it.
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You figure this continues the next couple years.
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Well, I certainly do think there's going to be more
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acquisitions of secondary entities for a variety of
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reasons. I, I do wonder if we're hitting
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top of market here. You know, certainly seems like
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the IPO market's going to open up.
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It does seem like there's more secondary trades going on.
10:57
Overall volume in secondary seems to be, you know, up
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substantially. One other note in the secondary
11:04
market, Pine Grove Opportunity Partners raised 2.2 billion for
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its venture secondary fund that that's a pretty big VC secondary
11:13
fund that's equivalent to maybe Step Stone and industry in terms
11:15
of largest VC secondary funds. They had already deployed a
11:20
billion dollars in their first fund.
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They made a lot of secondary investments in companies like
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Stripe and Databricks and Revolute, so probably they did
11:27
pretty well on those investments.
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I would imagine that's why they came back for a fund that's
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twice, twice as large. $1 billion fund was their first
11:35
fund. 1 billion in the first fund, yes, correct.
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Yeah, I guess that's, I guess in order to double the size of the
11:41
fund, they must have great returns to show for it.
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And it sounds like they had some great assets that probably
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pretty good, pretty good timing in the first fund.
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If I'm not mistaken, you just tried to bribe a federal
11:54
officer. Technically, I didn't bribe
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anybody. In the primary market, a company
12:01
called Zip Line, a drone delivery company, has raised 600
12:05
million and is being valued at $7 billion.
12:09
It's a pretty innovative company.
12:11
They do drone delivery of lots of different things, but
12:15
including medical supplies. They've been very active in
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Africa of all places, and the company's completed more than
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two million commercial deliveries, 20 million items.
12:23
What do you think about drone delivery and logistics a month?
12:26
It's the best. It's a hard thing to get to get
12:28
right. The complexity of it, the
12:30
ability to do that in kind of a cost effective scalable way is
12:32
really hard. You said there are over 2
12:34
million deliveries now, right? That that suggests they figured
12:37
out how to do it and do it scalably and they've got to be
12:39
the one of the leaders of the space now.
12:41
So keep hearing, that's the future.
12:44
Well, they started in Rwanda delivering medical supplies, but
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now the expansion is happening in U.S. markets believe in
12:52
Houston and Phoenix and you know, starting to see more
12:54
domestic use of drone delivery. That seems to me like a hard
12:58
problem to solve as opposed to, I don't know, delivering books
13:01
for, you know, for Amazon or something, or T-shirts, which
13:04
seems like an easy problem to solve.
13:05
But complex supply chains, medical supplies, the regulation
13:08
around it, It seems like they started in the in the hard place
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and are working back to the easy place, which I guess, I guess
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that's the right way to do it. You know, when you're, when
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you're building a business like that.
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But I would think Houston and Phoenix are a lot easier to
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deliver to than Kigali. Well, one other indication of
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the health in the venture capital market is the growth of
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SPDS. There was recently in LinkedIn
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post by Sidecar that talked about their scaling capacity and
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they're now up to, I guess, 4 billion in total assets under
13:39
administration. You can see from this graph that
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that's been a pretty steep growth ramp in the last year or
13:45
two. Took them about 3 or 4 years to
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get their first billion under administration, but then less
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than a year to get the next billion and less than another
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year to get 2 billion more. So that seems like whether those
14:00
SPV's are being used for secondaries or primaries, it
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certainly seems like SPV's are becoming a very popular use case
14:06
for the venture capital market. There's an old aphorism that I I
14:09
think is a trebite to Charlie Munger, who said your first
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$100,000 is the hardest, I think is what he said.
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So you have to adjust that for inflation now.
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But your first billion, I guess it's the, it's the hardest that
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they got there. Took him a long time to get
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there and then and now it's kind of coming, you know, more
14:25
easily. We do use Sidecar as well as
14:27
Carter and we've tried a few other admins, but I do like
14:30
about Sidecar. Is there a highly automated
14:33
offering? They are, it takes a little bit
14:35
of time to set up and, and get everything organized.
14:37
And once you have it, it's, it's highly intuitive and a little
14:40
bit, you know, easy to use and touch screen and automate in
14:43
terms of how you build and administer these St.
14:45
DS, whereas others are a bit more manual and everything from
14:49
the setup to the quarterly reporting.
14:51
Sidecar is kind of specific on what types of LP's and what
14:54
types of deals they'll work on. So they will turn you down if
14:57
you don't, you know, fit their mold.
14:58
But they're getting, I think, better at expanding their
15:00
offering. So they're scaling pretty
15:02
quickly now. They're definitely a great
15:03
platform, very cost effective. I think if you are a fund
15:06
manager and kind of know what you're doing and don't need a
15:08
lot of white glove treatment, I think that's a really good
15:11
platform to keep your eye on. Well, I think we're going to be
15:15
seeing the use of SPVS and many, many different transactions of
15:18
venture capital. And that seems like it's
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becoming more widely accepted by many folks.
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But that. Doesn't come in.
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We treat it just like one of us. OK, that's one.
15:30
Of us, one of us. We accept that.
15:39
Our last news item today will be about Open AI and their push
15:42
into advertising. I guess this was announced a
15:44
couple weeks ago, maybe to sort of give a little bit more
15:47
guidance on where they're going to be developing revenue from.
15:51
A little known fact is Fiji Simo who is over at Open AI now, she
15:54
was at Instacart, the CEO. She had been Facebook before and
15:58
she's now moved on to Open AI and is one of the one of the
16:02
folks leading, leading the strategy here.
16:04
So I know Fiji because in this must be 20 years ago now, she
16:09
was at eBay and I ran the advertising analytics and
16:12
strategy team or she was a junior member on my team.
16:16
She's now part of the strategy over at at Open AI.
16:19
I'd like to think that I taught her everything I know about
16:21
advertising and analytics and how to build a business.
16:24
I said everything I know, not everything she knows.
16:26
I suspect she she's learned a few things that's she does have
16:29
a blog post on this and their advertising approach.
16:31
And I think it's worth going to the Open AI site and just seeing
16:34
what they're going to do. And they've laid out a number of
16:36
principles that I think are, are really good and but they're
16:39
going to test their way into this.
16:40
But they are one, they want to be mission aligned on making
16:43
sure that AGI benefits all the humanity.
16:45
I don't, I don't really know exactly what that means, but
16:47
that is, I guess that's open AIS mission.
16:49
So obviously that's the ad team's mission as well.
16:52
But they are very committed to things like answer independence,
16:54
meaning they're not going to let advertising influence the
16:57
quality of the answer that ChatGPT gives you.
16:59
They want to make sure that you have control of your data and
17:02
your privacy. They want to give you the user
17:04
choice and control over how your data is used and then build an
17:08
advertising business around just optimizing not for time spent on
17:12
chat GGTGPT, but really a long term value of the business.
17:16
So I think those are the guiding principles behind it.
17:18
It looks, it looks and feels a lot like which you might get at,
17:22
at Google, which I think is probably a good, you know,
17:24
template. But they're going to test their
17:25
way and see what works and what, what doesn't work.
17:27
I would expect that that is going to be a key part of their
17:29
and they're not really charging a lot of the users now for use
17:32
of the service. So to get to 25 to 30 billion
17:35
ARR by the end of this year, which is where they want to go.
17:38
I suspect a good third or maybe even half of that is going to
17:40
have to be advertising revenue. And this is their way to to
17:43
build into it. It may take a long time to build
17:45
this. I think it's going to take a
17:46
couple of years is my guess, just based on what we saw at
17:49
eBay. And so that that may mean, you
17:51
know, short term it'll help their business a little bit.
17:53
But I think in the next two to three years, this is going to
17:55
be, I'm going to guess the majority of their revenues in
17:57
the next two to three years will be ad driven.
18:00
So they're on that, they're on that path and they're, you know,
18:02
they're, they're starting now. So I think it's going to be
18:04
their ticket. All right.
18:06
Well, thanks for helping us cover the news this week and on.
18:09
Thank you, Dave. Today, we have a very good and
18:24
awesome CEO with this. Ravi Ravalapathy is the founder
18:29
and CEO of Capita Software. Ravi, welcome to the show.
18:33
Thanks for joining us. Thanks for having me on on the
18:35
podcast, Steve. I was wondering, Robbie, if you
18:37
could give us an overview of what Capita does.
18:40
And I know you guys have recently raised a new round of
18:44
investment and I think you also made a move from Singapore to
18:49
the US recently as well. Is that correct?
18:52
That's right. So we had an equity management
18:54
platform and that's the starting point and there are three axis
18:59
so that I describe on which this business grows. 1 is on the
19:02
wealth, 1 is a system of record operating system access and the
19:06
and the third one is capital markets infrastructure access.
19:08
So we're looking to build along these axis.
19:11
The market structures and partnership structures dictate
19:16
how and how we sequence this and how we build.
19:18
The starting point is equity management, which essentially
19:21
boils down to helping companies manage their ownership records,
19:25
and that can be capitals as well as employee equity records.
19:29
And I guess for folks in the US, they're probably familiar with
19:32
the company Carta and I guess you guys might be called the
19:35
Carta of India, but now I think you hope to come to the Carta of
19:38
the US as well, is that correct? Well, I think that's a easy way
19:44
to describe our business. I mean, we started a good 8-9
19:47
years after Carter did. And Carter was the category
19:50
creator in the space, built a large business very early in our
19:54
journey. You know, the initial hypothesis
19:57
was we were building this in a remote part of the world where
19:59
there's no Carter, no Morgan Stanley, no Fidelity, no Schwab
20:02
and none of these large players. And there was a problem to be
20:06
solved. For issuers, all of this while,
20:09
you know, India was becoming the third largest startup ecosystem
20:13
in the world. So there was an empty canvas.
20:16
And we were absolutely wrong about being, you know, in a
20:19
remote market before we could, you know, get get started.
20:23
Carpa had a large presence in Singapore and in in the US and
20:28
we found ourselves to be a tiny startup competing against what
20:31
was already a very large business or an 800 LB gorilla in
20:34
this space. We competed in in those markets
20:38
and we found out of space for ourselves so.
20:41
Well, Congrats, I I know you guys are probably one of the
20:44
most popular fund admin platforms, cap table management
20:47
platforms in India, if not number one.
20:50
I've heard you and your Co founder say before that you
20:52
provide services for probably more than half of the total
20:55
market of India unicorns. But could you describe a little
20:59
bit about your customer base in India and and maybe your
21:02
customer base outside of India where you're hoping to grow and
21:05
expand? We started off in Singapore and
21:07
then you know, expanded into the Indian market.
21:10
India's is a large market. Singapore is a great place to
21:13
start a business, but you will have to build internationally.
21:16
So I guess two things. We were born in the pandemic
21:19
startup. We were also born to build
21:22
internally. If you, if you start, if you
21:24
start in Singapore, you can't afford to build only for the
21:27
Singapore market. It's a, it's a great to start,
21:31
but you will have to expand internationally.
21:33
So international expansion was always in the DNA.
21:36
And then when we started building into the Indian market,
21:39
this was, you know, coinciding well with what's been a golden
21:43
period for venture investing and venture exits in the Indian
21:48
market. And so I think China is a
21:50
significant second to the US in terms of the startup ecosystem
21:54
and India is significant 3rd to the Chinese market in terms of
21:58
in 2026. And so we found ourselves in a
22:00
vibrant growing startup ecosystem where we could we
22:04
could build. There are 120 unicorns in the
22:06
Indian market, roughly half of those, little over half of those
22:11
use the Capita platform today. So we can say we have a dominant
22:15
share of the Indian private market ecosystem.
22:18
Well, how we differentiate ourselves from some of our, you
22:21
know, USUS peers is we provide continuity post listing.
22:25
So we've built a platform that can manage stock plans post
22:29
listing as well, which means a Unicorn that's listing in Indian
22:32
market. And I think you've talked about
22:34
a few in in some of your recent videos, I think you talked of
22:38
Fine Labs IPO and Me show and you know both of these companies
22:41
for example use the Capita platform before listing and
22:45
after listing as well. Yeah.
22:47
So I guess, you know, a couple of differences in your market
22:50
released Indian market than the US is companies can go public in
22:54
the Indian market a lot earlier than in the USI guess, you know,
22:57
we, we've seen now in the US listing, you know, typically
23:01
companies are doing 400, five, 100 million in revenue when
23:04
they're listing in the US market.
23:06
That's really up substantially maybe from 5-10 years ago and
23:09
maybe only 50 to $100 million in revenue was required to go
23:12
public. At same time, those companies
23:14
are now taking probably more than 1012 years, in some cases
23:18
15 years or more to go public in the US.
23:21
But that's not really true in India, although we're talking
23:24
about, you know, some of India's unicorns.
23:26
My understanding is companies can go public in India with
23:29
maybe only 30 million in revenue, perhaps even less.
23:33
And as you mentioned, there's been a very vibrant market for
23:36
Indian IP OS in the past couple of years, even though the US
23:39
market has been maybe a little bit chilly up until just
23:42
recently, it's been a banner year for IP OS in India,
23:45
probably even last year was, I said last year, but I've got, I
23:49
guess I'm saying 2024 as well as 25 were great years for IP OS in
23:53
India. Is that is that on target?
23:55
I think that's a great point. So it is true you can the
23:58
capital markets in India allow for a private company to list it
24:02
like, you know, 40 to $50 million of revenue for good IPO
24:06
done. And that's like roughly, you
24:08
know, a 10th of what the scale that you need in the US to do to
24:12
list your business. Yeah.
24:15
You also have to keep in context that getting to that scale when
24:18
you're selling within the Indian market is also relevant.
24:21
You you have to readjust for scale of the market itself in
24:25
some sense. So we don't see a huge
24:28
difference in the number of years it takes to IPO.
24:31
Maybe it's, you know, somewhere 11 1/2 to 12 1/2 years in the
24:35
Indian market to get. So it's just that scaling is
24:38
much harder when the, when the market size is much smaller to
24:42
get to, you know, relative scale.
24:44
So I think at, at the end of the day, you know, from a nominal
24:47
GDP terms, India is still a tiny market compared to the US And
24:51
therefore, you know, you have to read for scale.
24:54
So I would adjust both on the time and the revenue scalability
24:58
of businesses that are building. And then you know the difference
25:01
is when you're building for the global markets, you know you've
25:04
only seen Indian companies building for the global markets
25:07
in ID services and offshoring heavy type of businesses where
25:11
you're starting from the Indian market but building for the
25:13
world. But if you were building a
25:15
business what that caters to the domestic market then you have to
25:18
readjust for. So what would be a different
25:21
scale in a different time? 360 odd IP OS IN202590 plus main
25:27
board IP OS. This is a 20 to $30 billion
25:29
being raised in the IPO market. So it's a healthy market, the
25:34
very healthy IPO market at this moment.
25:37
And what's different from the previous cycles of bull markets
25:40
or, or is that venture funded companies get, are getting exits
25:45
in the Indian market, which is fantastic for the venture
25:48
market, which is, which is great for a, we see showing DP is and
25:52
then going back and raising larger funds and, and that whole
25:56
what's your cycle getting, getting started?
25:59
You know, I think of the 10 top IP OS for 2026 that are
26:05
expected, I think seven of them would be venture funded and, and
26:09
three would be like the traditional conglomerate owned
26:11
or national infrastructure, government owned type of
26:13
businesses. So, so that's a, it's a lot of
26:16
money, that's a lot of liquidity for risk takers and venture
26:20
capitalists and private equity funds investing into these
26:23
businesses and scaling them and creates that virtual cycle.
26:26
So. In the US, Carter had previously
26:29
been planning to run its own secondary markets.
26:32
That was a big part of the story for the first 5-10 years, but
26:35
then they decided to exit that part of the business there
26:38
primarily now just focus on fund admin and cap table management.
26:42
You guys have decided to keep that part of the business.
26:46
And I guess maybe one other difference in the Indian market
26:49
is that cap tables are public information, right?
26:52
So I guess maybe could you describe how you guys got
26:55
started with your secondary marketplace?
26:57
What markets do you serve and how does that fit in against the
27:01
other businesses and services that you that you run in the
27:04
company? I'll start with the industry
27:06
structure. I think I always describe 3 axis
27:09
of growth for this business. You can think of as the XYZ axis
27:13
of building a business starting at the at the origin, which is,
27:17
which is cap table management by equity management.
27:19
So 1 axis of growth is building towards wealth management
27:23
businesses. And if you see the kind of
27:25
tender offers that have taken place in the US market in the
27:28
last last year or so, private markets have started creating
27:33
wealth as well and liquidity as as well.
27:35
And this wasn't the case. You know, if you kind of go
27:38
back, if you if you look at the Indian market, you know, people
27:40
working in startups created wealth only at IPO.
27:44
So the IPO and list was the wealth creation event for
27:49
employees. And so when you look at
27:51
financial institutions like Morgan Stanley, JP Morgan,
27:54
Charles Schwab here in the US building stock plan services
27:57
businesses which they have, that was primarily targeted towards
28:01
building and acquiring wealth management customers early.
28:04
So today's employee equity holder is tomorrow's brokerage
28:07
customer and day after tomorrow the wealth customer.
28:10
So that's one axis of growth building towards wealth
28:13
management and using, you know, equity management, stock plan
28:17
admin as an early customer acquisition tool, eventually
28:22
offering wealth management solutions.
28:24
The second axis of growth is the market infrastructure, capital
28:27
markets axis, which is where all of your platforms come in, like
28:31
IPO is the venture liquidity. Companies are staying private
28:34
for longer. People need liquidity windows
28:37
employees can't wait for 12 to 15 years before they get
28:40
liquidity. And investors want in on this
28:43
asset class, which is, you know, accessible not widely, but to a
28:46
select few investors who can invest into these venture
28:50
capital funds. And therefore you create a
28:52
secondary marketplace or market infrastructure.
28:54
That's a capital markets market infrastructure play, which is
28:57
where you see all these training platforms, equities, then you
29:01
know, Hive what? So that's the second axis.
29:04
The third axis is I'll just stick to the core strength,
29:07
which is system of record. So build one for cap table.
29:10
You know, cap table for a company is an LP table for a
29:13
fund. And so I'll build that for the
29:14
fund and there's network effects.
29:16
So you become like an ERP or a system of record network and you
29:20
build along those axis. So given where we started and
29:23
that none of these players on all three axis existed, we had
29:27
the benefit of looking at this business from starting .0 and
29:32
then figured out which axis to build.
29:33
So we've taken baby steps in each one of those.
29:36
So we're different on the equity management front in the sense
29:39
that when we started building equity management platform, we
29:42
built both private company platform and list list called
29:46
public company platform for the Indian market.
29:49
And that allowed us to keep the unicorns.
29:52
And strangely, the ability to serve a company post listing
29:55
attracts the unicorns because they don't want to switch
29:58
platforms at IPO. IPO it's a big, it's a big event
30:01
and you don't want any distractions of the, the time of
30:04
IPO. So you give continuity.
30:06
So similarly on the capital markets infrastructure front,
30:09
there's a structural benefit which you alluded to, which is,
30:12
which is the, all of these markets are English law based
30:16
systems that are UK law based. So India's UK law, Singapore's
30:19
UK law, Australia, Hong Kong, I call them the Queen's children.
30:25
So all the English law based systems, they, they have
30:29
corporate transparency in the sense that you have to file your
30:32
ownership records with the government.
30:33
So unlike the US, where the cap table system is the system of
30:36
record and the final proof of ownership of a company, the
30:40
final proof of ownership that a lawyer will accept or validate
30:44
would be what is filed with these government, government
30:46
agencies in all these all these jurisdictions, Which means the
30:49
sensitivity to who who's on my cap table, who owns the number
30:53
of shares that each shareholder owns, this public information.
30:57
So the sensitivity to that data, which is the problem that Carter
31:01
ran into in the US, didn't exist in that part of the world.
31:05
And so we could build, you know, we could also build a secondary
31:09
markets platform that tends to be regulated.
31:12
So the bottleneck here in terms of building is that's regulated
31:15
business. You need, there's the equivalent
31:17
regulations that SEC would have on trading platforms or Atss in
31:21
the US. You would have equivalent, you
31:23
know, rules and regulations in the Indian market and the
31:26
Singapore market. So the, the Moat or the barrier
31:30
to entry, depending on how you look at it becomes regulatory
31:33
frameworks in each of these countries.
31:34
And so we build these plat secondary businesses in, in
31:38
India. We've also got the license to
31:40
build us in Singapore. And we are waiting and watching.
31:43
I we, we want to focus on equity management first in the US
31:46
market before we think about, you know, solving for the US
31:50
market which has this unique problem where where cap tables
31:53
are non public information. Welcome to Stratton Oakmont.
32:01
You Schnucks will now be targeting the wealthiest 1% of
32:05
Americans. We're talking about Wales here,
32:09
Moby Dicks. In the US, there's been a lot of
32:12
recent activity, there's been acquisitions of both equities
32:16
admin. So now JP Morgan and Schwab are
32:20
part of that business as well. And there's speculation that may
32:24
also, you know, be looking for a partner.
32:26
They might it might remain independent.
32:28
And then even more recently, I think we just saw a partnership
32:32
announced between g ^2 and, and that's like private markets to
32:37
provide capital for company tenders.
32:40
So we've seen quite a bit of activity in the secondary market
32:43
overall. I'm, I'm ignoring even the
32:46
industry Ventures acquisition by Goldman, but I would imagine you
32:51
have a quite a bit more of attention to your secondary
32:55
platform, even if it's not, you know, active in the US right
32:57
now, you're, you're servicing a pretty healthy and vibrant
33:00
markets outside the US. Is there the same kind of
33:04
concentration of volume that we see in the USI think probably
33:09
the numbers that we've heard in the US is that, you know, 5 to
33:11
10 companies are half the overall transaction volume.
33:14
The top 30 companies or maybe 8090% of that transaction volume
33:18
is there. Is there a similar sort of
33:19
concentration effect going on in India and outside the US?
33:24
Yeah. I mean, there tends to be
33:25
concentration towards companies that will IPO.
33:28
It's not necessarily the top won't call them top companies.
33:31
It's the window to IPOI think if there's a reasonable chance the
33:35
company will IPO in three to four years time frame, that's
33:39
where we see secondary activity. It's not so much linked to what
33:42
scale of business that is. It can be a large business, but
33:45
if there's no immediate IPO, you don't see too much secondary
33:48
activity. I guess the eventual liquidity
33:51
comes from public markets because IPO is up so hot and the
33:55
markets hot with IP OS and that oversubscribed, it's not always
33:58
easy to get allocation and so well customers or private
34:02
banking customers, high net worth individuals, family
34:05
officers look at the pre IPO market as a way to get in on
34:09
some of these eventual IP OS early, right.
34:11
And that's been driving the secondary market activity.
34:15
I would still think it would be like 7030 type of concentration
34:19
in terms of top 30 companies getting 70% of the volume.
34:22
So I would think from a concentration standpoint, it's
34:25
not at quite as high as the US And we operate in Singapore,
34:29
which is like a global wealth hub.
34:31
And some of the secondary transactions we see are similar
34:33
to what you would see in the US, which would be like a, a SpaceX
34:36
open AI, perplexity scale, AI scale, AI shield AI, all these
34:41
AI names. So it's, it's concentrated in
34:43
the AI names and Singapore reflects the US market in some
34:46
sense. Indian market is a little bit
34:49
different. It, it has a local IPO market.
34:51
And so it's the pre IPO trading that it happens in the Indian
34:54
market. You guys recently raised a new
34:57
round of capital as part of that.
34:59
I think you've also you and your Co founder have considered
35:02
moving to the US or at least your Co founder is considered
35:04
has moved to the US right? We, we are in the midst of that
35:08
move and redrawing our org, org structures and how we want to
35:12
operate given our, the US is a is a big market.
35:15
We tend to operate in a in a space that's not crowded.
35:19
You would have had, you know, I don't know 80% of the players
35:23
who building for this market on your podcast in some form or?
35:28
In just the last six months already, yeah, I guess we've had
35:31
most of them. It's not a crowded market.
35:34
And so two things. I mean, it's not a crowded
35:36
market because when you start looking at the time, it always
35:39
looks small unless you look at it holistically from, you know,
35:43
these various axis. And every company, including
35:45
Carter has tried to build along each one of these axis and then
35:48
double down what's working and scaling back on what's not
35:52
working. And therefore it's it's not
35:54
crowded. It's not like a payment space
35:55
where there are now you can build, you know, many, many
35:58
unicorns in the payment space. It's broad.
36:00
It's a massive, the bottomless stamp.
36:02
So we see fewer players. And what that means is there's
36:05
always scope for partnerships and growing together.
36:09
And you know, 2024 was, I call it the year of evangelization
36:13
with Larry Fink. I think his letter he wrote, you
36:15
know, about private markets and you know, wealth generational
36:18
worth getting created in alternative assets and so on.
36:21
And 2025 became the year of actual consolidation with all
36:25
these players, the whole private market space mainstream in 2025
36:30
in the US And so given started at a point of origin with this
36:34
vision in mind along some of these axes will build and along
36:38
one of these axes will partner. And so I think the Schwab
36:41
partnership just came at the right time just before they
36:45
acquired Forge. And so we see being able to
36:48
build in the US market with partners on the private market
36:51
cap table side, we've decided to partner with Schwab and that
36:54
kind of like to the Series B, given how small this sector has
36:58
been traditionally 90% of the capital raised in the sector has
37:02
been raised by one player venture capital.
37:05
And so that's both an opportunity and a challenge.
37:08
It's a concentrated market. And so there's an opportunity to
37:10
give a choice to customers and ideally a bit and improve choice
37:16
to customers and there's an opportunity to play for what's a
37:18
very large market. I think the linkages to wealth
37:21
and the linkage to yeah, investments is becoming more
37:27
clear in the last 12 months with all these alliances and so on
37:32
those two axis, this the amount of wealth that could get created
37:37
with in a distributed manner when there's a tender program
37:40
with an open air tender program with data bricks or any of these
37:44
large players and eventually wealth that you get unlocked
37:46
when these companies list is tremendous.
37:49
So there's the wealth management access that's becoming active.
37:52
That's all these employees becoming wealthy.
37:54
And then there is the other side of the story, which is how do a
37:59
broader group of investors get access to wealth?
38:02
Some of these companies, you know, a tremendous amount of
38:05
value has been created in the private stage of the business.
38:08
And both of these the the the full 3 dimensional stack is
38:12
getting built inside large financial institutions.
38:17
I think, you know, if we were to look at the private market sort
38:20
of story, you know, there's kind of this, you know, progression
38:23
of companies as they go from being private to being public.
38:26
They, you know, have cap table management, They have, you know,
38:30
private secondary shares, you know, sort of liquidity
38:33
opportunities that they have public shares and public
38:35
opportunities. As far as the alternate assets
38:38
are concerned, like the problem that I associate with and
38:42
capitalize looking to solve and we are building a team is this
38:46
you have this public markets, you can click a button and get
38:48
exposure to you know a particular asset that you want.
38:51
You have the tokenized world where you can click a button and
38:55
get access to what you want. And you have the multi trillion
39:00
asset class sitting in between, which is the private markets
39:03
where you can't do any of these. And, and, and, and so I think
39:08
some of the platforms are trying to change that and some of this.
39:11
So that's the that's the space where we have a fit with and
39:15
we're looking to solve for. So there's the there's a broader
39:18
asset class space, which is which is interesting innovating.
39:21
I think all of these players will eventually do this.
39:24
I think Robin Hood tried to innovate into the private market
39:27
space. They're also look to all of the
39:29
brokerages will look to innovate into any tradable asset class
39:33
and certain things like that's where the world said it in terms
39:37
of being able to trade anything. Well, in in the USI think
39:42
there's probably some pretty clear customer pain points that
39:46
people are trying to solve. There's, you know, certainly
39:48
early employees and founders that companies who've, you know,
39:51
been having to wait a long time for IP OS now stretching beyond
39:55
10 years. Here in the Bay Area at least, a
39:57
lot of people use those proceeds or would like to use, you know,
40:00
their stock option wealth to buy a house or put a down payment,
40:03
maybe, you know, send some kids to college.
40:07
I think we have other types of customers, maybe VCs who are
40:11
looking for DPI for their funds or being able to return money to
40:16
their LP's. We have the LP's themselves who
40:19
may be holding on, you know, to fund positions or Angel Busters
40:22
and companies who have, you know, been investors in those
40:24
companies for 810 years and, and looking for liquidity between
40:29
those types of customers. I guess do you feel like you
40:32
have the same, you know, set of problems and issues whether
40:34
we're talking about India or Singapore or the markets you're
40:37
trying to enter in the US? Is there anyone group of those
40:41
customers that you tend to focus on more or the problems you're
40:44
trying to solve for there? The problem that we most closely
40:48
associate with is the employee problem.
40:50
And it's the same 3 use cases everywhere, college fees, house
40:54
and car, it's the same across markets.
40:57
It's just a relative scale of what it costs to have any of
41:00
these in each market. But it's the it's the same
41:03
motivation. Employees join a startup they
41:06
usually not remunerated as well as they would from a cash
41:09
compensation standpoint as they would and they take a bit of
41:12
risk to join a young fast growing company with the hope
41:16
and the optimism that they will eventually the bet will pay off
41:20
when the scale and the liquidity event.
41:22
What has changed between early 2000s when I started my career
41:26
and and today is that company listing timelines have far
41:31
exceeded employee resting schedules, which is typically
41:34
four years. 95% of the companies we see have four year resting
41:38
schedule. So you're waiting for your fares
41:41
to turn into into cash for a long time.
41:44
And then there is, it's become longer now than fund cycles.
41:48
Your typical 8 to 10 year cycle we see funds, it's exceeded that
41:53
too. So yeah, if you're an early
41:55
stage fund, the chances that you will see listing will be very
41:59
low. And so therefore you have to
42:01
look at other forms of exit, secondary exits before you end
42:04
of your fund life cycle and end of fund life cycle depending on
42:07
the jurisdiction can be mandatory as well.
42:09
If you're starting a funding in India, for example, you are you,
42:13
you have to liquidate your positions and give your money
42:15
back to the LP's within the defined time frame.
42:18
You can't hold on to the assets and so on.
42:21
So, so the DPI problem has also become universal.
42:24
The DPI problem is much smaller in the Indian market given IP,
42:29
OS and and secondary activity and so on.
42:33
It's just much starker in South East Asia, Singapore, Indonesia,
42:36
where the capital markets don't facilitate IP OS or look at
42:41
listing. And so you would, you would find
42:44
like the DPI being like an acute problem in South East Asia.
42:48
It's it's still a problem in in India and, and, and, and the US.
42:52
So, so I think the case for creating liquidity windows and
42:58
eventually liquidity one tap, I think that's what's the markets
43:01
building for. And the problem we associate
43:04
with as a company, you know, is the, is the employment that's
43:08
distributed wealth creation that is much harder to sell smaller
43:13
lots. And it is, that is where the
43:16
three body problem kind of comes into play in, in more
43:19
complicated ways than one. What's good for the employee may
43:22
not be good for the company. What's good for the buyer may
43:25
not be good for the seller. And so you'll have to have this
43:28
convergence of what is in, in, in inherently 2 different sides
43:34
of a, of a, of a, of a trade coming into, and that's what
43:39
make this, you know, problem complex.
43:41
And then you have the layers sitting above which is the SPV's
43:44
and so on where it gets, you know, that's enough.
43:47
That complicates this a lot more.
43:48
So that's a three body problem where you don't know the
43:51
trajectory of one of the bodies, so.
43:53
OK. I guess when you're saying 3
43:55
body problem, you're really talking about, you know, the
43:58
three different players involved in this.
43:59
So, you know, not just the buyer and the seller, which is, you
44:02
know, maybe typically a company holder and you know, somebody
44:06
who's a retail investor, but also the company itself is, is
44:09
the issuer which has to usually approve these transactions and,
44:12
and make sure that their needs are being met.
44:15
The information lies with the company.
44:17
Usually the yeah there's information asymmetry between
44:20
the buyer and seller unlike any other, the two sided
44:23
marketplace. So the issuer has to be involved
44:26
in a transaction to solve for information asymmetry as well.
44:32
Something just came across my desk, John.
44:34
It is perhaps the best thing I've seen in the last six
44:37
months. If you have 60 seconds, I'd like
44:39
to share the idea with you. You got a minute?
44:42
We were going through evaluation analysis, particularly on our
44:44
show, we really try to understand, hey, what's what's
44:46
top and revenue, you know, what's growth look like, what's
44:50
you know the profitability of the company, if we have any
44:51
information about that. And then very, very importantly,
44:54
what's the preference stack of capital, either equity or debts
44:58
or both that needs to be cleared, particularly if you're
45:01
thinking about, you know, buying common shares in the company
45:04
that might have a lot of impact on the value of those common
45:06
shares. But then as we alluded to
45:08
before, you know, when looking at companies like SpaceX or open
45:12
the Eye or some of the hottest companies out there, you know,
45:14
there, there might be top line revenue information and maybe
45:17
some growth or profitability, but you probably don't have a
45:20
lot of visibility into what's going on.
45:22
And it seems like that doesn't really matter to a lot of
45:25
buyers. I guess it's it's seems like
45:27
it's a more momentum driven than fundamental analysis driven
45:30
market. There are two types of trades.
45:32
There's a momentum trade that doesn't matter.
45:34
It's like 4 more. And so you're not looking at the
45:38
analysis, you just want a piece of the pie and you're willing.
45:41
To it's going up, hopefully it's going up for a while and I just
45:44
want to be buying that trade. Momentum trades and then there
45:47
is trades where you're looking at what's the company doing,
45:50
where is it's listing. And this is largely the pre IPO
45:53
trades where you're looking at IPO as an eventual benchmark.
45:57
The chances that you know given IP OS are getting oversubscribed
46:00
2030 times, then you're, you know, the chances that you would
46:03
get allocation are low. So can I go in now and then I
46:06
can play that arbitrage. So that's where the analogy of
46:09
reference tax and all of those comes in to to value the
46:13
downside scenarios in some of those.
46:15
And I think the what I need to clarify is most of the times on
46:19
the trades we see H and I sophisticated investors.
46:23
This is not so much retail, this is still, it's these family
46:27
offices, people who have made money and have invested in
46:31
private markets before that likely LP's in venture capital
46:35
funds. And so they have a good sense of
46:37
what this what the stack looks like.
46:39
That's the buyer persona in in the markets in Southeast Asia
46:43
and and in India. You mentioned before a little
46:47
bit about the SPV revolution and sort of what's been happening
46:50
there and for some of these more popular companies, certainly
46:54
there may be even multiple layers of those types of
46:56
vehicles. What do you see happening with
46:58
that, I guess both in, you know, maybe India and the US, are you
47:02
seeing more and more people utilize SPV's?
47:05
Are you seeing more layered SPV's?
47:08
Almost all the US names we've seen have been through SPV's.
47:11
By the time there's access to a large US based AI name in
47:16
Singapore, where you know, private banks and wealth
47:20
management institutions and people like ourselves are trying
47:23
to figure out a trade, it's almost always through an SPV for
47:26
the US names. India tends to be different.
47:29
India is digitized. There's a QC horizon for every
47:32
private share. I have 3 Indian subsidiaries.
47:34
All of them have digital shares. There's no paper shares in India
47:37
anymore. So these actually sit in your,
47:40
in your in individual's accounts.
47:43
It's all digital. It's already materialized.
47:45
So from a tech stack perspective, tech infrastructure
47:48
perspective, India is one step ahead.
47:50
And so you can actually ask for final proof of ownership of
47:54
assets. There's an there's an account.
47:57
So it's it's what what's equivalent of AQ SIP for ISYN
48:01
for a public share or or a listed security in the US is
48:05
exists for private shares in India.
48:07
So, yeah. And I have a Singapore holding
48:10
company that has, you know, non digital shares for my holding
48:14
company where we have raised funds and you know, all of our
48:17
various rounds. But my Indian subsidiaries that
48:19
I hold that all, all the shares that are in digital form, which
48:24
is Singapore company on. So India's built a tech
48:27
infrastructure play, which allows for, you know, better
48:31
transparency in terms of ownership profile for ownership.
48:34
There's other issues in in that market, but not not quite SPV
48:38
related. And do you guys offer SPV's
48:41
software as part of your solution?
48:43
Do you integrate with other SPV's?
48:45
What's what's the competitive market look like for SPV's both
48:48
in India and now that you're coming to the US?
48:50
We partner with providers, SPV providers.
48:52
We haven't built the SPV stack as yet, and that's a
48:55
possibility. I think a lot of times, you
48:57
know, we start talking about liquidity as if it happens every
48:59
day and if it's right around the corner, but you know, when
49:02
you're starting to fund, it may be 10 years away from, you know,
49:06
any liquidity, possibly even longer.
49:08
And I think for the fund managers and their LP's, they
49:10
really need to start thinking about these issues probably, you
49:12
know, I would say at least around year 7 to 10, if not year
49:15
567 to give people some direction as to where, where
49:19
they're going. And we've seen various issues
49:22
that can plague company ownership, lead to conflicts of
49:25
interest, lead to all of this. So having a liquidity vehicle on
49:29
my own cap table, I run a cap table business and see hundreds
49:32
and thousands of cap tables, particularly in markets that are
49:35
not so liquid. And so not thinking about that
49:38
is not an option. Suddenly from my perspective on
49:42
my app table, starting with my own cap table, how do I think
49:45
about now that we are, you know, we were born in the pandemic, so
49:48
this is year 6 for us. How do we think about, you know,
49:51
various people who funded the business?
49:53
What will their liquidity needs be?
49:55
What will their exit windows be like?
49:57
I think it becomes imperative. And for a growing company, it's
50:00
also the employee liquidity piece.
50:02
My tool for my employees who've believed in the company very
50:06
early to stay motivated and continue on this company
50:10
building journey will be their belief in, in the value of some
50:14
of this equity. And so you would see fast
50:17
growing companies doing more buybacks and tender programs
50:20
and, and all of those in students, we've done 30 in the
50:25
Indian market. It's not a, it's, that's a non
50:27
trivial number in terms of number of programs.
50:30
And and then we see that increasing, accelerating.
50:34
Yeah. And I I think you bring up a
50:35
really relevant point, which is for many of these companies
50:38
where maybe 10 years ago there was a a lot of animosity and
50:43
fear of secondary markets and platforms because the CEOs felt
50:47
like they were, you know, potentially losing control or
50:50
quote of their equity and you know, the price of that equity.
50:53
And there was a big fear factor there.
50:55
I think now we're sort of seeing kind of the opposite in the 10
50:59
tender offers. And I would say even frequent
51:02
tender offers on at least an annual basis are almost like a
51:05
requirement for these companies to keep their employees, you
51:09
know, motivated and interested. It's like a competitive feature
51:12
in the market if they don't have one of those, you know, sort of,
51:15
you know, regular tender offers. And competition is a great
51:18
thing. You can't have two companies out
51:21
of five in a market doing this and the other three not do it.
51:24
And so at least from a, you know, building businesses in a
51:28
growing market like, you know, we have, we have a large team in
51:31
India and we see this all the time.
51:34
Like the only market that's more liquid than the employee market
51:37
is the FX market. And traditionally IT and
51:42
financial services led the way in the Asian markets.
51:45
We're now seeing all brick and mortar, all companies thinking
51:49
of equity based compensation because it's the same talent
51:52
pool they're all chasing. And so one company offers and
51:56
this. This is extends all the way to
51:58
listed companies as well. Well, I think at the, you know,
52:00
at the top end of the market you see consolidation among these
52:03
huge VC funds, you know, and recent just raised $15 billion
52:07
in new fund capital. You know, there's probably at
52:10
least 10, maybe 1520 firms that have more than $10 billion of
52:14
assets under management. And at that, in the market,
52:17
you're seeing a small number of VC firms raise ridiculous
52:20
amounts of capital. At the opposite of the market,
52:23
you have thousands, literally thousands, maybe even, you know,
52:26
approaching 10s of thousands of VC funds with maybe less than
52:29
$10 million each. And well, I think it's great
52:32
that it's easier for people to get into the market.
52:35
I think it's going to be more challenging for those folks to
52:38
continue to be AVC unless they, you know, figure out a way for
52:42
their LP's to generate some liquidity.
52:45
So I guess very, very much tail of two markets between these,
52:47
you know, super mega, you know, huge DC funds with 10s of
52:52
billions of dollars and then kind of the small players with
52:55
barely 1 to $5,000,000 that are also in the market.
52:57
And and we call those things the same thing.
52:59
We call them venture capital firms, but I would say those are
53:02
very, very different products. That's also true, by the way, at
53:05
the company level with, but what's happening AI and funding?
53:10
But I still think that there's a lot of people that are focused
53:13
on AI and only AI as you know what they invest in.
53:17
I I still feel like there's a ton of opportunity in other
53:19
parts of the market as well. We've had a great conversation.
53:23
I really appreciate all the time.
53:24
Maybe we can have you back on the show in another six months
53:27
and see how the business is going in the US.
53:29
Thanks for having me enjoy the conversation.
53:31
I actually enjoy some of your other podcasts too, so it's the
53:36
secondary focus is great. Well, good luck with the capital
53:40
in 2026 and particularly you're opening up in the US market and
53:44
hope we get to have you back on the show again in the future.
53:47
Thank you. Aman, who are we covering today
53:56
in Valuation Corner? So today, Dave, we're going to
53:59
do Andro, which is the autonomous defense tech company.
54:04
There'd be Augment top ten that we've been covering and talking
54:08
about and seem like one of the more exciting companies for
54:11
2026. In Full disclosure, we do.
54:14
We are investors in Andro. This is in our third fund.
54:17
They are one of the top five or so position.
54:20
So it's one that we're in. We know affair a bit about it
54:23
and we're very excited about it. For those who don't know about
54:26
the company, they are a defense, call it a defense technology
54:30
company. If you know a little bit about
54:33
the history of Silicon Valley, you know that there's been a,
54:35
this was in the 50s, sixties, and really in the end of the
54:37
70s, a lot of interaction between the US Defense
54:41
Department and Silicon Valley companies.
54:43
The, there was never quite a commitment in the sense of an
54:46
industrial policy, but the US government was one of the big
54:50
purchasers of semiconductors and a lot of the chips that were
54:53
coming out of Silicon Valley. So they were a top, a top
54:56
customer of a lot of the early Silicon Valley companies that
55:00
then seeded the ecosystem. And then there was kind of a
55:03
break, I think when the when the Valley moved more to the
55:06
Internet in the mid 1990s, more software defense stopped being a
55:10
major customer. The last 20 years or so has been
55:12
one where the government in particular and defense has not
55:15
been a customer of Silicon Valley companies.
55:16
But that began to change in probably around 2018, 1920.
55:21
The defense tech companies began to become VC funded again.
55:25
One of the early players here was Founders Fund and they are
55:28
the key player behind Andrew. They invested at the seed stage
55:31
level along with APC, which is run by our our buddy Joe
55:34
Lonsdale, who is a colleague of Peter Thiel and and worked with
55:38
Stanford grad who I went to school with and that's been
55:41
close to Peter for a while. Baylor Capital is another big
55:44
Thunder of Andrew. That's another fund that's
55:47
invested in that Founders Fund Network and Founders Fund, in
55:49
addition to the seed rounds invested in September 2024 at a
55:53
$14 billion evaluation. They just closed a deal in the
55:56
middle of last year to $31 billion valuation.
55:58
So quite a big step up in in the back half of 2025.
56:02
And it seems like just from some of the numbers I'm going to show
56:05
you, I think I think they're going to continue to make good,
56:06
good progress in the evaluations.
56:08
The first thing to think about when we think through the
56:10
evaluation of a company like this is what's the combination
56:13
of hardware and software? There's an old aphorism in
56:16
Silicon Valley. It might be for Mark and recent,
56:18
but maybe not. I'm not sure he's ever confirmed
56:20
or denied, but either he or somebody on his team said
56:23
hardware is hard and now it's just their code for saying you
56:26
don't invest in hardware stocks like they used to.
56:29
For a long time, the valley just didn't didn't do it.
56:31
And that, you know, that rule was kind of true from the 1990s
56:35
really I'm up until the mid 2000 teens.
56:38
But it began to break with Trey Stevens, who was the founder of
56:42
Andro and he was at Founders Fund and he recruited Palmer
56:45
Luckey, who was a who was a hardware CEO.
56:48
He was the guy who took Oculus VR and built it and scaled it
56:52
and sold it to Facebook. And and Stevens has said that
56:54
they are really selling software, which is difficult.
56:57
It will also sound get integrated with hardware.
56:59
And if you can get that combination right and do that
57:01
for things like robotics and autonomous capability and
57:05
wrapping that into metal, it's just a lot easier for the
57:07
customer to to want to buy that. Like, you know, the iPhone is a
57:10
perfect example of like this integration between hardware and
57:13
software. To use his words here, he says
57:15
we use that as a Trojan horse to get software in the front door.
57:19
So I think they're thinking of themselves as both a hardware
57:21
company and a software company and and selling both.
57:24
And so that's one clue to looking at the valuations, how
57:27
to think about them is that combination.
57:30
And they're at a billion dollars in revenue right now.
57:32
They doubled the revenue in the last 12 months.
57:35
This chart stops in 2024. We don't know what the full 2025
57:39
numbers look like. This is coming from Sacra.
57:41
It looks like they roughly doubled the revenue again or at
57:44
least started targeting a double in the early part of 2026.
57:47
So they're probably at a $2 billion run rate.
57:50
But we don't know about them because they're not purely a
57:52
software company. You have to think about some of
57:54
these hardware pieces. I speak from experience of used
57:57
to be the chief financial officer at Sonos.
57:59
So I can tell you what investors asked me.
58:01
In addition to revenue, you got to think about gross margins.
58:03
You got to think about the unit economics, cost of revenue.
58:06
Accounting is a big deal for these companies.
58:08
That's something you have to figure out.
58:10
You have to pay attention to the cash conversion cycle.
58:13
That's basically when you're selling hardware, how long does
58:15
it take your customers to pay back?
58:17
But how long do you have to pay before you pay to your
58:19
suppliers? And is there any, any gap
58:22
between those two? If you are paying a lot of money
58:24
upfront for hardware and selling way down the line, you're going
58:27
to run out of cash as you scale the business.
58:28
So these are all things that you have to understand as an
58:31
investor. And then there's things like
58:32
dependency on suppliers and you know, how are they sourcing
58:34
their stuff? What I would point out from what
58:36
we know of, of Andoro is that their gross margins are between
58:40
35 and 45%. Note that it's not as good as a
58:44
SAS company, which typically around 80%.
58:46
But if you look at Sonos where I used to be, they're they're at
58:49
40 to 45%. Apple is probably in the, you
58:51
know, low 30s to high 30s depending on the products.
58:54
So Andoro, even though they're early stage, they've already got
58:57
the gross margins that you'd expect of a fairly immature
59:00
multi billion dollar hardware company, which is really, really
59:03
good. And those are much better than
59:04
the margins of like Raytheon Technologies, which is another
59:07
defense supplier. So what I like about them and
59:09
all these are growth, but their gross margins are very good as
59:12
well. And what they're what they're
59:14
building on a go forward basis is really an operating system.
59:17
They call it an operating system for war.
59:19
It's the lattice OS drives all this stuff.
59:21
And they're using things like sensor fusion and, and machine
59:25
learning and artificial intelligence to, to create and
59:28
detect and track and classify relevant decisions that a
59:31
military operator has to have. That gives them an A decision
59:34
advantage. And that means that they
59:36
integrate command and action, meaning that if you can analyze
59:39
military situations and tactics, you can feedback to real
59:42
decisions that can drive strategy.
59:45
Some of their major products you may, you may see are drones,
59:49
unmanned aerial vehicles. I don't know why I don't call
59:51
those drones. We have to come up with a big
59:53
long word for it. But the ghost unmanned aerial
59:56
vehicle is something you're selling to the US military right
59:58
now. And then underwater vehicles,
1:00:00
but I guess I would call a submarine.
1:00:02
But again, I'm not a, I'm not coming up with you.
1:00:05
Instead of instead of drones and Subs, it's like unmanned aerial
1:00:08
vehicles and underwater vehicles.
1:00:09
And that's what they're selling to the US military.
1:00:12
They're also selling to border control, the Customs and Border
1:00:15
Protection. They've got deals now with the
1:00:17
Australian Ministry of Defence, which is a key US ally.
1:00:22
And they've also sold technology now to the UK Ministry of
1:00:24
Defence. So they're there, They do have
1:00:26
multiple customers and are broadening to different
1:00:29
countries, not just the US. So that's a, you know, clear
1:00:32
path for expansion of revenues. I think a decent gross margins
1:00:36
with some very cutting edge technology.
1:00:37
So I think this is a great company.
1:00:39
I think there are those growth rates given the size of the
1:00:42
military budgets and increasing emphasis on military technology
1:00:45
now within the US and their allies.
1:00:48
Who are the people in Davos that Donald Trump yelled at last
1:00:51
week? Hopefully those people continue
1:00:53
to buy our stuff. I think it's a great company in
1:00:56
a great position with a lot of market potential here.
1:00:59
Well, thanks for giving us that overview of Androl Bond.
1:01:02
And I guess we're optimistic that we'll do well as it
1:01:05
continues to grow. Absolutely.
1:01:07
Thank you, Dave.