Latest / trading places / TP6: Peter Walker of Carta 📊 | OpenAI Tender 🧾| Revolut $75B Valuation 💳 | Is 3X 3X 2X 2X 💀?

Transcript

TP6: Peter Walker of Carta 📊 | OpenAI Tender 🧾| Revolut $75B Valuation 💳 | Is 3X 3X 2X 2X 💀? · trading places

• 0:00
  Yes, we're in a bubble. OK.
• 0:02
  The question is how many winners will there be?
• 0:06
  The hype is great for the founders right now.
• 0:09
  Totally. Everything's beautiful, prices,
• 0:11
  valuations are out of the world. There's lots of money.
• 0:14
  It's a good time to be a founder.
• 0:38
  Here we are with another week of Trading Places, a very bad VC
• 0:43
  podcast of the broken unicorns and busted carry.
• 0:47
  Except I don't think this week anybody's carry is getting
• 0:50
  busted because IP OS are happening all over the place and
• 0:54
  primary rounds and secondary rounds, Aman, it's like
• 0:58
  everything's coming up roses, right?
• 1:01
  I know I think it's been a pretty good week.
• 1:03
  We've had some big secondary deals and a couple of companies
• 1:06
  that are raving the public markets and being rewarded for
• 1:09
  it. So I think it's A and the new
• 1:11
  record set and the NASDAQ and in the S&P 500 and in the Nikkei
• 1:16
  Stock Exchange over in Japan where you just were.
• 1:18
  So it seems like there's a lot of good stuff happening this
• 1:21
  week. Yeah, you're right.
• 1:22
  I just got off a plane this morning back from Singapore.
• 1:25
  I was in Asia for the last three weeks, mostly in Singapore, a
• 1:29
  little bit in Thailand, Vietnam, and then very briefly in Japan.
• 1:34
  Let's start off with a kind of crazy sound bite.
• 1:37
  This is actually from a few weeks back, but this is Hemant
• 1:40
  Taneja, managing partner and I guess CEO of General Catalyst to
• 1:44
  normal has changed. Triple, triple, double, double
• 1:47
  is definitely dead. I tell our investors don't bring
• 1:49
  that to me. We used to think about, hey, you
• 1:52
  go like when we did some Sarah and you know, Gusto and some of
• 1:56
  these companies. You look at these companies and
• 1:58
  say, wait a minute, going from 1:00 to 3:00 to 9:00 to 27 is
• 2:02
  not interesting or 1:00 to 5:00 to 9:00 to 27 is not, you know,
• 2:05
  whatever the math is not interesting.
• 2:06
  You got to go like 1 to, you know, 15 to 20 to 100 and
• 2:13
  they're all on a revenue basis more interesting than the stuff
• 2:16
  we thought was the most interesting five years ago.
• 2:19
  OK, so triple, triple, double, double is dead.
• 2:23
  That used to be a pretty reliable bar set for SAS
• 2:28
  companies that if you triple, triple, double, double, you were
• 2:31
  doing great. But now he's saying, hey, we're
• 2:34
  not really excited unless you're like going from 1 to 15,000,000
• 2:39
  in one year and then 15,000,000 to 100 million in the next.
• 2:43
  So it's like 15X and then 6X is the new bar.
• 2:49
  Is that that seems a little crazy town.
• 2:53
  I mean, I guess a few companies might be doing that, but does
• 2:56
  that really mean that we're going to get all over these
• 2:58
  other companies that are only tripling revenue growth from
• 3:01
  year to year? That seems unnecessarily high
• 3:05
  bar. Yeah, that I.
• 3:07
  Don't think that's a great message to founders.
• 3:08
  By implication, what you're saying is anything founded
• 3:11
  before 2022 is is no longer a valuable company, a viable
• 3:15
  company, an investable company. That on his face doesn't sound
• 3:19
  right. I still think triple, triple,
• 3:20
  double, double, double is an awfully good story.
• 3:23
  I know some companies are setting the bar higher, but
• 3:25
  there's questions about those companies too.
• 3:27
  Like is the ARR real? Is that sustainable?
• 3:30
  Is that what's the capital intensiveness that right?
• 3:33
  So I think dismissed is out of hand.
• 3:35
  Doesn't sound right to me. Let's check out another sound
• 3:38
  bite from 20 VC and Harry Stabbings I want.
• 3:41
  You to explain it a little bit, Iconic did a report and there
• 3:45
  was a really interesting take away for you.
• 3:47
  Can you explain what that take away was and how we should think
• 3:50
  about it? Yeah, they, they, they did a 73
• 3:54
  page state of the software report.
• 3:56
  We don't all have patience with over 80 charts.
• 3:58
  I wrote it up on Saster this week, my top learnings.
• 4:02
  But the 11, that kind of hung with me along with the trip, the
• 4:07
  triple, triple, double, double discussions we've had here that
• 4:10
  you had from Hemnet or from General Catalyst, right?
• 4:16
  You know, what's the point of venture in in 2025?
• 4:19
  Rory's other points that yeah, all the money, 70% of the money
• 4:23
  is going into less than 20 deals.
• 4:24
  But but this one analysis that Iconic did was interesting,
• 4:27
  which is that yes, AI native companies, the ones we're all so
• 4:31
  excited about growing so quickly.
• 4:32
  Under 100 million ARR have terrible free cash flow margins
• 4:36
  -126%. It's much worse.
• 4:39
  Non AI companies are -56% they're still burning, right?
• 4:42
  Classic checks, but because they're growing so quickly,
• 4:46
  actually the burn multiples much lower.
• 4:49
  They're actually capital efficient because they're
• 4:51
  growing so goddamn quickly that even if they're burning a lot
• 4:54
  along the way, right, even if they've got afterburners on,
• 4:58
  they're getting to Mach 10 or whatever it was in Maverick so
• 5:01
  quickly that if capital efficiency is better, this is
• 5:05
  where it's, you know, this is where VC should put it, be
• 5:07
  putting all their money, right? So what they're kind of say is
• 5:10
  that the new bar for growth is just insanely high and VC should
• 5:15
  be concentrating their bets on only those companies.
• 5:19
  I I don't know, is that what people are saying is we agree
• 5:22
  with that or not that that seems unnecessarily exclusive.
• 5:26
  I'll summarize what the what the report said that Jason was
• 5:29
  pointing to iconic report called State of the Software Industry
• 5:33
  2025. It's a great read.
• 5:35
  It is 75 pages. So if you don't have the time or
• 5:38
  patience to go through it, Jason does a good summary.
• 5:41
  He hits five points and one of the the major ones I think that
• 5:43
  he was saying was yes, the growth rates are happening at a
• 5:47
  scale that we haven't seen before.
• 5:49
  AI native companies are going to 100 million in ARR faster than
• 5:52
  even like top quartile SAS companies before.
• 5:55
  And what's smaller teams? And I think his last conclusion,
• 5:58
  which is an interesting one, is even though they're burning more
• 6:01
  cash, their capital efficiency is better.
• 6:05
  And this is one that I think we should really think about.
• 6:07
  But my observation of it was he's mathematically correct like
• 6:11
  that. If you look at the math on the
• 6:12
  net burn multiple, which our friend David Sachs coined a
• 6:15
  little while ago, it looks really favorable for a lot of
• 6:18
  these companies. But what is that multiple?
• 6:20
  It is how much money are you burning?
• 6:22
  And then what ARR are you getting?
• 6:25
  And kind of begs 2 questions, which I think Rory O'Driscoll
• 6:28
  counted with in this, in this great podcast, which was well,
• 6:31
  one is the ARR reel for a lot of AI companies, this is contracted
• 6:35
  ARR. It's not as sticky as ARR in a
• 6:38
  SAS context, or at least we don't, we don't, we don't know
• 6:41
  how sticky it is in the long run.
• 6:42
  And, and I'm not sure we're there yet.
• 6:45
  And then second, maybe more importantly, a lot of companies
• 6:48
  that are these AI native early stage companies, I'm not sure
• 6:51
  they're calculating the burn multiple correctly because they
• 6:53
  typically don't include CapEx. Why don't they include CapEx?
• 6:57
  I guess they just never had to. Software companies don't
• 6:59
  typically have a lot of CapEx. So it's a non issue and or has
• 7:01
  been heretofore. But from from what we're seeing
• 7:04
  the kind of CapEx burn going into open AI and Anthropic are
• 7:09
  much bigger than anything we've seen before.
• 7:11
  So done correctly, I think you got include CapEx in these
• 7:13
  calculations. And so redoing the net burn
• 7:16
  multiple with CapEx, I think leads you to a different
• 7:18
  conclusion that maybe they're not as capital efficient as we
• 7:21
  think. But it's a great podcast, a good
• 7:23
  back and forth between 2 great investors, Jason and Rory from
• 7:27
  Scaled Ventures and moderated by Harry Stebbins.
• 7:29
  A good summary of this iconic report.
• 7:32
  I'm not skating to anything with references to lady humps.
• 7:35
  I don't even know what that means.
• 7:36
  No one knows what it means, but it's provocative, no?
• 7:39
  It's not as good people going. Let's complete one story from
• 7:43
  last week, which was Open AI did complete their tender offer at a
• 7:47
  $500 billion valuation. However, they only sold 6.6
• 7:52
  billion, only 6.6 billion when there was 10 billion available.
• 7:58
  Maybe that's a good news story because all the employees didn't
• 8:03
  take up as much as was available.
• 8:05
  There was demand for quite a bit more than the 6.6 billion that
• 8:08
  was sold. Is that a good sign, Aman?
• 8:10
  I think so. They had authorized 10.3 billion
• 8:13
  on the sale. I don't think there's a lack of
• 8:15
  money going into that deal. This was a deal that we
• 8:18
  highlighted last week. NVIDIA had decided to also
• 8:21
  invest in the company, so I don't think it was a shortage of
• 8:23
  funding. They only ended up with about 6
• 8:25
  billion of sales, but they think it was because employees didn't
• 8:28
  sell as much as they thought. Every eligible employee who had
• 8:31
  shares for more than two years was given the option to
• 8:33
  participate, but they still ended up a little bit short of
• 8:36
  the 10 million allocation. So I think it's a sign of
• 8:38
  employee confidence and just continued investor.
• 8:41
  Demand, I think it's going to go higher.
• 8:43
  Yes, I think the employees are voting with their dollars and
• 8:46
  would suggest that they were not willing to sell at that price.
• 8:49
  But even at that price now Open AI has become the most valuable
• 8:53
  private company in the world. Now they have they have jumped
• 8:55
  ahead of SpaceX, which is concluding their deal at a $400
• 8:58
  billion evaluation. Open AI is I'll see your $400
• 9:02
  billion Elon Musk, I'll raise you 500 billion.
• 9:07
  And I guess, I guess it's STEM Open one, Elon Musk 0 the two
• 9:11
  founders of open. AI, I don't know if that's one
• 9:13
  and zero. I think it's more like, you
• 9:15
  know, deck and deck. I don't know that they're really
• 9:23
  competing directly, but certainly seems like they are
• 9:27
  trying to get as much attention as they can for their own
• 9:30
  fundraising efforts. Ricky Bobby would have a
• 9:32
  different view as to who's who's winning this race.
• 9:35
  Nights, baby. Shane, you.
• 9:37
  Ain't first, you're last. You know.
• 9:39
  Don't talk about that phrase, the trademark not to use that
• 9:41
  tradition, Ricky Bobby. Well, it does seem like there's
• 9:45
  lots of enthusiasm in the IPO market.
• 9:47
  Well, Front filed for an IPO, but I guess previously we've had
• 9:51
  Netskope, Karna, Figure Technologies, Fermi, I guess the
• 9:55
  only sort of week IPO was StubHub.
• 9:58
  We talked a little bit about that last week, but even that
• 10:00
  one got out the door. So there's no lack of companies
• 10:04
  going public. We, we are now in the wide open
• 10:07
  IPO window. Do you have any opinions about
• 10:10
  that? Yeah.
• 10:11
  I think the Q3 IPO market was, it was good.
• 10:14
  It wasn't blistering, but it was better than Q2, which is better
• 10:17
  than Q1, but it's better than Q4 of last year.
• 10:19
  And so we've seen 4 steady quarters of growth.
• 10:22
  Now. I don't know that we're all the
• 10:23
  way back to a normal window, but we're, we're getting very close.
• 10:27
  And I think as you said, the ones that have gotten out have
• 10:30
  generally performed pretty well. I'd say the one that didn't do
• 10:34
  so great, StubHub is, is the one that opened right about their
• 10:39
  IPO range traded down. They're now down 20% from their
• 10:42
  IPO price. But as aside from that maybe
• 10:47
  Klarna has added slightly below its IPO price right now, but the
• 10:50
  rest of them I think have done OK.
• 10:52
  So if you invested at the IPO, you're doing well.
• 10:55
  If some of these first day jumps they even Figma is down 60% from
• 10:59
  its peak peak in the days. After its IPO, but that's still
• 11:03
  above the IPO listing. That even though it's down from
• 11:06
  the peak, that's still substantially above the IPO
• 11:09
  listing. It it is, it's above the, it's
• 11:12
  below the peak, but above the listing and it's still at 26
• 11:14
  times revenue. So it's not AI wouldn't call
• 11:17
  that a busted IPO. Which is not cheap.
• 11:20
  I would just say be careful buying these things that you
• 11:22
  know as they peak on day one. Some of these pops are
• 11:25
  ephemeral, but overall I think the market's done well and
• 11:27
  that's a that's a good sign. Now for companies that have
• 11:31
  these even we're seeing the ones that are on file now couple 100
• 11:34
  million revenue, 300 million revenue, but profitable and
• 11:37
  growing. I think it feels like Q4IS is
• 11:41
  just about back to a normal IPO window now.
• 11:43
  One more IPO here before we move on well fronts, which is a
• 11:46
  company that's been around for a little while and probably isn't
• 11:50
  an AI story. It's just a normal fintech
• 11:52
  retirement saving story, but they're doing all right.
• 11:57
  I guess maybe you know 300 or so million in revenue.
• 12:00
  Yeah, they declared and they're filing, they said 339 in
• 12:03
  trailing 12 month revenue. They're profitable, 45% EBITDA
• 12:07
  margins, mid 30s net income margin.
• 12:10
  So that's a pretty strong set of metrics for that company.
• 12:13
  They last priced at a $1.4 billion evaluation.
• 12:16
  That was back in 2022. The they're probably targeting 4
• 12:19
  to 5 billion in this in this valuation.
• 12:22
  So I think that's a, that's a great outcome for a company
• 12:24
  that's been around for a while. So seems like IP OS are doing
• 12:34
  just fine, but interestingly Cerebrus is a company that I
• 12:39
  guess is competing with NVIDIA. It's a chip manufacturer.
• 12:44
  They recently did a $1.1 billion Series G raise at an $8.1
• 12:50
  billion valuation. And the reason I'm bringing this
• 12:53
  up is slightly interesting is that they, they pulled their IPO
• 12:56
  filing, which had been made last year I believe, and decided
• 13:00
  that, hey, I don't need to go to the public markets to raise
• 13:04
  money. I can just raise money from the
• 13:06
  private markets and that's plenty good.
• 13:09
  Is that a trend that we think we're going to see that more
• 13:12
  companies are just choosing to stay private and continue
• 13:14
  raising private capital instead of going public even if the IPO
• 13:18
  window is open? Yeah.
• 13:20
  I think that would be the that might be the charitable spin on
• 13:23
  it. I think their CEO, Andrew
• 13:25
  Feldman was essentially saying, Hey, we were able to raise money
• 13:29
  in the private markets and, and so why, why go public before we
• 13:32
  have to the, if you look at their filing or some of their
• 13:35
  notes, it does seem like there's some issues with their, their,
• 13:37
  their business. The biggest one is 87% of their
• 13:40
  revenue comes from one customer and that's G 42 out of Abu
• 13:44
  Dhabi. So when you have that kind of
• 13:45
  customer concentration, that's usually a pretty big red flag in
• 13:49
  public markets. It, it ought to be in private
• 13:51
  markets too. But I think the private markets
• 13:53
  are maybe a little more accepting of a disruptive AI
• 13:55
  technology that has that kind of potential.
• 13:58
  Whereas in the public markets you really have to have more of
• 14:00
  a mature, more of a diversified profile to be successful.
• 14:04
  And so that customer concentration probably was a bit
• 14:08
  of a problem for them. Nevertheless, they definitely
• 14:09
  raised a, a great valuation from a private investor.
• 14:12
  So I guess, I guess they just got a better deal staying,
• 14:14
  staying private. And I would not be surprised if
• 14:16
  a lot of companies draw that same conclusion as they test
• 14:19
  those public waters. To wrap up for our news, we'll
• 14:22
  talk about two dev tools companies.
• 14:25
  First one is Versal and they raised a new primary round at a
• 14:30
  $9.3 billion valuation led by Singapore Cyber Wealth and GIC
• 14:34
  also Excel participating. This seems like a pretty large
• 14:39
  primary rounds. They're an AI company as well as
• 14:42
  a dev tools company. So that's like doubly exciting.
• 14:45
  Pretty rock star group of investors here.
• 14:48
  Black, Black Rock, step Stone, Khosla Adams St.
• 14:51
  General Catalyst. That certainly seems like an
• 14:54
  incredible group of investors and dev tools are are hot I
• 14:59
  guess, right? I guess so.
• 15:01
  This company's been around for a while.
• 15:03
  I've not until now heard them referred to as a AI dev tools
• 15:07
  company. But I guess if you can, I guess
• 15:09
  if, if you can add developer tools for AI into your marketing
• 15:12
  pitch right now, this is the this is the time to do it to do
• 15:15
  it. But as I said, this is an A list
• 15:16
  group of a list group of investors and, and a lot of
• 15:20
  smart money in it. And I think a real, a real
• 15:22
  successful company that's been around for about a decade now.
• 15:25
  And I guess if we're looking at Versailles revenue growth, it
• 15:28
  certainly seems pretty strong here.
• 15:31
  Looks like it's been growing that 60%, maybe not quite that
• 15:34
  much in the last year, but still.
• 15:36
  And they had a big step up from the last round, right?
• 15:39
  The cell is doing this one at 9. The last one was made 2024 at 3
• 15:43
  1/4. 3X step up in the last year and a half is not bad, yeah.
• 15:47
  I'd say so. And our final Devtool story,
• 15:51
  this is actually a secondary round is a company called
• 15:54
  Temporal. They're another devtools company
• 15:57
  out of Seattle. This company is doing US $105
• 16:01
  million secondary transaction, again led by GIC valuations at
• 16:05
  2.5 billion, up from a previous primary round earlier this year
• 16:10
  at only 1.7 billion. So that's up a 50% increase in
• 16:14
  valuation and maybe just six months, but it sounds like the
• 16:18
  company's been growing very fast.
• 16:20
  We don't have revenue numbers reported here, but I believe
• 16:23
  there was a 4X or more increase in revenue reported last year.
• 16:28
  And so if they're anywhere close to continuing that growth rates,
• 16:32
  a 50% increase in value and half a year might not be crazy.
• 16:36
  But still that's a pretty big jump in overall valuation.
• 16:39
  I don't know. Often see companies markup 50%
• 16:41
  inside of like, you know, six months.
• 16:43
  Especially when the last round was like a, I think they're
• 16:46
  pretty well organized Series C Tiger Global Management LED it
• 16:49
  and they had a bunch of 137 ventures in Mongo, VB and a few
• 16:53
  others in there Sequoia Index. But I guess as I said, when
• 16:58
  you're when you're going 4 XA year and you continue that
• 17:00
  momentum, I guess within six months, a lot of things can
• 17:03
  happen. Well, that's our roundup for
• 17:05
  news for this week. VCs who aren't excited about
• 17:08
  just a triple, triple, double, double, You got to be doing like
• 17:11
  15X revenue in order for me to really be excited.
• 17:15
  Sounds like everything's really going crazy right now, but I
• 17:19
  don't know, I'm a little bit more cautious perhaps.
• 17:21
  Enjoy it while we can, Dave. Today with us, we have Peter
• 17:34
  Walker, who is head of insights of Carter, or as I like to call
• 17:37
  him the head nerd over at over at Carter.
• 17:40
  Peter is all about the numbers. He produces lots of charts and
• 17:44
  graphs and reports and the best info point in the business as
• 17:47
  far as I'm concerned. And Peter, you also have a a
• 17:49
  podcast which you're doing called the Data Minute.
• 17:51
  But welcome to the show, Peter, and what's going on in your
• 17:55
  world these days, Carta. Thank you for that kind
• 17:57
  introduction, Dave. Carta is a super, super busy.
• 18:00
  I feel like I am the luckiest guy in venture capital.
• 18:03
  I get to sit on top of all this amazing data that we generate
• 18:06
  and like give it back to the ecosystem in the form of
• 18:09
  research, if that's social or big publish reports or anything
• 18:12
  like that. So yes, Head Data Nerd is not a
• 18:14
  title I've been able to wrangle quite yet.
• 18:17
  Hopefully this podcast will allow me to go back to Henry and
• 18:20
  ask for a raise, and for that, that's great.
• 18:23
  If you could tell us a little bit about your journey to where
• 18:25
  you are today and what kind of experiences shaped your journey
• 18:28
  into venture. I started a company in college
• 18:31
  with a couple friends and that did not very well to be honest,
• 18:34
  but it gave me your. Startup didn't work?
• 18:37
  Oh my God, you're a failure, Peter.
• 18:40
  Yeah, I agree. I'm a failure.
• 18:42
  But that, you know, that was the startup bug at the beginning for
• 18:45
  me. And then I joined, hopped around
• 18:46
  at some startups right after school and did data analytics
• 18:50
  and marketing and business OPS and all sorts of different
• 18:52
  things. My background is in political
• 18:54
  history and economics. So that's where I was coming
• 18:56
  from as a, as a student at least.
• 18:59
  And then 2020 hits, COVID happens.
• 19:01
  I'm in San Francisco at that point and I've just start doing
• 19:04
  what I've been doing, which is take data sets that I can find
• 19:07
  and visualize them in interesting ways.
• 19:08
  I've discovered this passion for data vis pretty early on in my
• 19:12
  career. And so that's just been a core
• 19:13
  hobby of mine for a long time. And then the Atlantic magazine
• 19:17
  reached out and said, hey, we're going to start a COVID tracking
• 19:19
  project in in the magazine. Would you want to come and help
• 19:22
  us translate that into those numbers, into charts and graphs
• 19:26
  that make sense to people? And so I did that for a year and
• 19:29
  that experience really drove my interest in this like opaque
• 19:33
  data set. How many different ways can you
• 19:35
  explain it and make sense of the world for a really interested
• 19:38
  audience? Obviously, on the one hand,
• 19:40
  COVID, that was a data set full of really awful things.
• 19:44
  But as, as that project was wrapping up, I made a list of
• 19:47
  companies that had data sets that we could do this with as
• 19:49
  like a new form of content marketing.
• 19:51
  And Cardo was #1 on that list with a bullet.
• 19:54
  So I sort of badgered them for a while and pitched my role.
• 19:58
  And they were, it was 2021. So I kind of felt like, you
• 20:01
  know, up and to the right, getting hired is certainly
• 20:03
  easier than than it is now. And so they let me come on.
• 20:06
  And so we built this sort of private research function.
• 20:09
  Which has been pretty amazing because the business has
• 20:11
  undergone some massive changes since I've been here in the last
• 20:13
  four years. It certainly has, and I know at
• 20:16
  one point Carta was itself a secondary marketplace.
• 20:19
  I know that you're producing very deep data, numeric content
• 20:24
  pretty much on a almost a daily basis, as far as I can tell.
• 20:27
  What I see that on LinkedIn all the time.
• 20:29
  I know Aman is also on our team, a big old numbers nerd, yes.
• 20:33
  What are the things that you pay attention to at Carta?
• 20:37
  What's been happening lately in the market?
• 20:40
  Are we coming out of the nuclear winter?
• 20:41
  I guess I hope. And are things warming up?
• 20:44
  Oh, we're out of this winter. So, so many things to dive in
• 20:46
  there. I'll start from a Carta
• 20:48
  perspective. We are Carta has got to made
• 20:50
  this transition from being everyone knowing us as a we run
• 20:54
  cap tables for startup companies to what we're calling like a
• 20:58
  private capital OS or an ERP for private markets.
• 21:01
  And the reason that's happened is because we've introduced the
• 21:03
  fund admin layer about four or five years ago and that has
• 21:06
  grown incredibly quickly. So we actually serve nearly 3000
• 21:09
  venture funds as their fund admin now in the US and
• 21:12
  increasingly private equity funds, private credit funds,
• 21:15
  etcetera, etcetera. So it's all private capital as
• 21:18
  like a broad market space. Carta, the goal is to be the
• 21:21
  backbone fund infrastructure for the CFO that's running all of
• 21:24
  those funds. And because we have that, we get
• 21:27
  to see what you just termed in very close detail what's
• 21:30
  happening with startups and then how's that translating into fun
• 21:32
  performance? We're out of the nuclear winter
• 21:35
  now. Whether or not that's a good
• 21:37
  thing, I think is the. Interesting part like well, let
• 21:39
  me, let me ask you a specific question there.
• 21:41
  We're out of the nuclear winter, but are our prices reflective of
• 21:45
  today or maybe a little bit even before that nuclear winter?
• 21:49
  They're reflective of some, they're reflective of the
• 21:53
  Pollyanna that exists in every GP.
• 21:56
  Let's be completely honest, the prices don't make sense today
• 22:00
  like. The yes.
• 22:01
  I I've come to think very strongly that one of the
• 22:05
  problems with the AI bubble is that it happened too close to
• 22:09
  the most recent 2021 bubble. So the zerp arrow.
• 22:12
  It's like, did we learn anything?
• 22:14
  Did we learn? Anything didn't have time to
• 22:16
  learn. Right.
• 22:17
  No. Would we have?
• 22:18
  Learned if we had had more time. I think is an open question as
• 22:20
  well, but we really didn't have any time to learn.
• 22:23
  So you've got this weird bifurcated market of old 2021
• 22:28
  era unicorns in name only than AI native startups that are the
• 22:34
  revenues are clearly better. I don't think there's any debate
• 22:37
  that the revenue numbers. Are amazing revenue and even
• 22:40
  some amazing growth, just I don't know if it's always worth
• 22:44
  50 to 100 times revenue. And I don't know whether or not
• 22:47
  that growth will ever be translated into actual margin.
• 22:51
  And that I think is the biggest question remaining in many of
• 22:54
  these AI spaces. And then you get into entry
• 22:57
  prices and it's, I mean, you know, the median seed valuation
• 23:01
  on Carta is higher today than it ever has been in our whole
• 23:03
  history. I think it's the highest it's
• 23:05
  ever been ever. That's true for Series A, It's
• 23:07
  not quite as true for Series B in some of the later stages,
• 23:10
  depending. But the upper end, the stuff
• 23:12
  that gets all the headlines, it's just gone completely
• 23:15
  bonkers. And that's maybe someone will
• 23:18
  make money. I'm sure that two or three of
• 23:20
  these companies will justify their insanely high valuation
• 23:24
  entry prices. A lot of them won't.
• 23:26
  And then the question is when, when does this new AI bubble get
• 23:31
  pricked and start leaking? I thought, you know, there was
• 23:34
  indications maybe with NVIDIA, etcetera that it might start
• 23:37
  happening this year. I don't think it's going to
• 23:39
  happen this year. Maybe it's next year, maybe it's
• 23:41
  the year after. Or maybe I'm wrong and I'm being
• 23:44
  too pessimistic, but I. I I don't worry as much about
• 23:48
  NVIDIA or even, you know, the mag 7 as I am about, you know, a
• 23:53
  lot of the pureplay AI companies and vertical AI play companies
• 23:56
  and companies that say they're AI, but probably they're just,
• 23:59
  you know, a SAS company in AI clothing.
• 24:02
  I guess maybe right. This this sort of.
• 24:04
  They put on AI robe, but underneath they're they're
• 24:08
  running traditional SAS business.
• 24:10
  Yes, that's totally happening. So one of the things that that
• 24:13
  brings up is how does impact fund managers and in particular
• 24:16
  emerging managers? I think what's underrated is
• 24:19
  that everyone kind of understands if you're a start up
• 24:21
  founder, you're either in the hype cycle or you're not in the
• 24:24
  hype cycle. And you, you know that pretty
• 24:27
  deeply because you know, fundraising is either easy or
• 24:30
  incredibly. Difficult but hype is great for
• 24:32
  the founders right now everything is beautiful.
• 24:36
  Prices, valuations are out of the world.
• 24:38
  There's lots of money. Totally.
• 24:40
  And then you get. That time to be a founder,
• 24:42
  right? And maybe a founder take some
• 24:44
  secondary out earlier then. You can take some money off the
• 24:47
  table. Yes, in in fact really early.
• 24:50
  Sometimes you can take money off the table.
• 24:52
  We see more secondary activity today at the A round than we
• 24:58
  have in quite. That's a little crazy.
• 25:01
  That's not really we jump in for sure.
• 25:04
  I think it's too early so. For instance, well.
• 25:08
  Outer selling or who's getting the liquidity at the in the A
• 25:11
  round? Founders and like the call it
• 25:13
  first five first ten employees now and to be clear there's a
• 25:17
  big bifurcation between those two groups.
• 25:19
  I should have stated my point a little bit more clearly though
• 25:21
  this isn't a widespread phenomenon.
• 25:24
  This isn't like every Series A company is taking money off of
• 25:26
  the table, but if you are in high demand, the ability to
• 25:30
  actually get liquidity earlier and earlier in the journey is
• 25:33
  100% there. So take a step back.
• 25:35
  This is not transactions through Carta.
• 25:37
  This is just companies that use Carta for Carta cap.
• 25:39
  We can see all the transactions on the cap table.
• 25:41
  So we know when secondaries are being sold.
• 25:43
  We think that 2025 will be the biggest year for Series A
• 25:47
  secondaries in 6-7 basically a long time.
• 25:51
  And that applies, I mean, some areas kind of back in vogue in a
• 25:54
  lot of places, but the demand is incredibly highly concentrated
• 25:58
  just as the primary evaluations are if you're in the golden
• 26:01
  circle of AI, native, right, legible, founder, etcetera,
• 26:06
  growing incredibly quickly, you can ask for whatever you want.
• 26:09
  If you're not in that circle, good luck.
• 26:11
  You know, so it is a have and have nots.
• 26:13
  Market, I do worry that we're sort of getting into a post
• 26:16
  COVID Zerp, specifically a company called Hop In.
• 26:19
  There was a founder secondary in that company where the CEO took
• 26:23
  $200 million off the table. Yeah, just before they raised
• 26:27
  about an $8 billion valuation. And I can't fault the founder
• 26:31
  for being in the water when the fish are running, I guess is the
• 26:34
  expression. But I don't think I'd ever heard
• 26:36
  of somebody taking $200 million off the table that early.
• 26:41
  He hopped right out. Two years old.
• 26:44
  He he hopped in and then he hopped out.
• 26:48
  Yes. It might have been nominative
• 26:50
  Germanism, right? He maybe if he was company was
• 26:52
  called something different it wouldn't have happened.
• 26:54
  Everybody acknowledges, OK, that was crazy.
• 26:56
  But like you said, we're only 3-4 years later and we're
• 27:00
  already seeing some. I mean Dave.
• 27:03
  We're seeing, I think this is part and parcel to all the
• 27:06
  stories that you read about, which is, you know, there are
• 27:08
  certain companies again, in that golden AI circle that are just,
• 27:12
  you know, opening up their e-mail and oh wow, a term sheet
• 27:16
  from really, really respectable funds that we've never spoken
• 27:19
  to. I had a bunch of.
• 27:20
  Term sheets from not so respectable funds of people as
• 27:23
  well. Funds are even better.
• 27:25
  Yeah, exactly. So like in a world where
• 27:28
  companies are getting unsolicited term sheets that are
• 27:30
  two 3/4 their current valuation without ever talking to VCs, the
• 27:36
  idea that you have money on the sidelines that once they get
• 27:39
  into consensus names, it's never been more true.
• 27:43
  It's an access game. It's all those things and
• 27:46
  certain and certain founders can take advantage of that.
• 27:48
  We can discuss whether or not that is a good decision.
• 27:51
  So I'll play my cards on the table.
• 27:53
  I think a is probably too early BC you know, like when you start
• 27:57
  building a business that's 50 a $100 million in revenue, you, I
• 28:03
  think have the right to take some of that money off the
• 28:05
  table. If there's a lot of, and I hope
• 28:08
  this is my biggest hope, is that you then, as the founder,
• 28:12
  allowed some of your employees to also share in that wealth.
• 28:15
  It's not. That's.
• 28:15
  The founder thing? That's the key issue here that's
• 28:18
  starting to come up more and more, although I think it's a
• 28:20
  less volatile reaction than it was maybe 5 to 10 years ago.
• 28:24
  Yeah. I think a stat that I saw
• 28:26
  recently was that only maybe this is one of your stats that I
• 28:28
  saw, but only 20% or a little bit maybe higher than that.
• 28:33
  Secondary deals are being roofer today.
• 28:35
  Frankly, I was surprised that it was that low.
• 28:37
  And for our viewers who are not familiar with that term, what
• 28:39
  that means is when a secondary transaction is attempted,
• 28:42
  usually the company, if we're talking about a direct secondary
• 28:45
  in the company, the company management has to approve that
• 28:48
  trade. And in many cases, they have a
• 28:50
  right of first refusal that's abbreviated as ROFR or roofer.
• 28:54
  In many cases where the company might feel like, hey, they want
• 28:57
  to be more in control of ownership or they don't want to
• 29:00
  trade, that's happening at too low a price.
• 29:02
  Yep, they might say, no, you can't do that transaction.
• 29:05
  We're going to either block that transaction or we're going to
• 29:08
  buy it ourselves. And.
• 29:11
  I'm sure that was it, might have been a hive stat on the Roefer
• 29:15
  side, but I'm also pretty stunned by that number.
• 29:19
  I would expect that number always to be at least 50% if not
• 29:22
  higher than that, just for the simple point that most founders
• 29:25
  want to control who's on their cap so.
• 29:28
  I wonder if there's some, you know, companies where they're
• 29:31
  just not even attempted because they know there's a standing
• 29:34
  broker that might be artificially depressing those
• 29:37
  numbers. You know, separating out these
• 29:39
  two kinds of secondary liquidity options where you've got the
• 29:43
  individual employee who goes out and, you know, finds a broker or
• 29:46
  somebody and gets an individual deal done and then takes it back
• 29:49
  to those execs and says, hey, here's my individual deal, will
• 29:52
  you bless it? And then there's the tender
• 29:54
  offer side, which has exploded, I think as companies stay
• 29:58
  private longer and the tender tenders as a sort of standard
• 30:02
  operating procedure have never been more default than they are
• 30:07
  today. It's not like.
• 30:07
  Everywhere seems like that's happening a lot more frequently
• 30:11
  and, and certainly at least for the top company names.
• 30:13
  But I think maybe even for, you know, outside that golden
• 30:16
  circle, I think we're also seeing tender offers again more
• 30:20
  more typically with companies that are doing at least 50 to
• 30:22
  100 million in revenue. You know, probably more for
• 30:25
  companies going north of 100 million in revenue.
• 30:28
  And and particularly where the time frame has been, you know,
• 30:30
  the company is now 7 to 10 years old and sometimes even older
• 30:34
  than 10 years where, you know, perhaps there's some timing
• 30:37
  issues on employee stock options that are coming.
• 30:39
  Exactly. The core underlying, yeah, that
• 30:42
  companies are staying private so much longer has attending
• 30:46
  effects. And one of that, if one of those
• 30:48
  effects is you have to in some ways a manufacturer liquidity in
• 30:52
  the private markets or you're faced with like an employee
• 30:55
  revolt. Right.
• 30:56
  Do you have any data on that? Do you see?
• 30:59
  I I don't know if you track how long it takes for companies to
• 31:01
  go public, but certainly it feels like it's more than 10
• 31:05
  years and maybe it's even more than 12 at this point.
• 31:08
  On the last check for Carta companies anyways, the median is
• 31:13
  now 12 1/2 OK or closer to 13 which?
• 31:16
  Which means half, half of the companies take longer than 12
• 31:20
  1/2 years. Yeah, and, and and the upper
• 31:23
  bound will continue to rise as some of the biggest companies
• 31:27
  have publicly stated they're not interested, right.
• 31:30
  Stripe, SpaceX, other, other just like, hey, no thanks.
• 31:33
  I think that's an interesting choice.
• 31:35
  First of all, that the fact that that is a choice is is kind of
• 31:39
  amazing that a company that large can just say, hey, I don't
• 31:42
  ever want to be a public company.
• 31:44
  And you know, it's not that that's an unusual decision.
• 31:47
  It's more the case of how do they handle the fact that
• 31:50
  they've raised a lot of capital for people who expect a return
• 31:53
  and they have a lot of employees who want liquidity if they're
• 31:56
  going to stay private. The assumption there is there is
• 31:58
  a secondary market or there are buyers that will arrange those
• 32:02
  tenders so that they can get liquidity back to their
• 32:05
  employees and investors. And I don't think that's an
• 32:08
  assumption that everybody just took for granted, You know, 5-10
• 32:11
  years ago now, now people would say, yes, I can legitimately
• 32:14
  stay private forever and there will always be a buyer for our
• 32:18
  shares and we can manage it. I I think the availability of
• 32:23
  massive pools of late stage private capital is a new
• 32:26
  phenomenon. Even versus 5 to 8 years ago,
• 32:29
  it's a completely different landscape and founders in,
• 32:33
  again, in those privileged positions are acting as though
• 32:37
  they have no worries about additional funding should they
• 32:40
  ever need it. Most of them don't necessarily,
• 32:44
  well, you could leave some of the like big core AI
• 32:46
  infrastructure players out of this because they're going to
• 32:48
  like gobble up more capital every single year.
• 32:51
  But for just the the big late stage businesses that are
• 32:54
  already quite mature, there's a question as to whether or not
• 32:56
  they actually need to raise a ton of external capital at the
• 32:59
  moment. As the percentage of great
• 33:01
  companies that remain private longer increases, there will
• 33:06
  come a point where regulatory issues or ideas come into play.
• 33:13
  I can't imagine if this trend continues for that much longer
• 33:17
  that this wouldn't be a topic of discussion in Congress etcetera.
• 33:20
  Like what do we do about the fact that many of our best
• 33:23
  companies are not available for retail investors?
• 33:26
  Aman, I know you have some thoughts and opinions about
• 33:29
  private markets and public markets and you track I guess on
• 33:31
  a quarterly basis for Practical BC you you track about 100
• 33:35
  public tech companies, most of them, you know historically SAS
• 33:38
  companies. What do you think is the current
• 33:40
  bar for going public in terms of revenue and what do you think
• 33:44
  the time frame is going to be in the future as that as that sort
• 33:48
  of proceeds? It's very company.
• 33:49
  Specific and it's really gets to quality of revenues and you
• 33:53
  know, can the company demonstrate a a story around
• 33:56
  defensibility. Some some companies can do that
• 33:58
  quickly, some have to pivot and figure it out.
• 34:01
  I think of the SAS space right now we're seeing the IPS and
• 34:04
  been successful like Cigna was the most recent successful IPO.
• 34:08
  They're in about a billion dollars in in revenue as an
• 34:11
  example. That's a very high bar, but
• 34:13
  that's that was a high quality IPO and if you know it's a bit
• 34:15
  of a game changer. I think we'll see companies in
• 34:17
  the 250 to $500 million range being able to successfully
• 34:21
  navigate a a story with defensibility of revenues and
• 34:25
  retention. Rates 250.
• 34:26
  Are you sure? I, I think at 500 million, yes,
• 34:29
  maybe, but I'm not sure at 250 million if there's a lot of
• 34:32
  companies going public. You asked about the next six
• 34:34
  months, I think. I think in the last six months,
• 34:36
  you're totally right. Nobody, nobody's half of five.
• 34:38
  The average, I think you told me in the first half of this year,
• 34:40
  it was like 800. Million, I think the pitch book
• 34:43
  data that we saw, yeah, the pitch book data for the
• 34:46
  companies have gone public this year, which I think was just
• 34:49
  maybe 10 companies that they covered.
• 34:52
  Average was over 800 million in revenue and four of them were
• 34:55
  over a billion in revenue. I don't think any of them were
• 34:58
  less than 500 million in revenue.
• 35:01
  If you're going out at 2:50, your growth meaningfully higher
• 35:04
  than it would be at 800 and therefore like you're going to
• 35:09
  get, you're going to get better prices in the private market
• 35:11
  probably. Yeah.
• 35:12
  I guess the question is why would you do that?
• 35:15
  You brought up one point before was, and I think Stripe is an
• 35:18
  example here where the company didn't need the money.
• 35:21
  The company was doing the the the secondary or some kind of
• 35:25
  tender offer just to provide employee liquidity or to
• 35:30
  restructure some of the options and and figure out a way to do
• 35:33
  that. Yeah, because I, I think these
• 35:36
  days I've, I've heard numbers around like what's the cost of
• 35:40
  going public being 20, five, $30 million or more.
• 35:43
  And for for two reasons. Well, that, that might be a
• 35:46
  large percentage of the actual transaction if you're not
• 35:50
  actually doing, I don't know, a 500 million to a billion dollar
• 35:56
  IPO, you know, 30 million is a is a pretty significant
• 36:01
  percentage of a only a $300 million transaction.
• 36:04
  You would, I don't want to think of 300 million IPO from a few
• 36:06
  years ago would have been fine, but now you're talking about 10%
• 36:09
  of that goes to just the covering the cost.
• 36:11
  So I think both in terms of the size having to be enough so that
• 36:15
  that percentage isn't too high, but also the size of the float
• 36:18
  that you're offering being big enough to attract the attention
• 36:21
  of buyers. Is.
• 36:23
  Probably a factor. And as a result of that, what I
• 36:25
  think we're seeing now is, hey, there's companies that have
• 36:28
  product market fit doing $100 million or more, but you might
• 36:32
  be 5 years away from an IPO. And what happens to all those
• 36:37
  companies? Because there's literally
• 36:38
  hundreds of those companies, maybe even single digit
• 36:41
  thousands soon, If not, if not yet.
• 36:45
  I think this is a really tricky spot for a lot of startups or
• 36:50
  scale UPS, whatever you want to call them at that point.
• 36:52
  And the example from 2021 is illustrative here.
• 36:56
  There were there's a whole herd of abandoned unicorns.
• 36:59
  Well, in that case, probably mispriced and inflated. 100%
• 37:03
  but, but I, I think that's happening today.
• 37:06
  Again, no matter what the revenues are for many of these
• 37:08
  companies, I think it's happening today.
• 37:09
  OK, So the problem is the overvaluation limits exit
• 37:15
  options for those companies in a really significant way.
• 37:18
  So a company that's doing 50 to $80 million in revenue, but is
• 37:24
  overvalued to the tune of 10X more than it should be has, you
• 37:28
  know, the exit options to IPO probably off the table to PE and
• 37:34
  M&A. Sure, if you get your house in
• 37:36
  order. But like, are you, are most of
• 37:37
  these companies profitable? I I I'm a little skeptical about
• 37:41
  that. Yeah.
• 37:43
  And so like. I do think there's a difference
• 37:45
  between sort of the busted Unicorn that was valued.
• 37:48
  Let's say, you know, you hit a billion dollar valuation five
• 37:52
  years ago, but you were doing less than 30 million in revenue
• 37:56
  and maybe today you've gotten to 30 million in revenue, maybe
• 38:00
  even a little bit more than that.
• 38:01
  But guess what? You're not valuing a $30 million
• 38:04
  a year company at a billion dollars these days at least
• 38:07
  unless there's some kind of AI thing going on.
• 38:09
  One, we've got mispriced companies that haven't been
• 38:12
  revalued in the market for sure 2.
• 38:14
  Some of those companies have preference stacks and amount of
• 38:17
  capital raise that are higher than their, you know real quote
• 38:21
  UN quote valuation if you were to take an approach today and a.
• 38:24
  100% which gets us to the point of, you know, our data is kind
• 38:29
  of sclerotic about this. So on the one hand you have
• 38:32
  secondaries and all this hype and the Oh my God, evaluations
• 38:35
  of these AI companies are crazy. And then on the other hand, you
• 38:38
  have a stat where we put out recently, which is right now in
• 38:41
  twenty, 2570% of employees who are leaving the company don't
• 38:48
  exercise their options. Wow, 70%. 70% of options go back
• 38:54
  to the pool in 2025. And I guess you'd say maybe some
• 38:57
  of that is for the, you know, they don't have the money to do
• 38:59
  it, but I guess I would if they really thought it was worth
• 39:02
  something, they might try and find the money.
• 39:05
  Yeah. So there's obviously from a
• 39:06
  secondary buyer who you know, buy.
• 39:09
  Ash on hand definitely matters, Interest rates matter here
• 39:12
  clearly, etcetera. Education, like did they know
• 39:14
  they needed to exercise? You'd be surprised how that
• 39:16
  answer is no, but in general I think I can view this with some
• 39:21
  odds and ends as a intelligent financial decision by many of
• 39:25
  these employees. They do know what the company's
• 39:28
  worth, and they do know it's not worth that much.
• 39:31
  Exactly. And and you know, when we put
• 39:34
  this out, I got some push back and that and a lot of people
• 39:37
  said, look, well, if you just cut it by companies that say
• 39:40
  raised an up round in the last six months, this would look very
• 39:42
  different like the companies that are doing well.
• 39:44
  And I was like, OK, that's an interesting push back.
• 39:46
  I did. I redid the data.
• 39:48
  The percentage of OPS go back to the pool for those companies
• 39:50
  again. They have raised a up round in
• 39:53
  the last six months is still 55%.
• 39:57
  I still wonder if there's some, you know, cash considerations
• 40:00
  there where they might believe it's worth something, but it
• 40:03
  maybe isn't worth, you know, jumping through hoops to
• 40:05
  exercise if they had the borrow money or paying money out of
• 40:08
  pocket. The macro context here matters.
• 40:11
  If you're leaving a Series, A company that just had an up
• 40:14
  round, even if you believe fairly firmly like this could be
• 40:18
  worth something, The time and on which that will become actual
• 40:23
  cash is so long that you might be like, look, $10,000 today
• 40:27
  matters more to me than 50 or 60 or $100,000 fifteen years from
• 40:31
  now. Do we think that people really
• 40:34
  understand valuation when they're buying or selling
• 40:37
  secondaries? I, I think you mentioned the
• 40:38
  situation there where employees are not exercising their stock
• 40:42
  option. My guess is they're pessimistic
• 40:45
  on the valuation. Maybe they don't have the cash,
• 40:48
  but maybe they're just pessimistic enough that they're
• 40:50
  not trying to find the cash. But I think there's a, there's a
• 40:53
  whole bunch of activity going on for secondary buyers and
• 40:56
  certainly the top 20 to 30 names.
• 40:59
  There's a lot of people buying at premiums, buying into multi
• 41:03
  layered SPVS or there may be lots of fees and carry.
• 41:06
  Obviously there's a lot of optimism out there for, you
• 41:09
  know, AI and for SpaceX and maybe defense tech and, but do
• 41:13
  those buyers really understand what they're buying?
• 41:16
  Is there data available on the companies that they're buying?
• 41:19
  I think there's some data available actually in this case,
• 41:21
  not really from usbutyouknownotice.co or other
• 41:24
  sort of secondary broker aggregation places, but would
• 41:27
  give you a sense of the at least the like quote UN quote retail
• 41:30
  demand for these things. And again, it's, it's super
• 41:33
  concentrated where 80% of the demand is concentrated in
• 41:35
  whatever 10 names or so. And you can list those off.
• 41:38
  The more interesting question you asked, which is do the
• 41:40
  buyers or potential buyers of secondaries know what they're
• 41:44
  buying? I think it is a really, really
• 41:47
  mixed picture there where there are very sophisticated investors
• 41:50
  who very clearly do know what they're buying.
• 41:53
  And then we got the wave of stories as we always do during
• 41:56
  the hype cycle of, hey, would you like to invest into this
• 41:59
  SPV, into another SPV? Into into another SPD.
• 42:04
  Into maybe space or maybe just a company that's like tracking the
• 42:07
  derivative of a SpaceX. Like I I think that for
• 42:11
  instance, what what Vlad and Robin Hood did by making open AI
• 42:15
  and SpaceX equity. Well, that was just amazing,
• 42:18
  right? And.
• 42:19
  Then just getting immediately slapped by those two companies
• 42:21
  and saying this is not our equity, like this has nothing to
• 42:23
  do with us. That that.
• 42:26
  If that's not a sign of a bubble, I'm not sure what is.
• 42:29
  Well, I, I think there you're sort of creating a derivative
• 42:32
  instrument that's attempting to track a public stock.
• 42:35
  And, and first of all, we're already into sort of like weird
• 42:39
  sort of mathematical constructs for things that may or may not
• 42:42
  be actual equity. But clearly, you know, the fact
• 42:44
  that they're even trying to do that is because there's demand
• 42:47
  and a lack of access for maybe retail investors into some of
• 42:51
  those companies. A. 100% to the earlier question,
• 42:55
  I think that a lot of buyers into secondaries are just
• 42:59
  excited about having a name that people know and they're not
• 43:03
  actually too concerned about what provisions or causes or
• 43:07
  preferences that thing has. That to me is a dangerous place
• 43:11
  because it just drives this consensus behavior that there's
• 43:14
  only like 10 to 15 companies that matter.
• 43:16
  Maybe that's just actually true. And if you look at the public
• 43:19
  markets, never been more true that if you're not, if you don't
• 43:22
  hold the top seven companies like you're not you, you've
• 43:25
  driven all alpha out of the public market.
• 43:28
  In this maybe every. I don't think that's true.
• 43:31
  I don't think that's. True.
• 43:32
  It's it's, you know, it's all only only a tiny sliver of
• 43:35
  anything actually matters. Do you think we're in a bubble?
• 43:39
  The answer is yes, we're in a bubble the.
• 43:42
  Question is. How many winners will there be?
• 43:45
  And this is always the question in bubbles.
• 43:47
  Bubbles do not mean that everyone loses.
• 43:50
  Bubbles mean that valuations and prices have gotten ahead of
• 43:54
  fundamentals to such a large extent that there must
• 43:58
  necessitate A downturn at some point.
• 44:00
  And I, I think I'm pretty confident in saying we're in a
• 44:03
  bubble for a lot of different AI companies.
• 44:06
  If you're talking about Anthropic or Open AI or even
• 44:09
  maybe some things like cursor etcetera, maybe we're not
• 44:12
  because they are absolutely flying, but.
• 44:16
  Yeah, really it's not too crazy if you just if you assume the
• 44:19
  growth continues for a year or two, then it's not as crazy.
• 44:23
  It really isn't as crazy. However, I do think that the
• 44:27
  resetting of what excellent looks like on the top end like
• 44:31
  drags things up and it makes people, let's be honest, there's
• 44:36
  a lot of VC funds who are not in open AI and didn't get into
• 44:39
  anthropic early. And they're kind of looking
• 44:41
  around going like I need my AI story.
• 44:43
  I need my I need my winner, I need my deca corn.
• 44:47
  And I'm and I'm sure that this is going to be a the other point
• 44:49
  that GPS often make. Some just VCs other right that
• 44:53
  now we're talking a crossover funds and much bigger funds that
• 44:56
  are looking at that that exact hey, I need it.
• 44:59
  I need an AI curve play. I could invest in the public
• 45:01
  markets in in AI, but what do I buy?
• 45:03
  Every AI play in the public markets has some other business.
• 45:06
  You know, Google is a great AI company, but it's also a search
• 45:09
  company. There's an company readily.
• 45:11
  So what's my clean pureplay? Well, I got open AI, I guess I
• 45:14
  got Anthropic. Those are those are the
• 45:16
  pureplay. So that's where they demand
• 45:18
  moves to. But but I think there's a whole
• 45:20
  bunch of companies which are clearly not AI companies that
• 45:25
  are benefiting from the current market environments that that
• 45:28
  maybe they're presenting themselves as AI companies.
• 45:30
  But yeah, really this was, you know, this was a SAS company or
• 45:35
  a Med tech company or, you know, some other kind of company just
• 45:38
  two or three years ago. Maybe it was a digital asset
• 45:40
  company 3 years ago. Maybe it was, you know, a SAS
• 45:43
  company six years ago. I feel like we're just like,
• 45:45
  hey, whatever the flavor of the day is, that's we're that
• 45:48
  company. Yeah, you got to go to.
• 45:50
  Dot AI to our to our domain name.
• 45:52
  That's the thing you got to go to their websites and see when
• 45:55
  they flipped over to the dot AI. I think it's a great indication
• 45:58
  or or when AI first appeared on the website to use the Wayback
• 46:01
  Machine and that would be a funny statistic to track.
• 46:04
  So these, these startup valuations that you're listing
• 46:06
  here, just again to reference some of these, you know, seed,
• 46:11
  median seed deals at almost 20 million, median Series A deals
• 46:16
  at 60 million. I, I guess do you feel like one
• 46:19
  part of the market is more crazy than the others?
• 46:22
  Do you, do you feel like the Series C&D prices are crazy or
• 46:25
  maybe more the C&A side? I think oddly the what happened
• 46:32
  to post 2021 is that the later stages, call them B and beyond
• 46:37
  actually did experience some significant valuation decreases
• 46:41
  whereas C&A. Hardly at all.
• 46:44
  They didn't really drop, you know, They didn't reset.
• 46:47
  They didn't reset and so. Why do you think that is?
• 46:50
  Because I think 2 reasons. One, it's easier to convince
• 46:54
  yourself at seed and a that whatever's happening in the
• 46:56
  public's doesn't matter yet and so you're further away from the
• 46:59
  whip end of valuations when it really hits the road.
• 47:02
  The second is because there are so many more seed and a
• 47:06
  participant. I thought this is where we were
• 47:10
  going to get at. There's so much money out there,
• 47:12
  so much dumb money. So much money and so many funds.
• 47:16
  Who raised eased those funds under different circumstances
• 47:19
  that are now like, well, I guess I'm not going to compete with
• 47:22
  Andreessen, so I guess I'm going to go play in the seed stage
• 47:24
  when I didn't. That wasn't my initial
• 47:26
  intention, but I got to go. But Andreessen is, but
• 47:28
  Andreessen is in the seed stage. They've got 100 indecent yes,
• 47:32
  400 five $100 million fund that's just seed right so the.
• 47:36
  The impact of bigger funds and capital is Dave, at a very macro
• 47:41
  level, you probably know this better than anyone.
• 47:43
  What has changed about Venture? It's just there's so much more
• 47:47
  money in this asset class. And if that is.
• 47:49
  Different types of money you have like large funds playing in
• 47:53
  seed where maybe that's an option for them and they don't
• 47:56
  care about pricing until it's really at A or maybe even B.
• 48:00
  You have all these seed fund managers and pre seed managers
• 48:03
  who jump in who seem to feel like they have to pay those
• 48:06
  prices to be able to compete. Yes.
• 48:09
  And then you have a whole bunch of retail investors on age list
• 48:13
  and other platforms who seemingly don't care that much
• 48:16
  about price. I don't, I don't know, just
• 48:18
  doesn't seem like they're very price sensitive.
• 48:20
  So all of those folks, you know, and corporates and sovereigns
• 48:24
  and other folks maybe not at seed, but you know, still
• 48:27
  there's just a lot of money. There's a lot of money and I
• 48:30
  think it's a pretty iron law of economics that if you dump a lot
• 48:35
  more capital into a single asset class, you will compete away
• 48:38
  returns. Probably it was impossible not
• 48:41
  to at least on an average basis. So that strikes me as and
• 48:46
  problematic. And I think if you look over the
• 48:48
  March adventure, you know, everyone always says series B is
• 48:52
  the new Series A or series C is the new Series A or whatever it
• 48:56
  is where you're marching down the market where we
• 48:59
  professionalized earlier and earlier stages of company
• 49:02
  building. And that is a little bit
• 49:05
  antithetical to the idea of venture, which is Wild West,
• 49:08
  risky, non consensus bets. We're playing in consensus
• 49:12
  territory. Now when somebody leaves the
• 49:14
  GitHub CEO Thomas just left GitHub to start a startup like
• 49:18
  funding Thomas is not a non consensus bet.
• 49:22
  Like, yeah. That's an amazing person like.
• 49:24
  That's a that is a consensus obvious thing to do, right?
• 49:28
  And so like then who gets into Thomas's round consensus obvious
• 49:32
  funds? Probably it.
• 49:34
  So, you know, and they care. You make the key point.
• 49:37
  They're playing different games. They're not necessarily too
• 49:40
  worried about a seed stage entry price because they're going to
• 49:44
  continue to pour money into this over time.
• 49:46
  And if they own enough of the majors, once they get to super
• 49:50
  late stage, then the index that they've built a private capital,
• 49:53
  it makes sense on a returns basis for them and for their
• 49:56
  investors. So it's not a bad game.
• 49:58
  It's just a totally different game than your emerging manager.
• 50:00
  And how do those two things interact?
• 50:02
  There's never been more at odds than they are now.
• 50:04
  Emerging managers and their TVPI versus DPI marks.
• 50:09
  I think your recent post it's, it's funny that a lot of the
• 50:12
  color that you seem to be using here is Red Peter, and I'm not
• 50:17
  sure that's a good thing. On my core choices, that's fair.
• 50:20
  And like, yeah, look, those are all early vintages, right?
• 50:23
  We get it. They're not supposed to be at 3X
• 50:25
  yet, but I I actually got this from a buddy of mine that I
• 50:29
  really appreciate. His name is John Ricker.
• 50:33
  At RBCX we had, we had a long discussion around these two
• 50:37
  terms that are thrown around by early stage managers, which is
• 50:39
  3X and top quartile. And often times those things are
• 50:43
  used fairly interchangeably where at least in our data set,
• 50:48
  if you really look at it, they are anything but interchangeable
• 50:51
  basically at all. Like a top quartile fund can be
• 50:55
  well under 3X depending on the vintage year.
• 50:58
  So it's just this idea of OK I. Think the other things that you
• 51:02
  aren't mentioning here is 3X net or 3X gross.
• 51:06
  And yeah, so this is TVPI or 3X DPI.
• 51:10
  Right. So this is 3X net TVPI, but
• 51:13
  that's obviously not DPI And so and that you know, everyone is
• 51:18
  always asking for the DPI numbers and we put them out.
• 51:20
  I promise in our Q3 report there will be DPI numbers no doubt.
• 51:24
  The problem is that those DPI numbers are even younger on a
• 51:27
  maturity basis and any of the interim marks are.
• 51:30
  So I think it's. Tough to judge funds by DPI
• 51:33
  numbers if they're not even, you know, 7 to 10 years old.
• 51:38
  Yeah, I think DPI becomes a useful stat at about eight years
• 51:41
  or so, yeah. Maybe.
• 51:43
  Maybe not even until later than 10 years in some cases.
• 51:46
  Well, just as a just as an indicator rather than whatever
• 51:50
  the final number is going to be. But I also would love to run
• 51:54
  some analysis on like when does TVPI, when do the correlations
• 51:58
  between those two figures start to really matter?
• 52:00
  Because it it almost certainly isn't in your.
• 52:03
  Well, I think TVPI numbers crash between 10 to 15 years.
• 52:07
  Sometimes you see a falling off of TVPI back down to the real
• 52:11
  DPI number. It's like DPI is rising, but T
• 52:15
  VPI is actually sort of, you know, collapsing.
• 52:20
  I was 60 years ago and the median to get to IPO was, I
• 52:23
  don't know, seven years, you would have found one
• 52:25
  correlation. Now that it's 12 and counting,
• 52:27
  that correlation could be quite, quite a bit different going
• 52:30
  forward, right? I know a lot of, I know a lot of
• 52:31
  horse races that look that your, your belt looks pretty good
• 52:34
  about a, about a mile into the Kentucky Derby.
• 52:36
  But that, that last, that last half a mile, a lot of things
• 52:39
  change And all of a sudden, you know, you thought was a winning
• 52:42
  ticket at halftime turns into a, turns into a bit of a, a dud.
• 52:47
  So that is a, that is a that'll, that'll be a remission study
• 52:50
  when you do it to see what it looks like now in the current
• 52:52
  environment. You can get pipped at the post
• 52:54
  no doubt. And and this again we're talking
• 52:57
  this like all comes back to the same point which is in the
• 53:00
  traditional fund model, you know that 3X net is driven by
• 53:05
  calculations of IRR versus the public markets over a 10 year
• 53:09
  fund life cycle, but it's not ten years anymore, it's 15.
• 53:12
  Yeah, I was just. Saying it's I.
• 53:14
  Little fun sitting at, you know, 3X maybe 4X even more tdpi but
• 53:19
  haven't hit 1XD Pi. Some cases haven't even hit .5
• 53:23
  XDPI at 10 years A. 100% And so if you're going to like I think
• 53:29
  if you get if emerging managers are still into LP's and
• 53:32
  pitching, I'm going to get you the X net.
• 53:36
  I don't know if that's good enough anymore.
• 53:40
  Well, the question is when? When right over 15.
• 53:44
  Years, yeah, that's 50% less than I used to get.
• 53:48
  Like so if you're going to do this over 10 years, 1, you have
• 53:52
  to be very specific about how you're going to get that
• 53:54
  liquidity out. Maybe secondaries could play a
• 53:56
  bigger role there. But one of the, I think
• 53:58
  misunderstandings about secondaries and for emerging
• 54:01
  fund managers sometimes is it's if you put every single startup
• 54:04
  on to the public markets today and said free for all go, the
• 54:08
  vast majority of them would have no float.
• 54:10
  They would not trade, right? So like demand is superpower law
• 54:14
  and it's not as though you can just exit positions whenever you
• 54:17
  want to. I thought David and David's
• 54:20
  modeling there and and one of your recent posts was good.
• 54:23
  Top 20 companies, maybe you can find a price at any time, but
• 54:26
  for sure the next the next 100 to 200 companies, maybe the only
• 54:30
  happens every year or two for a whole bunch of companies.
• 54:34
  It may never. It may never.
• 54:36
  Happen and then there are more startups today than there used
• 54:39
  to be. And I think that those numbers
• 54:41
  20 and the next 100 are the right numbers.
• 54:43
  You're talking about less than 200 companies where finding a
• 54:46
  secondary price even makes sense.
• 54:48
  So like are you in those 200 companies?
• 54:50
  A lot of fund managers are not in those 200 companies.
• 54:53
  And so that's that's where the rubber really hits the road.
• 54:56
  I know you guys have a lot of visibility into where people are
• 55:00
  holding different companies and funds throughout the market.
• 55:03
  I guess one question is, are they starting to be the same
• 55:07
  numbers or are they still all over the place?
• 55:09
  Do you feel like the mispricing of 20 and 21 is getting, you
• 55:14
  know, figured out or is it still a lot to be repriced?
• 55:18
  I think that there is still quite a significant amount of
• 55:20
  repricing to be done. As an example, at the end of
• 55:24
  2021, we had about 650 or so startups on Carta valued at a
• 55:30
  billion plus, OK. So that's the population of
• 55:33
  unicorns for that we had on the platform which is a very large
• 55:37
  significant portion of all US unicorns to dates as of the
• 55:40
  beginning of 2025 at least only about 20 to 25% of those
• 55:46
  companies have raised primary capital since then and that's.
• 55:50
  Four years. Yeah, four years.
• 55:52
  And within that group, half of those rounds were down rounds.
• 55:55
  How? What?
• 55:56
  Does that? What does that say about the
• 55:57
  rest that haven't raised yet? Not good, not nothing amazing,
• 56:03
  right? And I get, I can guarantee you a
• 56:06
  lot of fund managers are holding those at last preferred.
• 56:09
  Yeah. Well, that's the thing that we
• 56:10
  see is every, every fund manager is like, Oh yeah, we're we're
• 56:13
  pricing things rationally. I'm like, yes, for new rounds
• 56:16
  you're pricing things rationally.
• 56:18
  Although now, now maybe maybe that's not even true, but they
• 56:21
  haven't repriced those old portfolio companies, at least we
• 56:26
  haven't seen it. Less than less than 20% of funds
• 56:30
  have repriced down, you know. Maybe as a note, 4 years.
• 56:34
  In four years. You're 100% right.
• 56:35
  Maybe as a final note here for emerging managers.
• 56:38
  So yes, we see a lot of different marks for the same
• 56:41
  underlying portfolio asset. One of the questions we get from
• 56:45
  LP's all the time is can you show me the dispersion of these
• 56:49
  valuations, right? Building it What but just the
• 56:51
  general dispersion, the distribution of it and I I got
• 56:55
  to be honest, y'all, if you're holding at the 90th percentile
• 56:59
  like they believe the most conservative mark almost always
• 57:02
  right, especially if that company.
• 57:04
  Not even the median mark, but the most conservative mark,
• 57:06
  yeah. Depending on, I mean not
• 57:08
  necessarily if you just had an up round, everyone takes that as
• 57:10
  the new value. But if they haven't raised for
• 57:12
  two years and you were and 15 people hold this company and
• 57:16
  you're the high, you're the most optimistic.
• 57:19
  Your LP's are talking about that.
• 57:21
  They are. They are mentioning, yeah, what
• 57:23
  is going on with this, with this fund?
• 57:26
  Like why are they so optimistic about this company?
• 57:28
  Before we go, we should let you plug your own podcast.
• 57:32
  Maybe if you could give us 1 crystal ball prediction for the
• 57:35
  next 3-6 months, feel free. Yeah, The Data Minute is both a
• 57:39
  newsletter and a podcast from myself at.
• 57:41
  Carta. Covers all the data that we we
• 57:44
  talk about here. You can find it at
• 57:45
  carta.com/data. It's the best place to discover
• 57:49
  all of our stuff. One prediction for the next 6
• 57:51
  months. I think we might have a tiny
• 57:53
  little rush here of IP OS at the end of the year.
• 57:56
  Reason. Being only tiny.
• 57:58
  I hope bigger than tiny, I mean Klarna, you know, this week,
• 58:01
  etcetera. I, I feel like you might have
• 58:03
  one or two unexpected ones go before the end of the year just
• 58:07
  because the, the window is open, but the props that are holding
• 58:13
  that window open may may be removed in 2026.
• 58:17
  Who's to say? Every banker I talk to says 2026
• 58:20
  is going to be the best year for IP OS in a long time.
• 58:21
  But that's what they said about every other year, so.
• 58:25
  Well, I think for the last four years it was like, oh, it's the
• 58:29
  IPO window, it's only two quarters away.
• 58:31
  It's going to happen that it was like another two quarters and
• 58:33
  there was another two quarters. It's here.
• 58:36
  It's here though. It's happening, right?
• 58:38
  We did, isn't it? We, we totally did it.
• 58:40
  So hopefully we see more IPOs and not get some liquidity, and
• 58:44
  then maybe we can paper over some of the bumps that come
• 58:47
  whenever this inevitable AI bubble pops a little bit.
• 58:50
  Oh gosh. Well, listen, thanks for
• 58:52
  spending some time with us here on Trading Places and again,
• 58:56
  love to have you back again in the future, whether that's for
• 58:59
  another full interview or even if you just give us some time
• 59:01
  and and the occasional info porn or graphic or chart, we'd we'd
• 59:05
  love to have you on again. Amazing.
• 59:07
  Great to see some time with you both.
• 59:18
  We're here with Professor Virgie for another episode of Valuation
• 59:22
  Corner. This week we're going to be
• 59:24
  covering Revolute, which is a digital banking service out of
• 59:28
  Europe. Aman Revolute is raising money
• 59:32
  at a $75 billion valuation. Are you a buyer at 75 billion?
• 59:37
  That is the question for today. Let me tell you a little about
• 59:39
  what they do and how we value them and then I think we'll get
• 59:42
  to the are you a buyer question, but I don't want to lead the
• 59:45
  witness too much. They are, as you said, a digital
• 59:47
  banking app. They'll let users manage their
• 59:49
  money, make money transfers, do things like manage multi
• 59:52
  currency accounts and they got some like pretty cool budgeting
• 59:55
  and and debit card technology as well.
• 59:57
  They're in the big leagues now. Stripe, as we talked about last
• 1:00:00
  week, is $107 billion evaluation Revolute fancies itself right,
• 1:00:05
  right behind Stripe. Now it's 75 billion.
• 1:00:08
  So they're definitely in the premier leagues now for fintech
• 1:00:11
  companies. There's a lot to like about the
• 1:00:13
  company. So I'll start with the good
• 1:00:15
  stuff. Their revenues are about four
• 1:00:17
  billion U.S. dollars a year, about 3.13 point, 2 billion
• 1:00:21
  British pounds. And the growth rate has been
• 1:00:23
  really good. They've been growing pretty
• 1:00:25
  steadily. There was, there was 75% up year
• 1:00:28
  over year this year in 2024 versus 2023.
• 1:00:32
  They're also a very profitable company.
• 1:00:34
  They're making 25% profit margins.
• 1:00:36
  So at these numbers they should be able to clear a billion
• 1:00:39
  dollars in profits. So that's another very positive
• 1:00:43
  thing to like about the company. I think the question though on
• 1:00:46
  the valuation is what is the right way to value a Fintech
• 1:00:50
  company that's in this payment processing, money management,
• 1:00:54
  banking space. And when we covered Stripe, we,
• 1:00:57
  I showed you this framework on how to value Fintech companies.
• 1:01:00
  On the Y axis is a magic metric, which takes the EBITDA profit
• 1:01:06
  margin of the company, multiplies it by the growth rate
• 1:01:09
  and then essentially just generates that product.
• 1:01:12
  And on the X axis is the sales multiple.
• 1:01:16
  And you can see the a line of best fit that connects about 1/2
• 1:01:19
  a dozen or about 8 or 9. Now companies including Audion,
• 1:01:22
  including Stripe, anyone above that line is going to be a
• 1:01:26
  pretty good buy. Anyone below that line is not
• 1:01:28
  going to be a great deal. So just just to explain there a
• 1:01:31
  little bit. So the Y axis is some
• 1:01:33
  combination of profitability and growth, and the X axis is just a
• 1:01:39
  multiple of where the company is being valued, right?
• 1:01:43
  That's right. Price to sales, exactly or
• 1:01:45
  enterprise value to sales. And the insight behind that,
• 1:01:49
  that Y axis metric is if you do a cash flow, discounted cash
• 1:01:53
  flow model on a company, there's a, there's a multiplication of
• 1:01:57
  growth rates times the profit margins times revenue.
• 1:02:00
  You put those together that generates free cash flow and
• 1:02:03
  then you compound that out. And so if you just multiply this
• 1:02:05
  metrics together, you get a little bit of a, a ratio that's
• 1:02:08
  a guideline that's kind of a fast and loose metric that tells
• 1:02:11
  you directionally, is this going to be what the cash flow, what
• 1:02:14
  the cash flows will look like for the company.
• 1:02:16
  And you can see there's a pretty tight relationship between that
• 1:02:18
  magic metric and a sales multiple.
• 1:02:20
  The higher that metric is, the better your sales multiple and
• 1:02:23
  and vice versa. And so if you're on the line of
• 1:02:26
  best fit, that suggests that your fair value.
• 1:02:29
  If you're above the line, that suggests, hey, this is a pretty
• 1:02:31
  good deal. The metrics of the company are
• 1:02:33
  more valuable than sales multiple would suggest.
• 1:02:37
  So just based on Revolutes reported numbers, they're above
• 1:02:39
  the line, meaning they are a pretty good deal assuming that
• 1:02:42
  those revenues look and feel like payment processor repayment
• 1:02:45
  network revenues like a Stripe or an Audien or a PayPal.
• 1:02:50
  But I think there's a real question as to what is Revolute
• 1:02:53
  is that, is that really what they are?
• 1:02:54
  Because the market comps analysis that we've done in the
• 1:02:56
  past would tell you, you got to be really careful grouping
• 1:03:00
  animals together. If you're, if you're trying to
• 1:03:02
  tell me Dave, hey, what's the value of this animal and you're
• 1:03:05
  trying to value a bear and I compare that to a bunch of
• 1:03:08
  Penguins. That's not really apples to
• 1:03:11
  apples comps analysis. And that's something you have to
• 1:03:13
  be very careful of. In fintech, if you are a payment
• 1:03:17
  processor, you're moving money from one person to another,
• 1:03:20
  you're taking a fee. There's often a merchant behind
• 1:03:23
  that. There's recurring revenue behind
• 1:03:24
  that. That's where I think the
• 1:03:26
  Revolute business seems to make sense.
• 1:03:28
  The valuation seems to make a lot of sense given other payment
• 1:03:31
  processors and payment networks on that page.
• 1:03:35
  But if you're a bank, it's a very different business model
• 1:03:37
  and banks don't trade the same way that payment processors
• 1:03:41
  would do. Banks typically trade on a price
• 1:03:43
  earnings multiple. It's usually no more than a A10
• 1:03:46
  or 15X price earnings multiple. It may be on a a book value.
• 1:03:51
  When I was a chief financial officer at a small business
• 1:03:54
  lender, we had a big debate internally and with their
• 1:03:57
  bankers on how and when to go public.
• 1:03:59
  And one group of bankers, the tech bankers wanted to treat us
• 1:04:02
  like a tech company. So you multiply our sales by
• 1:04:05
  some multiple and that's how we wanted to go out.
• 1:04:08
  And then we ran into the public markets and guess what every
• 1:04:11
  fintech investor said, hey, you're a profitable small
• 1:04:14
  distance lender. We want to value you like we'd
• 1:04:16
  value a big or a specialty finance company.
• 1:04:19
  And that's going to be like a price to book or a price to
• 1:04:22
  earnings ratio. And all of a sudden our
• 1:04:24
  valuation dropped by about 75% just because we were now being
• 1:04:28
  comped in a different bucket. So I think this is the question
• 1:04:31
  that investors have to figure out this is Revolut really a
• 1:04:34
  payment processor or a money transfer company and should be
• 1:04:38
  value them like Stripe or just behind Stripe or are they really
• 1:04:41
  a bank? And if we look at how Revolut
• 1:04:44
  makes its money, first of all, they are they do have a banking
• 1:04:48
  license, they're operating like a bank in the UK and I think in
• 1:04:51
  the US as well. So the fact that they have a
• 1:04:53
  banking license and are undertaking banking operations,
• 1:04:57
  which suggests to me they're at least a bank.
• 1:04:59
  They look like a bank. They are calling themselves a
• 1:05:02
  bank and they're being regulated like a bank.
• 1:05:04
  And if you look at how they make money, they, I've actually
• 1:05:07
  broken down the, the revenues and where they source the money.
• 1:05:09
  There's really three or four sources of revenue.
• 1:05:12
  The green is subscriptions, which, OK, that feels like a, a,
• 1:05:15
  a fintech company, like a payment processor, maybe even a
• 1:05:19
  SAS company. Good.
• 1:05:22
  The orange and pink are FX and interchange revenues.
• 1:05:25
  OK, that feels like a payment processor at PayPal.
• 1:05:28
  That's how we made our money. It was interchange and FX
• 1:05:30
  revenues. But look at that light blue at
• 1:05:32
  the bottom, that is interest income.
• 1:05:35
  And guess who makes money on interest income?
• 1:05:39
  Banks, right? Fintech companies don't really
• 1:05:40
  make money on interest on carry on, on a spread trade or
• 1:05:45
  anything off the float. That's that's what banks do.
• 1:05:48
  So a large and increase in portion of their revenue is
• 1:05:51
  actually more like banking revenue.
• 1:05:53
  And with that being the case, I think that $75 billion
• 1:05:56
  evaluation is a little rich for. Where?
• 1:05:59
  Where? Revolut is if the 30 year
• 1:06:01
  revenues are bank like revenues and all your profits are bank
• 1:06:04
  like profit streams, then I think at least a big piece of
• 1:06:07
  this has to be how would I value them as a bank and that would
• 1:06:10
  not get you to $75 billion evaluation.
• 1:06:12
  Well, it sounds like you might be a little bearish on 75
• 1:06:15
  billion, maybe not bearish on the company per SE, but just
• 1:06:18
  that valuation multiple or metric maybe isn't quite so
• 1:06:23
  generous. Yeah, I think that's, I think
• 1:06:25
  that's right. I think what I would do if I
• 1:06:27
  were an investor in them is I'd really dig in on what, what's
• 1:06:30
  the future look like for them? Are they going to be mostly
• 1:06:32
  banking revenues and therefore banking multiple or are they
• 1:06:35
  really doing money transfer and payment processing?
• 1:06:38
  And then what's the contribution to profits from each of those
• 1:06:41
  segments? And if I might, my suspicion is
• 1:06:44
  just based on their regulatory filings and the revenue
• 1:06:47
  composition right now in the trajectory.
• 1:06:49
  I don't know man. If it looks like a duck and
• 1:06:51
  quacks like a duck, I think maybe it's.
• 1:06:53
  I think maybe we should value it like a duck, which is not the 75
• 1:06:57
  billion. Dollar.
• 1:06:59
  Price tag on that company right now.
• 1:07:01
  So unfortunately, I love being bullish on valuation corner, but
• 1:07:04
  this is this might be my first, this might be my first cell
• 1:07:07
  recommendation, Dave. All right.
• 1:07:09
  Well, good to know that you're not always bullish on every duck
• 1:07:12
  that comes along, Aman. That's right.