Latest / Masters in Business / Deven Parekh on the State of Startup Investing

Transcript

Deven Parekh on the State of Startup Investing · Masters in Business

0:00
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Masters in
0:12
Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
0:17
Speaker 2: This week on the podcast, I have an extra special guest.
0:20
Speaker 2: What can I say about Devin PreK, Managing director and
0:23
Speaker 2: Insight Partners, major venture capital slash private equity shop that
0:30
Speaker 2: has had just countless, countless exits. He was an early
0:34
Speaker 2: investor in Twitter, Buddy Media, Eves men Apras, Insights, Website,
0:40
Speaker 2: Pros Turnton. They focus on software, which is much broader
0:46
Speaker 2: and more varied than you might imagine. They are global
0:50
Speaker 2: in their footprint of where they put money to work,
0:53
Speaker 2: and they're not just early stage investors. They do a rounds,
0:58
Speaker 2: B rounds. They will help provide liquidity for a company
1:02
Speaker 2: that's looking for a partial exit, as well as strategic
1:06
Speaker 2: investments and m and a sort of from a private
1:10
Speaker 2: equity shop. I think Insight Partners is unique because they
1:14
Speaker 2: have a foot in both venture and pe worlds. I
1:18
Speaker 2: thought this conversation was fascinating and I think you will
1:20
Speaker 2: also with no further ado my discussion with Insight Partners.
1:26
Speaker 3: Devin correct, thanks for having me.
1:29
Speaker 2: So let's start out way back when you get a
1:32
Speaker 2: bachelor's and economics from Wharton. What was your original career plan?
1:37
Speaker 3: Not business?
1:38
Speaker 2: Not business.
1:39
Speaker 3: I actually in high school was a total science nerd. Know,
1:44
Speaker 3: competed in Westinghouse and oh really what area? Biochemistry? Microbiology?
1:50
Speaker 3: Actually one first place in microbiology the International Science Fair.
1:53
Speaker 3: So my path was kind of being a doctor, probably
1:56
Speaker 3: being an mdphd. I didn't actually start pen in Warden.
2:01
Speaker 3: I actually started the College of Arts and Sciences. I
2:03
Speaker 3: started as a biochemistry major. I was doing research at
2:07
Speaker 3: the medical school my freshman year, and you know, I think,
2:11
Speaker 3: like at everything in life, there's a lot of fate
2:13
Speaker 3: and who your roommates are and the people you meet,
2:16
Speaker 3: and you know, my roommates were all business and I
2:20
Speaker 3: was the only kind of science person, and I thought, well,
2:24
Speaker 3: maybe I should take maybe I should take a finance
2:27
Speaker 3: course or an economics course. So I did freshman year.
2:29
Speaker 3: Found it really interesting, And after my freshman year, I
2:34
Speaker 3: decided rather than doing working in science for the summer,
2:38
Speaker 3: I was going to work on Wall Street for the summer.
2:40
Speaker 3: And I managed to get a job in Wall Street
2:43
Speaker 3: between my freshmen and sophomore year, which was unusual at
2:46
Speaker 3: the time, but but I did. I came back after
2:48
Speaker 3: that and said, well, maybe I can put these two
2:51
Speaker 3: interests together. And I was going to do biochemistry and finance.
2:55
Speaker 3: I was going to do the dual degree, you know,
2:58
Speaker 3: with a degree in Wharton and a degree in colleg
3:00
Speaker 3: Now they have pre set programs for all of these things,
3:03
Speaker 3: but at the time they didn't. But it would involve
3:06
Speaker 3: taking you know, between six and seven courses every semester
3:10
Speaker 3: and not not These were not easy classes. These were
3:13
Speaker 3: like organic chemistry and quantitative finance. And I just thought,
3:16
Speaker 3: this isn't going to be a great college experience if
3:19
Speaker 3: I do both. I kind of needed to pick, and
3:22
Speaker 3: so I ended up picking Wharton. And of course people
3:25
Speaker 3: are like, well, what was the thought process you went
3:27
Speaker 3: through when you did that? And the thought process probably
3:30
Speaker 3: was not. It was I was impatient, and I saw
3:34
Speaker 3: the route for medical school was I was gonna do
3:37
Speaker 3: four years in medical school. I was thinking at that
3:39
Speaker 3: point I also wanted to do research. I thought maybe
3:41
Speaker 3: I was gonna get a PhD. It just seemed like
3:43
Speaker 3: a long time in school before I could actually start
3:46
Speaker 3: my career as opposed to business, I could I could
3:50
Speaker 3: kind of jump in right away. And I always thought
3:53
Speaker 3: that at some point in the future, I would somehow
3:55
Speaker 3: bring these two interests together. I didn't know how that was.
3:58
Speaker 2: That was the obvious question because I on the list
4:01
Speaker 2: of areas you invest I don't see a whole lot
4:03
Speaker 2: of healthcare or biotech or genomics. But have the Twain
4:07
Speaker 2: ever met.
4:08
Speaker 3: Or they actually have, and they have in two different ways.
4:11
Speaker 3: We do now have a team at Insight that does
4:14
Speaker 3: invest in in kind of therapeutics, biotechnology, kind of therapeutics.
4:19
Speaker 3: We have a team that does it. I'm involved in it,
4:21
Speaker 3: but I'm not the one doing those deals or leading
4:23
Speaker 3: those deals. But it's actually probably also manifested a lot
4:26
Speaker 3: more like philanthropically. I'm on the board of NYU langone.
4:30
Speaker 3: We're funding a bunch of research there, as well as
4:32
Speaker 3: a bunch of other, you know, kind of universities. So
4:35
Speaker 3: philanthropically it's been a big focus of mine, and so
4:39
Speaker 3: it's been enabled. I've been able to bring bring that
4:43
Speaker 3: kind of interest back into my life in a way
4:46
Speaker 3: that's been satisfying.
4:47
Speaker 2: Huh really interesting. So from Wharton, how do you end
4:51
Speaker 2: up on Wall Street? What's your first gig?
4:53
Speaker 3: Well? I worked for the summers. I worked at a
4:56
Speaker 3: small biotshop after my freshman year. After my sophomore year
4:59
Speaker 3: work a credit sweets, and after my junior year, I
5:02
Speaker 3: was actually first Boston at the time. After my junior year,
5:05
Speaker 3: I worked at DLJ and then I started at blackstam and.
5:09
Speaker 2: That was that's quite a laundry list, of it was
5:12
Speaker 2: a laundry list.
5:12
Speaker 3: It was a laundry list. And I started as an
5:15
Speaker 3: analyst at Blackstone in nineteen ninety one and then had
5:19
Speaker 3: the opportunity, even kind of before I finished my analyst
5:23
Speaker 3: program to go to a startup. But it was just
5:26
Speaker 3: not a tech startup. It was a investment banking startup
5:30
Speaker 3: that was founded by Jeffrey Barnson and Raymondella, who used
5:33
Speaker 3: to be the coheads of merchant banking at Merylnch And
5:38
Speaker 3: so I left Blackstone to go to what was then
5:43
Speaker 3: a no name and to some degree it's still not
5:45
Speaker 3: well known firm. And I remember having a conversation with
5:51
Speaker 3: my dad at the time, who was like, he didn't
5:54
Speaker 3: really know who Blackstone was, and so when I took
5:56
Speaker 3: that job, he was like, well, why would you take
5:58
Speaker 3: Blackstone when you got all these offers from firms he'd
5:59
Speaker 3: heard of, And I was like, well, I think it's
6:01
Speaker 3: going to be a really good firm. And then finally
6:04
Speaker 3: he got comfortable that was a good idea, and I
6:05
Speaker 3: leave to go to this firm that no one's heard of.
6:07
Speaker 3: And I said, well, my downside cases, I'll go to
6:08
Speaker 3: business school. Like it's really not anyway. So I made
6:12
Speaker 3: that leap and that was a It was a great experience.
6:18
Speaker 3: They were primarily kind of M and A advisory, but
6:20
Speaker 3: then over time they were trying to figure out how
6:22
Speaker 3: to get into the principal business in some way.
6:26
Speaker 2: How do you how do you go from M and
6:27
Speaker 2: A to venture capital?
6:29
Speaker 3: So the two co founders of Insight, Jeff Horing and
6:34
Speaker 3: Jerry Murdoch started they're pre effectively the predecessor to Insight
6:42
Speaker 3: at Baronsamonela and Baron. Samla was kind of a a
6:47
Speaker 3: sponsor of these two guys who wanted to do something
6:50
Speaker 3: in technology. Really early. We were not technology experts. We
6:53
Speaker 3: didn't the firm didn't know anything about technology. But we
6:55
Speaker 3: thought we could help them raise capital, or at least
6:58
Speaker 3: the guys ran the firm thought they could help. But
7:01
Speaker 3: we didn't really have a lot of competency in software.
7:04
Speaker 3: I was the closest thing they had to somebody understood technology,
7:07
Speaker 3: which just means that I used it. And so I
7:10
Speaker 3: was kind of working with, you know, Jeffrey and jeff
7:15
Speaker 3: Moring and Jerry Murdoch, and then they kind of came
7:18
Speaker 3: to the conclusion that they were going to kind of
7:21
Speaker 3: go do this on their own, that there wasn't really
7:24
Speaker 3: like the partnership didn't make sense for them, so they
7:27
Speaker 3: went off. They'd asked for you, was that they uh
7:31
Speaker 3: ninety five? Yeah, And they asked me at that time
7:34
Speaker 3: if I was interested in joining, and you know, I
7:37
Speaker 3: was twenty five and a vice president, and I was like, oh, well,
7:39
Speaker 3: why would I go join a startup? And now all
7:41
Speaker 3: of a sudden I lost my startup kind of bug,
7:44
Speaker 3: and so I didn't. Then I maintained a relationship with them,
7:46
Speaker 3: and then in nineteen ninety nine, when I was thinking
7:49
Speaker 3: of leaving parents to go do something on the principal side,
7:52
Speaker 3: I ended up kind of joining them when they were
7:54
Speaker 3: raising their first institutional fund.
7:56
Speaker 2: So, so what was that process like going from what
7:59
Speaker 2: was really a startup to going to something that was
8:04
Speaker 2: barely no longer a startup? Or was that really their
8:07
Speaker 2: first major rountud?
8:08
Speaker 3: No, So they had so they at that point had
8:10
Speaker 3: raised three funds, they were about to raise their fourth.
8:14
Speaker 2: Fund, so somewhat seasons.
8:16
Speaker 3: It was primarily at that point that very few institutional investors,
8:20
Speaker 3: so their fourth fund fund for was going to be
8:22
Speaker 3: their first institutional fund, and so was. The firm is
8:27
Speaker 3: very small from a number of people standpoints, about ten people,
8:31
Speaker 3: you know, today we're four and fifty people, so it's
8:33
Speaker 3: a much larger firm today, but it was I think
8:37
Speaker 3: the harder part of the transition is, you know, it's
8:40
Speaker 3: very different being an advisor. I wanted this transition, but
8:44
Speaker 3: it's very different being an advisor whose goal it is
8:47
Speaker 3: to kind of get a deal done to being a principal,
8:50
Speaker 3: where your goal is not just to get a deal done,
8:51
Speaker 3: was to make sure it's a good deal. And that's
8:54
Speaker 3: a that's a that's a shift, that's a shift of mentality.
8:59
Speaker 3: You know, you it's not like an on off switch
9:01
Speaker 3: for that. But really, the way I looked at it
9:04
Speaker 3: is I was and the firm that I left very
9:08
Speaker 3: generously offered me the opportunity to take a pool of
9:12
Speaker 3: capital that they had and invest in technology is kind
9:14
Speaker 3: of as a way to maybe get me to consider
9:15
Speaker 3: staying there. And I said, No, it wasn't really an
9:18
Speaker 3: economic decision. What I said was, I'm not really qualified
9:21
Speaker 3: to do that at that point in time, h and
9:23
Speaker 3: that I'm one of the reasons I'm making this shift
9:27
Speaker 3: is to actually learn how to do something.
9:30
Speaker 2: What was that learning curve like? Because I remember the
9:35
Speaker 2: nineteen nineties in the late eighties, and it seemed like
9:40
Speaker 2: a ton of people just jumping into the venture worlds
9:43
Speaker 2: regardless of their credentials or academic qualifications.
9:47
Speaker 3: Well, and I think in I joined at late ninety nine,
9:51
Speaker 3: two thousand, you remember that time. Sure, in some ways
9:54
Speaker 3: it was a great time. In some ways it was
9:56
Speaker 3: a terrible time. I think in retrospect it ended up
9:58
Speaker 3: being a very good time for the the following reason. Economically,
10:02
Speaker 3: it was not a great decision for years because you know,
10:07
Speaker 3: I think I told my wife when I took the job.
10:09
Speaker 3: You know, she was we just bought an apartment and
10:12
Speaker 3: she was pregnant with her first kid, and I said,
10:14
Speaker 3: don't worry. I know I'm making less cash, but I'm
10:16
Speaker 3: gonna have all this equity, and like that equity was
10:19
Speaker 3: like five years I hadn't really she was like, I'm
10:21
Speaker 3: not sure, it doesn't not sure. I feel like this
10:24
Speaker 3: was the right trade. But so you get there in
10:27
Speaker 3: ninety nine and the deal pace is frenetic, and so
10:31
Speaker 3: you think like, oh, I'm learning so much. I'm getting
10:33
Speaker 3: all these deals done. I also got put on a
10:37
Speaker 3: ton of boards, you know, of companies, and the first
10:40
Speaker 3: thing I figured out was, well, a lot of these
10:42
Speaker 3: companies didn't really have a business model without raising a
10:45
Speaker 3: lot more capital. It wasn't just us, it was just
10:47
Speaker 3: that was that was that time. It was a land grad,
10:49
Speaker 3: it was a lane grad in the early days, and
10:52
Speaker 3: the market corrected very quickly, I think four or five
10:55
Speaker 3: months after I got there, and we look back. I mean,
10:57
Speaker 3: those were really really hard years. But I actually think
11:01
Speaker 3: this way to learn the most. You know, it's easy
11:04
Speaker 3: to be it's easy to be a cheerleader when things
11:07
Speaker 3: are great. It's a lot harder to have to kind
11:10
Speaker 3: of dig into a business, including businesses that aren't going
11:13
Speaker 3: to make it, and try to get to the best
11:14
Speaker 3: possible outcomes. So from a learning standpoint, you know, and
11:18
Speaker 3: I think this is sometimes the things I tell my
11:20
Speaker 3: kids is like the worst time sometimes are the ones
11:24
Speaker 3: we're going to learn the most. And there's always going
11:26
Speaker 3: to be you're going to get to the other side.
11:29
Speaker 3: It might not be the side exactly the way you
11:31
Speaker 3: wanted it, but there's no way you're going to look
11:33
Speaker 3: back and say you didn't get something out of that expert.
11:35
Speaker 2: It's so funny you say that. I started on a
11:37
Speaker 2: trading desk. And one of the things you figure out
11:39
Speaker 2: pretty early is you learn much more from your losers
11:43
Speaker 2: than you do from your winners. Same thing in venture,
11:46
Speaker 2: same thing in venture.
11:47
Speaker 3: I think it's the same thing in life. Oh really, yeah,
11:50
Speaker 3: I think it's true in lots of things.
11:51
Speaker 2: It's stumbles and fails are more than it.
11:55
Speaker 3: Could be jobs, it could be relationships, it could be
11:59
Speaker 3: you know, even like you're you're like you know, right,
12:03
Speaker 3: if you think about the world today, where your world today,
12:06
Speaker 3: where there's a tendency for parents and I'll include myself
12:08
Speaker 3: in this to be too involved, right, Oh, my son
12:11
Speaker 3: got to be because he had a bad teacher. Like well, like,
12:14
Speaker 3: guess what, we all have bad teachers and bad bosses
12:16
Speaker 3: and bad roommates. And but you learn to adapt. And
12:21
Speaker 3: I think sometimes you have to go through those things
12:23
Speaker 3: and I think you learn from them. Right, bad relationships,
12:25
Speaker 3: I think you learn something from So I think you
12:27
Speaker 3: have to. If you take the mindset that you can
12:30
Speaker 3: learn something in good times, you can learn something in
12:32
Speaker 3: bad times. I'd argue you probably learn more in the
12:34
Speaker 3: bad times. I think that's a it's a valuable mindset
12:37
Speaker 3: to try to have. It's hard to have it when
12:39
Speaker 3: you're in the bad time. You know.
12:41
Speaker 2: You mentioned the role of serendipity earlier. Michael Mobison likes
12:45
Speaker 2: to point out part of the reasons we may not
12:48
Speaker 2: learn much from the good times is it's very hard
12:52
Speaker 2: to distinguish between Hey, is this working out because I'm skillful,
12:55
Speaker 2: or is this working out because I just got lucky.
12:57
Speaker 3: Rising tide lifts all boats.
12:58
Speaker 2: Yeah, that's right, and.
12:59
Speaker 3: You don't know whether you're you're you know, you're on
13:01
Speaker 3: a yacht or a boat with a hole. Uh and so,
13:04
Speaker 3: but they all rise.
13:06
Speaker 2: At least them, right.
13:08
Speaker 3: Yeah.
13:08
Speaker 2: So you mentioned you're on a ton of boards US
13:11
Speaker 2: International develop Development Finance Corp, Council of Foreign Relations, Carnegie
13:17
Speaker 2: Endowment for International Peace, and Yu Lang Gon. What's the
13:21
Speaker 2: attraction to all these boards?
13:23
Speaker 3: Well, those are the things I do, you know, outside
13:26
Speaker 3: of the office. You know, I think I've always had
13:28
Speaker 3: a belief that if you're successful, you kind of owe
13:34
Speaker 3: it to give back. So that's one. Two is intellectual interest, right,
13:40
Speaker 3: Like the things that I'm involved in are things I've
13:43
Speaker 3: always been really interested in, and even in some of
13:46
Speaker 3: these even in some of the I talked about how
13:50
Speaker 3: I ended up going to Warden because of like who
13:52
Speaker 3: my roommates were. Another story was when I was in
13:55
Speaker 3: college that for my freshman year I went to go
13:58
Speaker 3: right for the newspaper, the Daily Pennsylvania. It's a pretty
14:00
Speaker 3: well known college newspaper, and my roommate at the time
14:04
Speaker 3: went to go a volunteer for College Democrats. This is
14:07
Speaker 3: my first semester of freshman year. Second semester freshman year,
14:11
Speaker 3: I asked my roommate to come check out the DP,
14:15
Speaker 3: the newspaper, and he came. He asked me to do
14:19
Speaker 3: the same. And senior year, I was president of College
14:21
Speaker 3: Democrats and he was editor in chief of the newspaper.
14:24
Speaker 3: Neither would have happened without us kind of having totally
14:27
Speaker 3: different interests. And he's now in journalism, right, So you know,
14:32
Speaker 3: I just think that that there's a lot of these things,
14:34
Speaker 3: and so those interests that interest policy related things as
14:38
Speaker 3: interests I've had ever since college and kind of over time,
14:43
Speaker 3: I've been able to engage in those things in a
14:45
Speaker 3: more meaningful way.
14:46
Speaker 2: Coming up, we continue our conversation with Devin Perek, Managing
14:50
Speaker 2: director of Insight Partners, discussing how the firm developed its expertise.
14:56
Speaker 2: I'm Barry Rittaults. You're listening to Masters in Business on
15:00
Speaker 2: Bloomberg Radio. I'm Barry Redults. You're listening to Masters in
15:03
Speaker 2: Business on Bloomberg Radio. My special guest today is Devin Prrect,
15:08
Speaker 2: Managing director at Inside Partners, where he helped oversee over
15:11
Speaker 2: one hundred and forty investments, several of which many of
15:16
Speaker 2: which have had exits. So let's start chatting about Inside
15:20
Speaker 2: Partners approach a little bit. You guys do everything from
15:24
Speaker 2: software investing to AI. How do you differ from other
15:29
Speaker 2: venture capitalists in the space.
15:31
Speaker 3: So I think the approach that we take is we're
15:34
Speaker 3: really software investors, but we're stage agnostic. And what does
15:37
Speaker 3: that mean?
15:37
Speaker 2: Meaning not just seed angel.
15:40
Speaker 3: So probably the only stage that we don't really play
15:43
Speaker 3: is seed in pre seed. We're really but we will
15:47
Speaker 3: do everything from a Series A all the way to
15:50
Speaker 3: a buyout. We have the capability to go across the continuum,
15:54
Speaker 3: and I think that's important both ways, right, like if
15:56
Speaker 3: you're a if you're a buyout investor. As an example,
16:00
Speaker 3: particularly in a firm in a field like technology which
16:03
Speaker 3: is changing quickly, not knowing what's going on at the
16:06
Speaker 3: early stage what could be coming this disruptive is kind
16:10
Speaker 3: of a risky way to be investing in more mature companies,
16:12
Speaker 3: particularly in an AI world where that transformation is happening
16:16
Speaker 3: a lot faster. And the flip side, you know, I
16:20
Speaker 3: think on the early state side, understanding what does it
16:24
Speaker 3: take for a company to actually be public, what does
16:26
Speaker 3: it take for a company to actually be able to
16:28
Speaker 3: raise the b's and c's and D rounds, and what
16:29
Speaker 3: are the key metrics to make and having the network
16:32
Speaker 3: and ecosystem to be able to help companies do that.
16:34
Speaker 3: It's helpful to have your mid stage and growth stage
16:38
Speaker 3: business too. So I think the ability for us to
16:40
Speaker 3: be able to invest across that continuum really makes us
16:43
Speaker 3: pretty unique relative to most other software investors out there.
16:47
Speaker 3: The second thing is, you know the way we source,
16:50
Speaker 3: the more firms are doing it now, which is you know,
16:51
Speaker 3: we have over sixty people full time. That's all they
16:54
Speaker 3: do is deal sourcing, and you know, think of it
16:57
Speaker 3: as our outbound sales team, but it's a really smart
17:00
Speaker 3: outpound sales team that are people who, when their success,
17:02
Speaker 3: will end up being partners at Insight. And what we're
17:07
Speaker 3: able to do is have tremendous market intelligence books. We're
17:10
Speaker 3: talking to anywhere from twenty to thirty thousand companies a year, right,
17:14
Speaker 3: obviously investing in a much more set of those. And
17:17
Speaker 3: then the third thing is is are kind of a
17:19
Speaker 3: value ad approach, right, because all investors like to say
17:22
Speaker 3: they add value, it's hard to do. Very early on
17:27
Speaker 3: in two thousand, created what we call Insight on Site.
17:31
Speaker 3: And the reason it's called Insight on site is because
17:34
Speaker 3: those team members are meant to be on site at
17:37
Speaker 3: the company as opposed to in our office. Right, So
17:40
Speaker 3: think of McKenzie or Baying. If you walk into the office,
17:43
Speaker 3: you won't see a lot of those people in the
17:44
Speaker 3: office because if they're doing their job, they're actually at
17:46
Speaker 3: their clients. And our case, our clients are portfolio companies.
17:50
Speaker 3: And what we've done is if you think about every
17:53
Speaker 3: functional area of a software organization, whether that be sales, marketing, product,
17:57
Speaker 3: customer introduction, strategy, and now a transformation, we have a
18:01
Speaker 3: team for each one of those areas, and we have
18:05
Speaker 3: a team for each one of those areas that's also
18:07
Speaker 3: stage focused, right, So we have a team that works
18:09
Speaker 3: with early stage companies, we have a team that works
18:11
Speaker 3: with mid stage companies, we have a team that worked
18:13
Speaker 3: with more mature companies, because the recruiting needs for a
18:16
Speaker 3: company with five hundred million dollars revenue are very different
18:18
Speaker 3: than the recruiting needs for a company with five million
18:20
Speaker 3: dollars revenue. And that team is over one hundred and
18:23
Speaker 3: twenty five people that's focused on really making sure that
18:28
Speaker 3: the companies they're getting the benefit of not just anything
18:32
Speaker 3: we know, best in class, thinking outside the firm, best
18:36
Speaker 3: in class within the portfolio, and that those three things
18:41
Speaker 3: together is really I think what allows us to have
18:44
Speaker 3: a very successful strategy.
18:46
Speaker 2: Huh. Really interesting. I was trying to conceptualize how Insight
18:51
Speaker 2: is sort of a venture fund, sort of a pe shop.
18:55
Speaker 2: Your explanation really explains why those titles and those descriptors
19:03
Speaker 2: really only just describe part of what the thing is doing.
19:06
Speaker 3: And I think things just overall, things are blurring, you
19:09
Speaker 3: know in this world, Like you know, one of the
19:10
Speaker 3: areas that we're very active in right now is something
19:14
Speaker 3: that we call venture buyouts. And you'd say, well, okay,
19:17
Speaker 3: like that seems like that's both and to some degree
19:19
Speaker 3: it is. And what is it really, Well, what's the
19:22
Speaker 3: biggest issue you hear right now in private equity? If
19:25
Speaker 3: you were an interview at LP, they say, well, I'm
19:27
Speaker 3: not getting enough money back, I don't have enough DPI
19:29
Speaker 3: and so I'm over allocated. That's probably the number one
19:32
Speaker 3: complaint that institutional investors have. Well, if you look in venture,
19:35
Speaker 3: there's just a massive amount of funding of companies and
19:39
Speaker 3: company creation and funding over the last so you have
19:41
Speaker 3: thousands of companies out there. Many of them have not
19:44
Speaker 3: reached a scale where they're ready to go public or
19:48
Speaker 3: have a strategic really be focused on them right They
19:50
Speaker 3: just don't have the scale yet. And what we're able
19:53
Speaker 3: to do in those situations is find the ones that
19:55
Speaker 3: are interesting companies, and we go to the shareholders and say, well,
20:00
Speaker 3: buy seventy percent of the company. We will buy one
20:01
Speaker 3: hundred percent of the company. You can either choose to
20:03
Speaker 3: roll some of your investment if you think there's upside,
20:05
Speaker 3: if not, we'll give you. We'll give you a return
20:08
Speaker 3: whatever it is. And then we were able to take
20:11
Speaker 3: control of these companies. What happens in a lot of
20:14
Speaker 3: these venture companies is they have very diffuse cap tables. Right,
20:17
Speaker 3: you have seven six, five different people, five different opinions.
20:20
Speaker 3: It's actually hard for the CEO to get alignment with
20:23
Speaker 3: their board on what the strategy should be. We can
20:25
Speaker 3: create that alignment. So maybe he really want to he
20:28
Speaker 3: or she wanted to execute an M and A strategy,
20:30
Speaker 3: but only half the investors were willing to put up
20:32
Speaker 3: more capital. We're able to in that case clean up
20:35
Speaker 3: the cap table and then make whatever changes in strategy, team,
20:39
Speaker 3: whatever it might be, that are necessary with a totally
20:42
Speaker 3: aligned board. That's a strategy that touches both. It touches
20:45
Speaker 3: some element to venture and it touches some element of
20:48
Speaker 3: private equity.
20:50
Speaker 2: Two of the people you work with, Ryan Ankle and
20:53
Speaker 2: Richard Wells. As I'm doing my prep for this, anywhere
20:58
Speaker 2: I searched for where as a service I seem to
21:01
Speaker 2: come across Ryan Hinkel's name, tell us what it's like
21:05
Speaker 2: working with those guys and working with the other founders
21:10
Speaker 2: the two co founders, yeah, and others.
21:12
Speaker 3: So you know, Mike Triplett and Jeff Lieberman, and we
21:15
Speaker 3: have so many people who've kind of contributed to the
21:18
Speaker 3: success of the firm. You know, Ryan actually joined Insight
21:24
Speaker 3: as a summer intern right out of college, now on
21:27
Speaker 3: the investment committee. Richard Wells joined us out of Harvard
21:31
Speaker 3: Business School after a successful career TCD and some other firms,
21:37
Speaker 3: and has been a huge driver of returns that some
21:39
Speaker 3: great deals that have exited just this year. I think
21:42
Speaker 3: that one of the things that we're most proud about
21:45
Speaker 3: at Insight, and this is also I think very different
21:47
Speaker 3: than a lot of firms out there, is that if
21:50
Speaker 3: you look at the top four partners, the top six partners,
21:54
Speaker 3: top eight partners, the vast majority of this people all
21:56
Speaker 3: grew up with an Insight and we've really created a culture.
22:00
Speaker 3: If you join Insight as an analyst, you can make
22:03
Speaker 3: it to the top. And that's very different than a
22:07
Speaker 3: lot of firms out there, and I think that's created
22:12
Speaker 3: a very positive entrepreneurial culture where we give people a
22:16
Speaker 3: lot of autonomy, We give people a lot of ability
22:18
Speaker 3: to find new areas to invest in, and magic happens.
22:25
Speaker 2: So let's talk a little bit about that magic. You've
22:28
Speaker 2: made over one hundred and forty investments in various companies.
22:31
Speaker 2: I'm assuming that you're doing this as part of a group,
22:34
Speaker 2: as part of an investment committee. How does that work
22:38
Speaker 2: if everybody has a slightly different expertise or focus. Take
22:43
Speaker 2: us through the process of what companies get funded? How
22:46
Speaker 2: does that process go?
22:48
Speaker 3: Yeah, and look, first of all, that's the beauty of
22:50
Speaker 3: I think our model too, which is why we might
22:52
Speaker 3: all have slightly different focuses or areas. We're all just
22:56
Speaker 3: investing in software. If you contrast that to firms where
22:59
Speaker 3: somebody the biotech partner and someone as a software partner,
23:02
Speaker 3: and someone is the industrial partner, that's much much harder
23:06
Speaker 3: because you really don't have any sense of each other's businesses. Here,
23:11
Speaker 3: the key metrics are common across all these things. There
23:14
Speaker 3: might be some technical understanding around infrastructure, product or what
23:17
Speaker 3: might be happening in a particular vertical that a partner
23:20
Speaker 3: might have, but the key metrics are the same. And
23:22
Speaker 3: so our process is that every deal, no matter how
23:25
Speaker 3: small or how big, goes through the same investment committee process.
23:30
Speaker 3: We meet once a week, kind of common like a
23:33
Speaker 3: lot of other firms out there, and the team, whoever
23:36
Speaker 3: the team is, presents the deal to the ICEE. We
23:41
Speaker 3: debate it, we ask questions, we ask for follow up information,
23:45
Speaker 3: and out of that either comes this is something we
23:47
Speaker 3: want to pursue, we don't want to pursue. We only
23:50
Speaker 3: want to pursue, but only at kind of this valuation.
23:53
Speaker 3: And then the team then goes out and kind of
23:55
Speaker 3: executes on that. And then if say we sign a
23:57
Speaker 3: term sheet, they'll come back with a more detailed diligence
24:02
Speaker 3: package that go through all the typical diligence things you'd assume.
24:07
Speaker 3: That gets reviewed and discussed again. Sometimes there's follow up
24:10
Speaker 3: questions that come out of that. Sometimes there's not has
24:12
Speaker 3: to get through that second approval process, and then if
24:15
Speaker 3: it gets through that approval process, then we would then fund.
24:18
Speaker 3: But before anything even gets there, we have a number
24:22
Speaker 3: of teams, their staff with these sourcing analysts, associates and
24:27
Speaker 3: mid level people that really do the hard work before
24:30
Speaker 3: something even gets the investment committe. So Ryan and Richard
24:33
Speaker 3: both run a team, and you know, they each have
24:36
Speaker 3: their slightly different focuses, but they each run a team
24:39
Speaker 3: and they're meeting with their team on an even more
24:41
Speaker 3: ongoing basis to kind of prioritize the deals that we
24:45
Speaker 3: want to they want to pursue, and then if it
24:48
Speaker 3: gets through their own team, then they would bring it
24:50
Speaker 3: to the overall investment committee.
24:52
Speaker 2: So I've heard some venture capitalists talk about valuation almost
24:57
Speaker 2: as if it doesn't matter, which as the public market skuy,
25:02
Speaker 2: I kind of shudder when I hear it. I think
25:04
Speaker 2: it was Mark and Dreesen who once said, all right,
25:06
Speaker 2: we were early state investors in Facebook. Had the valuation
25:10
Speaker 2: been double, it practically wouldn't have affected our returns. My
25:15
Speaker 2: immediate answer was, well, they would have been half if
25:18
Speaker 2: the initial investment was double, but you know, one hundred
25:22
Speaker 2: x point taken. How do you think about valuations, especially
25:27
Speaker 2: when you're looking at early stage a ORB rounds, where
25:31
Speaker 2: it kind of feels like total addressable market growth projections
25:35
Speaker 2: I don't want to say fabricated, but they're squishy best estimates.
25:40
Speaker 3: They're guesses. Yeah, okay, I mean look, but in this
25:44
Speaker 3: early stage deal like it's a guess. I think the
25:47
Speaker 3: person who wrote a checking Palenteer didn't know that Palenteer
25:49
Speaker 3: was going to become what Palenteer became. But they saw
25:52
Speaker 3: an entrepreneur with a vision with a potentially large market
25:56
Speaker 3: and decided to make the bet that this person could
25:58
Speaker 3: execute and turn it into that larger market. Right. Look,
26:01
Speaker 3: I'm not gonna say that valuation doesn't matter, but I
26:04
Speaker 3: think what you can say is that we have to.
26:09
Speaker 3: It's a line that one of my partners uses that
26:12
Speaker 3: we don't overpay companies just miss their numbers, which is
26:15
Speaker 3: just I mean, it's said in jest, but really the
26:18
Speaker 3: point is that generally, not always, but generally, the price
26:22
Speaker 3: we paid if the company hit the numbers that we
26:25
Speaker 3: thought they were going to hit, even if the price
26:27
Speaker 3: seemed high on current revenue, this feels reasonable. So you
26:33
Speaker 3: know companies that even recently AI companies that seemed expensive
26:37
Speaker 3: six months ago don't look so expensive six months later,
26:40
Speaker 3: just based on kind of how their run rate revenue
26:42
Speaker 3: has changed. So the way we think about this is
26:45
Speaker 3: we do care about valuation. We lose deals on valuation,
26:49
Speaker 3: but that doesn't mean the deals that we win aren't
26:51
Speaker 3: high absolute valuations. It's just how much conviction do we
26:55
Speaker 3: have in the growth? Right, And this why these markets
27:00
Speaker 3: are not efficient. You can have very high conviction on
27:05
Speaker 3: XYZ company's growth, and I can have low conviction, and
27:08
Speaker 3: one of us will likely be right. And if I
27:11
Speaker 3: was right, and did it good for me? And if
27:14
Speaker 3: I was writing, didn't do it? It just depends on
27:17
Speaker 3: how you write. So I think the way we think
27:19
Speaker 3: about it is we're all of these deals today. Certainly
27:25
Speaker 3: AI deals on a multiple revenue basis are going to
27:27
Speaker 3: feel expensive. Of course, you have to look at growth adjustment.
27:31
Speaker 3: So even as a public market investor, you'd say that
27:33
Speaker 3: a company that's growing at ten percent is going to
27:36
Speaker 3: have a different valuation than a company that was going
27:38
Speaker 3: to grow with thirty percent. Now, how do you even
27:41
Speaker 3: start thinking about a company that's growing at one hundred percent? Right?
27:44
Speaker 3: It's hard to think about and it's not hard to
27:46
Speaker 3: think about it for a year. But if something you
27:48
Speaker 3: can grow one hundred percent for three years and then
27:50
Speaker 3: even if it de accelerates and compounds off three years
27:53
Speaker 3: of one hundred percent growth, that's a pretty high multiple
27:56
Speaker 3: that you can pay. So the way we really think
27:59
Speaker 3: and talk about it is not valuation doesn't matter, but
28:02
Speaker 3: we think about it in terms of if you're paying
28:04
Speaker 3: a high multiple, then your conviction needs to be high
28:08
Speaker 3: on the growth rate. Now, yeah, always gonna be right, right,
28:10
Speaker 3: and that's part of the business. We just have to
28:12
Speaker 3: be right enough.
28:15
Speaker 2: And you mentioned software. The first thing that comes to
28:19
Speaker 2: mind is Silicon Valley, San Francisco, the West Coast. Insight
28:23
Speaker 2: Partners is New York City based. I know you have
28:26
Speaker 2: offices around the world. Is there an advantage or disadvantage
28:31
Speaker 2: to being based here in New York?
28:33
Speaker 3: We think there's an advantage now, but maybe it's you know,
28:35
Speaker 3: maybe we're just convincing ourselves that because we live here.
28:38
Speaker 3: But you know, I think that not being in I mean,
28:42
Speaker 3: I can tell you what the disadvantages are, but I
28:44
Speaker 3: think the advantage is not being in the bubble. Like
28:46
Speaker 3: we're not all having breakfast at Bucks and talking about
28:49
Speaker 3: the same twenty deals. Now, maybe that's bad if those
28:53
Speaker 3: twenty deals or the deals you have to be in,
28:55
Speaker 3: but there's a tendency to have everybody kind of want
28:58
Speaker 3: to do the same thing, and I think not being
29:00
Speaker 3: in that every day, let's you step back more and
29:05
Speaker 3: decide what you want to do as opposed to what
29:07
Speaker 3: everybody else is doing. You know, I think there's a
29:10
Speaker 3: disadvantage to, like, the strategic buyers are all out there,
29:13
Speaker 3: you know, we're not in the same flow of those
29:15
Speaker 3: companies sometimes as people might be seeing those people all
29:18
Speaker 3: the time. But on balance, I think we've done okay
29:22
Speaker 3: and we've managed to sell to a bunch of strategics
29:24
Speaker 3: and so I don't think it's hurt us to be here.
29:28
Speaker 2: And I mentioned you have offices around the world. You literally,
29:32
Speaker 2: you know, it's not just New York, Silicon Valley, London,
29:35
Speaker 2: you guys are.
29:36
Speaker 3: Well, really it's really for presents. It's New York, it's
29:41
Speaker 3: San Francisco, it's London, it's Israel. Those are really the
29:44
Speaker 3: four places.
29:45
Speaker 2: So how does being global help the firm? What do
29:48
Speaker 2: you learn from having that sort of global perspective.
29:51
Speaker 3: Well, I think we're pretty disciplined about how we've grown
29:56
Speaker 3: and I'd be surprised if you see us have you know,
30:00
Speaker 3: a lot more offices in five years. If you look
30:03
Speaker 3: at take Israel with Jeff Morring really drove that strategy
30:07
Speaker 3: for us to get into Israel. I think I might
30:10
Speaker 3: get the numbers wrong slightly, but I think we had
30:14
Speaker 3: sixty or seventy companies in the portfolio before we put
30:16
Speaker 3: the first person on the ground, and at that point
30:20
Speaker 3: there were six firms that had you know, five to
30:23
Speaker 3: ten people there that had portfolios of five or ten, right,
30:26
Speaker 3: Because I think the thing that we want to avoid
30:28
Speaker 3: is if you put somebody on the ground before you
30:31
Speaker 3: have a portfolio, then they need to rationalize their existence
30:33
Speaker 3: by creating a portfolio. And maybe that's a good idea,
30:36
Speaker 3: but maybe it's a horrible idea. And the bar by
30:39
Speaker 3: having the bar that if you want to do a
30:41
Speaker 3: deal in Israel or you want to do a deal
30:43
Speaker 3: in India, you act to have to get out of
30:44
Speaker 3: a plane and go ten thousand miles or fly you know,
30:48
Speaker 3: twelve hours ought to be a really good deal. You
30:49
Speaker 3: got to be really excited about, right, And so it
30:51
Speaker 3: creates a natural like, no, I like this deal on
30:54
Speaker 3: Long Island better, Okay, Well you spoke with your you know,
30:58
Speaker 3: you spoke with and it probably should have a little
31:01
Speaker 3: bit of a better return in order if it's that
31:03
Speaker 3: far away, right. And so we've kind of weighted in
31:07
Speaker 3: these places to have really conviction that that's going to
31:11
Speaker 3: be a market because we have a lot of companies
31:13
Speaker 3: in that market before we add presence there. So there's
31:16
Speaker 3: plenty of places in the world where we have companies,
31:19
Speaker 3: more companies than funds that are in that local market.
31:23
Speaker 2: Really interesting coming up, we continue our conversation with Devin Perek,
31:28
Speaker 2: managing director at Inside Partners, discussing the state of startup
31:34
Speaker 2: investing today. I'm Barry Retults. You're listening to Masters in
31:38
Speaker 2: Business on Bloomberg Radio. I'm Bury Results. You're listening to
31:42
Speaker 2: Masters in Business on Bloomberg Radio. My extra special guest
31:46
Speaker 2: this week is Devin Perrek, managing director at Inside Partners.
31:50
Speaker 2: The firm runs over ninety billion dollars in venture capital
31:55
Speaker 2: and various stages of private equity. So you guys have
31:59
Speaker 2: a reputation for being software investors. Why have you focused
32:04
Speaker 2: on that one space? And how many different sub sectors
32:09
Speaker 2: are included under software?
32:12
Speaker 3: O Look software, We've been doing software since nineteen ninety five,
32:16
Speaker 3: and if you look since nineteen ninety five to today,
32:20
Speaker 3: I think it. I might be wrong about this, and
32:22
Speaker 3: maybe there's one other category for which this is true,
32:25
Speaker 3: but I don't think since nineteen ninety five there's been
32:27
Speaker 3: a single year where the software industry declined in aggregate revenue.
32:32
Speaker 3: Through every recession, through every cycle, and as a percentage
32:37
Speaker 3: of GDP, it just continues to increase. The software component
32:41
Speaker 3: continues to increase. So you know, I think if you'd
32:43
Speaker 3: asked a bunch of US ten years ago, we maybe thought,
32:45
Speaker 3: oh maybe we're going to cap out on software, We're
32:48
Speaker 3: going to have to go do something else. That really
32:50
Speaker 3: hasn't been a problem. I don't foresee it being a problem.
32:53
Speaker 3: So it's a massive industry who's had great growth, but
32:57
Speaker 3: the projected growth over the next ten years is very strong.
33:00
Speaker 3: So I think that we don't need a new category
33:04
Speaker 3: to go after. We like this category. This category has
33:07
Speaker 3: got amongst the highest growth rate of any category out there,
33:11
Speaker 3: and it's really well downside protected too. If you were
33:14
Speaker 3: to talk, if you had a lender on, they would
33:16
Speaker 3: tell you that software is are lowest loss ratio.
33:19
Speaker 2: What catches your attention first when you're looking at either
33:22
Speaker 2: a startup in software or a reasonably developed company. Is
33:28
Speaker 2: it the founders, Is it the technology? Is it a
33:31
Speaker 2: combination of both?
33:32
Speaker 3: Well, I think it depends on stage. Like you know,
33:33
Speaker 3: I think in an early in an early stage company,
33:36
Speaker 3: you know, founder and tech is really really important, right
33:40
Speaker 3: and market Now, as you said earlier, you're making a
33:44
Speaker 3: guess sometimes on a market at a very very early
33:47
Speaker 3: at a series A stage. Now you're hopefully making an
33:49
Speaker 3: educated guess based on lots of pattern recognition of companies
33:53
Speaker 3: based on lots of data, and how big that market
33:56
Speaker 3: is is measured in different ways. But it's a common
33:59
Speaker 3: mistake to underestimated market, right. I mean, when we look back,
34:02
Speaker 3: it's a little bit more of a consumer example. But
34:04
Speaker 3: when we look back, I remember looking at Uber and
34:07
Speaker 3: we convinced ourselves, how could you ever pay evaluation that's
34:10
Speaker 3: higher than the total TAM, right, And the total TAM
34:13
Speaker 3: was New York and San Francisco of black cars. Well,
34:16
Speaker 3: it turns out that's not really the total TAM of
34:18
Speaker 3: Uber today. I forget about food delivery and groceries. I
34:21
Speaker 3: was just talking about cars. Yeah, it's just because they
34:24
Speaker 3: went to uber X, and uber X totally changed the TAM.
34:27
Speaker 3: So I think tams are not static, right, And I
34:30
Speaker 3: think that's a very very hard thing to recognize that. Okay,
34:34
Speaker 3: maybe they're going after a small problem today, but that
34:37
Speaker 3: might be the trojan horse to get into it bigger
34:39
Speaker 3: and bigger markets over time. Right. And that's where intuition
34:44
Speaker 3: and pattern recognition and kind of seeing what a great
34:46
Speaker 3: founder is, which is why I look early stage, I
34:48
Speaker 3: think is much harder than growth stage or buyouts, where
34:53
Speaker 3: you have lots of data and financial metrics that you
34:55
Speaker 3: can kind of rely on.
34:57
Speaker 2: I love the idea of the trojan horse. Somewhere along
35:00
Speaker 2: in the lines, someone said you could practically ignore the
35:04
Speaker 2: seed stage or early stage business model because there's always
35:08
Speaker 2: going to be a pivot. The trojan horse are the founders?
35:12
Speaker 2: How accurate is that that point of view?
35:14
Speaker 3: Well, I mean I think it, like in everything, when
35:18
Speaker 3: people make statements like that, they tend to focus on
35:20
Speaker 3: the winners, right, so they'll look at XYZ company that
35:23
Speaker 3: pivoted and say, oh, look, everybody can pivot. Well, everybody
35:28
Speaker 3: doesn't pivot. And you do have a huge, very high
35:30
Speaker 3: loss ratio at seed, early stage, and even series A,
35:35
Speaker 3: and the strategy is different. Right, you have a power
35:37
Speaker 3: law in series A. You have a paral law in seed,
35:39
Speaker 3: and you have a para law even in buyout. It's
35:41
Speaker 3: just a different power law. In buyout. You can basically
35:45
Speaker 3: your power law is not a lot of losses. It's
35:47
Speaker 3: you can have some one x's or one point five x's,
35:50
Speaker 3: but you probably need a couple of four x or
35:51
Speaker 3: five x's. In seed you probably need one hundred x
35:56
Speaker 3: and you have a very high loss In Series A
35:58
Speaker 3: you need a bunch of ten or fift twenty x's,
36:00
Speaker 3: but you can still have losses. So depending on what stage,
36:04
Speaker 3: there's this view that like parallel only applies to venture,
36:07
Speaker 3: really applies to all stages. Is just what a loss is.
36:11
Speaker 3: What a loss is is defined differently, right, A loss
36:13
Speaker 3: in a buyout might be just a one x or
36:15
Speaker 3: a point eight x. You can't really have a lot
36:17
Speaker 3: of zero's in buyout, right, So I think the parallelaw
36:23
Speaker 3: continuum is true across all these markets.
36:26
Speaker 2: So AI is obviously a really big sector today. What
36:30
Speaker 2: other sectors excite you the most or how much does
36:35
Speaker 2: AI fit into just looking out there as game changing technologies.
36:40
Speaker 3: Well, look, I think every firm, whether they're a venture
36:43
Speaker 3: firm a buyout fund, doesn't really matter what type of
36:47
Speaker 3: investing people are doing. I think it would be a
36:49
Speaker 3: usual mistake to ignore AI. Right, even if you're not
36:53
Speaker 3: investing quote unquote in an AI company, you better be
36:56
Speaker 3: thinking about how AI is going to affect your business
36:58
Speaker 3: model or how can it improve your business model? And
37:01
Speaker 3: those who don't, even people in services businesses, like if
37:04
Speaker 3: you're running law firm today, you're running an accounting firm today,
37:07
Speaker 3: you really need to think about how is AI going
37:10
Speaker 3: to affect my business. So of course in our case,
37:14
Speaker 3: in our more mature companies, a lot of what we're
37:16
Speaker 3: thinking about is how do we accelerate growth and revenue
37:19
Speaker 3: through new AI products and how do we reduce cost
37:21
Speaker 3: and increased margin through applying AI technology. In the companies
37:26
Speaker 3: or earlier in mid stage companies are often AI native.
37:29
Speaker 3: They're actually going after a new market, a legal vertical
37:32
Speaker 3: or construction vertical with kind of a new AI focused product.
37:35
Speaker 3: I mean, I think what's true is that every company
37:37
Speaker 3: to some degree is an AI company. It doesn't mean
37:40
Speaker 3: that they're nott Ai in their name, but every board
37:44
Speaker 3: meeting that we go to at Insight, we're talking about AI.
37:48
Speaker 3: And the irony is even the board meetings. I go
37:51
Speaker 3: to an nyline own, we're talking about AI board meetings.
37:55
Speaker 3: I go to a CFR, we're talking about AI. Because
37:58
Speaker 3: if you're a medical if you're hospital today, you're thinking
38:01
Speaker 3: about how do I have a better experience for my patient,
38:05
Speaker 3: how do I think about increasing throughput? The average weight
38:08
Speaker 3: for a neurologist today across the countries eight to nine
38:11
Speaker 3: months to get an appointment. I imagine you're suffering from
38:15
Speaker 3: like a real problem, and the doctor says, well, I'll
38:18
Speaker 3: see you you know next year. Right, that's the average. Now,
38:22
Speaker 3: what if we can kind of get AI to be
38:24
Speaker 3: able to help assess these problems earlier, and all of
38:27
Speaker 3: a sudden you take the data from the best institutions
38:31
Speaker 3: and you make that available in an AI application. So
38:34
Speaker 3: now people in Appalachia have access to the same level
38:38
Speaker 3: of care as people who have the benefit of being
38:41
Speaker 3: able to be near Mount Nyu link on our Mount Sinai. Right.
38:44
Speaker 3: And so I'm going broader in my answer to your question,
38:49
Speaker 3: which is I think AI is now affecting everything we do,
38:54
Speaker 3: and so I think everything every company that we invest in,
38:56
Speaker 3: we're talking about what's the impact or And then the
39:00
Speaker 3: other thing we talked about is, like the other big
39:04
Speaker 3: debate in kind of AI land is what will get
39:08
Speaker 3: owned by the llms and what we'll get owned by
39:11
Speaker 3: the application providers? Right? How much of this how much
39:15
Speaker 3: of the value will accrue to the models they open
39:18
Speaker 3: a eyes and anthropics, and how much of the value
39:20
Speaker 3: will accrue to the applications. I don't think anybody can
39:24
Speaker 3: answer that question. We don't know.
39:26
Speaker 2: So I remember in the late nineties when the dot
39:31
Speaker 2: com was just exploding, it kind of felt like a
39:35
Speaker 2: handful of companies were sucking all the oxygen down the
39:40
Speaker 2: room from everybody else. Is AI doing that? Like I
39:43
Speaker 2: would imagine things like cybersecurity and fintech and other software
39:48
Speaker 2: driven startups. Are they starving for capital or is there
39:54
Speaker 2: just so much money out there that even AI can't
39:57
Speaker 2: suck all the money?
39:59
Speaker 3: There's a you know, there's a tremendous amount of capital
40:03
Speaker 3: out there, and there are lots of companies outside of
40:06
Speaker 3: the ones that everybody knows that are growing really really quickly,
40:11
Speaker 3: often serving a vertical market. I mean, what's still true
40:15
Speaker 3: is that if you have an application that is serving
40:18
Speaker 3: a market where there's a lot of domain expertise or
40:21
Speaker 3: data required, you still have a moat. And so I
40:26
Speaker 3: think this, you know, because one of the big debates is, oh,
40:29
Speaker 3: does AI mean that the software companies are going to
40:32
Speaker 3: be dead? We don't believe that. What we do believe
40:35
Speaker 3: is you have a very generic application that doesn't have
40:38
Speaker 3: any vertical domain expertise, doesn't have any data mote, then
40:42
Speaker 3: I think you're a significantly higher risk. But I think
40:45
Speaker 3: there's lots of examples. We're seeing them, we're investing in them,
40:48
Speaker 3: in specific healthcare applications and legal applications, construction industry where
40:54
Speaker 3: you have companies that have true business process vertical expertise
40:57
Speaker 3: couple with data modes.
41:00
Speaker 2: Other spaces have you excited besides AI, which is obviously
41:03
Speaker 2: going to have a giant, giant impact, what other areas
41:07
Speaker 2: are really interesting?
41:08
Speaker 3: I think, you know, cyber continues to be really important area.
41:13
Speaker 3: And one could argue and we're just we have I
41:15
Speaker 3: don't know if we might just be announcing it. So
41:17
Speaker 3: I don't know whether we're now s yep, we're you know,
41:19
Speaker 3: investing in something that's kind of related AI related security,
41:22
Speaker 3: and so all every time you have these big new
41:25
Speaker 3: platform shifts, you have infrastructure around that platform platform shift.
41:32
Speaker 3: That's important, right, And so I think we're seeing a
41:35
Speaker 3: lot of next generation infrastructure investments, cyber investments. There's a
41:40
Speaker 3: lot of markets that we're seeing and I think what's
41:42
Speaker 3: happening right now is if i'd answer this question, you know,
41:46
Speaker 3: a year ago, I said, well, we're doing vertical applications,
41:49
Speaker 3: we're doing these types of horizontal applications, and now it's
41:52
Speaker 3: all getting bucketed into AI because it has an AI angle.
41:56
Speaker 3: But there are subcategories you know, within within AI, there's
42:01
Speaker 3: not like just one AI company out there. There's obviously
42:06
Speaker 3: lots of companies, and it's just becoming that AI is
42:08
Speaker 3: becoming almost like an operating system that all of these
42:12
Speaker 3: new vertical applications are being built on.
42:14
Speaker 2: I haven't heard you mentioned crypto. Is that a space
42:17
Speaker 2: you guys explore or is that too specific?
42:20
Speaker 3: We put in the past tense we explored and you know, decided, well,
42:26
Speaker 3: one we didn't do that well with it. And two
42:30
Speaker 3: the fundamental problem that like we've seen in it is
42:36
Speaker 3: that when these companies were come in, we met with
42:38
Speaker 3: hundreds of companies in crypto. When these companies would come
42:41
Speaker 3: in and you'd say, okay, like tell me what it
42:43
Speaker 3: is about your application that makes it better than if
42:47
Speaker 3: it were just in a relational database, like a very
42:50
Speaker 3: simple question. You'd kind of get back like all kinds
42:53
Speaker 3: of technical answers and white papers, and I'm like, right,
42:55
Speaker 3: but like, just as a user, what problem does this
42:59
Speaker 3: solve that I can then I can't solve it right Generally,
43:03
Speaker 3: we didn't just get a really good answer. Now I
43:06
Speaker 3: don't wanna I don't want to say that there's not
43:09
Speaker 3: gonna be any crypto applications that are going to be successful.
43:12
Speaker 3: I'm sure there will be. I mean, obviously, if you
43:14
Speaker 3: talk to COO Visa, you talk to the CEO MasterCard,
43:17
Speaker 3: they'll talk to about stable coins and the impact stable
43:19
Speaker 3: coins could have. Obviously an administration that's very pro crypto,
43:23
Speaker 3: pro crypto regulatory, so I think you're gonna see money
43:26
Speaker 3: being made in that category. We just I mean, I
43:30
Speaker 3: guess we're used to trying to find applications where we see,
43:33
Speaker 3: here's a clear business use, here's a clear payment for
43:37
Speaker 3: that business use, and here's how they can scale. We
43:40
Speaker 3: haven't really been able to decrypt that in crypto, but
43:45
Speaker 3: I'm sure there are others out there who understand that better,
43:49
Speaker 3: and I'm sure there'll be some winners, but we've just
43:50
Speaker 3: chosen to not focus on it.
43:52
Speaker 2: So let's talk about some winners. I see a run
43:55
Speaker 2: of exits that Insight Partners is associated with. You're an
44:00
Speaker 2: early investor in Twitter, which iPod, Buddy Media acquired by
44:05
Speaker 2: Salesforce Investment, sold to Nasdaq, Ali Baba, JD dot Com,
44:10
Speaker 2: Duck Creek, Appress, The list goes on and on. Tell
44:14
Speaker 2: us about some of these exits. You guys really have
44:18
Speaker 2: put together quite an impressive list.
44:21
Speaker 3: Well, well, I'd rather talk about our exits from this year.
44:24
Speaker 2: Okay, so keep it current.
44:26
Speaker 3: Yeah, which, you know, so my partner Jeff horn letter
44:29
Speaker 3: investment in Whiz, which sold to you know, Google, Well,
44:33
Speaker 3: I should say I signed a definitive agreement to sell
44:35
Speaker 3: to Google hasn't closed yet for thirty two billion dollars.
44:40
Speaker 3: The largest venture backed acquisition by a strategic My partner
44:45
Speaker 3: Richard Wells led an investment in a company called Central Reach,
44:51
Speaker 3: which does software for autism clinics, and sold that for
44:54
Speaker 3: just under two billion dollars to Roper Industries. And then
44:57
Speaker 3: my partner Jeff Lieberman letter deal called dot Maddox, which
45:01
Speaker 3: we sold the siemens for just over five billion dollars.
45:05
Speaker 3: And you know, the interesting thing about both. The interesting
45:08
Speaker 3: thing about those deals is one's a traditional or least,
45:11
Speaker 3: so we did Whiz as a series I think B,
45:15
Speaker 3: and then kind of continue to participate along the way. Both,
45:19
Speaker 3: you know, Central Reach and Dotmatics were venture biots, but
45:27
Speaker 3: the multiples on money were like venture multiples of money really, right,
45:31
Speaker 3: So venture returns with buyout dollar deployment, it's a good combination. Yeah,
45:36
Speaker 3: and so, and I think we've got We've got more
45:38
Speaker 3: coming over the course of this year, so I think
45:41
Speaker 3: we've had a really strong year. One of the things
45:43
Speaker 3: that I think contributed to that is I think historically
45:47
Speaker 3: we were not great on liquidity, and by that I
45:52
Speaker 3: mean not that we didn't have good companies. We just
45:54
Speaker 3: didn't focus a lot on liquidity. And as big LPs
45:57
Speaker 3: and our funds, we're generally the gp is top. I
46:00
Speaker 3: were close to Tide as the largest investor in the fund,
46:02
Speaker 3: so we're pretty aligned with our investors. We kind of
46:06
Speaker 3: were focused on multiple money and that's so focused on IRR.
46:09
Speaker 3: I mean, within reason, we're focused on ir but it
46:11
Speaker 3: wasn't what we and I think over the last ten
46:14
Speaker 3: years fifteen years, you've seen a massive transition and the
46:16
Speaker 3: institutional p base of a shift from WAKE to IRR.
46:21
Speaker 2: So I want to stay there because it's kind of fascinating.
46:24
Speaker 2: I had no idea because I don't play all that
46:27
Speaker 2: much in the venture space or the private equity space,
46:30
Speaker 2: that Hey, we have long standing liabilities that we eventually
46:34
Speaker 2: want to meet and even though we knew this was
46:37
Speaker 2: locked up for depending on the fund five seven, nine years,
46:40
Speaker 2: we'd like to see some exits sooner than later. When
46:43
Speaker 2: did this start happening? And what do you think is
46:46
Speaker 2: driving this?
46:47
Speaker 3: Well, I mean it's probably been happening for years, but
46:49
Speaker 3: it's accelerated in the.
46:50
Speaker 2: Last post pandemic.
46:52
Speaker 3: Yeah, post two three years and we had the correction
46:55
Speaker 3: and people felt over allocated and twenty one had this
46:58
Speaker 3: huge peak investing and so now there's this big bubble
47:02
Speaker 3: of investing but not enough liquidity coming back relative to
47:04
Speaker 3: the deployment. In the last two to three years, it's
47:07
Speaker 3: accelerated and so we you know, we we took that feedback. Seriously,
47:13
Speaker 3: I don't think we're the only ones who got that feedback.
47:15
Speaker 3: But we actually put a liquidity committee together. It's from
47:19
Speaker 3: people across the firm, both both our financial function, our
47:23
Speaker 3: investment team or operating team, and we now have quarterly
47:27
Speaker 3: liquidity meetings where we target companies for liquidity. We kind
47:30
Speaker 3: of talk about what the IR is from here and
47:33
Speaker 3: I think the and that was set set up about
47:35
Speaker 3: eighteen months ago. But I think a result of that
47:39
Speaker 3: is you know, I don't want to say it's a
47:41
Speaker 3: direct result because you can't press a button, but a
47:44
Speaker 3: focus on it, everyone talking about it, everybody feeling like
47:47
Speaker 3: they have accountability to that process. I think it's led
47:50
Speaker 3: to a lot more liquidity over the last So I
47:52
Speaker 3: think we've gotten an ROI on really putting focus against
47:56
Speaker 3: it really and I think you know, our LPs gave
47:59
Speaker 3: us feedback on it. You know, I think we look,
48:02
Speaker 3: we thought about it. We said, yeah, it's fair feedback.
48:05
Speaker 3: Let's make a change, let's make an adjustment.
48:07
Speaker 2: So so you mentioned the boom in twenty one and
48:09
Speaker 2: then the pullback in twenty two. You start in the
48:13
Speaker 2: mid nineties, You've lived through numerous boom and bus cycles.
48:17
Speaker 2: What what's your big takeaway from from those experiences.
48:21
Speaker 3: Well, I think when you're living in the depth of it,
48:25
Speaker 3: it feels like it's never going to end, and it
48:28
Speaker 3: always ends and this too shell pass, this too shall pass. Uh,
48:32
Speaker 3: And I think that's it's a hard it's a hard
48:35
Speaker 3: lesson because it's listen, the thing that's still the hardest
48:38
Speaker 3: to do is, you know Warren Buffett's investment. Everybody's scared,
48:43
Speaker 3: and you you get yourself ready and you've got your
48:46
Speaker 3: you know, I'm going to put move X dollars to
48:48
Speaker 3: the Vanguard Index fund and then you don't do it.
48:51
Speaker 3: Why because you don't think it's ever going to pass, right,
48:53
Speaker 3: because if you thought you were going to pass, of
48:54
Speaker 3: course you do it. And human psychology is really really
48:59
Speaker 3: hard to change. And I'm including myself in that definition.
49:02
Speaker 2: It's so difficult to fight the crowd when everybody's running
49:06
Speaker 2: for the exit. You have to be built a certain way.
49:09
Speaker 3: I still remember when the market two thousand and eight,
49:11
Speaker 3: the market was, you know, the really crashing, and I
49:15
Speaker 3: remember having a conversation with somebody who know the market,
49:19
Speaker 3: is really well well known person. He said, yeah, gee,
49:22
Speaker 3: can't roll their commercial paper right, And I was like,
49:24
Speaker 3: holy crap.
49:25
Speaker 2: I was after Aig and Lehman and I remember.
49:28
Speaker 3: Eight and I remember it was like a Friday and
49:31
Speaker 3: it was a long week, and I call my wife
49:33
Speaker 3: and I'm like, you know, honey, let's just like go
49:35
Speaker 3: out for dinner. And she was like, let's stay in
49:36
Speaker 3: and were having these like five minutes back and forth.
49:38
Speaker 3: I'm like, like, why are we talking about this? And
49:41
Speaker 3: she was like, well, I thought maybe she'd save some money.
49:43
Speaker 3: I'm like, it's not that bad, Like we could go
49:45
Speaker 3: back to dinner.
49:46
Speaker 2: Well. But Ben Bernanke, former Chairman of the Federal Reserve,
49:51
Speaker 2: famously sent his wife out to the ATM to get
49:54
Speaker 2: cash in case the system went bad, if he was terrified.
49:59
Speaker 2: It just showed you human nature is we're always going
50:03
Speaker 2: to be.
50:03
Speaker 3: I think that the thing. So I don't know that
50:06
Speaker 3: you could ever teach people to like go move money.
50:08
Speaker 3: But I think the hard part is really besides maybe
50:13
Speaker 3: not making as much money as you could make, the
50:15
Speaker 3: heart part is just feeling like it's never gonna end right.
50:18
Speaker 3: And now, having been through this as many times as
50:20
Speaker 3: you know I have and my partners have, you know,
50:23
Speaker 3: I think it's easier to recognize that no, there's there's
50:27
Speaker 3: light at the end of the tunnel.
50:29
Speaker 2: Makes perfect sense. Let me throw you a curveball question
50:32
Speaker 2: before we jump to our favorite questions. So we talked
50:36
Speaker 2: about AI, and we've talked about cycles. What do you
50:40
Speaker 2: think investors in this space, either technology, your startup or
50:45
Speaker 2: M and A or ventures are not really talking about
50:48
Speaker 2: or thinking about, but perhaps should be what what's the
50:51
Speaker 2: most important topic asset geography policy that's getting overlooked, but
50:58
Speaker 2: shouldn't I think people.
51:00
Speaker 3: Still as much as we talk about it, I don't
51:02
Speaker 3: think people. I think people still underpriced what happens if
51:05
Speaker 3: there's a real cyber risk. We think about cyber as, oh,
51:09
Speaker 3: my city bank account got hacked. We think about cyber
51:12
Speaker 3: as you know, I got a phishing email work. By
51:14
Speaker 3: the way, all those things are bad and bad things
51:16
Speaker 3: can happen out of them, and you know, everyone has
51:18
Speaker 3: probably dealt with some version.
51:19
Speaker 2: I mean, I'm more concerned about someone taking control of
51:22
Speaker 2: the electrical grid.
51:24
Speaker 3: I think we still I mean, I think I don't
51:26
Speaker 3: want to make it sound like the government doesn't think
51:28
Speaker 3: about it. I think they do, but I think it's
51:30
Speaker 3: just people. I don't think we realize like the level
51:35
Speaker 3: of risk if physical infrastructure were kind of taken over,
51:39
Speaker 3: and there have been examples of it.
51:41
Speaker 2: Happened, like physical infrastructure like the electrical grid is something
51:44
Speaker 2: most specific water.
51:46
Speaker 3: Water purification plants, electrical plants, I mean, hospital systems going down.
51:52
Speaker 2: Right, Well, we've seen we've seen in a lot of
51:53
Speaker 2: ransomware with that.
51:55
Speaker 3: We've seen that in individual institutions, right, We've not seen
51:59
Speaker 3: it system systemically, right, And you know, that's a that's
52:04
Speaker 3: a pretty that's a that's a pretty pretty terrified that's
52:07
Speaker 3: a pretty terrifying risk. Now I'm not saying I mean,
52:10
Speaker 3: I'm answering your question as to something that I worry
52:12
Speaker 3: about that maybe we don't worry about enough. I'm not
52:15
Speaker 3: necessarily sure. It's like, I'm not how to price that
52:17
Speaker 3: into the market. It's not really a market answer. It's
52:20
Speaker 3: just something that I think, like it's it's an asymmetric risk.
52:25
Speaker 2: No, that's the right. So I'm not looking for a
52:27
Speaker 2: market you know, asymmetrical dollar. Bet You're raising an issue
52:32
Speaker 2: that perhaps we're not paying enough attention to.
52:34
Speaker 3: I think, as the average the average investor of the
52:37
Speaker 3: average person, I don't think I think that risk is
52:40
Speaker 3: way bigger than we think it is.
52:42
Speaker 1: Huh.
52:42
Speaker 3: And if you talk to people in government, they would
52:43
Speaker 3: probably they would agree with that.
52:45
Speaker 2: All right, so we only have a certain amount of time.
52:47
Speaker 2: Let's let's jump to our favorite questions we ask all
52:50
Speaker 2: of our guests, starting with who were your mentors who
52:53
Speaker 2: helped shape your career?
52:56
Speaker 3: Well, you know, I think to a few different mentors.
52:59
Speaker 3: I I was in elementary school a pretty indifferent student,
53:03
Speaker 3: to the point where, you know, I had Indian parents
53:06
Speaker 3: who are like, you're supposed to have good grades, and
53:09
Speaker 3: you know, I didn't have bad grades, but like, I
53:11
Speaker 3: was kind of an indifferent student, didn't really focus a
53:13
Speaker 3: lot on school. I had a teacher in third grade
53:15
Speaker 3: who said you shouldn't spend more than thirty or forty
53:17
Speaker 3: five minutes on your homework. I'd go home, look at
53:19
Speaker 3: the clock, forty five minutes, close my book. And then
53:22
Speaker 3: I had a teacher in sixth grade, mister Brown. I'll
53:26
Speaker 3: never forget mister Brown, who, for whatever reason, and I
53:30
Speaker 3: still can't tell you why, saw some potential, you know,
53:34
Speaker 3: saw something in me that maybe other people didn't see,
53:37
Speaker 3: and all of a sudden, I went from like a
53:39
Speaker 3: indifferent student to like a straight a student. And it
53:42
Speaker 3: was that year he took interest in me. He would say, hey, look,
53:45
Speaker 3: you're really good, right, you should focus more on these things.
53:47
Speaker 3: And so for me sixth grade, mister Brown very transformational
53:52
Speaker 3: mentor in a way, because he made me believe that
53:55
Speaker 3: I had something that I didn't really think I had.
54:01
Speaker 3: And then my dad gave me three important things that
54:05
Speaker 3: he told me was one of them. Is kind of funny.
54:08
Speaker 3: He's like, you really need to learn how to You
54:11
Speaker 3: need to be able to speak well, you need to
54:13
Speaker 3: be able to read well. And he's like, if you're
54:15
Speaker 3: living in this country, you should know how to play
54:17
Speaker 3: a sport, right, and so he The way he tried
54:20
Speaker 3: to implement those is he maybe take a speed reading
54:24
Speaker 3: class in elementary school.
54:26
Speaker 2: Was that useful? I speed read, you do no loss
54:30
Speaker 2: of comprehension.
54:31
Speaker 3: No loss of comprehension. He maybe take a public speaking
54:34
Speaker 3: class with college students when I was at high school
54:37
Speaker 3: and I was so scared of public speaking. I never
54:40
Speaker 3: could imagine then that i'd be doing a you know,
54:43
Speaker 3: a podcast. And he didn't. He didn't succeed on sports,
54:47
Speaker 3: but his idea was he was like, you know, you
54:51
Speaker 3: should you should learn how to play golf, you know,
54:52
Speaker 3: like that'd be a good thing to know. And living
54:55
Speaker 3: state school, Well, I I play golf horrifically. But the
55:02
Speaker 3: but in high school you could join the golf team.
55:04
Speaker 3: It was a no cut team. That doesn't mean you
55:06
Speaker 3: were going to.
55:06
Speaker 2: Get to play but varsity letter.
55:08
Speaker 3: But you got to you got to learn. And I
55:11
Speaker 3: just said, now I'm not doing that. So I got.
55:13
Speaker 3: I got two out of the three. But I think
55:16
Speaker 3: those two out of the three have been really really important.
55:19
Speaker 3: I know that a very very positive impact on my life.
55:23
Speaker 3: And of course along the way, there've been lots of
55:24
Speaker 3: people at all the places I've worked that have been
55:27
Speaker 3: mentors as well.
55:28
Speaker 2: Huh, very very interesting. Coming up, we continue our conversation
55:32
Speaker 2: with Devin Perek, Managing director at Inside Partners. I'm Barry Dults.
55:38
Speaker 2: You're listening to Masters in Business on Bloomberg Radio. I'm
55:42
Speaker 2: Bury Redults. You're listening to Masters in Business on Bloomberg Radio.
55:46
Speaker 2: My extra special guest this week is Devin Perrek, Managing
55:50
Speaker 2: director at Inside Partners. Let's talk about what's keeping you
55:56
Speaker 2: entertained these days. What are you watching or listening, streaming
55:59
Speaker 2: podcast anything along.
56:00
Speaker 3: Those This week could do it a whole We could
56:03
Speaker 3: do a podcast on the podcast. But my wife and
56:06
Speaker 3: I just finished watching Friends and Neighbors with John so Good.
56:09
Speaker 3: I thought it was great. I really enjoy that's just
56:12
Speaker 3: pure kind of entertainment. On the podcast side, you know,
56:16
Speaker 3: I just like I speed read. I can only listen
56:18
Speaker 3: to podcasts if I speed listen. So I listened to
56:20
Speaker 3: all of these at two point four acts, which drives
56:23
Speaker 3: my wife bananas because I'll get in the car and
56:26
Speaker 3: you know, I'm listening to something. It goes to the
56:28
Speaker 3: you know, the Apple thing, and She's like, we turned
56:31
Speaker 3: this off. But you know, there's a bunch interestingly in reading.
56:37
Speaker 3: I tend not to read a lot of business ebooks,
56:39
Speaker 3: but in podcasts I do listen to that. So but
56:42
Speaker 3: the ones I listened to I listened to Acquired, I
56:44
Speaker 3: listened to Business Breakdowns. I listened to Nikolai Tangens where
56:48
Speaker 3: he interviews the CEOs. I listened to invest Like the Best.
56:52
Speaker 3: I listened to You. I listened to Lex Friedman, and
56:56
Speaker 3: then I'm at the ft.
56:59
Speaker 2: Uh.
56:59
Speaker 3: Well, let's Freeman's got his own He's a affiliate with
57:03
Speaker 3: MIT in some way. He's had his own podcast. He
57:05
Speaker 3: gets really really interesting people to come on. I'm involved
57:09
Speaker 3: in Carnegie and CFR, so they both have a podcast.
57:12
Speaker 3: One's called Grant Tamasha, which is on India, which is
57:14
Speaker 3: just a policy area I'm interested in. Why it Matters
57:16
Speaker 3: is CFR's podcast. So I've got a driving to the
57:20
Speaker 3: Hampton's easy because it I can. I have hours and
57:23
Speaker 3: hours of kind of content really interesting.
57:27
Speaker 2: Let's talk about books. Are what are some of your favorites?
57:30
Speaker 2: What are you reading currently? Well?
57:31
Speaker 3: I read a lot, and you know, I think two
57:35
Speaker 3: books that I just gave both my one kid just
57:39
Speaker 3: graduated from college and one is two years out of college,
57:42
Speaker 3: three years out of college. I gave both of them.
57:44
Speaker 3: I don't know if they've both read both, but I
57:46
Speaker 3: gave them both books to read. One is Psychology of
57:49
Speaker 3: Money by Morgan House. Sure, I thought that was a
57:52
Speaker 3: great book. I wish I read that when I was
57:54
Speaker 3: twenty one, but I still felt like it was valuable.
57:58
Speaker 3: The other is called Five Types of Health by ce
58:00
Speaker 3: Heel Bloom. Sure, I thought that was a great book.
58:03
Speaker 3: And those are more I would put those as entertainment,
58:07
Speaker 3: but I found those if you read those books and
58:10
Speaker 3: you kind of try to apply them to life. I
58:12
Speaker 3: thought both of those were really useful then. And then
58:16
Speaker 3: a lot of what I read is around topics that
58:20
Speaker 3: like are around our philanthropy. Right. So you know one
58:24
Speaker 3: book I read, which is this is not an upper
58:27
Speaker 3: It's a book called Anatomy of an Epidemic by Robert Whitaker,
58:31
Speaker 3: which is about the use of psychiatric drugs in this country.
58:36
Speaker 3: And this is not an uplifting book. Of course, there's
58:39
Speaker 3: an epidemic of anxiety and depressed.
58:41
Speaker 2: To say anything about American healthcare or psychology.
58:45
Speaker 3: But it motivated. It motivated. So one of the areas
58:48
Speaker 3: that were philanthropically investing in is next generation ways of
58:53
Speaker 3: dealing with psychiatric conditions, and that book kind of was
58:57
Speaker 3: the starting point, you know, of that. And then the
59:00
Speaker 3: really depressing book I'm reading right now is it's a
59:03
Speaker 3: new book. It's called Nuclear War by Annie Jacobson, and
59:08
Speaker 3: it's you talked about what are these theories, what are
59:11
Speaker 3: the scenarios out there that you know we're underpricing, and
59:15
Speaker 3: you know, I just felt with what happened over the
59:17
Speaker 3: last two years. You know, I think we all, you know,
59:21
Speaker 3: we used to have fallout shelters and it would just
59:23
Speaker 3: like a nuclear war, that's that's done. There's like, there's
59:25
Speaker 3: no risk of that. And I think the last couple
59:29
Speaker 3: of years just reminded me that, like, nah, it's not done.
59:31
Speaker 3: Like now, it's not a high probability maybe, but it's
59:34
Speaker 3: not done. And what this book does is it actually
59:38
Speaker 3: starts at time zero, a nuclear bomb drops. What actually happens, right,
59:42
Speaker 3: what is the defense mechanism that the offensive person uses,
59:46
Speaker 3: what's the defensive mechanism that the other country uses? What
59:49
Speaker 3: happens from I mean, and it goes into it in
59:51
Speaker 3: not very uplifting detail, and it was just a good
59:54
Speaker 3: reminder that you have this thing out there that still
59:57
Speaker 3: has the chance to obliterate the world as we know it, right,
1:00:03
Speaker 3: And it's not a zero percent probability. It's a low probability.
1:00:06
Speaker 3: But I think it is important to understand tail cases.
1:00:08
Speaker 2: Yeah, to say, to say that at least.
1:00:10
Speaker 3: We're ending on a very depressing note, so we might
1:00:12
Speaker 3: want to start you might want to end on something
1:00:14
Speaker 3: more more fun.
1:00:15
Speaker 2: No, it's listen, you know sometimes you mentioned so to
1:00:20
Speaker 2: make this positive. You mentioned Saheel Bloom. I had him
1:00:22
Speaker 2: as a guest on the podcast. You mentioned Morgan Housell.
1:00:25
Speaker 2: I've had him several times. He wrote the forward to
1:00:28
Speaker 2: my book. Both those guys younger, all their work is
1:00:33
Speaker 2: much more uplifting, much.
1:00:37
Speaker 3: Age thing. Yeah I should have I should have. I
1:00:39
Speaker 3: should have ended with that.
1:00:40
Speaker 2: But no, it's it's absolutely fine. Listen. Sometimes you gotta,
1:00:44
Speaker 2: you know, you gotta shake people up and say, hey,
1:00:46
Speaker 2: this is a real risk, and you know, non zero
1:00:48
Speaker 2: is a pretty significant risk when the outcome is so catastrophic.
1:00:53
Speaker 3: Correct.
1:00:54
Speaker 2: So, final two questions, What sort of advice would you
1:00:58
Speaker 2: give to a recent college grad interested in a career
1:01:01
Speaker 2: in either startups, venture capital, or private equity.
1:01:06
Speaker 3: Yeah, so I think that keep your intellectual curiosity broad
1:01:11
Speaker 3: And I was just speaking to our summer interns a
1:01:14
Speaker 3: month ago and somebody asked me, like, what's your advice?
1:01:17
Speaker 3: And I think the mistake a lot of people make
1:01:20
Speaker 3: is they decide, Okay, I want to be a venture
1:01:21
Speaker 3: capitalis so all I'm gonna do is read tech Crunch
1:01:23
Speaker 3: and listen to tech podcasts. And this just make you
1:01:26
Speaker 3: a very interesting person. And you know, I've probably had
1:01:30
Speaker 3: more dinners or one deals because we found a common
1:01:35
Speaker 3: interest in art or a common interest in Why it
1:01:37
Speaker 3: doesn't I'm using the things I happen to be interested in,
1:01:39
Speaker 3: But it doesn't have to be those things, right, And
1:01:42
Speaker 3: you know, everyone has intellectual interests outside of the thing
1:01:46
Speaker 3: that they want to do, and I would encourage them
1:01:49
Speaker 3: to like pursue those and pursue those with passion, because
1:01:51
Speaker 3: it's going to make you a way more interesting, well
1:01:53
Speaker 3: rounded person, and don't just be so micro focused on
1:01:57
Speaker 3: that thing. And I just think it makes you that
1:02:00
Speaker 3: or investor, makes you a better person, makes you more interesting.
1:02:03
Speaker 3: So that's one two. In a world where we start
1:02:06
Speaker 3: getting people to do, you know, varsity soccer when they're three,
1:02:13
Speaker 3: allow a little serendipity in your life, right, I wouldn't
1:02:17
Speaker 3: have ended up doing what I was doing if I
1:02:20
Speaker 3: just followed the plan and you know something's interesting, try
1:02:24
Speaker 3: it and it turns out you might like it. Now
1:02:26
Speaker 3: you might not like it and go back to your
1:02:28
Speaker 3: original plan. But we've forgotten serendipity. It's why I still
1:02:31
Speaker 3: subscribe to paper newspapers because I'm probably the only person
1:02:35
Speaker 3: in my building that might still get to paper newspapers,
1:02:37
Speaker 3: but because they're serendipity. When you're flipping through the newspaper,
1:02:40
Speaker 3: it's the article that you weren't looking for is where
1:02:42
Speaker 3: you learn something.
1:02:43
Speaker 2: Guess don't have that same discovery. And I am very
1:02:48
Speaker 2: aggressive looking for interesting things.
1:02:51
Speaker 3: Too, And I think you don't get that.
1:02:52
Speaker 2: You really don't.
1:02:53
Speaker 3: Economists is a great example. If you just get the
1:02:56
Speaker 3: Digital Economist and you just see the article in AI,
1:02:58
Speaker 3: I'm gonna read that. Guess what, I probably already know that, right,
1:03:01
Speaker 3: I'm reinforcing dollars that I have. Maybe I learned one
1:03:03
Speaker 3: tidbit that I didn't know. It's when you open it
1:03:06
Speaker 3: up and oh, there's this interesting article about nuclear that
1:03:10
Speaker 3: I don't know anything about, and I read it. Oh wow,
1:03:12
Speaker 3: this is maybe this is this is a this is
1:03:13
Speaker 3: a real tail risk. Maybe I should understand this.
1:03:15
Speaker 2: I will give you the one exception to this is
1:03:19
Speaker 2: The Times doesn't do this well, but the Wall Street
1:03:21
Speaker 2: Journal does. So you can go to the digital edition
1:03:25
Speaker 2: of the WALLSTREETWSJ dot com, but you could also click
1:03:29
Speaker 2: in today's paper and you get the breakdown by sections.
1:03:33
Speaker 3: And then you invest, and then you can kind of
1:03:35
Speaker 3: click and as you scroll.
1:03:36
Speaker 2: Through it, it's the equivalent of flipping the newspaper page
1:03:39
Speaker 2: where you get those oh I never would have.
1:03:41
Speaker 3: People always laugh. I show up on a news I'll
1:03:43
Speaker 3: show up on a plane and I've got my newspapers
1:03:46
Speaker 3: and they're like looking at me, like I'm like a Martian,
1:03:48
Speaker 3: you know, And I'm like, no, there's a reason.
1:03:50
Speaker 2: No, absolutely. And our final question, what do you know
1:03:54
Speaker 2: about the world of investing today that would have been
1:03:57
Speaker 2: helpful to know back in nineteen ninety five when you
1:04:00
Speaker 2: were first getting started?
1:04:01
Speaker 3: Well, well, I think a really important one. It applies
1:04:04
Speaker 3: to investing, but I also think it applies to life
1:04:07
Speaker 3: is oftentimes people don't trust their instinct because they don't
1:04:11
Speaker 3: think their instinct is a real thing. They think their
1:04:14
Speaker 3: instinct the gut. They have these words that people use,
1:04:17
Speaker 3: but The reality is it's micro slicing a lot of
1:04:19
Speaker 3: data that you've experienced over your life. Now, maybe at
1:04:22
Speaker 3: twenty one, your gut's not worth a lot. Okay, it's
1:04:24
Speaker 3: probably worth a lot in certain things, maybe some human
1:04:27
Speaker 3: interactions and things like that's probably not worth a lot
1:04:29
Speaker 3: in investing because you just don't have a database. But
1:04:31
Speaker 3: even at my age, you don't like you have this
1:04:34
Speaker 3: inclination to not trust your gut, Like there's something about
1:04:37
Speaker 3: this deal that just doesn't make sense. But oh, but
1:04:39
Speaker 3: the revenue looks good and the margins look good, and
1:04:42
Speaker 3: so I'll just overlook my gut. And I've just generally
1:04:45
Speaker 3: when I've overlooked my gut, it's not been. It's not been.
1:04:49
Speaker 3: It's it's not been a good thing.
1:04:51
Speaker 2: You mentioned pattern recognition earlier. Your intuition improves as.
1:04:55
Speaker 3: You get more experience, you get more experienced in.
1:04:57
Speaker 2: Wor now blank is perhaps overstates the case, but there's
1:05:01
Speaker 2: a lot, but.
1:05:02
Speaker 3: It's but it's I agree. I've read the book and
1:05:04
Speaker 3: I think it overstates it. But there's a there's something
1:05:08
Speaker 3: to start from there, you know, at the core. And
1:05:11
Speaker 3: then the second one is I think what we talked
1:05:12
Speaker 3: about earlier at times come. Bad times will invariably come,
1:05:16
Speaker 3: and good times will invariably follow, and you just have
1:05:19
Speaker 3: to have confidence that both are going to be there
1:05:21
Speaker 3: and that you're gonna learn from both.
1:05:23
Speaker 2: Devin, this has been absolutely fascinating. Thank you for being
1:05:26
Speaker 2: so generous with your time. We have been speaking with
1:05:30
Speaker 2: Devin PreK, Managing director at Inside Partners. If you enjoy
1:05:35
Speaker 2: this conversation, well check out any of the five hundred
1:05:38
Speaker 2: and fifty we've done over the past eleven years. You
1:05:42
Speaker 2: can find those at Bloomberg iTunes, Spotify, YouTube, wherever you
1:05:47
Speaker 2: find your favorite podcast. Be sure to check out my
1:05:50
Speaker 2: new book, How Not to Invest The Ideas, numbers and
1:05:55
Speaker 2: behaviors that destroy wealth and how to avoid them How
1:05:59
Speaker 2: Not to Best wherever you find your favorite books. I
1:06:02
Speaker 2: would be remiss if I did not thank the Crack
1:06:05
Speaker 2: team that helps put these conversations together each week. Alexis
1:06:09
Speaker 2: Noriega is my video engineer. Anna Luke is my producer.
1:06:14
Speaker 2: Sage Bauman is the head of podcast That Bloomberg. Sean
1:06:17
Speaker 2: Russo is my researcher. I'm Barry Ridhelts. You've been listening
1:06:22
Speaker 2: to Masters in Business on Bloomberg Radio.