Latest / trading places / TP12: Top Tier's Sean Engel 🎯 | AI Bubble? 🎈 | Data Centers 🏗️ | Kraken 💰

Transcript

TP12: Top Tier's Sean Engel 🎯 | AI Bubble? 🎈 | Data Centers 🏗️ | Kraken 💰 · trading places

• 0:00
  I think with Venture, the beauty of it is like when there are
• 0:02
  like the openings of liquidity, that's when you kind of get to
• 0:05
  harvest all that hard work that maybe wasn't obvious at moments
• 0:09
  of time. Long journey.
• 0:11
  Are we in a bubble right now? To like directly answer it,
• 0:14
  yeah, I mean, there are pockets of bubble playing out right now
• 0:17
  for sure. To generate a sufficient return
• 0:19
  on hundreds of billions to spend, you probably have to
• 0:22
  generate a trillions of revenue. The theme of core Weave doing
• 0:26
  well, Circle doing well, those are the biggest AI in crypto
• 0:29
  plays. Pessimists may be right, but
• 0:31
  they don't usually make money. Welcome to another episode of
• 0:56
  Trading Places, a very bad BC podcast.
• 0:59
  We're going to cover a lot of news this week.
• 1:01
  We saw a lot of continued deal activity on the IPO front.
• 1:04
  Is particularly dominated by AI and crypto companies.
• 1:08
  Corey Bin, Circle, just from a pure return standpoint, up over
• 1:11
  160% and 200%, pretty successful, but then we've had a
• 1:15
  few that didn't perform quite as well.
• 1:17
  What's your take on the IPO market I'm on?
• 1:19
  I think a summary of what we're seeing just based on your day
• 1:22
  performance, the winners in the for sure have this AI or crypto
• 1:26
  veneer. It's a bit of that fairy dust
• 1:28
  we've seen from private markets folding over into public
• 1:31
  markets. I guess they're taking the
• 1:32
  oxygen out of the room of some of the other potentially great
• 1:35
  companies. The theme of core, we've doing
• 1:37
  well, Circle doing well. Those are the biggest AI in
• 1:39
  crypto plays. Figma did well.
• 1:41
  That's a SAS company, but that was a little bit of a A1 off.
• 1:44
  Aside from that, I think the other ones that just didn't
• 1:47
  perform well, we saw a StubHub, Klarna, Chime didn't do well.
• 1:50
  So some fintech and e-commerce companies didn't do great.
• 1:52
  I guess the good news is the market is open and the deals are
• 1:54
  getting done, but they're also they're being left behind by the
• 1:57
  AI crypto players right now. OK, well let's dive into a few
• 2:00
  of these IP OS. Our our first one we're gonna
• 2:03
  talk about is a suffinked backed travel app called Clook.
• 2:09
  This will be an interesting one because it is not in the AI
• 2:12
  crypto space. So I guess it'll be a test just
• 2:15
  to see how the markets are performing.
• 2:17
  If you are a plain old digital travel company, it's it's
• 2:21
  positioned them, they're positioned themselves to be a
• 2:23
  digital experience company targeting millennials who really
• 2:27
  want to travel. They are generating 3 billion in
• 2:30
  gross transaction volume. They're 540 million in revenue
• 2:33
  in the past 12 months. They're growing pretty quickly.
• 2:36
  So 40% year over year. And they're and they're not
• 2:39
  quite profitable, but they are profitable and an Adjusted
• 2:42
  EBITDA basis, which is the, which is all the rage.
• 2:45
  We'll see where they where they go.
• 2:46
  My, my guess is they'll probably get a $4 billion market cap,
• 2:50
  which is something like 10 times sales.
• 2:52
  I think if that happened, given the category and the fact there
• 2:55
  isn't a strong AI story around them, I think that would be
• 2:58
  really great. One thing to think about in the,
• 3:00
  in the, in the positioning of this company, they declare
• 3:04
  revenue, but you really have to look at gross profits for a
• 3:07
  company like this. And the reason is they have a
• 3:10
  combination of first party and 3rd party sales.
• 3:12
  So they're paying out to suppliers and affiliates and
• 3:15
  commissions and there's also payment processing costs.
• 3:17
  So one thing that should be a really good job of in the rest
• 3:19
  one is to go through this gross profit yield number.
• 3:22
  And that's going to be the most important one for me as an
• 3:24
  investor to see. So it's really it's 10 times
• 3:26
  revenues, but it's more like 15 times gross profits and for
• 3:30
  growing profitable company non AII think that would be I think
• 3:33
  that would be a really good sign for them and the market if they
• 3:36
  could pull that off. Didn't we just have another
• 3:38
  travel company go public? Yeah, we did.
• 3:40
  And Ivan had a, they had an IPO. It was relatively successful.
• 3:43
  They had some performed as well as some of the others, but they
• 3:45
  also got out. I think they're in a, they're in
• 3:47
  a similar space, in a similar category.
• 3:49
  And so if this one gets out, then that'll be another positive
• 3:53
  in this in this category in general, which is just a growth
• 3:55
  area, companies growing Nivan is priced at something more like an
• 3:58
  8 times sales and maybe a little bit light and a $600 million
• 4:02
  revenue rate. So about the same as where this
• 4:04
  company is very similar. They're just a, they're actually
• 4:07
  more of a SAS platform. And so I think have a little bit
• 4:10
  more stickiness in their, in their revenue than these guys.
• 4:13
  But most of those are high quality companies growing well,
• 4:15
  getting close to break even, just they don't have that, that
• 4:17
  AI veneer. So, yeah, I guess, you know, for
• 4:20
  the companies there aren't shiny objects for other reasons.
• 4:23
  The new bar for going public seems to be around 500 million
• 4:27
  plus or minus. Certainly growth at north of
• 4:29
  2030%, whether profitability is happening or at least on the
• 4:33
  horizon, that's that's important.
• 4:34
  So that that seems to be kind of the range that we're seeing for
• 4:37
  these companies going public. That's a lot higher revenue
• 4:40
  number than, you know, 5-10 years ago.
• 4:42
  I think we're seeing that these companies are taking far north
• 4:45
  of 10 to 12 years to go public, even closer to 15 years to go
• 4:48
  public in some cases. OK, I want to flip over to a few
• 4:52
  other IPO stories that these two coming up are both Indian IPOs.
• 4:58
  Pine Labs is a company that raised 440 million in an Indian
• 5:02
  IPO, valued the company between 3 to 4 billion in market cap.
• 5:07
  I believe the company was doing close to 300 million in revenue,
• 5:12
  a little bit lost generating last year, but now recently
• 5:14
  profitable. So that's a pretty big IPO for
• 5:17
  the Indian market. And then another one is grow
• 5:21
  GROWW, they raised 750 million, I believe they were valued at
• 5:26
  around 9 billion and over 400 million revenue, over 200
• 5:30
  million in net profit. I guess companies can go public
• 5:32
  on the Indian market for much lower market caps than in the
• 5:35
  US, maybe only, you know, 3050 million in revenue compared to
• 5:39
  you know 500 million we're talking about in the US market.
• 5:42
  But these two companies are both doing kind of numbers that would
• 5:46
  put them on the potential, you know, IPO for a USIPO company, 3
• 5:50
  or $400 million. Is that odd to you that they've
• 5:53
  chosen to go public in India rather than the USA?
• 5:56
  Year ago, I think I would have said yes.
• 5:59
  It seems like the US is going to have deeper markets, more
• 6:02
  liquidity and a better appreciation for tech stories.
• 6:06
  I guess it, this is now a sign that the Indian, the growth in
• 6:09
  the Indian market now has enough local investors in enough
• 6:12
  liquidity that you can still support a valuation for a
• 6:15
  company like this. It still has to be a story
• 6:17
  that's familiar to that market. I think both these stories are
• 6:20
  they're tech, but they're not like deep tech, big prospective
• 6:23
  revenues like some kind of AI dreamer scheme.
• 6:27
  These are like IT services and and well run businesses that are
• 6:30
  growing and have a line of sight to profitability.
• 6:32
  Grow is already already profitable.
• 6:34
  It looks like Pine Labs kind of, kind of sort of got there if you
• 6:37
  squint hard enough and and understand the maybe the
• 6:40
  quarterly dynamic. So under the right conditions,
• 6:42
  it seems like India is providing liquidity now, which is it's a
• 6:45
  little bit of a, it's a very good story for them and a little
• 6:48
  bit of a new thing. But it does suggest that there's
• 6:50
  going to be a lot of activity there going forward.
• 6:51
  Do we think that the Indian IPO market is going to be
• 6:54
  competition for the USI? Think so.
• 6:56
  I think the listing requirements that you just described in the
• 6:59
  US in addition to the regulatory scrutiny, it's a pretty high bar
• 7:02
  for a lot of companies in in India to climb.
• 7:05
  So if they can find a liquidity exit on their national Stock
• 7:09
  Exchange, then that's probably a preferable place for them to
• 7:13
  list. What they may do in the future
• 7:14
  is cross list in New York or as they scale, they would relist in
• 7:17
  New York. I think that's another, that's
• 7:19
  another viable path that I can I can see happening.
• 7:22
  But this, these are this is evidence that there's a viable
• 7:24
  market there. And that was, as I said, not
• 7:26
  true even two years ago. It's a pretty interesting story,
• 7:29
  not just that smaller market cap IP OS are happening in India,
• 7:33
  but now a few larger market cap IP OS that maybe are starting to
• 7:38
  rival the the US market. The one to watch there's going
• 7:41
  to be Flipkart, by the way, which is not yet listed its IPO,
• 7:44
  but it's looking like they are considering where to list.
• 7:47
  If they list in India, that would be another very big
• 7:49
  positive move for the Indian stock market.
• 7:52
  We are everywhere, one. The moon and nights control all
• 7:55
  your wireless devices. Wall Street Journal came out
• 7:59
  with a recent set of charts. This chart talks about data
• 8:03
  center build out from a capacity standpoint.
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  The darker grey portions at the bottom are capacity that's built
• 8:11
  or underway and then the lighter grey is planned.
• 8:16
  And you can see that prior to 22 was pretty small amounts, I
• 8:20
  guess probably, you know, less than 5 gigawatts of capacity in
• 8:25
  22 and 23 looked like, you know, somewhere around 10 gigawatts of
• 8:29
  capacity was either built or underway.
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  And then in 24 and 25, close to 20 gigawatts of capacity being
• 8:36
  built out, but another 20 gigawatts of planned in 24.
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  And then a huge amount, 60 gigawatts being planned in
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  addition to the 10 gigawatts of capacity that's underway or
• 8:48
  built. And I guess I wonder how much of
• 8:51
  that that is planned is actually possible.
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  But that's a crazy amount of ramp in terms of planned
• 8:58
  capacity. If we look at spending, I think
• 9:01
  we've seen this graph a couple times before from the top four
• 9:05
  major hyper scalers, over $100 billion a quarter being spent by
• 9:09
  Amazon, Microsoft, Alphabet and Meta as a percentage of sales of
• 9:13
  those companies, between 20 to 35% of sales.
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  And a lot of that build out is now being fueled by debt, not
• 9:21
  just cash on hand, but by debt. And some of that debt is being
• 9:24
  raised by other folks than just those four.
• 9:27
  I think Oracle also had raised a huge amount of debt to sort of
• 9:31
  build out some of their capacity.
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  The sum of it is if I'm a capacity planner or if I put my
• 9:36
  CFO hat on, the planning that these tech companies are doing
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  is the easy part. Then when you actually break
• 9:42
  ground and start building the data centers, it is reality sets
• 9:45
  in, right? And what I think what we'll see
• 9:47
  is the constraints on space, on energy.
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  This is all stuff that's going to take 5 to 10 years for the
• 9:54
  infrastructure to provide the capitalist there.
• 9:56
  That's the good news. So they can raise money for it.
• 9:58
  Remember when Meta tried to raise this kind of money for the
• 10:01
  metaverse and rebranded themselves, they the investors
• 10:03
  box in the stock market, the stock tanked and they couldn't
• 10:06
  raise money for it. And then there certainly was no,
• 10:08
  no debt capability for it was all equity and off their balance
• 10:11
  sheet. And then they, they reverted.
• 10:13
  Now they've moved over to AI and the markets, obviously the debt
• 10:15
  markets are giving them money. It seems like they're having no
• 10:18
  trouble raising, raising the capital.
• 10:20
  So that's, I guess that's one potential constraint that's just
• 10:23
  not happening. But I think the build out and
• 10:25
  the energy are going to be the major constraints and it's going
• 10:27
  to take probably 5 to 10 years to build this out.
• 10:29
  And so that's that's really the way to think about the
• 10:32
  amortization of this spend. I think they.
• 10:34
  Did a nice job here kind of visualizing the current global
• 10:37
  capacity, at least for data centers.
• 10:40
  That's a little over 70 gigawatts today.
• 10:42
  And I think they were highlighting that the entire
• 10:45
  electrical production of the UK is about half that.
• 10:49
  So just to give you a sense of scale, you know, current data
• 10:52
  center capacity is twice the annual electricity usage for the
• 10:56
  entire country of the UK. Yeah, pretty, pretty big.
• 10:59
  And then you know projected new capacity coming online in the
• 11:03
  next year, maybe another 20 gigawatts of capacity.
• 11:08
  So that's that's about a 15% growth on year on year.
• 11:12
  And then in 27, maybe not quite another 20 gigawatts, although
• 11:15
  that number may be, you know, increased in the future, but
• 11:20
  that doesn't seem like our capacity build out is growing as
• 11:24
  fast as that spent. You noted last week's episode
• 11:27
  that demand is certainly there and every amount of excess
• 11:32
  capacity coming online is being used by those 4 hyperscalers.
• 11:36
  As you mentioned, there's some, there's some physical
• 11:38
  limitations, maybe not financial limitations, but physical
• 11:43
  limitations in terms of build out and power capacity that's
• 11:46
  needed for that expansion. Yeah, I think that's right.
• 11:50
  I think what, what what I would note is there's a couple of
• 11:53
  possible constraints on this growth there.
• 11:55
  None of these guys are demand constrained.
• 11:57
  I mean NVIDIA could probably double their GP of production
• 11:59
  tomorrow and still be capacity constrained.
• 12:02
  They are literally letting up all their GP OS.
• 12:04
  The moment GPU is the moment that they roll off the assembly
• 12:08
  line if you will. So what would the constraints be
• 12:11
  then? Well, 11 would be capital to
• 12:14
  spend, you know, 100 billion a quarter for 500 billion a year
• 12:18
  on this on these CapEx projects is 1 constraints between the
• 12:23
  cash on their balance sheet and their ability to raise debt.
• 12:25
  Doesn't seem like that's a constraint right now.
• 12:27
  But I think US electricity production is, is not something
• 12:30
  the industry can solve in the next 5 years.
• 12:32
  It might take 10 to 15 and there'll be other bottlenecks
• 12:35
  too like construction permits and connecting the you know the
• 12:38
  turbines to natural gas and everything else that's involved
• 12:41
  in in building this. So it's a 10 to 15 year project.
• 12:44
  I think that's the way to think about these plans at the
• 12:46
  generate sufficient return on hundreds of billions to spend.
• 12:50
  You probably have to generate like trillions of revenue off of
• 12:53
  this. And think about what you know
• 12:55
  what that means. They if, if you can, if you have
• 12:57
  to generate, let's say even 500 billion a year in revenue or 600
• 13:01
  billion revenue to justify this, that's like Apple's yearly
• 13:04
  revenue more than Apple's yearly revenue, right?
• 13:06
  And, and open AI is nowhere close to Apple right now in
• 13:08
  revenue. So the at some point the
• 13:10
  financial constraints will kick in and the, the prospective
• 13:14
  returns will become an issue. But we're not.
• 13:15
  We're not there yet, seems. Like there's no end insight for
• 13:19
  these companies spending money that market seem to be
• 13:23
  supporting that spend. Oracle to a huge extent is
• 13:27
  leveraging up debt to do that. Oracle, the data center build
• 13:29
  out, I just feel like the capacity is going to hit us at
• 13:33
  some point And you know that capacity can be built out
• 13:36
  outside the US It doesn't have to be exclusively in the US
• 13:39
  We're seeing build out in Europe for sure.
• 13:41
  And I would guess we're going to start seeing build out in Asia
• 13:44
  and other parts. But the elephant of the room
• 13:46
  might be China. China's been ramping up their
• 13:49
  energy generation dramatically. Yeah.
• 13:53
  Do we think that China? Would reserve that energy for
• 13:55
  its own data center build out? Would they allow use of their
• 13:59
  power generation for US based hyperscaler build out?
• 14:03
  Are we going to see any daytime there or not, you know?
• 14:06
  Given the national security implications of AI and
• 14:08
  everything they're doing, it seems like if you could build it
• 14:11
  in aligned countries and you would probably count some
• 14:14
  countries in, you know, in Southeast Asia as AUS aligned
• 14:17
  country. But but it's also got to be a
• 14:19
  place where it's not only aligned with the US, but also
• 14:22
  you've got control over the resources that you've got first
• 14:24
  stabs on what's being produced some kind of control over their
• 14:27
  agreements with China. Because I don't think right now
• 14:29
  our governor current posture, we would want any of the output
• 14:33
  from the data centers or the other the the energy being
• 14:36
  controlled by China or the results of the inference models
• 14:40
  going to China. Not well, we're in this semi
• 14:42
  adversarial position. So it doesn't seem like that's
• 14:45
  nurse read it in money's. Green I'm on and both countries
• 14:49
  would benefit money by. The way is not green in China.
• 14:52
  I think it's red and white. But that aside.
• 14:56
  But that aside, I think maybe the compromise is there are
• 14:59
  aspects of the artificial intelligence boom and build out
• 15:02
  that do have a national security implication.
• 15:04
  And there's going to be a short list of what those applications
• 15:06
  might be. Things that the government uses
• 15:08
  or things that have certain information about citizens or
• 15:12
  personal information or maybe in the security space, but they're
• 15:16
  all kinds of other applications for AI that don't have that same
• 15:20
  application, right? Or that national security
• 15:22
  sensitivity. And we can, if we can
• 15:24
  collaborate on those things and then just limit what, you know,
• 15:26
  what China gets out of the output.
• 15:29
  That to me seems like a much more sensible approach.
• 15:31
  And I hope that's, I hope that's where we land because we do
• 15:33
  need, we do need capacity, we need energy, we need space.
• 15:36
  We need all kinds of things that China would be a very valuable
• 15:39
  partner on. By the way, they're standing up
• 15:41
  10 nuclear power plants a year, right?
• 15:42
  And they have built this new Gen. 4 nuclear, nuclear plants,
• 15:45
  and they're all in on nuclear, They're all in on solar.
• 15:48
  I mean, they also have a more diversified energy footprint
• 15:50
  than than we do. Well, there's benefit to that
• 15:52
  too, I think. If you believe, you know, recent
• 15:55
  reports of solar growth in China and, and Elon has pointed this
• 16:00
  out as well, that China is really just ripping on solar
• 16:04
  production and to the point where it's pretty clear in the
• 16:07
  future that's going to be the majority source of power.
• 16:10
  I mean, it's not right around the corner, but certainly from
• 16:13
  the build out that China's doing that's outpacing nuclear and
• 16:16
  outpacing any other category. Well, be interesting to see
• 16:20
  there if there's any. I think with Bike Dance, we seem
• 16:24
  to have found, you know, Detox and you know that that company
• 16:28
  is we cut a deal there. So I I wonder if there's some
• 16:33
  room for negotiation in the future where everybody wins
• 16:36
  we're. Going to come up with some other
• 16:37
  wicked barbs to berate you with, but until then, choke on your
• 16:41
  pathetic excuse for entertainment.
• 16:45
  It's some. Pretty big news about SoftBank
• 16:48
  selling its entire stake in NVIDIA for close to 6 billion.
• 16:51
  I I believe this was motivated by their desire to invest some
• 16:55
  of that capital in open AI. But this is not the first time.
• 16:58
  In 2019, SoftBank sold their entire stake in NVIDIA for $3.3
• 17:04
  billion, which would have been worth over 150 billion if they
• 17:09
  had held onto it. Wow.
• 17:12
  I think they later got back into NVIDIA, but they certainly may
• 17:16
  have missed a good bit of that run up in Nvidia's value over
• 17:20
  the last couple years. This that sale happened back in
• 17:22
  2019. I think the run up in NVIDIA
• 17:25
  evaluation started happening more in 2022 or so, yeah.
• 17:28
  I've heard of Myers remorse. Is sellers remorse a thing?
• 17:31
  I guess it. I guess it must be.
• 17:33
  Pretty big seller's remorse that that missed game might be
• 17:37
  equivalent to almost the entire market cap of SoftBank, yeah.
• 17:41
  SoftBank now is they've had a tremendous run over the past six
• 17:43
  months, but I was critical of SoftBank in 2021 and some of
• 17:46
  their strategy, but I got to give them credit.
• 17:48
  They're 180 billion market cap right now.
• 17:50
  I think 80% of that is probably ARM because they're the majority
• 17:54
  holder in in ARM. And is that a tremendous run?
• 17:56
  I guess if they hadn't sold NVIDIA then they'd be worth
• 18:00
  another, you know, 150 billion on top of that.
• 18:03
  But the other, the other bet they've made now is open AI.
• 18:05
  So obviously that's the one that they think is the is the next
• 18:08
  big wave. And they're they're all in on
• 18:10
  artificial intelligence. So between ARM and open AI now,
• 18:13
  that's going to be the majority of their, of their market cap.
• 18:16
  Yeah, well. I think it's not surprising that
• 18:20
  Massey Shoshone likes to make big bets.
• 18:22
  Sometimes those big bets go well, sometimes they don't.
• 18:26
  You know, Alibaba was a huge win for him way back.
• 18:29
  I think he's been the world's richest man, you know, a couple
• 18:32
  times in the past. Maybe this bet will work out.
• 18:35
  But I bet you he he probably would have wanted to hang on to
• 18:38
  some of that NVIDIA stock that they sold 5-6 years ago.
• 18:43
  Speaking of world's richest man, I think Elon Musk is also
• 18:48
  raising a new round of capital. I guess this is continuation of
• 18:53
  a round that was being raised previously.
• 18:54
  They raised about 10 billion back in September at a $200
• 18:57
  billion evaluation. Now they're raising another 5
• 18:59
  billion at that same valuation. Although Elon is calling the
• 19:04
  news false, but this seems to be somewhat well researched.
• 19:09
  I'm on that $200 billion evaluation for XAI.
• 19:12
  Do you think that's justifiable, that that's getting into
• 19:15
  anthropic territory, maybe not quite open AI territory yet?
• 19:19
  Yeah. Well, I don't know Open, Open
• 19:21
  AI, let's start with them. So they, their last declared
• 19:24
  revenue number at Open AI was 13 billion in ARR.
• 19:28
  They are planning on 20 at the end of the year and they are at
• 19:31
  a $500 billion evaluation. Anthropic is something like 7 or
• 19:35
  8 billion in ARR at a $300 billion evaluation.
• 19:38
  So X dot AI is in, it's in the big leagues.
• 19:41
  I don't think the revenue though is anywhere near Anthropic.
• 19:44
  Not it's certainly not near open AII don't think it's anywhere
• 19:46
  near Anthropic though, right? They're they're still low to mid
• 19:49
  single digits as as part of the last declaration.
• 19:52
  I don't think we know a lot about the X AI revenue.
• 19:54
  Rumors are that 2024 was somewhere between 100 million to
• 19:57
  a billion. That's that's quite a big range
• 19:59
  in 2025. We're hearing numbers that might
• 20:02
  be in the one to $3 billion revenue range.
• 20:04
  But even at the top end of that, we're talking about almost A70X
• 20:09
  multiple to get to that $200 billion evaluation that.
• 20:12
  That seems like that's more a bet on Elon than the company's
• 20:17
  revenue or growth. Do we think that XAI is in the
• 20:21
  same category at least, you know, going forward?
• 20:24
  I I know there's been some rankings of Grok, you know, that
• 20:28
  have been, you know, top of the list in terms of performance.
• 20:32
  Yeah, but they're certainly not there in terms of revenue yet.
• 20:35
  But but Elon is a Elon is a force that we might not want to
• 20:38
  bet against that's incapable of raising, raising money.
• 20:42
  I just wonder if they're, you know, really we talked about two
• 20:45
  horse race between open AI and Anthropic.
• 20:48
  Is XAI the third horse in that race?
• 20:50
  And do we think they're going to get into that sort of range of
• 20:53
  revenue in the future the way we?
• 20:55
  Talked about it in our little valuation corner last time was
• 20:57
  open. AI seems to be way ahead now on
• 20:59
  the consumer side. I don't think there's any, don't
• 21:02
  think there's any catching them. Anthropic has got a very strong,
• 21:05
  but more of an enterprise focused offering and clawed X.
• 21:08
  The benefit of X is they have a tremendous amount of data on
• 21:12
  Twitter, what used to be called Twitter, I guess what is now X
• 21:15
  and, and who knows what they'll call it in the future, But they
• 21:18
  do have a lot of assets and there are potentially that
• 21:20
  potentially makes it a a very valuable player in the space.
• 21:23
  I don't know that it's just going to be a A2 horse race or
• 21:26
  three horse race. They'll be multiple winners that
• 21:27
  will specialize in different categories and and maybe Grok
• 21:30
  can offer an advantage and a an emphasis in an area where the
• 21:34
  others just aren't going to aren't going to be a solid.
• 21:37
  So 200 billion sounds like a, as you said, a crazy high, crazy
• 21:40
  high number. But it's so early for them and
• 21:43
  Elon is such a force. I wouldn't want to bet against
• 21:45
  them given. All this attention on AI
• 21:49
  companies raising from private markets and huge valuations,
• 21:53
  maybe the retail market would be interested in getting in on
• 21:56
  this. Robin Hood, which is a publicly
• 22:00
  traded company is going to allow retail investors to put money
• 22:06
  into AI startups through the creation of a fund that is I
• 22:10
  guess a collection of private tech companies.
• 22:14
  Do we think that's an interesting trend and are other
• 22:17
  people doing that as well? Aman is that is that going to
• 22:20
  increase retail markets access to private company growth?
• 22:26
  Yeah, I think so. I think it's AI think it's a
• 22:28
  really positive trend. I think as we've noted in the
• 22:30
  past, the the public markets have been shrinking.
• 22:33
  They've been shrinking for for decades now.
• 22:35
  And the number of private companies in the US that are
• 22:38
  look at a billion plus have been multiplying.
• 22:41
  Back in like, you know, 2010, we probably had a half dozen
• 22:45
  companies that were that were like private more than a
• 22:47
  billion. And now there's now there's a
• 22:49
  thousand of them. And so for private markets to be
• 22:51
  a private investors, to be able to, sorry, for retail investors
• 22:55
  to be able to invest in private markets, I think it's going to
• 22:58
  be a big plus. And obviously AI is going to be
• 23:00
  a trend. So, you know, part of me is
• 23:02
  thinking, why should that just be the province of big
• 23:03
  institutions and venture capital funds, right?
• 23:06
  If you want to invest in Elon or other AI startups, why shouldn't
• 23:09
  you be allowed to do that? And I think what Robin Hood will
• 23:11
  do is they'll create a exchange traded fund, so a, an ETF that
• 23:15
  then invests in, in these startups.
• 23:17
  Presumably they're going to go capture some kind of a
• 23:19
  management fee on it. I don't think they'll be able to
• 23:21
  capture carry on it. There are SEC restrictions
• 23:24
  against carried interest if you're a public vehicle, but
• 23:27
  opening up access to the the private market for AI fund seems
• 23:31
  like that's that's a product that will sell really well with
• 23:33
  them. I guess maybe Kathy Woods, Arc
• 23:37
  Ventures, Kathy Wood has a public vehicle that allows some
• 23:41
  investment in private companies. And then Destiny XYZI think is
• 23:46
  another much smaller publicly traded fund that allows access
• 23:50
  to private investments. But I don't think we've seen
• 23:53
  really significant investments in private companies through a
• 23:58
  public vehicle today. It's difficult.
• 24:01
  Because of the regulatory reasons and the fact that you've
• 24:03
  got to be a credible accredited investor to get on to the cap
• 24:06
  tables of those companies, it is difficult to get access to the
• 24:09
  companies. I guess if we're Kathy Wood or
• 24:11
  you know, someone like that, you can, you can do it, but the best
• 24:13
  start-ups don't often want retail interest.
• 24:15
  But I think Robin Hood's different.
• 24:17
  They've done a great job of being able to make these
• 24:20
  exchanges and and the trading process accessible to a whole
• 24:23
  generation of new investors. So their user experience and I
• 24:26
  think their distribution will be a big a big plus and they have
• 24:29
  enough credibility to get into the best AI startups as well.
• 24:31
  So I think they'll do great with that product you.
• 24:34
  Just wasted $3, no? It's 1999, what for this
• 24:39
  robbery? No, this is nothing but a
• 24:42
  pathetic cash grab. Theaters rejected it.
• 24:46
  So we're going to cover a couple of primary round raises, two
• 24:49
  companies in particular, Cursor and Lovable.
• 24:53
  Cursor is raising $2.3 billion funding around at a $29 billion
• 24:57
  evaluation. Wow, that's up substantially
• 25:00
  from a value that they raised earlier in the year I believe.
• 25:05
  And another coding platform called Lovable is in talks to
• 25:08
  raise it a $6 billion evaluation.
• 25:10
  That's also up from a pretty substantial previous valuation
• 25:14
  in the one to $2 billion mine. What's what's similar about
• 25:17
  these companies are different and are these reasonable
• 25:20
  evaluations? That's a.
• 25:21
  Good question. I think for cursor, yes, I mean
• 25:24
  that's a big number they're raising at 29 billion that puts
• 25:26
  them into a rare, rare fried territory.
• 25:29
  It was just a handful of deck of corns and and AI.
• 25:31
  We mentioned a couple now open AI and the Tropic and X dot AI
• 25:34
  and there's only maybe two or three others.
• 25:37
  They have been growing at a rate that it's it might be the
• 25:40
  fastest startup ever. They were at 100 million in Arra
• 25:44
  year ago. They were at 1,000,000 a year
• 25:47
  before that. So to go from 1,000,000 to 100
• 25:49
  million to a billion in ARR now in the space of maybe three
• 25:52
  years, it's kind of amazing. Their, their lead investors are
• 25:56
  Thrive Capital in A16Z and Excel and, and DST.
• 25:59
  And if you go back to a, there was a squawk box in, in October
• 26:03
  where Jensen Huang said, hey, this is my favorite enterprise
• 26:05
  AI service. So it seems like they're at a 30
• 26:07
  billion valuation there, about 30 times this year's ARR, which
• 26:11
  puts them in that in that handful of elite companies.
• 26:14
  One of the bigger stories that's been happening in the last year
• 26:17
  or two is Thrive Capitals increase in capital under
• 26:21
  management and the bets that Josh Kushner has been making.
• 26:25
  I think you would probably suggest that Thrive capital is
• 26:28
  starting to be in the same category of rarefied errors like
• 26:31
  Sequoia and Founders Fund, Lightspeed and Andreessen.
• 26:35
  It's it's a huge amount of capital under management and
• 26:38
  people really look at Kushner as, you know, kind of having a
• 26:43
  pretty amazing amount of sense and taste in picking big winners
• 26:47
  early, correct. Yeah, he's, he's, he's, he's
• 26:51
  amazing. And he's gotten a really good
• 26:52
  reputation. Lovable.
• 26:54
  Is a little bit more of a vibe coding than a more serious
• 26:56
  developer platform, but still growing quite a bit of revenue,
• 27:01
  over 100 million in revenue kind of in just eight months since
• 27:04
  launching. So again, kind of crazy from
• 27:07
  zero to 100 million in revenue in just a year, both of these
• 27:12
  companies have had that kind of crazy trajectory.
• 27:15
  Yeah. Do you understand what vibe
• 27:17
  coding is? Do you know, do you know what
• 27:18
  that means? I see that and I don't really
• 27:20
  know how to, I don't know how to explain that to my mom.
• 27:22
  Like what is a vibe coding? I I think it's called vibe
• 27:26
  coding because you have the vibes for what the product
• 27:30
  should be, but you're not really a software developer.
• 27:33
  Like again, I'm not sure if that's legitimate reason to
• 27:37
  suggest it's a great company, but it certainly seems like
• 27:41
  people are paying them for those capabilities.
• 27:44
  All right, our last news item here is a company called Gamma,
• 27:48
  which offers an AI powered PowerPoint company, again doing
• 27:53
  over 100 million in revenue is raising at a 2 billion dollar
• 27:57
  $2.1 billion evaluation. That's that's not that crazy.
• 28:00
  I guess this company Gamma is about 5 years old but has
• 28:03
  doubled revenue from 50 to 100 million in AR in less than a
• 28:07
  year. I guess it took them a couple
• 28:10
  years to grow to 50 million in AR and there are profitable but
• 28:16
  pretty frugal. I think only maybe cost them 5
• 28:20
  million to kind of get off the ground and get their revenue up.
• 28:24
  Not exactly new to the AIC and they were found in the late 2020
• 28:28
  and launched their first product in 22.
• 28:31
  I guess what's also notable about the round is there's a $20
• 28:33
  million secondary offering as part of that.
• 28:36
  They seem to. Be a much more reasonable
• 28:39
  evaluation to me. They're 100 million in revenue
• 28:43
  ARR, but they're growing at basically a a double rates.
• 28:46
  They have been profitable. Their CE OS Grant Lee just had a
• 28:49
  a very good and I think very charming podcast with A16Z on
• 28:54
  their podcast. You should check him out.
• 28:57
  And he was talking about how they were just trying to figure
• 28:58
  it out and, and 21/22 it was basically in a PowerPoint
• 29:03
  killer, a new application that would just help with
• 29:05
  presentations. But they, they brought
• 29:07
  incorporated AIA little bit later.
• 29:09
  They did a Series A back in 2021, did another one in 2024.
• 29:13
  I think Excel LED both of those. And then, and now the business
• 29:17
  is really taken off and, and now that justifies their new
• 29:20
  evaluation. So on a multiple basis and
• 29:22
  given, you know, rate of progress and growth, it seems
• 29:25
  like a, a much more reasonable evaluation than some of the
• 29:27
  other guys we've talked about. Grant had said that they
• 29:29
  actually had more in cash, more cash in the bank at the end of
• 29:32
  last year than they had raised to date.
• 29:34
  So they've been profitable and cash flow positive.
• 29:35
  And and that's, you know, that's, that's amazing too.
• 29:38
  To see an entrepreneur like Grant pull that off is, is kind
• 29:43
  of amazing. So very cool company and I think
• 29:45
  they will do it seems like they will do great.
• 29:47
  They have to get across the chasm now from consumers to
• 29:50
  enterprise. But amazingly, we have 70
• 29:52
  million users, which I didn't, didn't realize, which is I mean,
• 29:56
  as an example, Canva has 250 million users.
• 29:58
  So they're they're well on their way to being a a huge company.
• 30:10
  Welcome to the show Son Engel from Top Tier Capital.
• 30:13
  I'm sure you're a great VC on our very bad podcast, but would
• 30:17
  love to hear more about your journey into venture, what top
• 30:20
  tier is all about. And I guess you guys do
• 30:22
  accommodation of both fund of funds and some direct and some
• 30:26
  secondaries. I was a.
• 30:27
  Senior at Berkeley and trying to figure out kind of where I
• 30:30
  wanted to take my career. Thought I wanted to be a lawyer.
• 30:33
  Then shifted Gears of, OK, maybe do the traditional investment
• 30:36
  banking route, and then was able to get introduced to the team at
• 30:40
  top tier. They were running a new analyst
• 30:43
  program where they wanted to hire folks at undergrad that
• 30:46
  maybe weren't tainted by perceptions of what venture
• 30:49
  Apple was and more. Kind of naive and could be
• 30:52
  coached really. Risen through the ranks, I
• 30:55
  guess, you know, started from the bottom, now you're here 15
• 30:58
  years at top tier and now you're a general partner and running
• 31:01
  the show. What what's kind of changed over
• 31:04
  those 15 years? I mean, you, you started around
• 31:07
  2010, you said was Yeah, that's right.
• 31:09
  A lot of those funds kind of our 2005, 2002 vintage funds, we're
• 31:14
  all sitting at kind of like a 1.2 X.
• 31:16
  And I mean me being naive and kind of sitting there being
• 31:20
  like, man, like I don't like we got to figure out how this is
• 31:22
  going to work at some point. And like the IPO market was, was
• 31:25
  certainly shut. And so it wasn't obvious at the
• 31:29
  time, but what, what we, we were doing.
• 31:32
  And I give credit to my partner, Jessica at the time, who was
• 31:34
  definitely more of the, the math major on our team was like,
• 31:38
  well, we know that there's revenue growth happening these
• 31:39
  companies and, and maybe they're not getting marked up or maybe a
• 31:43
  lot of portfolios are still sitting at 1X, but we know value
• 31:46
  accretion is happening. I think with venture, the beauty
• 31:48
  of it is like when there are like the, the openings of
• 31:51
  liquidity, that's when you kind of get to harvest all that hard
• 31:53
  work that maybe wasn't obvious at at moments of time along the
• 31:57
  journey. I was just to say you.
• 31:59
  Guys primarily focus on being LP's and you know, other VC
• 32:03
  funds is that focused on emerging managers or more, you
• 32:07
  know, later stage series AB and C firms and and then you also
• 32:11
  have, you know, a direct Co invest program where yeah, do
• 32:15
  those kind of start at the same time and you know.
• 32:18
  Different, yeah. So we started and and I think
• 32:20
  still best known as being a venture fund funds.
• 32:22
  And so that's what we've been doing the longest.
• 32:25
  We're our predecessor firm Paul Capital is what we spun out of
• 32:29
  back in 2011, same team that spun out that got formed back in
• 32:33
  the early 2000s. And so all that kind of track
• 32:35
  record and those relationships and LP's came with us when we
• 32:37
  spun out. And so they've been doing that
• 32:40
  the longest and we have been doing some secondaries in that
• 32:44
  there was more to gain access to certain managers and so more of
• 32:47
  the unfunded kind of season primary type approach.
• 32:50
  Really in 2012 is when we kind of made a dedicated notion of
• 32:56
  this, this velocity concept. And it really was to help
• 32:59
  generate performance and liquidity a little bit earlier
• 33:01
  in our fund of funds vehicles. And so that was the original
• 33:04
  premise of like starting this activity was more like, hey, if
• 33:07
  we're going back to Mercury kind of every couple years and and
• 33:10
  ventures grade. But the J curve purely from a
• 33:13
  performance and liquidity standpoint can be kind of brutal
• 33:16
  and like the first kind of five, five years.
• 33:18
  And so being able to show like a little bit of progress.
• 33:22
  And so when we're able to like go ask our LP's to keep support
• 33:24
  us like showing some signs of performance life kind of 2-3
• 33:28
  years in this kind of helps. And we also thought just there
• 33:32
  was some opportunistic things to do.
• 33:34
  And so from kind of 2010 onward, we we started incubating that
• 33:40
  strategy within our fund of funds, call it a 15 ish percent
• 33:44
  of the capital. So small like relatively small
• 33:46
  amount or fund sizes are about 500 to 600 on average for the
• 33:51
  last kind of 15 years. We started doing that really
• 33:54
  also just kind of saying, hey, what are portfolios that are
• 33:57
  interesting inflection points? What's, what's kind of double
• 34:00
  down by by some of those we're kind of averaging on like about
• 34:03
  year 9 of entry point. And then on the call investment
• 34:06
  side, similar to a lot of other LP's that have gone to this
• 34:09
  route, it's hey, what, what are can we fill out some rounds?
• 34:11
  Can we be a supportive LP in some cases?
• 34:14
  And so that activity started. We were able to have some
• 34:17
  success along the way with some, some exits like like a like a
• 34:20
  smartsheet, things like that that generate north of AA10X for
• 34:24
  us that allowed us to show enough of a track to then
• 34:28
  subsequently raise a dedicated pool capital in 2014.
• 34:31
  That really was just this kind of hybrid fund of of of
• 34:34
  secondary and Co investments. And so then that that capitals
• 34:38
  kind of scaled over the years. Our our latest fund that we
• 34:42
  raised in 2021 was a little over 500 million in size do.
• 34:47
  You are you a different thought process when you're looking at,
• 34:50
  you know, code invests direct versus secondary or is it still
• 34:53
  kind of the same math and are are you coming in at A or B or
• 34:57
  later? When, when do you got?
• 34:59
  Yeah, look at that. Yeah, it's a great question.
• 35:01
  So our our secondaries tend to be a bit more mature.
• 35:03
  So we go after funds that are at least kind of Year 5, but on
• 35:07
  average about year 9 is where we are there.
• 35:11
  Are there funds where hey, the companies that that weren't
• 35:13
  going to work or have kind of been written off management fees
• 35:16
  or de minimis, you have any of the concentration in the
• 35:20
  companies that you want to get access to?
• 35:22
  Those are companies that maybe as we're seeing going public
• 35:25
  takes a lot longer may or maybe they had to pivot a few times
• 35:28
  and now product market fit and are really accelerating.
• 35:31
  A lot of the I would say the deals and and funds you do.
• 35:34
  That is also where LP's frankly, or there's there's turnover of
• 35:38
  either they're just kind of done with their journey that either
• 35:41
  they need liquidity or maybe they're not even sponsoring that
• 35:44
  that manager on a go forward basis.
• 35:46
  Usually there's times when it's kind of you get a new CIO and
• 35:50
  maybe it's anti venture wants to kind of sell off some
• 35:53
  relationships. And so those are usually the
• 35:55
  catalysts and and and in those cases.
• 35:58
  You're picking up the entire LP stake, not just individual
• 36:01
  assets, is that correct? The LP stake, yeah.
• 36:04
  And so we, we definitely do a majority of what we do is kind
• 36:07
  of on the LP or or GP LED sort of portfolio buys and
• 36:12
  opportunistic on the direct secondary side.
• 36:14
  But not we don't have like a massive team that's doing the
• 36:17
  cold calling kind of built out for that function.
• 36:19
  And so it's, it's definitely more opportunistic kind of being
• 36:22
  brought in by board members to help kind of maybe lead to
• 36:25
  secondary tender or do someone on purchases.
• 36:28
  But given our transaction sizes are kind of 5 to 25 in size,
• 36:31
  they're they're not the kind of full, full massive secondary
• 36:34
  tenders that we're seeing today. And then on the Co investing
• 36:37
  side, kind of Series B through pre IPO intentionally meant to
• 36:40
  be a bit barbell doing some kind of later stage investments that
• 36:43
  have a, a shorter duration. And then series B would be kind
• 36:47
  of the earliest we get into and and those ones would would tend
• 36:50
  to be a holder or longer hold period with an expectation of a
• 36:54
  kind of higher return potential. And so on the blended basis of
• 36:58
  that like kind of velocity fund where we're at base case
• 37:01
  underwriting that fund kind of a 2X good day, you should be able
• 37:04
  to do a 3X bad day should still be kind of north of a 1 1/2 X
• 37:08
  sort of thing. And so it's, it's a tighter kind
• 37:10
  of standard deviation of kind of getting into venture.
• 37:13
  And so you hey, you're not going to get maybe a 5X or 10X fine,
• 37:16
  but you, you also might not get kind of a sub 1X outcome.
• 37:19
  And, and definitely a focus on liquidity.
• 37:22
  And and that's where like our our first couple of vintages of
• 37:25
  that strategy like we're turning up up up principle and kind of
• 37:29
  years kind of four years or or six years sort of thing.
• 37:33
  So which just tends to be a little bit faster than a
• 37:35
  traditional venture capital fund.
• 37:37
  Yeah, that's. That's sort of similar to the
• 37:38
  strategy we're looking at too. So really try to deliver 1X
• 37:42
  back, you know, within that five year time frame, pretty, pretty
• 37:44
  different than traditional venture.
• 37:46
  You know, probably you guys saw this happening, you know, as IPO
• 37:50
  requirements were getting larger and larger, you know, funds were
• 37:53
  taking longer to return capital. You guys probably as a fund of
• 37:57
  funds, you know, magnify, you know that story as well.
• 38:01
  Are are you guys a 10 + 2 structure or are you longer?
• 38:04
  Yeah. Our, our fund funds are study
• 38:05
  longer so they're, they're 12 + 3.
• 38:08
  And so we we do try to wrap up our vehicles in 15 years, which
• 38:13
  that still requires us to have. The back demand working now
• 38:17
  because that seems like even 15 might be short for some funds
• 38:20
  these days, yeah. Yeah.
• 38:21
  No, we, we've, we've leveraged the secondary market as a way to
• 38:26
  wind up our vehicles and we've been able to do that with our,
• 38:30
  our, our previous vintages recently did a transaction last
• 38:35
  year which we're able to wrap up or at least get close to
• 38:39
  wrapping up our 2010 vintage funded funds and so, so.
• 38:44
  Nick is you're a seller of secondary, not just about Yeah,
• 38:46
  that's. Right.
• 38:47
  That's right. And, and I think it's, it's,
• 38:49
  it's, it's nice being on both sides of the equation just
• 38:53
  because you, you every year's a little different.
• 38:55
  And, and we've gotten into the practice, frankly of like every
• 38:57
  single year looking at ways where we can opportunistically
• 39:00
  generate some, some liquidity for our fund of funds vehicles.
• 39:04
  Because we do think there's moments of time where maybe a
• 39:07
  specific fund is maybe super concentrated in a certain
• 39:10
  company or is marked kind of kind of pretty high and, and
• 39:14
  say, hey, maybe either selling all of it or a portion of it
• 39:17
  could make sense to. We just think if the market
• 39:21
  thinks it's a great asset and wanting to pay a premium for it
• 39:24
  and, and we think it's maybe, I don't know, great, but we're
• 39:27
  happy to take a slight discount and, and, and lock in those
• 39:31
  gains. Like that's part of.
• 39:32
  So it's less to do with a, it might not be a good venture fund
• 39:35
  or anything like that's more to do with any moment in time we
• 39:38
  can get liquidity on. We look at that and we've done
• 39:42
  it for a number of years now, is a great way to ensure that we're
• 39:47
  being opportunistic in in finding pockets and liquidity
• 39:49
  when the macro won't always cooperate as we know.
• 39:53
  What gibberish? Is this My agenda?
• 39:55
  It's not even spelled right. I think Aman has been working a
• 40:00
  book on financial bubbles that's coming out soon.
• 40:03
  I guess we would like to get your thoughts and opinions on
• 40:06
  the big one is, hey, are we in a bubble right now?
• 40:08
  Yeah. And how did you guys handle the
• 40:10
  situation, which I look would definitely say we were in a
• 40:13
  bubble in 2021? And what happened with Marx, you
• 40:16
  know, before and after that and sure, you guys think about that
• 40:19
  for your business. Sure, sure, sure.
• 40:22
  Well, on the fundament side, a majority of our capital is
• 40:24
  invested at kind of the earlier stages.
• 40:26
  And we tend to believe that innovation still continues to
• 40:29
  happen regardless of the macro until you want to make sure you
• 40:32
  have dollars exposed and being able to get exposure to those
• 40:35
  generational companies that are still going to play out and
• 40:38
  ultimately with power law, it's still going to ultimately drive.
• 40:41
  Even if those prices look crazy on paper, you're comfortable
• 40:44
  deploying capital. I'd say with like our fund, fund
• 40:47
  strategy at the early stage, yes.
• 40:49
  And because I do, I think the counterpoint is like, hey, how
• 40:52
  do you feel about some of the growth funds and growth exposure
• 40:56
  you might have it, Yeah, that's going to be more challenged.
• 40:58
  But that's, I think ultimately our advice to the LP's that
• 41:02
  invest in our programs is like none of us have control of the
• 41:05
  macro. And you, if you're going to get
• 41:07
  into this asset class, you should plan on being for 30
• 41:10
  years. If you want to see kind of a
• 41:12
  longer term return of horizon trying to time like when to get
• 41:16
  in and out. I, we, we, we've never seen that
• 41:19
  work effectively. Because there's also just the
• 41:21
  whole premise, as we all know of as an LP, like getting
• 41:26
  allocations to the top managers, you don't really have the option
• 41:29
  of opting in and out of funds. You need to be able to show up
• 41:32
  as a reliable source of, of capital.
• 41:34
  And so, and, and ultimately, like, I think the, the data
• 41:37
  speaks for itself of like the top firms are, are generating
• 41:40
  the largest majority of the returns in NASA class.
• 41:44
  And so we feel fortunate to be partnered with, with many of
• 41:47
  them and being able to kind of ride the roller coaster
• 41:50
  adventures. It's kind of what we've gotten
• 41:52
  comfortable doing. It's the only thing we do at top
• 41:54
  tier. And so that's just kind of what
• 41:56
  we signed up for. I think there's ways where you
• 41:59
  every kind of energy can decide kind of OK, how, how do you want
• 42:02
  to play it? Do you want to back away from
• 42:04
  growth? Do you want to, at times it, it
• 42:06
  felt really good to do a bunch of select funds when the markets
• 42:09
  ripping and I feel markets open and you're seeing these quick
• 42:12
  50% value bumps kind of on an IPO and like that felt great.
• 42:17
  And we had plenty of exposure. And then you're like then you
• 42:19
  had, we have LP's. They're like, well, I just
• 42:20
  wanted to growth and I don't even want to do early.
• 42:22
  And so like we see the pendulum swing back and forth.
• 42:25
  So I think ultimately we know that like, hey, you need to have
• 42:28
  a balanced approach. We tend to go early some I think
• 42:31
  later stage makes sense. But to like directly answer it,
• 42:35
  yeah, I mean there are pockets of bubble playing out right now
• 42:38
  for sure. And I think we're seeing that
• 42:40
  certainly with some of these enthusiasm around some of these
• 42:43
  C deals they're getting done. They're massive bets on, on
• 42:47
  teams, which I think it scratches your head.
• 42:51
  And because from the, the risk standpoint of like just betting
• 42:54
  on people and multibillion dollar valuations on a promise,
• 42:58
  you have to take a, a kind of a scratch.
• 43:00
  I wonder of like, hey, is, even if this does fully work out, are
• 43:03
  you getting a risk adjusted return for, for what you signed
• 43:06
  up for? And so that gives me some pause.
• 43:10
  I mean, I, I do think even with like some of the valuations that
• 43:13
  are happening with some of these companies that are showing you
• 43:15
  at least exceptional revenue growth that we've never seen
• 43:18
  before. Yeah.
• 43:19
  Like maybe in a moment time like it, it might feel overpriced,
• 43:23
  but at the same time, I mean, this innovation cycle is pretty
• 43:26
  compelling. So it's easy sit back and just
• 43:28
  be a critic of it. But then you're, you're not
• 43:30
  going to have any exposure to this, this bubble.
• 43:33
  Piece Do you see the frothiness happening in AI only or if you
• 43:38
  go outside of AI native companies or stories that are AI
• 43:41
  and some of the teams you referenced as yeah, some of the
• 43:45
  big AI shops. What do you think of the other
• 43:47
  part of market? Are you are you kind of happy
• 43:49
  with those valuations? Are you, are you investing there
• 43:52
  or how do you sense that part of the market given?
• 43:54
  We're big fund funds where we're constantly looking at our entire
• 43:57
  book and like previous vintages and where the exposure lies and
• 44:01
  understanding kind of how are those companies that maybe
• 44:04
  weren't AI native, how are they able to compete, but with some
• 44:07
  of the newer competitors that are showing up?
• 44:09
  And in some case, I think a lot of cases, and I think this year
• 44:13
  was a good year for a, a number of traditional SAS companies
• 44:16
  that are, are now embedding AI into some of the products.
• 44:20
  We're, we're seeing some interesting acceleration of, of,
• 44:23
  of a select number of companies that are willing to adapt and
• 44:27
  make some maybe harsh changes to how they were executing their
• 44:30
  business. And they have the benefit of an
• 44:32
  existing customer base that they're now leveraging as, as
• 44:34
  part of some of these AI rollouts.
• 44:36
  And so we are spending a lot of time looking at those as buying
• 44:40
  opportunities because we do think that they're pretty
• 44:42
  overlooked, especially since some maybe the cap tables just
• 44:46
  messed up where they got a big valuation at 21 and kind of
• 44:49
  like, So what do you do from here sort of thing.
• 44:52
  So there, there are some interesting cases there where
• 44:55
  we're seeing kind of growth, we're seeing that they're on a
• 44:58
  break even maybe even profitable seeing acceleration of growth
• 45:01
  this year. And and that might be more like
• 45:03
  kind of a kind of 40 to 50% sort of growth rate, not kind of what
• 45:08
  we're seeing the AI native kind of 300 plus percent kind of
• 45:11
  standard if you're going to get funded sort of thing.
• 45:13
  But we find those like if you get at the right price, they're
• 45:17
  kind of interesting. And we think that those
• 45:18
  companies tend to be probably better positioned to be acquired
• 45:22
  in the near term than than some of these AI native companies
• 45:24
  that have massive ambitions. And like, I think that's great,
• 45:28
  but they're going to have to kind of grow into some of those
• 45:31
  kind of proof points over time to either to go public and or,
• 45:34
  or they might just get too big, even get acquired in some cases.
• 45:37
  And so you might be limiting kind of your ability to kind of
• 45:40
  have natural liquidity that plays out there.
• 45:42
  And so, yeah, there's a lot of areas that are overlooked that
• 45:45
  we're we're we're, we're spending time getting smarter
• 45:47
  on. I mean, we don't, we
• 45:48
  intentionally don't fall in love with this count though, because
• 45:51
  I mean, you, there's plenty of things and you guys are in the
• 45:53
  game and there's things you can get the great discounts or the
• 45:57
  80 off whatever. And like there's probably a
• 45:59
  reason why in some cases or maybe like, hey, that those
• 46:02
  lower preference shares are just so far underwater, they're
• 46:05
  actually not worth anything. You may not.
• 46:07
  Get any returns at any discount? Yeah, yeah.
• 46:09
  Exactly. And, and and so it, it's the
• 46:13
  tale of Two Cities is certainly playing out in in Venture as as
• 46:16
  we see it. So it's it's kind of having to
• 46:19
  find the spots. You feel LP pressure if you
• 46:22
  think there's a part of the market that's exciting and
• 46:24
  growing, but then there's a big part of this overlooked, then
• 46:26
  you can get a a multiple on a SAS company like in the public
• 46:29
  companies, SAS companies are 6-7 times sales, used to be 20 times
• 46:33
  sales, right? Yeah.
• 46:34
  That's right. And they're.
• 46:35
  Profitable now and they weren't five years ago.
• 46:37
  So and they're still growing, as I said, 2025% year over year.
• 46:40
  Like that's still, that's still pretty good.
• 46:42
  It's not 1000, but it's, it's still pretty good.
• 46:45
  And if it's avoiding A frothy part of the market, it seems
• 46:48
  like playing with that overload space is a good strategy.
• 46:50
  But you feel LP pressure when you, if you don't go into some
• 46:53
  of the AI names, the more recognizable ones, and you, you
• 46:57
  avoid those names because they're over bid and, and over
• 47:01
  height. Do you feel LP's are, are going
• 47:04
  to give you a hard time? Or do you think that they will
• 47:06
  accept and understand a strategy where you're going to avoid the
• 47:08
  bright shiny object and and focus on the companies that have
• 47:11
  traditionally been value creating and where you guys have
• 47:13
  made most of your Yeah. To be fair, we, we do a bit of
• 47:17
  both. I mean, we, we take a portfolio
• 47:19
  approach where hey, like you don't necessarily know exactly
• 47:22
  what's going to play out. So make, make sure you have some
• 47:25
  blended exposure. And so we, we, we on the AI
• 47:28
  native side, we, we picked our spots in a few cases where
• 47:32
  either we've done some direct investing or some secondaries
• 47:35
  and portfolio buys that are concentrated around.
• 47:38
  For us. It's really this thesis around
• 47:40
  enabling AI versus like, I mean, we, we certainly have a lot of
• 47:43
  LLM exposure as well. But like there's some
• 47:45
  interesting, I think enablement companies out there that are
• 47:49
  less of a bet on which LLM ultimately wins open source
• 47:52
  versus closed source, but enabling certainly an enterprise
• 47:54
  to adopt AII think it's an interesting long term trend
• 47:58
  that, that we're, we're playing in.
• 47:59
  So they're called that at least kind of 50% of where we are
• 48:03
  playing in on the on the it's still like on the LP secondary
• 48:07
  portfolio by you can still find, I think pretty attractive
• 48:10
  discounts if you pick your spots.
• 48:12
  And we're we're less chasing direct secondary and and and too
• 48:15
  many of those names. But there's a few like like with
• 48:18
  like recently with a grouplet is, is one that we're on the cap
• 48:21
  table of been able to build up a little bit of exposure there
• 48:25
  given the performance we're seeing play out there.
• 48:27
  Excited about that company and and think that from AI don't
• 48:30
  know compt against some some other companies up there that
• 48:33
  that feels pretty reasonable from a valuation standpoint.
• 48:36
  But yeah, then there's other areas where certainly a year or
• 48:40
  two ago you're able to get kind of massive discounts on some
• 48:44
  funds that's kind of 4050% off where they still had strong
• 48:48
  underlying companies like a Ripling or a Flock safety and
• 48:51
  you're excited to get that exposure.
• 48:53
  And that's usually when like, yeah, there's LP's with
• 48:56
  liquidity crunch. And I wouldn't consider those
• 48:59
  like AI native type companies that we're we're chasing, but
• 49:03
  certainly have strong growth profiles, but maybe overlooked
• 49:07
  and and some portfolios where LP's are looking for liquidity.
• 49:11
  What kind of advice for GPS on how they should be thinking
• 49:15
  about getting their liquidity when they have some paper gains
• 49:18
  on the table? Maybe 88 to 10 years in?
• 49:21
  You know, I'm thinking specifically about, you know,
• 49:23
  the 2021 time frame. I don't know how many people
• 49:27
  actually took money off the table in 2021, but we probably
• 49:30
  all wish we had taken more off the table.
• 49:32
  And that's right, the folks, the folks who did look smart, but,
• 49:36
  but I don't know if we're fighting the past war or a new
• 49:39
  one. You know, should people be
• 49:40
  thinking about taking money off the table now when we're seeing,
• 49:43
  you know, again, some pretty significant markups in some of
• 49:46
  these companies, I think. So, and I, I do just in sitting
• 49:49
  on the LPAC of a number of managers and just kind of as, as
• 49:53
  we're engaging with our, our set of partners, we are seeing more
• 49:57
  and more folks realizing, hey, like I feel great about this,
• 50:00
  this company, it's getting done at a great price by a great
• 50:03
  lead. But we are going to kind of sell
• 50:06
  kind of 1020% of our, our portion, maybe even get our cost
• 50:09
  basis back because they saw like on what did happen in 21.
• 50:13
  And I think unfortunately most groups weren't able, they're
• 50:16
  kind of like they had the opportunity maybe to sell and
• 50:19
  chose not to because they thought, hey, there's another
• 50:21
  term or two value to to be had. And the IPO market felt really
• 50:26
  obvious and like when you see kind of everything going out at
• 50:30
  50% above issue price, you feel kind of like, well, why would I
• 50:34
  so? Early.
• 50:35
  And like, and so yeah, when money was cheap, I I think
• 50:38
  everyone thought that like they know knew what was best.
• 50:41
  And the the zero interest rate environment, there was a lot of
• 50:45
  a lot of good investors back then.
• 50:47
  But I think now a lot of people have learned that lesson and and
• 50:51
  I think our certainly a bit prudent on taking some liquidity
• 50:56
  where they can. And then we are seeing the
• 50:59
  evolution certainly of kind of these GP LED strip sales and
• 51:03
  even the the CV markets are continuing to mature and
• 51:06
  certainly far more sophisticated on the private equity side.
• 51:10
  But it it is coming to venture. I I was just going to say when?
• 51:13
  When people use the term GP LED, LP LED, I always feel like you
• 51:17
  guys are coming from private equity.
• 51:19
  Those that. Well that terminology language
• 51:21
  is from the PE world. I'm starting to hear it in the
• 51:23
  VC world now. Yeah, although sometimes it's
• 51:26
  just people coming from PE using those terms.
• 51:28
  But you know, for now we're starting to hear that.
• 51:31
  We interviewed Rick Baker from Blackburn on whatever for these
• 51:34
  episodes. You may have heard that they
• 51:37
  obviously had a massive success in Canva, but they also sold a
• 51:40
  pretty significant portion of their first fund.
• 51:43
  I think what it was only about 7 years old and booked, you know,
• 51:46
  a three 3.5 X DPI. Do you feel like the secondary
• 51:50
  math is different for fund managers if they do or don't
• 51:53
  have, you know, 1X DPI, 2X DPI, 3X DPI?
• 51:58
  They're, they're also part of building a franchise.
• 52:00
  And so that there is that they're fun one being able to
• 52:03
  show some locked in gains to then be able to go raise
• 52:06
  subsequent funds and and scale the capital base, which they've
• 52:08
  done a great job of doing. I think that really enabled it.
• 52:11
  So there is going to be some trade-offs and maybe feeling
• 52:13
  like, Hey, we, we, we left some money on the table potentially,
• 52:17
  but if this is going to allow us to build a franchise, like it
• 52:19
  might be worth it. It's also like in hindsight,
• 52:22
  like it's really easy to say like, oh man, like I know, was
• 52:24
  that the right decision or like these, these secondary buyers
• 52:27
  did such a great job and they were able to get such a great
• 52:30
  outcome. But I, I guarantee you when they
• 52:32
  did that, like the underwriting was maybe a 2X sort of base case
• 52:35
  underwriting. It wasn't kind of what
• 52:37
  ultimately is transpired. I think it was easier to make
• 52:39
  that decision because I believe they were sitting at, you know,
• 52:43
  12X13XT DPI to sell 3.5. I think the decision that maybe
• 52:48
  a lot of GPS may face right now is you're sitting on 345X TVPI.
• 52:55
  Do you want to sell half your position to book DPI?
• 53:00
  If you think that asset is compounding at, you know, 50% or
• 53:04
  more per year, you may feel nervous about selling a big
• 53:07
  portion of that position. If you're trading off, you know,
• 53:10
  I've only got 1 or 2X more TVPI to turn into DPII.
• 53:14
  Don't want to, you know, unnecessarily pull that down too
• 53:17
  much to trade off today. So how do you advise people who
• 53:22
  are maybe sitting on less than you know, 4 or 5X TVPI to think
• 53:27
  about getting DPI? That's a great question.
• 53:33
  It's kind of a case by case basis.
• 53:34
  I think in some cases it's like what, what are you able, what is
• 53:37
  the price ultimately that you're willing able to get for it?
• 53:41
  Because I think you need to get this alignment between obviously
• 53:45
  the GP, the LP's and then the buyers.
• 53:48
  And, and it can be hard to get those all to align.
• 53:50
  And I think LP's naturally want to see kind of a small discount
• 53:54
  or else they feel like they might be getting taken advantage
• 53:56
  of. Yeah.
• 53:56
  Why? Why are you selling at a?
• 53:58
  Discount to that number on paper, yeah.
• 54:00
  Yeah, exactly. And so like, and then it's all
• 54:02
  optics. And I could go on a long kind of
• 54:05
  tangent about kind of evaluation and all that, but like, because
• 54:09
  I mean, I don't any valuation is based off of 1 firm that decided
• 54:15
  to value a company and maybe it's investors and that's kind
• 54:18
  of a moment in time. It's a group of a handful of
• 54:21
  decision makers deciding what a company's worth.
• 54:23
  And then most firms will just then hold the value at that
• 54:26
  price and. Now we've hijacked your phone.
• 54:30
  That's right, we dominate both your screen.
• 54:35
  The question I tell people who are the potential sellers is
• 54:37
  like, hey, you got 4X TVPI vapor but zero to 0.5 DPI.
• 54:42
  Do you want a 4X fund TVPI or do you want a 2.5 X fund?
• 54:46
  That's TPI? Yeah, well, it's also a
• 54:48
  decision. Like every point in time, it's
• 54:50
  kind of OK if we can get liquidity now.
• 54:52
  And, and for the LP's, it's like, what are you going to turn
• 54:54
  around and use that money for? I think for LP's that are
• 54:57
  saying, hey, I can go reinvest it into something I think is
• 55:00
  kind of a 3X plus. And I think by holding it, I'm
• 55:02
  only going to get another 2X like that.
• 55:04
  That's kind of almost a nice little arbitrage for them.
• 55:07
  And that's certainly a conversation we have with LP's
• 55:09
  all the time that are considering selling.
• 55:11
  It's like, it's not meant to be like winners and losers.
• 55:13
  It's if you have a plan of what you can do with that money, both
• 55:16
  sides can win. If we're underwriting a 2X and
• 55:19
  we, we kind of do a deal and, and they feel conviction on
• 55:22
  being able to go reinvest and get a 3X, like I think that's a
• 55:25
  great outcome for everyone involved.
• 55:27
  And so that's, that's where I think in some cases with fund
• 55:30
  managers that may behave feel like, oh man, I could be
• 55:33
  maximizing a bit more. But if you're enabling your LP's
• 55:36
  to then either reinvest that in your next fund or go do
• 55:39
  something else with it that they, they see value in, you're
• 55:42
  going to get a lot of credit. And, and in some cases, like I'm
• 55:46
  trying to time the market is, is pretty hard, but that, that
• 55:49
  prudent portfolio management, I think gets a lot of, you get a
• 55:53
  lot of credit from the LP base of, hey, you're willing to do
• 55:55
  that and you're not, you're not selfish, you're not trying to
• 55:58
  maximize kind of carry at all costs sort of thing.
• 56:01
  It builds a lot of goodwill with the LP base.
• 56:03
  And I, I don't, I, I haven't seen many cases where people
• 56:06
  kind of like LP's are mad that they did that.
• 56:09
  I think in some cases if it's like, hey, there's like clearly
• 56:11
  a misalignment of like go forward economics in the CV or
• 56:14
  things like that. And that's usually where you see
• 56:16
  some food fights play out with, with some of these LP amendments
• 56:20
  that are required to get some of these deals done.
• 56:22
  But I I think situations. Where those GPS are selling to
• 56:26
  you to get that liquidity and how does that conversation play
• 56:30
  outlet. Let's say they're sitting on
• 56:32
  45-XT DPI and they can book one or two XDPI.
• 56:36
  Do they sell to you or do they sell to other folks or how does
• 56:38
  that happen? I.
• 56:40
  Mean we're we're certainly one of the players in the space and
• 56:42
  there are number we we encourage them even at our own detriment
• 56:46
  from a buy side to hey, run a process be able to show the LP's
• 56:49
  that you ran a competitive process.
• 56:51
  You, you, you got a market cleaning price or like what's
• 56:56
  fair? And, and, and some managers
• 56:58
  will, will hire a banker to do that.
• 57:00
  Some might feel like, hey, they, they have enough relationships
• 57:02
  with, with the venture buyers, venture secondary buyers out
• 57:06
  there to make sure that they're, they're getting a kind of a fair
• 57:09
  market price. And so we think that's a, a
• 57:11
  prudent thing to do. And you don't necessarily you
• 57:13
  can do the process and if it isn't attractive from a pricing
• 57:17
  standpoint, you don't have to, you don't have to do it.
• 57:20
  But we think it's also kind of a healthy way to check like, hey,
• 57:23
  what is the kind of Fair value of My Portfolio right now?
• 57:26
  Is there a big differentiation between where I'm holding my,
• 57:30
  my, my fund at versus where this is willing to transact at?
• 57:34
  I, I, I think it's a healthy just kind of test because that
• 57:38
  is the thing as I was leading to earlier of like, I mean, I don't
• 57:41
  know if you got 10 bidders of a portfolio and, and that range of
• 57:45
  what they think it's worth is probably more accurate than just
• 57:47
  kind of what, what last round prices are.
• 57:50
  Of for sure what your. Collection of a kind of the
• 57:53
  asset value of your your fund at a given point in time.
• 57:56
  Do you? Ever suggest to any of your GPS,
• 57:59
  hey, you're holding that portfolio at too high a price or
• 58:03
  or too low a price? I don't want to say force them
• 58:05
  to do lower evaluations, but have you suggested strongly to
• 58:09
  them that yeah, we should mark something down?
• 58:12
  Yeah. Yeah, we, we, we get that
• 58:13
  question a lot from a number of managers and we use our, our,
• 58:16
  our databases a way where we do track at the company level of we
• 58:20
  might be LP's in five different firms that were on the cap
• 58:24
  table, one company. And you can see that spread.
• 58:27
  And, and so we'll, they'll usually ask for, OK, can you
• 58:31
  show us on a blinded basis, of course, like how are we
• 58:34
  benchmark and maybe like our, our, our top ten largest
• 58:37
  holdings across all of our funds, Like how are we from a
• 58:41
  valuation standpoint stacking up against some of our peers out
• 58:44
  there? And so that exercise, we, we get
• 58:48
  that question a lot and we'll just do some of that work to
• 58:51
  just help them show kind of on a relative basis.
• 58:54
  Are we, are we conservative? Are we a little aggressive?
• 58:57
  Kind of which names would we maybe want to recalibrate?
• 59:00
  So that's certainly a data point.
• 59:01
  And then I do think as the secondary market continues to
• 59:05
  evolve and mature is what we're seeing.
• 59:07
  I, I do think it's a pretty strong indication of kind of
• 59:10
  what is kind of if we were to liquidate today, like what are
• 59:13
  people willing to spend on or, or buy it for?
• 59:16
  And I, I do think that will continue to become more and more
• 59:19
  sophisticated indicator of like, hey, well, this might be a
• 59:22
  little bit more of a true value. And, and we're seeing that
• 59:25
  because we're also seeing go book ways.
• 59:26
  We're seeing either things that are like heavily discounted or
• 59:29
  we're seeing enthusiasm around some names that are even above
• 59:32
  and beyond a premium from the last round.
• 59:36
  And so it's, yeah, it's, it's interesting to watch.
• 59:39
  We certainly keep a pulse on it. We have our own kind of data
• 59:42
  that we're tracking. We're tracking what is, what is
• 59:44
  out there, what, what other folks want to transact that as
• 59:46
  kind of a, a guiding post of our, our fund managers holding
• 59:51
  their positions at an appropriate price or not.
• 59:53
  I would be remiss if we didn't talk about some of the strategic
• 59:57
  acquisitions that have been happening in secondary market.
• 59:59
  And I guess on the retail side, we've seen both equities and
• 1:00:03
  which is a company we invested in there.
• 1:00:05
  When I used to run 500 Startups, they were acquired by Morgan
• 1:00:08
  Stanley. Forge, quick on their heels was
• 1:00:12
  acquired by Schwab. Because you guys just mentioned
• 1:00:14
  that you are, you know, kind of a buyer from, you know, an LP-6
• 1:00:19
  perspective. Who do you feel as your
• 1:00:22
  competitors in that space? I think we would probably say
• 1:00:25
  industry ventures and you know step zone maybe or two of the
• 1:00:29
  larger players, but who else is out there that you guys see as
• 1:00:32
  buyers and LP secondary or GP secondary, Yeah.
• 1:00:36
  Yeah, for sure. I mean those two certainly and
• 1:00:39
  then others that have are probably a little bit smaller
• 1:00:42
  like us, like like a true bridge has a, a secondary strategy as
• 1:00:45
  well, other fund of funds that are doing it maybe less in a
• 1:00:49
  dedicated fashion, but have pools of capital to do it.
• 1:00:53
  The larger players out there like a Lexington Partners has
• 1:00:56
  been doing for secondary purchases for a long time.
• 1:00:59
  They've done a great job as well as strategic partners already in
• 1:01:03
  Goldman Sachs. And so like that there are like
• 1:01:06
  those larger diversified players that have kind of a venture
• 1:01:10
  portion that they go after kind of on an annual basis and some
• 1:01:14
  years they're very aggressive, other years maybe less so, but
• 1:01:18
  they're the ones that frankly are driving a lot of like the
• 1:01:20
  large portfolio volume. That's right, mostly kind of
• 1:01:23
  brokered and and. There we're talking about, you
• 1:01:26
  know, transactions maybe fifty 100 million plus and up.
• 1:01:29
  Is that kind of the range? Yeah, I mean.
• 1:01:31
  It's usually even when we are looking to sell like we're we're
• 1:01:33
  trying to get our NAB to scale like 2300 million at least of
• 1:01:38
  NAB to get the attention of, of some of those groups.
• 1:01:41
  And they tend to yeah, have AI would say a different
• 1:01:45
  underwriting. Their cost of capital tends to
• 1:01:47
  be a little bit cheaper cuz they're using forms of, of debt
• 1:01:50
  or their underwriting might be a little lower than than some of
• 1:01:54
  the kind of pureplay secondary buyers out there.
• 1:01:58
  And so yeah, I can't. Imagine at that size that
• 1:02:01
  there's a lot of competition there.
• 1:02:04
  That seems like pretty rarefied space.
• 1:02:06
  Are are there, you know, 5-10 companies doing that?
• 1:02:09
  Are there 20? I, I, I don't think there's 50,
• 1:02:12
  right? I mean, there's definitely,
• 1:02:15
  yeah, like at least 10 out there that, that there's large kind of
• 1:02:19
  global diversified. I mean, a majority of what
• 1:02:22
  they're doing is in the private equity space.
• 1:02:25
  But they, they do go after kind of, if there's an LP out there
• 1:02:29
  that's selling a diversified basket of assets, they, they're
• 1:02:32
  able to offer a full solution, which it, it from a transaction
• 1:02:35
  standpoint. If they're trying to sell some
• 1:02:37
  real estate, some private equity, some venture, venture
• 1:02:40
  might be kind of 1020% of that transaction size, but they can
• 1:02:43
  just kind of include it. And in some cases, like I don't,
• 1:02:46
  they might be just throwing a little bit of an arbitrary
• 1:02:49
  cherry price at it. And versus like you all and us,
• 1:02:52
  we're spending all this time looking at the companies and
• 1:02:54
  stuff and they, they can kind of just throw it in there because
• 1:02:56
  it's just a rounding error and, and the bigger transaction.
• 1:02:59
  So it's a different, it's a different game.
• 1:03:02
  And so trying to compete against that can be really hard.
• 1:03:04
  And so why we don't spend too much time with these brokered
• 1:03:08
  large transactions. We'll, we'll do it in some cases
• 1:03:11
  where maybe a manager is a bit restrictive on who they're
• 1:03:13
  willing to transfer to. And we're one of those approved
• 1:03:16
  buyers that might be a little bit easier to compete and not
• 1:03:19
  feel like you have to kind of stretch on pricing too much, do
• 1:03:22
  you think? There's other players that are
• 1:03:24
  going to jump down. I think Goldman doing that has
• 1:03:27
  probably caught the interest of a lot of other players out
• 1:03:30
  there. And so I imagine there will be
• 1:03:33
  more. I'm not naive to think there
• 1:03:35
  won't be because I just think them making that statement to
• 1:03:40
  the market that hey, this is kind of relevant to our
• 1:03:44
  business. I think then you're going to
• 1:03:46
  have some followers to feel like, well, if they're doing it,
• 1:03:48
  then maybe we should do it. Hard to tell and hard to tell
• 1:03:51
  kind of who. There's not too many people.
• 1:03:53
  I think a lot of our peers at this point have either
• 1:03:56
  partnerships or kind of have been acquired, things like that.
• 1:03:59
  So there's not really that many left, I guess one.
• 1:04:01
  Other, you know, peer in the market that I'm sure you guys
• 1:04:04
  follow, but send it out and Klein Hill did a partnership a
• 1:04:08
  few years ago to kind of provide a secondary strategy for
• 1:04:13
  Michael's, you know portfolio, which seemed like it was smart
• 1:04:16
  and maybe you guys were already doing that.
• 1:04:19
  But do you see that kind of development as as likely to
• 1:04:23
  happen more in the market? There's definitely.
• 1:04:26
  More of that that's going to happen.
• 1:04:27
  We've been approached on doing things like that as well.
• 1:04:29
  Where I think, I mean one of the edges we feel like we have is by
• 1:04:34
  being a primary investor for a secondary strategy.
• 1:04:37
  We, we do have forms of access and alignment with the with the
• 1:04:40
  GPS in terms of approving as as a buyer of, of some of the fun
• 1:04:44
  positions. And we are seeing some of the
• 1:04:46
  larger players that are, are, are getting boxed out a bit more
• 1:04:50
  by folks like frankly us and Subs and others that are kind of
• 1:04:54
  like, well, why are you letting maybe the secondary only player
• 1:04:58
  come in and and buy some of these fun positions when like
• 1:05:01
  you have existing investors that would buy and we're already
• 1:05:03
  supporting you. Yeah.
• 1:05:04
  And so I. Do think I, I do know for a fact
• 1:05:09
  that like there's some fund funds out there that are, yeah,
• 1:05:11
  doing more of that where they're partnering with some of these
• 1:05:13
  bigger secondary shops and, and kind of leveraging their
• 1:05:16
  secondary expertise with kind of their access.
• 1:05:19
  And so, yeah, they'll be more of that.
• 1:05:21
  And, and there's then and there's ways to like, hey, I
• 1:05:24
  mean, I, I think the, the venture secondary markets, it's
• 1:05:26
  still there's a lot of Greenfield like I don't like, we
• 1:05:30
  don't run in. Like at times we we've done
• 1:05:32
  deals with with certainly step zone and industry where we kind
• 1:05:35
  of share deals of size. And it's different than like
• 1:05:39
  venture where it's like, OK, the name brand friends are going
• 1:05:41
  after a single company to get ten term sheets and like, like
• 1:05:43
  this really just not much of that at this point.
• 1:05:46
  Maybe that changes. But so I think everyone kind of
• 1:05:49
  has their area of the sandbox that they, they like to go the
• 1:05:53
  plan and, and kind of the cohort of relationships that they kind
• 1:05:57
  of built up a practice with. And kind of each of us have our
• 1:06:01
  GPS. We're maybe we're kind of that
• 1:06:03
  first call that, hey, like we got a situation, either an LP or
• 1:06:07
  a company we're working together might be beneficial.
• 1:06:10
  So as much as it's like we have peers and competitors, like
• 1:06:13
  there's, there's rare, it's certainly under 10% of the time
• 1:06:17
  where it feels like we're competing against another
• 1:06:19
  player. If anything, we're just
• 1:06:20
  competing against like kind of a seller wanting to sell or just
• 1:06:24
  like is there kind of room to get something done or not?
• 1:06:28
  Yeah. I think that's been our
• 1:06:28
  experience as well is that even though secondary has gotten a
• 1:06:31
  lot of attention recently, it's still a tiny industry compared
• 1:06:35
  to, you know, more traditional venture or private equity
• 1:06:38
  secondary. And there's just not as many
• 1:06:41
  people competing. Like I said, not everybody wakes
• 1:06:44
  up in the morning and decides, hey, I want to make my next
• 1:06:46
  career being a secondary buyer venture fund.
• 1:06:49
  But but it does seem like there's more folks combining
• 1:06:52
  strategies. I know we interviewed Isomer
• 1:06:55
  Capital over Europe a few episodes ago and they added a
• 1:06:58
  secondary fund strategy to their overall set of things.
• 1:07:01
  So I guess as we kind of wrap up here, like what what do you guys
• 1:07:05
  see as kind of a next evolution in the overall market, I guess
• 1:07:10
  specifically talking about fund of funds and secondary market
• 1:07:13
  liquidity. Are there are there new
• 1:07:15
  strategies that are starting to happen?
• 1:07:17
  Are there things that we're going to start, you know,
• 1:07:19
  borrowing for private equity, secondary adventure?
• 1:07:22
  What's? Happening with like kind of the
• 1:07:23
  40 act funds, I think is one of the newer developments playing
• 1:07:26
  out among certainly secondary and this this notion of like
• 1:07:31
  getting access to venture, but in in a liquid form.
• 1:07:34
  I think that there continues to be more and more interest there
• 1:07:36
  and certainly retail interest. And I think retail investors
• 1:07:40
  getting access to venture capital is certainly we, we, we
• 1:07:43
  continue to like, I don't talk to folks about it and, and, and,
• 1:07:46
  and there's, there's some ways to do it now, but it, it's still
• 1:07:49
  pretty limited. And so I do see firms needing to
• 1:07:53
  kind of think about ways to do that.
• 1:07:55
  The Fortiac fund I think is a way where folks are able to get
• 1:07:59
  kind of secondary exposure in some cases and and venture
• 1:08:02
  exposure through those vehicles and then they feel good about
• 1:08:06
  being able to get liquidity a little easier.
• 1:08:08
  So time will tell. It's like those funds can prove
• 1:08:10
  to show good performance or not. I think that's it's still a
• 1:08:13
  little too early to tell. So I see that sort of fun
• 1:08:17
  structure innovation happening. I do think like there's this
• 1:08:21
  going to continue to be pressure on the fund funds model in
• 1:08:23
  general. I mean, certainly around these
• 1:08:25
  carry and then I think all of us like, especially with like AI
• 1:08:28
  coming around and like, hey, like white collar jobs of like,
• 1:08:31
  hey, you should be able to do this like quicker, easier, like
• 1:08:33
  that. There might be us all having to
• 1:08:35
  validate kind of our management fee and and kind of carrying all
• 1:08:38
  that. And it's like, hey, are you able
• 1:08:40
  to like prove that that's worthwhile?
• 1:08:42
  And I think that's healthy. I think it's accountability
• 1:08:45
  that, that the industry needs that, that sort of enabling kind
• 1:08:49
  of more technology into the evaluation of, of fund managers
• 1:08:54
  kind of certainly underwriting things like that is another area
• 1:08:58
  that, and what we're seeing some kinds of that, some, some, some
• 1:09:01
  folks out there trying to push the envelope on that.
• 1:09:04
  And, and certainly we, we, we do a lot of that ourselves as well.
• 1:09:08
  And so I, I see those kind of two themes playing out that will
• 1:09:12
  will impact kind of the, the, the LP space as well as kind of
• 1:09:16
  the secondary space for sure. Sean, thanks for all the time
• 1:09:20
  today. I don't know if you have any
• 1:09:21
  last minute words, predictions, advice to our listeners, but
• 1:09:26
  appreciate all the all the time. Yeah.
• 1:09:28
  No, I mean I appreciate you both bringing some transparency to
• 1:09:33
  kind of what's playing on secondaries.
• 1:09:35
  It is interesting and timing certainly we're we're always
• 1:09:38
  open and welcome to have conversations with fund managers
• 1:09:42
  or LP's that are trying to understand this further.
• 1:09:45
  And so feel free to reach out if you got questions or want to
• 1:09:49
  talk further. But no, enjoy the conversation
• 1:09:52
  And yeah, thanks for having me on.
• 1:10:04
  All right, Professor Virgie, we're back with another
• 1:10:07
  evaluation corner for this week. We're going to be covering
• 1:10:10
  crypto exchanges I'm going to look at.
• 1:10:11
  Kraken Today we'll talk about Coinbase versus Kraken as a sort
• 1:10:16
  of a public market comp and and differences.
• 1:10:18
  And we'll talk a bit about Binance, which is not really
• 1:10:22
  raising money right now, but I suspect we'll see a lot more
• 1:10:25
  about them the next few weeks. So let's just talk a bit about
• 1:10:28
  what Kraken is. And as a crypto currency
• 1:10:30
  exchange, they're really designed for professional
• 1:10:32
  traders who want to buy crypto and altcoins.
• 1:10:36
  They're looking for deep liquidity, a strong security
• 1:10:39
  infrastructure, a very strong regulatory infrastructure and a
• 1:10:43
  lot of functionality that that these traders will want.
• 1:10:46
  Kraken is in the news right now and top of mind because they
• 1:10:49
  just raised and September from Tribe Capital.
• 1:10:53
  They also had investment from Sequoia China or what is now HSG
• 1:10:57
  and from formerly Sequoia China. And at a $15 billion evaluation,
• 1:11:00
  it's a three time step up from where they were before.
• 1:11:04
  Just to give you a sense of their revenue, there were about
• 1:11:07
  1 1/2 billion in revenue as of last year.
• 1:11:10
  We'll probably be more like 2 and a quarter, 2 1/2 this year.
• 1:11:13
  So growing, growing very quickly.
• 1:11:15
  They just reported Q3 numbers at over 100% year over year.
• 1:11:19
  So they're really one of three crypto exchanges that are that
• 1:11:22
  are out there and available for global users.
• 1:11:25
  They are on the right. They're at 1.6 billion in
• 1:11:27
  revenue. They're actually the smallest of
• 1:11:29
  the three major exchanges. Coinbase is public.
• 1:11:32
  They are at a $6.6 billion evaluation.
• 1:11:34
  And then the the largest one seemingly by volume and by
• 1:11:38
  revenue is finance. And so if you compare the the
• 1:11:41
  three of them, Kraken at the new valuation is about 10 times
• 1:11:45
  sales. That's kind of in line with
• 1:11:47
  where Coinbase is. We don't really know where
• 1:11:50
  finance is because they haven't erased in a while and they're
• 1:11:52
  they're being rumored at evaluation much north of 60
• 1:11:55
  billion. I suspect if they were to race
• 1:11:57
  today, they'd be well north of 100 billion, similar to these
• 1:12:00
  other guys in terms of the metrics.
• 1:12:02
  So the question you have to ask yourself a little bit is like,
• 1:12:04
  do these guys make money? Coinbase is very profitable even
• 1:12:07
  if you don't trade them on a revenue basis, you trade them on
• 1:12:10
  a on a profit basis. They're about 24 times PE, which
• 1:12:13
  seems pretty, pretty reasonable. And it seems like both Kraken
• 1:12:17
  and finance ought to be profitable at this level of
• 1:12:20
  scale as well, although we don't have full visibility into that
• 1:12:22
  because they're not not yet public companies.
• 1:12:25
  So one question to ask yourself now is do we need 3 crypto
• 1:12:28
  exchanges in, in the world's or in, you know, how do these three
• 1:12:33
  stand out and differentiate from themselves?
• 1:12:35
  Well, one way as a consumer, if you're looking at it is on fees,
• 1:12:38
  who's got the lowest cost? And for sure finance is the
• 1:12:42
  winner here. They're they've got maker and
• 1:12:44
  taker fees. Maker is if you are providing
• 1:12:47
  liquidity into the system. So you're a buyer of crypto, a
• 1:12:50
  taker of somebody who was removing liquidity or selling
• 1:12:53
  crypto currencies? Their.
• 1:12:55
  The rate is about .1% on both makers and takers, so that's
• 1:12:59
  very competitive. Cracking by way of comparison is
• 1:13:02
  between, you know, .4 and .6% and Coinbase is between .3 and
• 1:13:06
  .4%. So for sure Binance is a winner
• 1:13:09
  on the fee structure. If you're a beginner or retail
• 1:13:12
  investor, I think Coinbase offers probably the best
• 1:13:15
  solution. It's just easy to use, easy to
• 1:13:17
  get money in, easy to get money out.
• 1:13:19
  Cracking is a little bit annoying if you're a beginner.
• 1:13:21
  It's just not set up for for beginners.
• 1:13:25
  Finance is OK, I would say, but they're not available for a lot
• 1:13:27
  of American users right now. And, and they are available in
• 1:13:30
  certain states like California, but they're not in New York and
• 1:13:32
  are in Texas. So they're not, they're not as
• 1:13:34
  ubiquitous and and not as beginner friendly in terms of
• 1:13:37
  security and compliance. I'm just going to give Coinbase
• 1:13:40
  a solid green right now. Crack in a mild green.
• 1:13:43
  I'm going to deep dive and why I'm why I'm do this in a second.
• 1:13:45
  So let me just suspend any, any commentary if you like trading
• 1:13:48
  coins, especially in the long tail, they've all got 300 or
• 1:13:52
  more offerings now. Maybe Coinbase is is about 300
• 1:13:55
  as of today. Kraken might be the the deepest
• 1:13:58
  variety of altcoins and, and has some additional opportunities
• 1:14:01
  for people who are really into that long tail and don't just
• 1:14:03
  want the the top, you know, 30 or 50 or exposure to top 30 or
• 1:14:08
  50 coins for advanced traders. I think finance because of its
• 1:14:12
  low fee structure is great. It has adequate capabilities
• 1:14:17
  and, and product features for the the advanced trader.
• 1:14:21
  But if you're a professional, I think you might prefer Kraken.
• 1:14:25
  And this is sort of where I see Kraken leaning in.
• 1:14:27
  They're doing things like margin trading.
• 1:14:29
  Now that's something that Coinbase started doing and then
• 1:14:31
  kind of suspended. And I'm not sure what if they
• 1:14:33
  got that figured out. They'll be a staking, they'll be
• 1:14:36
  Futures Trading, they've got kind of proof of reserve audits,
• 1:14:39
  just stuff that the other guys aren't doing.
• 1:14:41
  So they do, I think get a, get a plus if you're a professional
• 1:14:44
  trader. And maybe that's where Kraken is
• 1:14:47
  going to live. Let's talk about regulation.
• 1:14:49
  This, this is really important. If you are a professional or
• 1:14:52
  advanced trader, Coinbase on the right hand side is probably the
• 1:14:55
  best. They're a publicly traded
• 1:14:56
  company. So they have FDIC insurance on
• 1:14:59
  their USD balances and are under the FINRA and the SEC.
• 1:15:03
  If you're on the left hand side of this chart, Kraken, they are
• 1:15:07
  registered as a broker dealer with the SEC.
• 1:15:09
  So that's pretty good. They're also a Wyoming bank And
• 1:15:11
  so that's that's a big positive. They have a bank charter.
• 1:15:15
  Finance is a squarely 1. They're a global platform.
• 1:15:17
  They're not federally registered with the US.
• 1:15:20
  That graphic on the bottom might need some explanation for some
• 1:15:22
  people. If you're educated in like
• 1:15:24
  Canada or England or Japan, you know that the US, even though
• 1:15:28
  we're hitting the 250 year anniversary of the US, we didn't
• 1:15:32
  actually have a constitution or a federal government until 1787.
• 1:15:35
  So. So we will start the 250th year
• 1:15:37
  anniversary celebrating the Declaration of Independence in
• 1:15:40
  the Articles of Confederation, which empowered all the States
• 1:15:42
  and the states are regulating finance, which is why that
• 1:15:45
  graphic is relevant. And so without federal
• 1:15:47
  registration, I think finance is going to have maybe the the
• 1:15:50
  least powerful regulatory oversight and structure.
• 1:15:54
  One of the guy that consider though, is Robin Hood.
• 1:15:57
  Robin Hood is a primarily an exchange here in the US trading
• 1:16:00
  stocks. They're doing a lot of options
• 1:16:02
  and a lot of stocks and, and, and bonds.
• 1:16:05
  They got into crypto about a year and a half ago and their
• 1:16:07
  revenues when crypto have exploded, they're actually
• 1:16:09
  generating a billion in crypto revenue right now.
• 1:16:12
  So it seems to me like Robin Hood is now going to be a big
• 1:16:14
  competitor to all these guys and, and actually might be the
• 1:16:17
  winner in this, in this space because of their, their retail
• 1:16:21
  platform. So I think the, the thing to
• 1:16:24
  take away now on Kraken is, you know, great company.
• 1:16:28
  Is it going to be one of the, you know, is it going to, is it
• 1:16:30
  going to survive? Because do we really need 3
• 1:16:33
  exchanges or is really one or two sufficient?
• 1:16:37
  And if they do what, what are they going to focus on?
• 1:16:39
  If they can zero in on, on a professional trader, on an
• 1:16:43
  institutional trader and provide features and services for that
• 1:16:46
  for those customers, then I think that's going to be a, a
• 1:16:49
  viable play for them. But I think they are going to
• 1:16:51
  have a hard time getting into the retail space, especially
• 1:16:54
  with Coinbase and finance and now Robin Hood coming after that
• 1:16:56
  space. So I do like crack and that just
• 1:16:58
  be really careful about how they position position themselves in
• 1:17:01
  the market and and that's going to implicate their valuation.
• 1:17:06
  I think one thing that's maybe also interesting to bring up
• 1:17:09
  about Kraken, you you mentioned the tribe is an investor, but I
• 1:17:14
  think that goes a little bit deeper than that.
• 1:17:16
  Arjun Sethi was the founder and CEO of tribe, but also of
• 1:17:21
  Kraken. He was an investor in Kraken
• 1:17:24
  through tribe and then jumped in to become Co CEO, I guess of
• 1:17:28
  Kraken. And Arjun is a pretty amazing
• 1:17:32
  character. I guess he's been an investor
• 1:17:36
  before at Social Capital with. Chamath, Chamath.
• 1:17:42
  Paleopatia, he was also Co founder and CEO of a company
• 1:17:46
  called Message Me that was acquired by Yahoo and another
• 1:17:48
  company called Lol Apps. But pretty, pretty amazing
• 1:17:55
  entrepreneur and investor and I believe he had some time at
• 1:18:01
  Facebook as well where he was working with Chamath.
• 1:18:06
  So do we often see AVC who is also ACEO in the company?
• 1:18:11
  That's, that's not very typical. I guess Keith Ray Boys has done
• 1:18:14
  that in the past and maybe a few others, but that's not that
• 1:18:17
  common, right? It's.
• 1:18:20
  Definitely not that common, no. I guess that's a very good vote
• 1:18:23
  of confidence if as AVC to jump into a company and you love it
• 1:18:27
  so much that you want to marry it and become the CEO and make
• 1:18:30
  that your full time job is that's a huge one of confidence
• 1:18:33
  in the in the company. And Arjun is he's an incredible,
• 1:18:36
  he's an incredible entrepreneur and a very successful 1.
• 1:18:38
  So that's that is great leadership at Kraken right now
• 1:18:40
  for sure. Well, it seems like all these
• 1:18:43
  different exchanges, both ones that focus on crypto and maybe
• 1:18:46
  even public companies that are, you know, offering access,
• 1:18:51
  they're starting to offer more and more products.
• 1:18:53
  And it seems like the crypto exchanges, I wonder if they
• 1:18:57
  start moving into offering access to private companies and
• 1:19:02
  some of the ones that are public that are offering public access.
• 1:19:04
  Maybe also we saw that news item with Robin Hood accessing, you
• 1:19:08
  know, private companies. Seems like we're starting to see
• 1:19:11
  lots of different products on lots of different exchanges.
• 1:19:13
  There is. Value to having segmentation and
• 1:19:15
  specialization being in private markets is very different than
• 1:19:18
  public markets. The the regulations are
• 1:19:21
  different, the accreditation standards are different.
• 1:19:23
  You also have to navigate, you know, different customers who,
• 1:19:26
  who want to be in different asset classes.
• 1:19:27
  So people who like, I don't know, corporate bonds, for
• 1:19:30
  instance, are just different than stock owners than different
• 1:19:32
  than crypto owners. But Robin Hood seems to be
• 1:19:35
  heading down that path that they want to offer everything to
• 1:19:37
  everybody. They're already in the public
• 1:19:39
  market. They're already making, making
• 1:19:40
  markets and equities and options.
• 1:19:42
  They want to get into crypto. They seem to want to get into AI
• 1:19:45
  private deals. So they seem to be the one
• 1:19:47
  that's like, hey, we'll be the one stop shop and offer
• 1:19:50
  something to everybody and everyone else.
• 1:19:51
  I think is going to have to decide you want to be all things
• 1:19:54
  to all people or do you want to specialize in something where
• 1:19:57
  you're going to have the deepest markets, the best pricing, the
• 1:19:59
  most liquidity, the most knowledgeable investors.
• 1:20:02
  And then I think hanging over all that is like the betting
• 1:20:04
  markets, right Poly market and culture that we've talked about
• 1:20:06
  before. Are they going to offer some
• 1:20:08
  some place that also lets people make markets and trade areas
• 1:20:12
  and. My my thinking is there'll be
• 1:20:13
  one or two that go for the platform that does everything
• 1:20:16
  for everyone. Maybe that's Robin Hood and
• 1:20:18
  everyone else like Schwab and Kraken will have to specialize
• 1:20:21
  in some area in order to carve out their their nesh and and do
• 1:20:25
  well. But we'll see.
• 1:20:34
  Come on. Hello.
• 1:20:38
  There, welcome to an extended update to the evaluation corner
• 1:20:43
  that you just saw. We had covered crypto exchanges
• 1:20:47
  this week and one of them was Kraken, which we had said was
• 1:20:50
  valued at 15 billion, which we thought was a pretty good trade
• 1:20:53
  given that that was 10 times their sales.
• 1:20:56
  And we also underscored the Kraken was probably the most
• 1:20:59
  sophisticated and most appropriate product for
• 1:21:03
  institutional high volume traders.
• 1:21:06
  And lo and behold, in the last couple of hours, just as the pod
• 1:21:08
  is going live, we learned that Kraken has scored an $800
• 1:21:11
  million raise backed by, among others, Citadel, which as Ken
• 1:21:16
  Griffin's shop, they are a market maker.
• 1:21:20
  They're a very successful one. But interestingly, Ken has been
• 1:21:24
  generally pretty negative on digital currencies and
• 1:21:27
  cryptocurrency. So I suspect that they're moving
• 1:21:30
  to into crypto after years of being a little bit skeptical
• 1:21:35
  about it just means that they think that it's it's a big play
• 1:21:38
  that maybe Ken Griffin is warming to digital assets.
• 1:21:41
  And, you know, maybe the the more political, the more
• 1:21:44
  favorable political and regulatory environment has
• 1:21:47
  something to do with that. And they say a big opportunity
• 1:21:49
  outside of the US as well. So a little bit of convergence
• 1:21:53
  between traditional finance and the digital markets and kind of
• 1:21:56
  an important update on our on our valuation corner.
• 1:22:00
  Very good signal for Kraken, who I suspect will be using the
• 1:22:02
  funds to think about global expansion, maybe an IPO.
• 1:22:06
  And it seems like with that capital from Citadel and that
• 1:22:10
  distribution capability that makes them a a much more
• 1:22:14
  interesting, interesting story than I think they were even 24
• 1:22:17
  hours ago. So interesting update for the
• 1:22:20
  valuation corner. Hope you enjoyed it.
• 1:22:23
  We'll see you next time. Bye bye.
• 1:22:29
  Like Nvidia's been invested in every single company on the face
• 1:22:31
  of the earth. They just gave my daughter's
• 1:22:33
  lemonade stand a term sheet the other day.
• 1:22:35
  But that is the $64,000 question, as American game show
• 1:22:41
  host used to say. Or maybe that's the, you know
• 1:22:44
  the where's that the CN¥240,000 question if I have to look
• 1:22:48
  localize that I think. It's the 64 GW question sees how
• 1:22:54
  Ahmad has the murderers row behind his head.
• 1:22:56
  And we're using some sports baseball analogies, you know.