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Transcript

TP15: Ben Black Akkadian Ventures🏆 | Secondaries Secrets 💎 | RAISE Conf 🎯 | Vercel $9B 🚀 · trading places

• 0:00
  Managing your LP's is such an important part of your job and
• 0:03
  people think that this job is about investing.
• 0:06
  How many people do you think in the Bay Area have equity valued
• 0:10
  north of 1,000,000 S of like 1020 million?
• 0:14
  Now we're being selective like we rejected probably 200 LP's
• 0:17
  last year. Oh my gosh.
• 0:18
  Because they weren't real enough.
• 0:20
  Big enough? The reason I think they like
• 0:22
  Versatile is they the growth has been extraordinary.
• 0:25
  Their AI cloud platform and the new products is setting the
• 0:29
  benchmark in the industry right now.
• 0:56
  All right, we're here for another episode of our very bad,
• 1:00
  horrible, terrible show Trading Places.
• 1:03
  We have some. Pretty big stories in IPO.
• 1:06
  News and M&A news this week. We'll start with SpaceX.
• 1:10
  There was a surprising, I guess, primary.
• 1:12
  Round. Valuation that was floated at
• 1:14
  800 billion. That was a doubling of Spacex's
• 1:18
  previous valuation, which was just a few months ago.
• 1:21
  Even more surprising was SpaceX itself and or Elon announcing
• 1:26
  that there might be a 2026 IPO as part of that.
• 1:29
  They were not planning to spin out Starlink, $800 billion
• 1:32
  valuation for SpaceX. That's that's probably close to
• 1:36
  50 times revenue. That's starting to get back to
• 1:39
  crazy times. Aman.
• 1:41
  Is that is that a reasonable evaluation or not?
• 1:44
  And what's driving all this, SpaceX?
• 1:46
  Was a little bit of a surprise only because as he said, they
• 1:50
  had only they've only completed their last secondary and buy
• 1:53
  back round in Q3 at a $400 billion evaluation.
• 1:57
  We are investors in the SpaceX, so we've followed that one
• 2:00
  pretty closely. We know that one was
• 2:02
  oversubscribed. We know that the $400 billion
• 2:05
  valuation probably left something on the table just
• 2:08
  based on demand. But now they seem to be in talks
• 2:11
  at 800 billion and they're they're not even done really
• 2:15
  with the paperwork on the, on the $400 billion round that that
• 2:18
  paperwork is still being finalized.
• 2:20
  And what's also surprising is their CFO was talking about an
• 2:23
  IPO in the second-half of next year.
• 2:26
  And so that's the last time they had talked about the IPO was
• 2:29
  2020 when they were talking about spinning off Starlink.
• 2:33
  And I think what happened was they were testing the waters and
• 2:35
  maybe Starlink didn't get the valuation they wanted.
• 2:38
  So they kind of just decided, I think smartly to stay private
• 2:41
  and raise a lot of money and have a lot more flexibility on
• 2:44
  their business. And so this, this might be like
• 2:46
  just testing the waters again, just to see what now the, the
• 2:49
  public markets will do. And I can imagine them thinking
• 2:52
  about if IPO for the full company, I can, I can imagine
• 2:54
  them deciding to spin off Starlink and keeping the launch
• 2:58
  business private. Or you know, maybe this is maybe
• 3:02
  there's some kind of some, some variation of the two just
• 3:04
  depending on market demand. But it certainly seems like
• 3:07
  they're they're shopping. The star link revenue is now the
• 3:11
  majority of SpaceX revenue and that's growing pretty quickly.
• 3:15
  I think last time we checked in maybe at 50% year over year.
• 3:19
  But I wonder how much if any of this $800 billion evaluation is
• 3:24
  Elon wanting to leapfrog Sam and open the eyes, you know, $500
• 3:28
  billion evaluation. Do you do you think that plays
• 3:31
  into this a little bit or is that just me sort of trying to
• 3:34
  draw up some animosity here? I am sure there's something in
• 3:41
  you know, Elon will send Sam a private message that says, you
• 3:45
  know, I'm back on top Elon 10 if he ain't first or last.
• 3:51
  It's a quote working Bobby. But I guess the question is, you
• 3:53
  know, ego egos of tech entrepreneurs are always a part
• 3:56
  of the story. I just I wonder whether the
• 3:58
  market will accommodate it and how they'll value SpaceX.
• 4:01
  Because to your point, you know, this, this is a rich valuation,
• 4:03
  right? 15/16/17 billion for SpaceX.
• 4:06
  Open AI is, is tracking towards 20 billion in ARR by the end of
• 4:10
  this year and probably will be closing in on 50 next year.
• 4:13
  I don't think SpaceX will get to 50.
• 4:15
  So it feels like SpaceX, you know, is probably just in terms
• 4:19
  of financials, not quite as far as open AI, open AI is.
• 4:22
  But we talked about SpaceX in Pod 5 and we did a whole deep
• 4:27
  dive on it. And just to summarize how that
• 4:29
  ran down, I think you have to look at the business as a lot
• 4:31
  more than just the Starlink revenues.
• 4:33
  That's a piece of it. But the launch business and what
• 4:35
  it what it portends for the next 5 or 10 years is really what the
• 4:38
  bet is here. I guess we're starting to like
• 4:42
  value the company based on futures, maybe not so much the
• 4:45
  current revenue, but but perhaps Elon was like, hey, you know,
• 4:52
  open the eye is being valued at 50 times revenue.
• 4:54
  Anthropics. We, you know, valued at high
• 4:57
  multiples. So maybe he can get a high
• 4:59
  multiple for SpaceX as well. Last last time we did that
• 5:03
  valuation cup, I don't think we thought it was crazy valued, but
• 5:06
  maybe at at twice the value. Now it's starting to be a little
• 5:09
  bit more optimistic about future growth.
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  I don't know. I'm starting to get a little bit
• 5:15
  skeptical about how the company's being valued there.
• 5:20
  Merry Christmas, meatwad. Suit when I go get that glue
• 5:26
  down. Moving on a little bit, let's
• 5:37
  let's go over to another company that's always in the news,
• 5:40
  Anthropic. Anthropic is supposedly hiring
• 5:45
  lawyers for its IPO. They hired Wilson Sonsini and
• 5:48
  Topic had been in the news I think last week for raising at a
• 5:51
  $300 billion valuation. That was kind of a big jump for
• 5:54
  them. Now they're sort of saying, hey,
• 5:56
  we're going to hire some lawyers and start talking about an IPO
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  in 2026. Does that seem legit?
• 6:02
  Yeah, definitely. I'll, I'll make you a call.
• 6:05
  She bet Dave, I'm going to, I'm going to 2026.
• 6:09
  We will see the biggest IPO of all time.
• 6:11
  Somebody will go out and break the all time record, which is
• 6:14
  like Alibaba and Saudi Aramco. I don't know if, I don't know if
• 6:18
  it'll be Anthropic. I think that is going to be they
• 6:21
  can definitely go public if they want to, given their size,
• 6:23
  scale, revenue momentum, whether they can get to a $300 billion
• 6:27
  valuation in the private markets, which would then mean
• 6:30
  you have to IPO it half, half a trillion or more, 600 trillion.
• 6:34
  That seems like a a lot of work to do.
• 6:37
  But Open AI is thinking about an IPOII still do love SpaceX, 800
• 6:41
  billion. One of those guys I think will
• 6:43
  set that high bar. The challenge with Anthropic is
• 6:45
  as good as Claude is, it's an enterprise focused platform.
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  There's a lot of winners in enterprise.
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  I think Open AI is the the leader on the consumer side.
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  Hard to hard to imagine Anthrop of anyone else unseating open
• 6:56
  AI. If there was a challenge in open
• 6:57
  handed consumer side it's probably Google Gemini.
• 6:59
  Not anthropic, but anthropic has definitely got a, you know, a
• 7:03
  shot given their their growth, their momentum, their scale now
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  at 10 billion plus an AR. So another Anthropic related
• 7:09
  news story, Anthropic is in Tarx to buy developer tool BUN Bun
• 7:15
  which is a software platform to manage code more efficiently and
• 7:19
  the cloud code agent actually achieved the billion dollar AR
• 7:22
  just on its own last month. So does seem like Anthropic is
• 7:26
  doing well on growth and revenue, but also now looking at
• 7:29
  acquisitions. It makes sense to me that
• 7:31
  anthropic, but in parallel to pursuing to build it, they
• 7:35
  would, they would try to buy stuff when you get a when you
• 7:37
  get to a valuation of 300 billion like they are if you've
• 7:40
  got a currency that you can play with, they are short on cash
• 7:43
  like we've talked about with some of these other players.
• 7:46
  So they're and every, every bit of cash they've got that they're
• 7:49
  not running on CapEx, they're, you know, they're trying to hire
• 7:53
  developers. So I don't know that they can
• 7:56
  spend cash on their M&A, but I bet if they can do this, it was
• 7:59
  stock deal, then that's $100 evaluation.
• 8:01
  That's a valuable currency to play with.
• 8:03
  So that that makes sense to me. Don't just stand on it.
• 8:08
  Now you need to hold it. Let's vibrate.
• 8:10
  I got it, chubby. I can do two things in one.
• 8:12
  No, you can't. You mean Louis making a
• 8:14
  comeback? The magazine down and hold it
• 8:16
  with your hands on Furious. We calm down and we try.
• 8:20
  Meet what you can. Pretend to get up now.
• 8:23
  Open the Eye issued this code. Red Sam and Open the Eye are
• 8:27
  readying their next release of GPT ChatGPT that I think they're
• 8:32
  accelerating a little bit because of maybe some of the
• 8:35
  negative perceptions of Open the Eye after the Google Gemini 3
• 8:39
  roll out. This is not the industry saying
• 8:42
  code Red, correct? This is like Sam using those
• 8:46
  words and why would he do that? There's a there's a motivational
• 8:49
  factor when you're in a competition and you want to make
• 8:52
  sure your employees are paying attention and you want to make
• 8:55
  sure they're focused and not wasting time on stuff that's off
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  core. Then you you want to make sure
• 9:02
  that words like code red and eBay beast, the word turn
• 9:05
  around. We were growing business, profit
• 9:07
  business in 2000, 2009, but we knew it wasn't going as well as
• 9:10
  we thought. And so we used the word turn
• 9:12
  around to really make sure that people knew we were taking this
• 9:14
  seriously and it was all hands on deck.
• 9:16
  I think it's a lot of motivation here that Sam is using to keep
• 9:19
  his troops focused. Like what's your take or what do
• 9:23
  you, what do you think? Yeah, I, I don't profess to know
• 9:25
  Sam that well. I've certainly competed against
• 9:27
  him in the past when I was running 500 and he was at YC.
• 9:31
  But he's a very thoughtful, smart person.
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  I'm sure that Code Red was issued in an internal memo.
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  There probably was a reason why he wanted to rally the troops
• 9:41
  behind that. But I also don't know that
• 9:43
  they're in a terrible position. I think there's probably just,
• 9:46
  you know, criticisms and a couple different places about,
• 9:49
  you know, them raising money, them spending a lot of money.
• 9:52
  Obviously there is. A lot of high stakes.
• 9:55
  Poker going on but still opening eyes revenue and growth is
• 9:59
  pretty substantial and I I do feel like they're one of the
• 10:01
  biggest stories out there so. We'll see what.
• 10:04
  Happens with the next release and roll out of Chachi PT but
• 10:08
  I'm guessing Sam has a few cards up his sleeve that.
• 10:15
  Was a good sleep that I had where the damn problem.
• 10:19
  It's the middle of the day. Meanwhile, that wasn't Santa
• 10:21
  Claus. OK, you.
• 10:22
  Know I know who Santa's just started doing the jump start on
• 10:25
  things this year because, you know, statistics.
• 10:27
  But there are more children in the world to adult.
• 10:31
  That's China's fault. Where do you get this
• 10:33
  information? The next biggest story that was
• 10:37
  hitting last week, which was Netflix announcement that they
• 10:40
  were acquiring Warner Brothers, Pretty big story.
• 10:44
  I'm on an $83 billion acquisition.
• 10:47
  I guess this hasn't formally happened yet.
• 10:49
  They just announced that they were buying them for 83 billion.
• 10:53
  But again, maybe caught some people by surprise.
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  I think there was previously a lot of discussion around Warner
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  Brothers being brought by bought by Paramount and Larry Ellison's
• 11:02
  son David Ellison, I believe, is leading that effort.
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  What's your thoughts about the Netflix acquisition and whether
• 11:10
  this will actually go through or not?
• 11:11
  I do really like this deal here. Here's the summary of what it
• 11:15
  is. So it's Netflix which is the
• 11:17
  leader on the streaming side. They have something like 46% of
• 11:21
  all minutes in the US if you just measure like user
• 11:24
  engagement by minutes watched. But they and they are, I would
• 11:28
  say very strong on distribution and very strong in marketing.
• 11:31
  I don't know what your take is under content, David, that the
• 11:34
  content is, it's good, it's maybe AD or AD plus.
• 11:37
  I would say it's stronger than that, but I mean, they they are
• 11:41
  competing against some other major players like Disney and
• 11:44
  there's other premium content out there.
• 11:45
  But I think Netflix has both, you know, their own original
• 11:48
  contents as well as syndications from other folks.
• 11:51
  Yeah, absolutely. And they've got some top rated
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  shows. They've been winning Academy
• 11:55
  Awards. One thing if you do watch the
• 11:57
  Oscars on a frequent basis like I do you, you notice that they
• 12:00
  seem to win the documentary feature category over and over
• 12:03
  again. And so let's give them an even a
• 12:05
  minus in category in the content category.
• 12:07
  But a merger with Warner Brothers is a they're an A+ and
• 12:13
  content a much richer library, I think than than really anyone
• 12:17
  out to set Disney aside. Disney it's its own, you know,
• 12:20
  in its own category. But the history of Warner
• 12:22
  Brothers is amazing. Very few people really know the
• 12:25
  size of that content library, but this dates back to the 1920s
• 12:28
  when the Warner Brothers, who were Polish American immigrants,
• 12:32
  founded the studio and they created content like The Jazz
• 12:35
  Singer, which was a transformative movie, really the
• 12:37
  first full feature length Taki that synchronized like audio and
• 12:41
  and video for the first time ever that was Warner Brothers
• 12:44
  Casablanca and Citizen Kane. Maybe the two best movies ever
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  made are Warner Brothers. The 20s, thirties, 40s are
• 12:51
  replete with this all kinds of content from the golden era of
• 12:55
  Hollywood. And then they thought, you know,
• 12:56
  Harry Potter and the DC studios and all kinds of other content
• 13:00
  around Looney Tunes. And, and that combined with the
• 13:03
  Netflix, I think makes for a really powerful 1-2 combination
• 13:07
  in terms of the two of the top leaders in content getting a the
• 13:11
  benefit of the Netflix distribution.
• 13:13
  The challenge I think though is going to be there was always
• 13:17
  some pushback, I think. And what's going to it's going
• 13:19
  to go into some litigation on antitrust as to whether the
• 13:23
  number one streamer in Netflix at 46% market share can then
• 13:28
  merge with the number, let's say the number 3 or 4 streamer in
• 13:31
  HBO Max at 10% of minutes and whether the combination results
• 13:34
  in a anti competitive combination.
• 13:38
  I think this will come down to a discussion over what how they
• 13:42
  how they define anti competitive behavior.
• 13:45
  I want to refer you to a maybe the most influential book on
• 13:47
  antitrust ever written. It's by a hero of mine, Robert
• 13:50
  Bork, who wrote in the 70s a book called the Antitrust
• 13:53
  Paradox and his view and and mine is that a lot of antitrust
• 13:57
  historically is just has been misbegotten in terms of thinking
• 14:01
  about curbing business power and anti competitive behavior.
• 14:05
  The, the acts that started off the whole thing, the Sherman
• 14:07
  Antitrust Act were very loosely worded and, and awkward and the
• 14:11
  courts misapplied them in the early years and the last 20 or
• 14:14
  30 years have really focused on, on Bork standard consumer
• 14:17
  welfare. So the question is, does this
• 14:18
  new company limit consumer choice, raise prices, change
• 14:22
  inventory? Does it help economic efficiency
• 14:25
  or or not? And if, if you just based, if
• 14:28
  you, if you look at based on that, then I think Netflix and
• 14:30
  Warner Brothers might be OK because they won't be raising
• 14:33
  prices or limiting choice. But if you define it as a market
• 14:36
  streaming and it's a dominant market share that then curbs
• 14:38
  competition or somehow empowers a big tech company, then, you
• 14:42
  know, the current Trump administration's been a little
• 14:44
  bit hostile to that sort of stuff as well as the Biden 1.
• 14:46
  So I think maybe it's a 50506040 bet on whether it even happens.
• 14:51
  Andreessen Horowitz threw out a chart, I think earlier this week
• 14:54
  about the new size of Netflix. If combined with Warner
• 14:59
  Brothers, that would leapfrog YouTube and Disney a little bit
• 15:02
  in terms of television screen share.
• 15:04
  Time that I think there's different.
• 15:06
  Metrics that you could use and YouTube is probably still the
• 15:08
  leader in terms of overall minutes watch Disney obviously
• 15:11
  got a huge you know strong share of both users and content but I
• 15:16
  I think. Some of the properties.
• 15:17
  You didn't mention there I think been the.
• 15:19
  Under ACE Rio Max. Are interesting.
• 15:21
  Game of Thrones is a big title. You are emphasizing the
• 15:24
  historical stuff from Warner Brothers.
• 15:26
  But the Harry Potter series, the Lord of the Rings series, the DC
• 15:30
  Universe, particularly the Batman properties, are pretty
• 15:32
  interesting and, you know, very relevant recently.
• 15:35
  Absolutely. Yeah.
• 15:37
  I agree with you. I guess in a previous
• 15:38
  administration, I would suggest this probably wouldn't go
• 15:41
  through because of opposition to, you know, large monopolies
• 15:44
  and mergers. But in the current
• 15:46
  administration, I wonder if they can get it done.
• 15:49
  Maybe there's a little bit more leeway for, you know, companies
• 15:52
  acquiring others in this administration.
• 15:55
  Maybe I I have been disappointed in the Trump administration on
• 15:58
  their take on M&A in general. I think we've gone from the
• 16:01
  three out of 10 to like a 4 1/2 or five out of 10.
• 16:05
  But whereas Bork would be at an 8 out of 10 and I'd be, I'd be
• 16:08
  all the way to just, you know, let it just let it go, let the
• 16:10
  market work get out of the way. The courts would really be where
• 16:13
  this goes, that if the administration challenges it,
• 16:15
  which they might, the courts will still have the final say.
• 16:18
  And so it's still the trouble. Administration may be a little
• 16:22
  bit more friendly, but they'll still have to, I think, get
• 16:24
  through the courts. And the courts have been, I
• 16:26
  think, much more protective of the consumer welfare standard.
• 16:29
  So I think it's a better than even that.
• 16:30
  But the unions are already angry about it and they'll be some,
• 16:33
  you know, some, some objection from who's the Paramount was the
• 16:38
  other bidder, right. Paramount's already trying to
• 16:41
  stop the deal. So there'll be some, there'll be
• 16:43
  some special interests who are not happy with this deal.
• 16:47
  I guess if we look at the polymarkets as a trade here on
• 16:50
  who will acquire Warner Brothers, and you'll notice that
• 16:53
  that trade changed dramatically this past week and Netflix
• 16:59
  jumped into the lead as of that announcement last week.
• 17:03
  Prior to that, yes, I think Paramount had been in the lead
• 17:06
  for who is likely to acquire the company.
• 17:09
  So definitely a little bit of changing of the guard there.
• 17:13
  We'll see if that goes through. Damn it, you're all right.
• 17:22
  No, don't worry about me. I felt two stories.
• 17:25
  I'm fine. Good.
• 17:26
  Because it did happen on your side of the lawn, remember?
• 17:31
  On other M&A news fronts here, Marvel is announced to be
• 17:34
  acquiring Celestial AI for somewhere between 3 to 5
• 17:37
  billion. I guess that depends on cash and
• 17:40
  stock and some other milestones, but that's a pretty substantial
• 17:44
  move. Yeah, that is a big acquisition.
• 17:45
  That's not that's not Marvel the superheroes.
• 17:48
  That's Marvel Lee software company trying to get into AII
• 17:52
  guess. So that is certainly a big sized
• 17:54
  deal. That seems like a very easy to
• 17:56
  justify move for for them in order to acquire a capability in
• 18:01
  AI. Marvel says the, you know,
• 18:02
  semiconductor company that's been around for a long time,
• 18:04
  they don't think they've got the internal chops or the DNA for
• 18:08
  AI. So I would expect them to be
• 18:10
  going going after these kinds of companies aggressively.
• 18:13
  I think we're starting to see M and A become a lot more.
• 18:16
  Relevant particularly in the last year, it's sort of gotten
• 18:19
  back into the news. The information did a summary of
• 18:24
  2025 M&A and I guess the total merger value was over 500
• 18:30
  billion. If we kind of look in comparison
• 18:33
  to prior years, that's that's certainly higher than the last
• 18:36
  two years, actually the last three years.
• 18:40
  You think M&A is going to be big in 2026, Salon?
• 18:46
  Yeah, I think so this is this is just just now tech M&A coming
• 18:50
  from the information. So it seems like if I look at
• 18:52
  this year versus last year and compare that, forget about 2020
• 18:57
  and 21 which are outliers, but compare these last two years to
• 19:01
  the 2016 to 2020 trend, I would say it's normalized.
• 19:06
  I think we probably saw some the headwinds in the last couple of
• 19:10
  years were one, I think on the macro front valuations there was
• 19:16
  just a lack of the evaluations weren't what the sellers wanted.
• 19:19
  So it slowed everything down just like the IPO market.
• 19:21
  And then there was some regulatory headwinds from
• 19:24
  especially the FTC and Lena Khan.
• 19:26
  I think Andrew Ferguson of the current Trump administration is
• 19:29
  a little bit better, not much better, but a little bit better
• 19:31
  on M&A. And then for sure the valuations
• 19:33
  have have rebounded now. So the regulatory headwinds are
• 19:36
  are going away that the macro headwinds are going away.
• 19:40
  Interest rates seem to be going down, not up, which also makes
• 19:42
  capital easier to acquire. So I think we're back to a
• 19:45
  normal M&A environment now from 25 into 26, it'll be, it'll be,
• 19:49
  it'll look like the last, you know, 5 or 10 years before the
• 19:52
  before the COVID boom in the bust.
• 19:54
  Let's talk a little bit about public policy and the Fed.
• 19:58
  There was speculation that Kevin Hassett is now likely going to
• 20:03
  be the Fed chair pick. I think Trump is scheduled to
• 20:07
  pick a new Fed chair sometime in next May.
• 20:09
  What's your take on Kevin Hassett?
• 20:11
  Why is this kind of changed recently?
• 20:14
  Yeah, so the Fed chair is the role that Jerome Powell holds
• 20:17
  right now. He was nominated for the first
• 20:20
  time in 2018 by President Trump. Trump 45.
• 20:24
  He was then renominated by Biden.
• 20:27
  But Trump, 47, is a little bit angry because he thinks Sherman
• 20:31
  Powell's not lowering interest rates fast enough.
• 20:33
  So there will be a new chairman in the Middle East 2026.
• 20:36
  It's a little unusual to announce the new chair this far
• 20:39
  in advance, but I think it's down to a two person race.
• 20:43
  The process has been run by stock.
• 20:44
  That's not the Treasury Secretary.
• 20:46
  So on the left is Kevin Hassett, who now seems to be the front
• 20:48
  runner. I think his the pros and cons of
• 20:51
  him would be he has a senior economic advisor on multiple
• 20:55
  presidential campaign, like a long time political insider,
• 20:58
  very well thought of, especially on the both on the traditional
• 21:00
  Republican right and the more Trump side.
• 21:03
  He's been Trump's head of the the National Economic Council,
• 21:05
  which is sort of the top advisory policy decision making
• 21:09
  in Washington. So he's got Trump's ear and
• 21:11
  Trump trusts him. On the right hand side is Kevin
• 21:14
  Walsh, who is maybe a little bit more also very well thought of.
• 21:16
  I actually like Kevin Borsch a lot.
• 21:18
  He's a whoever economist here on Stanford campus.
• 21:20
  He was a member of the Fed Reserve Board in 2006 to 11.
• 21:24
  He also happens to be a Stanford undergraduate and Harvard
• 21:26
  lawyer. The downside of Kevin Wash if
• 21:28
  you're President Trump is that he's a it's a little bit more
• 21:31
  difficult to know what he will do or why.
• 21:33
  Both Wash and Hassett have said they want to cut interest rates.
• 21:35
  Both of them have said given a a philosophy around why they want
• 21:39
  to do that. But I think Hassett might be a
• 21:41
  little bit more suggestible. At the same time, I think worse
• 21:44
  might have a little bit more credibility with the markets
• 21:46
  because the markets. Do you like a more independent
• 21:48
  Fed? But Hassan's doing a good job of
• 21:51
  navigating getting Trump's confidence and keeping
• 21:54
  conference to the markets. And so I think I think what this
• 21:56
  means is by the middle of next year, we'll have a new Fed
• 21:58
  chair. It does seem to me like this new
• 22:01
  Fed chair will have a lot of say in the next couple of months
• 22:04
  just to influence the press, the narrative and members of the
• 22:07
  board. We talked a bit about this last
• 22:09
  time when the markets were going risk off that there was a a view
• 22:12
  that the Fed would not counter straights in December.
• 22:14
  I took the other side saying I think they will.
• 22:16
  Here's a list of all the current voting members of the Fed, all
• 22:19
  the members of the Fed and the Open Market Committee.
• 22:21
  The green ones are the voters. So I feel now that the Fed's
• 22:24
  going to be a lock to cut interest rates in December and
• 22:27
  probably two or three more times next year as well.
• 22:30
  So I think that's why the betting markets have now taken
• 22:33
  on a, hey, it's going to be Kevin Hassett and all
• 22:35
  probability who's a dovish vote. And that probably means the Fed
• 22:38
  continues to cut interest rates in the next year.
• 22:41
  Well, you mentioned the betting markets that I think according
• 22:43
  to Kaushi, it seems like a luck that Kevin Hassett is going to
• 22:47
  be the next Fed chair that those numbers really started diverging
• 22:51
  I guess back as early as September, October, but clearly
• 22:54
  more substantially in just the last week or two.
• 22:57
  Yeah, I think there's been some announcements now that they're
• 23:00
  they're talking about Kevin Hassett and talking to market
• 23:03
  participants just to make sure that he's he's the guy.
• 23:05
  So he feels like Trump has made his decision and will announce
• 23:08
  it either end of this year or more likely, you know, early
• 23:10
  next. We were looking at a.
• 23:13
  Cal, she trade there, I guess. Cal, she itself is in the news.
• 23:18
  Cal, she recently raised an $11 billion valuation.
• 23:22
  I think we have prediction market raises in in our news
• 23:25
  almost every week now. Certainly some amazing growth
• 23:30
  going on, but amazing increases in valuation as well.
• 23:36
  Yeah, Cal, she had raised just back in June and at a $2 billion
• 23:40
  evaluation and they've done that with Sequoia and Paradigm and
• 23:44
  then they did one in October at a $5 billion evaluation capital
• 23:50
  G in Sequoia. And then you and I have covered
• 23:51
  them in our Prediction Markets podcast and said look for them
• 23:54
  now that polymarkets leapfrogged them and gone into 9 to 10
• 23:58
  billion and and is entering the US and is entering sports
• 24:01
  betting. We predict that calci will raise
• 24:05
  again and here they are at A at a level in our evaluation again
• 24:09
  paradigm, the lead, but they've got capital G and inducing
• 24:12
  Horowitz and Sequoia and and and Meritech and a bunch of other
• 24:15
  great investors. So it seems like they are most
• 24:17
  of their business now is the sports betting in US.
• 24:20
  And as that stuff becomes more the the red for uncertainty
• 24:23
  around sports betting is going down as the as the States and
• 24:25
  the feds have adopted this. And so I think that's the
• 24:27
  perfect time for Kaushik and pollen market to be raising.
• 24:31
  Some pretty great crazy. Growth numbers, not their
• 24:33
  revenue, but their overall trading volume, $70 billion in
• 24:37
  annualized trading volume, 8X increase in growth.
• 24:40
  I don't know how much of that is just in the past year, but
• 24:43
  pretty crazy growth and pretty crazy growth in valuations at
• 24:47
  the same time. OK, we're rocking around the
• 24:52
  Christmas tree. Any requests?
• 24:56
  How about you and the next price?
• 24:58
  There is a request a shut up. OK, couples only.
• 25:02
  Come on, This will get you dancing. close.
• 25:06
  Another company that's had some pretty crazy increases in
• 25:09
  valuation growth. AI company Harvey hit an $8
• 25:13
  billion evaluation. This is their third raise this
• 25:17
  year. The company started with a $3
• 25:20
  billion evaluation in February and a $5 billion evaluation in
• 25:23
  June, and now an $8 billion evaluation, almost a billion
• 25:27
  dollars in total raise this year.
• 25:29
  This round was led by Anderson Horowitz, 160 million Series F
• 25:33
  at the $8 billion evaluation. But that's a pretty crazy
• 25:38
  increase in valuation growth in one year, right?
• 25:41
  The company is now over $100 million in revenue.
• 25:46
  I guess that that's still an 80X revenue multiple, which is
• 25:50
  pretty crazy, but seems like the growth has also been growing
• 25:55
  pretty substantially as well. Here's a note from Sacra on
• 26:01
  Harvey's growth in valuation. I guess you're not growing as
• 26:06
  quickly as its valuation, but the revenue has gone up from 50
• 26:10
  million to 100 million this year.
• 26:13
  That's July their their the revenue number back in July was
• 26:16
  100 million and it says 400% year over year on the Y axis.
• 26:21
  And so I think if you, if you think that they're, there were
• 26:25
  100 million in the mid part of the year and they're raising
• 26:27
  now, they could be well north of that by the end of the year.
• 26:30
  This company's done 3 rounds this year as in like A2 to 3X
• 26:33
  step up. Guess who the first investor was
• 26:35
  in that February, March round? Sequoia again.
• 26:38
  So somehow Sequoia knows every time Sequoia gets into a
• 26:41
  February, February round at a fast growing company, you know,
• 26:44
  they seem to get marked up two to three X.
• 26:46
  Well, that's true of Kalshi. It's true of these guys.
• 26:48
  I don't know if that's always true of Sequoia, but good.
• 26:50
  Good for them to have two, you know, very significant markups
• 26:53
  from from both these fast growing companies.
• 26:57
  OK, our last premier round news story this week is Data Bricks.
• 27:01
  Data Bricks has also raised multiple times this year, now
• 27:05
  looking at a valuation north of 130 billion.
• 27:08
  I think the last time we. Covered them, they were raising
• 27:10
  at 100 billion. This is still maybe not too
• 27:14
  crazy that's about 32 times sales and the company's been
• 27:18
  growing at north of 50% in the last year.
• 27:21
  Do you think the data bricks at 134 billion is a decent?
• 27:24
  Buy a month. Well, you know, we covered them
• 27:27
  in pod one our our very first trading places and what we had
• 27:33
  said back then was there were a there were a good buy for the
• 27:37
  following reason. We had said there were 4 billion
• 27:40
  in closing on 4 billion on ARR, very similar to Snowflake.
• 27:45
  Their multiple then was 27 times sales now it's 32 times sales.
• 27:49
  So it's a, you know, a 50% premium to Snowflake, but the
• 27:53
  growth rate was twice what it was for Snowflake.
• 27:56
  They're growing at 50% and Snowflake's only half that.
• 27:58
  So on an adjusted basis of where their where their valuation and
• 28:02
  growth was, we were saying 100 billion sounded like it was
• 28:05
  actually too low. And it feels like, you know,
• 28:08
  with what I think what has happened now about six months
• 28:11
  later is the market has just done a new round and maybe
• 28:14
  corrected for the the continued growth and, and success of that
• 28:18
  category. So I, I feel like it was a good
• 28:20
  deal, you know, a good deal. Then I think it's probably just
• 28:23
  given the growth in their business and the progress
• 28:24
  they've made since you and I looked at this three months ago,
• 28:27
  it's it's probably still a good deal.
• 28:30
  Yeah, It seems like growth has been pretty sustained over the
• 28:32
  last three years that between 50 to 60% and this graph is showing
• 28:37
  4 billion in revenue in August. It's probably a little bit
• 28:40
  higher than that now, but it does seem like it's not crazy
• 28:44
  for them to be raising at north of $100 billion valuation.
• 28:47
  And I think the snowflake market cap as well, if that's their big
• 28:50
  comp, they're, they were at 64 billion four months ago and we
• 28:53
  look at it, they're probably 80, you know, late mid 80s right
• 28:57
  now. So they've that comp is also
• 29:00
  given some some basis I think for firming up the valuation for
• 29:03
  data bricks. OK.
• 29:04
  Our last news story this week is Meta, and I guess the story is
• 29:09
  Meta is planning some cuts in the metaverse.
• 29:13
  Maybe as they're expanding in AI, they're cutting back in sort
• 29:17
  of the metaverse and areas there.
• 29:20
  But what's happening and why are they cutting in this area?
• 29:23
  Bond, well, I think this was inevitable.
• 29:27
  This was a this area of the business, the Meta Reality Labs
• 29:31
  business segment, if you will, has probably burned.
• 29:33
  I'm doing the math now. I can't quite tell based on the
• 29:36
  latest filings, but it's something between 73 and $77
• 29:39
  billion and like the amount of money burned on Reality Labs
• 29:44
  going back for let's say 4 or maybe five years now.
• 29:47
  So they just, the revenues just haven't come around to where
• 29:50
  they, it was a big all in bet that Zuckerberg made that, you
• 29:54
  know, that just didn't work. And now the company's spending,
• 29:58
  they'll be doing 70 billion in CapEx next year and most of
• 30:00
  that's going to be on AI. So I think it's just inevitable
• 30:02
  that they have to reallocate money from the the Meta Realloca
• 30:06
  labs associated into AI. It looks like from the story,
• 30:09
  it's about a 30% cut or so and and headcount and burn out of
• 30:13
  that dissociated. So it'll still be a big bet for
• 30:15
  the company. It's obviously still their name.
• 30:17
  I don't know if we're going to change their name anytime soon,
• 30:19
  the trouble rebrand the AI network or something.
• 30:24
  But obviously that's where the energy and the momentum is.
• 30:26
  And so I think it's just a matter of, you know,
• 30:28
  prioritization, which as a shareholder of, of Meta, I've,
• 30:31
  I've, I, I criticized their burn on Reality Labs five years ago.
• 30:35
  I thought they did the right thing by moving towards the year
• 30:37
  of efficiency. And I think they're doing the
• 30:38
  right thing now. Well, quite a lot of news.
• 30:41
  This week seems like tech and finance is doing just fine.
• 30:45
  Yeah, I think so another, another exciting week and it'll
• 30:48
  be, it looks like a big year in 2026.
• 30:50
  It will be some will be some record IP OS, maybe some record
• 30:53
  M&A, certainly the lot to talk about.
• 31:05
  Today we have with us Ben Black. He's an expert in secondary.
• 31:09
  He's been running at Katie Adventures for many years and
• 31:12
  also the Rays conference. Ben, welcome to the show.
• 31:14
  Thanks. It's great to be here, Dave.
• 31:16
  Thanks for having me. Ben, I, I, you're an old hand in
• 31:19
  the secondary business and an old hand and running fund of
• 31:22
  funds. I guess people may know you more
• 31:24
  for the raise conference in the fund of funds than for Acadian
• 31:27
  and secondaries. But can you tell us a little bit
• 31:30
  about what's your, you know, overall business focuses and
• 31:33
  maybe how you got into the business?
• 31:34
  I discovered secondaries in 2010 and basically I'd left, you
• 31:39
  know, Mavron work with Howard Schultz up in, in Dan Levitan
• 31:43
  and come down to run a seed fund that I raised with the for the
• 31:47
  help of Andy Rapport from August Capital and Josh Becker.
• 31:50
  We raised $26 million in 2007 and then we went in 2008 and we
• 31:56
  had the great credit crisis and the great financial crisis and I
• 32:00
  lost my largest investor because they basically went bankrupt and
• 32:04
  they were 15 of the 26. So I had to manage a big pile of
• 32:11
  Doo Doo, you know? And then they already fully
• 32:14
  called when that. Happened, we had called at that
• 32:16
  point about when, when the when they sort of the crisis hit, we
• 32:18
  had called about 2.5 million from there 15.
• 32:22
  So not a lot, I mean you. Still had a big chunk that they
• 32:25
  probably. And couldn't, you know, come up
• 32:27
  with they, well, you know, they needed, they were trying to
• 32:30
  survive, you know, then you go read like for the first time as
• 32:32
  a manager, what do I do to default?
• 32:36
  This was just boilers out. I didn't refund you.
• 32:39
  Yeah, Yeah. I was like, yeah, exactly.
• 32:40
  I was like, I had no idea these sections like, and we found it,
• 32:43
  we could go to court and force them to put the money, the rest
• 32:46
  of the money into escrow. And they did not want us to do
• 32:49
  that. So we negotiate basically a cash
• 32:51
  payment from them that we basically give to the other
• 32:54
  investors as like a a default. And we made 7 investments at
• 32:59
  that point. And, and, and we ended up not
• 33:02
  Josh decided he was going to run for for office.
• 33:06
  He's now this, you know, the California State senator.
• 33:08
  I forgot that probably our connection was through Josh
• 33:10
  Becker 20 years originally 20 years ago.
• 33:12
  Yeah. And Josh is, you know, dear
• 33:14
  friend and he So now I'm just, you know, piling imagining this
• 33:18
  pile of Doo Doo. We made 7 investments and I had
• 33:22
  fees to cover at least three years of what's like trying to
• 33:24
  get these things to work. And of course, in typical VC
• 33:27
  fashion, I had one of the seven deals crushed.
• 33:32
  It went 70 XO power which bailed everything out.
• 33:35
  Oh yeah, right. Yeah, it ended up being a, ended
• 33:38
  up being a 2X fund on that one deal.
• 33:41
  That's fantastic because we got, Gunderson got their tax loss,
• 33:46
  they couldn't claim it. So we use their tax loss to
• 33:48
  protect all the profits because QSBS wasn't long enough.
• 33:52
  So it turned out fine, but I was like, seed investing is
• 33:55
  traumatic. What am I going to do?
• 33:58
  And so then I just came over this idea like, well, look, I
• 34:01
  kind of looked, looked around and said, well, this like, you
• 34:04
  know, industry and Ken Sawyer and other people are doing
• 34:06
  secondaries. Like I just start trying to do
• 34:08
  small secondaries in the Lake Street Capital.
• 34:11
  I remember those guys and and so that's why I started my first
• 34:14
  secondary in 2010. I did my first one 2011.
• 34:19
  I did 7 SPVS but but one of them was DocuSign at $1.25 and Splunk
• 34:25
  at like $4.00 and then was sort of off to the races and then
• 34:28
  built the firm from there. So opower you.
• 34:31
  Did you only do 7 investments out of that fund or were you
• 34:34
  going to do? Yeah.
• 34:35
  We only did 7. We never even did another
• 34:38
  investment. Basically the mechanics of it
• 34:40
  where they had the, I had the fees to cover expenses at that
• 34:44
  point. We, we just didn't, we never did
• 34:45
  any more deals because it was just kind of a mess.
• 34:48
  So I decided just to manage it out.
• 34:50
  And when it became clear the O power was real, I sort of said
• 34:54
  let's just let that drive everything.
• 34:56
  You're super concentrated. One out of seven is.
• 34:58
  I know. I was super lucky.
• 35:03
  Mark Wasn't Mark Sugarman also investor in power?
• 35:06
  He absolutely was and in fact I tried to lead the round and I
• 35:09
  was because I'm a value guy and a care of evaluation to my
• 35:12
  detriment in most cases. You know, I, I, I wanted the
• 35:16
  round to be like 5 pre and Mark gave him 6 and so I held my nose
• 35:21
  and threw in, you know, 100 or $200,000 check, I don't
• 35:24
  remember. And it just, it crushed out so
• 35:27
  fantastic. Anyway, Mark did great on it and
• 35:29
  you know, yeah, he did great on it.
• 35:30
  Good memory. So that's impressive.
• 35:33
  Oh, Mark's an old friend and I guess what I was starting 502
• 35:37
  years before I was getting into 500, I think, I can't remember.
• 35:40
  He was, he was giving me some advice and everything and he
• 35:43
  said, you know, I wanted to raise the twenty $30 million
• 35:45
  fund. I thought it was going to happen
• 35:46
  really fast. I ended up talking to 1000 LP's,
• 35:49
  raising from over 100 LP's. That took me two years.
• 35:51
  I was like, oh you're foolish. I'm not going to have that
• 35:54
  experience and exact same thing. And fundraising.
• 35:59
  And fundraising is tough. Fundraising is tough, yeah.
• 36:01
  Well, and particularly during that time, I think as you were
• 36:04
  telling that story, I was remembering, you know, I was
• 36:06
  trying to raise my first fund in 2008, I think it was Howard
• 36:09
  Hardenbaum. I remember being in Hawaii.
• 36:12
  The market was crumbling and I was like, I'm going to still try
• 36:15
  and raise this fund. And Howard likes it.
• 36:16
  And he's like, dude, you're done.
• 36:17
  Forget about it. And then?
• 36:21
  Fortunately, you know. It takes persistence takes
• 36:23
  persistence. Well, fortunately Sean Parker
• 36:25
  gave me a job at Founders Fund. I hugged out over there for a
• 36:28
  year, years. That was sort of like how I got
• 36:32
  started. But I, I do remember that was a
• 36:34
  super tough period. It was also what I made some of
• 36:38
  my best investments in that. You know.
• 36:41
  Q4 2008 to 2009, 2010 market was dead.
• 36:45
  Sequoia was doing, you know, tombstones like, you know, RIP
• 36:49
  good times. And those are when you know, I
• 36:52
  got into Credit Karma and Twilio and you know, lifted amazing
• 36:56
  prices and everything. So so you got super, I don't
• 36:59
  know, super smart, super lucky, whatever.
• 37:01
  One out of seven companies ended up being this huge win.
• 37:04
  When did it start seeming like it was going to be a win?
• 37:07
  I guess you had that investment, but.
• 37:09
  I mean, I think it moved relatively quickly to that.
• 37:12
  It was like clearly something and you know, with the seed
• 37:15
  investing market in 2009 was was brutal.
• 37:18
  And you know, and I just said, man, you know, I don't know, I
• 37:21
  think I'm more of a growthy guy than I'm a seed guy.
• 37:23
  So that was why you sort of switched to the later stage and
• 37:26
  then. Secondary, yeah, when I was
• 37:28
  doing seed investing, you know, you're on like, you know, 10
• 37:30
  companies and eight of them are in crisis constantly.
• 37:33
  And the two that like they're doing well that, you know, they
• 37:36
  don't need your help. And I, you know, so maybe maybe
• 37:39
  secondaries is a better, better thing.
• 37:40
  Also, if I have a, a personal issue, it's that I can't do what
• 37:46
  everyone else is doing. Yeah, for sure.
• 37:48
  I, and when, when I came up with direct secondaries, it really
• 37:51
  was because like I was trying to help one of my LP's with a big
• 37:55
  crunch. He, he needed money.
• 37:57
  And so I, he had a really interesting position in a really
• 37:59
  good software company and I helped him.
• 38:02
  I called all the secondary guys and I dealt with them all.
• 38:04
  And that that's where you kind of, yeah, talk to Ken and maybe
• 38:07
  talk to. You know, yeah, yeah, yeah.
• 38:09
  Yeah, folks, that a. Little, you know, industry
• 38:11
  ventures had a $4 million minimum sized ticket then and I
• 38:13
  said, yeah, I can do $1,000,000 deals all day long, you know
• 38:17
  what I mean? And so that's where I, I brought
• 38:19
  up my, you know, this. Is so funny, 10 years later,
• 38:22
  that was the same thing that I went through was like, yeah,
• 38:24
  there's nobody doing some $5,000,000 million dollar deals,
• 38:27
  right? Exactly.
• 38:28
  Well, you know, that's the thing you just.
• 38:30
  And so then it was like, you'll then like people didn't even
• 38:33
  know if secondaries were like legal, like it was really early
• 38:36
  to do direct secondaries. I spent, I think I went after 40
• 38:39
  different transactions where I found a seller gone to the
• 38:41
  company and I just failed. And I got down to my absolute
• 38:44
  like wit's end. And I I remember I went out with
• 38:48
  to to dinner with Anna Binder, who's who's the chief people
• 38:51
  officer to sauna for years. And Neil stopped before that and
• 38:54
  said, you know, if I don't get at least one of these next 4
• 38:59
  deals I have in the pipe, yeah, I'm, this is, I'm quitting, I'm
• 39:02
  done, I'm done. And then, you know, I got Splunk
• 39:05
  done and I got DocuSign done and, you know.
• 39:08
  We're off to the race deals to that, Yeah.
• 39:11
  When you were doing those secondaries, where was DocuSign
• 39:14
  and Splunk at it that time? This was 2011, yeah.
• 39:17
  This is 2011. DocuSign was, I've done 20
• 39:20
  million of revenue the year before and they're going to a
• 39:23
  year where they were supposed to do 36.
• 39:25
  They only did 29. I thought that I'd made a
• 39:27
  horrible mistake. Splunk, I Splunk was, I don't
• 39:31
  remember as much. I think it was around 60 million
• 39:33
  of revenue. That was Dave, Dave Hornick.
• 39:37
  Yeah. Among others.
• 39:38
  Absolutely. So then I learned how crazy that
• 39:41
  secondary the sellers can be because I, I found a woman who
• 39:45
  was going through a divorce and, and basically I was like, look,
• 39:50
  I can take some of your stock, pay off your ex-husband.
• 39:53
  You need to get off from under that and like give you a little
• 39:55
  bit of money. You get through your divorce and
• 39:57
  she needed to have happened. And I learned that if you're
• 39:59
  going to start, if a company isn't doing secondaries and you
• 40:02
  got to get them going, the nature of the problem you're
• 40:04
  solving for them is important. She was the chief product
• 40:07
  officer and she was and she was like very important to the
• 40:11
  company. So I do like A1 roughly like a
• 40:14
  million two or something like that.
• 40:16
  I don't remember the exact number.
• 40:17
  It's a long time ago. And you know, I send her a check
• 40:20
  for her, call it 600 and him a check for 600.
• 40:22
  You know, he's never seen any money in his life.
• 40:24
  He just thinks this is the best thing ever.
• 40:25
  I'm sure. She she goes and what does she
• 40:28
  do with her money? She never had any money before
• 40:31
  she bought a green Ferrari. I was like, hey, you know, OK,
• 40:36
  go crazy, whatever. I always wanted a Ferraris or
• 40:39
  like life goal. I was like, OK, so dealing with
• 40:42
  sellers is going to be an adventure and certainly has
• 40:44
  been. Carl, I know you're hurting.
• 40:50
  I don't know if it makes you feel any better.
• 40:53
  Hello. Christmas.
• 40:54
  What is? That's a still.
• 40:58
  I, I think you've identified one significant scenario.
• 41:02
  We, we've had that as well when we were try to buy a piece of
• 41:07
  someone's LP position, they didn't want to sell, but they
• 41:10
  were like, hey, but let me refer you to, you know the LP's ex who
• 41:16
  was interested in selling. And so again, divorce scenarios.
• 41:19
  I I had AI, had a whole deal generation program going to
• 41:22
  divorce lawyers. It didn't really yield very
• 41:24
  much, but that deal was like, oh, this is like, you know,
• 41:27
  that's, that's like an, that's like a perfect spot, right so.
• 41:32
  We've we've had at least 2 deals come out of divorce scenarios,
• 41:36
  although they were actually friendly scenarios.
• 41:39
  The other common ones, I think probably for a lot of people in
• 41:41
  the Valley, buying a house or putting a mortgage out of the
• 41:44
  house is a very common scenario. Medical emergency or family
• 41:47
  emergency is another one. I often say that we really, you
• 41:51
  know, I raise capital from investors and it flows directly
• 41:55
  into San Francisco. This is good real estate.
• 41:59
  Right, or or college tuition. College tuitions, yeah.
• 42:02
  Absolutely. Again, this comes up all the
• 42:04
  time for us. Probably more than half of our
• 42:06
  transactions are going to. People who want to, you know.
• 42:09
  Buy a house. I I did that when I when I did a
• 42:11
  secondary transaction five years ago was to buy a house.
• 42:13
  How many people do you think in the Bay Area, just rough number
• 42:17
  off the top of your head, have equity valued north of 1,000,000
• 42:22
  S of like 1020 million? I, I can't imagine I've, I've
• 42:26
  never even thought about it. Have you?
• 42:28
  I mean. Well, I think there's 9 or 10
• 42:30
  million people in the Bay Area, roughly.
• 42:32
  Depends on how many counties you include.
• 42:35
  Let's say at least 10% of them are involved in tech.
• 42:37
  Maybe. Yeah, yeah.
• 42:39
  That might be high, that might be low, but I think it's it's
• 42:41
  probably north of 10%, maybe it's like 5 to 10%.
• 42:46
  So you're still talking a million people?
• 42:50
  Oh yeah. In the Bay Area, maybe that's
• 42:52
  too high, I don't know, But I I couldn't see it being less than
• 42:55
  hundreds of thousands of people. People.
• 42:57
  Who have a million or dollars or more?
• 43:00
  Yeah. And and maybe not all of that is
• 43:02
  going to turn into anything. Let's let's use your numbers and
• 43:04
  say, OK, at least one out of 10 of them, you know, hit some hits
• 43:09
  the big time, right. So now we're talking at least I
• 43:14
  would say 10s of thousands of people who have illiquid
• 43:18
  position concentrated in your single asset.
• 43:21
  Like that's a big. Market.
• 43:23
  Don't you? Yeah.
• 43:24
  And that's why you mean so many of our sellers come from wealth
• 43:27
  managers. Like I did so much networking
• 43:29
  with wealth managers because you know, they would get these
• 43:32
  clients that had a liquid positions and we were just
• 43:34
  aligned to, you know, get them liquidity, right.
• 43:37
  And so that's always been a really good source of, of
• 43:40
  sellers for us. And I think the other thing that
• 43:42
  maybe some folks aren't aware of, at least outside the Bay
• 43:45
  Area, is those assets aren't usually tenable when you're
• 43:49
  trying to get a loan like I. No, absolutely not.
• 43:51
  You know, I had 10, twenty, $30 million worth of carried
• 43:54
  interest and some big winners in there.
• 43:55
  But even Silicon Valley Bank wouldn't provide a loan against
• 43:58
  the no Yeah. So absolutely I had to buy.
• 44:00
  I had to buy a house with cash and then go get a mortgage, you
• 44:04
  know, to cover that. Do you know of anybody who's
• 44:07
  doing secondaries and buying houses with people?
• 44:10
  I feel like that's a market need.
• 44:13
  I mean, I certainly have seen the groups that are out there
• 44:14
  loaning money against illiquid positions, you know, like that
• 44:18
  quid, you know, they they do that capital, yeah.
• 44:20
  And so. 137 does it. Too, We had an option, an
• 44:24
  exercise loan product for a long time, which we still
• 44:27
  occasionally do. If I look back at the history of
• 44:29
  Acadian, I've always been like, you know, how do I find new
• 44:32
  problems to solve right There are people aren't solving.
• 44:35
  So we started lending and, you know, for help people exercise
• 44:38
  their options, They could take money off the table if the stock
• 44:40
  was there for the coverage. And that was a pretty, you know,
• 44:43
  unique business for four or five years at least before there's
• 44:47
  like a bunch of other competitors, There's a.
• 44:49
  Period of time where you realized, hey, there's there's
• 44:52
  later stage companies, which maybe are less risky, maybe
• 44:56
  still early days and people were still getting comfortable with,
• 44:59
  you know, secondaries as a legal and legitimate, you know,
• 45:03
  product. You started talking on behalf of
• 45:05
  a customer to, you know, potential secondary buyers.
• 45:08
  And then you realize secondary is an opportunity.
• 45:11
  When did you raise your first official secondary fund?
• 45:14
  That was 2012. So, but I think that the more
• 45:16
  interesting story is how I survived 2011 because that was
• 45:19
  we did 7 SPV. What I did was I went to about
• 45:22
  30 or 40 sort of wealthy friends like, you know, very
• 45:25
  sophisticated Silicon Valley guys be like Harrison Miller
• 45:28
  from Summit, you know, Mark Britto.
• 45:30
  And I said, if I find software companies, you know, SAS, SAS
• 45:34
  business is growing, you know, X amount and I'm getting price it
• 45:36
  between 4:00 and 6:00 times revenue.
• 45:38
  And I give you a memo, it gives you my investment thesis.
• 45:41
  Will you make a decision in five days?
• 45:43
  I, I ask only, I ask if they give me a decision, you know,
• 45:47
  like if just, you respond your five days, if you don't respond,
• 45:51
  I'm going to put you in the back of the line.
• 45:52
  And when my, the first deal I did that on was, was DocuSign,
• 45:57
  then that I, that got people's attention, right?
• 45:59
  And then we end up doing 7 deals.
• 46:01
  And that year that, that did extremely well.
• 46:03
  It's like a six point, it's like 6.5 X but a tiny, but it made
• 46:08
  it, you know, not easy, but still took me like a year to
• 46:10
  raise 30 for my second fund. Then we went 80, 135 or 137 I
• 46:17
  think. And then I had COVID fund that I
• 46:20
  was a, at that point I was a yeah, back to being a solo GP
• 46:24
  planning to raise 175. I done my first close of 100.
• 46:28
  COVID hit. It was just, you know, I wasn't
• 46:30
  going to raise any more money. So it was 100. $1,000,000 fund
• 46:33
  and then then we went to 275 with a $30 million Co invest.
• 46:38
  OK. So when you're doing those 7
• 46:40
  SPV's again, this is 20, I'll have 11-12 timeframe, I'll let
• 46:44
  it 12. Those companies, if I remember
• 46:46
  your numbers correctly, we're doing 2030. 50, yeah, pretty
• 46:51
  much 20 to 70. It was kind of the where we were
• 46:54
  at the back then. What's?
• 46:55
  Your filter for how small is too small.
• 46:57
  How? Large is too large or is it too
• 46:59
  large? Well, it's certainly evolved
• 47:02
  over time. I built expectations with my
• 47:04
  LP's in the early days. I was pretty good at picking
• 47:08
  companies where I got at least some liquidity pretty quickly
• 47:11
  and quickly. Meaning what?
• 47:13
  In like 3 years? Yeah, I have like 1 exit in year
• 47:17
  3. This is what I say to managers.
• 47:19
  It's like sending money back to your investors.
• 47:22
  Even if it's not, you know, investing the psychological
• 47:26
  connection that you create with them is so beneficial, even if
• 47:30
  you're not optimizing for long term.
• 47:32
  Gross, Mike. Right.
• 47:34
  And I always made sure to pick one.
• 47:36
  I was like, that's not going to be around long, you know, that
• 47:38
  one, I'll get it. And even if it's a 2 1/2 X, it's
• 47:42
  still so good. And so they just got kind of
• 47:44
  used to this sort of pretty quick.
• 47:45
  Now these days, even more. Even even more important and
• 47:49
  you're going to really differentiate yourself.
• 47:51
  I mean, like when I think about the Rays conference and we'll
• 47:54
  get into that, but like, 1000 funds apply, who gets selected?
• 47:57
  Like, good DPI is what's really set you apart, you know, and so
• 48:03
  and good and early DPI, the DPI, yeah.
• 48:06
  And so it really sets you apart and it gets you a lot of
• 48:08
  attention mostly. Like, it just makes your
• 48:10
  investors kind of love you. You know, if you send the money,
• 48:13
  you know, when it gets into Year 7, if you're a secondary fund,
• 48:16
  you haven't sent any money back. You know that's a problem.
• 48:20
  You got all those ones? Where did you get that?
• 48:23
  Look, I don't work my ass off for 20 hours a week so I can
• 48:26
  just throw my money away. That's wasteful.
• 48:29
  These bills are strictly for me to kiss.
• 48:32
  I think you're talking about giving advice to normal fund
• 48:35
  emerging managers, but then you're also talking about what
• 48:37
  expectations are you setting with secondary investors?
• 48:41
  How, how much do you want to get back to people?
• 48:44
  I don't know the first five years.
• 48:46
  I I think that the predicting liquidity timelines have become
• 48:50
  practically impossible in this super tough.
• 48:53
  And I try to be just very honest about that.
• 48:55
  And so, you know, obviously 2000 in, in 2021, we, we had some
• 49:01
  decent amount of liquidity and that is, you know, it's been, I
• 49:04
  mean, I've had, I don't know, four or five exits since then of
• 49:08
  their material, but they're not, you know, huge like earth
• 49:12
  shattering deals, right? And so, but it's mattered a lot.
• 49:16
  And I've sent somebody back. We just reinvested in the bond,
• 49:19
  you know, Congrats and somebody hope it was it was just an OK
• 49:22
  deal. It was just an OK deal.
• 49:24
  And just sending the back a, you know, relatively small amount of
• 49:27
  money in this environment. My investor relations partner,
• 49:31
  Angela Stanley, she just like says she got so many beautiful
• 49:35
  notes, but she was just so happy to see something coming back.
• 49:39
  It was just not a great deal, you know, and it was just, you
• 49:44
  know, but it was, but it was. But these days, just sending
• 49:46
  money back. And I just got back from slush
• 49:49
  talking to LP's. We just did raise it slush.
• 49:52
  And people are just so tired of waiting at this point.
• 49:56
  It's it's it's time for people to start.
• 49:59
  Yeah. It's tough market.
• 50:00
  Yeah. There's a big difference between
• 50:02
  secondary funds and primary funds.
• 50:04
  But, but certainly these days, I think we're seeing primary funds
• 50:07
  struggle with any amount of DPI before you're 7 to 10.
• 50:11
  And so any amount at all at year 7 is great.
• 50:14
  But for a secondary fund, do you need to be designing for, I
• 50:19
  don't know, year 4 back something like?
• 50:21
  That I, I think that that would be pretty good.
• 50:23
  Like if you can get half your capital back by year 4 in this
• 50:26
  environment, you're doing pretty well.
• 50:28
  I haven't compared that to, I mean that's just like my sense.
• 50:30
  But you know, we also know that like the key fund drivers, if
• 50:34
  you look at our portfolio, you know, we've got, I don't know,
• 50:36
  six companies, five companies above 500 million revenue, you
• 50:40
  know. Yeah.
• 50:41
  These and that's these are very. Target, yeah.
• 50:44
  You know, these days for an IPO, yeah.
• 50:46
  I mean, like my point is that like, I still don't think that
• 50:49
  you can expect that I as a manager, it was not reasonable
• 50:53
  to foresee when you're setting expectations that these
• 50:55
  companies would still be liquid at this scale, you know, right.
• 50:59
  That is the disturbing part. And I think that managing
• 51:03
  expectations because of the volatility, you know, COVID 2021
• 51:08
  and the period after and now we're, you know, had some new
• 51:11
  crazy trains and. All this stuff.
• 51:13
  You know, I think it's just, you know, you have to be really good
• 51:17
  at managing the, the emotions of your investors and, you know,
• 51:21
  giving them like very clear paths about why a particular
• 51:25
  company is going to create value and why it's fine.
• 51:27
  It's not liquid and it's good for them and it's compounding.
• 51:30
  And you have to take more time with reporting, more time with
• 51:33
  talking to your LP's, give them transparency into what's
• 51:37
  happening and being very honest about sort of the practical
• 51:40
  problems. People will be like, why?
• 51:41
  Why didn't you just sell it? I'm like, well, I don't want to
• 51:44
  sell it to a guy like me who's not going to pay anything, you
• 51:46
  know what I mean? Like, you know.
• 51:48
  Hey, that's why I got in this business has the advantage, not
• 51:51
  the seller, right? I know, I know, I know.
• 51:53
  So that's, that's the reality of it, right?
• 51:55
  And so if you know LP, and this is another thing that, you know,
• 51:58
  as I talk to fund managers, like managing your LP's is such an
• 52:02
  important part of your job. And people think that this job
• 52:05
  is about investing. If I had to look back and say,
• 52:07
  look, I never want to have a big firm, you know, it's a very
• 52:10
  small team. We've gotten to a scale that
• 52:13
  they're very happy with. And a lot of that has to do with
• 52:16
  LP management and people, you know, I still don't believe I'm
• 52:19
  in personally 25 VC funds with friends and people I love.
• 52:23
  And you know, the updates I get aren't, are very mixed, you
• 52:27
  know, I mean, like some of them are great for sure.
• 52:29
  And then some of them like it's just nothing.
• 52:31
  And I'd be like, why don't you say anything?
• 52:35
  I would have to agree with you. I'm surprised because I I'm
• 52:37
  probably an LP personally in like 30 or 40 funds.
• 52:40
  We're an LP probably 20 funds out of our firm, less than half
• 52:45
  of them probably send regular quarterly.
• 52:47
  Updates. It was.
• 52:49
  It's the craziest lost opportunity.
• 52:51
  So my cadence on LB management is like I, I can't do it for
• 52:56
  anymore because the goods gotten too many investors.
• 52:59
  But it used to be when I was building the firm to try to see
• 53:02
  every major investor once a year in person and have an and have
• 53:06
  one personal at least 30 to 45 minute call where I can get
• 53:11
  under the covers. Now, especially when you're in
• 53:13
  Rea because what you can put in your reporting, like our
• 53:18
  reporting is, you know, I've kind of got to the point where
• 53:21
  it's what people need, not one word more, not one word less
• 53:25
  when I used to do these huge updates, like if people had read
• 53:28
  them. So there's kind of waste.
• 53:30
  But when you're in Rea, you really everything in there has
• 53:33
  to be scrutinized. And that means a lot of
• 53:36
  information, you know, a lot of the color you can't get into
• 53:40
  your reports. And so I think the personal
• 53:42
  touch matters tremendously. And I think that many managers
• 53:47
  do not take that seriously enough.
• 53:50
  OK, let's take a beat and just talk about, you know, RIA.
• 53:54
  What does that mean? Why and when do you need to
• 53:58
  change from a traditional VC to an RIA?
• 54:00
  Yeah. So traditionally it's been, you
• 54:02
  know, when you get to 150 million of AUM in non qualifying
• 54:05
  investments, right. So, so basically like if you're
• 54:09
  just a primary VC during C Series A, series B, you can
• 54:14
  invest all you want and you you qualify to the under the VC
• 54:17
  exemption. And, but, but if you're doing
• 54:20
  secondaries, they don't count. If you're a fund of funds, it
• 54:22
  doesn't count. You have to become an Rea when
• 54:25
  you hit $150 million of assets under management and.
• 54:28
  As long as you're under 20% of your portfolio being in those
• 54:32
  areas, you're OK. But as soon as you hit more than
• 54:35
  20%. Percent and I think I believe
• 54:38
  that's the rule 150 and more than 20%.
• 54:41
  Yeah, got it. So I'm not 100% sure about that.
• 54:44
  It's been a long time. We we are, we passed that
• 54:46
  threshold in like 2016, I think a. 150 is a federal limit, but I
• 54:50
  think in California might even be a little bit smaller than
• 54:52
  that. I think it's maybe I want to say
• 54:54
  it's 100 and 10120 or something and.
• 54:56
  I don't know I I don't know I got you already passed my
• 54:59
  partner, my partner. So one of the things that my Co
• 55:03
  founder Pete Smith is is incredible lawyer.
• 55:06
  He was the CFO for a long time. He's the guy who makes all the
• 55:09
  trains under time so I can be out finding deals and raising
• 55:11
  money and he takes care of all that for me.
• 55:13
  So you know. That's I have a similar partner
• 55:16
  in crime. I'm on my my handles all the
• 55:19
  legal and financial side. But there may be some
• 55:22
  legislation coming through to expand some of those limits.
• 55:25
  Now hopefully that ends up happening.
• 55:26
  No, it's it's quite dramatic. The Deal Act came out of a
• 55:29
  committee with positive reviews in the House in July.
• 55:33
  It would basically enable any VC fund to buy as much secondary as
• 55:37
  they want. And that's going to be a real
• 55:39
  sea change for for secondary firms because.
• 55:42
  It would include secondaries and fund of fund, fund, fund of
• 55:46
  funds, right? And now that wouldn't be that
• 55:48
  extra 20% that could be in your normal, no.
• 55:51
  And then I think it was also raising the bar to maybe twice
• 55:55
  where it is right now in terms of the total.
• 55:57
  Amount, yeah, I'm not, I'm not sure about that detail.
• 55:59
  But I tell you the question I'm really wondering is what do all
• 56:02
  the Reas do right? Because because we are, you
• 56:05
  could reverse and become can we reverse?
• 56:07
  Because what, what people don't realize, what VCs don't realize
• 56:11
  is that when you're in Rea, the way that you report your numbers
• 56:15
  is very, very is as conservative as humanly possible.
• 56:18
  Basically, you only, you can only report, report your
• 56:21
  returns. You have to get rid of your
• 56:22
  leverage. You have to report it with
• 56:24
  leverage without, you know, and you only report your returns
• 56:28
  based on the highest fee paying LP.
• 56:30
  So if you have LP's that you don't get to come up with a
• 56:33
  norm, a certain average, because you know, a lot of people charge
• 56:36
  different fees based on ticket size, right?
• 56:39
  And then and you're very, very limited in in what you can
• 56:42
  report and how you report. It's very then you have the
• 56:46
  cherry pick your rules. So for every good deal, you have
• 56:49
  to report a bad deal. And there's just a lot of
• 56:51
  marketing rules that Secretary of funds for Ras have to comply
• 56:54
  with that VCs do not. And it's not apples to apples.
• 56:59
  You know, no one regulates how VCs report their numbers, you
• 57:02
  know, really. So that is a going to be a sea
• 57:05
  change for secondary firms. And and you know, I don't know
• 57:08
  if we can decertify being an Rea.
• 57:10
  I don't know if that's possible, who knows, but it would be great
• 57:13
  because of money. Yeah.
• 57:16
  It's such a pain like we have to, you know, how we've had
• 57:18
  little expenses and how we do allocations and how we how we
• 57:22
  have to personally give up every trade that we do and get it pre
• 57:25
  cleared. Like it's a big pain in the
• 57:27
  butt. Even how you talk about your
• 57:30
  story here on this podcast, probably as.
• 57:32
  I know, I know, right? Absolutely.
• 57:36
  The crowd is really getting off on us.
• 57:38
  Well, I'm glad, I'm so happy for them.
• 57:40
  Where are the stressless? Oh no, I'm not very glue.
• 57:45
  How? Could it be how far through
• 57:47
  Lotus? Well, I know we don't have a lot
• 57:50
  of time. Let's let's jump into talking
• 57:51
  about the Ray's conference. And how did you get started with
• 57:54
  Ray's? How does that, you know, you
• 57:56
  know, work with the rest of your business?
• 57:58
  And yeah. Ray's is a big deal.
• 58:00
  Right. You guys just finished your
• 58:01
  recent conference, maybe a. Month 10, yes, we've been doing
• 58:04
  it for 10 years. And really so because I had done
• 58:06
  new cycle capital, which I got into sort of, you know,
• 58:09
  institutional capital in 2007, by 2013, I had like gotten
• 58:13
  institutional capital for my secondary fund.
• 58:15
  I was like one of the rare people in the valley who had
• 58:18
  started 2 funds with two different strategies from
• 58:21
  scratch from a business plan. And at that point in time, lots
• 58:25
  of people are thinking like how can I start a fund?
• 58:27
  And the original vision was just, I'm going to get, you
• 58:31
  know, I looked around and said for an operating business,
• 58:33
  there's 1000 conferences about how to be a great entrepreneur.
• 58:36
  There's nothing for fund entrepreneurs.
• 58:39
  And so I just want to get the fund entrepreneurs I know
• 58:42
  together. And I'm going to get the people
• 58:44
  who built really great platforms from scratch, like Kate Mitchell
• 58:48
  at scale. Who are John Callahan at True
• 58:51
  those type people to be like, how did you do this?
• 58:54
  Right Fabulous fund managers, really amazing experience.
• 58:58
  Folks first, the first year was 140 people.
• 59:01
  There were 40 of my own LP's roughly in which were mostly
• 59:03
  high net worth individuals. At that point.
• 59:05
  I went to the Golden Gate club in, in, in the presidio and it
• 59:09
  was a very tactical day because at this point I'm like a total
• 59:11
  fun nerd. Like I know you know how to do
• 59:13
  an LPA, you know how how to pick it back off.
• 59:16
  It's like it was very, very tactical.
• 59:17
  How to hire, how to do fun modeling, like all the basics.
• 59:21
  And I had this extra room. And when you do conferences, you
• 59:26
  realize that the hard part is creating compelling content.
• 59:28
  That's the heavy lift. And so I was exhausted creating
• 59:32
  all this content. And so we had this big room and
• 59:35
  I didn't have anything to put on it.
• 59:36
  So I just said to 10 of my friends, hey, you're in market,
• 59:39
  why don't you pitch your funds to my LP's?
• 59:41
  Maybe you'll raise some money, you know, and I won't have to
• 59:44
  create content for this room. And, and, and so I, I gave each
• 59:48
  VCA 10 minute slot to pitch their, to pitch their fund,
• 59:53
  which I learned is way too long. We're down to three.
• 59:56
  That's too long. Nobody, nobody listen to AVC for
• 59:59
  10 minutes. So, but the crazy thing was when
• 1:00:02
  it started, literally more than half the room, there's another
• 1:00:06
  the main room was going on. More than half it just got up to
• 1:00:09
  go see the VCs pitch. And I said I was like, oh,
• 1:00:14
  that's all VCs want to talk about.
• 1:00:16
  They just want to raise money and they wanted no one ever seen
• 1:00:20
  VCs pitch before like live like, you know, And it was that was a
• 1:00:24
  sort of aha moment. So now 10 years later, you know,
• 1:00:28
  it's become crazy. It's like almost 1000
• 1:00:30
  applications, which of the merger guys are the leading, you
• 1:00:33
  know, emerging manager conference, you know, by far.
• 1:00:37
  And and the, you know, my goal was always, you know, I knew how
• 1:00:42
  I had struggled so much to raise money along with everybody else,
• 1:00:44
  right? And so I knew what a soul
• 1:00:46
  sucking experience that is. And I said, I want to have the
• 1:00:50
  one day where the VCs feel special and the LP's, you know,
• 1:00:56
  are chasing them around, right? And so my goal is if I can get
• 1:00:59
  three real LP's in the room for every VC that's there, what a
• 1:01:04
  day that will be for the. VC they would feel so that would
• 1:01:07
  be terrific. And the breakthrough moment was
• 1:01:10
  when I created the LP selection committee coming out of because
• 1:01:12
  I was really worried coming out of COVID, can I get LP's to show
• 1:01:15
  up? So I created this committee of
• 1:01:17
  like, you know, top tier and Sapphire and San Jose and
• 1:01:20
  pension and like bunch of great LP's.
• 1:01:22
  I got to use their logos and said these were going to be,
• 1:01:24
  they were going to select the funds.
• 1:01:26
  And then the that's what really made it blow up.
• 1:01:28
  What they sort of made it. Anyone can apply here are the
• 1:01:31
  LP's that are going to select. Then it became a kind of like
• 1:01:34
  the conference just took off in ways that I just couldn't
• 1:01:37
  imagine. That has been an incredible
• 1:01:39
  thing to watch. And then, yeah, now it's a
• 1:01:41
  thing, man. It's, it's a pretty big thing.
• 1:01:43
  And it's like having a wedding every year, you know, a great
• 1:01:45
  get to see friends and it's it's, it's a great thing.
• 1:01:48
  So, and basically it's anyone with 250 million under
• 1:01:52
  management, like it qualifies now as an emerging manager.
• 1:01:55
  So, you know, you can have like multiple, it's gotten somewhat
• 1:01:58
  more mature. If you're a growth fund or so
• 1:02:01
  few new growth funds, you know, then it's just fun one or fun 2
• 1:02:04
  of any size. I mean, we select the top 124,
• 1:02:07
  get on the stage and then there's just tons of round
• 1:02:09
  tables. And I just learned that people
• 1:02:11
  don't want to listen. They just try to, you know, try
• 1:02:13
  to be kind of like the lobby conference and have everyone be
• 1:02:15
  talking all the time. So that's that's the day.
• 1:02:19
  Well, I know these days IA lot of my friends who come to your
• 1:02:23
  conference, you know they, they plan a whole week to be in town.
• 1:02:26
  There's other events going on, probably trying to steal
• 1:02:28
  attention from. Your guys folks.
• 1:02:31
  Oh yeah, no, absolutely. We, we had 26 sort of organized
• 1:02:34
  raise events around it and people do their annual meetings
• 1:02:36
  around it. And that of course is a self a
• 1:02:38
  cycle. We getting better and better
• 1:02:40
  LP's. You know, I think I got 20 or so
• 1:02:42
  new LP's at slash this year that say, look, when they want to
• 1:02:44
  come next year and, you know, keep making it bigger and well,
• 1:02:47
  not bigger. Like I can't really grow it
• 1:02:49
  because it works in this room and, you know, but keep me
• 1:02:52
  raising the bar for how hard it is now for the LPC thing.
• 1:02:56
  So now, now we're being selective.
• 1:02:58
  Like we rejected probably 200 LP's last year.
• 1:03:01
  Oh my gosh. Because they weren't, yeah, real
• 1:03:04
  enough, big enough, you know, and sort of try to make it
• 1:03:06
  bigger and bigger. But it's, it's, it's a really
• 1:03:08
  fun day. And you know, I, I was thinking
• 1:03:11
  at the beginning, I'm going to meet all these people at the
• 1:03:13
  beginning of their careers, right.
• 1:03:14
  And if you want to make a really valuable business relationship
• 1:03:17
  that lasts for a long time, you got to help people when they're
• 1:03:21
  getting started. It's just like think being a,
• 1:03:23
  that was so true. You know, I was like, I can't be
• 1:03:25
  important to build girly, you know, I, you know, I can't go
• 1:03:28
  and just try to deal with the big funds, you know, And so
• 1:03:31
  that's been a huge source of deal flow for us.
• 1:03:33
  We've invested in many funds through there.
• 1:03:34
  We've done lots of deals that have come through through the
• 1:03:38
  relationships I've built there. So that's been key.
• 1:03:41
  Could you talk a little bit about a couple things?
• 1:03:43
  1 is what kind of advice do you have for emerging fund managers
• 1:03:48
  to help get their funds started? But then also this question of
• 1:03:52
  like, you know, DPI has become super important to them.
• 1:03:55
  How should they be thinking about managing their own
• 1:03:59
  liquidity when these days IP OS might be taking 12 to 15 years?
• 1:04:03
  Look, I get to see thousand applications that come to raise.
• 1:04:06
  I can't even read them all anymore.
• 1:04:08
  But I've watched so many firms and come through and firms that
• 1:04:11
  have been successful like 5th Wall was there very early, Tribe
• 1:04:14
  was there very early and that well, I would say that that that
• 1:04:17
  this is what I see on the fund sort of creation side.
• 1:04:20
  He have to be really clear about what your competitive advantage
• 1:04:23
  is going to be and how you are going to build a community
• 1:04:26
  around yourself that is powerful that an LP can look at in 2
• 1:04:30
  seconds and be like, oh, I can see why that gives you a real
• 1:04:34
  competitive advantage. You know, you're there's 3000
• 1:04:37
  emerging managers and I tell you, they start to sound all the
• 1:04:40
  same. And so differentiation.
• 1:04:44
  I don't think VCs take building their business as seriously as
• 1:04:48
  the the council entrepreneurs to take their business like right
• 1:04:51
  every every entrepreneurs. That they don't do it
• 1:04:54
  themselves. I know every business.
• 1:04:56
  What's what kind of product are you?
• 1:04:58
  What, what is your competitive advantage?
• 1:05:00
  What is your Moat? The firms that have done well,
• 1:05:04
  you know, like I look at a firm like 5th Wall as an example,
• 1:05:07
  like, you know, having a really clear thesis and then building a
• 1:05:11
  whole firm around it that that makes your money, you know?
• 1:05:14
  And these guys were prop tech, right?
• 1:05:15
  That was prop tech. Focus.
• 1:05:17
  Yeah. So they, they had like the
• 1:05:18
  largest prop tech LP's in the world.
• 1:05:20
  They had like the largest commercial real estate people in
• 1:05:23
  the world were their LP's. So anyone in prop tech was going
• 1:05:27
  to want to take Fifth Law's money.
• 1:05:28
  And so having that community that makes sense that you're
• 1:05:31
  like, well, I can see why this person is going to get deals.
• 1:05:34
  I can see why they're they're in a competitive situation.
• 1:05:36
  They're going to win and be able to see that extraordinarily
• 1:05:39
  quickly. We can't.
• 1:05:42
  We're just as I know everybody and I'm really well connected
• 1:05:45
  and I'm really smart. There's 1000 other people in the
• 1:05:48
  Bay Area, 1000 people like that. And like, you know, then if you
• 1:05:51
  crush it and you have incredible returns, you can stand out.
• 1:05:53
  But it really is about creating that differentiation.
• 1:05:56
  And, and I don't think people build ecosystems.
• 1:06:00
  You know, I look at Ray's like it's, it's ecosystem, right?
• 1:06:02
  Like it's an ecosystem that just has a wonderful flywheel for the
• 1:06:05
  whole business and people. I tell people like, what is your
• 1:06:08
  ecos? How are you going to build your
• 1:06:10
  ecosystem? Like how and how does that
• 1:06:11
  directly translate to you winning deals And people don't
• 1:06:15
  think about it enough. The other thing I'll say is that
• 1:06:17
  people don't think about their partnerships enough.
• 1:06:19
  You know, I worked at 2 firms before I started Acadia and had
• 1:06:22
  a really difficult partnership dynamics.
• 1:06:24
  And it just showed me like, you know, my, my greatest
• 1:06:27
  accomplishment. I don't think it's anything to
• 1:06:29
  do with our financial results or size or anything or deals is the
• 1:06:32
  fact that I've started with the firm with one of my dearest
• 1:06:35
  friends from college, Pete Smith, Mike Dinsdale, who I
• 1:06:39
  brought in fund five, who is the CFO of DocuSign, DoorDash and
• 1:06:42
  Gusto. He is like one of my dearest
• 1:06:45
  friends. We vacation together, we work
• 1:06:47
  together every day. The the personal connection we
• 1:06:50
  have enables us to withstand exogenous results and problems
• 1:06:56
  and deals that blow up. It is so core.
• 1:07:00
  And I just was talking to a really great manager who's just
• 1:07:02
  talking about how exhausted he is and how hard he's working,
• 1:07:05
  you know? And I was like, how big is your
• 1:07:06
  team, man? He's like, I got 10 people.
• 1:07:08
  He's like, you got to look at those people.
• 1:07:11
  You got to look at those people because you need to feel doing
• 1:07:14
  this. You need to feel supported.
• 1:07:16
  You need to be together. Like we're in a business with so
• 1:07:19
  much uncertainty and that there's no right answer and it's
• 1:07:22
  just judgment calls and gut all the time.
• 1:07:26
  And trust between your partners is so important.
• 1:07:30
  So I'm very skeptical when two people get together with great
• 1:07:33
  resumes who don't really know each other.
• 1:07:35
  You know it's a huge issue for a.
• 1:07:36
  Single solo GP to get started. But you don't have to worry
• 1:07:40
  about all that stuff, all those other risks.
• 1:07:42
  And then like you said, for two people who haven't worked
• 1:07:45
  together, hey, I'm going to jump in and start AVC fund where
• 1:07:48
  you're going to be investing together for five to seven
• 1:07:50
  years. Your fund life is going to be
• 1:07:52
  11:50. Teams.
• 1:07:54
  You know, or right, exactly. We all know that that that's the
• 1:07:56
  real number. I, I guess I want to sort of
• 1:07:59
  jump a little bit to right now everybody's talking about, hey,
• 1:08:03
  if you're going to raise a new fund, show me DPI and your
• 1:08:05
  earlier funds. DPI is tough these days.
• 1:08:09
  We don't have. Predictability around IP, OS and
• 1:08:11
  other areas. Yeah.
• 1:08:13
  First you got to think you got to have a great deal.
• 1:08:16
  And then your question is when should you exit that great deal
• 1:08:19
  or what? How should you handle it?
• 1:08:20
  OK, my advice to managers is this.
• 1:08:24
  This is the hardest thing psychologically about selling.
• 1:08:27
  OK. You need to sell something
• 1:08:32
  material that is going to impact your LP's in a meaningful way at
• 1:08:38
  the moment, which it seems like everything is the greatest and
• 1:08:41
  the safest and you can't imagine anything going wrong with that
• 1:08:44
  business. Right.
• 1:08:45
  When you feel the safest, when you feel like I can't do the
• 1:08:48
  wrong, this business is going to.
• 1:08:50
  That's why I thought that's exactly when you should take
• 1:08:53
  tips something off the table and you know, Warren Buffett be
• 1:08:57
  greedy when other people are fearful and fearful when they're
• 1:08:59
  greedy. And I tell you I have made the
• 1:09:01
  old mistake. But I have a role for my own
• 1:09:02
  fund, which is when I have a deal where I can sell for a 5X
• 1:09:06
  return for in year 3-4 or five and I have I could do A5 XI am
• 1:09:12
  taking that I'm taking at least half my chips off the table at
• 1:09:14
  that moment. Yeah.
• 1:09:17
  Because. Material What?
• 1:09:18
  What does material mean for the? 30 you know 30 to 50% of your
• 1:09:23
  fund return. OK.
• 1:09:25
  Got it. So point 3.5 X of fund is kind
• 1:09:27
  of like OK. That registered, Yeah, yeah,
• 1:09:29
  that's going to put you into a, you know, how many years it's
• 1:09:32
  taken, I don't know. But like, that's enough where
• 1:09:34
  people are going to go, oh, I just got a big chunk of money
• 1:09:36
  back. And, you know, and I, I know
• 1:09:38
  people say, oh, you should ride your winners forever.
• 1:09:40
  And I think that there's so much inherent uncertainty.
• 1:09:43
  Every day something can happen to a business that knocks it off
• 1:09:46
  track. Businesses that seem invincible
• 1:09:49
  can suddenly look very vulnerable.
• 1:09:51
  And so I would say that do not be so cocky.
• 1:09:54
  Has to expect that these businesses are going to keep
• 1:09:56
  compounding. I got it.
• 1:09:57
  Great tip, don't get cocky. Yeah, I think, I think that's
• 1:10:02
  the, you know, you might hear Sequoia say let your winners
• 1:10:04
  ride and compound to your that's your going.
• 1:10:07
  I think you're right is that volatility can happen in a
• 1:10:09
  matter of months. Even with companies that have
• 1:10:11
  been around for 10 years, sometimes things change.
• 1:10:14
  Thanks so much, Ben. Thanks so much, I hope it was
• 1:10:16
  useful. This has been.
• 1:10:17
  Fantastic, I really appreciate it.
• 1:10:19
  Nice spending time with you. OK, welcome to another valuation
• 1:10:33
  corner. And this week, Professor Virgie,
• 1:10:36
  we're covering Versal, an AI powered app development
• 1:10:39
  platform. Versal is growing pretty crazy.
• 1:10:42
  Aman, what's the valuation and is that justifiable?
• 1:10:46
  Yeah. Well, talk about this cloud
• 1:10:48
  based workflow platform today and where we think they are on
• 1:10:52
  valuation, they will say we are considering an investment in
• 1:10:55
  Versal right now out of our new fund PVC secondary fund three
• 1:11:00
  that Dave and I are currently raising.
• 1:11:03
  So I want to make sure that we're just disclosing that we're
• 1:11:05
  potential investors in the company.
• 1:11:06
  And so I guess that's the answer is we we like them.
• 1:11:10
  But here's let's talk about why they like them and what what
• 1:11:12
  about them is interesting. They just raised a new round in
• 1:11:16
  September at a $9 billion evaluation.
• 1:11:18
  The evaluation was set by Accel Partners and then by GIC at a
• 1:11:24
  single core. Excel is an excellent investor
• 1:11:26
  in in the space in general. They've they've probably been
• 1:11:28
  the most successful investor, I would say in dev apps just going
• 1:11:32
  back, you know, the last 10-15 years at last CNN was one of the
• 1:11:37
  major investments and slack and a whole bunch of others.
• 1:11:40
  They also have Versailles. They has general catalyst and
• 1:11:44
  BlackRock and CO2 on the cap table.
• 1:11:46
  The only they raised about a year ago at A at a $3.25 billion
• 1:11:51
  evaluation. So they've made a lot of
• 1:11:52
  progress just in that in that amount of time.
• 1:11:55
  Versailles is as of May of this year, they were at a $200
• 1:11:58
  million revenue run rate, but that's about six months old.
• 1:12:02
  As we have been diligent, diligent in the company, we
• 1:12:05
  believe that revenue is a lot north of that.
• 1:12:07
  So the growth rate continues to be between 70 and 100% year over
• 1:12:12
  year at the end of 2024. So about a year ago, there were
• 1:12:15
  144 million in revenue. So a lot of growth off of that.
• 1:12:19
  A lot of that's come from a new product, their V-0 product
• 1:12:22
  that's AAI development agent, their AISDKRE has over 3,000,000
• 1:12:26
  downloads per week. They've got over 3,000,000 users
• 1:12:29
  on this new product. It's at a $42 million revenue
• 1:12:32
  run rate as of the end of the year.
• 1:12:34
  And so that's driving a lot of their new growth in this AI
• 1:12:38
  Cloud Focus does sort of set them apart from a lot of the
• 1:12:41
  other players in the developer OPS category.
• 1:12:45
  And here's just the general background on Versail and where
• 1:12:48
  they play. Think of it this way, there's
• 1:12:50
  over a billion websites around, at least there was at the end of
• 1:12:53
  2024. And the average time that
• 1:12:54
  somebody spends on a website is about 52 seconds.
• 1:12:58
  So how do you increase engagement in all these
• 1:13:00
  websites? Well, that's the job of over
• 1:13:03
  200,000 web developers that are out there, but they need help
• 1:13:05
  doing that. And So what are the tools that
• 1:13:07
  they use? Versail is putting himself in
• 1:13:09
  the middle of I think 3 interesting trends in the, in
• 1:13:13
  the dev OPS category. 1 is just cloud based building.
• 1:13:16
  It's the, it's the defining feature this category.
• 1:13:19
  I'd say digital Ocean probably set the standard here a couple
• 1:13:22
  years ago, maybe 5-6 years ago. There's also the cross-platform
• 1:13:28
  complexity and just the ability to integrate with different ERPS
• 1:13:31
  and tools and advertising services.
• 1:13:34
  That integration is extraordinarily difficult and
• 1:13:36
  that's something that now for Sell does very well and what
• 1:13:39
  their CEO really wants to focus on.
• 1:13:41
  And then they're already focused on the front end part of the
• 1:13:43
  supply chain. So that's that's a way to have a
• 1:13:46
  an efficient, very lightweight integration that people can use
• 1:13:49
  to maintain a modern front end presence.
• 1:13:51
  It avoids the need of a really complex back end infrastructure.
• 1:13:55
  And I think that is really what sets for Sell apart from Digital
• 1:13:59
  Ocean, who is one of the other Major League players in the
• 1:14:02
  space. If you just compare the metrics
• 1:14:04
  on Versailles versus Digital Ocean, which is a public company
• 1:14:08
  and probably the leader in the space, the revenue for sale is
• 1:14:11
  about 200 million as of May. It's going to be a lot more than
• 1:14:14
  that I think by the end of the year.
• 1:14:16
  But let's take 200 million as the as the last declared number.
• 1:14:20
  That's about a 45 times multiple of revenues.
• 1:14:23
  Digital Ocean is at 5X, so a much a much lower valuation
• 1:14:27
  reflecting a SAS company. But look at the growth rate
• 1:14:30
  right, for sales at 67% year over year based on the disclosed
• 1:14:33
  metrics. I think it's a lot higher than
• 1:14:35
  that just given where they will be at the end of the year and
• 1:14:38
  the new products, Digitalocean kind of growing the SAS company
• 1:14:41
  in the public markets at 1670% year over year.
• 1:14:44
  So you're if you if you believe this growth will continue to
• 1:14:47
  next year for sale makes I think a lot more sense.
• 1:14:50
  The focus of Purcell is really on this front end optimization
• 1:14:53
  hosting side of it. It's light.
• 1:14:55
  It's very easy to use Digitaloceans with a much more
• 1:14:59
  broad based cloud platform, but which is good, but also requires
• 1:15:02
  a lot more dev OPS knowledge and sophistication.
• 1:15:05
  Versal not really profitable right now.
• 1:15:07
  Digitalocean meaninglessly profitable, but you're thinking
• 1:15:10
  about the next two to three years.
• 1:15:11
  It seems like, you know, you're really paying, you're going to
• 1:15:13
  get an edge in, in growth versus profitability.
• 1:15:16
  And so the other company to mention just as another
• 1:15:18
  competitor to to Versal is Replit, but it's another, you
• 1:15:23
  know, very fast growing company. Also 250 million in in ARR,
• 1:15:28
  probably similar, similar to Versal.
• 1:15:31
  They're projecting a billion dollars in revenue at the end of
• 1:15:35
  2026 or in 2027. So, you know, similar, I think
• 1:15:39
  to for Sale, very lightweight, very focused on the user
• 1:15:41
  experience growing in, you know, growing extraordinarily quickly.
• 1:15:45
  And probably one of the other competitors out there if you're,
• 1:15:48
  if you're a, a developer. But what the reason I think they
• 1:15:52
  like for Sale is they the growth has been extraordinary.
• 1:15:55
  Their AI cloud platform, the new product is setting the benchmark
• 1:15:59
  in the industry right now. And they're taking share from,
• 1:16:02
  you know, companies like Digitalocean that are just,
• 1:16:04
  they're bigger, they're broader, they're clunkier.
• 1:16:07
  They just require a lot more knowledge of how these platforms
• 1:16:10
  work. And this is just lighter and
• 1:16:12
  easier for web developers to get into.
• 1:16:14
  So I think we like for sale. I think the valuation is pretty
• 1:16:17
  rich. I love the fact that Excel is on
• 1:16:18
  the cap table and leading around.
• 1:16:20
  They're, they're a great investor in this space.
• 1:16:23
  The valuation does seem expensive, but you're paying for
• 1:16:25
  a premium company when you're doing it.
• 1:16:28
  I I know your. Comparison was with Visual Ocean
• 1:16:30
  because they're public, but at the same time it seems like
• 1:16:34
  Versal and Replit are in a really different category that's
• 1:16:37
  more AI driven. I don't know if Lovable and some
• 1:16:40
  of the other Vibe coding tools are in the same category.
• 1:16:42
  It seems like Replit and Versal are more aimed at serious web
• 1:16:46
  developers and dev tools. But both the companies doing
• 1:16:49
  over 200 million revenue, both companies growing at fantastic
• 1:16:53
  rates, both companies being valued at pretty high premiums.
• 1:16:58
  Yeah, that's right. And I think Rep that is a Rep
• 1:17:00
  that might be the better because of that focus on AI and then
• 1:17:04
  used ability when you know, unfortunately for Digital Ocean,
• 1:17:07
  because they're a slightly older company, they kind of they kind
• 1:17:09
  of missed the opportunity to be AI native.
• 1:17:12
  And I wouldn't call either Replit or Versal AI native, but
• 1:17:17
  they have a lot more AI capability built into what they
• 1:17:19
  do and it, it sort of shows up in their user experience.
• 1:17:23
  I don't, I don't really know what Vine coding is, Dave.
• 1:17:25
  I don't, I can't fully pretend to understand how that works,
• 1:17:28
  but I, I accept that there's something too, you know, lovable
• 1:17:32
  and, and how they're able to guide users into, into coding
• 1:17:35
  things. But these guys are very focused
• 1:17:36
  on web development, web front, the front end experience.
• 1:17:39
  So there's a, there's a real clear solid, you know, business
• 1:17:42
  case with both of these companies, which and a lot of
• 1:17:44
  good reason to like both of them if you're willing to pay for the
• 1:17:46
  premium valuations. Well, I think based on our
• 1:17:50
  current negotiations on our recent deal, we are willing to
• 1:17:54
  pay those valuations. That's right, that's right.
• 1:17:58
  Not investment advice. You know, this is, this is just
• 1:18:00
  us giving our perspective, but we're not advising you and not
• 1:18:02
  to invest in our stuff. Sounds good to one.
• 1:18:05
  Thanks for a great valuation career.
• 1:18:07
  All right. Thank you, Dave.
• 1:18:07
  See you next time. He also happens to be a Stanford
• 1:18:16
  undergrad and Harvard lawyer, which I I hear is a fantastic
• 1:18:19
  combination for the the smartest people in the world.
• 1:18:22
  Gee, but I. Wonder who else had a Stanford
• 1:18:26
  undergraduate degree in Harvard JDII?
• 1:18:29
  Can't imagine anybody that I know who's that distinguished.
• 1:18:33
  I can't think of anyone Dave, but that person will be a very
• 1:18:36
  good looking man. Who?
• 1:18:37
  There is one. And a little bit extra extra
• 1:18:40
  hair, I'm sure. You're right.
• 1:18:44
  Trading Places, the Silicon Valley's best BC secondary
• 1:18:48
  podcast. And we're only best because
• 1:18:51
  we're the only one, hey?