Latest / trading places / Elon Musk $1.25T SpaceX + xAI merger, How to Get DPI in 2026 w/ David Zhou | Ep23

Transcript

Elon Musk $1.25T SpaceX + xAI merger, How to Get DPI in 2026 w/ David Zhou | Ep23 · trading places

• 0:00
  I want to walk you through some of the details of the SpaceX XAI
• 0:03
  merger and tell you a little bit about what I what I think the
• 0:06
  overall strategy is. What should the size of a
• 0:10
  position be in the SPV for it to be meaningful?
• 0:14
  Because if the fees are 30 to 50K, too small of a position may
• 0:18
  not be intuitive to do this program.
• 0:21
  Good point. Well, the rest of the market had
• 0:24
  sort of an up and down story, right?
• 0:27
  Market up, a tech down and SAS kind of like really down.
• 0:53
  All right, good morning, Iman. Welcome to another episode of
• 0:56
  our very bad, terrible, horrible, absolutely worst BC
• 1:00
  podcast in the market, Trading Places.
• 1:03
  What a we're just, we're so bad. What a week, quite a week we've
• 1:07
  just had, huh? I see you wearing your Patriots
• 1:09
  jersey there getting ready for the Super Bowl tomorrow.
• 1:12
  Indeed, we're filming this on Super Bowl Saturday, so I don't
• 1:15
  know who the winner is, but I'm planning on going to the Super
• 1:18
  Bowl. I've never been.
• 1:19
  It's here in the Bay Area. I'm kind of a Pats fan because
• 1:21
  I've spent time in the Northeast.
• 1:22
  I kind of think the Seahawks might be the the better team.
• 1:25
  But yeah, should be. Should be a lot of fun.
• 1:28
  I guess now the Pats have 7, the Super Bowl wins and the Niners
• 1:31
  only have six. Well, another fun.
• 1:33
  Fact about the Super Bowl is the first time that a Californian
• 1:35
  can legally bet online. He can't legally, really.
• 1:39
  Bet on it. Poly market, they're taking bets
• 1:42
  on sports betting on Kalshy and we're just now open in all 50
• 1:45
  States and I think Polymarket as well.
• 1:48
  So if you have a, if you have an inkling and you want to lay a
• 1:50
  bet, this is the first time you can, you can do it.
• 1:52
  So, you know, that's kind of that's kind of cool for us tech
• 1:54
  nerds. Well, I'm going to be a Seattle
• 1:56
  fan, even though they're NFC West division rival for the
• 1:59
  Niners and they crushed the Niners twice this year.
• 2:03
  All right, let's jump into the news.
• 2:04
  Here we have kind of a big, big deal, right?
• 2:08
  We were speculating on this last week and then it happened after
• 2:10
  our new show but SpaceX merged with X AI that that happened in
• 2:14
  like seconds. Like went from rumor to reality
• 2:17
  in like 3 days. I guess the plans had been
• 2:19
  presented at the end of 2025 and early 26 to shareholders of both
• 2:25
  groups. It turns out that there's really
• 2:26
  one shareholder who matters on and so he made a pretty quick
• 2:31
  decision negotiating with themselves.
• 2:34
  We'll talk more about this in Valuation Corners today.
• 2:36
  Go to all the details and all the valuations, but the the
• 2:39
  summary is it is the biggest merger of all time.
• 2:42
  It also brings together the two biggest Tams in the market
• 2:46
  between space on the one side and artificial intelligence on
• 2:49
  the other. The split of the company is
• 2:51
  something like 80% to SpaceX and 20% to XAI.
• 2:55
  I mean 1.25 trillion total. So it will value SpaceX and
• 2:59
  trillion dollars. Perhaps inflated valuation of
• 3:04
  XAI, but I think this is much more of a SpaceX reality and
• 3:09
  then a little bit of AI glitter does from XAI with some Twitter
• 3:13
  X marketing sprinkled in. Yeah, well, they've definitely
• 3:17
  got a lot of capabilities on the SpaceX side.
• 3:19
  It's about 85 to 87% of the revenue of vanity.
• 3:22
  And, you know, XAI is something like 17% based on today.
• 3:26
  So the revenue splits in favor of a, of SpaceX and the assets I
• 3:30
  think favor SpaceX as well. They have a real business in
• 3:32
  Starlink. They're kicking off about $8
• 3:34
  billion of profit. Grok and XAI are burning a lot
• 3:38
  of cash. So I think the synergy is so,
• 3:40
  you know, first of all, it's a company that can, that can put
• 3:43
  AI technology into what SpaceX is doing.
• 3:45
  SpaceX is generating cash that XAI needs.
• 3:48
  And then you got the two biggest Tams in the world behind the
• 3:50
  world's, you know, best entrepreneur.
• 3:52
  And so I think there's going to be a lot of, you know, synergy.
• 3:54
  I will just point to 11 merger that happened.
• 3:58
  In. 19992000 at the top of the market, coincidentally, and
• 4:02
  there's a lot of similarity like what you just said.
• 4:04
  There was Time Warner and AOL at the time the biggest merger
• 4:06
  ever. Time Warner was a real company
• 4:08
  with real assets kicking off like SpaceX, but the but the
• 4:12
  assets were like, you know, media assets.
• 4:14
  And boring boring non tech assets.
• 4:17
  Oring CNNTBSHBO like, you know all those revenues and profits.
• 4:22
  And AL was super cool and the web was just getting started.
• 4:26
  And Internet Messenger. And the thought was right, the
• 4:29
  thought was the web was going to kill all the assets on the left.
• 4:32
  And I think similarly the, the value of the mergers split to
• 4:35
  the right. And, you know, similarly, SpaceX
• 4:37
  and XAII think there's a, there's a thought that AI is
• 4:39
  going to take a lot of the value that's been created.
• 4:41
  Or at least this is not a parallel story.
• 4:43
  A month. I hope not.
• 4:45
  I think this one probably ends a little bit differently.
• 4:47
  But you know, that is the that is the concern is that at the
• 4:50
  top of the market when these when these trades get done,
• 4:53
  there's a there's a real risk that the AI value is being
• 4:56
  credited by the market at a multiple and it it absorbs the
• 4:59
  assets on the left. But but you know the question is
• 5:02
  and can there be synergy between the two that creates a real
• 5:05
  valuable there? Probably is some synergy,
• 5:07
  whether whether that's inflated synergy or not, we'll see.
• 5:10
  But I guess we'll talk more about this on valuation corner
• 5:12
  and and the other shoe that didn't drop was there wasn't a
• 5:16
  merger with Tesla or anything else.
• 5:18
  So maybe that's still out there, perhaps.
• 5:24
  Sometimes after I say something, I have to say I mean that so
• 5:29
  people really know that I mean it.
• 5:33
  Well, the rest of the market had sort of an up and down story,
• 5:36
  right? Market up, a tech down and SAS
• 5:40
  kind of like really down. It was a little bit of a mixed
• 5:42
  week. If I were to ask you how to be
• 5:44
  how the overall market projected, if you're in the
• 5:46
  software space, you would you would probably say, well, this
• 5:48
  was about as bad a week as as there was with the the software
• 5:52
  stock. You're down something like 15 to
• 5:54
  20% over the past seven days. And there's an often misquoted
• 5:58
  line from Mark Twain. The rumors of my death are
• 6:01
  greatly or were greatly exaggerated.
• 6:03
  The exact quote is the report of my death was an exaggeration.
• 6:05
  That's what That's what between actually said.
• 6:07
  You hear that report in different.
• 6:08
  Ways don't distract me with the actual facts.
• 6:10
  Come on, tell me a story. Yeah.
• 6:12
  OK. Well, it depends again on where
• 6:14
  you are in the market as to how bad the damage was and whether,
• 6:16
  you know, software is dead. Again, Here's just a chart that
• 6:19
  shows an index value of four different baselines, 4 different
• 6:22
  indexes going back the RSP as the black line on top.
• 6:25
  That's the equal weighted S&P 500.
• 6:28
  So it gets equal weight to every one of the 500 members.
• 6:31
  So it doesn't overweight for capital or for the for the
• 6:33
  market cap that actually went up last week.
• 6:35
  So the the Dow Jones industrial average hit a record last week
• 6:38
  over 50,000. For the first time the RSP was
• 6:41
  up in the last two weeks. The essence.
• 6:43
  Of non capital weighted index of 500 companies.
• 6:48
  Exactly. And that is so if you're in
• 6:51
  small cap or you're, if you're in these, you know, indexes in
• 6:54
  like industry industrials or basic materials, gold mining,
• 6:58
  you've had actually a pretty good, you know, two weeks.
• 7:01
  But most of our listeners are in tech or AI and you can see
• 7:04
  they're all down. The mag 7 has underperformed
• 7:06
  everybody. How do you think SAS did
• 7:08
  relative to this little chart? What's your?
• 7:09
  Perception. I think I know the answer to
• 7:11
  this question, but SAS got crushed like a.
• 7:13
  Dog Yeah, it got it got hit so bad, Dave, I'm going to have to
• 7:18
  recalibrate my Y axis right here.
• 7:19
  Scale like go load off, Yeah. That's what actually happens on
• 7:25
  SAS. It is down 25%.
• 7:27
  The SAS multiples now I have not seen them this low in in 10
• 7:31
  years. We have a a SAS multiple.
• 7:33
  We we keep an index. I'm going to just show this from
• 7:36
  Clouded. Judgment.
• 7:38
  They're down to about. A 4X median multiple on software
• 7:41
  companies, the high flying, you know, top five are down about to
• 7:44
  about 19 X. The overall index is down to 4X.
• 7:47
  This is an index that that I do based on their data that just
• 7:49
  shows the the growth adjusted. So the high growth, medium
• 7:53
  growth and low growth medians. The high growth median was about
• 7:56
  15X at the end of the year. It's now down to 10X.
• 8:00
  That's the top grey line. Compression at the top end,
• 8:04
  yeah. Yeah, all the high growth
• 8:06
  companies are, you know, are disproportionately off.
• 8:08
  And I think what's just what's happening in the software
• 8:11
  industry in general is we basically had a, you could, you
• 8:14
  could also quibble with revenue multiples like, hey, why are you
• 8:17
  still focused on revenue, You know, 5 * 7 * 10 times revenue.
• 8:21
  Shouldn't it really be about profits and free cash flow in an
• 8:23
  environment like this? And even the cash flow multiple
• 8:26
  is down to 1617 Times Now on a forward basis, it was about 40
• 8:31
  just, you know, a year, a year ago.
• 8:32
  And so the free cash flow multiple is also.
• 8:35
  Compressing. That's interesting.
• 8:36
  I haven't seen that that metric before, but that's that's a
• 8:40
  pretty substantial drop. Yeah, I think what it means is
• 8:43
  if you're a SAS CFO, you're going to have to start focusing
• 8:45
  on not, you know, growth, but also profitability.
• 8:48
  It's also going to be about free cash flow.
• 8:51
  And, and the big story I think is, is, you know, not only can
• 8:54
  you generate money from your business, but now there's a
• 8:57
  concern is what does AI do to my business?
• 8:59
  What really shocked the market last week was all the four, all
• 9:02
  the big 4 hyper scalers reported earnings or gave guidance for
• 9:07
  CapEx, Alphabet, Amazon, Microsoft and Meta.
• 9:10
  This is a chart showing where they're what they've been
• 9:12
  spending on CapEx like the four of them combined all guiding now
• 9:15
  to over 650 billion in CapEx for next year.
• 9:18
  That's basically doubling what it was this year, which is a
• 9:21
  almost a double prior year. Analysts didn't didn't see this
• 9:24
  coming. They were all expecting guidance
• 9:26
  about 20 to 30% lower than what the company's actually guided
• 9:31
  to. So it's a bit of a surprise now
• 9:33
  and how much people are spending and depending on how that
• 9:36
  guidance was received, you can see all four of the, of this
• 9:39
  BIG4 got hit pretty hard last week since over the, over the
• 9:42
  last, you know, 10 trading days, Amazon's down 13%, Alphabet down
• 9:46
  4, Meta down one and Microsoft down 17% now.
• 9:50
  So all their stocks are reflecting the the baggage of,
• 9:53
  you know, guidance and what that means and all, all that means if
• 9:56
  you're SAS CFO, you got to focus on growth and free cash flow.
• 10:00
  You're going to have to talk about using AI.
• 10:03
  What are your remotes around AI? So if AI isn't, if you're in a
• 10:06
  business that has AI, how are we going to defend against what
• 10:09
  those agentic AI companies are doing?
• 10:12
  And then maybe most importantly, can you accelerate your core
• 10:14
  business with AI Like what there are examples of companies that
• 10:17
  are doing fine in the public market.
• 10:18
  Snowflake, you know, Canva is telling a very good story by
• 10:22
  using AI to accelerate core business.
• 10:24
  If you can't tell that that story right now, then the
• 10:27
  expectations for future profits are shrinking and your multiple
• 10:30
  is going down. I think Figma's got, you know,
• 10:31
  got exactly that problem right now.
• 10:35
  They're expecting a direct attack, but if we tunnel.
• 10:38
  Into the earth. We could come up underneath them
• 10:40
  and surprise them. Oh my God, there goes the genius
• 10:44
  talking about tunnels. Let's maybe dive in a little bit
• 10:48
  more on those top four, 'cause I, I think they all got kind of
• 10:52
  hit, but maybe they got hit differently.
• 10:55
  I mean, huge amounts of money being spent, right?
• 10:57
  So who got hit the worst? Amazon, you think?
• 11:00
  In the last week, the biggest hit was Microsoft was down 17%,
• 11:04
  Amazon was down 18%. So those were the two that that
• 11:08
  had the toughest ride. And that's just crazy.
• 11:10
  Those companies collectively lost almost somewhere between
• 11:13
  half a trillion to a trillion dollar market cap, right?
• 11:15
  So pretty big hit for everybody, but Amazon had a slight miss on
• 11:19
  earnings, big CapEx spend, stock was down significantly.
• 11:23
  Microsoft, maybe people are worried about too much dependent
• 11:26
  upon open AI getting strong profits and best free cash flow,
• 11:30
  but still pretty negative reaction.
• 11:34
  Alphabet maybe the least negatively affected.
• 11:38
  I feel like everybody's kind of like re examining the bet on
• 11:43
  Google because people think sort of thought that hey, AI is going
• 11:46
  to just crush Google's business. They're already the strategic
• 11:49
  leader and you know, search and turns out not the case at all.
• 11:52
  Really strongest percentage growth in the quarter, large
• 11:56
  increase guidance, maybe down modestly, but still pretty
• 12:01
  solid. And then Meta maybe down a
• 12:03
  little. Bit they're down 1% overall for
• 12:05
  the week. So on a on a relative basis,
• 12:07
  they were the least affected. Google or Alphabet really had a
• 12:10
  tremendous quarter. They they accelerated their
• 12:12
  search. Revenue.
• 12:14
  To nearly 17% from 15%. So that should put to rest a lot
• 12:17
  of the worries about AI chat bots on a mind of their
• 12:20
  business. Google Cloud had a 14 percentage
• 12:23
  point acceleration from 34 to 48% and the profit margins, by
• 12:28
  the way, soared to 30% from 23. So they did everything right and
• 12:32
  had a phenomenal quarter. However, the estimated capital
• 12:36
  spending to be 175 to 185 billion and the analysts were
• 12:40
  surprised, they thought there would be more like 120.
• 12:42
  And when you put that total CapEx for Google in, in context
• 12:46
  like to to spend 175 to 185, their entire business generated
• 12:50
  164 in free cash flow last year. So as great a company as they
• 12:54
  are and it may be the most successful business model of all
• 12:58
  time, they are basically putting every single penny that they are
• 13:01
  generating into CapEx for AI. So they, they, they didn't
• 13:04
  escape the downturn, but they were on a relative basis, I
• 13:06
  think on the, you know, they did, they outperformed Microsoft
• 13:09
  for sure. And Amazon, who didn't have, as
• 13:11
  you know, they had good quarters, great quarters, but
• 13:13
  also guided about what people thought.
• 13:15
  Yeah. Well, I think you might sort of
• 13:17
  suggest that a lot of the early enthusiasm for Microsoft's bet
• 13:21
  on AI, the partnership with Open AI, maybe that's waning a little
• 13:24
  bit now, Open AI sort of seeking out other partners.
• 13:27
  Microsoft may be being a little too dependent upon that revenue.
• 13:31
  At the same time, maybe Google and Meta to some extent, I
• 13:34
  really tuned up their advertising business with AI.
• 13:39
  And really I would probably say they're the examples of company
• 13:42
  using AI positively for their overall businesses and bottom
• 13:45
  lines. And maybe in contrast, let's
• 13:47
  take a look at Figma. This is a pretty interesting
• 13:50
  story. Figma went public, zoomed up,
• 13:53
  you know, incredibly high and then has come down substantially
• 13:57
  over the last 6-8 months. Do you look here when they
• 14:00
  originally priced, they priced at $33 per share.
• 14:03
  That was about a $12 billion valuation on 750 million in
• 14:06
  revenue, maybe 16X multiple. Really soon right after that,
• 14:10
  they were at its peak valued at 90 times revenue.
• 14:15
  And then that slid and came down gradually over the last six
• 14:18
  months. And now it's trading at about 10
• 14:21
  times revenue, which is maybe a little bit above your other
• 14:25
  multiples for SAS, but not that much.
• 14:27
  I guess this article talks a little bit about, you know,
• 14:29
  whether AI expands or compresses their business.
• 14:32
  And Figma was pretty much seen as an interesting use case, you
• 14:37
  know, really taking market share away from Adobe.
• 14:39
  But then this article talks about how Adobe and also
• 14:42
  Microsoft can afford to maybe absorb, you know, spending on
• 14:47
  building out AI infrastructure and tools without worrying about
• 14:50
  their bottom line. Whereas maybe for Figma, that's
• 14:53
  not as easy for them to just keep spending on CapEx in the,
• 14:57
  in this case for acquiring a company and building out AI
• 14:59
  tools. Company still doing, you know,
• 15:02
  over a billion in revenue growth at almost 40%.
• 15:05
  So I guess we're waiting to see their earnings announcement
• 15:08
  maybe next week or in a couple of weeks.
• 15:11
  Their IPO date was July 31st. So if I put six months after
• 15:14
  July 31st, there should have been, there should be out of
• 15:16
  lock up now or just this week. And usually there's going to be
• 15:19
  a few weeks of activity after the lock up period.
• 15:22
  As you know, as people are now able to sell, this mean that
• 15:24
  they will sell, but there'll be some, some selling pressure
• 15:27
  between now and the end of the quarter.
• 15:29
  I think what they're demonstrating right now is like
• 15:31
  very strong, you know, but the, the multiple went way above the
• 15:33
  the market mean. And so it's unsustainable,
• 15:35
  right? And I think we've reflected at
• 15:37
  the time like, wow, this seems like a, this seems like a very
• 15:39
  generous pop. Let's, let's see what happens.
• 15:41
  And sure enough, from 33 bucks a share, they were, as you said,
• 15:45
  what are they over 90 for a while and then and now kind of
• 15:47
  come back to earth. And I think for them, it's going
• 15:49
  to be, do you if they could keep growing at that rate and a, they
• 15:53
  can demonstrate that AI is not taking from their core business,
• 15:56
  but they need a couple of quarters to do that to kind of
• 15:58
  prove to analysts that that's that's true.
• 16:00
  That'll be that'll be one helpful thing, stabilizing the
• 16:03
  valuation or the multiple. But she said isn't terrible
• 16:05
  right now, but just on a, you know, on a relative basis, it's
• 16:08
  come down, but it may be where it was supposed to be all along.
• 16:10
  And then two, can they use it to actually, you know, not only
• 16:13
  protect your business with the most, but do you have AAI
• 16:15
  product road map that can accelerate your business?
• 16:18
  And whether it's, you know, efficiency, create new markets,
• 16:20
  getting into new Tams, opening up new geographies, those are
• 16:24
  all things AI can help you do. One thing that we never did when
• 16:27
  we did our roadshow on the IPO was talk about our future road
• 16:30
  map. In fact, that a great CTO guy
• 16:32
  named Jeremy Stanley and he just want to talk about the future
• 16:35
  and, and you know, and machine learning to use advertising,
• 16:38
  that type of business. And I had a little, I had a
• 16:40
  little piece of papers and I'd ball them up and I would throw
• 16:42
  them at him when he started talking on the stage about him
• 16:46
  up. Because you get, you only want
• 16:47
  to focus on facts and what you've done and not get too cute
• 16:50
  about forward guidance. I think now CFOs might have to
• 16:53
  start talking about the forward road map and it's all got to be
• 16:56
  AI and AI as an offensive weapon.
• 16:58
  And that's going to be the the key to these guys re picking up
• 17:01
  some of that growth and stabilizing these valuation
• 17:03
  multiples as well as just delivering on a couple of good
• 17:05
  quarters. And maybe that's why Elon felt
• 17:08
  so much pressure. Desire to merge X AI was now we
• 17:12
  got a great AI story to tell. Well, it's the future of
• 17:17
  currency. It's an unstoppable financial
• 17:19
  vehicle. It's going to take over the
• 17:20
  world. I get that, but what is it man?
• 17:25
  I keep telling you it's a cryptocurrency you can trade for
• 17:28
  conventional money. Well, kind of a rough story for
• 17:33
  Tether in the market. I guess Cryptos had a pretty
• 17:36
  rough ride in the last couple of weeks and months.
• 17:39
  But Tether had been trying to raise at a $500 billion
• 17:42
  evaluation, and I think they suggested they were going to be
• 17:44
  raising 20 billion at one point. And now they're like, no, no,
• 17:48
  no, we were not ever trying to raise 20 billion that that was
• 17:53
  misreported. We're re evaluating that whole
• 17:56
  thing. They're walking you back a
• 17:57
  little bit. You know, we had done Tether on
• 18:00
  the prior evaluation corner and this is a reminder.
• 18:02
  Here's what we'd said. We, you said they're making a
• 18:04
  lot of money, 13.7 billion in profit compared to Circle.
• 18:08
  So Tether does USDT as stablecoin products.
• 18:11
  Circle was a competitor with a very similar product but
• 18:14
  different reserve requirements. the PE ratio for Tether was 36
• 18:18
  times, which, you know, which was much better than Tether
• 18:20
  because they're so profitable. But we also said at the time
• 18:23
  here in transparency regulation and reserve policy, Circle has
• 18:26
  the advantage. And the issue that Tether is
• 18:28
  going to have to run into is the reserve policy is very heavily
• 18:32
  based on things like digital coins and like secured loans and
• 18:36
  corporate bonds and a lot of a lot of non cash stuff that goes
• 18:39
  into the reserves. And that works great as long as,
• 18:42
  I guess, when the market doesn't care that much.
• 18:44
  And then two, all those digital coins perform well because if
• 18:47
  they're making money and they're not in distress, then your
• 18:49
  reserves are you can reserve 1:00 to 1:00.
• 18:51
  But if all those digital coins are going down in value, then
• 18:54
  you're no longer 1:00 to 1:00 and you have to sell and then
• 18:56
  replace with cash. And I think what's happening is
• 18:58
  as the crypto market has gone into a bit of a a winner, their
• 19:01
  reserve policy is coming under stress.
• 19:03
  And so the markets, you know, it's going to be a much more
• 19:05
  difficult market now to to raise in that it was just six months
• 19:09
  ago. So I don't know what happens to
• 19:11
  Tether now. I suspect they can still, as
• 19:12
  long as they have a good reserve policy, they can still raise
• 19:15
  some money. But I think those ambitious, you
• 19:17
  know, plans for 20 billion on 500 are probably out the window
• 19:20
  until crypto recovers. Yeah, I don't think Tether is
• 19:24
  going to be in any problematic areas.
• 19:26
  They have plenty of access to capital, but you know, maybe the
• 19:29
  ambitions at that valuation are sort of going to be have to set
• 19:33
  aside for a while. Well, another more positive
• 19:36
  news. Voice AI startup 11 Labs is
• 19:39
  raising a $500 million round and $11 billion valuation.
• 19:43
  Still plenty of enthusiasm for AI raising money in the primary
• 19:47
  market. This was led by Sequoia.
• 19:49
  Sequoia has been leaning pretty heavily into AI and I guess
• 19:53
  we're not going to see any end to that in the near term,
• 19:55
  correct? So I think it's a really great
• 19:57
  story for Sequoia. They they had they were in in
• 20:00
  the last round and 11 labs and had LED last couple of rounds.
• 20:03
  But this is a voice platform that now has been used by 41% of
• 20:07
  Fortune founded. Companies, a lot of their big
• 20:10
  enterprise clients, if you're in the publishing business, do you
• 20:12
  know them now? They're, they've got time and
• 20:13
  Harper Collins, they've kind of run the table and become the
• 20:16
  dominant, the lead form and long form audio editing and video
• 20:19
  dubbing and a lot of the stuff that that authors and publishers
• 20:22
  use now if you're doing podcasts, you're looking for,
• 20:25
  you know, for dubbing and, and voice overs, they're, they're a
• 20:28
  very common tool. They've tripled the revenues in
• 20:30
  the past year. So it's 330 million in revenue
• 20:33
  on an AR basis. And so that makes this deal 30
• 20:36
  times last year's revenue, maybe 10 to 12 times forward revenue.
• 20:40
  Just not a lot of companies that are founded in 2022 can you know
• 20:42
  demonstrate that kind of grip of clients and that kind of that
• 20:46
  kind of revenue potential. So just a really cool technology
• 20:48
  and you know, as I said, like a plus investors in this in this
• 20:52
  group led by Sequoia, but A16Z and Iconic are in the deal as
• 20:55
  well. Another really hot company is
• 20:59
  Cerebrous and Cerebrous is now raising a billion dollars at a
• 21:03
  $23 billion valuation. I guess that puts them in
• 21:07
  probably the top 2030 most valuable private companies.
• 21:10
  This is an AI chip company. I guess they they compete with
• 21:13
  NVIDIA, but this is a pretty substantial markup.
• 21:17
  The company raised at an $8 billion valuation just in last
• 21:20
  September. So in barely six months, the
• 21:23
  company's tripled their valuation.
• 21:25
  Open AI is a big customer. Meta is also a customer, IBM and
• 21:29
  Mistral. What do you think about that
• 21:31
  valuation? Is that justifiable and how
• 21:35
  quickly has that marked up in value?
• 21:37
  Well, let's see, they were their their last round of September
• 21:41
  2025 at 8 billion. So they've obviously popped a
• 21:44
  lot since then. They are part of a like a
• 21:47
  growing crop of companies that's challenging NVIDIA and Nvidia's
• 21:51
  dominance in the market for these AI chips.
• 21:54
  They are, as you said, you know, they're they're kind of the big
• 21:57
  whale, I guess in January was open AI.
• 21:59
  That's a major new customer in the first US based hyper scaler.
• 22:03
  The fact that they could land that I think is, you know,
• 22:05
  that's a huge signal that helped their valuation.
• 22:07
  And they're, they're famous because they're the only AI
• 22:09
  company with a full Weaver scale chip stack.
• 22:13
  And so that's, that's a differentiated position in the
• 22:14
  market as capital intensive as that space is.
• 22:17
  And going up against NVIDIA just seems to be difficult.
• 22:19
  But they seem to have an angle that they're playing.
• 22:21
  And, you know, the fact they can get Tiger and they've been
• 22:24
  looking at an IPO at the end of last year and then ditched that.
• 22:27
  And I guess they decided they can raise money more effectively
• 22:29
  at the private market right now. And obviously they proved that
• 22:31
  with Tiger in the lead. I guess one other interesting
• 22:34
  component of this story is that Benchmark which I believe had
• 22:39
  been an investor in the company is raising a $225 million SPV
• 22:46
  just to double down on Cerebrus. And I guess that's unusual in a
• 22:49
  couple ways. Benchmark somewhat famously has
• 22:53
  been a pretty consistent like we only invest, we only raised you
• 22:57
  know, funds that are about 1/2 a billion dollars.
• 22:59
  They really haven't increased the size of their bets, size of
• 23:02
  their fund that much, but they've they've never really
• 23:06
  done a specific SPV just in one company.
• 23:08
  And at 225 million, that's like half the size of their normal
• 23:12
  fund that's being bet on just one company.
• 23:14
  So kind of an unusual bet by Benchmark.
• 23:17
  Obviously considerable amount of conviction on that company for
• 23:20
  them to do such a large bet and outside their fund, very unusual
• 23:24
  behavior for Benchmark. I just thought it was kind of
• 23:27
  unusual to see that behavior from Benchmark.
• 23:29
  I think that's that's a huge, you know, conviction bet on that
• 23:32
  just one company. So the last time we saw
• 23:36
  Benchmark do something like this was when they raised a billion
• 23:38
  dollar fund back in the when was the late 90s, early 2000s?
• 23:43
  I guess they were investing in a company called Webvan around
• 23:45
  that time. Oh, that's, that did not go so
• 23:49
  well, perhaps. So I I hope this time it's
• 23:52
  different, but it does seem like Benchmark is making a major bet
• 23:57
  on this company. What a what a fun fact.
• 24:00
  Another fun fact is the web band CEO of the time was a guy named
• 24:02
  Bob Swan. He was the, he went on later to
• 24:05
  be the CFO of, of eBay and, and the later of Intel.
• 24:09
  But I worked for him directly at eBay for many years.
• 24:11
  I thought he was, I thought he was great.
• 24:13
  And we didn't talk much about his web band experience other
• 24:15
  than how quickly he ran out of cash.
• 24:20
  He gave me a whole story, one sort of a drink about how he had
• 24:23
  it. Webbam is going to make it.
• 24:24
  There was a whole model, you know, we just had a we were
• 24:26
  spending and we were making money and we just the lines
• 24:28
  never crossed, Dave. The lines never crossed.
• 24:30
  The revenue and the cost lines never crossed.
• 24:32
  And we rent out of cash before we can get the lines to cross.
• 24:35
  I'm like, OK, OK, Bob, that's the have another drink.
• 24:38
  Yes, you know, e-commerce delivery is certainly big
• 24:42
  business these days. So, you know, they weren't
• 24:44
  wrong, just a little bit early. All right, David, Joe, we're
• 24:59
  here on Super Bowl Sunday. David, you're my first second
• 25:03
  time guest. I'm honored.
• 25:05
  How many episodes have you done so far?
• 25:07
  This will be our 23rd episode, so not quite six months, but you
• 25:13
  are our very first guest. You're so famous we had to have
• 25:16
  you back. Well, I'm about the the so
• 25:19
  famous part, but you know, they say lucky number 23.
• 25:22
  It is. That's that's Jordan's number,
• 25:23
  right? Oh, that's right.
• 25:26
  Oh yeah. Well, and Lebron's number, so I
• 25:29
  mean. There we go.
• 25:30
  And Lebron's number so. Little little basketball
• 25:32
  knowledge there for you. On a football day.
• 25:35
  Well, I think we should start with our joint blog post.
• 25:39
  You wrote this. We wrote it together back in
• 25:41
  August of 23, very humbly, name the science of selling.
• 25:46
  We came up with some TVPI and DPI charts tables here and I
• 25:52
  think we got a lot of questions about where did we come up with
• 25:54
  these from people and we literally said we pulled them
• 25:58
  out of our butts. Somebody, I forget who it was,
• 26:01
  comments like, hey, you know what, where's your sources for
• 26:03
  numbers? And you responded with at that
• 26:05
  exact line. Well, I think I used a even more
• 26:09
  risque term at that point. But yes, I, I think there is
• 26:13
  some expectations that you'll get close to, you know, 1X by
• 26:18
  year 10. But as we all know, that's
• 26:20
  probably not true for much more than, I don't know, 1020% of
• 26:26
  VCs. True, true.
• 26:28
  I mean we had a couple numbers on here, which I think is really
• 26:31
  interesting. And before we click record, we
• 26:33
  were discussing like what is net DPI look like at year five, year
• 26:37
  seven-year 10, year 12, year 15. And we had proposed that year
• 26:41
  102X is great, year 123X is great, year 155X is great,
• 26:47
  Asterisk, Asterisk which is what?
• 26:48
  I want to get to. That's great if you get all of
• 26:51
  that 5X right at the end. Yeah, which is, remind me, Dave,
• 26:57
  we look at the IRR for that. What's 5X in 15 years again?
• 27:01
  I am looking at my Little Collar Capital card here.
• 27:05
  Well, a 10% IRR would be around 4X, maybe a little bit more than
• 27:09
  4X and a 15% IRR is around 8X. So I'm guessing that probably 5X
• 27:14
  in 15 years is probably somewhere around 11% and you may
• 27:18
  have a more specific number there.
• 27:19
  It's 11.33%. Which which is OK, but not that
• 27:24
  amazing, right? I mean, you might aim a little
• 27:28
  higher for Venture, right? I think it's worth aiming a
• 27:31
  little bit higher, especially if the SPY does on average 8 to 10%
• 27:36
  a year. 11% is not. Probably a lot more than that in
• 27:40
  the last five years, but yes. True.
• 27:41
  OK, you know what? In the last five years with the
• 27:42
  Mag 7. Different again we're.
• 27:46
  We should diversification. Yeah.
• 27:48
  I, I would guess that, you know, expectations for venture are
• 27:52
  probably 500 basis points above public market.
• 27:55
  So people are probably thinking 15 to 20% IRR for venture,
• 27:59
  people say 20%, but I think they're OK with probably 15%.
• 28:03
  At 12%, maybe you're sort of like doing all right, but you're
• 28:07
  not really doing that much better than public markets for
• 28:10
  an illiquid asset class, so or probably should be any higher.
• 28:15
  If you really want that, like 2 1/2 three, maybe even 3 1/2 X
• 28:19
  within a shorter period of time, you can do it via private equity
• 28:22
  funds as well, like leveraged. Buyout or or you could do it via
• 28:26
  secondary funds, Hey. What a lead in.
• 28:29
  There, wait, wait a second. I just want to get back to
• 28:31
  something so like 5X if you got it all at the end of 15 years.
• 28:34
  Probably just a little bit better than 1011% IR.
• 28:37
  However, if you got 1X back in year, 52X back by year 10, as
• 28:42
  our, as our chart suggests, I bet you that IRR looks a lot
• 28:46
  better, right? And it's, it's really only the
• 28:48
  case that if all of that 5X comes back only after 15 years
• 28:52
  that your IRR sort of sucks. If you got 1X back by Year 5 and
• 28:56
  2X back by year 10, and then a little bit more on your way to
• 28:59
  year 15, I think you'd probably be north of 20% IRR again.
• 29:03
  Might take a little bit more advanced calculation to figure
• 29:06
  that out, but but here's the reality a lot a lot, a lot a lot
• 29:11
  of VC funds are sitting at year 10 with 0 DPI.
• 29:17
  A few of them have you know, maybe point 5X or less And
• 29:21
  again, I think probably less than 1020% of them have DPI
• 29:26
  close to what in fact, let's let's actually take a look
• 29:30
  there. We have some stats on this.
• 29:33
  This is Carter's BC report. This is back from Q 225 S maybe
• 29:38
  it's a little bit dated, but here we're seeing DPI for a
• 29:43
  cohort of six to seven-year old vintages, I guess is between
• 29:46
  2017 to 24. But let's let's take a look
• 29:49
  maybe at 201718 and 19 for some relevance.
• 29:54
  So an 8 year old portfolio vintage 2017, the 90th
• 29:59
  percentile was 1.8 X and the 75th percentile was .63 X.
• 30:06
  So more than 75% of all 8 year old funds had not even hit .7 X.
• 30:13
  That's that's not so great. They have not returned principal
• 30:19
  back and part of this is by year 10 you are already like probably
• 30:24
  2-3 years into fund 3 and the goal is by the.
• 30:28
  Time up for sure. Totally.
• 30:30
  And by the time of like fund three, fund 4, fund one LP's, if
• 30:34
  they want to recommit into like fund three, fund four, they'd
• 30:36
  want to have at least some liquid so they can like put the
• 30:38
  same money back into the. I, I think that's a good point,
• 30:42
  right. So you know, if we're talking
• 30:44
  about when you're raising your third fund, I would guess that
• 30:47
  most people are raising their third fund around year 567 after
• 30:52
  their first fund you. Know I guess depends on the fund
• 30:56
  size. I would say if it's like $10
• 30:58
  million of a fund 0IN quotes, right, like proof of concept
• 31:02
  fund 1 1/2 to two year deployment schedule, you really
• 31:05
  start fundraising almost like 6 months after the close of fund 0
• 31:09
  slash fund one. Obviously if it's a bigger fund,
• 31:11
  then you have like a three, maybe 4 year deployment cycle,
• 31:14
  so maybe a little bit later. I don't know if anybody's been
• 31:17
  on a four year deployment cycle lately.
• 31:18
  It seems like everybody's doing two or three years, 2 1/2 at
• 31:23
  best. But let's let's take a look at
• 31:25
  another graph here. I think we probably had some
• 31:29
  pretty good years between say you know, 2010 eleven, maybe up
• 31:35
  to like 16 or so where the returns from BC were actually
• 31:39
  outpacing deployment. But certainly starting since
• 31:43
  2021, we really have not had great returns relative to
• 31:48
  deployment. I think we're, we're underwater,
• 31:50
  shall we say for, you know, capital out the door versus
• 31:54
  capital coming back in the door. So LP's are certainly looking
• 31:58
  for GPS who have returned capital or likely to return
• 32:02
  capital. And it's a big factor.
• 32:05
  I, I think as you're suggesting, at least by the time you're at
• 32:08
  fund three, people are going to be looking back at your fund one
• 32:11
  and saying what have you done? So.
• 32:14
  So probably by year, maybe not year Year 5, but certainly by
• 32:18
  year 678, people want to see some DPI performance.
• 32:22
  And maybe it doesn't have to be 1X, but if you haven't already
• 32:26
  put like .3 point 5X on the board by year seven, I think
• 32:30
  people are going to be wondering what the hell, You know, maybe
• 32:34
  as as our friend Asher said, maybe you're a great investor,
• 32:37
  but you're not a great fund manager. 100% and especially
• 32:40
  now, I forget where I saw the stat, but this is like mid 2025.
• 32:45
  They said the median time it from company inception to exit
• 32:49
  is 11 1/2 years. And if we're taking 11 1/2
• 32:52
  years, that's probably the tail end of deployment for Fund 3
• 32:55
  already, if not already starting the deployment of Fund 4.
• 32:58
  And now that point if you're just starting to return capital,
• 33:00
  which goes back to our chart earlier that quote UN quote 5X
• 33:03
  DPI at year 15, that's probably too late and you're not to
• 33:08
  Asher's point a great fund manager where you are a
• 33:11
  fiduciary of capital along the way.
• 33:13
  Looks like there was a post from Battery Ventures maybe about a
• 33:16
  month ago that was talking about the median time to IPO has
• 33:19
  tripled from four years in 1999 to 12 years today.
• 33:24
  And I would argue probably for larger IP OS, it's even more
• 33:28
  than 12 years. Oh yeah.
• 33:30
  Case in point where I was an investor in Canvat in the C
• 33:34
  drown back in 2012. And I am really, really, really,
• 33:37
  really hoping that Kevin goes public this year and that is 14
• 33:41
  years later. So it's been a little while for
• 33:44
  for that and. 14 I believe is the same as Roblox too, which is
• 33:47
  also a 14 year inception to IPO as well.
• 33:52
  Now, obviously there's some, you know, companies that are growing
• 33:54
  at AI scale that are going much, much faster and maybe they'll
• 33:57
  get there in only 5 to 10 years. But I do think most people are
• 34:01
  probably thinking about IPO is taking longer than 10 years, in
• 34:05
  many cases longer than 12 years. And as you and I know, fund life
• 34:08
  cycles are 10 + 2 unless you do further extensions.
• 34:13
  One of our portfolio funds is starting to pitch 12 + 2 though.
• 34:17
  Well, I think the people are not lying.
• 34:20
  They probably should be pitching 15 years as life cycle for a
• 34:23
  fund. But you know, probably more
• 34:27
  relevant is not so much the ultimate life cycle, but more
• 34:30
  like when am I likely to see 1X? When am I likely to see 2X?
• 34:34
  When am I likely to see 3X? And I, and I think they're, you
• 34:38
  know, you'd like to be able to say, hey, I'm going to deliver
• 34:41
  1X, you know, before year 10, maybe by year 7, if you're
• 34:45
  lucky, I'd like to be delivering 2X, you know, somewhere between
• 34:49
  year 11:50. And maybe I'd like to be
• 34:51
  delivering 2X, you know, somewhere between year 11:50.
• 34:54
  And maybe I'd like to, again, if we think, if we think about sort
• 34:57
  of our IRR, it's not just how much is returned at the end of
• 35:02
  your fund. And, and people seem to, you
• 35:04
  know, be saying, hey, 3X fund is great.
• 35:06
  And what they really probably should be saying is 3X net is
• 35:10
  great, 3X gross is maybe not so great, but even 3X net is not
• 35:14
  that great unless you're really talking about that in, you know,
• 35:17
  a 12 year or less time frame again and and whether the first
• 35:21
  one of that 3X comes back earlier rather than much later.
• 35:25
  And there are certain funds in that O six O 7 vintage that are
• 35:29
  still have give or take 225X TVPI outstanding or RVPII guess.
• 35:39
  Yeah. And again, again, from my own
• 35:41
  personal experience, at least in managing 500 fund one and two
• 35:45
  where we did a lot of recycling, we actually had exits, but we
• 35:48
  recycled a lot of that capital. Both of those funds were over
• 35:50
  120% deployed, which means not, not only we did we deploy an
• 35:55
  extra 20%, we actually deployed an extra 40% because we took 20%
• 36:00
  or more in, in fees and other expenses.
• 36:03
  But if I remember correctly, we had our first significant exit
• 36:06
  in our first fund when Twilio went public probably about seven
• 36:10
  years. And I think we were at .5 XI,
• 36:13
  think we got to 1X maybe around year 9 or so.
• 36:17
  And then through partial secondary sales, we got to 2X
• 36:22
  probably by around year 10 or 11, maybe 3X by year 12.
• 36:26
  And you know, again, that sounds pretty good, but it's not like
• 36:31
  as amazing as you think when you actually look at the IRR curves,
• 36:33
  but that that's already you're in probably top 20%, maybe even
• 36:37
  top 10% if you're hitting 3X by year 10/11/12.
• 36:41
  But it's also like as a function of five hundreds portfolio
• 36:46
  structure like you guys have more portfolio companies than
• 36:49
  the average fund out there. So returning.
• 36:51
  But buy a long shot and and certainly we had a lot of early
• 36:55
  liquidity from small wins. So we probably got to that, you
• 36:58
  know, point 3X within the 1st 345 years.
• 37:03
  Lemons rough and early. That's not bad.
• 37:05
  Yeah, for sure. But I, I think we're sort of,
• 37:07
  you know, we're, we're getting to the meat of our conversation
• 37:10
  here, which is how can you manage liquidity better than
• 37:14
  just waiting for IP, OS or acquisitions to happen and even
• 37:18
  maybe a little bit more, you know, depth.
• 37:20
  If we assume that secondaries are part of your strategy, is
• 37:24
  there a way to manage your secondary plan so that you can
• 37:27
  be efficient in the secondary sales and maybe even predictable
• 37:31
  in those in those sales? To anyone I've offended, I just
• 37:36
  want to say I reinvented electric cars, that I'm sending
• 37:40
  people to Mars in a rocket ship. And I guess before we get into
• 37:44
  that, Dave and I do want to talk about the assumptions that we
• 37:48
  have or more so you had brought up into this model, but what is
• 37:52
  the TLDR Cliff Notes version of how you can structure liquidity
• 37:56
  between the years of like 5 to 10?
• 37:59
  Yeah. I think we're going to talk a
• 38:00
  lot about using SPV's as kind of a poor man's continuity fund or
• 38:04
  a simplified continuity vehicle where under the covers of the
• 38:09
  SPV you can manage liquidity. And by that I mean selling a
• 38:13
  portion of your position in your winners to other members of the
• 38:18
  SPV. And that possibly might be other
• 38:20
  LP's that you bring in, like which could be existing LP's in
• 38:23
  your fund or new LP's in the SPV.
• 38:26
  It could even possibly be your own subsequent funds that are
• 38:30
  part of that SPV. And you know, let me just kind
• 38:33
  of layout the basic story. Like let's suppose that you
• 38:35
  made, you know, 40 or 50 investments at seed or precede.
• 38:39
  Maybe if you're a good manager, you got like 30% or maybe even
• 38:43
  more than that to Series A. But we're talking maybe 15 to 20
• 38:46
  companies to Series A probably, let's say around year three,
• 38:51
  maybe year 3-4. And then maybe half of those
• 38:55
  Series A is get to Series B. So maybe you got between 5:00 to
• 38:58
  10:00 Series B companies again sometime between maybe year 4 to
• 39:03
  year 6. So one thing that you could
• 39:07
  think about doing is selling a portion of your winners as they
• 39:11
  get to later stages of capital. And now that may not happen at
• 39:14
  Series A, it may not even happen at Series BI.
• 39:16
  Think more typically you see secondary sales happen when
• 39:20
  companies are at Series C or later maybe doing 50 million
• 39:23
  plus in revenue. At that point the secondary
• 39:26
  market starts to think of them as OK, this is going to get to
• 39:28
  some kind of exit or at least it hopefully will.
• 39:32
  But if you were able to sell a portion of your winners at A&B,
• 39:37
  maybe not to somebody else, but to your own, you know, captive
• 39:41
  LP base within your SPB, you could start generating DPI for
• 39:45
  the initiating fund. And again, let's just say, for
• 39:48
  example, if you got a third of your seed investments to a
• 39:53
  Series A, maybe at an average of a 5X the initial valuation, you
• 39:58
  might be sitting on 1.5 times your initial fund value at
• 40:02
  Series A. And let's say maybe you got, you
• 40:05
  know, I don't know, half of your Series A is to series B again at
• 40:09
  maybe, you know, a 3X increase in value.
• 40:12
  So now maybe you're sitting at north of 2X, maybe even, you
• 40:15
  know, close to 2.5 or 3X. So if you were able to sell.
• 40:20
  About 20% of your Series A's and Series B's, you might be able to
• 40:24
  generate point 5X in liquidity, you know, sometime around year
• 40:28
  456. And you may be sacrificing
• 40:32
  upside that, you know, the portion that you're selling
• 40:34
  isn't compounding and growing. But you have a more, you know,
• 40:37
  predictable roadway path to DPI that you can sort of say, well,
• 40:43
  as as my winners get to A&B, I'm going to push a little bit of
• 40:47
  that, you know, position out of the initiating fund and into
• 40:53
  other vehicles and generate DPI for my, for my first fund.
• 40:56
  So that's that's kind of the basic story is if I sell by
• 41:00
  dollar cost average on the way up and I sell 20% of My
• 41:04
  Portfolio at A and 20% of My Portfolio at BI can start to
• 41:08
  generate some predictable, you know DPII get probably starting
• 41:12
  around year 345 maybe into year, you know 567.
• 41:16
  Talk to me about the from the lens of signaling risk, where
• 41:19
  this is different from the traditional selling on
• 41:22
  secondaries. Well, I think for a lot of GPS,
• 41:26
  you know when they start thinking about selling
• 41:30
  secondary, but by the way, it doesn't usually happen until
• 41:32
  you're 567. They probably haven't thought
• 41:34
  about it at that point. They're probably just happy to
• 41:36
  get to a point where they can actually generate some sales.
• 41:39
  But it it tends to be opportunistic when those things
• 41:45
  happen to you. So like usually you're waiting
• 41:47
  for an IPO to happen, waiting for an acquisition to happen.
• 41:50
  I think the old adage is companies aren't bought.
• 41:54
  Companies are bought, bought, sold.
• 41:55
  Yeah. So, you know, you as the seller
• 41:58
  may not be able to manufacture that event, but you might be
• 42:01
  able to find a buyer of secondary once the company gets
• 42:04
  to a certain size. And the easiest time for that is
• 42:07
  usually when there is an organized primary round
• 42:10
  happening where a portion of that is coming from secondary
• 42:12
  sales. And, you know, if the company's
• 42:14
  raising a primary round, maybe they'll allow early employees
• 42:17
  and early investors to participate.
• 42:20
  And let's say that, you know, the buyer wanted 20% of the
• 42:23
  company, but the founders don't want to sell that much.
• 42:25
  They might say, hey, we'll sell some of our existing shares to
• 42:27
  get, you know, to a larger position.
• 42:30
  So that's that's probably one of the more efficient times.
• 42:34
  The other time is when companies are arranging a tender sale.
• 42:37
  That's when they're doing an organized secondary.
• 42:40
  In both of these scenarios, you kind of have a market function
• 42:44
  where you're going out to a bunch of buyers, You're
• 42:46
  presenting a larger, you know, position round of the company.
• 42:50
  Company might be sharing some of their financials.
• 42:52
  They can get what's called a high Fidelity sale or they can
• 42:55
  maximize the value of their shares.
• 42:58
  But individual sellers, either investors or employees, may not
• 43:02
  be able to get that efficient a sale price.
• 43:05
  If that's happening outside or organized, primary or secondary
• 43:09
  round, particularly if they're a smaller seller and there aren't
• 43:12
  as many buyers and the company doesn't have transparency on
• 43:15
  financials at that time, you might face a very inefficient
• 43:19
  sale. You might have to sell at a
• 43:21
  bigger discount to the last round.
• 43:23
  Even though you might know that the company's progressing on all
• 43:26
  its metrics, you might still have to sell at a discount to
• 43:28
  the previous round and. And just to contextualize that,
• 43:32
  what is a bigger discount mean? Well, I think probably what
• 43:37
  people think of as a typical discount is maybe a 20% discount
• 43:41
  to the last round as as a typical story.
• 43:43
  And this may also depend whether we're talking about preferred or
• 43:46
  common shares. And as an early, you know, seed
• 43:50
  investor in companies, you know, hopefully you're, you're buying
• 43:53
  preferred shares, but you may also have some common shares as
• 43:56
  well. Usually if you're an employee of
• 43:58
  the company that we're talking about common shares.
• 44:01
  So again, I think there's another set of issues, which is
• 44:03
  when you do a normal secondary sale to A to an external buyer,
• 44:09
  you're typically going to have to get permission from the
• 44:11
  company for that transaction. They may or may not approve that
• 44:15
  transaction depending on who the buyer is and what the price is.
• 44:19
  They may execute what's called a roofer or right of first
• 44:22
  refusal. They may even block or reject
• 44:24
  that that sale outright. So again, one of the benefits of
• 44:30
  working within an SPV and there, there may still be restrictions
• 44:33
  on SPV transactions as well, but you wouldn't necessarily have to
• 44:37
  go to the company for permission to sell that asset.
• 44:41
  If you manage the the sale of a membership within the SPV,
• 44:45
  you're not really selling the company position.
• 44:47
  Yeah. So you would still be the holder
• 44:50
  of record of those shares on paper, but you could manage
• 44:53
  liquidity through your SPV to other buyers, other members of
• 44:57
  your your SPV. And in in many ways the the name
• 45:01
  on the cap table doesn't change. Right.
• 45:04
  And and in fact, you could even be following on and putting more
• 45:07
  dollars in into that company through the same SPV and through
• 45:11
  the same entity that's on their cap table while also managing
• 45:15
  liquidity for the initiating fund that was making the
• 45:18
  investments. And you can get as complex as
• 45:21
  you might want under the covers there.
• 45:23
  There's obviously some other tax issues to be concerned about
• 45:26
  potentially QSBS treatment if you're AUS taxpayer.
• 45:30
  But just in general, I think the concept of not having to rely on
• 45:34
  an external party to sell to potentially at a disadvantageous
• 45:39
  price or discount, not having to necessarily require that the
• 45:43
  company consent or approve the sale in order for you to
• 45:46
  generate liquidity for your LP's.
• 45:49
  To add some more nuance and potentially wrinkles on the page
• 45:52
  here, in your mind, what are the kinds of LP's that would be most
• 45:57
  interested in this kind of model?
• 45:59
  Because I imagine not every LP, not every endowment, pension,
• 46:03
  family office, high net worth individual is interested in
• 46:05
  something like structured liquidity programs.
• 46:08
  Well, I think probably the usual suspects here are going to be
• 46:11
  fund of funds and later stage investors.
• 46:14
  And we're probably both familiar with industry Ventures and Step
• 46:18
  Stone which are very, you know, common LP's in a lot of early
• 46:22
  stage funds. They might invest in funds that
• 46:25
  are seed stage funds or even Series A funds, knowing that
• 46:28
  those funds will double down at A&B, but they may run out of
• 46:32
  money or they may, you know, not be exercising pro rata rights at
• 46:36
  B&C and later stages. And so I think that we use this
• 46:40
  graphic, you know, from a fund of funds perspective, when an LP
• 46:46
  and a fund of fund invest in the VC fund, they're expecting the
• 46:49
  beast, the VC funds going to make most of those early stage
• 46:51
  bets at seed in Series A probably in the first five
• 46:55
  years. As those companies get and
• 46:57
  progress to institutional levels, let's say Series A
• 47:01
  perhaps, but definitely series B&C, then some of those fund of
• 47:05
  funds might actually want to Co invest in those stages.
• 47:09
  And possible that they might, you know, Co invest alongside
• 47:12
  their VC or the VC might set up into an SPV to do that follow on
• 47:16
  activity, but they could also sell a portion of their position
• 47:19
  to those LP's at that stage. And then certainly as you get
• 47:23
  into the later years, you're 7 to 15 and the companies are
• 47:26
  getting closer to an IPO certainly in the later stages in
• 47:29
  these situations than the VC might want to be selling
• 47:32
  secondary when the LP is buying secondary.
• 47:36
  So could be a very symbiotic relationship where you know, the
• 47:40
  other members who are in your SPV buying, you know, those
• 47:43
  positions as they get past institutional AB and C rounds
• 47:47
  are the same, you know, LP's that are your anchors in your
• 47:50
  upcoming funds. And, and you could even think of
• 47:52
  stapling one of these transactions as part of raising
• 47:56
  your third fund is, hey, I'm going to sell a big chunk of
• 48:00
  some of my winners to those LP's as part of that transaction and
• 48:03
  getting their commitment to staple, you know, a large anchor
• 48:06
  commitment to my, you know, third or maybe 4th fund.
• 48:11
  And most fund of funds that we know of actually have secondary
• 48:15
  and or growth programs specifically designed for this.
• 48:19
  Although it is very reactive in nature and requires the fund of
• 48:23
  funds to have a certain level of proactivity to understand the
• 48:26
  underlying portfolio company, likely having conversations at
• 48:29
  Agms or otherwise. Yeah.
• 48:32
  And this is one of the things that, you know, when I was
• 48:34
  running 500, as we got into later years for our first two
• 48:37
  funds, we did have a bunch of winners in those funds and many
• 48:41
  times we didn't have capital to do follow ONS past Series A or
• 48:44
  B. What would have been great is to
• 48:47
  set up a, a continuity vehicle and sell a position that we had
• 48:51
  in our initiating fund into that continuity vehicle and still
• 48:53
  manage it. And so in that case, again, you
• 48:56
  wouldn't be selling to somebody else, you'd sort of be selling
• 48:58
  to yourself or at least moving a portion of that ownership to a
• 49:02
  later stage of investor who has a different risk reward profile,
• 49:07
  probably a shorter, you know, path to liquidity for those
• 49:09
  folks. And again, I think now we're
• 49:12
  starting to see that this is much, much more common.
• 49:14
  It's not a one off. It's really something that LP's
• 49:17
  are expecting and that the GP should be planning for from day
• 49:21
  one. They should be thinking about
• 49:22
  like, how am I going to get, you know, hopefully I am a great
• 49:25
  investor. I have winners at B&C.
• 49:27
  They're going to happen. How can I use my positions in
• 49:31
  those winners to both, you know, work with my my LP's, my anchor
• 49:35
  LP's, and maybe even get some institutional LP's by my third
• 49:39
  and 4th fund that I didn't have in my first or second fund?
• 49:46
  Unless you consider that our reality might be a video game
• 49:49
  and we're all just computer simulations being played by a
• 49:52
  teenager in another planet. Talk to me about the potential
• 49:58
  conflict of interests in the existing like continuity vehicle
• 50:02
  structure as well as this this new program.
• 50:05
  Yeah, So great point. I think when we're talking about
• 50:08
  traditional continuity vehicles or funds, usually you're going
• 50:11
  to a third party to price the assets that you're moving into
• 50:14
  that fund. Typically you would talk to your
• 50:17
  existing LP's and give them either the option for liquidity
• 50:21
  at some kind of price or the ability to roll into the new
• 50:25
  vehicle hopefully on a lower set of fees and carry structure or
• 50:28
  some combination of both. Right?
• 50:31
  When you're doing this via SPV, the equivalent of having a third
• 50:34
  party is really someone that's pricing the institutional round
• 50:38
  that isn't you. And so hopefully you aren't
• 50:41
  necessarily leading the Series A rounds, but probably definitely
• 50:45
  not leading the series B&C rounds.
• 50:47
  So not the Sequoia WhatsApp structure.
• 50:50
  Well, that that's a unique one that's different, but I'm just
• 50:53
  saying it's, it's unlikely a seed fund managers going to be
• 50:55
  pricing the Series B rounds. I guess in some cases they might
• 50:59
  price, you know, seed or A rounds, but they're probably not
• 51:02
  pricing those later stage rounds.
• 51:03
  So that third party price that's being led by another VC is
• 51:07
  effectively your evaluation, again, assuming that's happening
• 51:11
  within a reasonable period of time of that round.
• 51:14
  And I might say at least, you know, three to six months post
• 51:18
  the round, perhaps even up to a year.
• 51:19
  But you know, probably between 6 to 12 months after the round,
• 51:22
  you're starting to get into maybe fuzzy territory where it's
• 51:26
  not, it's not necessarily clear that the company may always be
• 51:29
  increasing in value after that there's, you know, things that
• 51:32
  might have happened that you're not aware of.
• 51:34
  So you want, you want to sort of have that transaction happen
• 51:37
  within a reasonable amount of time of the of the last
• 51:40
  institutional round and then use that institutional round as your
• 51:44
  sort of third party pricing. So the combination of having an
• 51:47
  external price for the asset and also giving your LP's the option
• 51:53
  to get liquidity or roll into the new vehicle, probably that
• 51:57
  avoids a good bit of, you know, concerns about conflict of
• 52:00
  interest or any type of, you know, fiduciary role that you
• 52:03
  want to maintain. So I imagine this kind of
• 52:07
  program works really well for let's say sub 40, sub $50
• 52:11
  million funds who are for the most part participating in
• 52:13
  nature and especially so for like the sub $25 million funds.
• 52:17
  The question I have for you is you and I as well as the world
• 52:21
  and people listening to this have seen a number of nine
• 52:23
  figure funds by large GP spin outs recently where they lead
• 52:27
  both the seed as well as the Series A.
• 52:29
  And in many ways there's no third party pricing this.
• 52:33
  So does this kind of program work the same for these larger?
• 52:36
  I wouldn't call it multi stage but larger 9 figure funds?
• 52:39
  I I'm not going to profess to give advice to people running 9
• 52:42
  figure funds. I would expect that those folks
• 52:45
  will be following the letter of the law in terms of getting
• 52:48
  third party valuations. There's, there's an established
• 52:51
  field of people that do this type of work for setting up
• 52:53
  continuity funds. I, I think we're really talking
• 52:56
  about what's the, you know, the poor man's equivalent or the
• 52:59
  poor VCs equivalent for a seed fund manager or emerging manager
• 53:04
  in their first or second, maybe up to their third fund.
• 53:07
  And again, I think using an SPD as sort of an efficient vehicle
• 53:11
  and structure where that third party price is being set by an
• 53:14
  institutional lead at AB or C. Again, I, I'm not going to try
• 53:18
  and get into all the scenarios of tax implications, QSBS
• 53:22
  treatment. I will say that when we had
• 53:24
  structured our third fund at 500, we went back and looked at
• 53:28
  our originating documents and we changed our investment documents
• 53:32
  to make sure that a transfer to a related entity was not subject
• 53:37
  to a Roefer. And that's an important point.
• 53:39
  If you, if you want to do a transfer from your initiating
• 53:43
  fund to another related vehicle that's under your same firm's,
• 53:47
  you know, name or entity, many times the the companies will
• 53:50
  agree to that as long as it's part of the initiating document.
• 53:53
  So if I wanted to transfer an asset from Acme Ventures Fund
• 53:57
  One to Acme Ventures Fund 2 or Acme Ventures SPV, then I could
• 54:01
  do that without, you know, triggering A roofer or at least
• 54:04
  I'd have, you know, sort of a preset expectation with the
• 54:07
  company that I could do that transfer.
• 54:09
  That makes sense. And most times Roefer that's
• 54:13
  tied to the investor rights agreement.
• 54:16
  But I've seen in some place I'm, I'm curious if if you have any
• 54:20
  thoughts here where the the ability to transfer is actually
• 54:24
  tied to like common shares as opposed to like preferred
• 54:27
  shares, which is not necessarily under the investor rights
• 54:30
  agreement? Again, I would probably want to
• 54:33
  talk to a legal attorney to make sure you consider all of these
• 54:36
  scenarios. I think the other thing I've
• 54:39
  experienced personally as AGP is even though you might have those
• 54:43
  rights agreed to in previous documentation, if a if a big VC
• 54:48
  with some sharp elbows comes along later whose initials might
• 54:52
  be Sequoia or Andreessen or Founders Fund or others, some of
• 54:57
  those are long. Initials, by the way.
• 54:58
  Those are long initials, yes. I would guess that perhaps in
• 55:02
  around where there is a finite amount of equity available, if
• 55:06
  you want to transfer equity, you might find that the existing
• 55:09
  investors who sit on the board may, may want to overrule you
• 55:13
  and or take advantage of that. So, you know, contracts are
• 55:18
  there for enforcement, but sometimes the relationships are
• 55:20
  also important as well. I just wanted to cover one other
• 55:24
  thing that I think there's an article by our friend Samir
• 55:27
  Khaji at allocate that's talking about layered SP VS and I, I so
• 55:32
  Samir posted this. Yeah, what's going on in the
• 55:35
  world of SP VS Co investments and how to navigate.
• 55:38
  And I think we're, we're probably aware that for a lot of
• 55:40
  high demand in demand companies, you know, not just the SpaceX
• 55:43
  open AI and Tropics, but maybe the next 30 or 40 companies as
• 55:47
  well. We're starting to see a lot of
• 55:49
  demand and not as much, you know, inventory or access.
• 55:54
  And so as a result, what's happening is people are either
• 55:57
  requiring very large tickets, 50 to $100 million tickets, they're
• 56:01
  pricing up those assets above the last round maybe by 2030% or
• 56:06
  even 50% in really high demand. And maybe we're even seeing
• 56:10
  layered SPVS where you don't even know if the SP you're
• 56:13
  investing in has access to the underlying security or whether
• 56:17
  that's three layers down, you're having multiple layers of fees
• 56:20
  and carry to deal with. So it can get a little crazy and
• 56:24
  perhaps dangerous if you're in this world of fuzzy clarity,
• 56:29
  visibility to the underlying assets, and layered SP VS.
• 56:32
  These are largely true for like let's say the top 20 assets that
• 56:36
  everyone is familiar with. This is not true for, to borrow
• 56:39
  a a nomenclature that used Dave, Unicorn centaur's horses.
• 56:44
  This is probably not true for the centaurs and the horses.
• 56:47
  And actually, before we get there, can you define what a
• 56:49
  Unicorn, Centaur and horses? Originally started out as four
• 56:53
  horses and then we decided to make five horses.
• 56:55
  But the secret stallions in the middle of that blue box is the
• 56:58
  one that we're, you know, generally focused on.
• 57:00
  And these aren't necessarily the most famous companies, but
• 57:03
  they're not the busted unicorns or the slow horses either.
• 57:07
  So these are companies that I would say are doing between 50
• 57:09
  to 250 million in revenue, probably valued at between a
• 57:12
  half a billion, maybe up to 5 billion.
• 57:14
  And the reason I'm sort of pulling these out is because
• 57:17
  they're not necessarily in those two upper right hand groups that
• 57:21
  yellow and green groups where there's so much demand that
• 57:24
  those companies are being sold at premiums or at discounts.
• 57:28
  So if we're if we're talking about the private mag 7, again,
• 57:30
  that's probably, you know, SpaceX, Anthropic, Open AI,
• 57:35
  maybe data bricks, maybe Byte Dance, a few others in there.
• 57:39
  There's extreme demand for those assets and you probably can't
• 57:42
  get them at any price in some cases unless you're paying a
• 57:46
  premium. We're going through multiple
• 57:47
  layers. Even outside the top 7, the top
• 57:50
  30 or 40 companies are possibly in demand and not easy to get
• 57:54
  access to. And so you may not be able to
• 57:56
  buy them at any discount. You might be still a premium.
• 58:00
  Yeah, exactly. Canva, maybe a Stripe, several
• 58:03
  others that are in that category.
• 58:04
  Maybe these are valued at somewhere, I would say between
• 58:06
  say 5 to 50 billion in value. And again, there's a lot of
• 58:11
  retail awareness of those companies.
• 58:13
  There's a lot of demand for those companies.
• 58:15
  People want to buy, you know, the most famous stories, the
• 58:17
  biggest and perceived best brands.
• 58:20
  But there are another 23400 companies, maybe even 500 or
• 58:24
  more companies that are probably not on everybody's radar.
• 58:27
  And the reality here is these are great companies that you can
• 58:32
  get at a discount. And in fact, for many employees
• 58:34
  and early investors in those companies, there isn't more
• 58:37
  demand than there is inventory. And that's really where I feel
• 58:41
  like the buyers, you know, opportunity as the buyer's
• 58:43
  portion of the market. Now, I would say just with a
• 58:46
  warning, you want to be careful that you're not buying busted
• 58:48
  unicorns where there's like too much money that's gone into
• 58:51
  those companies, maybe they're overvalued or the prep, the pref
• 58:54
  sack is not going to clear any investment that's coming later.
• 58:57
  And you don't want to be in slow horses that are too small or too
• 59:00
  slow growing that they never exit.
• 59:02
  So there's kind of that, that sweet spot, Goldilocks just
• 59:05
  right we're, you know, big enough to go public and big
• 59:09
  enough to exit, but not necessarily on everybody's
• 59:12
  radar. And thus you can get them at a
• 59:14
  discount. No I am not the evil, I just
• 59:19
  misunderstood and some of the anti Italian hatred in this
• 59:23
  courtroom is disgusting. Objection, his accent is really
• 59:27
  bringing it on himself. Well, what are the questions
• 59:31
  that someone should ask if they have an opportunity to say, be
• 59:36
  pitched a secret stallion? You mentioned pref stack, you
• 59:39
  mentioned some of these other things.
• 59:40
  What are the other questions that an LPR investor should be
• 59:44
  asking to understand if they have a secret stallion on their
• 59:46
  on their hands? Well, I, I think if you have
• 59:49
  access to financials, you want to be asking questions about
• 59:51
  revenue, profit and growth that you normally would of any
• 59:54
  company. And probably you'd like to know,
• 59:56
  you know, how much capital they've raised, whether that's
• 59:58
  debt or equity. Do you feel like that's, you
• 1:00:01
  know, more or less than say 30% of the company value?
• 1:00:04
  I'd say if the prep stack is more than 30% and certainly if
• 1:00:07
  it's getting to be more than 50 or 60%, you might want to be
• 1:00:10
  careful, especially if you're buying common shares as a second
• 1:00:13
  year investor, whether you're actually going to get any
• 1:00:15
  liquidity. But I think you know, probably
• 1:00:18
  the the high level question is just has the company raised
• 1:00:20
  around recently? Was that round led by a quality
• 1:00:24
  investor that you would trust to make a reasonable, you know,
• 1:00:27
  judgement or evaluation? And so like to see, I would, I
• 1:00:31
  would say probably within the last two years, ideally more
• 1:00:34
  like the last year, but at least within the last year to two
• 1:00:37
  years that you feel like, OK, somebody post 2022.
• 1:00:41
  I should also mention that's an important point because
• 1:00:44
  valuations were a little insane prior to Q2 of 22.
• 1:00:48
  Well at this point like post 2022 is probably like 4 years in
• 1:00:53
  right to where we are. Now you would think, you would
• 1:00:55
  think that companies have been repriced since then.
• 1:00:57
  However, many of them have not been repriced since then.
• 1:01:02
  So you kind of either want to know that you've got recent
• 1:01:05
  financials and the company's doing well and or you want to
• 1:01:08
  know that around that's been led by an institutional BC has
• 1:01:11
  happened in the last few years. Now you might argue that we are
• 1:01:15
  getting back to insanity again with some of these recent rounds
• 1:01:18
  and AI company valuations. So even that might not be enough
• 1:01:23
  for you to sort of say it's a rational valuation.
• 1:01:26
  I generally feel like you should be looking at financials and
• 1:01:28
  doing fundamental analysis. But again, you may or may not
• 1:01:32
  have access to those full financials, particularly as a
• 1:01:36
  retail investor or trying to buy secondary on a on a secondary
• 1:01:39
  marketplace. And there well there's also a
• 1:01:41
  good chance especially with what Samir has been saying about the
• 1:01:44
  multi layer SP VS and all the person who is running that's PV,
• 1:01:49
  the sponsor may not even know the underlying financials as
• 1:01:52
  well. And.
• 1:01:53
  And they may not be have any alignment.
• 1:01:55
  I think for folks that are just charging maybe you know, a more
• 1:01:59
  substantial upfront fee, maybe 5 to 10% fee and no carry, you
• 1:02:03
  know, you might say, hey, they're not charging any
• 1:02:05
  carrier. That's a great deal.
• 1:02:06
  But actually that means that they don't care about the
• 1:02:09
  outcome. They're getting all of their
• 1:02:11
  economics on the transaction the day that you buy into the
• 1:02:15
  investment, and they don't really care about what the
• 1:02:17
  outcome is. I don't think that's a great
• 1:02:20
  alignment of interest between the LP's, and it can't be that
• 1:02:24
  in many cases these SPV's start to be misaligning incentives
• 1:02:28
  between investors where they're functioning more like a broker
• 1:02:31
  than an investment manager or fund manager.
• 1:02:35
  What is that Charlie Munger line?
• 1:02:36
  Show me the incentives, I'll show you the outcomes.
• 1:02:38
  Exactly. So, I mean, sometimes you do
• 1:02:41
  want, you know, to give some of the profits to the person to
• 1:02:44
  manage so that they again are trying to, you know, aim for the
• 1:02:47
  same outcomes that you are. I love it.
• 1:02:50
  Is there anything you think we've missed in this discussion
• 1:02:54
  of managed structured liquidity? I think the the points that you
• 1:02:59
  brought up before are probably important to think about.
• 1:03:02
  Again, for tax purposes, you may want to make sure that the
• 1:03:07
  initiative into the doesn't necessarily hit a tax event
• 1:03:10
  before you're expecting it to. So if you're trying to qualify
• 1:03:13
  for QSBS treatment, you may or may not want to sell prior to
• 1:03:17
  the five year time frame for that, even though maybe some of
• 1:03:20
  that legislation is now allowing you to get those benefits
• 1:03:23
  earlier than five years. There are some types of
• 1:03:25
  transactions that may also violate or sever the QSBS right.
• 1:03:30
  So you have to be careful about whether you're doing a partial
• 1:03:32
  secondary sale where you may not qualify for QSBS treatment and
• 1:03:37
  some transfers between the initiating entities to these
• 1:03:39
  other entities may also you may also lose some of those rights
• 1:03:43
  or treatment. There's more complex structures
• 1:03:46
  where there might be the equivalent of forward contracts
• 1:03:48
  where you can retain the initial owner can still retain ownership
• 1:03:53
  on paper and qualify for that treatments.
• 1:03:55
  Yeah, there's probably a lot of other scenarios that are getting
• 1:03:58
  down into the weeds. But I think just at the high
• 1:04:01
  level, you want to be sort of thinking about if I'm a
• 1:04:04
  reasonably good investor and moving companies, you know, from
• 1:04:08
  precede and seed into institutional AB and C, probably
• 1:04:13
  I don't want to just be waiting for an organic exit or IPO to be
• 1:04:19
  my only path to liquidity. And so whether that's a
• 1:04:22
  secondary sale that you're managing from external party,
• 1:04:25
  whether it's a partial secondary sale that you might be managing
• 1:04:28
  through an SPD or other vehicle, probably to be thinking about
• 1:04:32
  that, you know, at at least by year 456, if not earlier in your
• 1:04:36
  fund life cycle. And possibly even to be thinking
• 1:04:39
  about it as you're raising your next fund.
• 1:04:42
  You know, maybe again, that transaction could be managed
• 1:04:45
  with some of your target potential anchor LP's in a new
• 1:04:49
  fund. I have a feeling if you're
• 1:04:50
  holding on to positions in some nice winners at Series C, that
• 1:04:55
  could be a really good negotiating chip with with LP's
• 1:04:58
  who might want to invest in your next fund.
• 1:05:00
  And it will just be a blind pool of capital.
• 1:05:02
  Actually, I have one more thing to bring up or question for you
• 1:05:05
  before we close out this discussion, which is what should
• 1:05:09
  the size of a position be in the SPV for it to be meaningful?
• 1:05:14
  Because if the fees are 30 to 50K, too small of a position may
• 1:05:19
  not be intuitive to do this program.
• 1:05:22
  Good point. I think probably on the low end
• 1:05:24
  SPV costs are probably around 8 to 10K.
• 1:05:27
  On the high end, again, they could be 25 K or more.
• 1:05:30
  Hopefully they're not dramatically more than that.
• 1:05:33
  I would probably say if you don't want, you don't want your
• 1:05:35
  SPV cost to be a lot more than two to 5% of your overall
• 1:05:38
  investment. And so you know, probably for
• 1:05:42
  initial check size that's only 500 K, you might start to get
• 1:05:46
  into economics there. And if you're below 250K, you
• 1:05:50
  know, definitely it's starting to be a significant portion of
• 1:05:53
  the overall investment. So again, you might have to wait
• 1:05:56
  until that position gets to be a larger portion or you might have
• 1:05:59
  to, you know, try and figure out how much of your SPV cost is
• 1:06:02
  going to be borne by your fund versus your LP's in that
• 1:06:05
  scenario. Yeah.
• 1:06:07
  So in in many ways, if you're writing 100K check position, you
• 1:06:11
  might have to wait 2 rounds before it becomes substantial as
• 1:06:15
  opposed to just one round like passable.
• 1:06:18
  Yeah. I think if you're writing a half
• 1:06:19
  million, $1,000,000 check on your initiating investment, it's
• 1:06:23
  possible that you could just do an SPV from the very beginning
• 1:06:26
  for each of those checks. It's not that substantial a cost
• 1:06:29
  if you're only doing 25 to 5000 K investment, you know, then you
• 1:06:33
  know, you're talking about almost, you know, equivalent
• 1:06:35
  size of the investment being a substantial portion of the cost
• 1:06:39
  of the SPV. But, but I do think, you know,
• 1:06:42
  let's say for somebody running a 10 million, $20 million fund,
• 1:06:47
  maybe making 40 investments, it's it's probably the case that
• 1:06:51
  at least when they get those investments to Series A and by
• 1:06:54
  Series B that you're talking about, you know, a multi
• 1:06:57
  $1,000,000, you know, value in that in the individual company
• 1:07:02
  that at least then you could probably work on transferring
• 1:07:04
  into an SPB and hopefully managing some of the liquidity
• 1:07:08
  that way. Again, really, really important
• 1:07:10
  my opinion to, you know, get your initial investing documents
• 1:07:13
  to give you the right to transfer within related family
• 1:07:17
  entities. And again, I think there's
• 1:07:19
  probably a lot of information on managing and and setting up SPVS
• 1:07:23
  from various SPV platforms, Carta, Sidecar, several others
• 1:07:27
  including Angel List, maybe allocates allocations, excuse me
• 1:07:32
  and even Capita now a. Lot of opportunities, a lot of
• 1:07:34
  options. What do you think about when GPS
• 1:07:38
  are trying to manage liquidity or generate DPI?
• 1:07:41
  Any advice that you have from the LP side of the table?
• 1:07:44
  One of the common push backs or concerns that LP's have is just
• 1:07:49
  the fee schedules and if you do a kind of move like a fun one
• 1:07:53
  asset after they get to the series beat into a fun two or
• 1:07:56
  fun three. The question for the especially
• 1:08:00
  as some for fun one LP's rolling stuff, fun 2, fun 3 is like how
• 1:08:03
  much longer are you going to charge us fees?
• 1:08:05
  So if there's a ramp down schedule there and it's written
• 1:08:07
  down and it's explicit to your LP's, I think most important OK
• 1:08:11
  with it. The thing that if you don't
• 1:08:13
  consider, and that might give some LP's pause, really is, oh,
• 1:08:16
  we renew the fee schedule when we roll into a new entity and
• 1:08:20
  that will scare a lot of people off.
• 1:08:22
  I think in general the expectation is as you move from
• 1:08:24
  fund to SPD, the fee schedule and carry will step down.
• 1:08:29
  I think we're seeing more like one time fees for SP VS rather
• 1:08:33
  than ongoing annual fees. Certainly if it's ongoing annual
• 1:08:35
  fees, it shouldn't be more than 1%, but I, I think probably 1 to
• 1:08:39
  3%, you know, one time fee maybe maybe up to 5% is probably the
• 1:08:45
  higher end of that for LP's that are in your funds.
• 1:08:48
  You might even not charge them a fee.
• 1:08:49
  I, I would probably make sure you cover your costs at least on
• 1:08:53
  a carry basis. Again, you might be able to give
• 1:08:55
  people you know a lower carry for these more mature assets or
• 1:09:00
  or maybe you have a hurdle for performance where you're only
• 1:09:03
  charging 1020% after you clear some kind of hurdle for
• 1:09:06
  performance. Well, Dave, thank you for
• 1:09:08
  letting me allowing me to interview you on your own
• 1:09:11
  podcast and I hope the the listeners and viewers will have
• 1:09:16
  learned something from this. Thanks for joining us again on
• 1:09:19
  our Very Bad Secondary podcast. Well, Ron, we're back with
• 1:09:32
  another evaluation corner and I guess we're taking a look at the
• 1:09:36
  new SpaceX 2 point O. It's the new and improved
• 1:09:41
  SpaceX, Dave, we are shareholders in SpaceX yeah.
• 1:09:43
  I want to walk you through some of the details of the SpaceX XAI
• 1:09:48
  merger and tell you a little bit about what I what I think the
• 1:09:50
  overall strategy is and where where this is going.
• 1:09:54
  Now lots been said about the merger in the press.
• 1:09:56
  So I'll just, I'll just, you know, let me just do that high
• 1:09:58
  level point. So we're or we've got the facts
• 1:10:01
  as far as what happened than speculative of the future.
• 1:10:04
  So the the merger now puts this SpaceX AI entity at 1.25
• 1:10:08
  trillion in valuation. The company to date has raised
• 1:10:13
  about $10 billion. That's SpaceX has raised about
• 1:10:15
  $10 billion to date. And might sound like a lot, but
• 1:10:18
  just for contacts like the Apollo missions that put the,
• 1:10:22
  that put men on the moon for the first time cost about 10 times
• 1:10:25
  that in today's dollars. So it's actually been a very
• 1:10:27
  capital efficient business. The latest update we got from
• 1:10:30
  the business was that in 2025 revenue was about 16 billion,
• 1:10:34
  most of that from Starlink, about 1/3 of that from the
• 1:10:36
  launch business. It's also very profitable.
• 1:10:38
  They're they're going to generate something like $8
• 1:10:40
  billion in profit in 2025 and the first quarter 2026.
• 1:10:45
  So it is now a viable, profitable, you know, highly
• 1:10:48
  successful business that was on a pretty simple path to an IPO.
• 1:10:53
  Even as recently as you know, last week I thought they were
• 1:10:55
  passed to an IPO. It was pretty straightforward.
• 1:10:58
  They they've now acquired XAI. 80% of the market cap of the new
• 1:11:01
  company will go into the SpaceX shareholders.
• 1:11:04
  The other 20% will go to the XAI shareholders.
• 1:11:08
  This is a pro forma of what the revenue for the new company
• 1:11:10
  looks like just based on my best guess from projections.
• 1:11:14
  So the, the launch business at the very bottom and Starlink,
• 1:11:17
  that's SpaceX that that was SpaceX and that is between 83
• 1:11:21
  and 89% of the revenue of the combined entity for 2026.
• 1:11:26
  So SpaceX shareholders only got 80% of the market cap.
• 1:11:29
  So that means that they're on a revenue basis, they're being
• 1:11:31
  diluted, right. As I said, SpaceX is making $8
• 1:11:34
  billion in profit. XAI seems to be losing something
• 1:11:37
  like half a billion to a billion a month.
• 1:11:39
  So they might lose 5 or $6 billion and they, they need a
• 1:11:42
  lot of money. They are generating some
• 1:11:44
  revenue. Now there's two revenue streams
• 1:11:46
  in X AI. There's the, the yellow, which
• 1:11:48
  is really the AI business. So that would be like, but open
• 1:11:52
  AI and and Frob and talk about there's also x.com, which is
• 1:11:56
  formally Twitter and that's actually 3.5 billion of it.
• 1:11:58
  So the majority of revenue right now isn't even AI revenue.
• 1:12:02
  It's really media revenue. So advertising on x.com, not not
• 1:12:06
  AI. And that revenue certainly
• 1:12:08
  doesn't count as much as AI revenue.
• 1:12:10
  It's not as profitable. It doesn't have the same
• 1:12:13
  recurring in nature. It doesn't have the same
• 1:12:14
  multiple. So as a SpaceX shareholder,
• 1:12:17
  you've given up 20% of your company, you're maybe getting
• 1:12:19
  11% to 12% of revenue and you're now taking on a, a money burning
• 1:12:23
  engine, right. So as a shareholder, how do we
• 1:12:26
  feel about SpaceX? Well, remember on evaluation
• 1:12:29
  corner in, in a couple months ago, we talked about what SpaceX
• 1:12:33
  is trying to become and they're the closest comp to it really
• 1:12:35
  was the East India company from 2 centuries ago.
• 1:12:39
  This was not a, this is not a traditional tech company.
• 1:12:42
  This is a company that's trying to colonize the New World.
• 1:12:45
  The East India Company was a Dutch company that started off
• 1:12:49
  at the trade monopoly of the New World.
• 1:12:51
  But you know, their and their main hub was in in like
• 1:12:55
  Indonesia and the Indies. But eventually they were able to
• 1:12:58
  mint coins and wage war and establish colonies.
• 1:13:00
  This was a company that it's at its height, maintained a private
• 1:13:03
  army and a military force. What is SpaceX trying to do?
• 1:13:06
  If you want to know more about the East India Company and and
• 1:13:08
  the history, that company can catch it in my, my new book
• 1:13:11
  coming out next month called The Brief History financial bubbles
• 1:13:14
  that will be available in in a couple of weeks.
• 1:13:17
  And they go through the story of the company and what they were
• 1:13:19
  trying to do and, and how they became the most valuable company
• 1:13:21
  in the history of the world. And the parallel to what SpaceX
• 1:13:24
  is doing is Mars. Mars is the new world.
• 1:13:27
  Once SpaceX gets to Mars, people will have to be there.
• 1:13:31
  Are there are valuable assets in on Mars between rare earth
• 1:13:34
  minerals, maybe it's oil and gas or other sources of energy.
• 1:13:37
  There may be, you know, minerals or precious metals they want to
• 1:13:40
  mine. Somebody has to mine all that
• 1:13:41
  stuff. And SpaceX is in a position to
• 1:13:44
  do all that stuff. They'll be collaborating with
• 1:13:46
  the United States Space Force and rockets.
• 1:13:48
  But that that whole colonization effort needs things like, you
• 1:13:52
  know, space suits, it needs mining, it needs technology
• 1:13:56
  that's going to find and source those rare earth minerals and,
• 1:13:58
  and get them back to Earth. And when you're there, when
• 1:14:01
  you're on Mars, if there is going to be a colony, it won't
• 1:14:03
  be humans. It'll probably be a lot of
• 1:14:05
  robotics. A lot of AI powered robotics
• 1:14:06
  will do the work and they'll have to get around the Mars
• 1:14:09
  colony. And how do you do that?
• 1:14:10
  Well, there are no roads on Mars, but the so you need flying
• 1:14:14
  cars, you need the other forms of transportation.
• 1:14:16
  And this is I think the entire infrastructure that that Elon is
• 1:14:19
  trying to build. Well, if you had to get from
• 1:14:22
  Earth to Mars, what would you? What do you need?
• 1:14:25
  There are a couple of things you need.
• 1:14:26
  You need a broadcast management team.
• 1:14:27
  You need money. You need to have rocketry and
• 1:14:31
  infrastructure that ladders into space.
• 1:14:33
  You need to have data centers in space.
• 1:14:35
  That's the other emphasis that Elon has has placed on the.
• 1:14:37
  Data centers in space. Exactly why do you need them in
• 1:14:42
  space? Well, there's an advantage to
• 1:14:44
  having, you know, data centers in space.
• 1:14:45
  There's an energy advantage, there's a, a cooling advantage
• 1:14:49
  that you've got sunshine 24/7. And so if you can actually build
• 1:14:53
  that infrastructure and there's only one company that's going to
• 1:14:55
  put AI data centers in space in the next few years, Iman says he
• 1:14:58
  wants to do the next 30 months. But if that's possible, you
• 1:15:00
  know, I don't know, but it's, it's in the next 5 years, let's
• 1:15:03
  say, that is a source of energy. And that's the big constraint
• 1:15:06
  on, on what he wants to do. So you begin to see why it makes
• 1:15:09
  sense for him to, to now, you know, want to build this
• 1:15:11
  infrastructure. SpaceX has some of the
• 1:15:13
  components, the team and the rocketry and the the money
• 1:15:16
  raising capability. It doesn't have AI.
• 1:15:19
  It doesn't have LLM and navigation.
• 1:15:21
  There's a big advantage to having AI power your technology.
• 1:15:25
  I know the Apollo missions got to space without AI, so it's
• 1:15:28
  certainly possible. But everything from, you know,
• 1:15:30
  planning the trip to refueling stops to the navigation from
• 1:15:33
  here to Mars gets a lot simpler with AI.
• 1:15:36
  And that's just a capability that SpaceX doesn't have today.
• 1:15:39
  There's another piece that they they don't have of this entire,
• 1:15:41
  you know, infrastructure. And that really is the flying
• 1:15:44
  cars and the AI powered robots. But one other Elon company does
• 1:15:48
  have that stuff. And that's that's Tesla.
• 1:15:51
  And you also need to drill when you get to Mars.
• 1:15:53
  And I think if you need to drill, you know, the Boring
• 1:15:55
  Company's got the biggest drill in the world.
• 1:15:57
  So all this is by way of saying there's a plan to get from Earth
• 1:16:00
  to Mars. SpaceX had a lot of the
• 1:16:01
  components, but not all. AI is a big piece, big part of
• 1:16:05
  the missing, you know, the missing piece of it, robotics
• 1:16:08
  and AI powered robotics is another piece of it.
• 1:16:10
  And then drilling is another piece of it.
• 1:16:12
  And there's a tons, there's a ton more in this whole
• 1:16:14
  infrastructure that he'll need, but he'll have to build or buy.
• 1:16:17
  But it seems like this is the logic behind SpaceX and and XAI
• 1:16:21
  merging. This is also the logic between
• 1:16:23
  these two companies and Tesla potentially either merging or
• 1:16:26
  working together on a go forward basis.
• 1:16:28
  Whether it's a merger, I don't know that they have to buy
• 1:16:30
  Tesla, but I think there's a chance to a joint venture, a
• 1:16:33
  licensing agreement, some kind of a cooperation or partnership
• 1:16:37
  is imminent between all of the Elon companies.
• 1:16:40
  It doesn't have to be a merger. It doesn't have to be like, you
• 1:16:42
  know, dollar sign Musk and Elon incorporated trading on the
• 1:16:46
  Stock Exchange, but it may be just a, a loose collaboration,
• 1:16:49
  these different companies. And that's where that's where
• 1:16:52
  we're I think we're headed. And that's why I think it's a
• 1:16:54
  good, there's good reason to be optimistic about where this
• 1:16:55
  company goes on a go forward basis.
• 1:16:57
  He's just improved his the probability of creating that
• 1:17:00
  that entire company getting from here to Mars the next three to
• 1:17:02
  four years with all the capabilities that he needs.
• 1:17:05
  Question is dilution. It's a lot to give up probably
• 1:17:07
  complicates the IPO story, which I think until last week was
• 1:17:10
  pretty straightforward. Now they're going to have to
• 1:17:13
  answer questions like, well, where's AI Fett, do you really
• 1:17:15
  need AI to get to space? What is the cash burn of, you
• 1:17:19
  know, XAI, Do you really need to have Twitter in that?
• 1:17:22
  You know, you notice nowhere, nowhere in there that I talked
• 1:17:25
  about Twitter or a media company where you can fight about
• 1:17:28
  politics. You know, it's probably a pretty
• 1:17:29
  small piece of the revenue or expense story.
• 1:17:33
  It's more of the marketing surrounding everything else.
• 1:17:36
  I kind of wonder whether the XAI component is really more just
• 1:17:40
  storytelling for the future and bringing over AI capacity.
• 1:17:43
  It's still a SpaceX, you know, primary story.
• 1:17:46
  And I think, you know, data centers in space maybe is kind
• 1:17:50
  of the new piece of that component.
• 1:17:51
  But it just feels like we're leaving a, a fundamentals story
• 1:17:58
  that's been based on, you know, commercial space launches and
• 1:18:00
  Starlink and now starting to tell some future stories about
• 1:18:05
  where the company's going. Whether that's all about Mars
• 1:18:08
  down the road, I'm, I'm not sure.
• 1:18:09
  I'm a little bit more skeptical of that being right around the
• 1:18:11
  corner. But data centers in space and
• 1:18:15
  Starlink and all kinds of other things about where Starlink can
• 1:18:18
  go, that does seem like that's, you know, somewhat near term.
• 1:18:22
  Yeah, I can understand the the basis of the business have been
• 1:18:26
  a launch business and Sterling is a communications business and
• 1:18:29
  you can value those companies. I think that's a couple of $100
• 1:18:32
  billion type story. If you want to sell this thing
• 1:18:34
  at 1.5 trillion in the IPOI think it, I think the story is
• 1:18:39
  going to shift very dramatically to something along lines what
• 1:18:42
  I'm saying, which is this is this is more like the East India
• 1:18:45
  company, a multi trillion dollar company.
• 1:18:47
  This isn't like a defense contractor or satellite cup, but
• 1:18:50
  I can sell that one. But that's not going to be the 1
• 1:18:52
  1/2 trillion dollar story. I guess where Twitter does fit
• 1:18:54
  in. Another thing about it is it's
• 1:18:55
  it's there's a lot of data in there.
• 1:18:57
  And that data will allow them to train Xai and Brock with
• 1:19:01
  proprietary data. And you've got the you've got
• 1:19:03
  one of the biggest data pools in the world in Starlink, maybe the
• 1:19:06
  biggest. And you know, in, in between
• 1:19:08
  that and Twitter, you have two of these big proprietary
• 1:19:10
  databases now that you can train the models on.
• 1:19:13
  So there is value to it. It's also 3 billion in revenue
• 1:19:16
  out of the 30 billion. So it's, it's sad, it's not
• 1:19:18
  gigantic. It's, it's a, it's a piece of it
• 1:19:20
  though, but it's complicated, right?
• 1:19:22
  It now becomes a a much more complicated story, and maybe
• 1:19:24
  with a bigger upside. Well, at 30 billion in revenue,
• 1:19:28
  and I'm talking about an IPO that might be 1.5 to 2 trillion
• 1:19:31
  in value, you're talking about 50 to maybe 70 times revenue,
• 1:19:37
  right? That that's a pretty big
• 1:19:38
  mouthful, especially after you've just seen the rest of the
• 1:19:40
  market crash back down to Earth. That's right.
• 1:19:43
  I think you have to be telling a story about the future for sure.
• 1:19:47
  But whether that's, you know, terraforming Mars or whether
• 1:19:51
  that's just more star like revenue, I don't know.
• 1:19:54
  That's that's a little bit of a stretch for me.
• 1:19:56
  I guess the positive spin if I'm ACFO is these are the two
• 1:19:59
  biggest Tams in the world, space and AI, and it's the best
• 1:20:03
  entrepreneur in the world, maybe the best entrepreneur in the
• 1:20:05
  history of the world. But there's a shortlist of who
• 1:20:06
  that is, whether it's, you know, Edison, whether it's Tesla.
• 1:20:10
  Steve Jobs, but you know, he's on the short list.
• 1:20:12
  And so maybe there'll be a lot of demand for just that story, a
• 1:20:15
  lot of institutional demand. So I think it, I think that's
• 1:20:18
  the, I think that's the story he's going to tell.
• 1:20:20
  It's it'll be much more futuristic and much more the AI
• 1:20:22
  data centers in space. I'm just not, I'm not totally
• 1:20:24
  sure about the value of that or the viability of it.
• 1:20:28
  But if that is a part of the story he's trying to tell, which
• 1:20:31
  is this is the infrastructure to get to Mars and power, power is
• 1:20:34
  a big limiter right now. This is the way we solve power.
• 1:20:37
  And then AI and robotics and all the rest of it are all pieces of
• 1:20:39
  a really exciting puzzle. I guess if you had to, you know,
• 1:20:43
  sort of make some crystal ball projections here, does it
• 1:20:47
  benefit Elon to have one or two public companies in the market?
• 1:20:52
  Let let's say that probably the near term path is, you know,
• 1:20:56
  SpaceX goes public with its current components.
• 1:20:58
  Yeah, doesn't try and merge in Tesla revenue right away, but
• 1:21:03
  does it serve Elon to have two different public company stories
• 1:21:07
  or one public company story? I think he thinks the answer is
• 1:21:11
  one. My view was the market just gone
• 1:21:13
  back and forth on this for a while.
• 1:21:15
  There was a period in the, I don't know, the 60s and 70s when
• 1:21:18
  conglomerates were all the rage and the most valuable companies
• 1:21:21
  in the world were like, you know, GE and they were like #1
• 1:21:25
  or #2 and all their industries. And there was value to having a
• 1:21:27
  great management team and capital raising capability.
• 1:21:30
  And then a lot of them went out the window with the Internet
• 1:21:32
  boom of the 90s at PayPal and eBay.
• 1:21:35
  You might, you'll remember PayPal was bought by eBay. eBay
• 1:21:37
  owned PayPal and Skype and it had StubHub and shopping.com.
• 1:21:41
  And there was this value in the conglomerate.
• 1:21:44
  And we, and then eventually the market didn't really buy that
• 1:21:47
  story anymore. And we broke everything apart
• 1:21:48
  and we spun off PayPal and spun off eBay and sold all the assets
• 1:21:51
  that were extraneous and actually created.
• 1:21:53
  A launch, Yeah, PayPal came a bigger market cap than eBay
• 1:21:57
  itself, just as a standalone company, right?
• 1:21:59
  And eBay did fine and, you know, and then Skype sold off for, you
• 1:22:02
  know, for a profit. And so it turned out that the
• 1:22:05
  summer parts was, you know, was, was greater than the whole, I
• 1:22:08
  think in Elon's mind, Despite that PayPal example.
• 1:22:11
  And he was the founder of PayPal.
• 1:22:12
  He probably has the other lesson, which is if I bring them
• 1:22:14
  all together and, and fill in the, the missing pieces of this
• 1:22:18
  grand vision, then, you know, that's going to be easier to
• 1:22:22
  easy to sort of tell. It's easier to manage his
• 1:22:25
  alternative might be the companies stay private, but they
• 1:22:27
  have licensing agreements between the technologies, so
• 1:22:29
  they have joint ventures and stuff like that.
• 1:22:31
  That seems to be how the, you know, the AI wave of investment
• 1:22:34
  seems to be consolidating some of that.
• 1:22:36
  Maybe we'll go back to the 70s where conglomerates become the
• 1:22:38
  rage and maybe, you know, Elon's the outlier.
• 1:22:40
  I, I would, as an investor, I kind of like to have individual
• 1:22:43
  companies to bet on and, and put my bets on where I think, you
• 1:22:46
  know, there's going to be value of creating in the chain.
• 1:22:49
  Entrepreneurs don't, don't love that.
• 1:22:50
  So maybe for a while we're going to be in the in the in the
• 1:22:52
  consolidation phase and if Elon can pull it off, great.
• 1:22:56
  And if he can't, then it then we end up with a bunch of tracking
• 1:22:58
  stocks or something. Well, it seems like, you know,
• 1:23:01
  if you're just looking at Tesla as a car company, that's a tough
• 1:23:04
  story. You know, revenue, profits may
• 1:23:06
  be flat or not growing. BYD as a competitor, if you
• 1:23:10
  value it as a robotics company, maybe that's a, you know,
• 1:23:14
  interesting future if he wins there.
• 1:23:16
  And, you know, again, Elon's had a interesting track record in
• 1:23:20
  starting new companies, particularly physical bits,
• 1:23:25
  physical Adams companies. But I I just wonder if you've
• 1:23:28
  got a good story in SpaceX, do you try and complicate that with
• 1:23:32
  Tesla? You know, yeah, there's a lot of
• 1:23:34
  revenue there, but it's just another sort of very future
• 1:23:37
  storytelling. Or maybe just keep those two
• 1:23:40
  separate and figure out like how the market values each of them.
• 1:23:43
  And then like you said, maybe do partnerships and other sort of
• 1:23:46
  stories to drive value out of one or the other.
• 1:23:50
  Yeah, if he he's going to have to convince Tesla's shareholders
• 1:23:52
  now, now that Tesla's public, it's, this isn't as easy as XAI
• 1:23:55
  where he owned a majority of the shares and could, you know,
• 1:23:57
  could direct the answers to convince an independent board of
• 1:24:00
  directors. They're, it's a public company.
• 1:24:03
  So they're going to hire lawyers.
• 1:24:04
  The lawyers will hire bankers. The bankers will do a fairness
• 1:24:07
  opinion. Like none of that happened with
• 1:24:08
  SpaceX and XAI as far as I can tell.
• 1:24:10
  That was just Elon getting in a room with Elon and deciding
• 1:24:13
  here's what we want to do. And this is gonna require
• 1:24:16
  shareholder vote, you know, and Tesla's shareholders gonna all,
• 1:24:18
  all the classes shareholders will have to vote and approve
• 1:24:21
  and the board has to approve and they're gonna have to convince
• 1:24:25
  both sides that it's a, it's a win win.
• 1:24:27
  And the, the relative split. Tesla's, you know, $1.5 trillion
• 1:24:30
  company. So it's a majority of the market
• 1:24:32
  cap. Do you pay a premium for Tesla?
• 1:24:34
  Like that's all gonna be hard to figure out.
• 1:24:36
  So if I had a bet, there's no merger that happens between
• 1:24:38
  those two entities. Let's see, let's see 50% chance
• 1:24:41
  and maybe SpaceX goes public on its own and then has, you know,
• 1:24:45
  towards probably the end of this year.
• 1:24:46
  Now they've complicated the story, but it might take some
• 1:24:48
  time to work out. But I think the simpler path is
• 1:24:50
  just a joint venture path. Whatever robotics I need from
• 1:24:53
  you, a license. The apposition seems like it's
• 1:24:56
  very complicated and and you know, I think it's going to be
• 1:24:59
  the shareholders going to not not love that idea.
• 1:25:03
  Well, there's certainly going to be a ton of interest in the
• 1:25:05
  SpaceX IPO. It does sound like that's on a
• 1:25:08
  sooner than later a path. I don't know if it'll happen.
• 1:25:12
  Elan's birthday is in June. I think that was when they were
• 1:25:14
  trying to get it done by. That might be pretty aggressive,
• 1:25:18
  but I wouldn't be surprised if we see a SpaceX IPO this year.
• 1:25:21
  And probably there was going to be a lot of demand in the market
• 1:25:24
  for that company regardless of fundamentals.
• 1:25:27
  I think that's right. June is ambitious.
• 1:25:30
  Besides his birthday, there are planetary alignment reasons to
• 1:25:32
  try to get it done by June. I think Mercury and Venus going
• 1:25:36
  to retrograde around end of June or Ito.
• 1:25:38
  So he's going to try to make that happen.
• 1:25:40
  But I think realistically it's going to take a little while now
• 1:25:42
  to assimilate this merger, get the public, you know, get the
• 1:25:44
  public offering out. Maybe it's second-half of this
• 1:25:47
  year. But I, I think, I do think it
• 1:25:48
  gets done and I do think there'll be a ton of demand for
• 1:25:50
  it. Well, according to Kaushi, it
• 1:25:53
  does look that people are predicting there will be an IPO
• 1:25:58
  at least by August. Yeah, maybe not by June, but
• 1:26:03
  that that seems to indicate AQ3 IPO is maybe possible for for
• 1:26:09
  SpaceX. Yeah.
• 1:26:12
  Well, his 55th birthday is, is June 28th.
• 1:26:14
  So that's one day to to shoot for.
• 1:26:18
  And then right around, right around June 28th, I think
• 1:26:20
  there's a rare planetary conjunction between Mercury,
• 1:26:23
  Venus and then Jupiter. And so if that's the day, if
• 1:26:28
  that's if that's the day you're shooting for, I think there's a
• 1:26:31
  lot of signs from the gods saying that's when you should
• 1:26:32
  go. I guess if we look at
• 1:26:36
  Polymarket, those odds seem to be optimistic for June or
• 1:26:41
  September, definitely by December.
• 1:26:44
  So feels like it's going to happen and 2026, but I guess
• 1:26:49
  question whether Q2Q3 or Q4? I guess we'll see how the market
• 1:26:52
  goes. The market's in a little bit of
• 1:26:54
  a, you know, a tizzy right now, but I, I think the, I think of
• 1:26:57
  the market is relatively settled by the, by the middle of the
• 1:27:00
  year, they'll be, they'll be on the road and taking orders by.
• 1:27:03
  But it is a, it is also a $50 billion IPO.
• 1:27:06
  That's the plan. So it is twice as big as the,
• 1:27:09
  you know, the second largest IPO ever, which would have been
• 1:27:12
  either Alibaba or Saudi Aramco, depending on what the count the
• 1:27:16
  green shoe or not to. And they were, they were around
• 1:27:18
  25,000,000 and they'll they'll have probably 35 to 40
• 1:27:21
  underwriters and banks on this deal.
• 1:27:22
  So putting all that together by June, as I just think you know,
• 1:27:26
  I think that's going to be ambitious and everything started
• 1:27:28
  work just right in terms of macro markets and execution.
• 1:27:31
  But Q4 I can definitely see. Well, I think we might all want
• 1:27:36
  to get ready for a great hit from 1969, the 5th dimension.
• 1:27:42
  When the Moon is in the 7th house and Jupiter aligns with
• 1:27:51
  Mars, then peace will guide the planets and love will steer the
• 1:27:59
  stars. This is the dawning of the Age
• 1:28:02
  of Aquarius, the IPO of SpaceX. Hey man, I'm looking forward to
• 1:28:09
  SpaceX IPO later this year. I'm on.
• 1:28:12
  Me too, Dave. You and you and me both.
• 1:28:14
  That should be. Yeah, that should be a lot of
• 1:28:15
  fun. We'll see you on the moon,
• 1:28:17
  buddy. See you on the Moon or Mars.
• 1:29:08
  Absolutely. And I think we need to have you
• 1:29:10
  back three more times and then we can put you in the five timer
• 1:29:14
  club. And then I'll have to go get you
• 1:29:16
  a robe like on SNL, right? I would love that.
• 1:29:19
  I would love the associated swag that comes with being five times
• 1:29:22
  on the Trading Places show.