Latest / trading places / TP16: Bridgespan VC 💰| Employee Stock Option Financing 🫴| Oracle Stock 📉 | Waymo Valuation 🏎️

Transcript

TP16: Bridgespan VC 💰| Employee Stock Option Financing 🫴| Oracle Stock 📉 | Waymo Valuation 🏎️ · trading places

• 0:00
  I think there's no question we're going to see a big, big
• 0:03
  year for IP OS next year. I think the these tender alters
• 0:08
  are going to be a tool to to track talent.
• 0:13
  You know, if you have the option to work with company A versus
• 0:16
  Company B, any no Company A you're able to take somebody off
• 0:19
  the table on a regular basis. I think someone like Waymo is a
• 0:23
  great technology, but I just don't know how defensible that
• 0:26
  technology is over time. So that's where that's where
• 0:28
  this gets really interesting and and challenging.
• 0:53
  Welcome to Trading Places, our very bad, terrible, horrible, no
• 0:58
  good podcast about VC secondary and all things tech.
• 1:02
  You have some good news, bad news stories going on in the
• 1:05
  market today. We have the S&P hitting a new
• 1:07
  record, We have the Dow Jones being a new record, but some of
• 1:10
  the tech stocks and some of the AI stories didn't fare as well.
• 1:15
  So when we start with that, I think Oracle was the major
• 1:18
  company that was having some problems this week.
• 1:20
  There's some jitters about their debt issuance and cash flows
• 1:25
  around their AI data center build out.
• 1:27
  They've been front and center and the AI story for the past
• 1:30
  year and their stock has benefited.
• 1:31
  But if you look at this chart, this is the cost of credit
• 1:34
  default swaps on Oracle debt. And this is essentially a bet
• 1:38
  that they will default or somehow have some kind of
• 1:41
  negative event on debt. Yeah.
• 1:43
  See, back in 2008 and 9 on the far left, the cost of insurance
• 1:48
  on Oracle was up at 200 basis points.
• 1:50
  In a normal year, it's down around 25 to 50 basis points.
• 1:53
  So pretty low risk, but there'll be a default.
• 1:56
  But in the last few weeks, it's, it's jumped up to over 125 basis
• 2:00
  points now, the highest since 2008.
• 2:03
  So obviously the market is signaling that there's a little
• 2:06
  bit of a, a concern and some jitters around Oracle in
• 2:10
  particular and maybe AI more broadly.
• 2:12
  The way to think about Oracle is they, they are one of the direct
• 2:16
  AI stocks that are in this AI play, but they are far, far more
• 2:20
  debt than most of the companies in the space.
• 2:22
  This is a debt to equity ratio chart.
• 2:24
  That's Oracle in the far right. They're over 500% debt to
• 2:28
  equity. The most leveraged AI data
• 2:31
  center company, I guess you would say, at least on a
• 2:33
  relative basis. For sure, out of the group of
• 2:35
  direct AI stocks, they have made far more use of debt in order to
• 2:38
  finance their operations than anyone else.
• 2:40
  They did have a good run as, as I said, year to date they're up
• 2:42
  14% now, but you know, they've peaked sometime in September,
• 2:46
  October, and they're down 45% from that peak.
• 2:49
  So, you know, I think the market's concerned that right
• 2:51
  now they are a bit of a Canary in the coal mine because they're
• 2:54
  leverage that if anything goes wrong with the AI story, they're
• 2:56
  going to be one of the first ones to get hit.
• 2:59
  Should we talk a little bit a little bit about why that is?
• 3:02
  Why is Oracle a little bit of a Canary in the coal mine?
• 3:05
  The stock popped a few months ago when they announced the deal
• 3:09
  with Open AI, and that was a huge sort of win briefly.
• 3:14
  I think Larry Olson was very briefly the richest person on
• 3:18
  the planet ahead of Elon for at least a week or two.
• 3:21
  Yeah, I didn't actually realize he'd gone to number one.
• 3:24
  I guess on, I guess on paper that must have felt pretty.
• 3:26
  Just just a blip was like. But I think the jitters now
• 3:29
  about, hey, does this stuff really pay off?
• 3:30
  Is the CapEx sustainable? What's the ROI?
• 3:33
  You know, all the, all the companies are trading down broad
• 3:35
  complicate yesterday too. But the reason why I think
• 3:38
  Oracle is, is potentially the most vulnerable.
• 3:40
  Let's just think about the impact of debt on a company for
• 3:43
  a second. It's a little bit of corporate
• 3:44
  finance one O 1. But it's worth thinking about
• 3:45
  because a lot of tech start-ups don't don't think this through
• 3:48
  because they don't have a lot of debt and only these big CapEx
• 3:50
  businesses do. The current enterprise value for
• 3:54
  Oracle is $685 billion, OK. That is the sum total of their
• 3:59
  equity, their market cap or just the green and the bottom.
• 4:02
  And then that orange debt and liability section, which is
• 4:06
  about 115 billion. Companies also have cash and
• 4:09
  cash equivalents and investments and property and plant and
• 4:12
  equipment. Normally that stuff doesn't get
• 4:14
  counted in enterprise value because it's the stuff that you
• 4:17
  are using in order to generate things like earnings and cash
• 4:20
  flows. And that's really all we care
• 4:21
  about. So that six 85 billion in
• 4:23
  enterprise value is really what investors are paying attention
• 4:26
  to. Let's take a look at what
• 4:28
  happens if you know that that cash pile, which is really what
• 4:31
  equity investors care about. If the stock has a another down
• 4:35
  draft. So let's say the enterprise
• 4:36
  value goes from 685 to 3:40. So basically a 50% drawdown.
• 4:42
  Now that's already happened to the stock.
• 4:44
  We've seen plenty of episodes in these hype cycles where
• 4:47
  companies can go down by 50%. So it's not, not a not it's not
• 4:53
  a dramatic move in a company like this to have a 50%
• 4:55
  drawdown. Well, if you, if your enterprise
• 4:58
  value gets cut by that much, your debt and liabilities don't
• 5:01
  change. So you owe 115 billion before
• 5:04
  you still owe 150 billion today. And so the equity in that MAR in
• 5:08
  that company will drop from 570 down to 225.
• 5:13
  That's just a math. That's the balance between the
• 5:15
  enterprise value and the debt and liabilities.
• 5:17
  So notice that a 50% drop in enterprise value means a 60%
• 5:21
  drop in equity, right? So the equity guys are
• 5:24
  leveraged. They're leveraged on the way up,
• 5:25
  but they're also leveraged on the way down.
• 5:27
  Now let's play this forward one more time.
• 5:29
  Let's say the company gets hit again with a 50% drop in
• 5:32
  enterprise value. What happens to the stock price?
• 5:34
  Well, your overall enterprise value drops to 170.
• 5:38
  Your equity value is going to be the balance between 170 and your
• 5:41
  liabilities. That doesn't change.
• 5:43
  And look at look at what happens there.
• 5:45
  You get a 76% drop in your equity.
• 5:47
  So any time you get concerns about the viability of a
• 5:50
  business, it's the most leveraged businesses that are
• 5:52
  going to take the biggest hit. And I think that's what we're
• 5:54
  seeing with Oracle right now. Misses Flintstone, would you say
• 6:00
  your husband gets hit on the head a lot?
• 6:02
  Define a lot. A lot.
• 6:03
  A great deal more than once by a bunch.
• 6:06
  I really couldn't tell you. I guess on the other side of the
• 6:10
  coin though, there is a lot of optimism around the IPO markets
• 6:16
  and probably an extreme amount of enthusiasm about the IPO
• 6:19
  market for 2026. Why is that a bond?
• 6:23
  What what's happened lately that's really excited people
• 6:26
  about IP OS? Well, I think there's, there's
• 6:31
  some good news in the IPO market because the ones that have kind
• 6:33
  of gotten through and gotten out this year have have generally
• 6:37
  been well treated for the first time in a while.
• 6:40
  The IPO market and in Q3 got back to 15 billion in proceeds,
• 6:45
  which is almost almost a normal year if you think of normal as
• 6:48
  anything prior to 2020, because we haven't had a normal year at
• 6:51
  least in the past past five. And then, you know, I think the
• 6:55
  good news is you now have some very high profile players
• 6:58
  talking about going public and testing the markets.
• 7:02
  And it's going to be we, we talked a bit about the IPO
• 7:05
  market with SpaceX and open AI and Anthropic.
• 7:10
  And all of them are signaling that they are either hiring
• 7:12
  investment bankers, hiring lawyers, or, you know, talking
• 7:16
  to investors in these, in these roadshows or more likely all the
• 7:20
  above. And they've been doing it
• 7:21
  quietly and confidentially, but now they're beginning to leak
• 7:25
  the information, which means they're, they're, you know,
• 7:27
  they're trying to figure out whether the market will
• 7:29
  accommodate and time it. Any one of those could be a $25
• 7:32
  billion plus IPO next year. And up until now, the biggest
• 7:36
  IPO of all time was Alibaba in which was 25 billion.
• 7:40
  I think maybe Aramco got to 25 billion.
• 7:42
  There was a lot of a lot of help from the government and their
• 7:45
  friends. And so those are the two biggest
• 7:48
  Icos of all time. And it's possible we'll get the
• 7:50
  biggest one of all time in 2026. And maybe three of them will
• 7:54
  beat that record at 25 billion. So there's some, you know,
• 7:57
  there's some reason to be optimistic now.
• 8:00
  In the Curse clip from the recent 20 BC podcast where
• 8:04
  they're talking about those three big companies going public
• 8:06
  in the size of the overall market.
• 8:08
  Two questions as directors can be will 2026 be the year of the
• 8:12
  IPOs? And if So, what will be the
• 8:16
  catalyst to drive that excitement?
• 8:18
  When you kind of sent out the note, you said, you know, what
• 8:21
  happens if SpaceX, Entropic and Databricks go go public, right?
• 8:24
  And you know, just doing the math here, I did.
• 8:26
  It it's like. 800 billion for SpaceX, 400 billion for Entropic
• 8:30
  and 200 billion for Databricks. That's 1.4 trillion of market
• 8:36
  cap. Let's say VC is on on average
• 8:39
  little under half of that, plus or minus.
• 8:41
  That's 700 billion of money returned to VC that would
• 8:45
  obviously to state the banal be a pretty darn good year right
• 8:50
  now. Sobering to realize it's only
• 8:53
  point. It's only about 20% of the total
• 8:55
  private FMV because the total private FMV adventure is, you
• 8:59
  know, something like 2.82 point, 9 trillion.
• 9:01
  So it's it's it's a big chink in the it's a big chink in the
• 9:04
  deficit. It's not all the deficit, but it
• 9:06
  would be a great year. So I think Rory's on target
• 9:10
  there. That doesn't take very many
• 9:12
  multi $100 billion companies going public to have a huge
• 9:16
  impact on the IPO market. Addition to the three that he
• 9:19
  mentioned, there's a chance that open AI could also go public.
• 9:23
  Certainly looks like Canvas likely to go public.
• 9:25
  I think there's no question we're going to see a big, big
• 9:28
  year for IPOs next year, but almost all of those IP OS are
• 9:34
  really large companies with substantial revenue.
• 9:37
  Maybe there's a few AI stories that you know, can get out
• 9:40
  regardless of, you know, how much revenue they have.
• 9:42
  But the bar for going public is higher than ever, probably at
• 9:46
  least 4 or 500 million in revenue, you know, hopefully
• 9:50
  some, you know, signs of profitability if they're not
• 9:52
  already there on the on the horizon.
• 9:54
  So I think as, as Rory was talking about, there's still a
• 9:58
  whole bunch of private companies that aren't big enough to go
• 10:02
  public yet. And so even though you might
• 10:04
  have a 2 trillion, 1 1/2 to $2 trillion IPO market next year at
• 10:08
  tech IP OS, you probably still have another 2-3 trillion
• 10:12
  dollars of companies that aren't going to go public.
• 10:15
  And I think that means there's going to be a lot of secondary
• 10:17
  market activity to backfill all that liquidity to the extent
• 10:21
  there's capital available for secondaries.
• 10:24
  What's your what's your take on that amount?
• 10:27
  Yeah, I think he's, I think you're right.
• 10:29
  The, the bigger companies that have those stories will have a
• 10:32
  will dominate a lot of the airwaves and you know squeeze
• 10:36
  out I think a lot of the investor interest that would
• 10:40
  otherwise be there for the smaller companies.
• 10:42
  So it does seem like it's going to be a very top heavy
• 10:44
  concentrated IPO calendar as a lot of these companies which
• 10:47
  have been locked up for the past five years will or try to get
• 10:50
  out. If you're if you're in that
• 10:52
  elite group, that's one story. On Friday, the NASDAQ also did
• 10:56
  announce that they're tightening up their IPO rules.
• 10:58
  They're going to limit, they have more discretion or asking
• 11:00
  for more discretion from the SEC to limit the rules.
• 11:02
  And what they've seen is a lot of companies getting out with
• 11:05
  the sub $15 million float and most of those IP OS have crashed
• 11:09
  a lot of them coming out of China.
• 11:11
  And the NASDAQ doesn't really want that anymore.
• 11:13
  When I was the CFO of a, of a company on the roadshow in 2014,
• 11:16
  fifteen, you were told by the bankers, if you can't get the
• 11:19
  75,000,000 afloat or more, don't even, don't even try.
• 11:23
  And that that bar is probably increased dramatically since as
• 11:26
  you said. So I think you're right.
• 11:28
  I think if you're, if you're not in the top tier, then you know,
• 11:31
  the, the IPO window is still going to be pretty tough just
• 11:33
  because even though the, the macro pictures improving,
• 11:36
  there's a lot more competition and a lot more lock up.
• 11:39
  A lot of companies in front of you that are going to try to get
• 11:41
  out and doing some kind of primary secondary, you know,
• 11:44
  move is a much better way to generate the liquidity for
• 11:46
  employees. So I think you're right.
• 11:47
  I think second, we will have another big year next year.
• 11:49
  One of the companies that's already doing, you know, both
• 11:52
  the combination of primary and secondary at the same time as
• 11:55
  SpaceX, they've been doing that for quite a while.
• 11:58
  We talked last week about SpaceX raising an $800 billion
• 12:02
  valuation. That's double the amount they
• 12:04
  were raising at just a few months earlier.
• 12:07
  But now SpaceX is also saying that they're going to be buying
• 12:10
  back some of their shares from employees and maybe early
• 12:13
  investors at that valuation as well at at a price of $421.00 a
• 12:20
  share, a bond, right? No, no comment on that
• 12:23
  particular share price being a little bit higher, one dollar
• 12:27
  higher specifically than some comments that Elon made in the
• 12:30
  past. Yeah, he tried to take them.
• 12:34
  He already tried to take them out at 420 bucks a share.
• 12:37
  I guess they didn't didn't didn't work out so well for him.
• 12:39
  So he's going to. Reprice Portal. 800 billion
• 12:44
  that's a 2X step up from from the last round, which and the
• 12:47
  acre is barely dry on their on their last round.
• 12:49
  So that's a lot of optimism. They they do have the benefit of
• 12:52
  having a cash flowing profitable sterling business that that I
• 12:57
  think presents a a nice juicy target for for public company
• 13:00
  investors. But at 800 billion like more
• 13:03
  than half that valuation is just going to be the prospects of the
• 13:06
  launch business, which is still very uncertain and very
• 13:09
  interesting over a 5 or 10 year period.
• 13:11
  But that's a that seems like a real test of the of the public
• 13:14
  markets. Another IPO that came out this
• 13:17
  past week was the Wealthfront IPO.
• 13:20
  It traded up slightly, but not very much correct.
• 13:24
  Yeah, they went out at $14.00 a share.
• 13:26
  They're they ended up at around 14 a share.
• 13:28
  I guess the good news is they didn't trade down, but they
• 13:31
  didn't really pop either. And so you know, they did pick a
• 13:34
  tough day on Friday was a down day for the market overall.
• 13:37
  The Oracle and Broadcom sell off I think just didn't wait on tech
• 13:42
  stocks in general. They weren't something like 339
• 13:45
  million in in revenue. You know, they're a little bit
• 13:47
  below the bar. We had talked about a 500
• 13:49
  million and so they're a little bit on the small side as well.
• 13:53
  So they can get knocked around by volatility.
• 13:55
  It's a very profitable business. They have a very lucrative cash
• 13:57
  management business now. So it seems like, you know, it
• 14:00
  seems like an OK, an OK performance out the gate.
• 14:03
  We'll see how they trade, but I think they just picked a tough
• 14:05
  day to a tough day to go. What's the growth rate?
• 14:09
  As of Q3, as of July when they reported they're growing at 26%
• 14:12
  year over year. They've gotten more and more of
• 14:14
  the revenue from their cash management accounts, which
• 14:17
  provides kind of a stable core for their business and they're
• 14:20
  growing their advisory fees. It's an interesting, growing,
• 14:22
  interesting story growing in the mid 20s.
• 14:25
  That's probably the bare minimum for an IPO in this market to be
• 14:28
  growing mid 20s and profitable. Chances are if you aren't
• 14:31
  growing at 20% or more, you can have a much rougher outing.
• 14:35
  I think the the perfect example of that was StubHub, which which
• 14:39
  tried to go out on a much softer growth story than that and has
• 14:42
  been punished and maybe almost been cut in half since their IPO
• 14:45
  valuation. So I think wealth, wealth front
• 14:48
  is probably, you know, a not a not the highest quality IPO, but
• 14:53
  borderline capable of getting out and just pick the pick the
• 14:55
  rough data price. Another very large IPO that's
• 14:59
  being targeted is a company called Medline.
• 15:02
  This isn't necessarily a tech IPO, but we're mentioning it
• 15:06
  just because they're talking about a $55 billion valuation, a
• 15:10
  $5 billion IPO. This is a company that's doing
• 15:15
  over $20 billion in revenue and I think close to a billion
• 15:18
  dollars in profit. So it's, it's certainly a big
• 15:21
  company. And again, I think people
• 15:24
  expecting that this might be one of the largest IP OS in US in
• 15:28
  2025 if it gets out before the end of the year.
• 15:31
  Well, that's, that's healthcare, I guess they and they've got
• 15:34
  some great investors and backers between Blackstone and Carlisle
• 15:36
  and that H&F behind them for a while.
• 15:38
  They're targeting a $6 billion IPO raise on a $55 billion
• 15:42
  billion dollar evaluation. So that that would probably be
• 15:44
  the biggest private equity listing maybe ever, certainly is
• 15:47
  certainly top five or so in the US.
• 15:51
  I'm holding records from Bedrock County Hospital which indicate
• 15:54
  that your husband was admitted on 47 separate occasions last
• 15:57
  year for, and I quote, severe head trauma as a result of
• 16:01
  bowling ball mishap and once for getting his head stuck in a milk
• 16:05
  bottle. He's a little clumsy.
• 16:07
  Indeed. So in the AI sort of world, I
• 16:12
  guess the biggest story this week was Disney investing a
• 16:16
  billion dollars in Open AI and along with that, Open AI
• 16:19
  announcing A partnership with Disney to license characters, I
• 16:23
  guess developed from Disney and Open AI.
• 16:26
  Yeah, I thought this was actually super interesting.
• 16:28
  It wasn't that Disney's putting a billion dollars into open AI,
• 16:31
  which is kind of interesting. I mean, everyone's doing that.
• 16:35
  That's not my mom didn't wants to do that.
• 16:37
  Everyone's wanted to get an open AI, so that's not surprising.
• 16:40
  But it what is interesting is Disney, as one of the old guards
• 16:43
  of the Hollywood studio system, has been very protective of
• 16:46
  their IP and the impact the AI that was the the number one
• 16:51
  issue in the, in the Hollywood strike earlier this year was how
• 16:55
  does AI work with the performers and the stars And Disney and
• 16:59
  other studios were sounding the alarm.
• 17:01
  But they seem to have embraced open AI and they've said as part
• 17:04
  of the deal, they want to get their characters and they've got
• 17:08
  a lot of properties to do it from, whether it's Pixar or the
• 17:11
  Marvel Studios or Star Wars or their their other animated
• 17:14
  studios. They want to give those
• 17:16
  characters over to open AI and to Sora and essentially let the
• 17:20
  plebes let people like you and me mess with those characters
• 17:23
  and create stories and you know, and become, become part of the
• 17:27
  narrative, which actually does feel to me like a very, this
• 17:30
  feel like a very Disney thing to do.
• 17:32
  And Walt Disney certainly embraced technology and there
• 17:34
  were lots of people who are anxious about animated Snow
• 17:38
  Whites and, you know, taking jobs from actors.
• 17:40
  But he was definitely on the on the cutting edge of embracing
• 17:43
  technology. What is interesting, though, is
• 17:45
  that even though Disney seems to be opening up their IP library
• 17:48
  here, just a few months ago, they were like on the other side
• 17:51
  of this. They were firing off cease and
• 17:52
  desist letters to Google and scale and Meta and telling them
• 17:57
  not to, you know, not to mess with their their IP and threaten
• 18:00
  lawsuits. They were in a lawsuit against
• 18:02
  mid journey for doing pretty much exactly what source is
• 18:05
  going to be doing now. So I do kind of wonder what's
• 18:07
  what changed over at at Disney. Why are they embracing AI now?
• 18:14
  And what you know what, why weren't they doing it before?
• 18:17
  One thing I want to note as I just read the read the deal,
• 18:19
  Disney decided not to include character voices in the deal.
• 18:23
  Bob Iger was on an interview with Sam Altman and made this
• 18:25
  point repeatedly. And I'm like, huh, why would you
• 18:28
  withhold voices? You you're getting like the
• 18:29
  characters in your likeness and costumes, but not voices.
• 18:32
  What does does this sound familiar to you?
• 18:34
  Is there any story you can think of where you have a evil
• 18:37
  corporation letting their characters, you know, come out
• 18:39
  and play? But but withholding voice?
• 18:42
  It felt like a very Ursula kind of move.
• 18:44
  Now I'm now I'm taking from Disney IP so I don't want a
• 18:47
  lawsuit here folks. But, but wasn't there a big
• 18:49
  controversy with Opening Eye using Scarlett Johansson's voice
• 18:54
  or it sounded a lot like Scarlett Johansson's voice?
• 18:57
  And I think they were willing to pay her a lot of money and she
• 19:00
  rejected it, right? I think they tried.
• 19:02
  Then they were negotiating with her.
• 19:04
  They couldn't get to terms. They used a voice that they said
• 19:06
  wasn't Scarlett Johansson, but it sounded an awful lot like
• 19:09
  Scarlett Johansson. It is interesting that, you
• 19:11
  know, AII think Disney is exploring the bounds of what's
• 19:14
  going to be, what's going to what's going to offend their
• 19:18
  community the least. You know, likenesses and, and
• 19:21
  content is one thing, voices and, and likenesses of actors as
• 19:25
  a whole separate thing. So they're being protective and
• 19:27
  sort of stepping into this at any rate, it does, it does
• 19:31
  strike me that this there's a whole history and legacy of
• 19:33
  movie stars resisting technology.
• 19:35
  If you go back to the, to the, to the silent films, the 1920s,
• 19:38
  people like DL Charles Scrippa, DL Griffith and Charles Chaplin
• 19:41
  and Mary Pickford and Clara Bow and Douglas Fairbanks wouldn't
• 19:45
  even do talkies for a while. They felt it diminished the
• 19:47
  arts. You know, Charlie Chaplin didn't
• 19:49
  do a, a, a voice over movie until what, 10 years after the
• 19:52
  first talkies came out. I think his first voice over was
• 19:55
  The Great Dictator 1939. And a lot of these actors just
• 19:58
  went away and, and didn't want to deal with talkies or
• 20:01
  couldn't, couldn't make the transition.
• 20:02
  They had weird accents or speech impediments.
• 20:05
  But you know, Hollywood needs to embrace the.
• 20:08
  AI revolution and I think Disney is recognizing that.
• 20:11
  I think what's essentially happened is Disney has said we
• 20:13
  don't want to deal with Google and Meta.
• 20:16
  They're just too big. So if if I if I use the
• 20:18
  Goldilocks analogy and then Goldilocks is not it isn't
• 20:21
  Disney property. So I'm not infringing on the
• 20:23
  copyright here. Just so we're clear for our
• 20:26
  lawyers and producers. They have said to Meta and
• 20:29
  Google and I think YouTube where they do have conflicts about AI
• 20:33
  and cribbing of characters. We don't want to deal with you
• 20:36
  on the left hand side. They've set the character in mid
• 20:38
  journey. I think you guys are too small
• 20:39
  for us. But they think open AI is just
• 20:42
  right, just in the middle. They can work with them on terms
• 20:44
  that they like, but get enough distribution and enough
• 20:46
  promotion for the brand where it makes sense for them.
• 20:49
  So they're they're basically picking and choosing the battles
• 20:51
  here. But it's a really interesting
• 20:52
  deal to see how the content and creator communities are
• 20:55
  embracing AI now. Some other open AI news that's
• 20:59
  happened Open AI issued a code read to say hey, let's get back
• 21:03
  to business and roll out our GPT 5 version that hopefully
• 21:08
  leapfrogs Google Gemini three. Well, that happened this past
• 21:12
  week and I guess results are generally favorable.
• 21:16
  It looked like the GPT 5.2 was scoring higher on a bunch of
• 21:20
  different tests. We'll see if this kind of
• 21:22
  continues where the leaders in space keep going after each
• 21:25
  other, leapfrogging each other on different tests.
• 21:27
  But have you noticed any changes or any improvements in your use
• 21:32
  of Open AI or these other platforms, Amman?
• 21:36
  I can't say that in this late middest iteration I saw much of
• 21:39
  a difference. I was really impressed with the
• 21:42
  last Google Gemini 3.5, which I think was much stronger in terms
• 21:47
  of multi modality, like not using text, but also using
• 21:52
  images and even audio and video in order to gain results and,
• 21:56
  and produce inference. I think we, I think what we saw
• 21:59
  in open AI, don't think it open AI was ever, you know, out of
• 22:01
  the out of the game. I think that whole code red was
• 22:03
  a little bit of a motivational tactic by a, a manager to get
• 22:08
  employees to just kind of keep, keep focused and to continue to
• 22:12
  iterate on their, on their products.
• 22:14
  But I, I think this latest one in open AI from money, like I
• 22:17
  can tell it's been getting good, good reviews.
• 22:19
  And, you know, it's, it seems like a, it seems like every week
• 22:22
  if someone's jumping ahead with a little bit of innovation and I
• 22:25
  suspect that'll go on for a while.
• 22:28
  And isn't it true that at these times he often descends into a
• 22:32
  delusional state, sometimes actually adopting another
• 22:35
  person's persona? No, that's not true.
• 22:37
  I'll remind you, you're Underoath, you're honor.
• 22:40
  You may roll it, mind taker. All right.
• 22:45
  Well, let's move on to less exciting and more general just
• 22:50
  fundraising announcements, I guess.
• 22:53
  Boom Supersonic, which is a company that's been in the
• 22:56
  business of trying to help planes go faster, announced they
• 23:01
  were raising 300 million at a $1.5 billion valuation.
• 23:07
  But what was a little bit I guess surprising about that is
• 23:11
  they also announced that in addition to jet engines for
• 23:14
  planes, they were going to now power gas turbines for data
• 23:18
  centers. What do you what do you think
• 23:20
  about that kind of major change or pivot a month?
• 23:24
  Yeah, it seems like an adjacency to their business.
• 23:26
  We are small investors in boom through one of our small
• 23:29
  positions in one of our special purpose vehicles.
• 23:32
  They, I get, I think it does seem like there's a big demand
• 23:34
  from AI data centers and any, any time someone's fundraising,
• 23:37
  if you can put that into your story somewhere, it seems like
• 23:39
  it's got a, it puts a, but it'll, you know, turn on your
• 23:43
  valuation. So that that may be what it is.
• 23:45
  I don't think that's a big piece of their projected business, but
• 23:47
  it's interesting that they see that as an adjacency.
• 23:49
  All right. And one other primary round news
• 23:51
  item, Goldman Sachs LED an investment in software delivery
• 23:55
  startup Hardest at a $5.5 billion valuation.
• 23:59
  The founder of that company, Jody Bansal, is a pretty
• 24:02
  experienced entrepreneur, previously was the founder of
• 24:06
  AppDynamics, which he sold to Cisco for 3.7 billion about 10
• 24:10
  years back, 7-8 years back. But this round is somewhat
• 24:14
  notable in that there was a $240 million raise, 200 million was
• 24:17
  primary capital, 40 million was a tender offer for secondaries
• 24:21
  to employees. And I guess this is the kind of
• 24:24
  thing we're probably going to be seeing a lot more of.
• 24:25
  We talked about it earlier that almost every large primary round
• 24:29
  now might also be an opportunity for some amount of secondary to
• 24:34
  early employees and investors. Do you think that's a trend
• 24:36
  that's going to continue in 2026?
• 24:40
  Yeah, that's hard to tell. The fact that Goldman is leading
• 24:43
  the round and that it's such a, it's a significant evaluation.
• 24:46
  It seems like there's, there's a, there's a lot of interest in
• 24:50
  that space now. And you know, Goldman usually is
• 24:52
  one of those investors where they take their time to do their
• 24:55
  take the time to do their homework and make, make, make
• 24:58
  big, big bets and immersion categories that that will create
• 25:02
  other bets down the road for them.
• 25:04
  So that would seem to suggest that that is that's going to be
• 25:06
  something we'll be watching next year as well.
• 25:09
  Aman, what are you seeing in the Fed, the markets and legislation
• 25:13
  happening? I think we have some news
• 25:15
  stories there that you wanted to update from last week, correct?
• 25:19
  Yeah, there was actually a a Fed meeting this week.
• 25:22
  We can let's just recap quickly what the what the Fed said.
• 25:26
  I think there's an interesting dynamic going on too with the
• 25:29
  with the Fed in their decision. So they did decide to cut
• 25:31
  interest rates by 25 basis points.
• 25:34
  I think the market, you know, knew, knew that and and knew
• 25:38
  that the Fed was also likely to signal between one and three
• 25:42
  rate cuts for next year. I don't think any of that
• 25:46
  expect, I think all that came true and none of that changed
• 25:48
  anyone's views coming out of the meeting. the Fed also did
• 25:52
  something interesting. They moved from essentially A
• 25:54
  quantitative tightening position where they are reducing the
• 25:59
  amount of currency in circulation by letting bonds
• 26:01
  roll out their balance sheets to more of a quantitative easing
• 26:04
  position where they are putting liquidity back into the market.
• 26:08
  The the market was thinking they might do that.
• 26:10
  They might go up to $20 billion a month. the Fed actually
• 26:12
  signaled more like 40 billion a month.
• 26:14
  So it's a much more significant quantitative easing move than I
• 26:17
  think the market had anticipated.
• 26:20
  So that's I guess, you know, a positive, positive news for the
• 26:23
  market and for liquidity. A couple of other updates though
• 26:28
  on the Fed and I think it actually means that there's
• 26:30
  going to be limited action next year on the Fed.
• 26:33
  Let me share my screen and go through the the the way that the
• 26:37
  Fed goes through their votes because a lot of people don't
• 26:41
  know this, but this is interesting.
• 26:42
  So the the chairman of the Fed is right now, Jerome Powell.
• 26:46
  It looks like it's a 2 horse race on who will replace him,
• 26:49
  either Kevin Hassett on the left or Kevin Walsh on the right.
• 26:52
  The market a week ago thought Kevin Hassett was the lead guy.
• 26:57
  I think it's kind of a coin flip.
• 26:58
  I don't know that there's been any signal, any strong signal
• 27:00
  either way. Both are are generally center
• 27:04
  right economists, free market economists with excellent
• 27:06
  credentials. On that score, Morse might be a
• 27:09
  little bit more of a rules guy. Kevin Kevin Hassett is Trump's
• 27:12
  current economic adviser. He might be a little bit more of
• 27:15
  a we should cut interest rates type guy.
• 27:18
  Whoever takes that position, though, I think that'll be a
• 27:20
  sympathetic move towards continued easing next year.
• 27:23
  But I want to just remind people that the Fed actually is not
• 27:25
  just one person. There's actually 12 votes that
• 27:28
  get cast on all these decisions. And I've I've got a score
• 27:31
  captain and showed you who the Fed governors are here.
• 27:34
  Some are in green. Those are the voting members.
• 27:37
  Some of them are in red. Those are the non voting
• 27:40
  members. There are five permanent votes,
• 27:41
  but then seven that rotate to different bank presidents
• 27:43
  throughout the year. And then there's two that are in
• 27:46
  yellow, which are basically the the ones that are Jerome Powell,
• 27:49
  who will not be the chair next year and may or may not roll off
• 27:52
  the board. And then one vote from Lisa
• 27:55
  Cook, who is also potentially a board member undergoing some
• 27:59
  financial investigations for fraud.
• 28:01
  But I think we'll remain on the board for the rest of her term.
• 28:05
  There were a couple of folks. Those are two interesting votes,
• 28:07
  but I think both on the the dovish side, meaning they'll
• 28:09
  continue to support interest rate cuts.
• 28:11
  Steve Moran at the very top was the most dovish of him.
• 28:13
  He wanted A50 basis point rate cut this time around.
• 28:15
  And then it was 1 dissenting vote at the bottom.
• 28:17
  Jeff Schmidt, who I had as a hawk and indeed he was the one
• 28:20
  who didn't, didn't want to cut rates.
• 28:22
  What's interesting about the Fed now, if you look at how the how
• 28:24
  that vote has played out is it's a more divided Fed than we've
• 28:27
  seen probably in five years. If I, if you go to the bottom of
• 28:30
  the start, you can see how the Fed members go through their
• 28:33
  annual dot plot forecast. What they're doing is they're 19
• 28:36
  members on the Fed. They're all telling you
• 28:38
  anonymously, where do we think interest rates should be at the
• 28:40
  end of the year? And you can see in 212223 moving
• 28:44
  up, everyone was unanimously agreed that they that they
• 28:47
  agreed with where the Fed ended up at the end of last year, He
• 28:50
  actually had four dissenting votes.
• 28:52
  So he had the blue dots showing basically people who said, I
• 28:55
  think rates are fine where they are in the, in the, in that
• 28:58
  case, it was in the mid 4% range, but he had four people
• 29:01
  actually thought rates should be a little bit higher.
• 29:03
  And this time you actually see six people disagreeing and
• 29:06
  saying rates should be higher than where we landed.
• 29:08
  One at the bottom disagreed on the low side.
• 29:10
  That would be Steve Moran. So now we're seeing the Fed more
• 29:14
  divided than ever before, at least in in the last five years.
• 29:17
  And I think what that means is that it's not really clear what
• 29:22
  what happens in those next few votes.
• 29:24
  It depends a little bit on who who the voters are, what the
• 29:26
  next chairman is going to do to to push and how far they get to
• 29:30
  go. But if I just had to summarize
• 29:31
  the vibe on the Fed, it feels like even though there are a
• 29:35
  majority of those votes now for maybe another rate cut or two,
• 29:38
  at least a third of the votes are telling you that they don't
• 29:41
  think that we should go any further than where we're at now.
• 29:44
  And this is their longer term dot plot over the next five
• 29:46
  years. You can see in the left hand
• 29:47
  side, there's a high concentration of people around
• 29:50
  where the where the rates are right now, although with some
• 29:53
  some more dissent than in the past.
• 29:54
  But look at the next three years.
• 29:56
  You've got everyone all over the map.
• 29:57
  Some people think we should keep the rates where they are, a
• 30:00
  number of them saying we should cut the rates pretty
• 30:01
  dramatically and and kind of everything in between.
• 30:04
  So if I just look at that, it just that isn't signal that the
• 30:06
  rate that the Fed's going to move more than maybe once or
• 30:09
  twice next year. And if it does, it'll be a very
• 30:12
  a very close vote. But it seems like you might have
• 30:16
  six or seven fed governors voting for different directions
• 30:21
  6767567. Who is this correction?
• 30:35
  Before getting bonked on the head by a bowling ball, it was
• 30:38
  your husband. Now it's Frederick the
• 30:40
  International bon vivo and Playboy.
• 30:44
  I guess some other political legislation that's going on
• 30:46
  that's VC related. The Invest Act was passed by the
• 30:50
  House and by pretty wide margin still needs to go to the Senate,
• 30:54
  but I think that's expected that that will probably likely pass.
• 30:57
  Some of the highlights here was changes to how much VC funds can
• 31:02
  do in fund of fund investments and secondary investments while
• 31:05
  maintaining their exemption. This this allows up to not have
• 31:09
  to register as an RA and I believe legislation was
• 31:12
  originally intended to allow, you know, as much as possible,
• 31:16
  but it seems like it's settling now from increasing the cap from
• 31:19
  just 20% in these non qualifying investments to 49%.
• 31:24
  So that would allow more BC funds to do fund to fund
• 31:26
  investments and secondary. I think there's still some
• 31:29
  limits on tokens and crypto there, but certainly a little
• 31:32
  bit more broadening of what BC funds can do while maintaining
• 31:36
  their existing exceptions without having to do a lot more
• 31:39
  compliance and other types of regulatory oversight for Rias.
• 31:44
  It does seem like this does some other good stuff too.
• 31:46
  Like it, It lets accredited investors achieve their
• 31:50
  repuditation status by not just relying on wealth, but also
• 31:54
  taking a test. And then it also lets VCs do
• 31:57
  things like market to universities and accelerators
• 32:00
  without, you know, strip in general solicitation rules and
• 32:03
  and then you can expand your investors from 2:50 to 500.
• 32:06
  So I think there's some good stuff in here.
• 32:08
  Whether it becomes a priority enough to get through the
• 32:10
  Senate, you know, next year and get signed, I don't know.
• 32:14
  But you know, this in combination with some of the
• 32:15
  other legislation that's happening on, on VCI think it's
• 32:19
  it's really good for the industry.
• 32:21
  One of the other things there was it allowed the number of
• 32:24
  investors in VC funds to go from 250 to 500 that had already been
• 32:29
  raised from 100 to 250 a few years back.
• 32:32
  Well as that capital limit from 10 million to 50 million.
• 32:36
  This is kind of for certain qualifying VC funds largely
• 32:40
  emerging managers were starting their first time funds.
• 32:42
  They they tend to have a a tougher time raising from larger
• 32:45
  investors. So they tend to raise from a
• 32:46
  larger number of small investors.
• 32:49
  I think that should be really good for rookie BCS to get their
• 32:52
  first funds off the ground because now basically they can
• 32:55
  take smaller checks from a lot larger number of people and
• 32:58
  potentially raise up to, you know, decent sized $50 million
• 33:01
  fund from a very large number of investors.
• 33:07
  All right, I think we just have one more story to cover here.
• 33:11
  This one was a little bit at the macro level, I guess the Trump
• 33:14
  administration was debating whether to allow NVIDIA to sell
• 33:18
  H200 chips. That's slightly earlier
• 33:21
  generation of chips to China. There's a lot of back and forth
• 33:24
  on that, some criticism from Hawks about enabling China.
• 33:28
  And HI, Trump administration basically said, hey, we'll,
• 33:32
  we'll let NVIDIA sell to China, but we want a 25% take on that
• 33:36
  tax basically on NVIDIA that would go to the government.
• 33:40
  But then China itself decided to reject that offer and not allow
• 33:47
  that to be sold. And I guess it seems like China
• 33:50
  is wanting to develop a package of incentives to develop their
• 33:53
  own semiconductor industry. Really prioritizing their own
• 33:57
  semiconductor industry may be above the short term needs of
• 34:00
  some of their companies that might benefit from using NVIDIA
• 34:04
  H200 AI chips. Not sure I exactly can read all
• 34:09
  the tea leaves here I'm on, but interesting that, you know, the
• 34:12
  US decided to sort of change their mind on allowing chips for
• 34:15
  sale to China, but then China said, hey, talk to the hand.
• 34:18
  We're not going to allow that anyway.
• 34:20
  Talk to the hand. Yeah.
• 34:23
  And that is interesting. I guess our, I guess our initial
• 34:25
  position was a decoupling with China and then we decided, well,
• 34:29
  how about we sell you the stuff we don't really need or, or
• 34:32
  that's not cutting edge and maybe put restrictions on
• 34:35
  military applications, which is that seems, that seems kind of
• 34:39
  constructive. Of course, Trump wants 25% of
• 34:41
  all those sales, which is, which is I guess, I guess that's on
• 34:45
  brand, let's put it that way. And now China wants to defend
• 34:48
  its own home grown competitors and Huawei and I guess that's
• 34:51
  also on on brand. So yeah, I'm not sure I can read
• 34:55
  it all either. But you know, I hope, I hope the
• 34:58
  result of all, I think the decoupling strategy is just
• 35:02
  fatally flawed for reasons we've talked about in the past.
• 35:05
  I think they have to be ways to work together with non military
• 35:07
  applications. So it is interesting that China
• 35:09
  is being more, you know, more protective.
• 35:11
  But maybe there's some deal in the future here.
• 35:12
  The end of the day, there's a lot of trade between the US and
• 35:15
  China that happens. There's a lot of trade under the
• 35:18
  covers that happens. And I don't think any amount of,
• 35:21
  you know, China, U.S. trade wars is necessarily going to stop
• 35:24
  that. There's still going to be
• 35:25
  leakage and undercover sort of trade that happens, whether
• 35:28
  that's through nefarious methods or other countries or go
• 35:32
  betweens, you know, the two biggest economic powerhouses in
• 35:36
  the in the world are probably going to want a trade to some
• 35:39
  extent. Yeah, that's what I think as
• 35:42
  well. Like to welcome to the show
• 35:55
  Adrian Gautier. He's the managing partner of
• 35:57
  Bridge Band. And Adrian, thanks for joining
• 36:00
  us. Dave Montag for having me.
• 36:03
  Could you tell us a little bit about Bridge Band and how you
• 36:05
  got started, how you got into venture capital and what your
• 36:09
  story has been to date? Yeah, absolutely happy to bridge
• 36:12
  band. We are a late stage their pre
• 36:15
  IPO fund. What kind of sets us apart is
• 36:17
  how we approach getting into these investments.
• 36:21
  And so how we do it is to employee stock option
• 36:23
  financings. What it allows us to do is to
• 36:26
  get exposure to get into these names at a significant discount
• 36:30
  versus the traditional, you know, investing in for shares.
• 36:34
  We're very familiar with that and try to get a bargain and buy
• 36:38
  discounts and secondaries. But I think you have a different
• 36:41
  and unique angle and some of that I guess is related to the
• 36:44
  partnership you have with Equity B.
• 36:46
  But could you describe what your approach is to venture and and
• 36:50
  how you how you figured that out?
• 36:52
  Yeah, absolutely. So, yeah, I'd mentioned we're
• 36:54
  we're partnering with Equity B. So Equity B is the largest
• 36:57
  platform that does employee stock option financings.
• 37:00
  You know they, they are probably they're basically our
• 37:02
  origination machine. And so we work very closely with
• 37:05
  that. And then, So what we are
• 37:06
  basically for then is a fund layer on top of their platform
• 37:11
  allows us to get great access to their deals and allows them to,
• 37:16
  you know, have more liquidity through our, we focus
• 37:19
  predominantly or exclusively on later stage, but there's an
• 37:22
  option on the platform there to go into earlier stage deal as
• 37:25
  well. But for us, the focus really is
• 37:27
  we want to build a, a product that that creates liquidity or a
• 37:34
  little quicker than traditional. BC I've been in more the early
• 37:38
  stage investing for the last 10-15 years and you know, make
• 37:43
  some good investments, but you know, they're, they're good on
• 37:45
  paper. They're at 4-5 whatever X funds
• 37:48
  as well, but just, you know, just waiting for a capital to
• 37:51
  come back. So liquidity issues were kind of
• 37:54
  how we kind of came to look at this opportunity.
• 37:56
  You're looking at all the stakeholders in the late stage
• 38:00
  and kind of understanding where the opportunities lie.
• 38:02
  So obviously there's the companies that need to raise
• 38:05
  massive rounds of of capital as long as they want to stay
• 38:08
  private longer and longer. There's a GPS who want to take
• 38:11
  some of the money off the table. Obviously everyone who's
• 38:13
  familiar with your podcast, I'm sure as those insurance and outs
• 38:17
  of the secondaries market for LP's as well.
• 38:19
  But we were looking really at what happens for the employees
• 38:22
  and narrow liquidity needs. And so 1 of it is when they need
• 38:26
  to exercise their stock options that earns that are bested over
• 38:30
  time working for a startup. Could you describe a little bit
• 38:35
  about what that transaction looks like for a seller and
• 38:38
  maybe what a typical size would be?
• 38:41
  Are they, are they looking for a quarter $1,000,000 a billion
• 38:43
  dollars, $5,000,000? What's, what's kind of the range
• 38:46
  of deals that you're involved with?
• 38:48
  Yeah, it's kind of all across the board.
• 38:50
  I mean, from the sizing that can be pretty small deals like a few
• 38:54
  10s of thousands of dollars all the way up to, I mean, the
• 38:58
  biggest I've seen come across a play and I think was, yeah, was
• 39:01
  an XAI employee, you needed $14 million, quite sizable.
• 39:06
  So in general, these are kind of your mid level and lower bullet
• 39:12
  employees. If you're a founder, you're
• 39:14
  going to have other, you're going to have other liquidity
• 39:17
  options. Most types of they have common
• 39:20
  stock that that they have either earned or invest overtime.
• 39:24
  But by large, it's everyone who's been granted share options
• 39:27
  is would be in need of this kind of financing.
• 39:29
  And are you typically doing a group of employees together as
• 39:32
  part of a deal or you're dealing with individuals?
• 39:35
  What are the type? It's generally one at a time,
• 39:38
  but usually if we get financing done for one individual, we tend
• 39:41
  to find more supply come our way.
• 39:43
  As you know, they come up with each.
• 39:45
  Other I. See FAB has a referral program
• 39:47
  so that Jerry tends to leads to more supply for our strategy.
• 39:53
  You mentioned you were ACFO at a startup.
• 39:54
  It looks like you've had a couple of different CFO roles
• 39:57
  over the years and some involvement with the venture
• 39:59
  industry. But how did you decide to get
• 40:01
  into venture? And I guess rich man is a couple
• 40:04
  years old now. You've got 2 funds under your
• 40:07
  belt, or you're working on the second fund.
• 40:09
  Yeah, it's working. Second fund, the first one we
• 40:11
  closed in August. I grew up in Zurich in
• 40:14
  Switzerland, which is, you know, obviously a big finance city.
• 40:18
  Study finance there you make in Zurich.
• 40:20
  Shortly after finishing my degree there, getting my master
• 40:23
  degree, finance moved to New York.
• 40:26
  There's a smack in the middle of the financial crisis.
• 40:28
  OK. So it was very easy to get H1B
• 40:31
  visa. I didn't have to pay like
• 40:33
  $1,000,000 for gold visa as you probably have to do nowadays or
• 40:36
  whatever they're they're charging for those H1 BS soon.
• 40:39
  The good old days. And so, yeah, I just think I
• 40:42
  came across this opportunity. Was that going to be?
• 40:44
  Yeah, just made a lot of sense from the economics, from the
• 40:47
  access that we get to these companies, which sure is, you
• 40:51
  know, a lot more difficult to do if you're doing a secondary
• 40:53
  strategy with a check size as well.
• 40:57
  But what really stood out to us was well, discounts that we can
• 41:01
  get getting in because you know, we're getting in at basically
• 41:05
  the the strike price that the employee needs to pay plus their
• 41:09
  tax burden. And a lot of times that is
• 41:11
  significantly below what the latest preferred rounds is it is
• 41:15
  or what these companies are trading at on the on this on the
• 41:18
  secondary market. So just make a lot of sense from
• 41:21
  a risk reward profile kind of solving the main issue that
• 41:26
  venture capital has had I think in the last 3-4 years, not only
• 41:30
  venture capital or private equity as well as you know, no
• 41:32
  DPI, no, no, no capital coming back.
• 41:36
  So we wanted to build a product where every time we had an exit,
• 41:39
  we returned that to, to our LP's.
• 41:41
  And in Fund 1, you know, we had six exits in year 1 already
• 41:45
  generated DPI first checks back to our LP's.
• 41:49
  And so we kind of wanted to, there's something we can still
• 41:52
  generate venture type returns. We're still targeting 25% net
• 41:55
  IRR, but without holding on to LP's capital for used to be 10
• 42:00
  years now we don't see all these early stage funds are 1315 years
• 42:06
  hand in hand with companies saying private longer with again
• 42:09
  like you know not many exits happening and only not much
• 42:11
  liquidity in general of the last 3-4 years.
• 42:15
  So yeah, we're very bullish obviously on the markets of the
• 42:19
  company of timing we have for our strategy has been had been
• 42:23
  pretty good. And so we've seen more M&A, more
• 42:27
  IP OS and you know, especially what we've seen for for our
• 42:30
  strategy, an exit route which you don't really have for, for,
• 42:34
  for other funds or for, for if you if you're investigating
• 42:37
  preferred shares is tender offers for employees.
• 42:40
  So that's the next route that yeah, I think you're seeing more
• 42:43
  and more companies offer that to employees as a way to give them
• 42:47
  some liquidity as well. And this.
• 42:51
  My husband. No bowling ball bunk.
• 42:54
  Surprise, it's Federico Flint, Stony international race car
• 42:58
  driver and Playboy. I guess on the subject of tender
• 43:02
  offers, how, how standard do you think that is for, you know,
• 43:07
  different sizes of companies? And I guess we're we're starting
• 43:10
  to see for some of the largest high visibility companies, they
• 43:12
  do tender offers almost on a, you know, an ongoing annual
• 43:16
  basis, sometimes even more frequently on an annual basis.
• 43:19
  But I don't know if that's as predictable for less visible
• 43:23
  smaller companies. When do you see kind of the
• 43:25
  first tender offers start to happen?
• 43:28
  Is there a minimum size of company or minimum revenue or
• 43:32
  minimum dollar amount for these tenders that's required?
• 43:34
  Yeah. I mean, I would say, I mean,
• 43:36
  obviously, you know, SpaceX, they do their tender office
• 43:38
  every six months. You know, they're obviously, you
• 43:41
  know, probably on top of the size of company and revenue as
• 43:45
  well. I think the these tender
• 43:47
  options, are they going to cut are, are going to be a tool to,
• 43:53
  to track talent. You know, if you have the option
• 43:55
  to work with company A versus Company B and you know, company
• 43:59
  A, you're able to take somebody off the table on a regular
• 44:02
  basis. You know, just stuck in there
• 44:04
  until there's a liquidity event, an IPO, which to be 10 years
• 44:07
  old, then you're just sitting on all this sock.
• 44:09
  But in a car, we do much with it.
• 44:11
  So I think you're going to see it happen more often in terms of
• 44:14
  size, you know, obviously depends on what the appetite is
• 44:17
  for investors to come in and you know, participate in these
• 44:21
  sender offers. For now, I think it's pretty
• 44:23
  much mirroring the companies that are in high demand on the
• 44:27
  on the second markets and secondary markets in general.
• 44:29
  But you know, our hope is that, you know, both the secondaries
• 44:32
  market as well as these sender offers become more standard.
• 44:37
  I think you're going to see more, more liquidity
• 44:40
  opportunities for employees for, again, for the same reasons.
• 44:44
  So I think it's, it's going to be, you know, a broader
• 44:48
  phenomenon that companies offer these, these these these windows
• 44:51
  where you can get some liquidity out.
• 44:53
  Obviously not all you want to obviously keep your employees
• 44:55
  incentivized to to stay on. And that's how the whole venture
• 44:59
  and point of the world works. You got some, you know, more
• 45:02
  part of salary and obviously you're, you're as an employee,
• 45:05
  you're looking to, you know, have your equity grow
• 45:08
  significantly over time. So yeah, you want to keep your,
• 45:11
  your, your, your employees tied to the company as much as
• 45:14
  possible. But I think again, if you have
• 45:16
  company A, Company B, company A does it.
• 45:18
  There are otherwise similar out. You're probably going to be on
• 45:22
  like that to to the one that offers the tender offers.
• 45:24
  From my experience, it seems like a lot of these tender
• 45:27
  offers are tied to primary rounds that are being raised and
• 45:30
  it's a little bit easier to sync up the opportunity if there's
• 45:34
  not a primary around going on. I I think it seems like these
• 45:37
  are only larger companies may be doing 500 million to a billion
• 45:41
  in revenue and up that are already valued at 10 billion or
• 45:44
  more that are able to sort of do you know, a tender offer in the
• 45:48
  market when there's not a primary around already
• 45:50
  happening. And that's a pretty high profile
• 45:52
  group of companies. I would imagine there's not more
• 45:55
  than say fifty of those companies that are out there.
• 45:58
  You know, certainly the top 1020 companies can do that.
• 46:01
  But I think once you get past the top 20, it's not quite as
• 46:04
  predictable an event again, unless there's a primary route
• 46:06
  that's going on. And I guess the other side of it
• 46:08
  is there might not be enough buyers or buyer interest if
• 46:11
  there's not a primary run going on, unless it's one of those top
• 46:14
  30, you know, top 50 companies. I guess could you talk a little
• 46:18
  bit about what Equity B is all about and how did you get
• 46:21
  started with them? How did the idea of running a
• 46:24
  fund come up and you know, did they call you?
• 46:26
  Did you call them? What was the sort of genesis of
• 46:29
  your fund? Yeah, absolutely.
• 46:31
  So, you know, as I mentioned, we were looking, I was looking to
• 46:33
  to start, you know, a project with with Yanif, a partner in
• 46:37
  the fund and he actually went to, I went to school with, with
• 46:42
  Oren, who is the founder and CEO all equity be.
• 46:45
  So yeah, they were friends already.
• 46:47
  We're looking, you know, also putting together fund of some
• 46:49
  sorts. Again, the early stage was just,
• 46:51
  you know, it just takes so long to, you know, to get some carry
• 46:55
  out of it. So you kind of want to get, you
• 46:56
  know, kind of move a little faster.
• 46:58
  So Equity B was at the same time also looking for Capital
• 47:02
  Partners that we could provide liquidity to their deals that
• 47:05
  can do more deals. You know, I see for them as
• 47:07
  well, it was leaner years and you know, very few people were
• 47:10
  were touching the late stage as you know, like 2223 is, you
• 47:15
  know, a 20 already 24 even with, you know, kind of frigates.
• 47:18
  Yeah, as I mentioned, you know this, we looked at the
• 47:20
  opportunity, it's made a lot of sense and went out on
• 47:23
  fundraising for for the fund. Yeah.
• 47:25
  So the partnership, you know, they're basically our
• 47:28
  origination machine. So on the one hand side, there's
• 47:31
  all the employees that go to equity be directly we get to see
• 47:33
  those deals 1st and see if you want to take those deals.
• 47:38
  And on the other hand, we have a list of like probably 6070
• 47:43
  companies where we feel like I see this company might have a
• 47:47
  liquidity event in the multi distant future, like I said,
• 47:50
  next couple of years where we're going to have an exit
• 47:52
  opportunity for investment. And so we submit that as equity.
• 47:56
  It helps them knowing that they can go out with their marketing
• 47:59
  team to find employees, knowing that if they find one, they know
• 48:04
  they can get a deal. But so it's a weird wave across
• 48:07
  the board equity shares on shares in economics with us, we
• 48:11
  carry on the management fee. And so yeah, it's it's been a
• 48:15
  really good partnership with them.
• 48:16
  So I think that'd be great. That's terrific.
• 48:18
  And how how large was your first fund and have you finished
• 48:21
  deploying that and are now working on the second one I
• 48:24
  guess? We launched, we had the first
• 48:26
  close of September of last year. It was giving us a kind of a
• 48:31
  niche strategy and you kind of instruments to invest in.
• 48:36
  It was more of a high net worth whenever with individuals, small
• 48:40
  family offices that were interested.
• 48:43
  The first fund closed at 7 a million.
• 48:45
  So we know it's really kind of more a proof of concept for us,
• 48:48
  but we had some pretty quick exits in, in that fund.
• 48:53
  And so we had, you know, realized capital to the to, to
• 48:56
  distribute to our LP's. So we closed, we closed it in
• 49:00
  August of this year. But before that it was gotten
• 49:03
  really complicated to distribute the capital or digital
• 49:06
  fundraising. But regardless, we had some good
• 49:09
  conversations for the first fund with with larger LP's and you
• 49:13
  know, and tend to be like, you know, we love, love that, you
• 49:16
  know, show us. And so I think we have OK good
• 49:20
  metrics. There we go. 6 exits out of the
• 49:22
  first like 36 investments we did.
• 49:24
  So we're currently up to. So we closed the fund said for
• 49:27
  new investment fund one, we're up to about 56 companies.
• 49:32
  We just did our final capital calls.
• 49:33
  We're still do, we're still, we're still investing out of
• 49:36
  that one. And so I think we'll be fully,
• 49:40
  fully deployed in in March. Could you talk about a, a
• 49:44
  typical transaction and kind of what the process is like?
• 49:47
  How do you guys go about underwriting the companies?
• 49:51
  Do you use, you know, for our 9A evaluations?
• 49:53
  Do you do some other type of Fair market value assessments?
• 49:56
  Do you negotiate for discounts? How do you come up with the
• 49:59
  numbers? And then how do you engage with
• 50:01
  the the sellers, either the company or the individuals?
• 50:04
  Yeah. So as I mentioned, you know
• 50:05
  there there's just two two ways it goes.
• 50:07
  One that's again are they kind of like all the the passive
• 50:09
  opportunities the one that Equity B gets directly and they
• 50:12
  forward to us. So on a weekly basis we get
• 50:15
  somewhere between 6:00 to 10:00 opportunities that fit our
• 50:19
  criteria. Our criteria is we would have at
• 50:21
  least 30% discount to the latest 49A evaluation at least that's
• 50:26
  the preferred. Usually it's more around 7080%
• 50:29
  to less preferred generous companies like series, Series CD
• 50:33
  onwards, So very mature companies that have $100 million
• 50:37
  plus in revenue growing 30% at least.
• 50:40
  So basically you know we're filtering for the, you know we
• 50:43
  need, you know we're looking for exit.
• 50:45
  So you know, we can filter for IPOs, the filter for M&A
• 50:49
  obviously more difficult. We can't filter for 10 other
• 50:53
  companies that do tender offers. But we're generally looking for,
• 50:55
  you know, good companies where you got a good discount too with
• 50:59
  our enterprise versus what see what they're trading at.
• 51:02
  But you know, we're, we're looking at generally companies
• 51:04
  in the right sectors as well as the evolved AI infrastructure,
• 51:07
  fintech, some space and defense. Where is tailwinds.
• 51:11
  You know, if you really love the company and even if it's, you
• 51:14
  know, not likely that they're going to have an exit the next
• 51:17
  two years, maybe it's going to be 5 years.
• 51:19
  You know, we're OK with that as well, as long as we feel like
• 51:22
  this company has room to grow and we have a very, very
• 51:25
  attractive enterprise. And tell me, Mrs. Flintstone,
• 51:30
  who is this? That's Cary Granite.
• 51:33
  But who's he talking to? My husband.
• 51:37
  So you mentioned I, I assume you're mostly, if not always
• 51:40
  buying common shares and you're expecting a discount to prefer
• 51:44
  between 30 to 70% or at least 30%.
• 51:48
  Is that the? Yeah, but.
• 51:49
  Usually it's like 50 to 70% just the way it's structured.
• 51:52
  So the way you know, order depressed calculated has not
• 51:55
  much to do with the current preferred price.
• 51:57
  It's really based on the 49A valuation.
• 52:01
  When you see the employee got their stock, their shares,
• 52:04
  granted that's their strike press and the current port on
• 52:07
  evaluation, it's the delta between that and their strike
• 52:10
  press is how the tax burden is. Calculated and so when they
• 52:12
  exercise, they have a dollar amount on the table that they
• 52:15
  need to pay or come up with and sounds like they they exercise
• 52:20
  and sell some portion of their position in order to generate
• 52:23
  the dollars or they get that from you or they're they're
• 52:26
  holding. No, it's really just we're,
• 52:28
  we're, we're we're financing the the exercise alone.
• 52:31
  So it's just that they can go from their options, exercise
• 52:34
  their options and then they hold the shares in the company.
• 52:37
  I see. And then as the shares always
• 52:39
  stay in the name of the employee, we have a four week
• 52:42
  contract with them essentially, yeah.
• 52:46
  And so you know, they, you know, pace of the terms we set,
• 52:49
  whenever there's a liquidity event, we get them an AIPO or
• 52:52
  tender offer. They need to, once they are able
• 52:56
  to sell their shares, they need to pay back the financing.
• 53:00
  And there is something called a share incentive.
• 53:01
  So we usually get between, I'd say 20 to 30% of the shares that
• 53:06
  we finance. It's our upside. 20 to 30%.
• 53:10
  Yeah, I mean, we had like a low, I got 4.
• 53:12
  Usually it's like 3 to 5% interests.
• 53:15
  The interest is low, OK. But obviously what sets us apart
• 53:19
  to other ways of financing is that it's a non recourse.
• 53:23
  It's on recourse. So if the company goes bust, I
• 53:25
  see, you know, let's say it's, you know, you're on the hook and
• 53:28
  we're looking at yeah, like a Wework kind of situation, you
• 53:31
  know, where you know, you take, you know, you're, you're, you're
• 53:35
  sitting on 1,000,000 as an employee, you're exercising,
• 53:37
  you're putting a couple minute to exercise their shares, your
• 53:39
  options, you get a mortgage out. And you know, these situations
• 53:43
  did happen and you think, you know, you're going to be, I got
• 53:45
  100 million bucks out of it. And next thing you know, common
• 53:48
  stock is wiped out. Then you still have 2,000,000
• 53:51
  bucks that you that you borrowed of mortgage.
• 53:54
  So, yeah, it avoids that risk. So we take that risk away from
• 53:58
  the employee and get compensate on the on the upside.
• 54:02
  And so, yeah, a lot of times, you know, give you a big chunk
• 54:04
  of money. And if you're working, if you've
• 54:05
  been working for a startup for a long time, yeah, usually your
• 54:08
  compensation is skewed towards equity.
• 54:12
  You're not, you know, taking home huge paychecks.
• 54:15
  So if you're doing that four or five years, you know, you might
• 54:17
  not have the cash flowing around to tax size your options.
• 54:20
  So that's where we come in and lets you exercise those options
• 54:23
  because you know, there is something like I think $30
• 54:26
  billion of share options that expire and exercise every year.
• 54:31
  So there's a massive, a massive market for it out there as well.
• 54:34
  It sounds like from the transactions you guys execute,
• 54:36
  you're up on day one sort of a minimum of maybe 30 to 50% and
• 54:42
  hopefully you get some growth from you know the compounding
• 54:45
  and growth of the company. What are your exit expectations
• 54:48
  in terms of multiples and time? Is there, is there a range that
• 54:51
  you look for or you know is it 2 or 3X in sort of two or three
• 54:55
  years, is it more like 3 to 5X in three to five years?
• 54:58
  So I mean the way we kind of get get compressed, so we obviously
• 55:00
  don't capture the full upside. So you know, if you're talking
• 55:03
  about company you expect to to get 10X from from today, you
• 55:08
  know, it's better just obviously get get exposure directly
• 55:11
  through preferred chairs on secondaries.
• 55:13
  What sets us apart is again, we have that downside protection
• 55:16
  meeting, you know, stock price can go down 5060% from today and
• 55:21
  we still get our money back at the very least.
• 55:23
  And as we, we get our, our, our initial stake back plus the,
• 55:28
  the, the share incentive, we do actually better than direct
• 55:33
  preferred investing on, you know, every market from like
• 55:36
  down markets to slight bull markets.
• 55:38
  So except from like you know, raging, Raging Bull markets, but
• 55:41
  those generate more equity events.
• 55:43
  So we're kind of comfortable with that.
• 55:44
  So you know, I think our for our exit, we're looking at anywhere
• 55:49
  from like getting our money back on the lower end for investment
• 55:54
  to something like 2-3 X probably could be our standard.
• 55:59
  Pretty much every investment we make, we're looking at like
• 56:02
  we're up like 1.8 to 2X the moment you make it, assuming
• 56:07
  that the company would sell at the current price at the current
• 56:10
  valuation. And then so yeah, we're usually
• 56:12
  be doing I think would be between 234X over the next 3-4
• 56:16
  years. That's kind of exit expectation.
• 56:19
  We've had the best that we've had so far in our portfolio.
• 56:23
  There is a company called Firefly Aerospace and you know
• 56:28
  like kind of a it's probably as good as it gets for for our
• 56:30
  strategy I would say. So we invested in I think in
• 56:36
  early June of this year at about $1.65, but I think in August
• 56:41
  they said they were going to go public.
• 56:43
  We thought we had like an eighties 90% discount at that
• 56:45
  point. But then they they went public
• 56:48
  at about $60.00 a share. So at that .2 months off for
• 56:51
  investing, we were up, we were up Ted X that was, that was
• 56:54
  amazing. We didn't expect, yeah, we
• 56:56
  didn't expect that one to go that quickly wasn't kept on a
• 56:59
  radar, but that they would be IPO ING back quickly.
• 57:01
  But you know, it was low demand. That was one of the first, you
• 57:04
  know, space companies, space tech companies going public.
• 57:07
  And again, you know, our enterprise was very attractive I
• 57:11
  think because the foreign and a valuation was still very low.
• 57:14
  And so we're up 10X after two months.
• 57:16
  We offset a six month lock up. So that's gonna be, you know, I
• 57:19
  think we're gonna be cashing out in February.
• 57:21
  The stock has come down now a bit from 60 to I think it's
• 57:24
  about 25. We're still at 5X, still very,
• 57:27
  very good, not the biggest position we were able to get
• 57:30
  there, but that kind of shows you know what is possible and
• 57:32
  also the you know, very short have timeline between being able
• 57:36
  to invest in these companies and then going having a liquidity
• 57:40
  event. Yeah.
• 57:40
  Where's the term of your fund? Is it, is it structured like a
• 57:43
  10 year fund? Sounds like you're trying to get
• 57:45
  liquidity back to your LP's in two, 3-4 years.
• 57:48
  But what's the legal term that you set?
• 57:50
  Yeah, we set it for five year. We did a five year fund, the guy
• 57:52
  we didn't want to do the, you know, 10 year and then
• 57:54
  extensions till like your 15 we have the fighter fund with.
• 57:59
  So we could extend to seven years.
• 58:01
  Well, try to get as many positions.
• 58:03
  Some of the goal is to, you know, get liquidity in all
• 58:05
  positions of well, we'll hopefully we'll do most of
• 58:08
  those. We have the option to resell the
• 58:10
  these positions on the equity marketplace or move them to a
• 58:15
  continuation fund, something like that.
• 58:16
  But really for us, the goal is really just to, to generate
• 58:19
  liquidity and you know, all the exits we have in every quarter.
• 58:23
  We, we, we, we wire that back-to-back to our LP's.
• 58:26
  So, you know, we're not going to have the highest multiple fund,
• 58:29
  but our IRR is, is going to be very, very interesting,
• 58:32
  especially given the kind of, you know, low, you know, low
• 58:35
  time that your, your capital is locked up.
• 58:38
  Wait, what do you think the bar is for going public these days
• 58:42
  either in terms of, you know, revenue or growth or profit?
• 58:46
  What do you think is a typical hold period before you guys see
• 58:49
  an exit? I mean, the really, really
• 58:51
  depends. I think it's, it's generally
• 58:52
  longer and then you're seeing like fewer companies wanting or
• 58:56
  needing to go public because I think the private markets,
• 59:00
  partly part of the reason I think is the private markets are
• 59:02
  growing. And so you can have, you know,
• 59:04
  look at your, your kind of, you know, here's your Spacex's and
• 59:08
  anthropics and open eyes of the world, They can raise hundreds
• 59:12
  of millions of dollars, billions of dollars even, which is also
• 59:14
  something that I think was really possible or what
• 59:16
  happened, you know, until until very recently.
• 59:20
  So you know, the kind of additional bird and regulatory
• 59:24
  burn, etcetera, etcetera for those copies.
• 59:25
  Like, you know, why, why would they need to go public,
• 59:28
  especially you're still building stuff you don't want to be
• 59:32
  quarterly reporting on, you know, your, your, your, your,
• 59:35
  your EBITDA, etcetera, etcetera. So I think a lot of it is
• 59:38
  because of that, you know, they can save up.
• 59:40
  Obviously that's a subset of companies of the big guys.
• 59:43
  But in general, I think, you know, the bars definitely gotten
• 59:46
  a bit higher. You know, we're, we're
• 59:48
  definitely seeing in, in the company we've invested in the,
• 59:51
  the companies that are profitable.
• 59:53
  I mean, they're looking for proper companies.
• 59:55
  I think we've still now where obviously in the past it was,
• 59:59
  you know all about growth especially you know, 2020-2021
• 1:00:03
  was only if you're growing, you know that's a that's your
• 1:00:06
  valuation no matter if your unit economics are are terrible.
• 1:00:10
  So I think, you know, you have to have a defensible solid
• 1:00:14
  business where you know, you have to have pay even with
• 1:00:16
  reasonable growth, you should be able to to be profitable
• 1:00:21
  generally, if you're profitable, I think that's almost kind of a
• 1:00:25
  you need to almost be profitable at this point to go public.
• 1:00:28
  But I think a lot of, you know, the focus has shifted for sure
• 1:00:32
  from growth at all costs to let's make this a business where
• 1:00:36
  we're not dependent on having to raise, you know, massive amounts
• 1:00:41
  of of funding on a regular basis.
• 1:00:46
  Wouldn't it be safe to say that your husband, for a time after
• 1:00:50
  so many concussions, perhaps thought he was a mob boss but
• 1:00:54
  really wasn't? It's possible, yes.
• 1:00:56
  Nothing further. I guess where do you see the
• 1:01:01
  market headed in the next few years?
• 1:01:03
  I, I guess we've certainly seen some pretty crazy growth rates,
• 1:01:06
  pretty crazy evaluations for a lot of these AI companies.
• 1:01:10
  Do you feel like that we've seen seen a sea change that's
• 1:01:13
  permanent or are these again sort of momentary irrational
• 1:01:17
  exuberance being exhibited by the market?
• 1:01:21
  Yeah, that's always the kind of that speed notes the the the
• 1:01:24
  question ever has been asking us, you know, towards the end of
• 1:01:26
  this year. I feel like especially as you
• 1:01:27
  know, bubble or no bubble, I don't think it's it's a bubble
• 1:01:30
  like like your 2020 bubble or something like that.
• 1:01:35
  I was like 2000, you know, bubble, you know, I think there
• 1:01:38
  is kind of step change, especially with the kind of, you
• 1:01:42
  know, LLM layers. So kind of your atrophic XAI,
• 1:01:45
  you know, atrophics, especially that kind of those kind of
• 1:01:49
  companies. You know, you see the growth
• 1:01:50
  rates. So let's say atrophic, you know
• 1:01:53
  they 10X going from like a billion to $10 billion in in
• 1:01:56
  ARR. And if you look at all the kind
• 1:01:59
  of SAS capital business and you can't have the business now
• 1:02:02
  without incorporating some level of AI into your processes and
• 1:02:06
  into. Your or at least in your name.
• 1:02:09
  Yeah, exactly. And so, yeah, that doesn't mean
• 1:02:12
  that, you know, I think it has to be a lot of investments that
• 1:02:14
  aren't going to be good investments.
• 1:02:16
  I think it's more in the application layer where you
• 1:02:18
  know, and more so in the early stage or it's like having AI,
• 1:02:22
  you know, in our company series, AI think, you know, frothiness
• 1:02:26
  is generally more there than in the kind of the real value in
• 1:02:30
  the late stage, the big boys. But it's serious to say, I mean,
• 1:02:33
  you listen to values, you know, all these tools extensively day
• 1:02:37
  in, day out to run the fund, to research to pretty much for
• 1:02:40
  everything. And and they offer and again,
• 1:02:43
  for real law companies are are paying all these companies a lot
• 1:02:47
  of money. It's like it's real cash flow
• 1:02:48
  that's happening. Where does it end?
• 1:02:51
  It's hard to tell, but I think that's still a lot of room for
• 1:02:54
  growth for for those big ones. And that's why everyone's
• 1:02:56
  chasing those big names as well in secondary market.
• 1:02:59
  We're trying to get a piece of it.
• 1:03:00
  You know, we'll see which ones are going to be winners.
• 1:03:02
  Is he multiple winners or? I think ESC, you know, I think
• 1:03:05
  you're going to see some specialization like certain
• 1:03:08
  models are better for this than others for this.
• 1:03:10
  But in general, yeah, still pretty bullish.
• 1:03:12
  You know, I got to think the big names is, you know, those aren't
• 1:03:17
  necessary bubble, especially with the growth rates.
• 1:03:19
  I mean, you know, you see growth rates that are, you know,
• 1:03:21
  absolutely insane that how quickly they can generate, you
• 1:03:24
  know, insane amounts of revenue. I think Aman and I reviewed a
• 1:03:27
  company that had been in the news a few months back and it
• 1:03:31
  was a parking lot company or a company that made money from
• 1:03:35
  parking cars. And they had somehow re rented
• 1:03:38
  themselves as an AI company. And I guess they were doing
• 1:03:40
  something with computer vision. And Aman asked me, Dave, what do
• 1:03:43
  you think they use the AI for? And I was like, well, raising
• 1:03:46
  money, Aman, that's what they used it for fairly successfully,
• 1:03:49
  I might add. Do you feel like we're over our
• 1:03:52
  skis in a few places? And, and have you been involved
• 1:03:55
  in any deals where or I guess have you seen any deals?
• 1:03:59
  I won't ask you to name names here that that kind of blew up
• 1:04:02
  and you know, went S quickly. I I guess you've only been doing
• 1:04:06
  this for the last couple years, so you maybe haven't seen as
• 1:04:09
  many train wrecks as as have been out there.
• 1:04:12
  But I like you said you have a you have a non recourse lending
• 1:04:17
  situation. I'm sure you must model for some
• 1:04:19
  losses in that scenario. Yeah, like I mean you know our
• 1:04:22
  failure rate companies we invested, we invest in is not
• 1:04:26
  zero, but we so far haven't had a full write off the you know
• 1:04:31
  we've had. OK.
• 1:04:32
  We got into an analysis that we're debating if we should do
• 1:04:35
  this, but we got into StubHub about a month before he went
• 1:04:40
  public. We're a little more bullish than
• 1:04:42
  they know than the market reception was on the name.
• 1:04:46
  I think you know, another proper name with retail investors as
• 1:04:49
  well. You know, we're down I think
• 1:04:51
  something like 20% on that name. But you know, it's been, you
• 1:04:54
  know, probably the worst IPO of the of the year so far, I would
• 1:04:59
  imagine. Yeah, we we, we, we again, we
• 1:05:01
  were, we were more bullish on the name that we were
• 1:05:03
  comfortable with our with our discount.
• 1:05:06
  I can blew through our even our discounted enterprise.
• 1:05:10
  And so I we're hanging on to that and reach the lab till like
• 1:05:14
  February, see if the name. Recovers, so the stump of more
• 1:05:17
  interesting one now that's down like 40% from the IPO price, but
• 1:05:20
  you're down only 20% because I guess they've got that downside
• 1:05:23
  action in the event of a company like that.
• 1:05:25
  What's your strategy? Do you second guess the public
• 1:05:28
  market thinking you know better or do you like want to hold on
• 1:05:31
  to it and try to recover to send some money or at a certain point
• 1:05:35
  do you as part of your exit strategy to say, all right,
• 1:05:37
  that's it. We've we've gone through the
• 1:05:39
  IPO, the price is what it is. We'll give herself a explicit
• 1:05:43
  timeline and then exit at, you know, whatever that, whatever
• 1:05:47
  that price is. Yeah, it's a good question.
• 1:05:49
  I mean, we've been thinking about that, you know, those
• 1:05:52
  different scenarios as well. So you know, in general, as I
• 1:05:55
  mentioned, you know, our goal is to generate liquidity or RLPS.
• 1:06:00
  So as a rule, whenever the six months is out the way it happens
• 1:06:04
  when, when the employee pays back, they have choice to pay,
• 1:06:08
  pay back what they owe us in cash or in shares.
• 1:06:12
  So as we could hang on to the shares if they choose to do it,
• 1:06:15
  to pay to, to return the funds and shares.
• 1:06:19
  But by and large, we're saying we're going to sell it and just
• 1:06:22
  return capital. You know, we don't want to be
• 1:06:24
  necessarily, you know, in the market for you.
• 1:06:27
  Are we the best analysts of, of publicly traded companies?
• 1:06:32
  We, you know, our strategy is about, you know, identifying the
• 1:06:35
  companies that are going to go public soon.
• 1:06:36
  And we think we have a good discount and we can most of the
• 1:06:40
  time get get a good return out of it.
• 1:06:42
  Usually we've seen returns so far in year 1, it'd be like
• 1:06:45
  7080%. So and obviously we have that
• 1:06:48
  five extra with, with, with with Firefly.
• 1:06:52
  And so you know, that's far more the outlier of the downside.
• 1:06:55
  But again, we're just we're just going to try it and tell we'd be
• 1:06:58
  talking about potentially you know having some hedging
• 1:07:00
  strategy that if it's some like air of it with Firefly for
• 1:07:04
  example, take pop from A1 and then it's been coming down over
• 1:07:07
  the last six months. We're not doing that for for our
• 1:07:10
  next fund either I think, but that would be another way to
• 1:07:12
  kind of you know juicer returns a bit as well.
• 1:07:15
  So it's something we'll be talking about.
• 1:07:17
  But as a rule, we are just going to, you know, six months off the
• 1:07:21
  lock UPS over sell the position and return capital.
• 1:07:24
  That's interesting. Usually those rock agreements,
• 1:07:26
  at least for the employees and other shareholders don't let you
• 1:07:30
  engage in hedging strategies. If for the employee or their
• 1:07:32
  shareholder, are you also subject to restrictions like
• 1:07:35
  that as part of your arrangement during the lock up period or can
• 1:07:38
  you actually do you have additional flexibility during
• 1:07:39
  that lock up period that other investors may not have?
• 1:07:43
  Yeah, I think we would. Again, we're, you know, it's not
• 1:07:46
  something we've dug too deep into.
• 1:07:48
  We don't hold the shares, so they're not in our name.
• 1:07:50
  We obviously have a forward interest in it.
• 1:07:53
  So we haven't done, you know, the, the deep diligence into,
• 1:07:57
  you know, what we can and can help do when it comes to hedging
• 1:07:59
  because it was this good idea. We we're not going to do it for
• 1:08:02
  fun too. And so it has to be really too
• 1:08:06
  high on our on our To Do List in terms of, you know,
• 1:08:09
  understanding if we have the right, I believe we would have
• 1:08:11
  the right to do it as again, we're not direct holders of it,
• 1:08:14
  but I would have to do some more, some more diligence on
• 1:08:17
  that. I am interested in sort of how
• 1:08:18
  you think about portfolio modeling because that sounds
• 1:08:21
  like some of your opportunities are not always planned and
• 1:08:24
  they're coming to you through equity B and seems like you have
• 1:08:27
  a relatively low risk, a way to make money.
• 1:08:30
  So maybe you know, portfolio diversification isn't as
• 1:08:33
  crucial. But is there a minimum number of
• 1:08:36
  names, maximum number of names in your portfolio you think
• 1:08:39
  about? Is there minimum maximum
• 1:08:41
  exposure to any individual, company or deal that you want to
• 1:08:45
  limit? Yeah, to do this.
• 1:08:47
  So we're very much doing a portfolio approach.
• 1:08:50
  So already spreading the bets. So we're looking at, you know
• 1:08:53
  about 100 positions for fun one. I think for fun 2, we're going
• 1:08:57
  to be a little more concentrated, especially with
• 1:09:00
  the kind of, you know, low risk names, you know, the bigger
• 1:09:03
  names that everyone wants that wants to get part of.
• 1:09:05
  We we have our kind of positional limits.
• 1:09:08
  We have a high confidence real 2X that limit.
• 1:09:11
  Generally it's kind of AI would say the more mature names, we do
• 1:09:15
  slightly large positions where we don't expect them to be a 10
• 1:09:18
  Xer, kind of a Firefly 1 where we have a high upside, a big
• 1:09:22
  discount, but more risk in terms of, you know, is this company
• 1:09:26
  going to do well, is going to are they going to go public?
• 1:09:29
  We'll probably size that a bit below our average.
• 1:09:32
  So we kind of have that balance. We have outliers are in slower
• 1:09:34
  positions, the more higher risk and have the blue chip ones
• 1:09:37
  where you feel like this is going to be 7080% return with a
• 1:09:43
  very high likelihood. We're going to size those guys a
• 1:09:45
  little better, a little bigger. And so, you know, for fun too.
• 1:09:50
  We're you know, we're we're we're we're we're going to, you
• 1:09:52
  know, upsize our strategy and do a little more concentrated that
• 1:09:56
  we can also take bigger positions in in these larger
• 1:09:59
  companies. A lot of times also, you know,
• 1:10:01
  because they're these these valuations are so high in near
• 1:10:04
  anthropics of the world. The opportunity for the capsule
• 1:10:09
  that these employees need is a lot bigger than the company
• 1:10:13
  that's, you know, at a billion dollars.
• 1:10:15
  So because the tax burden they have is is a lot larger.
• 1:10:18
  So those are the ones that you have, you know, suddenly you're
• 1:10:20
  you're you're age to $10 million positions in your ear and
• 1:10:24
  tropics, Spacex's Xai's of the world, just because their
• 1:10:28
  valuation is, you know, is very, very high.
• 1:10:30
  So, you know, it's a different type of investment.
• 1:10:33
  Those bigger ones large you know you they again you're you're
• 1:10:36
  you're you're kind of lower multiple but less risk I think
• 1:10:41
  investing those edge. Do you guys operate globally?
• 1:10:45
  Do you have any restrictions on countries or geographies?
• 1:10:47
  I'm assuming most of your deals are probably US, but I guess
• 1:10:51
  you're in Israel. Is that correct and or equity be
• 1:10:54
  as? Well, maybe so, yeah, my partner
• 1:10:56
  is in Israel. So we do invest.
• 1:10:58
  We can invest in any company as long as the employee is US based
• 1:11:03
  for. You.
• 1:11:04
  I see. A number of reasons one
• 1:11:07
  counterparty risk the other one just kind of legal set up with
• 1:11:11
  these contracts. It's a big enough you know
• 1:11:15
  supply is the US with US employees for sure.
• 1:11:19
  Equity is also has their hazard as their individual set up in
• 1:11:23
  Israel as well for Israeli employees that we don't we don't
• 1:11:27
  invest in those. We can we just do US, US
• 1:11:30
  employees. And so, yeah, by large
• 1:11:33
  university big enough for us, I mean, you know, we have way more
• 1:11:36
  supply that we can put capital behind the currently I'll see.
• 1:11:38
  We're trying to rectify that was fun too.
• 1:11:41
  But we can, you know, we can, we can employ very quickly any
• 1:11:44
  quality companies. Yeah, it's a slight different
• 1:11:46
  approach to, you know, to to to get exposure to the to these
• 1:11:50
  late stage companies. And you know, it's been, it's
• 1:11:52
  been interesting to see, you know, the opportunities that
• 1:11:54
  that we've seen in the enterprises than the kind of
• 1:11:58
  instant markup. So you know, it's been pretty
• 1:12:00
  good. I think you know, I think you
• 1:12:02
  know, there's, there'll be more and more opportunities for
• 1:12:05
  employees. The, you know, the query options
• 1:12:07
  for employees that are going to pop up for the next couple years
• 1:12:10
  that have had in hand with private markets, you know, being
• 1:12:14
  built out with their infrastructure being built out
• 1:12:16
  to more resemble any kind of a public market investing.
• 1:12:19
  So I think you'll see a lot of changes in the next couple
• 1:12:22
  years. I mean, he's got to see it with
• 1:12:23
  the secondary is picking up significantly and then just kind
• 1:12:27
  of having those guardrails. The accounts are standardized.
• 1:12:30
  So I don't think, you know, we'll see some interesting
• 1:12:32
  developments in the next next couple of years.
• 1:12:33
  Well, Adrian, thanks for spending some time with us and
• 1:12:36
  good luck with both the current and the upcoming fund and happy
• 1:12:40
  hunting out there. Hey, thank you so much, Dave.
• 1:12:43
  Thanks for having a podcast. It's a lot of fun.
• 1:12:58
  All right, folks, we're back with another week's edition of
• 1:13:00
  Valuation Corner and we got Weibo stuff to cover that you
• 1:13:05
  ever thought possible because we're covering Weibo and Applied
• 1:13:09
  Intuition. Professor Virgie, can you walk
• 1:13:12
  us through the Weibo evaluation? Yeah.
• 1:13:14
  I think we'll just cover the autonomous driving market today
• 1:13:18
  and just look at some of the big players and talk a bit about
• 1:13:20
  valuations and where these will go.
• 1:13:22
  So let's start with Waymo. So they are, they do develop
• 1:13:26
  self driving cars. They are partnering though with
• 1:13:29
  Jaguar Land Rover and then Chrysler and Chrysler's parent
• 1:13:34
  company Stolantis is their major partners.
• 1:13:36
  Waymos, a subsidiary of Alphabets.
• 1:13:38
  You can find a little bit of information about them in the
• 1:13:42
  Alphabet financials and their KS and QS under other bets, but the
• 1:13:47
  sort of euphemist they call the moon shots category.
• 1:13:50
  So it's a not a wholly owned subsidiary, but the Alphabet
• 1:13:53
  does own about 80% of them. Very limited financial
• 1:13:56
  information about them as results.
• 1:13:57
  But here's what we know, $45 billion evaluation set in
• 1:14:01
  October of 2024. That was a $5.6 billion funding
• 1:14:05
  round which was led by Alphabet, but also had Fidelity and A16Z.
• 1:14:10
  The last evaluation they'd done before that was about 30 billion
• 1:14:13
  way back in 2020, which is really when the solar industry
• 1:14:16
  was getting off the ground in 2025.
• 1:14:19
  In 2025 they have said they're doing about 14,000,000 trips.
• 1:14:23
  So by, by my math and just my experimentation with the
• 1:14:26
  products, I'm, I'm assuming they're averaging around 20
• 1:14:28
  bucks a ride. So I'm going to guess, you know,
• 1:14:30
  2 to 80 million in revenue ish. As we, as we are here toward the
• 1:14:35
  end of 2025, they're probably on pace.
• 1:14:38
  They had a billion annually though in early 2026.
• 1:14:42
  So definitely, definitely hitting a, a significant scale.
• 1:14:46
  If you're running around Palo Alto or the South Bay now,
• 1:14:49
  you'll see a lot more way MO's driving around without drivers
• 1:14:52
  than than you would have even three months ago.
• 1:14:55
  Another company in the same space, Applied Intuition, is VC,
• 1:14:59
  backed by Kleiner Perkins and money from BlackRock.
• 1:15:03
  They're at a $15 billion evaluation.
• 1:15:04
  They're also the developer of a vehicle platform that's really
• 1:15:08
  more designed for simulation and validation for OEMs and for
• 1:15:11
  companies. Their revenues at a billion
• 1:15:13
  dollars now at the end of 2025, they've doubled since 2024 and
• 1:15:17
  that was a double from 2023. So 2 pretty big players in this
• 1:15:21
  space. If you think about the car
• 1:15:24
  market and how to apply these valuations, it's really tricky
• 1:15:26
  to figure out like how revenues and and current profits will
• 1:15:31
  result in market cap. This is the a picture of the the
• 1:15:34
  auto industry here on the screen.
• 1:15:35
  On the left hand side you have Tesla.
• 1:15:38
  They have a market cap of $1.5 trillion, so the entire car
• 1:15:42
  market aside from Tesla is also around 1.5 trillion.
• 1:15:46
  So the market is getting almost half the value of the entire
• 1:15:48
  vehicle market to Tesla today, even though Tesla's got only 2%
• 1:15:53
  share of global cars and maybe 4 to 5% of the US market.
• 1:15:57
  So a very big disconnect between market cap and then today's
• 1:16:00
  market share. The other big player in the
• 1:16:02
  space, BYDBYD and Toyota are the two other biggest car companies
• 1:16:06
  in the world. BYD is also about $125 billion
• 1:16:09
  in market cap on only maybe 3% market share.
• 1:16:13
  Little known fact, maybe for some of our viewers, BYD sells
• 1:16:16
  more cars than Tesla now. They're they're growing quickly,
• 1:16:20
  growing more quickly than Tesla. We'll probably generate more
• 1:16:22
  revenues than Tesla next year. Tesla is projecting, you know,
• 1:16:27
  100 and between 130 and 140 billion in revenue next year.
• 1:16:30
  Perhaps BYD will be north of that, potentially significantly
• 1:16:33
  north of that. So a a bigger car company with a
• 1:16:37
  bigger footprint, not nearly the market cap of Tesla, but that
• 1:16:39
  just speaks to the disconnect between current financials and
• 1:16:42
  then the market cap. And a lot of the market cap is,
• 1:16:45
  you know, what does the what does the future hold for these
• 1:16:47
  companies? So why is it that Tesla and BYD
• 1:16:49
  can be worth so much money in the left hand side of the
• 1:16:51
  screen? The rest of the auto industry,
• 1:16:54
  even though it owns 95% share, the market is, is, is behind in
• 1:16:58
  terms of market cap. Here's the valuation of the
• 1:17:02
  Morgan Stanley did for Waymo a couple of years ago.
• 1:17:04
  And, and this sort of speaks to what the future might hold and,
• 1:17:06
  and why these disconnects happen.
• 1:17:08
  There's a robo taxi business in Waymo, which if you go through
• 1:17:12
  Morgan Stanley's valuation and just sort of think through some
• 1:17:14
  of the assumptions, they could be doing 16,000,000 vehicles by
• 1:17:18
  2040. Just as a, for context, Teslits
• 1:17:21
  to date, even though it's been a, you know, long running
• 1:17:24
  successful company, they have not yet sold 16,000,000
• 1:17:27
  vehicles. They're they're probably between
• 1:17:30
  9 and 10 million vehicles sold to date.
• 1:17:33
  So they get to 16 million even by 2040 is a, it's a long time
• 1:17:36
  off, but there's a lot of work to do to scale a company to be
• 1:17:38
  that big. But if they were to get there
• 1:17:40
  and you put some math around, you know, how many hours each
• 1:17:43
  car drives and how much you can charge on a, on a dollar per
• 1:17:46
  mile basis, you can, you can imagine a 700 billion revenue
• 1:17:50
  company at a 12% margin and a market cap of something like 80
• 1:17:54
  billion on that. Morgan Stanley also said, hey,
• 1:17:58
  there's a logistics business here that we can we can value
• 1:18:01
  and talk about. Again, a lot of assumptions
• 1:18:02
  going up to 2040 and a lot of things can go wrong, but that
• 1:18:05
  could be 90 billion. And then there's a licensing
• 1:18:07
  business, this Stelantis or Fiat Chrysler has a licensing
• 1:18:11
  business in place where you can use their technology and using
• 1:18:13
  that as a comp, maybe that's another 7 billion.
• 1:18:16
  So just using Morgan Stanley's math and you know, me doing a
• 1:18:18
  little bit of analytics on it, it seems like you get, you could
• 1:18:21
  get to a $200 billion evaluation.
• 1:18:24
  Subsequently, after this analysis came out, Morgan
• 1:18:26
  Stanley in 2021 revised it and essentially cut it in half.
• 1:18:29
  And it said if they spin it off today, maybe it's $100 billion
• 1:18:32
  company, not a $200 billion company as the, as the market
• 1:18:35
  shifted. But that's sort of a, a ballpark
• 1:18:37
  for how to think about the sum of parts and, and you know,
• 1:18:40
  whether this robo taxi logistics and licensing business can be
• 1:18:42
  worth worth a couple 100 billion or not.
• 1:18:46
  My main concern I think with this, these businesses is just
• 1:18:50
  what does the market look like by 2035?
• 1:18:52
  You have in the one hand, tech giants like Tesla BYD, you've
• 1:18:56
  also got Navia and neuro and a whole bunch of other companies
• 1:18:58
  that are building this technology, building their own
• 1:19:00
  cars and then and then animating it with their own software.
• 1:19:04
  You then have all these OEMs in the middle, which are some
• 1:19:07
  fantastic car companies and these are people who know how to
• 1:19:11
  build the cars, know how to scale cars, can build 10s of
• 1:19:14
  millions of cars. And and we know they can do that
• 1:19:15
  because they've been doing it for years, which is often where
• 1:19:18
  things breakdown. It's like how do you scale
• 1:19:20
  something from a few 100,000 to 1,000,000 and 1,000,000 that are
• 1:19:23
  now on the road. And you've also had examples of
• 1:19:27
  Honda, which is partnered with one of our portfolio companies
• 1:19:30
  Helm dot AI. Honda will build the cars and
• 1:19:33
  then they will just use the software from Helm.
• 1:19:37
  And so you've got OEMs in the business that are that are
• 1:19:39
  partnered with these specialty providers and that's where Waymo
• 1:19:42
  and then Cruise and Applied Intuition.
• 1:19:44
  But you've also got Lee Ride and Aurora and probably a dozen
• 1:19:46
  other providers who are going to be providing the the mapping and
• 1:19:49
  the software to then work with the OEMs. And then you got
• 1:19:52
  component players on the on the bottom left like Mobileye from
• 1:19:54
  Intel and you got robo taxi providers like Baidu or Amazon's
• 1:19:58
  company Zoox. And all these companies are
• 1:20:01
  competing in the space. So the hard part is like, how
• 1:20:03
  much, what does the market cap of the entire industry look like
• 1:20:06
  in the next, you know, 1520 years?
• 1:20:08
  Where's the value go? Does it go to the tech giants
• 1:20:10
  doing it all themselves? Does it go back to the OEMs who
• 1:20:13
  are working with these new software providers?
• 1:20:15
  How do they divvy up the value? And then, you know, where do
• 1:20:18
  these specialty robotaxi or, or other providers play the space?
• 1:20:24
  And that I think is really hard to tell.
• 1:20:25
  If I think back to, you know, the beginning of the car
• 1:20:28
  industry, there was a lot of value created in the 1920s by
• 1:20:31
  most of my Ford Motor Company. And then the technology just
• 1:20:34
  proliferated, right? And everybody figured out the
• 1:20:37
  assembly line and figured out how to build better cars.
• 1:20:39
  And yet General Motors and you had you had a very, very life
• 1:20:43
  changing technology, the weather, but the value just
• 1:20:45
  diffused into a dozen or probably 20 different companies.
• 1:20:49
  And then those companies had their individual fortunes based
• 1:20:52
  on the market initiatives they chose and how they built their
• 1:20:54
  cars. And it seems to me unlikely that
• 1:20:56
  someone like Waymo or, you know, even BYD or Tesla can just break
• 1:20:59
  away from the pack and maintain that lead forever, Which then
• 1:21:02
  makes you think that these couple 103 hundred $400 billion
• 1:21:05
  evaluations are a little bit of a, a stretch to believe.
• 1:21:08
  I, I think someone like Waymo is a great technology, but I just
• 1:21:10
  don't know how defensible that technology is over time.
• 1:21:13
  So that's where, that's where this gets really interesting
• 1:21:16
  and, and challenging. But if I'm, if I'm an early
• 1:21:18
  better in the space, I probably want to pick more of those spots
• 1:21:21
  and bet the race, not bet the horse, if you will.
• 1:21:25
  And then just see how that shakes out and you know, double
• 1:21:27
  down the bets as they as they become clear.
• 1:21:29
  What's kind of interesting is these companies aren't really
• 1:21:32
  being valued in the same ways. Tesla maybe you know, close to
• 1:21:37
  100 billion in revenue of 25 UID slightly more than 100 billion
• 1:21:42
  revenue 25. But those those companies along
• 1:21:46
  with Waymo are seen as probably, you know, software first, EVAI
• 1:21:51
  first companies where they really are building a lot of the
• 1:21:55
  technology in house. They have the chops to do, you
• 1:21:59
  know, both EV as well as AI. And I think a lot of those
• 1:22:04
  companies are being valued on what they could be in the
• 1:22:08
  future, not what they are today. Tesla's certainly being valued
• 1:22:12
  on what it's, you know, might do in the future, not just the
• 1:22:15
  revenue today. The rest of the traditional car
• 1:22:18
  company, I think is being valued, you know, more based on
• 1:22:21
  profits and revenue and growth like a traditional company would
• 1:22:23
  be. You know, it's it's interesting
• 1:22:26
  because the market cap of Tesla is probably bigger than the rest
• 1:22:29
  of the entire industry are close to it at 1 1/2 trillion.
• 1:22:33
  The rest of the market is 2 1/2 trillion in revenue, but
• 1:22:37
  probably not even 2 trillion in market caps.
• 1:22:40
  So I, I think, you know, there's really different math being
• 1:22:44
  applied to companies like Tesla as a public company, maybe Byda
• 1:22:49
  little bit, but not so much for the rest of the industry.
• 1:22:52
  And I think when you look at private companies like Waymo and
• 1:22:56
  you know, applied to tuition and hopefully our investment in
• 1:22:58
  Helm, these are, you know, more traditional tech software plays
• 1:23:03
  where I think they are, you know, having tech company
• 1:23:05
  valuations that are based on the future, not based on so much
• 1:23:09
  their revenue potential in the short term.
• 1:23:12
  Yeah, which seems appropriate, right?
• 1:23:14
  Like Tesla trades at something like, I don't know, 15 times
• 1:23:18
  revenues and BYD is maybe one to two times revenues.
• 1:23:21
  And then GM and Ford and all these other guys like .5 times
• 1:23:25
  revenues. And so it's a, it's a, it's a
• 1:23:27
  whole different lens. And the question is, you know,
• 1:23:29
  does Waymo have a, they're not building the cars.
• 1:23:32
  So they're not at least not yet. They're partnering with Land
• 1:23:34
  Rover and and Chrysler to build the cars.
• 1:23:37
  So they are just focused on a technology that scales it's
• 1:23:40
  software and it's an exciting category.
• 1:23:43
  And so that seems like you, you apply some tech evaluation to
• 1:23:47
  that. The challenge is how defensible
• 1:23:48
  is that? And do we, is, is in 2035?
• 1:23:51
  Is it, you know, Waymo, BYD, two or three other players and
• 1:23:56
  that's it. This does tech consolidate into
• 1:23:58
  those that group or does everyone figure out autonomous
• 1:24:01
  driving and you know, you've got a dozen different choices like
• 1:24:04
  the audio industry today. And and so the the value, the
• 1:24:07
  profits get bit away to, you know, becomes very competitive
• 1:24:09
  and the profits get diminished. I don't know.
• 1:24:12
  Yeah, I, I think that software becoming more and more important
• 1:24:16
  is how people evaluate and think about cars.
• 1:24:18
  I, I, I kind of go back to, you know, probably almost 20 years
• 1:24:22
  ago when navigation first started coming out kind of
• 1:24:26
  interesting. At the time my, my wife was
• 1:24:27
  pregnant, we were looking for a new place to live and I bought
• 1:24:30
  her a car that had Navi in it with the maps.
• 1:24:33
  I think it was an Acura. And it was just like so much
• 1:24:37
  easier to go look for places, you know, it sounds, sounds
• 1:24:42
  terrible. I let my wife, who's like 6-8
• 1:24:44
  months pregnant, you know, drive around in the car to go find
• 1:24:46
  houses because I was working. But, you know, she was like,
• 1:24:49
  this is the best thing ever, having navigation to nowhere to
• 1:24:52
  go. I don't have to take maps
• 1:24:53
  because she was going to visit a bunch of places that, you know,
• 1:24:56
  we had never been before to look at houses.
• 1:24:59
  And to me, that was like, OK, this is a different way to
• 1:25:02
  evaluate cars. You know, it really is based on
• 1:25:05
  not how the car drives, but the navigation system in the car.
• 1:25:08
  And then later, you know, we started looking at different
• 1:25:10
  navigation systems and clearly, you know, a few companies had
• 1:25:14
  better navigation systems and others and that made a big
• 1:25:18
  difference. And then, you know, you started
• 1:25:21
  to see Google and other software providers offer Google Maps and
• 1:25:25
  other navigation systems that are used in cars and Apple,
• 1:25:28
  Apple play and integration. And now I think, you know, one
• 1:25:33
  of the reasons I bought a Rivian was I thought, hey, this is a
• 1:25:36
  really nice, cool car and I want to check it out.
• 1:25:39
  It's the latest, you know, thing that came out, you know, in EVs
• 1:25:42
  really amazing car. But actually they don't have,
• 1:25:46
  you know, self driving. And almost immediately after I
• 1:25:48
  got my Rivian, I've been waiting over a year on the wait list to
• 1:25:52
  get the Rivian. And I was thinking I was going
• 1:25:54
  to sell my Tesla, even though I really enjoyed the Tesla.
• 1:25:58
  Tesla upgraded its navigation to, I guess, you know, different
• 1:26:02
  neural net based driving than what they've been doing in the
• 1:26:04
  past. And all of a sudden the, the,
• 1:26:07
  you know, I wouldn't say it was amazing, but the self driving
• 1:26:10
  features of the Tesla for like a quantum leap, right?
• 1:26:13
  So just as I bought this new car that was, you know, kind of
• 1:26:16
  cool, hey, I'm going to get rid of the Tesla because I don't
• 1:26:19
  think it's as cool. Tesla kind of got a lot cooler
• 1:26:22
  because of the self driving feature.
• 1:26:24
  And I think now you would say, you know, the UI experience of
• 1:26:28
  software in a car, whether it's the navigation, the overall sort
• 1:26:31
  of systems and certainly the the self driving features as they
• 1:26:35
  get better and better and better, really, you know, it's a
• 1:26:38
  lot more important in how you evaluate the car than just, you
• 1:26:44
  know, the look and feel of the car and the driving capability
• 1:26:46
  of the car. And so that's why I really do
• 1:26:49
  think that it's not, it's not just BS that these companies are
• 1:26:52
  being evaluated on their potential for the future.
• 1:26:55
  I think it's really a lot of the case of like how much software
• 1:26:58
  really drives the experience of a car and, and not just
• 1:27:03
  software, but the user experience of that software as
• 1:27:05
  well. Yeah, so I, I don't think it's
• 1:27:10
  irrational. I mean, maybe the Tesla multiple
• 1:27:11
  is a little crazy, but I think EVs and auto drives and all this
• 1:27:15
  software stuff, there's no going back.
• 1:27:17
  And, and the real question is whether all these traditional
• 1:27:20
  OEMs actually have the chops to do this stuff in house.
• 1:27:24
  And I, I, I kind of don't think that they do.
• 1:27:27
  And that's why we invested in Helm because yes, you know, the
• 1:27:30
  partnership with Honda, not just with Honda potential for, you
• 1:27:33
  know, Volkswagen and others. It seems like, you know, a small
• 1:27:36
  hundred person company of really top engineers can change, can
• 1:27:40
  change the future of a company with hundreds of thousands of
• 1:27:43
  people and maybe even, you know, 5000 years of history that
• 1:27:47
  doesn't have those software engineers on staff.
• 1:27:50
  I I agree. I'm a big fan of Porsche and
• 1:27:53
  Ferrari and all these brands. I'd rather a Corvette.
• 1:27:55
  And I can just tell you the Corvette sounds great.
• 1:27:57
  It's fast, yeah. They still can't get the cup
• 1:28:00
  holder right. And if you can't get the cup
• 1:28:02
  holder right, then all those, all those Tesla touches on
• 1:28:05
  navigation and user experience, it's just not, you know, just
• 1:28:08
  not what they do. So I think, I think there's a
• 1:28:10
  huge opportunity for those guys that they'll have to partner
• 1:28:12
  with these other software providers like like Waymo.
• 1:28:14
  I think that's going to be a huge opportunity.
• 1:28:16
  I agree. Great valuation corner this
• 1:28:17
  week, Aman, thanks for the tips. All right.
• 1:28:20
  Thank you, Dave. See you next time.
• 1:28:30
  I guess this is like Trump used to run a bunch of beauty
• 1:28:32
  contest, kind of say, hey, we'll let you date our supermodels and
• 1:28:35
  then China's like, we don't need your supermodels.
• 1:28:37
  We got our own supermodels. I'm on your clean shaven today.
• 1:28:42
  Look at that look, sparkly and new.
• 1:28:45
  We had a long streak of like market going out where I
• 1:28:47
  couldn't, I couldn't shave, I'm superstitious, I'm a hockey
• 1:28:50
  player. And then as soon as the market
• 1:28:51
  took a little bit of a drop, I took the chance to clean up and
• 1:28:55
  sure enough and work. We're back to a new record this
• 1:28:56
  week. This is kind of like the
• 1:28:58
  opposite of Samson, right? You cut your hair after the
• 1:29:01
  market has lost all its power. Yeah.
• 1:29:03
  Exactly. Exactly right now.
• 1:29:05
  It was a good ride.