Latest / trading places / TP13: Emily Zheng of Pitchbook 📊 | VC Secondaries Hit $95B 🔥 | Ramp $32B 💳

Transcript

TP13: Emily Zheng of Pitchbook 📊 | VC Secondaries Hit $95B 🔥 | Ramp $32B 💳 · trading places

• 0:00
  The biggest take away right now is that secondaries are becoming
• 0:03
  more on par with traditional VC exits like IPO's and
• 0:07
  acquisitions. But now it seems like Microsoft
• 0:11
  and NVIDIA are both antanthropic, so they're they're
• 0:14
  spreading their bets into the other camp.
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  Yeah. I don't know if I agree with
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  your analysis about, you know, 2 camps that are different
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  political one, but I think there's two camps, one that's
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  making a lot of money and the other one that's making even
• 0:27
  more money. Welcome to another episode of
• 1:05
  Trading Places, our extremely terrible, very bad podcast on BC
• 1:09
  Secondary I. Wanted to go through a couple of
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  big news items over the past few weeks.
• 1:14
  It's really been a couple of high risk assets.
• 1:16
  You're right, Bitcoin is down about 35% from its peak, but it
• 1:20
  had peaked in early October over $125,000 from Bitcoin.
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  We're now at 84,000. This is a chart showing the MAG
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  7. This is the a Round Hill ETF,
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  which is a market cap weighted trade in the MAG 7.
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  It had also peaked in October. It's now even though it's up 23%
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  year to date, the MAG 7, it is still significantly down.
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  Over the past few weeks, we've seen the S&P 500 also trade a
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  little bit off. So that's there's, there's
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  negative market sentiment, but it's affecting the higher risk
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  AI adjacent companies. More I think there's.
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  Probably 3 or 4 things going on. There's some weaker macro
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  signals. We've seen jobs numbers have
• 1:58
  been very soft. Consumer confidence is down to a
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  a post 2009 low. Both of those things just came
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  out in last week. Bitcoin is now traded off.
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  Another thing to think about is the Fed, which was supposed to
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  cut rates in about 17 days, is no longer a guaranteed cut.
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  So now that might be a 505060306040 kind of trade on
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  the Fed. And then NVIDIA had a great
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  report where they reported revenues at 6062%.
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  Really blew out their numbers. They really did, but there's
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  some risk and concern, I think for people looking hard at the
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  quality of revenues and the cash flows or some concern over
• 2:33
  whether VAX real or not. So we're just going to go
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  through that, you know, that cycle a little bit and just we
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  should explore what this means for markets and how real this
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  is. Let's just start with the the
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  job stuff. As you know, we're in a
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  government shutdown. So jobs data has been scant from
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  the BLS, but the BLS reports tie very closely to ADP private
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  market reporting. And so even though we're, we're
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  missing a couple of reports on, on, on jobs, the ADP reports
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  should be giving you a pretty good signal where the market is.
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  And they have been reporting 3 the last five months now are
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  negative growth. So we're not in a recession.
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  The economy is growing, but we're in kind of a, a jobs
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  recession, I guess is the way to put it.
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  So we're losing jobs, not gaining jobs.
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  So that all came out in the last couple of weeks.
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  On top of that, you've got Bitcoin trading down from its
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  peaks. As we said, consumer confidence
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  is now at a low. I haven't seen the consumer
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  confidence from the Michigan report hit this low since the
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  2009 recession. So that's, that's kind of, you
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  know, that's kind of a hit on the market because when people
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  don't think they have jobs and prices are too high and there's
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  anxiety over job security or consumer confidence that people
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  don't spend on the things that Dr. earnings.
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  And then let's talk about the Fed for a second. the Fed, if
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  you remember, has said we're going to cut rates.
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  They cut rates in the last board meeting in October.
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  They wanted to intended to cut rates in December.
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  That was a projection, but they're being very data
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  dependent. So when there's no data coming
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  out on inflation or jobs, I guess, right?
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  Must be kind of tough if you're flying blind.
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  It at least makes you think when you start missing 345 reports,
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  what are they going to do? And so now the market seems to
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  be more, you know, 6040 or 7030, whether the Fed cuts not, not a,
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  not a done deal for the Fed Governors have been talking
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  about holding rates constant. So there's like a Fed speak
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  index that Bloomberg puts out that just measure sentiment from
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  the board of directors. And now it seems like it's the
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  most hawkish, meaning they're the least likely to cut in a
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  month. I'll just, I'll just point out
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  that I think there's still a very good chance that the Fed
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  cuts in December. And whether or not they do, I
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  think it's very likely to go forward.
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  I've created a chart here of all the all the Fed voters, there's
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  twelve of them who vote. The green ones are the ones who
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  vote and it's a rotating cycle. There's five permanent votes and
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  then 7 governors who rotate on and off.
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  And I kind of charted the ones from the the doves at the very
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  top. These are the ones that are
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  talking about cutting rates or who voted to cut rates.
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  What I concluded is that like the doves, the doves are
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  definitely in the majority of the 12.
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  I still think there's probably 8 to 10 votes to cut rates.
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  And if it's not this year, they'll probably rotate off some
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  talks next year and working on some doves.
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  So I still feel like the market sentiment overall is, even
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  though it's turned negative, there's still a good reason to
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  to think that the economy is doing OK.
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  The jobs picture is definitely shaky, but the earnings have
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  been very strong. the Fed was going to cut before the Fed will
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  still cut. And then I wanted to talk about
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  NVIDIA for a second because I think this one is a there's a
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  valid concern about Nvidia's report.
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  And if you look at things like their cash flow conversion
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  cycle, it's showing that for the first time in a while, tints of
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  a chink in the armor. And I'll just describe what the.
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  Cash receivable is rising in terms.
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  Of yeah, it's a chart on the page here that shows the blue
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  line is the accounts receivable which is going up.
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  It's at a, you know, at an all time high and then revenue is
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  the green line going up. And so a lot of analysts have
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  said, hey, AR is rising. What does that mean?
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  Your customers aren't paying you as quickly as they were before?
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  And if this. Will gladly pay you Tuesday for
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  a hamburger of AI chips today. Which if your product is in high
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  demand and your capacity constrained and it's flying off
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  the shelves as fast as you can build them, like customers
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  should pay you faster. No, why are they, why are they
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  taking longer? And so there's a legitimate
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  concern about, Hey, what's your AR look like versus revenue?
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  There's a ratio of AR over revenue called day sales
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  outstanding. DSO, any, any CFO who like I was
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  at Sonos, which was a hardware business, any hardware CFO knows
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  what I just said. Any non hardware COCFO just
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  said, what the hell is that day sales outstanding?
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  I don't know what you're talking about.
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  You should go look it up because this is something really
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  important for hardware businesses to understand and
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  inventory. What's the inventory look like?
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  So when those things go up, people are concerned.
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  DSO is the ratio of the AR over revenue.
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  It's gone up from 42 days to 53 days.
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  That's kind of concerning and I understand why the analysts are
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  are right to focus on it. But if I look at the longer
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  trend going back a couple years, I don't see those.
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  I don't see this as a huge concern yet.
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  And I will just tell you having run a high growth hardware
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  business before, this thing is volatile.
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  A few payments from vendors don't clear, they slip to the
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  next quarter. One of their big customers is
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  open AI. We know that open, open AI does
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  not have a lot of cash, right? And So what open AI is probably
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  also contributing to the rise in DSO.
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  I don't think that's a red flag. I think it's more of a yellow
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  flag. So good reason for the market to
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  be a little bit nervous in this week and next maybe doing some
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  profit taking. But I don't see anything in here
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  that's a that's a real concern. Welcome back, stupid viewers.
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  You'll watch anything. Go ahead, change the channel,
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  you'll be back. Let's move on to the rest of the
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  markets. I guess one thing that was sort
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  of notable in the last week was Alphabet released a new version
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  of Gemini, that's their AI product Gemini 3 and generally
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  was acknowledged that that was a pretty positive story.
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  In fact, I would say very positive story.
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  And as a result, Google's stock performance was up almost 7%.
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  I'm not sure what the subsequent days after this, but this was
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  articles on the 19th and Alphabet shares rose almost 7%
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  on Wednesday. And there's a lot of different
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  commentary on Gemini's performance, but two people's
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  responsive notes. Sam Altman, CEO of Open AI said
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  Congrats to Google and Gemini. Gemini 3 looks like a great
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  model. Sam, not always known for his
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  positive comments on competitors and then also Elon Musk said
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  Congrats in response to Sundar Pichai's tweet about Gemini, I
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  guess. Oh, so sweet.
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  I guess nice little sort of Sundar spelled Gemini with three
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  eyes at the end. I guess that's the version three
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  sort of way he's saying that kind of cute.
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  But again, I, I think acknowledged by a lot of people
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  was Gemini 3 really grabbed the attention of everybody and maybe
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  Google, although kind of the birth place of AI was seen as a
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  laggard. But now all of a sudden they're
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  jumping back maybe into attention and perhaps even in
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  the lead, if you believe sort of the reviews of of Gemini 3.
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  So kind of interesting that the release of an AI product drove a
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  pretty substantial increase in the overall stock.
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  If you look at the benchmarks, it's very impressive.
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  They had really fallen behind and AI maybe the last 18 months
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  for their visualization and what they're doing really.
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  And everyone's talking about multi modality, right, which is
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  text and use of audio and visuals and and doing that to
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  collaborate on reasoning and their their use of visuals is,
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  is really, really good, which I guess is you'd expect that from
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  the company that owns Waymo, which is how it reasons.
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  But a year and a half ago they were the ones putting out
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  racially diverse Nazis and American founders.
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  And so the visual reasoning and interface has come a long way.
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  One of the point I want to make is this is all on TP US, right?
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  That's all. There's no, no use of NVIDIA
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  chips in this. Everyone's relying on NVIDIA and
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  GP us for inference and training, but Google is on their
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  own tensor processing units of TP us.
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  They are a big customer of NVIDIA, but they're you think
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  they can now, if they can actually build models like this
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  on TP US, they can use their scarce NVIDIA allocation GP us
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  to power Google Cloud and and that's where you can rent it and
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  make money off of it and support your customers.
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  So I think the implication of the stock price is 1 just the
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  the AI Halo effect and being competent at it.
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  And in fact, in Marco Dieter at it obviously has a lot of great
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  use cases in business cases. But if you can do this on TP us
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  and free up GP us to support your cloud business, which is
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  where a lot of your probably most of your future profits are
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  coming from, then that's a that's a a double whammy.
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  What's the opposite of a double whammy?
• 10:30
  A a double your stock price. Entropic is now raising more
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  money, $5 billion from Microsoft and $10 billion from NVIDIA at a
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  valuation of 350 billion. And in addition to the raise,
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  there was new partnerships that NVIDIA and Microsoft announced
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  with Anthropic. What's notable about this deal?
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  That participation of Microsoft and NVIDIA is notable because I
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  think over the summer I would have said there were two groups
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  emerging in this, in these AI wars.
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  There's Group 1 is Microsoft and Open AI where they had invested,
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  they invested in Open AI and Sam Altman.
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  They were more focused on the consumer and they were aligned
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  with the VCs SoftBank and Thrive and A16Z and Tiger and Founders
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  Fund, maybe more aligned with the Trump administration on
• 11:23
  crypto regulation favoring a federal ban.
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  And then the other group was Anthropic, which didn't have a
• 11:29
  ton of VC money, but had Amazon and Alphabet and the guitar
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  investment authority and didn't seem to be and was more aligned
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  with Google. They were more aligned with the
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  effect of altruists and working with states on regulation.
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  They just seem to be like, you know, two different camps
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  forming around these different products.
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  And ananthropic is also, you know, they've also had a
• 11:48
  significant relationship with Google cloud Neuron and maybe
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  using TP us as was in GP US. But now it seems like Microsoft
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  and NVIDIA are both into ananthropic.
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  So they're, they're spreading their bets into the other camp
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  and, and I guess that means that there's going to be significant
• 12:03
  participation in collaboration with Microsoft and, and now
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  NVIDIA, as I said, is invested in everybody.
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  So this was the one company that hadn't really made a major stake
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  in, but apparently they have now.
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  So that's significant. Now in terms of the the
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  partnerships, it seems like the the sides are are mixing it up,
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  Dave. I don't think it's that
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  surprising that NVIDIA and Microsoft are backing more than
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  one player, at least right now. It seems like Open AI and
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  Anthropic are kind of pulling away from almost everybody else
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  in terms of the amount of revenue being generated.
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  They are making money. They're the leaders now and they
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  have a lot of investors in common, notably Microsoft and
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  NVIDIA. So it is maybe a little bit more
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  incestuous than you know, but what I was thinking over the
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  summer. Willie, who wrote the extremely
• 12:46
  famous phrase a shark on whiskey is mighty risky.
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  A shark on beer is a beer engineer.
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  All right. Let's move on to another story
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  here. And a big primary financing
• 13:00
  round is happening in the market.
• 13:03
  Ramp is raising money from Lightspeed, I guess has raised
• 13:07
  $300 million at a $32 billion evaluation that that's
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  substantially up from their recent evaluation and the
• 13:14
  company passed a billion dollars in ARR, that's up from 500
• 13:19
  million a year ago. So pretty substantial growth
• 13:21
  over 100% on an annual basis. Amanda, do you think that RAMP
• 13:27
  is going to keep ramping? Yeah, the pace of their
• 13:31
  fundraising is tremendous. We're actually going to cover
• 13:33
  this more in detail today in our evaluation corner.
• 13:36
  We'll, we'll deep dive on the round and the company and how
• 13:39
  it's doing. But the, the highlights are that
• 13:41
  they did, if they're at a 32 billion valuation now from
• 13:45
  Lightspeed, as I said, the last valuation was just over the
• 13:47
  summer in July from Iconic at about 23 billion.
• 13:51
  And so they are, they've definitely had a huge jump.
• 13:53
  And even before that in the summer, they'd had a round from
• 13:55
  founders Fund at 16. So they have basically doubled
• 13:58
  their valuation in the matter of about 5 months, which is was
• 14:02
  kind of amazing. And they seem to be on track
• 14:05
  their, their valuation among all the fintechs out there was
• 14:08
  probably the 3rd or 4th biggest fintech.
• 14:10
  Now, I guess the Ant would be #1 Stripe would be #2 Revolute,
• 14:14
  which we covered earlier would be #3 and I think this puts ramp
• 14:17
  right in that, you know, top, top 4 space.
• 14:20
  So they seem to be having tremendous progress and, and,
• 14:23
  and great growth in their revenue and profitable.
• 14:25
  So, you know, maybe justifying the round pretty, pretty pretty
• 14:29
  high valuation terms of the metrics, but we'll cover more in
• 14:32
  our evaluation corner. Pretty impressive, but I guess
• 14:35
  they've doubled their revenue and they doubled their
• 14:37
  valuation. Another company that's back
• 14:40
  raising more capital is one that we've reported on before.
• 14:43
  So Calci raised a billion dollar round and $11 billion
• 14:47
  evaluation. This is up from just around two
• 14:52
  months ago. There was only a $5 billion
• 14:54
  evaluation. So the company's more than
• 14:56
  doubled its valuation in less than 1/4.
• 14:59
  While this round is happening, Calci's main rival Poly Market
• 15:02
  is also reportedly to be raising another funding round at a
• 15:05
  valuation between 12 to 15 billion.
• 15:08
  And that's really just a few weeks after closing a billion
• 15:12
  dollar round and $8 billion evaluation.
• 15:13
  So prediction markets seem to be just jumping, you know, head and
• 15:18
  head in the head in terms of valuations.
• 15:20
  You covered these in Valuation Corner just last week.
• 15:22
  Is it surprising to you that these numbers are stepping up so
• 15:25
  quickly? A little bit.
• 15:27
  I think we gave some of the reasons why last time college
• 15:30
  has been in the US for a while. They got most of their business
• 15:32
  from sports betting. They had done a $5 billion
• 15:35
  evaluation in it was really September, October of 25 for the
• 15:38
  A 16 and Sequoia in the lead and then polymarket came in on top
• 15:43
  of them right and they raised from for the New York Stock
• 15:45
  Exchange and declared the reentering of the US market.
• 15:48
  And so I guess Kalchi is now they're they're one upping
• 15:51
  themselves and leapfrogging a little bit just based on entry,
• 15:54
  polymarkets, entry to the US, opening up that sports betting
• 15:57
  market and then raising the raising the money and finding
• 16:00
  new alliances and signing deals with some of the major leagues.
• 16:03
  So it is definitely a hot space. I would just remind you they're
• 16:06
  they're coming after two big players in the sports betting
• 16:09
  space, Draft Kings and FanDuel. And then just a lot of casinos,
• 16:13
  online casinos and offline casinos with just these guys are
• 16:16
  coming at them. I think just a better, Better
• 16:18
  Business model. So I think the markets realized
• 16:20
  that and how she did feel a bit undervalued over the summer once
• 16:23
  Polymarket set its sights on that 9 or $10 billion evaluation
• 16:27
  back in October. And and now home market's going
• 16:29
  to have to go back and raise at a higher valuation than Kalchi.
• 16:32
  I guess that's like. I guess that's how it works for.
• 16:34
  Yeah, back and forth, OK. And our last primary round that
• 16:38
  we're going to cover this week, there was news that Citadel
• 16:41
  Securities was backing Kraken for 200 million at a $20 billion
• 16:47
  evaluation. I guess that's sort of notable
• 16:48
  that Citadel was the backer and there's certainly a very, very
• 16:53
  large financial player entity. Is this kind of validating that
• 16:59
  Crypto and Kraken are going to have a big bright future?
• 17:04
  Yeah, I think so. I think it's a great, it's great
• 17:06
  news for Kraken. We had said last time that they
• 17:08
  were a really interesting play in a space that really has two
• 17:12
  other major players, finance and Coinbase.
• 17:16
  I in our assessment, we've said Coinbase is really good, but
• 17:19
  it's probably better for beginners.
• 17:21
  Their, their fees are a little bit higher.
• 17:23
  They have more, you know, beginner friendly features,
• 17:26
  maybe not as tight on what advanced traders and pros need.
• 17:31
  And so if Kraken is going to go up against and then finance,
• 17:33
  it's it's own category where it's maybe a little bit less
• 17:35
  sophisticated in terms of its regulation.
• 17:38
  And even though finance has lower fees, they're just not
• 17:40
  available everywhere in the US. They're regulated on a state by
• 17:42
  state level, not a federal level.
• 17:44
  I think Kraken sort of figured out how to navigate, which is
• 17:46
  they want to be federally regulated, very tight on
• 17:49
  security and compliance. They want to have all the
• 17:50
  features for advanced traders and pros and you can trade on
• 17:53
  margin, you can do Futures Trading, they do proof of
• 17:56
  reserve audits. They're very buttoned out.
• 17:58
  And I think that propositions have been validated by Citadel,
• 18:01
  which is like the godfather of everything I just said.
• 18:03
  Citadel is not beginner friendly, but they're a market
• 18:05
  Baker for pros, for sophisticated traders, high
• 18:07
  volume stuff, the deal in very regulated stuff.
• 18:11
  And I think Ken Griffin has been very negative on crypto and
• 18:14
  Bitcoin before. He's he's been in the Warren
• 18:16
  Buffett camp of like this is poison.
• 18:19
  We asked Charlie Munger, we were sitting right there what he
• 18:21
  thought of Bitcoin and he said rat poison.
• 18:24
  Back then it was about 100 plus dollars per Bitcoin.
• 18:27
  Today it's 9000. Is it still rat poison?
• 18:31
  Well, probably rat poison squared.
• 18:33
  Mid Griffin's not been not been that extreme, but definitely
• 18:36
  he's not been a proponent of digital marketplaces, digital
• 18:38
  products. So the fact that he's on board
• 18:40
  now and investing with that infrastructure I think is a very
• 18:42
  big plus for Kraken. So it seems like, you know,
• 18:45
  based on, I guess the genius act on the Trump administration's
• 18:49
  changing perspective substantially on crypto markets,
• 18:53
  sort of feels like there's been a real shift in the market to
• 18:57
  supporting crypto and thus increase in investment, increase
• 19:01
  in valuations for these companies.
• 19:05
  Yeah, I think that's, I think that's right.
• 19:06
  The regulatory headwinds have cleared up a little bit.
• 19:09
  There's still, I think there's still going to be some stringent
• 19:12
  reporting requirements on, on what types of assets can get
• 19:16
  traded and and ownership. If you take that security and
• 19:19
  compliance seriously, then I think they'll be very
• 19:22
  successful. I think someone like finance,
• 19:24
  you know, in order for them to be successful, they're going to
• 19:26
  have to up their game there. Kraken's already the market
• 19:29
  leader as far as I can tell on on that aspect.
• 19:31
  Coinbase now is an SSC registered company.
• 19:33
  So they're also a plus in that category.
• 19:36
  And if Kraken can get a little bit, if they continue to push
• 19:39
  the push their leadership in that position, then I think that
• 19:42
  market's going to open up for them.
• 19:46
  You're space Cowboys what you are. 234 Some people call me the
• 19:53
  space cowboy. All right.
• 19:57
  We're going to shift over and talk a little bit about the
• 19:59
  secondary market. And later on our show, we're
• 20:02
  going to be talking to Emily Zhang from Pitch Book.
• 20:05
  She's going to be covering the Q325 quarterly outlook.
• 20:10
  We'll highlight just a few things from her report and we'll
• 20:12
  talk her more in depth later. So a couple of things that are
• 20:17
  notable from her report. Again, this is a quarterly
• 20:19
  report that Pitch Book produces on the BC secondary market.
• 20:23
  But the size of the venture secondary market is now
• 20:26
  estimated at around $95 billion. And if we look at that in
• 20:31
  comparison to other forms of exit, So here we're seeing the
• 20:36
  secondary market again that's separated into the GP LED
• 20:39
  secondaries maybe about 14 billion and direct secondaries
• 20:42
  about 80 billion, but overall about 95 billion compared to IP
• 20:47
  OS maybe at 105 billion and M&A acquisition that about 107
• 20:53
  billion. So all three of these categories
• 20:56
  about equal in size. But secondary is now kind of the
• 21:00
  third leg of this stool or tripod.
• 21:04
  The size of the secondary market is still growing substantially,
• 21:09
  but the capital under management maybe hasn't increased quite as
• 21:13
  much. Aman, do you, do you think
• 21:14
  that's likely to change? I I wonder why we're not seeing
• 21:18
  the secondary market AOM increase at at the same scale
• 21:21
  that we're seeing the rest of the market.
• 21:25
  Yeah, I suspect it will if the, it seems like from Emily's
• 21:28
  report, it's there's a lot of demand for secondary trades.
• 21:33
  It's an alternative source of liquidity to IP, OS and M&A.
• 21:37
  It's becoming the third leg of the stool.
• 21:39
  And so, you know, the size of that market continues to grow as
• 21:43
  these companies are exploring these these tender offers.
• 21:46
  And it's maybe just a lagging effect that the funds that are
• 21:49
  being raised on the secondary side just haven't yet raised or
• 21:53
  deployed that capital. But it seems like if that's a
• 21:54
  lagging indicator, the good news is the front indicators are like
• 21:57
  this more interest from the companies, more just from from
• 21:59
  buyers and employees and early investors.
• 22:01
  So it seems like that should catch up, right?
• 22:03
  Yeah, I would think so. So secondary markets certainly
• 22:06
  seem to be a significant growth area.
• 22:09
  But at least right now, one thing that's notable is that
• 22:12
  smaller deals are probably underserved.
• 22:15
  There's probably a little bit less attention for the companies
• 22:19
  that aren't on everybody's radar.
• 22:20
  They're also probably a little bit less attention for smaller
• 22:23
  size deals. If we look at the concentration
• 22:27
  in the market, I think we had this from when we talked with
• 22:30
  SIM Desai at Hive, the number of deals that are dominating the
• 22:35
  market is kind of small. The top five companies represent
• 22:39
  over 50% of transaction volume. The top 20 companies represent
• 22:43
  over 80% of transaction volume. If we look at sort of outside
• 22:47
  the top 50 companies, that's really less than 10% of overall
• 22:51
  transaction volume, but that's several 100 companies.
• 22:55
  And so while we hear about Open AI and Anthropic and SpaceX and
• 22:59
  Databricks, you know, we're not hearing as much about the rest
• 23:02
  of that long tail. Just still a bunch of great
• 23:05
  companies, but just not as much. Not large in size and not large
• 23:09
  in transaction value. Hey, what do you think of Lassie
• 23:15
  Hulk? Well, I'm a I'm a animal lover.
• 23:18
  I don't think I'd want to. No, I wouldn't either.
• 23:20
  Russell. Lassie.
• 23:21
  I wish Lassie was my pet. Me too.
• 23:24
  Another story that's happening in the secondary market is a
• 23:27
  company called Hive, which we've interviewed before the CEO, SIM
• 23:31
  Desai and Hive has announced that they were raising a Series
• 23:36
  B round. I guess there's been previous
• 23:40
  reports that might be in the 50 to $100 million size, but he's
• 23:44
  stating a round valuation, free money valuation of 650 million.
• 23:49
  I don't know that anybody is announced as leading this round
• 23:52
  yet. This is kind of them announcing
• 23:54
  on their own platform that they're raising this money.
• 23:57
  And SIM also posted some interesting reference points
• 24:02
  about the recent Charles Schwab acquisition of Forge for $660
• 24:08
  million. I think he's trying to create
• 24:10
  his own cop here. And if we look at the numbers,
• 24:13
  he's showing that Hive has substantially more transaction
• 24:16
  volume than Forge, more than twice as much 458,000,000
• 24:20
  compared to the 212 million. The trading revenue was higher
• 24:24
  15,000,000 versus 12 million. And Hive is profitable whereas
• 24:28
  Forge was not. And I guess he's sort of using
• 24:32
  Forge's acquisition price as his pre money valuation for his
• 24:37
  company. So he's he's kind of like taking
• 24:40
  advantage of all this market activity.
• 24:41
  I guess we we know that Equity Z was also acquired by Morgan
• 24:45
  Stanley and the valuation there was kind of rumoured to be in
• 24:48
  the half a million to a billion range.
• 24:49
  So I think he's justified and seeing two different
• 24:53
  acquisitions at a north of half a billion dollar evaluation
• 24:56
  being you know, justification for his pre money evaluation of
• 25:00
  650 million. But I don't know that I've seen
• 25:02
  anybody publish their own raise without a lead and raising on
• 25:08
  their own platform. That seems very entrepreneurial.
• 25:11
  Yeah, I guess if you have the platform, I think the reason
• 25:14
  people don't do it, I mean, people benchmark all the time
• 25:16
  like this, like hey, Forge sold for you said 660 million, so we
• 25:21
  know that's a publicly listed price.
• 25:23
  Hey, I am richer, taller and have better hair.
• 25:26
  And so I guess I'm going to start the bidding at, you know,
• 25:30
  that 660 ish. And if you have the platform,
• 25:33
  which obviously Hive does, why not eat?
• 25:34
  Why not eat your own cooking and use that to, you know, to
• 25:39
  promote your, your product? I'm sure they're in
• 25:41
  conversations in parallel with other, other leads, but it does
• 25:44
  seem like if you can get, if you can use your own platform,
• 25:47
  that's, that's what they were there for, right?
• 25:48
  The secondary market platforms are there to, to encourage price
• 25:52
  discovery and, and have sellers with buyers.
• 25:54
  And so why not? Literally lifting themselves up
• 25:58
  by their own bootstraps. Hive is now listed on Hive.
• 26:02
  How meta can you get? There you go.
• 26:05
  OK, a few other secondary stories.
• 26:07
  Online marketplace Fair is doing a tender offer.
• 26:12
  They are supposedly raising over $100 million at a $5.2 billion
• 26:17
  valuation. This is mostly for their
• 26:20
  employees to sell shares, perhaps some other internal
• 26:24
  investors as well, but this is pretty sizable tender offer
• 26:27
  about 100 million. That's a pretty good size offer.
• 26:30
  This is a online marketplace, I guess an e-commerce marketplace
• 26:34
  and they focus on wholesale products.
• 26:37
  They're generating something north of 500 million in
• 26:39
  projected revenue or this rumor to be doing so in 2025.
• 26:42
  So that seems like a that's a pretty strong valuation for for
• 26:46
  the company. But if it seems like they've had
• 26:48
  a lot of a lot of success here, so they're they're able to get
• 26:52
  that kind of interest. And our last secondary story is
• 26:57
  going to be a little bit different.
• 27:00
  General Atlantic is investing money in Japanese Unicorn Smart
• 27:05
  HR. This is General Atlantic's first
• 27:08
  growth equity investment in Japan.
• 27:10
  This is for almost $100 million. And this is again a secondary
• 27:14
  deal. But in this case, they're buying
• 27:16
  position from one of Smart HR's investors, Coral Capital.
• 27:21
  And I actually have a connection to Coral Capital.
• 27:24
  This is VC firm that was led by James Riney and Yohei Sawyama,
• 27:30
  and they were previously running 500 Startups Fund in Japan.
• 27:36
  In fact, I hired James about 10 years ago.
• 27:39
  He's been running very successfully one of Japan's
• 27:42
  leading BC firms. This was pretty notable in that
• 27:44
  it returned a 6X DPI for James and Yohei's first fund, and they
• 27:52
  still have about half their overall position in that fund as
• 27:55
  well. So very successful BC Fund and
• 27:58
  I, I think we'll actually be interviewing James in the
• 28:01
  future. Trading Places episode in
• 28:03
  December. But Ted Turner won't let us have
• 28:08
  pets in the studio ever since Banjo Banjo.
• 28:15
  Our last story for the day is a legal update.
• 28:19
  Mehta was in a lawsuit with the FTC and the Trump
• 28:22
  administration. It's been a actually a five year
• 28:24
  case. It started the first Trump
• 28:25
  administration went through the Biden years and and continued
• 28:29
  and a antitrust investigation. The allegation that the FTC made
• 28:36
  kind of the bizarre case that they were making.
• 28:38
  But Mehta had somehow engaged in a anti competitive monopoly by
• 28:42
  acquiring WhatsApp and Instagram in social media.
• 28:47
  And it seems to ignore the fact there are a lot of other social
• 28:50
  media players out there like Byte Dance and TikTok and
• 28:53
  LinkedIn and Reddit and Pinterest.
• 28:55
  But somehow the government looked past all that and said,
• 28:57
  well, they have a monopoly and personal social media, which is
• 29:01
  like, you know, connecting to friends and family, I guess.
• 29:04
  And, and so the only competitor Snapchat.
• 29:07
  Anyway, Judge Boasberg and DC said that that doesn't sound
• 29:10
  right. And he sided with Meta and, and
• 29:13
  essentially throughout the case. And so kind of a big win for
• 29:17
  Meta. I think it's a it's a negative
• 29:19
  for the FTC, but it does seem to reaffirm that the M and A
• 29:24
  especially for big tech companies that are that are as,
• 29:27
  as we've just covered in all of our stories, how competitive and
• 29:30
  internist and this is, it seems like the M and A ability is, is
• 29:35
  now giving a, it's now been given a green light by tech tech
• 29:39
  regulators now to go on and make these types of acquisitions
• 29:42
  without a lot of interference from the government.
• 29:44
  Government will probably continue to try to interfere a
• 29:45
  little bit, but the courts seem to be on the on the side of of
• 29:49
  the businesses on, on this one, as long as you're not doing
• 29:51
  anything anti competitive or raising prices to customers.
• 29:54
  So overall, a really good, really good ruling from Judge
• 29:57
  Boasberg and I think just a positive for the tech industry.
• 30:01
  I guess this kind of cases are really hard to adjudicate.
• 30:05
  I mean, at the time Meta had made two large acquisition ones
• 30:11
  of Instagram and what a WhatsApp.
• 30:13
  And I think it was certainly the perspective at the time that
• 30:18
  Facebook was dominating social media and dominating, you know,
• 30:21
  social media messaging. Facebook itself had the
• 30:24
  Messenger platform. WhatsApp was certainly a very
• 30:28
  significantly large messaging platform that was growing.
• 30:32
  Instagram also had a messaging platform.
• 30:34
  I don't know if it was that large at the time, but certainly
• 30:37
  it had become a large messaging platform.
• 30:39
  Yeah. So I think if you looked at it
• 30:40
  through just the lens of messaging, you might say, well,
• 30:43
  yeah, this is kind of a monopolistic sort of story where
• 30:47
  one player is really, you know, consolidating messaging under
• 30:50
  that platform. I think the other large player
• 30:53
  was probably WeChat, although that was mostly just in China.
• 30:57
  But I think you're probably right that it's hard to say
• 31:00
  that, you know, they were exercising monopolistic behavior
• 31:02
  across all social media. And certainly in the subsequent
• 31:06
  years that have played out, like you mentioned, TikTok has kind
• 31:11
  of risen in stature, some other social media platforms also.
• 31:15
  But I do think there's probably still some legitimate concerns
• 31:19
  about, you know, companies exercising monopolistic control
• 31:23
  in certain areas. But you're you're also correct
• 31:27
  that, you know, the pendulum has swung the other way.
• 31:29
  And there's there's definitely a different position with the
• 31:33
  Trump administration about M&A activity being, you know, more
• 31:38
  or less a fair in the current market environment.
• 31:42
  Yeah. You think that's generally
• 31:44
  better for tech? Well, a couple of thoughts on on
• 31:47
  the way you characterize it. I think it is first of all, if
• 31:51
  you consider the, let's consider the what the, the Facebook case,
• 31:54
  they did acquire WhatsApp and Instagram and in 2012 and 14 or
• 32:00
  or 14 and 12, I guess, respectively.
• 32:02
  And so they did have a, a leading market share in what you
• 32:07
  might call social media messaging.
• 32:09
  But then you've also got, you know, things like you can send
• 32:12
  text messages, you can send I messages, you can there are
• 32:15
  other messaging apps there that aren't specific to social media.
• 32:18
  And you've also got the rise of like telegram and signal.
• 32:21
  So monopolies are very hard to defend right in tact.
• 32:25
  And I think when when if the courts just looked at one point
• 32:27
  in time and said we have a monopoly on, I don't know, on
• 32:30
  social media. That's like short form video.
• 32:33
  And so you go through a five year lawsuit, but the time the
• 32:35
  lawsuit's done, you've got like byte dance and TikTok.
• 32:38
  If now emerged as real competitors or you go after
• 32:40
  Google for search and say they've got a monopoly.
• 32:42
  But then pretty soon open AI brings us to break the monopoly,
• 32:45
  like calling these things monopolies and at a point in
• 32:48
  time and not thinking through the impact on tech is just a
• 32:51
  weird way to regulate. And the other thing in
• 32:53
  antitrust, which has been true for 40 years, is if you have a
• 32:55
  monopoly, but you're not raising prices, you're not being anti
• 32:57
  competitive. The Sherman Antitrust Act does
• 32:59
  actually say it's, it's legal to have a monopoly.
• 33:02
  You just have to have anti competitive practices, which
• 33:04
  include things like limiting choice or raising prices.
• 33:08
  The last Trump administration actually did take a more
• 33:10
  aggressive approach on regulating the stuff.
• 33:13
  They were a little bit they were they were looking at big tech as
• 33:15
  being something that needs to be challenged, even though there
• 33:18
  was no evidence of price raises And the Biden inspiration
• 33:21
  followed that in. And now the new Trump team that
• 33:22
  seems to still be on that bandwagon.
• 33:24
  So I don't know that there's that been that much of a change
• 33:27
  in in temperature on M&A. But I think the courts are now
• 33:31
  more firmly on the side of look, if you're, if you have a
• 33:33
  monopoly, but it's a shift in monopoly in tech and you haven't
• 33:36
  raised prices take away choice, they're not, they're not really
• 33:39
  ruling with the government. So I think that is why that's
• 33:41
  that's a positive for M&A and tech, which is good for exits
• 33:44
  and good for VC backed companies and I think will help the the
• 33:47
  investors and the innovation in the ecosystem.
• 34:01
  Today we have Emily Zhang from Pitchbook.
• 34:03
  Hi, Emily. Hi, thanks for having me again.
• 34:07
  You bet. Yes, we had you on briefly
• 34:08
  before, but we're going to review the primary stage and
• 34:11
  spotlight this time around. We have another person on the
• 34:13
  show today whose name begins with AM, but it does not end
• 34:17
  with Aman. It's not Aman, it's Amber
• 34:21
  Fehrenbecker. Amber is filling in for him on
• 34:23
  this week. I believe he's on daddy duty
• 34:26
  today. So we have a great fill in and
• 34:30
  we'd love to have you give us an update on what's happening in
• 34:32
  the VC secondary market. I know you just came out with a
• 34:36
  new report on Q3 numbers. I guess can you take us through
• 34:40
  some of the highlights and let's take a look at what's been
• 34:42
  happening? Yeah, sure thing.
• 34:44
  So the biggest take away right now is that secondaries are
• 34:48
  becoming more on par with traditional VC exits like IP, OS
• 34:53
  and acquisitions. So what we're looking at the
• 34:56
  secondary value like in total including directs and GP LED's,
• 35:00
  it's $94.9 billion and that's looking at the annualized value
• 35:05
  from Q4 of last year through Q3 of this year.
• 35:09
  And that's pretty big S looking at directly the direct secondary
• 35:13
  annual value that has increased 31% from last quarter and now is
• 35:18
  about 80 billion. And that has really been like
• 35:22
  fueled by the sharp acceleration of rising valuations amongst top
• 35:27
  startups. And there's also just like a
• 35:29
  growing acceptance of secondary sales and the persistent
• 35:32
  liquidity pressure is also really funneling this growth.
• 35:36
  Like using the Anthropic as an example, it's valuation tripled
• 35:39
  from 61.5 billion in March to 183 billion in August.
• 35:44
  And when we're seeing those astronomical like numbers, it
• 35:48
  makes sense that there's a lot, so a lot of secondary activity
• 35:51
  happening. Well, it seems like, you know,
• 35:54
  it's now kind of this 3 legged, you know, tripod or share with
• 35:58
  your, your structure of choice. I guess I wonder if for a lot of
• 36:02
  early investors, both funds and angels if that secondary
• 36:06
  component is even larger because a lot of times those folks may
• 36:10
  not be around or may not you know be lasting as long as every
• 36:14
  company getting to IPO. Also, I'd imagine the
• 36:16
  secondary's might be a little bit broader than the IPO's.
• 36:19
  There's probably more companies that are making up the secondary
• 36:22
  component than maybe just the the select few that get to an
• 36:25
  IPO, right? That's a really good point.
• 36:28
  And Industry Ventures came out with the interesting piece
• 36:31
  recently highlighting how a lot of funds are hiring individuals
• 36:36
  to like advise on earlier exits that are not necessarily IP, OS
• 36:42
  or M&A really access to like buyouts and other types of like
• 36:46
  secondaries in order to like just really focus on their like
• 36:50
  biggest winners. And I think that's going to be
• 36:53
  like a bigger trend as secondaries become more and more
• 36:56
  adopted into this, into the venture ecosystem.
• 36:59
  Yeah, I would. I would imagine maybe for later
• 37:01
  stage firms that you know, enter the investment at series B or C
• 37:06
  or later, they probably do hold to IPO.
• 37:08
  But I would guess a lot of pre seed and seed GPS and BCS may be
• 37:13
  thinking about secondaries as probably their primary exit
• 37:17
  plan. There's probably joking there
• 37:18
  somewhere, right? Secondaries are my primary,
• 37:20
  primary exit at least that's a probably a shorter period than
• 37:23
  waiting. You know, what we're kind of
• 37:25
  seeing now is probably 15 years to IPO at least, maybe not for
• 37:28
  all companies, but for several of them.
• 37:30
  Well, that's pretty, pretty interesting.
• 37:32
  Can you tell us a little bit maybe about what the
• 37:34
  distribution of companies is? I, I, I think from our previous
• 37:39
  conversations with other folks, even though that secondary
• 37:42
  bucket is, is bigger than ever, it's probably still quite
• 37:45
  concentrated in the top 1020 names.
• 37:48
  Is that correct? Yes.
• 37:50
  So there's still really high concentration, especially among
• 37:53
  like smaller investors. So currently there's for the top
• 37:57
  20 companies on Hive, they account for 80.4% of the
• 38:02
  secondary trading volume from Q3 and the top five alone capture
• 38:06
  54.7%. So it's really, really top
• 38:09
  heavy. Wow, top five companies are more
• 38:13
  than half of the overall volume. That's just crazy.
• 38:17
  Makes you wonder about that company after the first fifty.
• 38:20
  Like there's maybe not a lot of volume there, but I bet you
• 38:22
  there's probably 3 or 400 companies that are in that group
• 38:25
  of after the top 50. Well, it really boils down to
• 38:28
  whether you're a very established secondary investor.
• 38:31
  Like if you're someone like Industry Ventures, then you
• 38:35
  would be looking at a much broader group than the top 50.
• 38:38
  But the information asymmetry is still such a big hurdle, and
• 38:41
  that's why we're seeing this really heavy concentration.
• 38:45
  Where? Where do you get most of your
• 38:47
  data? This is coming from Hive here,
• 38:49
  but I guess for the rest of your report you're drawing from
• 38:51
  several different sources, correct?
• 38:53
  Yes. So like in my role at Pitch
• 38:56
  Book, I am in a unique position to really talk to all the
• 38:59
  different players in this market.
• 39:01
  I love talking to platforms, GPS, brokers, lawyers and like
• 39:07
  other service providers and really try to understand like
• 39:10
  the different dynamics across the market and figure out like
• 39:14
  what the actual narrative. So I use a lot of different
• 39:18
  resources and I'm very grateful for all the data providers that
• 39:22
  are willing to share the data. So I, I really think it's a
• 39:26
  comprehensive outlook on electrosecondaries well.
• 39:36
  What other kind of data do you guys have in the current report?
• 39:41
  Yeah. So another really big trend that
• 39:43
  we've been seeing recently is like the rise of SPV's.
• 39:47
  So this chart here looks at capital A data from Q2 and 46%
• 39:53
  of their transaction value was direct, 39% was SPV and forward
• 39:58
  contracts was 15%. And we're really seeing SP VS
• 40:02
  becoming a more cornerstone of secondary investing, especially
• 40:06
  for emerging managers and smaller investors that want
• 40:09
  access to these really high conviction deals.
• 40:12
  But since everyone is trying to pile into such a small number of
• 40:16
  deals, SP VS have really had their time to shine.
• 40:19
  And when we're looking at side cars data, they for the 1st 3/4
• 40:25
  of 2025 compared to 2023, the number of secondary SP VS
• 40:30
  increased by 600 or 82% and also the total.
• 40:33
  Capital raise 82%. Yeah, wow.
• 40:35
  Yes. And the total capital raise
• 40:37
  surged by 1340%. So it's been quite a surge.
• 40:44
  So wait, that's A7X increase in the number of SPBS and a 10X
• 40:47
  increase in volume. Yeah, yeah.
• 40:50
  So there's just so much interest in this space.
• 40:53
  And it makes sense because everyone is just trying to get
• 40:56
  like a piece of the pie, right? I guess it we should also
• 40:59
  mention when you have that section called forward there
• 41:01
  forward contracts. Could you explain and define
• 41:05
  that? I know we've covered that a
• 41:06
  little bit on the pod, but it's always probably helpful for our
• 41:08
  audience to understand what that means.
• 41:10
  On a basic level, is just the agreement to like exchange
• 41:14
  shares in the future. So what you're saying is the
• 41:17
  person who's selling is not necessarily selling today,
• 41:21
  although they're going to get the proceeds today, but they're
• 41:23
  still the holder of record of the shares.
• 41:26
  And I guess they may be doing that for a couple reasons. 1
• 41:29
  might be to avoid taxable events I guess maybe hanging on to some
• 41:33
  QSDS benefits perhaps and potentially also maybe avoiding
• 41:38
  other transfer roefer restrictions, although I I don't
• 41:40
  know if that's always the admitted reason perhaps.
• 41:45
  Right, right. A big trend that I've seen, at
• 41:48
  least in my conversations has been there's a lot more scrutiny
• 41:52
  from startups and SPV's. So startups can actually veto
• 41:56
  potential like buyers of your SPV, especially known syndicates
• 42:01
  is usually where it happens. This is mainly happening it
• 42:05
  seems like with the top startups right now.
• 42:07
  But I I think it might be like done more broadly as these multi
• 42:12
  layer vehicles are sometimes getting a bad Rep.
• 42:14
  There is definitely a time and place for them, but if your six
• 42:17
  layers are moved then it probably is cause for some
• 42:21
  concern, which is why some start-ups like Open AR cracking
• 42:24
  down on it. I think you might have a data,
• 42:27
  some data on single versus double layer SP VS I.
• 42:31
  I, I know there's been that, that rumor about the six layer
• 42:34
  vehicle. I don't think that's that
• 42:35
  common, but I I do wonder how many two layer and maybe even
• 42:38
  three layer SP VS there are out there.
• 42:41
  Yeah. So from CAP lights data,
• 42:44
  currently they have like 83% single layer SP VS versus 17%
• 42:49
  double layer SP VS and that's of June 30th.
• 42:53
  So that's based on their SPV values.
• 42:56
  And like can you talk a little bit more about like SP VS for
• 42:59
  early stage and secondary SP VS and kind of like you know from
• 43:03
  this data it's I guess who's who's running these St.
• 43:06
  VS at the secondary stage. Could you speak to that at all?
• 43:09
  There are primary SP VS. There are secondary SP VS.
• 43:12
  Primary SP VS. Might happen if someone on the
• 43:15
  cap table might get a bigger allocation than they might want
• 43:20
  to take in, and they use that as a way to get give access to
• 43:24
  other people that aren't necessarily the LP's in their
• 43:26
  funds. While secondary SP VS There,
• 43:29
  there are a lot of different ways they can use like platforms
• 43:32
  like Sidecar to like create these SPVS in order to get
• 43:36
  access to certain deals. Like they might get a secondary
• 43:40
  allocation but not want the whole pipe for themselves.
• 43:43
  And they'll create this vehicle to give access to other
• 43:46
  investors who are interested. Yeah, I think, you know, we had
• 43:49
  a great conversation with Sidecar when they were on the
• 43:52
  show about how people are using SPVS.
• 43:55
  And I, I think you're right. Sometimes it's a convenient
• 43:58
  abstraction layer the makes it a little bit easier for the the
• 44:02
  company if they only have one entity on the cap table,
• 44:05
  although sometimes that can create a lack of visibility and
• 44:08
  they may be concerned about that as well.
• 44:11
  But I think for the folks who are managing the SPD's, it's
• 44:14
  certainly a lot more convenient to have that entity be on the
• 44:17
  cap table then maybe their individual fund or syndicate
• 44:21
  directly. And it may also allow them more
• 44:24
  flexibility in the future to both double down and buy more,
• 44:28
  you know, shares or or positions out of the SPB, as well as
• 44:31
  provide liquidity to some of their LP's in the SPB.
• 44:36
  You could even envision a situation where they might sell
• 44:39
  out of their fund to other members of the SPB and they
• 44:43
  could book DPI for their fund while still maintaining the
• 44:47
  overall position with respect to the company.
• 44:50
  And I, I think that's something that could be really, really
• 44:52
  interesting for fund managers in the future where, you know, they
• 44:56
  may buy an initial position, you know, when they're making their
• 44:59
  precede seed investments, they might even follow on at A or B.
• 45:03
  But as that company, you know, if it's successful and gets to,
• 45:06
  you know, series B or later stages, you know, they may get
• 45:09
  into some situations where it's, it's rather expensive for them
• 45:13
  to, you know, buy their pro rata positions.
• 45:16
  And they might end up raising more capital to, you know, fill
• 45:19
  those pro rata positions, which could theoretically come from
• 45:21
  outside their fund. They might want to, you know,
• 45:24
  bring in some other LP's to take up some of those positions.
• 45:28
  They might again, want to sell some of their, their funds
• 45:31
  position to other LP's within that SPV.
• 45:35
  So, you know, we're sort of throwing around a lot of
• 45:37
  acronyms and terms here, but I, I feel like that SPV is a really
• 45:41
  nice kind of like umbrella abstraction layer that allows
• 45:45
  the fund manager to, you know, manage their liquidity while
• 45:47
  still also maybe leaning into the company's, you know, future
• 45:52
  rounds. So they don't have to
• 45:54
  necessarily stop investing in the company while they're
• 45:56
  managing and, and providing liquidity either to the LP's or
• 46:00
  to their own fund. And I, I think that's just a
• 46:02
  really great concept. So SPB's might get a bad rap in
• 46:05
  some ways, but I think as a, as a tool and a vehicle for fund
• 46:09
  managers and syndicate managers to handle liquidity and handle
• 46:13
  follow on opportunities, I I think it's really terrific.
• 46:17
  Yes. And the relationship aspect of
• 46:19
  the secondary market is still very much applicable through the
• 46:22
  SPV's. So especially single layers and
• 46:24
  double layers, there's still a lot of validity for those
• 46:27
  strategies. Yeah, especially for names that
• 46:29
  everybody really wants to get into.
• 46:31
  I I think that's certainly the case.
• 46:34
  Ted Turner. Who's that?
• 46:36
  Ted owns a sorak. He can push us around.
• 46:39
  Even you hope. Well, I don't know.
• 46:41
  What if Ted made you do Xeroxing all day in an apron?
• 46:46
  Another thing that has come up, you know, again, I'm not sure if
• 46:49
  you caught our show from 2 episodes ago, but we, we talked
• 46:53
  to a friend of mine who manages my donor advised fund platform.
• 46:58
  And that's kind of like the equivalent of a philanthropic
• 47:00
  foundation. And a lot of founders and VCs
• 47:04
  may not realize this, but you can donate illiquid assets,
• 47:08
  which could be, you know, stock in a start up or AGP or LP
• 47:12
  interest in the fund. You can donate those to your own
• 47:15
  donor advised fund. And so again, you might have an
• 47:18
  SPV where you might want to have a liquidity event in within that
• 47:22
  SPV that might, you know, generate some taxes for people
• 47:25
  to have to pay. And then you could, you know,
• 47:28
  also donate a portion of that SPV to a donor advised fund to
• 47:32
  offset those taxes. So again, you can sort of manage
• 47:34
  all that within the SPV in this case also managing, you know,
• 47:38
  some tax credits and offsets for the for the gains that you may
• 47:41
  have. Another big thing that I've been
• 47:43
  seeing this quarter and also throughout this year has been
• 47:46
  tailwinds for specific companies.
• 47:49
  So specifically key sectors and companies that had recent
• 47:53
  primary rounds. So we could start off with the
• 47:55
  sectors. Basically, it comes down to what
• 47:59
  the Trump administration is privatizing.
• 48:01
  So we're seeing a lot of AI, aerospace and defense, fintech,
• 48:06
  crypto, national security. We're seeing a lot of those both
• 48:11
  in the IPO side of things and also the secondary market.
• 48:16
  So even though like IP OS overall, like we have been
• 48:20
  seeing a lot of headlines about things coming back, when we're
• 48:24
  looking at the actual counts it's on par with the last few
• 48:29
  years like since since the initial crash basically in 2022.
• 48:36
  Feels like there's more because there was none so exactly.
• 48:40
  Exactly. So we we have some like really
• 48:43
  big headlines like Figma, but otherwise there has been a lot
• 48:47
  of crypto, a lot of aerospace and really specific sectors
• 48:51
  where the IPO window is open for those and not necessarily for
• 48:55
  everybody. And I think that is really
• 48:58
  having its effect on the secondary market because primary
• 49:01
  and secondaries are so positively correlated.
• 49:04
  So that is something that we have been seeing this quarter
• 49:08
  especially. So this chart is looking
• 49:10
  specifically at discounts relative to recent primary
• 49:14
  rounds. So yes.
• 49:16
  So if you raise the primary round since 2024, then the
• 49:20
  median discounts about 0% to 8.5% and this is using forged
• 49:26
  data. And if you last raised during
• 49:29
  2020 to 2022, then the median discounts have been about 33.6%
• 49:34
  to 61.5%. And it makes sense if you had a
• 49:38
  really high valuation during the pandemic era and you haven't
• 49:42
  readjusted to reflect your business fundamentals, there
• 49:45
  will be like a much larger discounts when you are training
• 49:48
  the secondary market. And I guess what we're seeing
• 49:51
  then is, you know, companies that have raised in the last,
• 49:54
  you know, year or so, probably some of those companies are very
• 49:57
  big high demand sort of scenarios and maybe more volume
• 50:01
  is happening in those companies where there might even be a
• 50:04
  premium, not necessarily a discount.
• 50:07
  Yes, yes. So really the strong companies
• 50:09
  right now are just becoming stronger and everyone else, it's
• 50:13
  still been a pretty like tough market and hopefully we're like
• 50:16
  cautiously optimistic that things will be better next year.
• 50:20
  But right now it just seems like there are still a lot of
• 50:23
  headwinds that are preventing most of the venture companies
• 50:26
  from taking full advantage of the secondary market and also
• 50:29
  the extra opportunities I'm. Just going to say, would you say
• 50:32
  the people that the startups that kind of failed to they were
• 50:36
  able to raise that really kind of overhyped valuations in the
• 50:39
  Zerp era in 2021 and then didn't do markdowns.
• 50:42
  Would you say that some of that is kind of coming into the light
• 50:44
  now as we're seeing like the discounts?
• 50:46
  Would that be a fair assumption to say?
• 50:49
  Yes, that's definitely coming to light in discounts.
• 50:51
  And then also like if whenever they do raise their next round,
• 50:54
  I think we're seeing a lot of down rounds as well generally.
• 50:57
  So I think that trend will just like keep on continuing as
• 51:02
  companies finally raising you around and readjust their
• 51:05
  valuations. Come to Jesus moment with their
• 51:07
  valuation. I'm really be honest.
• 51:11
  I bring you like Unicorn IPO this year has had like a down
• 51:15
  round IPO like relative to their.
• 51:19
  So that has happened almost across all of those.
• 51:22
  Yeah, I wonder if we might see, I mean, we certainly see this
• 51:26
  when we're looking at our deals is there's there's definitely a
• 51:29
  premium on the top ten 20-30 names and you know, Open AI,
• 51:32
  SpaceX, Anthropic Data bricks, all those companies.
• 51:36
  But once you get outside the top 3040 fifty companies and and
• 51:40
  there are still some great companies there, you can
• 51:42
  actually get more of a bargain, more of a discount.
• 51:45
  And I think we've we've seen a lot of our transactions are not
• 51:48
  necessarily in those top 2030 names, but they're more in the
• 51:51
  next, let's say 100 to 200 companies where, you know, still
• 51:55
  great companies doing fifty 100 million or more in revenue still
• 51:58
  growing. But I think because those top
• 52:01
  ten companies, 20 companies are attracting so much attention,
• 52:05
  we're actually seeing, we're getting better discounts, even
• 52:08
  better bargains with those next 200 companies.
• 52:11
  And and those aren't really in the category of sort of like the
• 52:14
  2021, you know, 20 busted unicorns.
• 52:17
  This is really what I consider to be, you know, solid
• 52:20
  companies. This is kind of what we call our
• 52:22
  secret stallion, sort of, to use the horse metaphor.
• 52:25
  Still growing, still great companies, just, you know, not
• 52:28
  on everybody else's radar. Yeah.
• 52:30
  I'm curious now to flip the tables on you.
• 52:34
  Like when you're looking at discounts, like there is always
• 52:37
  the concern, at least what I hear from other potential
• 52:40
  buyers, like is this a discount because of just like the
• 52:44
  valuation that they had before? Or are they going to like, is
• 52:48
  this their last hurrah, right? Like, how do you really find the
• 52:50
  difference between what's a good deal and what is like a flash
• 52:55
  sale? I, I think we, you know, people
• 52:58
  always ask us like what's the going discount, you know, for
• 53:01
  deals in the market And we say, you know, usually it depends,
• 53:04
  but what we often are trying to do is our own underwriting to
• 53:08
  figure out what we think the real value is and then we'd like
• 53:12
  to get a discount to that if we can.
• 53:14
  So if it's a recent financing that's happened in the last year
• 53:17
  or two, I would say those numbers tend to be a little bit
• 53:20
  more supportable, more for real. If it's a number that happened
• 53:24
  3-4 or five years ago, those are ones we probably heavily
• 53:27
  discount quite a bit. You know, just to kind of think
• 53:30
  about it. If you look at how the public
• 53:31
  market multiples have changed, you know, looking at SAS
• 53:34
  companies, probably at the height of the ZERP era, they
• 53:38
  were probably being valued at around, you know, maybe 18 to
• 53:41
  20X on a median case basis. Now they're probably being
• 53:45
  valued at six to 8X on a median case basis.
• 53:48
  So that's probably a compression of three to 1.
• 53:52
  And so if you think about it, if the company hasn't tripled their
• 53:55
  revenue in the last four or five years, they probably aren't
• 53:59
  worth that valuation they got back in the ZERP era.
• 54:03
  We are starting to see a few companies now that have had
• 54:06
  markups from their 2020 and 21 valuations, at least in our
• 54:09
  portfolio. We've seen two of those, maybe
• 54:11
  even three of those now, one of which notably is Canva.
• 54:16
  They're now recently at least secondary trades are being done
• 54:19
  at 42 billion, which is above their hard watermark of 40.
• 54:22
  I would still say it's not that many companies that have grown
• 54:25
  3X in the last 3-4 years that that's a pretty high bar.
• 54:28
  The other thing that people should think about a lot more is
• 54:31
  not just the discount, but also what's the amount of capital
• 54:34
  raised that the company has in total and not just equity, but
• 54:38
  also debt. When we think about, you know,
• 54:41
  what's called preference stack of capital, it's kind of like
• 54:45
  last in, first out. So the most recent round of
• 54:47
  capital usually gets, you know, their preference of 1X back
• 54:51
  first and then subsequent rounds.
• 54:52
  So if especially if we're buying common shares for employees or
• 54:57
  we're buying early seed or Series A preferred, we have to
• 55:01
  think about, you know, how do the other later stages of
• 55:04
  capital get paid out ahead of us and, and debt debt will get paid
• 55:08
  out ahead of equity as well. So if the preference stack is
• 55:12
  getting close to let's say 50% of the overall company value, we
• 55:17
  might start getting a little bit nervous about, you know, you
• 55:20
  know, if that valuation comes down in the future, how much,
• 55:24
  you know, capital is going to be left or payouts to early stage
• 55:27
  preferred and common. So it's, it's not just the
• 55:30
  discount, it's also about, you know, that capital stack and of
• 55:34
  course it's about, you know, growth rates going forward as
• 55:36
  well. I always tell people it's better
• 55:38
  to get, you know, a small discount on a fast growing
• 55:40
  company than a big discount on a slow growing company.
• 55:43
  Exactly. Dave, curious how how the multi
• 55:48
  layer SPV comes into pref stack and pref stack economics?
• 55:54
  It's going to be based on the share class of the shares that
• 55:58
  were purchased within that SPVA. Lot of times, again, if those SV
• 56:03
  BS are being bought from founders or employees, they're
• 56:06
  probably common shares, which is the the lowest in that capital
• 56:11
  stack. If it's being bought from early
• 56:13
  Angel investors or early seed funds, it's probably, you know,
• 56:18
  seed or Series A preferred. That sounds like it might be OK,
• 56:22
  but you know, again, if you're, if you have multiple layers and
• 56:25
  multiple rounds of capital, some companies are running out of
• 56:28
  letters of the alphabet for how many rounds of capital had been
• 56:31
  done. But they're certainly certainly
• 56:33
  more common to see, you know, letters GEF and G than we ever
• 56:37
  used to hear about before. You do have to sort of be
• 56:40
  cautious about the fact that in case of these companies get
• 56:43
  bought or, you know, acquired or go public at half their last
• 56:47
  round valuation, all of a sudden the 30% preference stack of
• 56:50
  capital might, you know, escalate to 6070% capital stack.
• 56:55
  And you just start to worry a little bit about does the common
• 56:58
  get paid out those early stages of, you know, preferred get paid
• 57:02
  out the same, the same as later stages.
• 57:04
  So it really does matter what's under the hood in that SPV and
• 57:09
  whether whether those share classes are, you know, common or
• 57:12
  preferred and within preferred what, what stage of preferred.
• 57:15
  And Dave, you made a really interesting point earlier about
• 57:17
  like re underwriting all the assets yourself.
• 57:20
  I just came back from the Super Return Secondary's North America
• 57:24
  conference and it was really insightful to hear that like
• 57:29
  every single time they do not look at the suggested pricing
• 57:34
  and instead of doing all their own underwriting and the spread
• 57:38
  between bids are often very high, like 20% to 30% is like
• 57:43
  very, very common that you'll see in terms of pricing.
• 57:46
  It's very, very like opaque and it's also the ultimate factor
• 57:51
  when it comes to to the secondary market.
• 57:53
  So it's also a a big hurdle. Yeah.
• 57:55
  And I think you're there's another point here in that when
• 57:58
  we're doing the underwriting, how much information do we have
• 58:01
  and how much access do we have. So sometimes, you know, we get
• 58:04
  full transparency. We're talking to the founder,
• 58:06
  we're talking to VCs who are on the board and we do have detail
• 58:10
  about what's going on. Sometimes we don't, sometimes
• 58:13
  the the investors don't have access to recent financials or
• 58:15
  the company is, you know, withholding financials except
• 58:18
  from, you know, maybe the most recent investors and you know,
• 58:22
  board members. We may be flying a little bit
• 58:24
  blind on some of that underwriting and we might have
• 58:27
  to walk away from the deals if we don't have enough information
• 58:30
  to really get a solid underwriting.
• 58:32
  I think the other thing to consider this is more from the
• 58:35
  buyer's perspective or the investor's perspective.
• 58:37
  You know, there's different scenarios where if the company's
• 58:41
  running a tender offer or the company's raising a new round of
• 58:43
  financing, there's probably pretty high fidelity on the
• 58:46
  valuation of pricing for the company in those scenarios.
• 58:49
  And people who are selling secondary at the same time as a
• 58:52
  primary round or selling secondary in a large tender
• 58:55
  offer, there probably is pretty good pricing efficiency on that
• 58:59
  sale. That's good for sellers.
• 59:02
  That's not necessarily good for buyers.
• 59:05
  From a buyer perspective, you'd probably prefer to be in a
• 59:08
  scenario where there isn't necessarily a primary round
• 59:11
  that's happening. But when the sellers are in
• 59:14
  isolated scenarios that aren't in a primary round, aren't in a
• 59:17
  tender or maybe they're selling a smaller, you know, piece, then
• 59:21
  maybe somebody who can afford to hire a banker and run a process,
• 59:25
  they may be at a disadvantage and, and the seller may have an
• 59:28
  advantage. And particularly if folks are in
• 59:30
  a tough spot and they need liquidity on a short term basis,
• 59:35
  might be for some kind of family emergency or medical emergency
• 59:38
  or they have some bills to pay. Again, that might be tough for
• 59:41
  the seller. It could be great for the buyer
• 59:43
  to have a more more efficient or more discounted sale.
• 59:47
  And that those opportunities are even better suited if the buyer
• 59:52
  already owns that startup either through like a primary fund or
• 59:57
  like another existing signaries fund.
• 59:58
  And they're just doubling down because then that like
• 1:00:01
  information hurdle is like no longer there because they
• 1:00:03
  already know what the true price will be.
• 1:00:07
  Yeah. And I think a lot of folks who
• 1:00:08
  are buyers in the secondary market are probably people who,
• 1:00:11
  you know, maybe secondaries aren't their primary job, keep
• 1:00:15
  making puns about secondary primary here, but they probably
• 1:00:18
  feel very comfortable buying positions in as you say, the
• 1:00:22
  companies that they already hold.
• 1:00:23
  And so for a, for a lot of VCs, the current market situation
• 1:00:27
  where people, you know, companies are staying private
• 1:00:29
  for much longer, early investors and, and shareholders may want
• 1:00:34
  to exit a portion of their position and existing VCs may
• 1:00:37
  want to double down and, and build up that position.
• 1:00:39
  And so sometimes now we're seeing new rounds of financing
• 1:00:43
  where a portion of that financing is just, you know,
• 1:00:46
  existing shareholders selling to, you know, existing other
• 1:00:51
  shareholders. And I think that's going to
• 1:00:54
  become more and more common where almost every primary late
• 1:00:57
  stage round is probably going to have a component of secondary in
• 1:01:00
  it. Sometimes companies are doing a
• 1:01:02
  raise where none of that capital is going to the company.
• 1:01:06
  I think Stripe recently did a scenario like that where almost
• 1:01:09
  all the proceeds were going to, you know, employees were I think
• 1:01:13
  to reset some of the options as well.
• 1:01:16
  Secondaries overall are just becoming a very efficient tool
• 1:01:19
  for the market to manage liquidity as these companies are
• 1:01:21
  staying private for longer and longer periods of time.
• 1:01:24
  Definitely agree. So you have to go now.
• 1:01:29
  OK, OK, so I'll talk to you when there is peace in space.
• 1:01:39
  The last time we talked to you, the Industry Ventures
• 1:01:43
  acquisition by Goldman may have happened, but two recent
• 1:01:47
  acquisitions, acquisition by Morgan Stanley and then Forge
• 1:01:51
  Global by Shot recently. What do you think about those
• 1:01:56
  acquisitions? And I guess the other question
• 1:01:58
  would be, do you think we're going to see more acquisitions
• 1:02:01
  in the future? Yeah, that's it's been such a
• 1:02:04
  big topic. I would say the industry
• 1:02:06
  ventures acquisition is in a different bucket than the
• 1:02:09
  equities and Forge global ones. Equities and of course global
• 1:02:12
  are both platforms. They are competitors and this
• 1:02:16
  consolidation really makes sense.
• 1:02:18
  There have been so many new players in this space and the
• 1:02:22
  market is becoming increasingly smaller as there's just more
• 1:02:26
  competition for like a smaller number of companies as we saw in
• 1:02:30
  the concentration earlier. And especially when these like
• 1:02:34
  top startups are just taking their own reins and doing tender
• 1:02:38
  offers or just having more restrictions on their party
• 1:02:42
  cells sales, then these platforms are just playing in a
• 1:02:47
  smaller and smaller pool. So I'm not saying that like
• 1:02:51
  these platforms do have a lot of value, especially when primary
• 1:02:56
  deal making exit activity pick back up and there's just like
• 1:02:59
  less concentration overall. And there's like the market
• 1:03:02
  grows, but it's really hard to weather that storm when the
• 1:03:05
  stalemate has been going on since 2022 and there isn't a
• 1:03:10
  clear exit yet. And by like consolidating with
• 1:03:15
  these larger players that these Wall Street banks are really
• 1:03:18
  focused on investing in alternatives, it's a great
• 1:03:23
  differentiator for them. It's really like making their
• 1:03:26
  pipelines for business development were more robust.
• 1:03:30
  And it's also beneficial for these equities and, and Forge
• 1:03:34
  Global because they get access to so many more clients.
• 1:03:38
  So it is a win win for sure. But it the consolidation is
• 1:03:43
  happening because it's been tough for these platforms and
• 1:03:48
  it's just been tough for venture overall.
• 1:03:50
  And I think it's they're really feeling it.
• 1:03:52
  Yeah, I think, you know, the two platforms that have been
• 1:03:54
  acquired recently, Equisen and Forge, you know, pretty
• 1:03:58
  different situations. I have a feeling, although we
• 1:04:01
  don't know what the number was for Equisen and I I have it sort
• 1:04:07
  of good authority from a little birdie that it was probably
• 1:04:09
  between a half a billion to a billion for the investors in
• 1:04:13
  Equizen and I, I was an investor in Equizen, but we used to be at
• 1:04:17
  500. That was probably a great
• 1:04:19
  payday. I think the company had been
• 1:04:21
  profitable. So, so they were they hadn't
• 1:04:23
  raised around for quite a long period of time.
• 1:04:26
  Forge on the other hand, I think, you know, it was pretty
• 1:04:29
  transparent the numbers because they were public company
• 1:04:31
  already. They went public at over a $2
• 1:04:33
  billion valuation over the subsequent years since the
• 1:04:36
  crash, that valuation came down to, you know, below 300 million
• 1:04:40
  I think at one point. So they were getting acquired at
• 1:04:42
  more than twice, I think close to three times their number,
• 1:04:45
  quite a, quite a substantial premium.
• 1:04:47
  But I the reason I'm bringing up those numbers, I think the one
• 1:04:52
  remaining independent player there, Hive, we had interviewed
• 1:04:56
  Hive a couple times and I think we saw some recent LinkedIn
• 1:05:00
  posts from SIM decide the CEO of high.
• 1:05:05
  One of these posts, SIM announced that they were doing
• 1:05:09
  their own fundraising Series B on their own platform and he's
• 1:05:13
  looking for evaluation, I guess of 650 million.
• 1:05:16
  That's an interesting number that's pretty similar to the
• 1:05:19
  recent Forge acquisition, but you know, in kind of a truant
• 1:05:25
  real fashion. He's doing his fundraising on
• 1:05:27
  his own platform and then he also shared some comparison
• 1:05:32
  valuations with Forge in terms of overall transaction volume
• 1:05:36
  and trading revenue. I think it's kind of interesting
• 1:05:40
  that he's he's doing the diligence on his own company on
• 1:05:42
  his on LinkedIn. Yeah, it's a new age of
• 1:05:47
  fundraising and it makes sense. I mean, if one company is going
• 1:05:50
  to do it, it would be Hive, right?
• 1:05:53
  Yeah, I I think that's probably the big remedy.
• 1:05:56
  He's putting his series B valuation at the exit valuation
• 1:06:00
  for Forge. Is that right around?
• 1:06:02
  I I think he's probably using that as the comp.
• 1:06:05
  Yeah, listen, I mean, I would say their growth is, I know I
• 1:06:10
  always felt like I did my first secondary through time way back,
• 1:06:13
  like right when they launched back in 2022 before they
• 1:06:16
  actually had a platform, I had to do fees, I had to physically
• 1:06:19
  mail a check to Canada for it. So like I think they're a bit
• 1:06:22
  too, I always like they were probably too early.
• 1:06:25
  So even if they did get like some offers, I mean always
• 1:06:27
  everything's for sale, right. But I mean, it kind of makes
• 1:06:30
  sense to jump in on the hike. So he mentioned this before
• 1:06:33
  whenever we had talked to him on the on the pod.
• 1:06:35
  So excited to kind of see where that plans because if anything
• 1:06:38
  take advantage of the timing because there's no better time
• 1:06:41
  than the present, I would assume.
• 1:06:42
  Well, I wonder if he now has two paths to consider.
• 1:06:45
  He's got his, you know, primary raise, but there may be people
• 1:06:48
  looking for acquisitions and he's probably got some good
• 1:06:52
  comps with both Equis and and Forge being recently acquired to
• 1:06:56
  say, hey, we want at least the same number as those guys got.
• 1:07:00
  Yes, exactly. And I'm sure it's other big
• 1:07:03
  banks are getting nervous and trying to figure out who they
• 1:07:06
  can acquire next like. Not that many people left, yeah.
• 1:07:10
  Right. Exactly.
• 1:07:11
  And then like my, I used to work at JP Morgan and I'm curious
• 1:07:14
  like what, what do they have up their sleeves?
• 1:07:16
  Because Goldman Sachs already made a position like they need
• 1:07:20
  to, they need to catch up and make sure they're ahead of the
• 1:07:22
  race. Well, I have a feeling we'll
• 1:07:25
  probably see a few more moves on the table here, maybe before
• 1:07:29
  Christmas or or Thanksgiving. I don't know about before
• 1:07:32
  Thanksgiving, but certainly there's going to be more
• 1:07:35
  activity in 26. I don't think we're done with
• 1:07:37
  these headlines at the very. Well, Emily, thanks for joining
• 1:07:41
  us for the pod. And I guess we'll, we'll have
• 1:07:43
  you on call and maybe keep the hotline open in case another
• 1:07:47
  acquisition happens and love to have you back on again.
• 1:07:51
  Thank you. Great talking.
• 1:07:52
  Talking to you both. All right, we're back with
• 1:08:03
  another evaluation corner. And Professor Virgie, we're
• 1:08:06
  going to be covering ramp this week, correct?
• 1:08:09
  That's right. It is timely because they just
• 1:08:12
  announced a new valuation at a $32 billion number, which puts
• 1:08:18
  them probably in the top five of all the fintech companies.
• 1:08:21
  I think it goes something like Ant Stripe, I want to say
• 1:08:24
  Revolute is now #3 based on their last round, which we
• 1:08:27
  covered before and rampant 32 billion is going to be #4 and #5
• 1:08:31
  on that list. So interesting company, not a
• 1:08:34
  super sexy company. It's a spend management platform
• 1:08:38
  that just integrates all kinds of different finance platforms
• 1:08:41
  around expense management, reimbursements with receipt
• 1:08:44
  matching and bill payments and procurement and some analytics.
• 1:08:47
  It is also not, by the way, an AI company.
• 1:08:50
  I'm I'm sure they're going to build some kind of it.
• 1:08:53
  I think I just. Don't know they proceeded AI
• 1:08:57
  they've they've been building, just quietly building a highly
• 1:09:01
  successful profitable business at over 1 billion in AR.
• 1:09:05
  They've raised a couple of billion to date, which I love at
• 1:09:07
  a 32 billion valuation to have only raised 2 billion to dates,
• 1:09:11
  it means that they're, they don't have a huge preference
• 1:09:13
  stack to to overcome. They have a great investor in
• 1:09:16
  Lightspeed. They're doing this round at a
• 1:09:18
  $300 million total, but 150 is going to be available for
• 1:09:20
  secondary for employees. So they're letting some of their
• 1:09:23
  early employees and maybe some shareholders depending on demand
• 1:09:26
  get out there. They're in the old fashioned
• 1:09:28
  category of like B to B SAS and fintech with, you know, no AI
• 1:09:33
  fairy dust. They're also free cash flow
• 1:09:35
  positive. So there's a lot to like about
• 1:09:38
  this company. They have raised a ton of money
• 1:09:40
  just in the last few months. Their last evaluation was July
• 1:09:42
  from iconic at a $23 billion evaluation.
• 1:09:45
  Before that, in June, they raised from founders went at 16.
• 1:09:48
  So the pace of five months, they basically doubled their doubled
• 1:09:52
  their valuation, which is, you know, which is good for them.
• 1:09:56
  You might ask how do you double your valuation in five months?
• 1:09:59
  Well, this is a, a screenshot from Sacra, which shows that
• 1:10:02
  they have doubled their revenue and actually growing at more
• 1:10:05
  than double at 133% year over year.
• 1:10:08
  So 2024, the end of the year at 6:48 in ARR they're already a
• 1:10:13
  billion plus and that's just in August and we're sitting here in
• 1:10:16
  November. So I suspect they'll be more
• 1:10:18
  like 1.2 billion by the by the end of the year.
• 1:10:22
  So a lot of progress on how they're, how they're growing the
• 1:10:25
  business, which I guess justifies the fact that they've
• 1:10:27
  raised several times in the past years at, at increasing
• 1:10:30
  valuations. They really have had no missteps
• 1:10:34
  in terms of rounds. They had a slight down round in
• 1:10:36
  2022 when the market generally fell and they fell in sympathy
• 1:10:39
  with the market and they were able to raise at a, at a new
• 1:10:42
  valuation and, and in 2022 and then 2023.
• 1:10:47
  But they've raised pretty much every year in the past few years
• 1:10:49
  and it's usually been an up round.
• 1:10:50
  And then this year they've they've done 3 successful rounds
• 1:10:53
  and the last two have been up rounds.
• 1:10:54
  So overall, a really good, a really good story for them.
• 1:10:58
  I want to compare them quickly to Brex, which is another big
• 1:11:01
  player in the space. Brex is at a $13 billion
• 1:11:04
  evaluation, although that's a stale valuation.
• 1:11:06
  Now that's a 2022 round that that Brex did in terms of
• 1:11:12
  revenue and revenue growth ramp is at a billion dollars and
• 1:11:15
  growing at over 100% year over year.
• 1:11:17
  They've got 40% gross margins versus the versus Brexit is at
• 1:11:21
  50%. And so they're they're a little
• 1:11:24
  bit less profitable than Breck's, but they're growing
• 1:11:27
  more quickly. They're growing at 100% versus
• 1:11:29
  Breck's, which is more in the 30 to 40% or maybe 50% range.
• 1:11:33
  They've got more scale than Breck's.
• 1:11:34
  They're a billion in revenue versus Breck's at $700 million.
• 1:11:37
  And so there is a an advantage that that ramp passes in terms
• 1:11:41
  of their the scale of the business.
• 1:11:43
  I think rampant Breck's are both going to be successful
• 1:11:45
  businesses by virtue of being a little bit of different areas
• 1:11:47
  and focus. Breck's is more in the high
• 1:11:50
  growth VC backed company. They offer bank accounts,
• 1:11:53
  something called Breck's Cash and they were able to offer
• 1:11:56
  somewhat higher spending limits than than Ramp and they have
• 1:11:59
  support for global teams and local currency spending.
• 1:12:02
  So it's a little bit more appropriate I think for the high
• 1:12:04
  growth, growth at all costs VC backed type companies.
• 1:12:08
  Ramp is a little bit more SMBs. They integrate with banks but
• 1:12:11
  offer bank accounts. Their history, their legacy is
• 1:12:13
  much more around cost control, expense management.
• 1:12:16
  It's stuff that if you're in a operating efficiency environment
• 1:12:20
  or a maybe a larger business or a lower growth business, that's
• 1:12:23
  going to come much more naturally with the finance
• 1:12:25
  teams. So they're splitting up a little
• 1:12:26
  bit into different types of categories.
• 1:12:28
  I think Breck's moving a little bit more towards these VC backed
• 1:12:30
  companies, Ramp being a little bit more SMB and then moving up
• 1:12:34
  to larger scale enterprises. So a lot of good things to like
• 1:12:37
  about Ramp in this current valuation.
• 1:12:39
  The last thing I just say about them, and this is the negative,
• 1:12:42
  is that it's a very competitive space.
• 1:12:44
  If you are ACFO, you know that you're being pitched all the
• 1:12:46
  time on expense management tools.
• 1:12:49
  On the left side of this chart, you've got a few guys who are
• 1:12:52
  people like Paylocity and Bill, they're doing payments and
• 1:12:55
  they're now moving into this expense management space.
• 1:12:58
  On the right side you have the more pure competitors.
• 1:13:01
  Navon really focuses on travel and and travel expenses.
• 1:13:04
  SAP Concur does all kinds of expense management, but they
• 1:13:07
  integrate with SAP. And so if you don't use SAP,
• 1:13:09
  maybe you don't use them, but then there's Brex and there's
• 1:13:12
  Air Base Spendes does a pretty good job expense 5 went is, is a
• 1:13:17
  good utility tool. They went public a couple years
• 1:13:19
  ago, just got demolished in the public markets much more, much
• 1:13:23
  smaller business not growing very quickly and it have now
• 1:13:25
  essentially become a a penny stock and all this been
• 1:13:27
  obliterated. So that's the one downside to
• 1:13:30
  think to. To Breck's.
• 1:13:31
  Which is can they really you know continue with a
• 1:13:34
  differentiated products in a in a crowded space.
• 1:13:37
  But my suspicion is based on their the growth rates we saw,
• 1:13:40
  it looks like it's ramp Breck's and then everyone else.
• 1:13:43
  We've covered previously Rippling and Deal and I guess
• 1:13:47
  those companies are a little bit more focused on payroll, but
• 1:13:49
  they also cover some spend management and expenses as well.
• 1:13:53
  Was there, you know, going to be consolidation competition among
• 1:13:57
  all these companies in the future?
• 1:14:00
  I don't think so. I think deal and Rippling are
• 1:14:02
  more HR. They will be within the HR
• 1:14:04
  space. I think stuff like payroll, but
• 1:14:06
  also they'll incorporate things like recruiting and, and
• 1:14:10
  reimbursement for contractors and stuff that's a little bit
• 1:14:13
  more specific to what what that is.
• 1:14:15
  I think ramp is much more something get integrated as a,
• 1:14:18
  as a finance team into your account and software, which
• 1:14:21
  which is going to help you with spend management and also things
• 1:14:24
  like issuing corporate credit cards and putting controls in
• 1:14:26
  place. And there's a lot of, there's a
• 1:14:28
  lot of back end fintech optimization that is going to
• 1:14:30
  have to happen. So my guess is ramp and Brex
• 1:14:33
  will do great in that category. I think everyone else will have
• 1:14:35
  a hard time catching up. There may be consolidation among
• 1:14:38
  all the other players in the expense management space.
• 1:14:41
  I think HR is a little bit of its own category because it has
• 1:14:44
  different regulatory compliance get some things like recruiting.
• 1:14:47
  And so that's going to be a just a different category for people
• 1:14:50
  to to compete in. I think ramp is at a scale now
• 1:14:53
  where they they seem to be able to go mass market and broad
• 1:14:55
  market and take on people like S&P.
• 1:14:58
  And for me, if it was former CFOI should like having a little
• 1:15:01
  bit of, you know, choice among these different platforms.
• 1:15:04
  I think having an all in one platform that's an accounting,
• 1:15:06
  that's an accounting software for, you know, for everything
• 1:15:08
  that the finance team needs. It just means you sub optimize
• 1:15:11
  for the little pieces of it, whether it's FPNA, but it's some
• 1:15:15
  treasury management. It's very hard for even S&P to
• 1:15:17
  be good at everything. So I think, you know, I think
• 1:15:20
  there'll be a few standout winners and then the the long
• 1:15:22
  tail will just drift away all. Right, Ivan, thanks for helping
• 1:15:25
  us cover ramp and we'll be back again next week with another
• 1:15:27
  valuation corner. All right.
• 1:15:29
  See you next week, Dave. My also very bad hairstyle
• 1:15:42
  partner Ahmad Virgie. What an awful open yes.
• 1:15:46
  Very bad. That's terrible.
• 1:15:47
  More hair, a little bit more hair is is unlike Samson, I get
• 1:15:50
  my I get my strength for my hair.
• 1:15:53
  Although the. Right we.
• 1:15:55
  Had a tough week in the markets this week, so maybe I should
• 1:15:57
  now. Maybe I should get the haircut.
• 1:15:59
  Dave, the Hawks are on the bottom.
• 1:16:02
  They're they're the ones who are either.
• 1:16:04
  That's some that's some nice graphic animation skills.
• 1:16:06
  I had no idea you had that talent.
• 1:16:09
  It wasn't. It's not even AI, Dave.
• 1:16:11
  This is this is just me late at night going and reading what the
• 1:16:16
  Fed governors are saying and nerding out over likelihood to
• 1:16:18
  vote.