Latest / Unstuck Pod / Solve Problems That Last (Henry Childs II and Jamie Schneiderman)
Transcript
- Jamie Schneiderman: Hi everyone and welcome to the Unstuck Pod. very excited today today to have Henry Childs with us. And I'm going to pass over the reins to Henry and let him share a little bit more about his background, his journey, where what he's doing right now, where he's focused right now, and when we'll start there. Henry, welcome. Henry Childs: welcome. Thank you for having me. This is awesome. So just a little bit about me, Henry Childs. I'm a lawyer. I do litigation. I'm also in private equity, venture capital. to me, I guess people always ask me, you know, talk to me about Henry Childs. I think the best way to explain any entrepreneur is like what big problem am I working on? So to me, the one big problem I've really been working on is the American dream accessible to everyone? And I've worked in the White House trying to solve that problem. I ran a federal agency in the US Department of Commerce. Obviously I thought that law, maybe justice was the a answer. But to me it all boils down to capital, right? So if you look at really the huge societal injustices, we're really talking about a capital problem, whether it be affordable housing, People need more money. Whether it be, you know, jobs, you know, we talk about, you know, people earning more. Whether it be climate, we talk about investments. So what I've been really trying to do is how do we really make that whole, you know, American dream possible? So I've decided to, you know, focus on the area I think I can add some value into, which is really how to get in front of like two real big mega trends. the first is US demographic change. And the second is what I guess everyone's calling the fourth industrial revolution. So very high-level US demographic change census, Jamie Schneiderman: Yeah. Henry Childs: you know, put out this big report years ago that said by the year 2045, the United States will become a minority-majority country. So how do we prepare for that? And the second is the fourth industrial revolution. And this is really the big one that we're living in that really no one is really. tracking. because you know, we've seen this revolutions in the past, Jamie. You know, you know, they happen about, you know, take about 50 years. So, you know, if you're an entrepreneur, you miss the first two, three years, you're fine. But now we're seeing these waves of massive technology change happening like every 18 to 24 months. So if you miss that wave, you know, you you're gone. And you know, we see it with AI, anthropic, You know, we see it with opening AI and we're seeing a lot of businesses really falling behind. And I just think it's gonna get like worse if there's not really major change. So that's really what I'm focused on. The you know, making the American dream possible and those two really levers. Jamie Schneiderman: Okay, so can we cause you I just want to hit on something you said there's a lot, obviously a lot there to unpack. and that's great. The the interesting thing that you said at the very end was and I think a lot of people can relate to is okay, so talk about AI. You talked about anthropic and open AI. I mean talk about a lot of companies missing the boat. can we just talk a little bit about w what do you like? How do you like it's so let me put it a differently. It's all there. open AI is there, anthropic is there, people can access it. What do you mean by that, that they're missing the mark, they they can't get act to like d help me understand that one a little bit. Henry Childs: Yeah, so so really the the major problem for small businesses is they have trouble catching the best way to explain it, these waves of technology, right? And and right now it's just AI, but you go back, it's been fintech, it's been blockchain, you know, it's been energy storage, it'll be quantum. We'll be talking about quantum computing in the next two years. And the issue is they don't have hundreds of billions of dollars to throw at R and D. And they don't get hundreds of billions of dollars from what we call venture capitalists, which are really private equity firms masquerading as venture capitalists nowadays. So the question is if you don't have the RD and you're not getting that investment, and you've really only chances try to rely on maybe a government grant, what do you do? How do you really compete? I mean, in the past we were worried about monopolies, right? But that was like, hey, how do we keep these big businesses from growing too large? But now the real issue is capital is a big monopoly. And if you're not getting, you know, $100 billion from one of these Silicon Valley venture funds in your infancy, how do you grow? And I think that's the question we really need to start talking about, you know, in America, especially but all over the world, because basically they're monopolies at birth now. I mean, look at O open AI, look at the valuation. They're talking about anthropic going having an IPO. Just look at the valuation. They're talking about a trillion dollar company before we're even talking about revenue. I mean, it's never be we've never talked about this before. Jamie Schneiderman: No, and so in your view, the issue, so, so when you talk about access to capital, it's the the concern is okay, there are ha so much like we talk about people and haves and have nots, right? Henry Childs: Mm-hmm. Jamie Schneiderman: You're talking about essentially the same thing, which are haves and have nots from a business perspective. and sounds like the way you're describing it, that the vast, vast, vast majority of companies. smaller companies for sure fall into the have not category. and that's gonna put them way behind. So what do you do about that? Like how how how do you fix that? How does that work? Because you know, everyone will just say it's capitalism and somebody else jumped in and they figured something out and they built it and that door is open to everybody. So what are you talking about? It's not fair and it's not, you know, it's It's same playing field. Everyone has it. So so what's what's first of all, what's missing, I guess, and what do you do about it? Henry Childs: Yeah. So w what's missing is intentionality, like really attacking the problem, not closing our eyes. I mean, the invisible hand, let's just face it, like we know what the hand is and it's very visible at this point. And in the past we left it alone because the whole thing is we don't want government interference and any other stuff, right? But the issue is and i it's not just me saying this. If you listen to like, you know, Alex Carr from Palantir talking about, you know, what, you know. AI is doing just in Silicon Valley. it's it's you really just have a what I call a country club problem right now. You know, all the capital is going to Silicon Valley. You have the same big firms investing in the same type of companies. Now it's AI. They're all chasing the same return profile. And then they say, you know, we're differentiated, and it'll name like three or four different ways. But Basically, that's the model. And the question is, what happens if you're not part of that country club? What happens if you live in Austin, Texas? What happens if you live in New York? What happens if you live in, you know, Atlanta, Georgia? Or what if you're trying to develop something, I don't know, actually unique, if that's not AI related? How do you convince someone like, hey, we want to tackle like this pr this problem, like I don't know, clean water or something? Like that's a really big issue is that everybody's chasing the same unicorns. And these unicorns are getting bigger and bigger. Jamie Schneiderman: So then let's talk about the second part of this, which is how do you w what do you do to change that? Cause back to your point about money and where Henry Childs: Mm-hmm. Jamie Schneiderman: the money is, right? It's always the the the market's always been driven by, well, that's where the money is, that's where I and and you know, this is where investment is, this is what it what it looks like. But you know, venture investors are acting in their own best interest. This is my model. This is how it works. This is why I'm doing this. Again, I'm not I'm simply pointing out what's there. and I just wanna how how would you change that? Like how do you Henry Childs: Yeah. So I I I think the way you change it is you actually just look at the data. Let's just talk about the assumption that the venture capitalists say that they're very successful. I mean, Jamie, you know this. I mean, we're if we're talking about like the top quartile firms, like they're batting percentages like twenty to twenty-five percent. So that means they're missing on seventy-five percent of the investments that they're making. And this is with all the information, this is with billions of dollars to deploy. This is with the smartest engineers, the smartest analysts in the world, and they're still missing three out of four times. And those are the best firms. Okay. I'm a I'm a I'm an attorney. If I if I lost 75% of my cases, I would be out of a job. I certainly wouldn't be bragging about the best. So to me, the way you solve for it is you have to realize that the conventional wisdom is wrong. And that's why I built my whole business on the unconventional wisdom, which is what are we missing? Like first principles, what are we missing? I think what we're missing is venture capitalists all they say that they're investing in the future. They say the model is you look 10 years out, you come back. What has to be true in 10 years in order for these investments to work? But they're not doing that anymore. They're just like I mentioned, they're chasing waves. Four years ago, everybody was like convinced it was gonna be fintech, and then it was like blockchain. You have to invest in blockchain. Now it's AI. But the question is, and I think Jeff Bezos said it worse, is you invest in what won't change. And what won't change is we know America is getting more diverse. We know small businesses need more capital. And we know that we're becoming that the climate is not, you know, it's getting hotter. I mean. I mean t I mean, just walk outside. I don't I don't need to explain that. So to me, Jamie Schneiderman: Yeah. Henry Childs: your investment should be based on things that you know aren't going to change. And that's w really the model, the only model I think that's gonna work. Jamie Schneiderman: Okay. So now let's jump into you talked about what you do or or how it drove you to what you do. So let's talk more about what you do, in more Henry Childs: Yeah. Jamie Schneiderman: detail and how you're impacting it. 'Cause I I think it's important and relevant to all of the things that you just I I assume to all the things that you mentioned, right? Henry Childs: Yeah, so in 2020 when the pandemic hit, I was running the minority business development agency in the US Department of Commerce. And we were, you know, doing great things. We were very excited. The pandemic hit, and then we saw, you know, 40% of, you know, black and Hispanic owned businesses just were getting just they just went under c for the pandemic because they couldn't, you know, compete in a world where people can physically come into your store. They weren't ready for this new digital world. So I left commerce and I decided, hey, the way I can really make an impact is I want to raise and deploy $1 billion in first-time funds that are going to start investing in these businesses that, you know, are at most risk. So was very happy to do that, you know, very successful. Work with three funds. I ended up raising half a billion of dollars in from 2020 to 2024. And I'm kind of continuing that work, but I wanna I'm expanding that to basically all small businesses now because you know, whether you're a business, you know, in rural America or you're a business in the deepest inner city, you still need the same things. You need capital, you need people, and you need a model that's gonna survive these trends. So that's where I'm highly focused. I'm doing a lot of fundraising, doing a lot of fun formation, and then I'm, you know, really trying to help them get ahead of these waves. Jamie Schneiderman: And and how does your structure work? I mean, you you talked about venture getting it wrong three quarters of the time, but trying to obviously hit not just the home run but the grand slam with the remaining in the remaining twenty five percent. I assume your model is different, broadly speaking. So so how does your mo how does your model work? How does it work for you and for the businesses? What does that look like? Henry Childs: Yeah, so I live in Bell P Palo Alto, California. So I'm very lucky. I call it, you know, getting a glimpse of the future. We see things, you know, I think at least four years before anyone else in the country sees it. So my model is really based upon to me, I think the investment thesis is the most important thing in a fund. I know a lot of people think it's, you know, size, and that may be true in private equity, but in venture, it's really the investment this thesis and it's what's sticky. So to me, I spent a long, long time with these fund managers thinking about what can survive in 10 years. Because if you're if your model and venture is, you know, we're gonna start getting returns years seven, eight, nine, ten for an exit. The only number one, you have to get an exit. And number two, you have to be able to get an exit that's gonna return capital back to the investors. And I just don't see it happening because people, again, they're chasing trends. And they're not chasing things that are going to actually be worth something in seven, eight, nine, ten years. So that's to me the secret sauce. And I know you want me to give a magic, you know, hey, here's a formula. And that would be great. Jamie Schneiderman: No Henry Childs: But to me, you have to back, you know, someone who's truly building something new and to truly building something that can last. And it's, you know, entrepreneur by entrepreneur. So I've invested in climate fund. I've worked with people who are investing in the lower middle market, people who are investing in small businesses, but all the thing that does not change is these are funds that are gonna be able to survive ten years and return capital back. Jamie Schneiderman: I see. So so it's similar so and I'm just trying to I was trying your your point about the waving list, sort of the magic wand, what's the what's the secret spe secret sauce? what I hear from you, I just want to make sure that I'm understanding is you are acting as a venture capitalist, but sort of more traditionally the way venture capital was intended to be, which is we're allocating capital, we're allocating it to businesses with longer growth horizons or longer build horizons, but with a strong thesis around these are businesses that have staying power for for a whole range of reasons. So there's no trend, I mean, other than you talk about climate climate or, you know, how do you cope with some other pieces, but they're always going to be like change and other things are always going to be there. So you're still looking for large scale, call it fund returns or call it the kind of fund returns that you would expect or hope for from venture capital. You're just deploying very, very differently. That's the difference for you. Henry Childs: That is correct. Jamie Schneiderman: All right, interesting. And so how do you how do you find the folks or find like find the opportunities that fit into your thesis? Henry Childs: So yeah, fortunately for me, I have a I have a huge network. Like when I was working in the government, I literally had access to eight million businesses. And that that was my my whole job in the White House and at commerce was working on American competitiveness for small businesses. So people know who I am, they come find me. I travel a lot. So the good thing about traveling is I get to see where the world is as opposed to where it's going. and then most importantly, like I mentioned, it's like I I live in the future in Palo Alto. Like I walk outside like walking outside and you see cars driving themselves. You know, you drive literally one mile, you see Palantir, you drive another mile, you see Facebook. It and it's it's just nothing new. But then when you go to another part of the country and it's like, my gosh, it's not it's like you're living like an analog. so I just think it gives me a unique view and people. People know that the things that I work with that the the funds that I advise, they know that I'm committed to staying with them throughout the whole fund lifecycle. What you see a lot now is you see people in like the A and then those same people aren't in the B's and the C's because they just don't have the capital to get in. I Jamie Schneiderman: Yeah. Henry Childs: stay with my funds the entire time. Jamie Schneiderman: amazing. Okay. So that's fantastic. So okay. So can you tell me? So so I get what you're doing and how you're looking at it. So now let's be let's take it the flip side and look at a business, right? So I'm a business owner. I'm trying to build I'm trying to I have a business, I'm trying to build a business. What and maybe I'm not the flashy latest and greatest the right AI, the the new AI gotta be a unicorn world or quantum computing, like as you said, w how should I think about my business? How should I think about who to get to, how to find them, what to be looking for? Like what what what would you tell somebody who's on in your sort of call it target group? Henry Childs: Yeah, I I g the first question I always start with is why are you in business? And to me it it sounds like a really silly question, but the answers I often get is, I just wanna work for myself. I don't want a boss. Or someone will say, you know, my dad, you know, ran, you know, a tire shop. I wanna like run a tire shop. So they're so once you start getting those answers, you immediately be like, you know, those are firms that Henry Childs cannot help, right? But if someone has an idea of like, you know what, Henry, I see that, you know, Earth is, you know, about, you know, I don't know, 75, 80% water, whatever it is. And I just don't understand why I'm paying $10 for a bottle of water. It just doesn't make any sense. Now that is the type of question I take seriously because it's not only a question that, you know, you could see that there's a market for, but it's also a question that you see, again, that's a problem that will be there in 10 years. which is clean water because this planet, I mean the water is getting worse and worse. So to me, I think it it you have to have an idea that's serious enough to for people invest in. And then number two, like I keep saying, that has durability. And once I see those two things, the first thing I'm gonna try to do to answer your question is who do I know who is interested in funding stuff like this? And then I make those connections. Jamie Schneiderman: Interesting. Okay, got it. And now I assume that for some of the things you're doing, there are places where there or investing in I'd say that there's a place where AI and some of the newer technology comes about to help solve the problems. That not that you were ever against AI, but I I imagine that that's where sort of the the convergence happens between tech and solving a meaningful problem. Is that is that how you were thinking about it? Henry Childs: Yeah, I look, I you will not find a bigger person who believes in the future of technology than Henry Child's right. So I'm not one of those people who are like anti this stuff. What I'm saying is I think people are over investing in it because they don't understand that this is just the next wave. I I mean people are acting like this is like the the technology to rule all technology, the the elusive AGI. This is the last one. This is Skynet. Like, there's not gonna be anything else. And it's just not true. Because the same thing I hear about, you know, blockchain. Like, if you really if you talk to the engineers who you don't read about in the papers, who aren't, you know, traveling the world, the real ones in the bunkers, as I call it. They're talking about quantum computing and they're talking about this thing is going to be able to break into all the things you think are secure now. So all your little, you know, Henry, I have my, you know, I'm working on my clod, but you know, I said don't share my data with anybody. Like, like, okay, that's great. But when this next technology comes, that won't be safe. And then after that, there will be another. So my thing is to see the waves as soon as they happen, because again, if you miss that. first what I call infancy period, the first six months, you're done. There's no catching up. And B, be able to throw a whole bunch of money at it when it comes up here because you're going to have to build the physical infrastructure to house this stuff. Jamie Schneiderman: Wow, I love it. I'm so exc like it's like it's like exciting, right? Like you're you're funny. It's like Henry Childs: That's exciting. Jamie Schneiderman: you're you're actually I mean, the I I love the discussion around less about just straight technology and more about problem solving. I think that's kind of the Henry Childs: Yeah. Jamie Schneiderman: root of all things. and I think that's sort of where the beginning, if you go back it's funny, you're like, I'm in Palo Alto and this is what it is. And I really think it started as how do we solve really big problems and then it probably shifted over time to, you know. a little too much, I mean, I know it was always built around technology, but maybe a little too much shift into the technology, the technology, and forgetting the why, why behind the technology. and that's not everybody. So I'm glad it's it's amazing to hear that you're doing stuff that is really, really fixated on on that. so if somebody so so let me ask a question. So you've got guys who are building real businesses. R real excuse me, real businesses and solving real problems. Is there anything that you see that the you know, you look at a lot of companies, you see a lot of businesses. Anything that you see folks doing, I say wrong or they they're making certain mistakes and you think that if they knew better, it would make things a lot, it would really help them and move the needle? Henry Childs: Yeah, I think I think everyone is chasing money instead of chasing the idea and the project. Like if you look at like historically, I mean just think about Google. I mean, Google wasn't when they started, they weren't thinking about world domination. They was thinking, man, I have a really cool idea. How can we make like this search thing like go? And they were like in a c you know, simple idea. But now I think that people just feel like Everything has to be perfect to get money. I mean, people are are are like literally like hiring people to do their pitch decks for them, Jamie. Like it's insane and I'm being serious. Like because if you if they feel like if you're not perfect, if you're if here's the thing, if you're not a repeat founder who's built something substantial, then you are way behind everybody else in Palo Alto because the big firms and I don't want to name them, they wanna invest in founders who have had successful exits. That's number one. Number two, if you don't fit that model, you have to have an idea that they can say literally it's gonna be be a they're talking about trillion dollars caps now. And if you can't explain that, it's not even worth their time investing in you because their whole model, they're not they're not venture. Their whole model is built on, you know, AUM. And that's what I'm saying is basically private equity. They're just talking about how much money they can raise and how much money they can throw. and your Bs and your C's and that's the game. So I Jamie Schneiderman: Mm-hmm. Henry Childs: the way I talk to investors is, hey, like, you know, what do you what do you what is success look like to you in the first three years, right? Like how what can you take? Because if these foot firms aren't coming to you, you have to have some type of stickiness and you're going to have to do the old fashioned model, which is build something to where they have to start giving you money. Because it's not going to be about your idea at that point. It's about this works. Jamie Schneiderman: I love it. That's such a good place to okay. So where do people find you? How do people find Henry and you know, learn about you, get more contact you, whatever that is. Henry Childs: Yeah, you can find me on LinkedIn, Henry Childs 2. I have a website, Childs Adventures. I'm all over like Instagram, Henry Childs 2. so I'm I'm I'm out there. You just Google Henry Charles the second and you'll find me. so and hopefully through this this Jamie, people start Jamie Schneiderman: Yeah. Henry Childs: searching for you and find me. Jamie Schneiderman: That would be no, listen, that would be great. And I certainly I you know, I think about okay, which clients do I have that I can should direct, but but yes, I think that's I think is awesome. listen, Henry, thank you so much. This is really fantastic. I was great and I love there's nothing more exciting for me than hearing about someone who says, I want to fund companies that are solving really meaningful problems. you know, wow. Like That's really exciting. Like that just is an exciting thing. and there should be more of you. and so anyway, it's great. It's great to hear and great to see. So I appreciate the time. And so thank you for being on. I really enjoyed it. And to everybody else who's watching and listening, until next time. Thank you. Henry Childs: Thank you.