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Jan. 14, 2025

E129: The Number #1 Predictor of Startup Success w/Ken Smythe

E129: The Number #1 Predictor of Startup Success w/Ken Smythe
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In this episode of How I Invest, I connect with Ken Smythe, founder of Next Round Capital, to discuss his journey in private markets, lessons from hedge fund management, and the future of thematic investing. Ken shares insightful stories about spotting talent, using key executive moves as signals for investment opportunities, and the rise of AI and defense technology. We also explore the challenges facing venture capital and private equity in today’s market, including liquidity bottlenecks and the hunt for alpha in a rapidly evolving landscape. Ken's personal story of resilience and his passion for innovation shine through in this inspiring conversation.

Highlights: Key Signals in Early-Stage Investing: Why tracking executive moves from established companies like Apple or Stripe to startups can offer a major edge in spotting emerging opportunities.

AI's Evolution: The current state of AI innovation compared to the early days of the internet and the need for sustainable business models to monetize AI advancements.

Defense Tech: How startups are disrupting traditional players like Lockheed Martin and General Dynamics with cutting-edge technologies tailored to modern battlefields.

Hedge Fund Insights: The importance of diversification, risk management, and identifying specialized talent in building successful multi-strategy hedge funds.

Secondary Markets: The growing role of VCs, family offices, and retail investors in accessing shares of companies like SpaceX and how liquidity challenges are reshaping private equity strategies.

Thematic Investing: From AI chatbot agents to defense technology, Ken outlines the trends and themes that he believes will dominate in 2025 and beyond.

Personal Resilience: Ken’s inspiring journey of launching his own firm amid personal challenges, underscoring the importance of seizing opportunities and living with purpose.

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Guest Bio: Ken is the founder of Next Round Capital, a firm specializing in secondary investments, co-investments, and niche opportunities in technology and AI. With a background in hedge fund management and a focus on thematic investing, Ken leverages his deep network and expertise to identify groundbreaking opportunities in private markets. He is passionate about innovation and building meaningful relationships in the venture ecosystem.

Our Podcast now receives more than 200,000 downloads a month. Are you interested in sponsoring an episode? Please email me at dweisburd@gmail.com.

#VentureCapital #VC #Startups #OpenLP

--

Stay Connected: X / Twitter: David Weisburd: @dweisburd

LinkedIn: David Weisburd: https://www.linkedin.com/in/dweisburd/ Ken Smythe: https://www.linkedin.com/in/ken-smythe/

Links: Next Round Capital: https://www.nextroundcapital.com

Questions or topics you want us to discuss on How I Invest? Email us at dweisburd@gmail.com

(0:00) Episode preview (1:37) Key Executive Movements in Tech (3:38) Adverse Selection in Venture Capital (4:35) Investment Trends for 2025 (6:27) Focus on Defense Technology Investments (8:06) Managing Liquidity in Venture Portfolios (10:36) Analyzing SpaceX's Investment Potential (11:45) Hedge Fund Insights from a $5 Billion Experience (14:37) Strategies for Recruiting and Evaluating Portfolio Managers (24:50) The Art of Referencing and Backchanneling (26:01) Spotlight on Next Round Capital (27:39) AI Investment Landscape Analysis (28:34) Business Model Significance in Tech Sector (29:52) Closing remarks
Transcript
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Last time when we spoke, you'd told me about
the strongest signal that you see for a new

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00:00:05,599 --> 00:00:06,080
company.

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00:00:06,080 --> 00:00:07,139
What is that signal?

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00:00:07,519 --> 00:00:14,799
The signal for us has, especially in recent
time, has been key executives that leave large

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00:00:14,799 --> 00:00:17,595
private companies to join early stage startups.

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00:00:17,655 --> 00:00:23,255
If the head of engineering at Apple is leaving
for a startup and has been there 17 years, we

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00:00:23,255 --> 00:00:24,554
want to know about that company.

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00:00:24,614 --> 00:00:29,969
And because we have the relationship with that
executive, we oftentimes get introduced to them

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by the management team and start understanding
what that early stage startup is doing and get

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00:00:35,090 --> 00:00:39,729
a very good look inside where other investors
mainly haven't even heard about the company.

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And I think the best example of that was in
2019, we were approached by an executive to

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help him liquidate $35,000,000 worth of Stripe.

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We asked him, well, why are you selling, and
why are you selling this much?

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He goes, well, I'm leaving the company.

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I'm joining something pretty exciting called
OpenAI.

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And at the time, people had not really heard of
OpenAI yet.

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It was a completely new concept.

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We did some work on it and actually started
getting to know what OpenAI was all about and

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chat GPT.

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Had we not had that signal from the executive I
mean, VCs weren't even really heavily involved

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at that point.

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There was very little knowledge of this
company.

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And due to the fact that we were able to build
a relationship over a many month period, we

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started understanding that that that OpenAI and
ChatChiciti was gonna be a very, very big

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thing.

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And the only reason why people would go there
and leave such a successful startup as Stripe

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would be that they figured this opportunity was
much larger and had much more upside than

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staying where they were.

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You mentioned that a Sequoia or Andreessen
Horowitz may not be as strong of a signal.

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Why is that?

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The large VC funds are managing 10, 20,
$30,000,000,000.

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So to say that you're leading around with, say,
a $5,000,000 check when you're writing many

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multiples of those $5,000,000 checks across
your portfolio sometimes isn't a a a strong

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signal because the VC firms themselves are so
overcapitalized.

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If that bet doesn't work out, it generally does
not affect the returns.

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It's really kind of a drop in the bucket for
them.

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But it's a lot riskier for an individual who
has a very large amount of equity and stock

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options in a start up to go lead to go to a
series a.

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And that to us means real risk taking.

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Right?

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The risk that a VC is taking by leading a
$5,000,000 series a or putting in a $5,000,000

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check or $10,000,000 check into a series a is
much, much less than a key executive who owns a

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100,000,000 of equity in a very established
acorn in many cases to go to a company with a

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$100,000,000 valuation that's pre revenue.

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Right?

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That executive is taking real calculated career
risk on that move.

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They know something even the VCs don't know.

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And there's not only the career risk of leaving
one company and putting all of your career

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baskets into an untested company.

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There's also the fact that oftentimes at these
large companies, you get refreshed in your

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equity pools oftentimes every year, sometimes
every couple years.

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So they're giving up this future equity.

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When we look back historically, those moves
have meant a lot more to us than who's actually

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leading the round.

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In fact, many of these executives are leaving
to go to these companies before there's even a

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lead and a significant round.

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And what we found is those with the
engineering, background and those that are

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highly technical people that actually know the
technology better than any VC ever will because

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they're internal and need to understand that
the next wave of what they're doing

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You alluded to it.

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There's so much capital and venture capital
today chasing, you know, a few really good

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deals.

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How do you know that you're not being adversely
selected in terms of the companies that you

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invest in?

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In addition to tracking fundamentals and
metrics and and what's really going on

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underneath the hood, I mean, we just invested
in an AI chip startup, which is pre revenue.

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Right?

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But our leading indicator on that one is key
engineer from Apple that was there 17 years

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just joined.

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1 of the key engineers from SpaceX that was
managing 30 engineers at SpaceX, one of the

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head of design engineering just joined the
company, and also a key executive from Long.

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Now they haven't even raised their series b
yet.

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But with that kind of firepower on the
executive team already, we're thinking this is

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an opportunity that we really need to dig into.

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And now it's just understanding what the
revenue traction is, what the commercialization

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is.

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From a product perspective, we think they're,
you know, they're way ahead, and and that's a

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very strong signal there.

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You're a thematic investor.

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Tell me about 1 or 2 themes that you're excited
about for 2025.

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We're thematic, but we also have to be
pragmatic that we don't know, you know, the

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technologies that are out there today.

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I don't think that we could have guessed 3
years ago that perplexity was gonna be a

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$9,000,000,000 company.

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Right?

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And that's why the signaling that we keep
talking about

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is so important because the

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true technology execs at these companies and
the people that are actually building these

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products are the ones that we wanna follow.

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00:05:05,524 --> 00:05:10,079
Right now, we think AI chatbot agents are gonna
be a huge business, and that's where you're

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seeing executives from OpenAI and Propic
leading to these chat leading to these chatbot

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start up.

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And they get it exactly right, which they're
about 80% there being able to actually

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duplicate what a human does in a certain task.

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We think that that's gonna be a massive,
massive business for corporations to reduce

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costs and increase efficiency.

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So we're very focused on that.

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We're also, given the new administration,
focused a lot on defense tech, and we think

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that that business is just, you know, going
from a true transformation where you have the

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old guard, the Lockheed Martins, the General
Dynamics, those types of companies which had

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old technologies like the f 35, which is
basically already on the chopping block by the,

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the new Doge administration, and and now is is
really leaning into technologies on the

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battlefield that are being developed by very
innovative startups.

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I mean, Android is obviously the blue chip name
in that space, but Shield AI is doing very

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interesting things and other even earlier stage
startups than that that are bringing

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technologies that we didn't even know possible,
you know, 2 to 3 years ago.

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So we're paying attention to these broad
thematic themes, but, you know, it all comes

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down, especially in early stage investing, to
the people, the team, and their track record of

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what they've built at other organizations as
the true litmus test of whether we're really

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interested or not.

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We've seen a complete 180 in terms of venture
funds investing to defense tech over the last

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one, really, 2 years, but in the last year,
dramatic change in activity.

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In terms of the institutional secondary market,
who is accessing, you know, the Elon companies

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or these kind of companies?

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Who is that is out there in the market buying
these shares?

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Yeah.

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It's a it's a wide mix, but I would say it's
obviously the large institutional investors.

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It's the VCs.

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It's the hedge funds that are getting

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So you have VCs going to you and saying, I
wanna buy on the open market more exposure to

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my name.

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That's right.

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Once they get into a company, they come to us
and say, look.

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We're trying to size up, and we're trying to to
build a bigger position in this company.

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We've done that, you know, multiple times this
year.

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I think that they also are cognizant of the
fact that, you know, use us for liquidity and

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the other parts of their portfolio.

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So one of the biggest issues that VCs are
having is DPI.

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Right?

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So as much money as they're putting into these
new LLM companies, all the AI startups, the the

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military logistics companies like Anduril, and
the robotics companies are also trying to exit

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a lot of legacy things that they invested in
from 2017 to 2021 and and trying to get DPI for

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their investors.

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Right?

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So their investors are are saying, look, this
is great that you're putting a lot of money to

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work in AI and and and, you know, names like
Code 2 have deployed and and raised

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$1,000,000,000 just to focus on AI recently.

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But they're also looking at the rest of their
portfolio and saying, well, what was what

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happened to that hot Fintech company you were
talking about in 2019 and that hot SaaS name

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that you did in 2020?

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What happened to those?

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Because all of a sudden nobody's talking about
those.

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Right?

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So they're kind of forgotten zombies many I
mean, in many cases.

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Right?

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The companies have slowed their growth.

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They had to cut burn during the tech crisis.

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And a lot of VCs feel a little bit stuck.

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00:08:13,264 --> 00:08:13,585
Right?

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So a lot of our job has become help us get DPI
on this part of our portfolio, and then

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hopefully we can recycle that cash into other
AI opportunities or things that we're we're

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looking towards the future on.

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So it's but it's really become, you know,
lopsided in that regard.

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Cash is not the problem for VCs right now, or
fresh cash that they've raised.

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Ideas is not a problem.

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There's a ton of companies to invest in right
now, but it's really liquidity in the rest of

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the portfolio.

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So when you're talking to an endowment and
they're saying give me fresh new money, they're

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saying, well, we have none yet.

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And obviously VC is a big part of the problem,
but the biggest part of the problem is private

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equity.

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So there's a massive liquidity problem right
now.

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It's creating really a bottleneck in the
industry.

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But in terms of innovation and the pace of
innovation, it's faster than I've ever seen it.

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It it is really truly astonishing what's going
on and what companies are developing and, and

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00:09:01,850 --> 00:09:03,070
how it's affecting society.

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00:09:03,725 --> 00:09:08,365
So you see from one side, VCs buying secondary
to add to their positions.

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You see some VCs selling in order to generate
DPI.

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What other types of investors, whether
institutional or non institutional investors,

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do you see regularly in the secondary market?

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Family offices have been an interesting one.

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I think family offices are a little bit less
self guided than a VC fund or a hedge fund

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would or an institution.

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There's a lot of times they don't have access
to the level of diligence that some of these

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institutions do.

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So they tend to follow a lot of their managers
onto opportunities.

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So what we see sometimes is, hey, we own this
company through a fund that, you know, one of

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the large VC owns.

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But if you offer it to us, we would size up and
buy more.

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You know, we would, go into an SPV that has
that name because we're really bullish on it,

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00:09:50,370 --> 00:09:54,230
and it'll add to our position, which is
somewhat diluted across this fund.

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So we see that.

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00:09:55,250 --> 00:10:00,345
And then obviously, and and this is where
markets get very frothy is is retail.

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00:10:00,404 --> 00:10:00,565
Right?

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00:10:00,565 --> 00:10:04,245
And so the high net worth investor is being
pitched a lot of these deals through the

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00:10:04,245 --> 00:10:08,024
through the typical Morgan Stanley, Goldman
Sachs platforms, Merrill Lynch.

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00:10:08,085 --> 00:10:09,865
And they're saying, look, buy SpaceX.

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00:10:10,029 --> 00:10:10,350
Right?

189
00:10:10,350 --> 00:10:13,250
Everyone wants to say at the cocktail party
that they own SpaceX.

190
00:10:13,629 --> 00:10:15,470
It's, it's a terrific name to own.

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00:10:15,470 --> 00:10:17,330
Obviously, they're doing very, very well.

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00:10:17,629 --> 00:10:21,309
But it shows you that the retail market is
focused on on several names.

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00:10:21,309 --> 00:10:24,509
And if that name becomes available across one
of these back platforms, they're they're

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00:10:24,509 --> 00:10:25,330
literally devouring

195
00:10:25,964 --> 00:10:26,365
Interesting.

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00:10:26,365 --> 00:10:31,644
SpaceX used to be strictly a family office
trade, almost like a cocktail trade, and then

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00:10:31,644 --> 00:10:33,264
it went to an institutional trade.

198
00:10:33,565 --> 00:10:36,764
Maybe, again, it'll be so expensive, it'll be a
family office trade again.

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00:10:36,764 --> 00:10:37,084
Yeah.

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00:10:37,084 --> 00:10:37,324
Yeah.

201
00:10:37,324 --> 00:10:37,644
Look.

202
00:10:37,644 --> 00:10:39,164
Institutions are looking at it.

203
00:10:39,164 --> 00:10:44,120
Obviously, SpaceX the business model is an
interesting one, about 65% of the projected

204
00:10:44,120 --> 00:10:45,259
revenues and communications.

205
00:10:45,559 --> 00:10:45,799
Yeah.

206
00:10:45,799 --> 00:10:50,519
And the satellite business, which is a $99 a
month product, which is focused on the maritime

207
00:10:50,519 --> 00:10:54,825
industry, emerging markets, frontier markets,
which to be honest many of them can't afford a

208
00:10:54,825 --> 00:10:56,024
$99 subscription.

209
00:10:56,024 --> 00:11:01,705
So Elon has really built a great business with
the the the military payload business and

210
00:11:01,705 --> 00:11:06,790
obviously Starship, which is the best business
of SpaceX because it's really long term

211
00:11:06,790 --> 00:11:07,590
government contracts.

212
00:11:07,590 --> 00:11:10,170
And that's what everybody wants to see is long
term revenue visibility.

213
00:11:10,389 --> 00:11:14,790
And so that's what investors are really focused
on but the communications business although it

214
00:11:14,790 --> 00:11:18,309
will grow very fast, you know, things tend to
trade in an AT and T Verizon multiple.

215
00:11:18,309 --> 00:11:22,575
So it'll be interesting to see when the when
these companies hit or SpaceX hits the public

216
00:11:22,575 --> 00:11:26,254
market, what is the the public market gonna
value the communications business?

217
00:11:26,254 --> 00:11:30,034
What it's, you know, gonna value the Starship
and, payloadaunch business?

218
00:11:30,335 --> 00:11:35,179
SpaceX really is and where shareholders is is
many different companies in one.

219
00:11:35,339 --> 00:11:39,259
Like you said, high revenue, low multiple some
low revenue, high multiple.

220
00:11:39,259 --> 00:11:40,539
Never thought about it that way.

221
00:11:40,539 --> 00:11:44,299
Previously, you were the president at a
$5,000,000,000 hedge fund.

222
00:11:44,299 --> 00:11:45,519
Tell me about that experience.

223
00:11:45,825 --> 00:11:46,465
It was great.

224
00:11:46,465 --> 00:11:51,585
I mean, we were you know, this was during a
period, that the multi manager business was

225
00:11:51,585 --> 00:11:52,304
really taking off.

226
00:11:52,304 --> 00:11:56,325
And this is when, really, Citadel, Millennium,
and others were really raising a lot of capital

227
00:11:56,625 --> 00:11:58,049
and really starting to take off.

228
00:11:58,129 --> 00:11:59,330
And we were trying to do the same.

229
00:11:59,330 --> 00:12:01,669
It's a very capital intensive business.

230
00:12:02,129 --> 00:12:04,309
It's a very leverage intensive business.

231
00:12:04,850 --> 00:12:09,570
And finding the right portfolio managers is a
very challenging thing to do.

232
00:12:09,570 --> 00:12:13,269
They expect, you know, large upfront payouts
before they've even generated $1.

233
00:12:13,330 --> 00:12:17,705
And so, you know, know, for me, it was, more of
a personal decision that I thought the private

234
00:12:17,705 --> 00:12:20,105
markets were gonna generate a lot more alpha in
the future.

235
00:12:20,105 --> 00:12:22,365
It was a good time for me to segue into private
markets.

236
00:12:22,504 --> 00:12:27,465
Explain to me as a third grader why it makes
sense to have multiple strategies at a single

237
00:12:27,465 --> 00:12:28,110
hedge fund.

238
00:12:28,269 --> 00:12:29,149
Thank you for listening.

239
00:12:29,149 --> 00:12:32,909
To join our community and to make sure you do
not miss any future episodes, please click the

240
00:12:32,909 --> 00:12:34,509
follow button above to subscribe.

241
00:12:34,509 --> 00:12:38,129
It's it you know, these strategies all trade
with different risk characteristics.

242
00:12:38,269 --> 00:12:38,509
Right?

243
00:12:38,509 --> 00:12:41,490
And and, you know, what we call in the hedge
fund world factors.

244
00:12:41,585 --> 00:12:41,745
Right?

245
00:12:41,745 --> 00:12:43,424
And they're all driven by different factors.

246
00:12:43,424 --> 00:12:48,705
Some people factor some strategies are growth
factors, some strategies are e n factor, some

247
00:12:48,705 --> 00:12:52,965
factors are currency related, and some factors
are just unmeasurable.

248
00:12:53,600 --> 00:12:57,120
And so you always have to have a variety of
factors in your portfolio that you can

249
00:12:57,120 --> 00:12:58,259
recognize and hedge.

250
00:12:58,480 --> 00:13:03,440
And that's why you want a strategy where you
have multiple factors going on to deliver a

251
00:13:03,440 --> 00:13:06,000
smooth, return profile on the strategy.

252
00:13:06,000 --> 00:13:10,524
A lot of times, portfolio managers get very,
very stuck in their own strategy.

253
00:13:10,825 --> 00:13:16,664
Managers are so focused on generating returns
from that one segment of the market, which may

254
00:13:16,664 --> 00:13:17,465
be out of favor.

255
00:13:17,465 --> 00:13:20,825
And so that's why a lot of money has been
raised to these multi manager strategies.

256
00:13:20,825 --> 00:13:24,959
It's just been able to smooth out the
volatility, smooth out the returns, and smooth

257
00:13:24,959 --> 00:13:25,519
out the risks.

258
00:13:25,519 --> 00:13:30,240
Now that being said, they're telling portfolio
managers, please join Citadel or any other

259
00:13:30,240 --> 00:13:31,120
multi manager fund.

260
00:13:31,120 --> 00:13:36,164
Here's $2,000,000,000 and make 3%, and we're
gonna lever it, you know, 15 to 1.

261
00:13:36,245 --> 00:13:38,485
And that's how these firms generate a lot of
returns.

262
00:13:38,485 --> 00:13:39,924
So it's not without risk.

263
00:13:39,924 --> 00:13:44,485
Everyone looks at the Millennium fact sheet,
you know, punching out a nice 12% annual

264
00:13:44,485 --> 00:13:44,985
return.

265
00:13:45,284 --> 00:13:48,804
But if you look at the overall leverage that my
Millennium is managing, it's massive.

266
00:13:48,804 --> 00:13:52,909
I mean, it's it's 1,000,000,000 of dollars when
stated AUM is $60,000,000,000.

267
00:13:53,610 --> 00:13:57,769
And so it's it's a very interesting strategy
and I think investors have become very enamored

268
00:13:57,769 --> 00:13:58,429
with it.

269
00:13:58,649 --> 00:14:04,029
Is that leverage somehow isolated or can can
one strategy blow up the entire fund?

270
00:14:04,544 --> 00:14:04,784
Look.

271
00:14:04,784 --> 00:14:09,684
It'll go on name, but there was one fund that
they they generated 60% of their return in 2023

272
00:14:09,985 --> 00:14:11,504
from European natural gas.

273
00:14:11,504 --> 00:14:14,725
Had that trade gone wrong, you could have seen
a major firm go under.

274
00:14:14,784 --> 00:14:20,850
When we look at some of these funds, it it it
taking on a lot of risk to generate a small

275
00:14:20,850 --> 00:14:26,209
measure of return that then the firm can
control at at the top level, and manage the

276
00:14:26,209 --> 00:14:27,829
risk, and manage the leverage.

277
00:14:27,970 --> 00:14:29,649
And so far, they've done a great job.

278
00:14:29,649 --> 00:14:33,345
But, you know, who knows what's gonna happen,
you know, if all the factors unwind and

279
00:14:33,345 --> 00:14:36,965
everything, basically melts down at the same
time, it'll be interesting to watch.

280
00:14:37,105 --> 00:14:40,404
While you're at the hedge fund, you were
recruiting portfolio managers.

281
00:14:40,465 --> 00:14:42,325
You were essentially a scout for talent.

282
00:14:42,545 --> 00:14:44,644
What did you look for in portfolio managers?

283
00:14:44,899 --> 00:14:48,899
A lot of it was, you know, a specific skill in
a specific market.

284
00:14:48,899 --> 00:14:52,660
When you're building a port a platform like
that, you really need to focus on guys that

285
00:14:52,660 --> 00:14:54,340
understand a market very, very well.

286
00:14:54,340 --> 00:14:59,485
And not only is they understand to 20 names
extremely well, they understand the industry

287
00:14:59,544 --> 00:15:00,264
very very well.

288
00:15:00,264 --> 00:15:05,944
It was very hard to find a portfolio manager
that was good across all industries, geography.

289
00:15:05,944 --> 00:15:08,345
They're looking for the best individual player
at that position.

290
00:15:08,345 --> 00:15:12,524
They were looking for that best individual
player that necessarily wasn't the best.

291
00:15:12,779 --> 00:15:17,740
He had to be a great stock picker, but he had
to really understand and be able to do great

292
00:15:17,740 --> 00:15:18,059
research.

293
00:15:18,059 --> 00:15:24,480
1 of the guys that we interviewed, I remember,
during the, the bird flu days, he was literally

294
00:15:24,539 --> 00:15:30,184
flying to farms and the egg farms to understand
how many queen chickens were being affected by

295
00:15:30,184 --> 00:15:31,144
the avian bird flu.

296
00:15:31,144 --> 00:15:35,545
You know, it was that type of research just
getting such great primary data and investing

297
00:15:35,545 --> 00:15:38,904
in in things that they had only the most
granular data in.

298
00:15:38,904 --> 00:15:40,799
And that to me is a great portfolio manager.

299
00:15:40,879 --> 00:15:45,779
A great portfolio manager these days, you know,
cannot sit behind a Bloomberg and understand

300
00:15:45,839 --> 00:15:47,120
what his portfolio is doing.

301
00:15:47,120 --> 00:15:50,080
You really had to get in there, had another
portfolio manager.

302
00:15:50,080 --> 00:15:51,759
He was an expert in the battery space.

303
00:15:51,759 --> 00:15:57,784
He would go to China and and and and
translating headset, while BYD was presenting

304
00:15:57,784 --> 00:16:02,024
because his his company in the US, it was a
battery company, was literally about to

305
00:16:02,024 --> 00:16:03,225
announce earnings the following week.

306
00:16:03,225 --> 00:16:07,544
So he he wanted to understand in Chinese, but
literally in person and go meet management and

307
00:16:07,544 --> 00:16:10,399
sit there with headset and understand what the
dynamics were in China.

308
00:16:10,399 --> 00:16:15,059
So before it hit the US market for earnings, he
would know how to hedge it and and what to do.

309
00:16:15,360 --> 00:16:17,279
And those were the kind of guys you were
looking for.

310
00:16:17,279 --> 00:16:19,519
This is like above and way and beyond what any
other

311
00:16:19,829 --> 00:16:25,264
It it's it's analogous to the high frequency
traders that shut up stops across from the

312
00:16:25,264 --> 00:16:29,825
exchange trying to get that data point one
second, but but this one was doing it through a

313
00:16:29,825 --> 00:16:30,325
translator.

314
00:16:30,705 --> 00:16:34,144
And and at the end of the day, it all came down
to fundamental research, and a lot of these

315
00:16:34,144 --> 00:16:38,440
guys were really you know, some of them were
just way above the crowd, in terms of

316
00:16:38,440 --> 00:16:39,579
understanding their companies.

317
00:16:40,199 --> 00:16:44,519
What were some mistakes that you made around
portfolio managers that looked like they could

318
00:16:44,519 --> 00:16:46,940
be really good and ended up being poor choices?

319
00:16:47,159 --> 00:16:52,355
We had one guy that was doing commodities, and,
he was rolling contracts in commodities.

320
00:16:52,355 --> 00:16:56,934
And it was kind of a, a a based on on buying
full contracts on on oil.

321
00:16:57,715 --> 00:17:02,355
And he ended up just losing so much premium
rolling these contracts, that his strategy went

322
00:17:02,355 --> 00:17:07,630
from being able to deliver, call it 10 to 12%
annually pretty consistently, to really only

323
00:17:07,630 --> 00:17:08,829
delivering 1 to 2%.

324
00:17:08,829 --> 00:17:12,910
Because he was losing so much in the role of
the yield, in oil contracts.

325
00:17:12,910 --> 00:17:18,670
And so, his numbers looked great, but when the
the market changed and volatility got a lot

326
00:17:18,670 --> 00:17:23,085
more expensive, the premium he was paying was
prohibitive, and he was just not able to make

327
00:17:23,085 --> 00:17:23,585
money.

328
00:17:24,045 --> 00:17:28,204
So when market factors change, a lot of you
have to really look, well, how do you actually

329
00:17:28,204 --> 00:17:28,845
make money?

330
00:17:28,845 --> 00:17:33,325
And what market factor is is really driving
your returns?

331
00:17:33,325 --> 00:17:33,565
Right?

332
00:17:33,565 --> 00:17:36,380
And for him, it was a premium of volatility.

333
00:17:36,440 --> 00:17:40,840
And when you're selling volatility or buying
volatility, the cost of volatility is gonna

334
00:17:40,840 --> 00:17:42,140
affect your return significantly.

335
00:17:42,759 --> 00:17:46,380
And so that's one thing that he thought he was
gonna be he said, look, it's not a problem.

336
00:17:46,519 --> 00:17:49,015
I know how to adjust to this, but he was never
able to adjust to it.

337
00:17:49,015 --> 00:17:51,674
So he didn't lose money, but he didn't make any
money either.

338
00:17:52,134 --> 00:17:57,494
What do you find in terms of clear thinking and
the ability to sell a simple story?

339
00:17:57,494 --> 00:18:01,734
Is that positively correlated to returns, or
does that mean that somebody's on a strategy

340
00:18:01,734 --> 00:18:03,900
that that's pretty commoditized?

341
00:18:04,920 --> 00:18:10,279
If you look at the top guys, right, it's it's
very rare that you find one guy that's doing

342
00:18:10,279 --> 00:18:12,680
one thing very well without a great team behind
them.

343
00:18:12,680 --> 00:18:13,000
Right?

344
00:18:13,000 --> 00:18:14,039
Most of these guys have

345
00:18:14,599 --> 00:18:15,960
That's what Ken Griffin will say.

346
00:18:15,960 --> 00:18:19,295
He he'll he'll say Citadel, his number one
skill is actually recruiting.

347
00:18:19,515 --> 00:18:20,015
Absolutely.

348
00:18:20,075 --> 00:18:22,654
Because the guy that's really good at
industrials.

349
00:18:22,795 --> 00:18:23,115
Right?

350
00:18:23,115 --> 00:18:28,955
Or really good at, you know, some subset of
industrials has really, generally, 2 to 3 great

351
00:18:28,955 --> 00:18:29,674
analysts with him.

352
00:18:29,674 --> 00:18:30,795
He's got 2 research guys.

353
00:18:30,795 --> 00:18:32,174
He's got a data scientist.

354
00:18:32,859 --> 00:18:37,579
It's very difficult to be good without a team
around you, and that's why it's become so hard

355
00:18:37,579 --> 00:18:39,179
to launch these individual hedge funds.

356
00:18:39,179 --> 00:18:39,419
Right?

357
00:18:39,419 --> 00:18:44,220
Because they require so much data, so much
risk, so much technology, so much talent to

358
00:18:44,220 --> 00:18:45,359
really do it properly.

359
00:18:45,784 --> 00:18:47,644
That you as one person, it's impossible.

360
00:18:47,704 --> 00:18:47,944
Right?

361
00:18:47,944 --> 00:18:52,345
And so these guys really have to develop a real
infrastructure around them to deliver market

362
00:18:52,345 --> 00:18:53,164
beating returns.

363
00:18:53,224 --> 00:18:54,904
And and it really comes down to that.

364
00:18:54,904 --> 00:18:59,559
And that's why a lot of these guys end up at
major pods is because they'd rather have the

365
00:18:59,559 --> 00:19:04,119
capital, the infrastructure, and the team at
these pods rather than go out and try to build

366
00:19:04,119 --> 00:19:07,559
it on their own and have to raise the money and
deal with LPs and and all the rest of the

367
00:19:07,559 --> 00:19:08,059
headache.

368
00:19:08,200 --> 00:19:12,840
Given the current regulatory climate and hedge
funds getting more and more complicated from a

369
00:19:12,840 --> 00:19:17,375
compliance standpoint, what is the true minimum
viable size for a hedge fund today?

370
00:19:17,375 --> 00:19:21,535
I mean, I've seen hedge funds launch at, you
know, a 100, 200, then it was 500.

371
00:19:21,535 --> 00:19:22,894
I really think it's a 1000000000 now.

372
00:19:22,894 --> 00:19:27,055
Problem is is that you're trying to attract
people from other funds.

373
00:19:27,055 --> 00:19:30,970
And generally, when you're attracting people
from other funds, and you're trying to attract

374
00:19:31,029 --> 00:19:35,190
senior investors, the issue is is there's gotta
be enough carry to go around.

375
00:19:35,190 --> 00:19:41,509
So if the main PM is getting, call it 40%,
right, of $300,000,000 and the fund is

376
00:19:41,509 --> 00:19:46,914
flattish, and there's only management fees to
feed the team, you really don't have a lot to

377
00:19:46,914 --> 00:19:47,475
work with.

378
00:19:47,475 --> 00:19:47,875
Yes.

379
00:19:47,875 --> 00:19:49,795
Because they know they're not gonna make any
money.

380
00:19:49,795 --> 00:19:50,035
Right?

381
00:19:50,035 --> 00:19:52,515
So they basically aren't leaving anything on
the table.

382
00:19:52,515 --> 00:19:52,835
Right?

383
00:19:52,835 --> 00:19:58,669
I saw a really surprising move the other day
where I saw, a pretty senior hedge fund PM go

384
00:19:58,669 --> 00:20:03,230
to a a large secondaries, fund, right, in the
private markets.

385
00:20:03,230 --> 00:20:06,849
He was a technology investor at a multibillion
dollar fund.

386
00:20:06,990 --> 00:20:11,164
And I think these guys are realizing, look,
it's difficult right now.

387
00:20:11,224 --> 00:20:17,625
When when indexes are ripping, when technology
in the Nasdaq is up 25, 30%, and you're going

388
00:20:17,625 --> 00:20:19,224
to your investors and saying, hey, guys.

389
00:20:19,224 --> 00:20:20,184
We have the short book.

390
00:20:20,184 --> 00:20:25,919
We're 25% hedged, and a lot of its index hedges
and a lot of its just not attributable to to to

391
00:20:25,919 --> 00:20:29,220
to real shorts because there just isn't a lot
of good shorts out there.

392
00:20:29,440 --> 00:20:31,359
Investors start questioning, what am I paying
you for?

393
00:20:31,359 --> 00:20:34,819
I'm paying you 2 and 20 plus expenses, plus
pass through, plus all this.

394
00:20:35,115 --> 00:20:39,454
And you're, you know, giving me returns that
are 60% below the Nasdaq.

395
00:20:39,994 --> 00:20:41,035
What is this all about?

396
00:20:41,035 --> 00:20:44,555
So that's why a lot of investors have gone
passive into ETFs and are just saying, look

397
00:20:44,555 --> 00:20:45,994
hedge funds just aren't worth it.

398
00:20:45,994 --> 00:20:47,835
The alpha is just not there like it used to be.

399
00:20:47,835 --> 00:20:53,009
There used to be a lot of seams and and there
was a lot more accounting fraud.

400
00:20:53,009 --> 00:20:57,570
There was these big Worldcom, there was Tyco,
there was, you know, every year there was like

401
00:20:57,570 --> 00:20:58,450
these big blow ups.

402
00:20:58,450 --> 00:20:58,609
Right?

403
00:20:58,609 --> 00:21:00,609
And hedge funds would just clean up on these
things.

404
00:21:00,609 --> 00:21:07,034
The regulation has gotten more, stricter and
and and obviously and and much more, and

405
00:21:07,034 --> 00:21:10,174
compliance has been so much more of an issue in
terms of audits and all of this.

406
00:21:10,394 --> 00:21:11,674
You're just seeing less of that.

407
00:21:11,674 --> 00:21:11,914
Right?

408
00:21:11,914 --> 00:21:16,720
And you're just seeing that shorts are just
much harder to find, on an individual basis.

409
00:21:16,720 --> 00:21:20,480
And so for a regular true hedge fund, where's
the short alpha?

410
00:21:20,480 --> 00:21:23,380
It's hard for them to prove where it is because
it's just non existent.

411
00:21:23,599 --> 00:21:29,335
When you're pulling these, you know, genius
level quants and portfolio managers, how much

412
00:21:29,335 --> 00:21:34,695
of the time are they leaving for primarily
economic reasons versus cultural reasons?

413
00:21:34,695 --> 00:21:38,055
They hate their boss or or or other less
rational reasons.

414
00:21:38,055 --> 00:21:38,455
You know what?

415
00:21:38,455 --> 00:21:39,735
We see a lot of different things.

416
00:21:39,735 --> 00:21:45,679
I would say one of them is at some of these
firms, it's very very difficult to work there.

417
00:21:45,679 --> 00:21:46,079
Right?

418
00:21:46,079 --> 00:21:47,359
Because single move you make

419
00:21:47,519 --> 00:21:49,119
Is that a feature or a I

420
00:21:49,119 --> 00:21:52,559
think it's a feature and I think, you know,
it's funny because I talk to a lot of LPs as

421
00:21:52,559 --> 00:21:54,019
well, and they're like, that's great.

422
00:21:54,160 --> 00:21:56,240
I love that they get rid of guys really
quickly.

423
00:21:56,240 --> 00:21:59,855
You know, this guy, you know, he's he's not
performing, so he's out.

424
00:21:59,995 --> 00:22:00,154
Right.

425
00:22:00,154 --> 00:22:05,515
I think turnover rate across the board is the
most silly metric for a successful startup.

426
00:22:05,515 --> 00:22:10,299
I think a successful startup should have
somewhere should not have, you know, a 100%

427
00:22:10,359 --> 00:22:11,079
retention rate.

428
00:22:11,079 --> 00:22:13,400
I think that's a that that's a sign that it's
too clear.

429
00:22:13,400 --> 00:22:13,559
Yeah.

430
00:22:13,559 --> 00:22:13,960
That's right.

431
00:22:13,960 --> 00:22:14,440
That's right.

432
00:22:14,440 --> 00:22:16,919
And I think a lot, you know, investors are
saying, be strict.

433
00:22:16,919 --> 00:22:19,480
You know, pull the trigger when you see that
something's on

434
00:22:19,480 --> 00:22:19,599
work.

435
00:22:19,720 --> 00:22:20,220
Standards.

436
00:22:20,440 --> 00:22:21,937
Now, you know, but when you're the portfolio
manager.

437
00:22:21,937 --> 00:22:21,948
Right?

438
00:22:21,948 --> 00:22:29,565
And I know multi manager firms and he says, if
I and he was at $1,000,000,000 industrialist

439
00:22:30,105 --> 00:22:30,424
portfolio.

440
00:22:30,424 --> 00:22:36,265
Says if I went to the bathroom and they saw one
thing in my portfolio, it was already hedged

441
00:22:36,265 --> 00:22:39,980
and they would close me out of, you know, 60,
70% of my positions.

442
00:22:40,519 --> 00:22:40,839
Right?

443
00:22:40,839 --> 00:22:42,940
So that's how tightly this is being controlled.

444
00:22:43,079 --> 00:22:43,579
Right?

445
00:22:43,799 --> 00:22:48,440
And if you got one thing wrong, you know, that
developed your returns from being 3% down to,

446
00:22:48,440 --> 00:22:52,744
you know, 2.7, you know, that's that's a factor
to get fired.

447
00:22:52,744 --> 00:22:55,244
And so it's a it's a really cutthroat world.

448
00:22:55,305 --> 00:22:58,984
So a lot of guys are saying, look, from a
lifestyle perspective, this is a lot of

449
00:22:58,984 --> 00:22:59,484
pressure.

450
00:23:00,265 --> 00:23:02,045
This is a a tough way to live.

451
00:23:02,345 --> 00:23:04,424
And so they they decide to wanna go on.

452
00:23:04,424 --> 00:23:07,759
And then people will will live in that tough
way while they're there.

453
00:23:07,759 --> 00:23:10,640
And the moment the money goes away, they're
like, why am I doing

454
00:23:10,960 --> 00:23:14,980
But you are seeing a lot of spinouts now, you
know, because once they build that reputation,

455
00:23:15,200 --> 00:23:20,424
the track record, and the, you know, the the
celebrity around what they're it's a lot easier

456
00:23:20,424 --> 00:23:22,904
to go out and raise, not 1,000,000,000 but, you
know, 5,000,000,000.

457
00:23:22,904 --> 00:23:28,024
I have a big thesis on spinouts, and I think
spinouts will continuously produce a lot of

458
00:23:28,024 --> 00:23:29,144
really interesting opportunities.

459
00:23:29,144 --> 00:23:33,144
And a lot of people say, well, what about
consolidation and when will spinout stop

460
00:23:33,144 --> 00:23:33,865
stopping a thing?

461
00:23:33,865 --> 00:23:38,710
And most people don't realize spin outs are an
arbitrage between talent and economics.

462
00:23:39,170 --> 00:23:44,609
So you might be at firm, the top talent the top
2 PMs might have 90%, maybe they founded the

463
00:23:44,609 --> 00:23:45,109
firm.

464
00:23:45,490 --> 00:23:49,784
In some cases, they're providing 90% of the
value, or 90% of the alpha.

465
00:23:49,784 --> 00:23:51,065
In most cases, they are not.

466
00:23:51,065 --> 00:23:56,105
So the question is how uneconomic could it be
before the top talent decides to move out, or

467
00:23:56,105 --> 00:24:00,869
how much money do they need for cushion in
order to to have the comfort to spin out?

468
00:24:01,029 --> 00:24:01,349
It it

469
00:24:01,349 --> 00:24:05,690
is the age old question, and I think, you know,
you're dealing with some massive egos.

470
00:24:05,990 --> 00:24:07,430
I just had a firm the other day.

471
00:24:07,430 --> 00:24:12,890
It's a $3,000,000,000 technology hedge funds on
the West Coast, and, one of their main,

472
00:24:13,894 --> 00:24:17,174
producers since they launched in 2018 was let
go.

473
00:24:17,174 --> 00:24:19,174
He was a significant partner in the firm.

474
00:24:19,335 --> 00:24:20,875
The main partner let him go.

475
00:24:20,934 --> 00:24:23,835
He had, you know, gotten a couple of ideas
wrong.

476
00:24:24,534 --> 00:24:29,119
He always wanted to get paid pretty much the
same as the founder, and they pushed him out.

477
00:24:29,119 --> 00:24:30,079
Kind of that cutthroat.

478
00:24:30,079 --> 00:24:33,299
Now he obviously made a lot of money during the
last 5 years.

479
00:24:33,839 --> 00:24:38,259
But, you know, this was an example where, you
know, they were up 50% in 2020.

480
00:24:39,200 --> 00:24:40,659
The Nasdaq was up 50%.

481
00:24:41,174 --> 00:24:44,855
They all took home several $100,000,000 and
investors were like, well, gee.

482
00:24:44,855 --> 00:24:45,335
That's great.

483
00:24:45,335 --> 00:24:46,795
But I didn't even beat the Nasdaq.

484
00:24:47,095 --> 00:24:47,595
Yeah.

485
00:24:47,654 --> 00:24:50,315
So investors are, you know, kinda pushing.

486
00:24:50,375 --> 00:24:50,535
Hey.

487
00:24:50,535 --> 00:24:50,775
Look.

488
00:24:50,775 --> 00:24:55,494
You had to diligence a lot of portfolio
managers that may have had egomaniacs, at the

489
00:24:55,494 --> 00:24:55,994
firm.

490
00:24:56,669 --> 00:24:58,369
How did how did you go about referencing?

491
00:24:58,669 --> 00:25:02,829
Do you all did you ever give them both benefit
of doubt or did we say, you know, if the

492
00:25:02,829 --> 00:25:05,549
previous firm didn't like the manager, there's
probably something wrong with them?

493
00:25:05,549 --> 00:25:06,509
You know, it's pretty interesting.

494
00:25:06,509 --> 00:25:09,069
We would backchannel a lot, and I think
backchannel is always the best.

495
00:25:09,069 --> 00:25:11,309
The references they give are not the ones that
you wanna speak.

496
00:25:11,309 --> 00:25:11,470
Yeah.

497
00:25:11,470 --> 00:25:12,345
It's the off list.

498
00:25:12,345 --> 00:25:12,505
Right?

499
00:25:12,505 --> 00:25:13,565
It's it's LinkedIn.

500
00:25:13,785 --> 00:25:15,724
It's asking people about the firm.

501
00:25:15,944 --> 00:25:18,265
And one guy, he was ultra successful.

502
00:25:18,265 --> 00:25:21,304
He was running $3,000,000,000 at one of the big
multi manager firms.

503
00:25:21,304 --> 00:25:23,724
I mean, the guy was a rock star.

504
00:25:24,105 --> 00:25:29,539
And he just said, every single person we spoke
to, he is the biggest jerk in the world to work

505
00:25:29,539 --> 00:25:30,039
for.

506
00:25:30,180 --> 00:25:33,079
And if he comes to your firm, he's gonna ruin
your culture.

507
00:25:33,700 --> 00:25:36,980
And, you know, so you can have everything look
perfect on paper.

508
00:25:36,980 --> 00:25:40,839
He even interviewed well, and he was very
charming in the interview.

509
00:25:41,194 --> 00:25:44,394
But then when people are, like, literally,
there was a rumor that he, like, tried to stick

510
00:25:44,394 --> 00:25:48,335
a pencil through one guy's hand because he was
so upset that he got something wrong.

511
00:25:48,795 --> 00:25:51,674
And so, you know, you you have these stories
and you're, like, oh my god.

512
00:25:51,674 --> 00:25:53,994
You never know that if you just called standard
references.

513
00:25:53,994 --> 00:25:54,234
Yeah.

514
00:25:54,234 --> 00:25:55,295
Thank god for references.

515
00:25:56,190 --> 00:25:58,109
So tell me about Next Round Capital.

516
00:25:58,109 --> 00:26:01,789
So what do you guys currently do, and what's
the future for Next Round?

517
00:26:01,789 --> 00:26:01,950
Yeah.

518
00:26:01,950 --> 00:26:04,190
So we're really you know, we're very, very busy
right now.

519
00:26:04,190 --> 00:26:06,669
I'd say 50% of what we do is on secondary side.

520
00:26:06,669 --> 00:26:12,615
The other, you know, call it 40% is on co
investments, and then 10% is is really kind of

521
00:26:12,615 --> 00:26:13,434
very niche.

522
00:26:13,974 --> 00:26:19,015
Sometimes even credit oriented or ideas that we
get that we work on, and that we'll invest in

523
00:26:19,015 --> 00:26:19,414
ourselves.

524
00:26:19,414 --> 00:26:24,075
So, you know, on the co invest side, a lot of
it's technology, a lot of it's AI.

525
00:26:24,420 --> 00:26:26,820
We're working on a data center deal that we're
launching in a few weeks.

526
00:26:26,820 --> 00:26:28,019
And here you're, like, following.

527
00:26:28,019 --> 00:26:29,059
Andreessen's doing the round.

528
00:26:29,059 --> 00:26:30,360
You're co investing alongside.

529
00:26:30,420 --> 00:26:30,660
Yeah.

530
00:26:30,660 --> 00:26:33,860
I mean, either, you know, Andreessen's doing
the round or somebody that we've been been

531
00:26:33,860 --> 00:26:34,580
introduced to.

532
00:26:34,580 --> 00:26:38,945
Again, there's a lot of connectivity between,
you know, you know, the the the network that we

533
00:26:38,945 --> 00:26:43,265
built in Silicon Valley and some of the rounds
that we, that we participated in.

534
00:26:43,265 --> 00:26:47,985
One example is, Grizzly, which got they had,
you know, a group of executives who just and,

535
00:26:48,144 --> 00:26:51,664
you know, the guys that built the whole
logistics network around that just left and and

536
00:26:51,664 --> 00:26:53,039
started a new start up.

537
00:26:53,600 --> 00:26:58,400
And I was extremely interested in what they're
doing, and so we're gonna invest in in that.

538
00:26:58,400 --> 00:27:02,320
And so, you know, we get these ideas, and and
some of them are great, some of them are, hey,

539
00:27:02,320 --> 00:27:06,799
this guy's got this great new AI idea, and he's
using very differentiated sources.

540
00:27:06,799 --> 00:27:08,025
And I asked him, well, what's that source?

541
00:27:08,025 --> 00:27:08,845
He says, well, Wikipedia.

542
00:27:09,705 --> 00:27:15,404
And I said, well, Wikipedia is really a source
for, you know, XAI and OpenAI and Anthropic.

543
00:27:15,625 --> 00:27:16,664
So why is it unique?

544
00:27:16,664 --> 00:27:19,705
Well, we can scrape it, you know, a lot more
efficiently than they do.

545
00:27:19,705 --> 00:27:22,710
And so you have to start to wonder, like, you
know, what's really the edge here?

546
00:27:22,710 --> 00:27:22,950
Right?

547
00:27:22,950 --> 00:27:26,950
Because everybody right now is really you know,
we're in the days right now of the Netscape

548
00:27:26,950 --> 00:27:31,909
Browser, the AOL, Lycos, when, you know,
everybody sort of was trying to build the

549
00:27:31,909 --> 00:27:36,329
technology and these companies and everyone was
just pouring money into each technology.

550
00:27:37,024 --> 00:27:39,345
If you think about it, that's where AI is right
now.

551
00:27:39,345 --> 00:27:44,384
It's really a a money loser and the technology
is just being built to make it the most

552
00:27:44,384 --> 00:27:44,865
efficient.

553
00:27:44,865 --> 00:27:47,365
The next wave of this is gonna be the
monetization.

554
00:27:47,424 --> 00:27:48,625
How do you make money from it?

555
00:27:48,625 --> 00:27:49,105
Right?

556
00:27:49,105 --> 00:27:53,159
And it really wasn't until Google figured out
how to make money from search, the search

557
00:27:53,159 --> 00:27:53,879
really took off.

558
00:27:53,879 --> 00:27:56,039
And that's really when the internet and e
commerce took off.

559
00:27:56,039 --> 00:27:59,240
It's really because you were able to search and
you would see ads and and they were able to

560
00:27:59,240 --> 00:28:00,039
make money from search.

561
00:28:00,039 --> 00:28:04,279
And so that's where we are today because the
only way you make money right now is OpenAI is

562
00:28:04,279 --> 00:28:06,940
saying, hey, pay 21.99 for OpenAI Plus.

563
00:28:07,399 --> 00:28:07,899
Great.

564
00:28:08,144 --> 00:28:11,184
That's not gonna create a massive business,
right, while you're still losing

565
00:28:11,184 --> 00:28:11,684
$8,000,000,000.

566
00:28:11,984 --> 00:28:17,345
So until the enterprise side is figured out,
how you can charge companies a lot of money to

567
00:28:17,345 --> 00:28:21,184
to use your service, that's when AI will become
really, really valuable.

568
00:28:21,184 --> 00:28:23,605
Today, it's valuable because we've discovered
the technology.

569
00:28:23,670 --> 00:28:28,789
But it there's gonna be so much more money lost
than VC money burned during this period while

570
00:28:28,789 --> 00:28:31,509
everybody figures out, okay, so what's the
business model?

571
00:28:31,509 --> 00:28:31,750
Right?

572
00:28:31,750 --> 00:28:33,930
How does this actually generate a lot of
revenue?

573
00:28:34,230 --> 00:28:36,470
And how do you actually get profit margins out
of it?

574
00:28:36,470 --> 00:28:36,970
Right?

575
00:28:37,244 --> 00:28:40,865
I I, you know, made a comparison yesterday,
Tesla versus Ford.

576
00:28:41,484 --> 00:28:45,664
You know, Tesla in 2010 was worth, you know, a
$1,000,000,000.

577
00:28:46,684 --> 00:28:52,779
Ford was worth $44,000,000,000 Today, Tesla's
worth a trillion, Ford is worth 56,000,000,000.

578
00:28:53,400 --> 00:28:53,720
Right?

579
00:28:53,720 --> 00:28:54,220
Why?

580
00:28:54,279 --> 00:28:57,240
But Tesla's not the only one e v, EV maker out
there.

581
00:28:57,240 --> 00:28:58,619
There's Lucid, there's Rivian.

582
00:28:58,839 --> 00:29:02,119
Well, Tesla figured out a way to make each car
profitable.

583
00:29:02,119 --> 00:29:05,019
So Tesla makes $9,000 per vehicle, 92100.

584
00:29:05,644 --> 00:29:07,424
So it's profitable unit economics.

585
00:29:07,804 --> 00:29:10,544
Rivian loses $37 per vehicle.

586
00:29:11,164 --> 00:29:14,625
And Lucid loses a $137,000 per vehicle.

587
00:29:14,924 --> 00:29:20,170
So it can be a great idea, but it's the
business model, because Elon integrated

588
00:29:20,470 --> 00:29:24,789
production, he integrated acquisition and and
streamlined the manufacturing process.

589
00:29:24,789 --> 00:29:25,849
He created Gigafactories.

590
00:29:26,549 --> 00:29:32,070
He did things that he knew would would create a
business and that he could make money from it.

591
00:29:32,070 --> 00:29:32,390
Right?

592
00:29:32,390 --> 00:29:36,924
So futures just went bankrupt because it's all
a great idea and that's where we are today in

593
00:29:36,924 --> 00:29:37,085
AI.

594
00:29:37,085 --> 00:29:38,224
It's a great idea.

595
00:29:38,525 --> 00:29:40,384
It's gonna revolutionize everything.

596
00:29:40,444 --> 00:29:45,025
But the problem is is people are have to figure
out the business model first so it survives.

597
00:29:45,164 --> 00:29:48,765
At the end of the day, investors are gonna one
day wake up and say, I'm no longer gonna fund

598
00:29:48,765 --> 00:29:49,424
these losses.

599
00:29:49,869 --> 00:29:52,029
And that's where the the rubber is gonna meet
the road.

600
00:29:52,029 --> 00:29:55,950
What would you like our listeners to know about
you, about Nexon Capital, or anything else

601
00:29:55,950 --> 00:29:56,849
you'd like to channalay?

602
00:29:56,909 --> 00:29:58,990
You know, just have a lot of fun what we're
doing.

603
00:29:58,990 --> 00:30:03,325
We're always, you know, looking to see what's
next, obviously, in in the name, And we're

604
00:30:03,325 --> 00:30:04,845
really excited about what's coming in the
future.

605
00:30:04,845 --> 00:30:09,904
I gotta tell you, when I started the business
in 2020, just a few months before I I launched,

606
00:30:10,365 --> 00:30:12,605
my brother had been diagnosed with pancreatic
cancer.

607
00:30:12,605 --> 00:30:16,785
And so for me, it was always a goal to have my
own firm nameplate on the door.

608
00:30:17,259 --> 00:30:21,660
We brought him to treatments around the world
trying to to to really see what we could do for

609
00:30:21,660 --> 00:30:21,819
him.

610
00:30:21,819 --> 00:30:23,759
And, unfortunately, he passed away in of 2020.

611
00:30:24,299 --> 00:30:27,740
And that's where I really felt like life is,
you know, you gotta take the opportunities that

612
00:30:27,740 --> 00:30:31,115
that you see now, because it can all end in a
flash.

613
00:30:31,115 --> 00:30:35,115
And and that really taught me that, life is
very fragile and, you know, thank every day

614
00:30:35,115 --> 00:30:38,095
that we're here and, you know, enjoying what we
do.

615
00:30:38,394 --> 00:30:38,894
Absolutely.

616
00:30:38,954 --> 00:30:41,055
Well, we've known each other since 2016.

617
00:30:41,275 --> 00:30:45,473
We we partnered together on DraftKings, and
it's it's been great to partner together and,

618
00:30:45,785 --> 00:30:47,032
look forward to continuing

619
00:30:47,032 --> 00:30:47,656
a conversation.

620
00:30:47,656 --> 00:30:47,968
Great.

621
00:30:47,968 --> 00:30:48,592
Thanks for

622
00:30:48,592 --> 00:30:49,528
having me, David.

623
00:30:49,528 --> 00:30:50,151
Thanks, Con.

624
00:30:50,151 --> 00:30:50,775
Take care.