We always have conversations about What's going on in the market if you're Not that's kind of irresponsible in my Point of view but we've always had a Dictum that our strategy dictates the Fund size and fund size does not dictate Strategy and every single GP will repeat Those exact words and so for us it's Always like okay we're trying to lead Rounds that are B's and C's and in the Occasional D and even sometimes an A but How big are those rounds if we want to Write the lead check how big is that Lead check for the premium companies on Average and we want to write 30 or 40 of Those checks per fund over 3 years that Tells you our fund size I'm struggling With the number of managers where there Is no succession plan they're well into This is not like funds two or three Succession plans are incredibly Important especially for long enduring You know kind of funds that we hope to Invest with into the future this week in Startups is brought to you by square Space turn your idea into a new website Go to squarespace.com twist for a free Trial when you're ready to launch use Offer code twist to save 10% off your First purchase of a website or domain Google for startups accelerate your Startup Journey with the Google for Startups Cloud program get up to 200k in Google Cloud credits or up to 350k for
AI startups plus training and guidance Apply at startups.com / twist and brex the financial stack Founders can Bank on brex knows cash is King for startups so they built a Banking experience that takes every Dollar further get the business bank Account trusted by one in3 US startups At brex.com Twist4 welcome back to this week's Liquidity podcast with me today I have Tom lovo of ivp next we have Dana John's Head of private Equity at the state of New Jersey Division of investment which Manages a whopping $90 billion and of Course we have Jason calacanis from the Launch fund I'm your moderator David Weber co-founder of 10x Capital today we Have many interesting topics to discuss Uh secondary pricing is giving us hope Of a potential recovery in the VC Market VC Leverage is at the same time an All-time high against startups we look At the metrics there we discuss the nvca Monitor and what it spells for the Industry and finally there's a new hot Sector in the startup ecosystem and it's Not AI we'll finish with the latest Three investments from Tom and Jason Let's get right to it last week we saw Some positive news with some promise of DPI coming back with sequoia's planned Purchase of stripe this week we're Seeing another bullish signal TechCrunch
Reports that the median price for Company secondaries is at a 31% discount Coming up from a 46% discount just 7 Months ago secondary's Market has heated Up recently with with industry Ventures New $ 1.45 billion fund raised in September stepstone raising a $3.3 Billion secondaries fund to focus just On Venture and blackstone's rumored Secondar fund that expected to top its Previous fund which was a whopping $23.5 Billion Tom you spend a lot in in the Midstage and later stage Venture series B and series C what are you seeing from Valuation standpoint today the chart you Have of secondaries is I think pretty Representative of what's happening in Primaries as well um Jason you and I Have discussed the great Extinction Event which if you draw a line on that Chart you know that was published in January of 23 that was probably around the low Point of valuations and liquidity as Well funding um but we've seen a really Strong rebound but in a healthy way like Everybody's very cognizant of the public Multiples that people are getting now so I think on average things are Rationalizing it feels pretty normal to Me yeah I think what's interesting to Build on those comments Tom is that Investors GPS have a certain amount of Time and bandwidth and in a cataclysmic
Event like we witnessed when the market Let's call it what it is it crashed uh For private companies you know you had To give maybe 80% of your time to your Existing portfolio and stabilizing in Some cases it was 100% there were some VCS I know I would forward them an Interesting accelerator company that say Jal not the time I'm doing triage and so This is the finite resource capital is Not a finite resource the capital Allocator of time is very limited what This represents to me is well there's Three places you can spend your time one Your existing portfolio companies two Finding new ones and then there's this Third place you could find Value and That's the secondary market and so for People who are looking for Value a lot Of these companies are known entities They have known management teams they Have functioning boards and so there Just has to be a clearing price and so I Think we went through a period where There were no bids on these companies Like even for great ones you know Instacart great product market cap was Obviously at a sync with uh Market Realities and potential IPO stripe same Thing 100 billion 50 billion now it's 75 Billion I think in this in the Sequoia Secondary that they did recently so you Know it's not like these are bargain Hunters necessarily I think these are
People looking for Value but even myself I I have to look at my existing Portfolio and say is my next best Investment a company that we've already Funded or the next new company and That's great for Capital allocators to Now be looking at the Existing you know uh cohort of companies That raised their series BCD aren't iping necessarily anytime Soon but they're also not you know in Tech Stars or white combinator or you Know on seed extension 4 so this is a Extremely promising sign now I do wonder About this data and David which is you Know is this a companies clearing Market In other words there must be a large Number of companies that aren't even on These secondary markets because there is Nobody buying or selling them or I Should say nobody buying them therefore There's nobody uh selling them there Might actually be buyers so it's a great Sign combined with last six week news These are two Great Signs Dana how do You feel about secondary in the Secondary market today we're super Excited about secondaries but um I'll Set some context for why I'm so excited About them and how I'm going to include Them in my portfolio our private Equity Portfolio is about 11 billion in nav It's largely skewed it's Global but Largely skewed to North America um large
Buyout and that's primarily because over Time you know we invested um in buyout Managers who are in the middle market Whove now just you know kind of grown up And are now Mega funds we've had very Little venture in the portfolio The Venture that I do have in the portfolio We were accessing through Partners where We have smas we have about 30% of my Portfolio is managed by separately Managed accounts with different partners We leverage those Partners our Investment process is fairly challenging It just takes a long time and sometimes With Venture the fund raise is 6 months You know know it takes us sometimes you Know over a year the secondary Market Has primarily been you know focused on Buyout um and there's been as you noted You know kind of industry Ventures and Stepstone have the largest secondary Focused funds a lot a lot of these Larger funds you know don't haven't Really focused on Venture it's just been Too hard for them primarily because you Know kind of relative to the pricing and Trying to price a portfol NLP portfolio Venture has always been much lower 25 to 35% where buyouts getting you know Depending on the timing and the quality Of the um the funds like 80% so it's Just been you know challenging for for Venture but I do think Venture is Catching up I do think because of
Liquidity needs that LPS need um there Are uh more opportunities for really Great portfolios to become available um And for someone like me who's trying to Build a venture portfolio where I'm Trying to um do a couple of things I Want to um I'm missing vintage years um I'm missing managers I'm you know so I'm Really excited about you know being able To we just actually today um in building Out this secondary program at at New Jersey I just kind of I I always think Of things as like three pillars so um We've just um approved uh a buyout more European Focus but um buyout uh uh Secondaries manager which does LP and GPL Le structurings um but anyways so I Could go on about why we're excited but You know we think it's also um from the Perspective of Duration I would like to you know kind Of shorten the duration um this is a Long you know kind of long duration Asset class if I can get in at a point Where these assets these you know Portfolio companies are are are mature Not not seed but you know kind of um More mature then kind of moving you know Shorter shortening the duration Mitigating J curve and um smoothing cash Flows no one knows your product like you Do but knowing how to build something Customers want is only at the Battle you Have to sell it to them and that's where
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And for that I am so grateful what is The T the ideal Target for some of these Like industrial and everybody you know Do you know David what their or or Tom What their return window is what are They saying five seven years what are They saying I think it's it's almost Similar to growth Equity they're very Tightly banded I heard a statistic Somewhere that there's almost never been A secondary fund that returned less than A 1x or something it's almost never Happened so it's always within this like One and a half and then two and a half Is like the absolute best because these Assets are already mature but what time What uh time period are they looking at Does anybody have insight into that I Don't know what they have on the cover Of their PPM I my sense is it's like Five to seven years is generally what They're targeting on their Investments Probably targeting five and then some Things stretch out makes sense um but Overall David I think pairing this with Last week's news about uh stripe and Whiz now Flip-flopping we're going to sell we're Going to go public I mean that's a Bullish signal right well yeah if there Ever was a bullish singal it would be Immediate greed versus you know you know Long-term greed you know I'm always Looking for greed in the system and you
Know it's like Gordon gecko said like You know it's good when you see people Getting greedy like this like you know What we could sell it and take the 23 Billion right now or we can IPO into a Market that would never value the Company at 23 billion like Google would That tells you something about their Long-term hypothesis for that business One of the things on secondaries that's Interesting is that if you're coming From the outside and looking at Venture Secondaries you would think it's kind of This super liquid super efficient market That people have different views on Different different assets there's Really two large buyers one is existing Existing people on the cap table you Might have an ivp on the cap table and Someone selling shares a lot of times The main investors will actually have The right of first refusal the roofer on The shares they'll be able to go that And of course the company uh loves to Have existing shareholders buy those Shares because they don't have to bring New people on the cap table they don't Have to deal with information leakage And then you have these other parties uh With these secondary funds industry Ventures Blackstone also Lexington has a Pretty big sleeve in this and the reason They're willing and able to get into These opportunities because they have a
Really good reputation so if you're Looking at like whiz they're raising Money and somebody comes to them they Say I want to get out of my position Another way to look at that is like I Want to end my relationship with you as The company they don't have a huge Incentive to accommodate them for many Reasons most of the time they don't want Them sharing any information in the Market because a lot of times Jason You've seen this like you'll have Somebody blast out their information to Like 20 30 40 buyers right because They're getting out of the position they Want to maximize their their price Because in the secondary Market you have Two main drivers price and information For those buyers that have perfect Information often times they're even Able to to to bid higher so I think That's interesting and and then you've Had this new retail class of secondary Buyers via platforms like Forge where You have it's t typically like very late Stage companies pre-ipo companies They're two three years away from buying So I think it's an interesting space It's a space that's largely driven by The ability to transfer shares but Information and also frankly regulatory Um VC funds like 10x cap like ivp we're Not able to hold more than 20% right of Our AUM and secondary funds or else you
Get kind of in the dreaded Ra uh area where a lot of funds don't Want to go although it's becoming much More much more acceptable to do that so There there's a lot of interesting Things that lead to the kind of this These returns in the industry it seems Like the trend though has been in One Direction over the past you know 19 Years at least that I've been inventure Which is towards more and more liquidity Both on the lp side with secondaries and Also on the cap table side of the Companies themselves for employees and Founders you know it's interesting like I don't know where that naturally ends Like how liquid do the private markets Become 20 years from now because there There is a pull you know and a push Between people wanting to be able to Sell at any time they want but also the Companies wanting to control information And wanting to control who's on their Cap table but my sense is things are Going to still get even more liquid both For for GPS and LPS in the future you Mentioned retail I mean if retail can Get access to this asset class in a Predictable trustworthy way this could Get really exciting um and you see that With this uh I've been tracking this Company I had the founder on Destiny 100 Or something he basically raised 100 Million to buy secondary and he got
Himself an allocation and SpaceX and a Couple of other things and he's got this Publicly tradable I guess it's an ETF Where you can buy it and man it has been Like a meme stock and so I don't think That that's the ultimate uh format for Doing this but it does show like crypto Did that retail wants Alpha they want to Swing for the fences they want access to You know really um high potential High-risk Venture assets and so you know I don't know which Administration would Be most Pro this but I have a feeling JD Vance would very much with his Venture Experience you know help us push through More fluidity in access to the to the Asset class which would benefit a lot of Emerging managers and and create more Liquidity one thing that's been Interesting to see is some of the most Progressive thinking companies have Instituted these tender processes SpaceX Famously has a tender twice a year where They let all their employees or their Current employees sell via a specific Price they control the process they Bring in the buyers and everything so I think that would be something that Would benefit a lot of companies but you Do get in a position where you have Nvidia I don't know if you saw today Jason uh something like 73% of Nvidia Shareholders are millionaires and 25% Are have over 10 or 20 million are you
Talking about employees or employees and That that that becomes a problem because You know somebody comes to and says uh You know I want you to spend all of August in the office and you look in the Bank and you're making 20 million your Salary is $200,000 it becomes a bit of An issue there part part of the process You know they'll be like Google you know And apple and Microsoft before them uh Tom's much older than me he much more Experience I'm joking it's a little bit Old but that is what creates you know The next wave of companies is people who Make their 10 or20 million chip and they Got a chip on their shoulder and they Want to be the CEO and they think they Can do it better or they saw some Opportuni so you know it short-term pain For the company to have to turn over Staff but you know every time I've seen Companies turn over staff say more times Than not the company is stronger because The company knows what it needs more and There's an infusion of new talent and Energy so high Cloud there were a lot of Google millionaires also who you know Started other companies I always say There's a reason there's a four-year Vesting schedule at most startups it's Not a number we just picked out of the You know out of the sky like there's a Shelf for how long or halflife for how Long people want to be at a startup and
It's usually somewhere between four and Eight years and so that's why we Grant Equity in those schedules it's very rare For somebody these days to be at a Company for 10 or 20 years and that's a Natural thing that's okay like that I Think as everybody here knows with Without the non-compete laws in California um and Equity vesting that Doesn't go on forever it allows people To jump jobs and take skills with them To the next thing so yeah it's very Healthy And Tom you have a lot of CEOs ask you About secondaries and when is the Earliest that appropriate for a Founder To get liquids secondary yeah I think It's all a matter of degrees it's one Thing to take a few hundred, you know to To make up for the fact that you're Barely paying yourself for the last few Years or you know maybe to to buy the First house it's different if a Founder Is taking 50 or 100 million off the Table there's no perfect guidelines but You you you know I I like to think about It in terms of how stable is the company How close are the are they to a Liquidity event you know how do we think About the other Founders the other Employees and fairness and trying to be More inclusive there uh there was Definitely a point though in 2020 and 21 Where I think Founders pushed it a
Little too far and VCS were more than Happy to oblige and it feels like that's Been dialed back but we're also not Going back to like the early 2000s where Founder secondary was this like super Taboo topic that would ruin a company And nobody even wanted to Broach now It's like hey man yeah you know San Francisco's expensive you just had your Second kid and you need to move you know Houses like sure that makes sense There's there's a good reason for that So I think the world is more rational When it comes to these things it's kind Of like how LPS think about GPS and GP Stakes when a fund is taking on Capital Outside capital and how is that Capital Being used is it being used for growing The Firm versus taking money off the Table you know a little bit different But but you know it's it's kind of Signals right you know how dedicated are You yeah I love this par parsu term not Just how wonderful it sounds rolling off Your tongue but just in the reality of It you know we've had many situations With Founders and other investors who Gets to sell right and it does seem Profoundly unfair when one group has That option another group doesn't have That option and you know we've seen that In companies um when this first was Bubbling up Zinga had a bunch of Secondary interest and Gary Milner was
Buying shares and this group was buying Shares and you know Mark Pinkus was not Letting people sell shares he wanted Control the company who was on the cap Table it was a very unique Moment In Time Evan Williams went a different way With Twitter where you know he let Chisaka Ron Conway some others I think Create vehicles to manage that process And uh it all kind of got hashed out There which is if people have access to The information and they're making a Thoughtful decision and to Tom's point It's not lifechanging Fu money uh which Technically starts you know at 20 Million uh yeah the last thing you want Is a Founder thinking about planes you Know at the board meeting in and you Know what houses are going to buy it I've and I've seen it I've seen it it's Very distracting um especially for a Young founder you know takes 100 million 200 million off the table and actually That's where a lot of times the test Comes in when they do actually make Those big sales that's when you see a Founder drop out and then you see the Other founder double down right and and Then that's when the board can make a Decision hey this person's checking out This person's doubling down well then That tells you how compensation should Go from that point forward so it's a Good test um and I I think this is
Really going to help us go long in the Industry and the longer we can go in an Investment and the more independent it Can be the greater the chances of an IPO The greater chances of a sustainable Company that doesn't get bought by Microsoft Google and apple and meta and That's actually healthier for the ecos System as well it would be really nice If you know this gang of seven was a Gang of 70 or 17 at least um and we Didn't have you know Amazon Apple and Google ruling the roost as it were all Right Founders one of the things you Always ask me for is hey will you invest In my company and sometimes you want Some advice I know and the other thing I Get constantly asked about is hey how do I get into Google for startups Cloud Program you know the one where you get All that Technical Training business Guidance and a huge number of credits That's right $200,000 in Google Cloud Credits or 350,000 if you're building an AI startup this is really important for Startups because you want to build Something super Innovative but you may Not have the capital yet and Google Wants to be there to support you plus You get Google workspace perks Google Domains all that other great stuff Whether or not you've raised capital or You're just getting started Google for Startups Cloud program can help you
Accelerate your startup 90% of gen Unicorns choose Google Cloud so if you Want to get on these credits please do It quickly find out everything that you Get inside of Google startup Cloud Program visit startup. Google.com/ twist that's right Startups.com twist to learn more and get Your startup to the next level next up The second quarter nvca monitor is out And there are a lot of great nuggets in The report one gauge of the market is The investor startup index which shows That VCS are near all-time high as it Relates to leverage against startups up From a low in Q4 2021 when startups had Leverage on VCS as Tom mentioned earlier Not all metrics in the report were Positive however price to sales the Technical term for price to revenue for VC companies going public was down to 4.9x from 12.6 X at the height of covid Signaling that now may still not be the Best time to go public Dana you got a Chance to read through the report what Are some of your takeaways I know this Sounds kind of bizarre but as a longterm Investor I think about macro Trends and I think about I think in decades I don't Think quarter to quarter I know I read My quarter I Tom I read the quarterly Reports I do it's thinking about you Know kind of a private Market investor Versus a public Equity investor and a
Private Market investor thinking about I'm putting ground you know I'm putting Capital on the ground today and I'm Thinking that it gets invested over the Next 3 to 5 years I don't have a crystal Ball so I don't know what 5 years 10 Years is going to look like but I invest With parameters which are basically you Know kind of return what's the return Target um is this manager going to meet Those have they met that have they met That Target we have like 52 52 GP Relationships over a 100 funds Definitely over a 100 funds so as we're Managing I'm I'm actually like kind of Head down into what's happening in the Portfolio and then I like stick my head Up you know kind of quarter to quarter To quarter to you know kind of figure Out what's going on in the world um and Then I kind of go back in you know from A monitoring perspective making sure That our managers are executing on the Investment strategies that you know we Agreed upon and committing Capital to Those managers this is why Dana's been a Great partner for us for for a very long Time because you want your LP your LPS To think like other Venture investors And long periods of time and whenever I Meet a potential new LP or or somebody Within one of our existing LPS and They're trying to time the market that's Always a sign for me there may not be a
Fit because if you think you can time The Venture Capital Market man that that Is a tough thing so it's way more Interesting for me to um develop the Relationships with the managers then not Sleep at night because you know the VA You know the Market's really volatile And you know what is going to happen I I Can't predict that but what I can Predict is in developing relationships With our managers that that's more Important to me yeah I mean I I focus a Lot with my team on you know what are The strategies that we have how are we Executing on those strategies um and Then any data that we have that we're Learning that would inform uh evolving Those tactics and strategy and the game Adventure I find is really a very Tactical strategic uh discipline and Much like playing poker which is why Many of us are addicted to that game Because you have partial information and You're trying to unpack you know some Strategies here and to make decisions With it with that partial information Because you cannot you cannot um control Outcomes you know the there are many Crazy outcomes that I've seen and if you Told me your top three Investments would Be a cab company a stock trading app That doesn't charge users for trading And a meditation app I would say and a Marketplace for you know handymen and
Handy persons whatever you call handymen Today uh I'd be like what but you know That's Uber Thumbtack Robin Hood and Cal And you have to have some humility here To control the things you can control And you know when I talk to my team Especially the young researchers were Turning into analysts and the analysts Were turning into Associates and Associates were turning into principles They say how many meetings did you do And how many check and calls did you do With these Founders and what are they Telling you you know and where are your Notes you know that I can work with but You know I can't magically have them you Know create a um a follow-on investment For the portfolio but we can set them up With meetings with investors and then Talk to those investors and say what did You think and those investors will tell Us like yeah you know love with the Company but why is he growing so slow or Why is their product velocity so bad or You know that founder is really Interesting on a product basis but Where's the CFO and the You Know Chief Technology officer and the director of Sales like they're doing everything you Know what's going on with the management Team J and so that's what you're trying To do is really make sense of what you Have in that portfolio and what are the Strategies you came up with what did you
Sell to the LPS I'm constantly thinking About that we said 50% of the fund's Going to go into these 200 names the Next 50% of the funds going to go into The top 5 to 10% of those okay we're Almost done with those 200 Investments And we are looking did we actually find Something great in here if there's not Something great in there okay well we Need to maybe call an audible here maybe We need to change the strategy for the Second half of this fund and I think That that's the that's the name of the Game now I I used to think it was just Being a great picker because I got lucky Uh if I'm being honest with hitting some You know half court shots but I don't Think you can make a career of half Court shots you all due respect to Steph Curry what are you focus Tom in that Sort of regard on strategies and tactics Like what is the strategy or tactic and How does it how has it evolved recently I'm curious yeah we've been I would say Strategy-wise pretty consistent over the Past 23 years or so um and just to name It the strategy is to invest in Companies just as they hit product Market fit and that can be a variety of Things like when we did Twitter and Snapchat they were both pre-revenue um Typical software the company though has Some revenue and we're trying to only Invest in the things that can go public
One day that strategy hasn't really Changed much but some of the details the Tactics have um for instance we opened a European office we've got five people There now uh in London uh we've done More secondaries over the years it used To be 0% now it's you know probably 15 Almost 20% of a given fund um and 20 Years ago 15 years ago on average I Think we said hey a startup needs at Least 10 million of Revenue when we're Investing now of course Revenue models Have changed they're more Predictable um there's no hard and fast Rules for that we're just looking for That like magical product Market fit so It's it's same strategy sort of year in Year out tactics have changed obviously The other big thing is as Dana knows If you're going to be around like ivp Has for 44 years the team's also going To change and you need to go through Generational transfer which is some Combination of tactics and strategy There too and I would have to say like Best in Class like evaluating so many Managers that ivp does it right in terms Of succession and how um transparent They are with their you know their um Investors their LPS and the plan for This is what's going to happen happen it Happens and it happens consistently have To say you know kind of I'm struggling With a number of managers where there is
No succession plan they're well into This is not like funds two or three so I Think you know succession plans are Incredibly important especially for long Enduring you know kind of funds that we Hope to invest with into the future how Many years ahead of time would you want The succession plan to be be Communicated to as an LP just depends on The cycle where the manager is in their Life you know kind of life where where The leadership is um I think it it just Depends on the Situation uh whether it's a a near-term Exit or it's an exit that's going to Happen in the following fund you know it Just depends I guess I was curious Tom When you were talking about the strategy And the tactics one thing that has Changed radically is the competitive Nature of getting in at your goldilock Zone that you know product Market fit And definitely they got the IPO Possibility doesn't seem like you're the Only fund that's going after that uh Seems like there's a lot of funds now That maybe didn't even exist 20 years Ago how do you deal with competition Evaluations given that that's a Goldilock zone that a number of people Have identified or just follow what it Is cribed copied from you frankly I Think it's a a natural thing and a good Thing because if the market were so
Small there were two investors at this Stage we'd be swimming in a very small Pond but the interesting thing is from Like a day-to-day operating procedure For our firm the Market's not as big as It appears mostly because people tend to Specialize pretty quickly you have a Bunch of firms that rans some Experiments and doing High volumes of You know Pre-ipo type Investments with no Governance uh you know or and trying to Add little value outside of the money And that experiment kind of ran its Course Um you have folks who are very high Touch but if you're high touch and You're actually taking board seats you Can't make that many Investments it's Just there's hours in a day and you Can't scale your team infinitely and so If you like zoom in to the different Strategies and different stages and you Think about just the US and Europe and People who want to do B's and C's but take board seats and the senior People take board seats they don't pass It off to a more Junior person and their Reput fund who's had you know been in a Lot of IPOs and a lot of been associated With a lot of successful companies that Field starts narrowing and then you say Okay well this happens to be an Enterprise infrastructure company that
Does open- Source software and we want To take on a board member who's done That before then all of a sudden you're Actually down to like relatively few Competitors so you know there's five six Firms that kind of end up in the same Conversations but that five or six will Differ between a digital Health company And an Enterprise company and a consumer Company and based on where they're Located and the exact parameters of the Round so I would say Jason like you Asked me that question in January of 21 I give you a very different answer than I wouldn't have given in January of 2018 Or today which is like yeah the Market's Like you know pretty predictable in 21 All bets were off and you know yeah came In and just took over the island and Then they all went home after did you Avoid the Temptation at at ivp you had Your peers making hundreds of millions Sometimes in management fees and you Guys were sticking to your knitting did You ever did you ever get tempted to try To replicate the strategy listen we Always have conversations about what's Going on in the market if you're not That's kind of irresponsible in my point Of view but we've always had a dictum That our strategy dictates the fund size And funsize does not dictate strategy And every single GP will repeat those Exact words and so for us it's always
Like okay we're trying to lead rounds That are B's and C's and in the Occasional D and even sometimes an A but Mostly B's and C's how big are those Rounds if we want to write the lead Check how big is that lead check for the Premium companies on average and we want To write 30 or 40 of those checks per Fund over three years that tells you our Fund size the hard thing about 2021 is The round sizes got so big as we were Beginning to do the implied math we were Like oh my God our fund size would need To be three times as large as the most And that kind of scared us cuz then We're like but what if the markets Changed well fortunately we were pretty Disciplined in our pacing and deployed Over three years that that fund during That time and by the time we actually Went out to raise the fund things had Corrected round sizes came down and we Were able to raise the same size you Know fund as before and so it kind of Worked itself out but I have to admit Like there were some you know flying by The seat of the pants moments where we Did wonder if we had to change our Strategy and our Fun Size um our gut Told us no but man there were a lot of Blog posts that said otherwise like hey You know Venture is being disrupted Etc It's like that chocolate cake everyone Knows you're not supposed to eat it but
Not eating it is is the hard part we Also have this amazing governor on our Strategy which is called time which Jason alluded to which is just like I Can't be on 27 boards and and we take Board seats that's like the fun part That's the enjoyable part of the job It's why I show up every day is to work With Founders I'm not a stock picker I Can't do my job halfway as a board Member and that can only be sliced so Many times and so I think that Temptation just kind of governed itself Because of the hours in a Day okay most of us in the startup game Have heard of brex not only have they Perfected corporate cards for startups They've also built the financial stack The founders can Bank on nearly 40% of Startups fail due to running out of cash So to help Founders Rex has built the Bank banking experience that takes every Dollar further it can help protect your Cash and extend your startups Runway how By combining the best things about Checking Treasury and FDIC Insurance Into one powerhouse account Rex's Banking solution offers 20 times the Standard FDIC protection through program Banks industry-leading yield on your Cash and the ability to send money Worldwide at lightning speed so here's Your call to action brex is used by one In every three us startups amazing get
The financial Founders trust at brex.com Twist4 at brex.com Twist4 moving on cyber security is Starting to play center stage in Silicon Valley we saw last week whiz's $23 Billion acquisition offer from Google That the company rejected and perhaps Not as positively crowd strike's outage That grounded many companies including Airlines and to Halt crunch base is Reporting that cyber security funding is Up 144% in Q2 from the same quarter last Year Dana thoughts on cyber security and How do you look at the space why is it Suddenly heating up right now so the way I look at Cyber you know as the one of The biggest categories of enterprise Software you know what is it 200 maybe 200 billion in Tam and it's just growing You know double digits and what is the Investment opportunity around around That and I think that that is you know Kind of thinking about the crowd strike I mean I was impacted I had a blue Screen for an you know kind of four days Until I could get back into so here's The interesting thing because a lot of Folks are working you know remotely I Could not get this fixed until I got Back to my office you know in New Jersey Which you know yeah and they were like Keep rebooting keep rebooting and they Figur out a way to get people to return
To office just turn their computers off At home Now you have to come in we're also Turning off your Electricity um I think in terms of just The security though you know kind of how AI is um enabling you know kind of Offense you know we have hackers and how You know companies are developing I you Know I'm think it's a huge opportunity And I think it's just going to get Bigger and it's it's going to be Represented throughout my portfolio in a In a big way Tom you guys are pretty Busy and the cyber security space tell Me about your view on the space right Now and why is it getting hot today I Think all of this stems from platform Shifts when there's a platform shift you Need new types of security we were Investors In Crowd strike uh it's a Obviously a fantastic company Testament To the fact that if you know if you have A company that goes down and the world Stops you know they've kind of made a Difference in the world or pushed a wave Out and that's true for Crow strike for Them The Innovation was using the cloud And the Central Intelligence of taking All the Intel from endpoints um I.E Computers bringing it to their Central Cloud taking that data and using that Knowledge to push out updates to the Edge which gives everybody better
Protection that was their Innovation I Think whiz as well is kind of Representative of one of those Mega Trends in security which is the cloud Operating model all of a sudden your Servers aren't in a room somewhere They're out in you know out there in AWS Etc how do you protect those and the Sid Scanning technology that whiz has was a Really you know Innovative uh Development that makes it faster AI is One of those platform shifts how do you Defend uh you know in terms of like the Inputs the outputs for all these AI Models that's a a brand new area so I Think that's driving some of that Investment you've got also a huge Trend I think maybe sleepily one of the Biggest Trends is just the complexity of Software development so when you're Building a new piece of software it's Not some monolith where like you can do A code review and the QA you know test In it's super easy you've got like 3,000 Microservices and the combinations of Those things it's so complicated how do You make sure if one of those or two of Those goes down your service still works And then you've got data and you've seen A bunch of companies get funded our Company rubric which has data security At its core you know they just they were The first real software Tech IPO in Recent times as all this data grows and
Becomes more important to Ai and Everything else you've you've got to Protect it somehow and so you've got These changes in in the importance of The components and the the nature of the Components getting more complex what's Happened is the surface area for attacks Has just grown you know a multiple Versus the days when everybody came into Their desk and had one computer and it Was on the network and there was one Server and it was in the closet today's World is far more Wild and Woolly than That and so you need more solutions Tom You mentioned rubric had an IPO this Year one of the only ones to come out You guys are I'm sure always talking to Uh the Goldman Sachs JP Morgans of the World what's your view on the IPO window And will we see any action in 2024 or 2025 the IPO window you have to kind of Reference another window which is the Overton window it's kind of like what's Your definition of an open IPO window Because if you think it was 2020 that Ain't coming back but if you think back To like post GFC the great financial Crisis when you know what was that 20112 When you had like Facebook and workday Go out as like the big successful Companies what happened in the following Years it wasn't a rush to the exit it's Like only really high quality companies Went out for a number of years until
Maybe 2015 2016 did you see a real Uptick and even then it wasn't a flood So I think the bar is going to stay high I mean to go public you probably want Three to 300 million to a billion of Revenue you want to be near free cash Flow positive you got to be growing 25% Plus probably to project the sort of 15 To 20% growth you need in the public Market that's a high bar I wish I could Say all all companies in our portfolio You know were doing that consistently But that's a high bar there's just not Many who are going to meet that not to Put words in your mouth but you're Telling your portfolio companies uh go Public as a last resort stay private Until the market recovers what what's Your guidance no I mean listen everybody Wants to go public it's going public Means your in general your your metrics The health of the business as as good as It can be is just hard to do and so if You have those sorts of performance Metrics you do it um which is I think You know to O op's credit at whiz like He looked around and realized and I'm Not an Insider in the company I've Certainly met him but um he probably Looked around and say hey we we've got Options on the table Let's you know let's go along um a lot Of companies aren't going to have that Option though and so they're going to do
Their best and ultimately you know kind Of like the secondary Market we were Talking about earlier at the top of the Show has become more liquid the ability To sell a startup has also become more Liquid because it's not just strategics But you can sell to one of these PE Firms the vistas and Tomo braavos of the World that didn't exist you know you got A startup that's growing 10 15% as long As it's not burning cash they can be Buyers and 15 20 years ago the that Entire ecosystem that company would be Worth essentially nothing because you Couldn't go public and if a strategic Didn't want to buy you you're in that Company forever today at least you've Got some options yeah and imagine if m&a Comes back with this uh regime change in Washington one way or the other you know We we could see Lina Khan and this Anti-a anti-tech philosophy maybe Wayne To one of more Dynamic markets and you Know the fact that PE has to come in and Buy some of these companies means There's something broken in the ma m&a Market right because they are value by Definition they're looking for serious Value right um whereas say the public Markets are just so optimistic right You're betting on this story in the Future um whether you know it's square Or blue apron or it's instacart or Uber Like you know these things can go in
Different directions a more fluid Marketplace would just be great for Americans and Innovation and American Exceptionalism globally and I don't know Why we are not letting Adobe or whiz Like these are under 100 billion dollar Acquisitions let them rip under a Billion not by the top three companies Like yeah that Roomba ioot one with with Amazon orever was like just I mean just Whole Foods like did something terrible Happen when Amazon bought Whole Foods Nope Whole Food's still great no problem There and you can get it delivered Through your Amazon app great let's keep Moving ring doorbell bought for a Billion dollars by Amazon did it end the World NOP can you still buy other Doorbells yep no big deal drop cam you Know now Nest bought by Google billion Dollars did it end the world nope still Buy you know cameras for 15 bucks if you Don't want the nest ones for 150 bucks Like I think people don't understand in Washington or in Europe exactly how Violent and brutal free markets are in Today in a global Marketplace you don't Need to start putting your thumb on a Scale like this is already a Gladiators Arena where like if you're not producing The best product the Market's going to Stop you people at Google right now are Very scared of you know people doing Searches on chat gbt and Claude before
They go to Google like and that's the Mighty Google with the biggest money Printing machine Humanity I think has Ever made you know putting aside natural Resources I don't know uh if you all saw Ben Son had a piece about crowd strike Lena Khan made a comment that you know the Power of a company like crowd strike is Problematic and leads to these sorts of Outages but it was really the Government's interference with Microsoft Telling them that they couldn't close Down their kernel access basically that Sort of created the need for companies To do what they do versus what Microsoft Was going to do in the first place so You know but of course that was a Different regulatory regime and nobody's Going to you know take the fall for that So there's just a ton of unended Consequences I think when Regulators get Too involved here you know just to add a Cherry on top of this great ice thing You set up Tom I just like it's almost Like we have referees trying to be Referees uh with Darwin it's like oh There's a shark it's going to eat a seal And they're like yeah you know what that Seems unfair and like the Sharks just Rips his H in half like that's the free Market you don't need to get ped it's Going to be fine there was like price Fixing there are some tactical things
That absolutely price dumping price Fixing bundling sure let's give speeding Tickets let's keep an eye on them m&a Like the the VCS and the capital Allocators the LPS who own these Companies they do a pretty good job of Making sure that value is extracted if They think this company should IPO like The investors in whiz seem to think They're not going to sell if they were Going to sell it's because somebody paid An extraordin premium and or they don't Have long-term faith in the business What we saw this week when they walked Away from 23 billion is that they have Extremely extremely high confidence in That management team and product set to Continue to grow to fill in that premium Or they're absolutely terrified and Convinced that that is going to get Stopped as an acquisition so it's one of Those two things drove that decision or Maybe a combination I don't know if You've given it any thought other Panelists does anyone know the break on That deal anyone know the rumored Breakup fee I I didn't see a breakup fee No I figma was a billion I think right Something yeah a billion dollars I think That one of the things that Regulators Don't think about in m&a is it's a Marketplace so you have the tech Companies buying companies but you also Have a very important other player which
Is the startup and the startup ecosystem Which is funded by vent capitalist and Regardless of what you think of Personally you might like or dislike Vent capis it is the engine of the American economy almost the the totality Of GDP growth or incremental GDP growth In the US you look at the Magnificent 7 I believe all seven of them were Venture Back so it's it's really important for Regulators to think of it as an Ecosystem what happens if you turn off The faucet what are the downstream um Repercussions to that because that will End up hurting not just Google not just Microsoft not just Facebook which you Know people may like or dislike it'll Hurt the next startup and the next Founder and the next employee and that Could have really poor long-term Consequences on the ecosystem and on the Entire US economy on GDP and even down To the taxable income of the country and Social Security and Medicare so there's A lot of repercussions to trying to hurt You know the large tech companies that May or may not be intended yeah it feels Like it became political when it should Like when the FTC Etc get involved Should be purely a business decision Based on market share and you know Perceived Surplus or or detriment to the Consumer tech companies are in the Headlines so you know the UK will undo
The Gify Facebook acquisition but some Boring you know PE backed ball bearings Company does a roll up and gets huge Market share and that's not in the Headlines and The Regulators aren't Going after those more boring businesses So I think part of this is just like you Know being in the spotlight as the for The technology industry has some Downsides to it but I wish this were Less political next on to our lightning Rounds uh where our guests go through Their latest three Investments Tom good Timing on this I've got a security Company that'll be announcing a new Investment that'll be announcing this Week probably tomorrow so I can't talk About that one right now um but it's Really exciting uh happy to come back in A on a future day you got to give us Some headline um I would say it has to Do with the complexity of of developing Software today it's a company we've been Tracking for a long time really awesome Set of Founders and uh is growing like Gang Busters so we're really excited About that one and by the way at at ivp There's no like we don't take individual Ownership for any given deal there's at Least two GPS on every single investment As sponsors um but it's really the whole Partnership behind every deal so it's Always an awkward question but I'll take
Some some ownership for these cortex is A company that uh has recent ivp Investment think of it like a portal or A catalog that helps give developers um A reference on all the services and Pieces of software that exist within um A software stack of a of a tech company Um so that you're not going in and Trying to basically uh figure it out for Yourself every time and is a sort of a Rich database of information on Everything running within a a company Software stack cribble is another one Cribble is basically a a platform for Data or log management I VP invested in It's a company that's at scale right now Um we invested a few years ago and uh Think of it as sort of the the next Generation of of log management like a Splunk um or uh other systems like that And they help save companies a ton of Money and give them more control Granular control over how they route That data and ultimately what they do With it um really boring stuff I love This sort of stuff that's deep within The stack of a uh of the infrastructure Structure of big Enterprises absolutely amazing uh I will Share some fun stuff we're doing okay so This is a fun one um so you know we have An accelerator called the launch Accelerator very similar to Tech Stars y Combinator we've done 32 classes we've
Had a number of companies become worth Over 100 million we had a unicorn come Out of it and we're on a 302 class and Before that we have something even more Fun called founder University which is Year zero people building project So we now have year zero and year one so We kind of get in ahead of why Commentator and Tech Stars with this Founder University product where 200 Teams come together to build a product Half of them aren't even Incorporated One of those companies was Chef's Reactions somebody who I met online and I was watching Mr Beast and some of These other uh performers create really Large businesses and he reacts two Videos on Tik Tok have you any of you Ever seen him in these hilarious videos Yeah you have great yeah so he's Absolutely extraordinary because of my Son my son my son L he has 3.6 million Followers now he gets regularly you know Quarter million to a million uh people View each one and he was working um at Like a golf club or Resort uh me in Canada making a you know a chef's salary Basically and uh in our founder University we'll give people 25k for 2.5% if they start the company we become The first investor million dollar Valuation done 80 of those invest so far People in the industry think we're crazy And now they're starting to become real
Businesses this one when we gave them The 25k went from being a you know maybe $115,000 a year to $30,000 a year like Little ad business uh immediately to $300,000 in advertising revenue and some Merchandise and uh we said to them hey Would you come to the accelerator and Let's take the next step let's build a Repeatable business with product Services Etc we're not going to announce The product or service here now but Distribution is the hardest thing that Found Founders um can do now imagine you Have distribution and a loyal audience And all they need is a product with your Name on it that's what we think you know These top influencers represent and so We're doing two experiments I can't talk About the other one yet where we're Making small bets on them then a second Bet and then eventually a third bet so Now Chef reactions is in our accelerator And we have a really exciting business That he'll be debing shortly um layer Path allows people to really quickly Create product demos product demos super Important whether you are a startup or a Big company like taking people through Your product um in order to adopt it Super important whether you're like Walking people through how to use a Drone or how to use your car VCR what You know historical or it could be an App and so they make this tool that is
Incredibly fast and let you manage so Imagine figma or another content Creation tool like that Adobe Premiere Photoshop but just for this one use case And just think about how amazing those Product demos can be product demos are So uous to build that a lot of people Skip them and those are some of the Things that make products the most Sticky so we're very excited about that One master tech. yet another AI company Verticalized um they are creating a Companion like a co-pilot for mechanics Now you're like well mechanics like you Know what do they know about Ai and Computers they don't need to know Anything if they put on a pair of Glasses or they go to their computer or Laptop which they have in every Bay now And you tell it what you're doing Whether through voice or by wearing a Pair of AR glasses or taking a picture Of something they now can get you in Touch with the latest reports and there Are these reports created by every car Manufacturer and they change all the Time Toyota will put a new one out for a Carburetor whatever it is so now imagine Using AI to make mechanics make less Mistakes and to get that car out of the Bay and into the parking lot ready for The customer faster we think there's Massive leverage here um and if you can Make a mechanic but 5% faster and reduce
Errors By 5% this could be a money Printing machine um and we just love These kind of boring businesses and We're getting really good at finding Them ridiculous Tam you know when I Asked them the number of mechanics I Think is low millions and the number of Bays we we we actually we do a top what We call a bottomup tam every time we Invest in a company and we train our Researchers to do that and actually they I was really surprised because I was Like tell me the number of people They're like oh the number of mechanics Isn't what's important I'm like okay Educate me they're like number of bays And my team figured out the number of Bays there were uh because that actually Is the throttling is how many bays you Can get active at once and then one Mechanic might be working three bays at A time because they're waiting for a Part and they don't want to take the Thing down you get the idea um so super Excited about these three uh and I just Want to say like the entrepreneurial Activity because of AI I'm Tom I'm sure You're experiencing this and it has Reinvigorated entrepreneurs where they Are looking at every single problem in The world and saying AI first what does It look like just like they did with Mobile just like they did with Cloud Just like they did with the internet
Broadband dial up CD ROMs media before That PCS before that flying server Before that just and and this one feels To me like the one that takes all Previous platform changes and just I Don't know 10x is it like The Leverage These companies are getting to I don't Know if you're seeing this in your Portfolio Tom like the number the the Revenue per employee or the number of Employees to get to a million the number Of employees to get to 10 million it's Saying static it's a a static headcount Is a thread or or a theme I've been Really focused on ruber stays the same Size but grows ravenue in the High Teens Or low 20s every year what's happening Wait a second like this is a really big Big story that is not being reported Anywhere yeah we're definitely seeing That within the portfolio like a bunch Of companies do Rifts take out 20% of The head count and they're like oh our Sales are going to go down 20% or 10% They're like it went up 3% this quarter Like how did that Happen dead weight yeah and and just People underestimate the bigger you get The more complex organizations get the Less gets done yep 100% I mean you you Essentialism you know just like this What is essential in running a business Is a question being asked right now and I think in a world of unlimited capital
And some money printing Machines the wrong lessons were taught To two generations gen xers and Millennials which was just higher ahead Of growth just keep hiring just get that Talent off the market get them into your Get them into a cube we'll figure out What to do with them later wrong bad Idea total distraction this is why I Hate internships because they 10 weeks Of an intern by the time they do Investment whatever they do something Meaningful they're like bye I'm going Thanks for the thanks for putting me on Your resume I'm now going to go work at Ivp and bring them all your secrets Jake And I'm like thanks I only do Internships for LPS and they they're kids I was say I I Love I love my Interns I mean it's it's don't get me Wrong it's I'm trying to like train them Up to go into private Equity you know I'm like skip the institutional Allocator go straight to private equ you Just want a network of spies out there Dana who can report back absolutely There it is planting them everywhere Sleeper cells inside of Black Rock and Other I love it right right and Dana I Want I want to put you on the spot you Have aund million minimum check size how Do you invest in bu Funds um so we were talking about this
Earlier yeah I just wanted to say like I 100% 100% um you know I want innovation In our portfolio I think we have like 800,000 retirees I think to have an Alternatives portfolio where you have You know different um return profile you Know kind of investing in different Assets but private Equity it's the Growth engine of our $90 billion you Know portfolio and a big key to that is Having Venture in the program um and how Do I do that when I'm writing hundred Million checks I write 100 million doll Checks because I have great Partners Like ivp that can take $100 million we Think very carefully around what is an LP base of a manager and um we never Want to be more than 10 to 15% of a fund Because you want a very balanced op base And what happens if a CIO comes in and Hates Venture and you never get to Invest in Venture again that happens um Where there's just different priorities About how allocation policies should be Developed um I fortunately work for an Institution where you know our Allocation policy is very generous to The Alternatives and you know we're Targeting 133% um for private equity and that Ranges I would say like you see other Large institutional investors it's 16% um in endowments it's much much more Right it's you know kind of north of 20%
Or 30% is you know kind of their Portfolio is dedicated to venture so 133% I'm under allocated I'm at 12 I'm One of the few you know allocators coule More1 million Che actually has some Capital to deploy I mentioned where it's A global portfolio and I'm investing in Buyout growth and Venture um and we have A lot of partners that help us all get Allocated dollars to we're investing in Emerging managers I'm investing in Emerging Venture managers I'm investing In emerging growth and buyout managers And then I'm also investing I have an SMA for mature um seed series a funds That's where I'm kind of like skewing to Seed series a in this SMA where the Check sizes can be from you know 10 Million to 35 million and these Portfolios are meant to be built and you Know we'll keep allocating 300 200 Million 250 and then we you know kind of We'll fill it up with allocations we'll Close it and then we'll start a new one And so you know you have these vehicles Where you can kind of keep reupping into The managers in separate so you have Vintage year diversification you have Manager diversification you have Generalists you have sector Focus you Know the whole you know nine yards Primarily North America you know for the Venture programs but yeah that's how I'm Building my Venture program where I have
My core you know the key primary where I'm investing 100 to 150 I'll have the Smas where I can do my smaller checks For the emerging and then for the mature Kind of early seed series A and then Eventually I'll probably do some sort of Secondary to kind of you know as I said Earlier kind of cover those vintage Years where we did not have you know Exposure so we're really busy over here It's been a year um I probably allocate Between a billion and a half and 1.9 That's my target annually so far this Year we're probably at about 1.3 billion Um in terms of what's been committed um And there's stuff that was just approved Today this this has been a really busy Day we had our our state investment Council meeting and I am you know very Consistently building a program that you Know kind of will into you know kind of I'm thinking again for the next 10 years What will this program look like um and Each year I know what managers are going To be going into it I'm constantly on The hunt for new managers don't forget Seed in and series know see series a is Huge part of the SMA well both both for The merging and for for the I mean it's A challenge because we we decided we're Going to do $50 million funds back Tom To your thing that you know strategy Equals fund size I think you said or Strategy dictates fund size not fund
Size dict strategy I could raise larger Funds but when you're trying to do Something you know that's an accelerator Pre accelerator and then just follow on To the top winners you don't need 150 or 250 million you need 50 or 75 is the Right number right um and then Everything else becomes attra which Means we have a lot of people who love Us but they're like oh we have this Thing 25 is the minimum and we can't be More than 10% so you you have these you Know formulas that are you know codified Um and they make sense I understand why They're codified but then they just Preclude and relationship from occurring And I'm like make an exception do 5K do 5 million or do 10 million they like Yeah I go to a group I got to get them To approve that exception and but I do See people now starting to think about It so I think it's a solution you come Up with yeah like how do we engage those Managers and it's not a fund of funds I Mean it's this is managed account Specifically from New Jersey but the key To it is that there are five other Managed accounts by large institutional Allocators so there you know kind of our You know partner goes out they get an Allocation they come back split it Across you don't even have to I don't Even have to go into all of the you know Allocations that they bring to us but
There's a whole ation policy and it's Just what I'm focused on is building a Flywheel and also back to relationships Because some of these managers May grow Or I may make that exception and do 25 Million versus 100 million but it's all About getting to know the manager right And developing the relationship and Having the conviction around that that This is going to be especially if it's Seed or series a this is going to be a 10x fund which is you know what seed is You know unique position to Do great job David congratulations on 20 Episodes are Yeah I mean I just wanted to do a niche Podcast because I couldn't find anybody Talking about these things with people Like us and it's like this is like a Wonky podcast that we all enjoy about a Thousand of our friends uh it's very Difficult we're very very honored and Very privileged to have somebody like Dana from Pension funds because it's not Easy to get Pension funds on on on guest Oh really oh I'm sorry well sorry on Behalf of my peers but I think that it's It's it's more comp comp yeah I feel Like part of my job too is to educate You know kind of our broader audience on Why what we do why we do it and you know And how we do it well another great Episode we've made it to episode 20 uh For Dana John's Tom lavaro Jason calanis
This is your host David Weiser thanks For listening
