SPEAKER_01: and i was the bad guy for bringing even bringing it up you know because it's not founder friendly

SPEAKER_00: this is in the past though i don't think a lot of that's happening now right zero none of it's happening now yeah right but that that did happen so that everyone knows in the past five six years

SPEAKER_04: i mean that was i wouldn't say it was common but it was it was happening and that's how later stage firms were competing and they're making their best offer and they're appealing to some of the

SPEAKER_06: short-term thinking of the founders if you wanted to be generous you could say short-term thinking it's not a criticism of the founders because they're just acting rationally right so it's

SPEAKER_08: an offering we have multiple offers and we we pick the one that's best for us yeah so you know you don't blame it but it's bad hygiene i think it's as michael's saying it doesn't exist anymore but

SPEAKER_15: yeah wow that's a good first topic we went deep on some inside information on how things work in silicon

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SPEAKER_21: liquidity this is a podcast where i'm trying to put together a little bit of a mix of gps and lps and david weisberg is going to help me moderate because i as a gp want to contribute and david's done such an excellent job moderating so david why don't you kick us off welcome to this week and

SPEAKER_25: startups this week we have a very exciting episode we have of course the world's greatest moderator jason calacanis and a special guest michael kim from sandana capital one of the top lps on the

SPEAKER_23: planet guys welcome to the podcast thank you great to be here thanks for having me on my podcast david

SPEAKER_30: great job moderating last week no pressure no pressure and it's great to see both of you on

SPEAKER_31: together yeah we're doing a bunch of experimentation over here at this week in startups trying to get some new faces involved in some new formats so here we go a round table with an lp and a gp

SPEAKER_25: all right excellent excellent well thank you jason let's get started the wall street journal reported this week that lps are doubting venture fund startup marks teresa hager from cambridge associates which advises over half a trillion in institutional capital stated in the article that whether lps can trust valuations from vcs today is a very relevant question michael why don't you start by giving a

SPEAKER_00: quick bio on yourself to the audience sure i'm the founder of sandana capital i started about 12 years ago

SPEAKER_04: we have about 2 billion under management and we focus solely on seed and precede funds so we as an lp are making commitments to these funds we view ourselves as the lead investor not only by check size we do write 10 to 25 million dollar checks but also because we work so closely with our fund managers and ultimately want to be their trusted advisor so i think we have a pretty good perspective on how our fund managers are thinking and what they're seeing and this is uh globally so we invest predominantly in the us but also outside as well tell me about this wall street journal article do

SPEAKER_25: you think that this is commonplace is this a one-off how commonplace is it for gps to overstate their

SPEAKER_04: marks i think it's not so much overstating it but rather perhaps being a little bit slow on the draw in terms of marking things down i would say that you know we we talk about this a lot with our fund managers and for the most part i'd say that they're they're quite good at marking things down some better than others and you know in terms of actual the the mark downs that came over the past two years the bulk of it actually came by q3 of 2022 because that's when you know the nasdaq was going down 33 and especially the later stage companies i think our fund managers did a really good job of actually sort of marking to market and doing sort of comparables analysis and saying oh this 10 billion dollar company that's that got valued uh in 2021 at 100x revenue multiples that's just unrealistic and and and it's closer to like 10 times maybe 20 times so we saw the bulk of our markdowns come in um in the second half of 2022 and uh yeah i'm getting confused by the years i know it's

SPEAKER_40: general it's going fast right now isn't it yeah it's 2024 now michael okay got it yeah and interestingly

SPEAKER_00: over the past four quarters there's been sort of low single digit mark downs and in fact there are newer

SPEAKER_04: funds we've actually had mark ups because you know these seed stage companies actually doing the series a's that that brings you a markup and so i the the punchline is you know i think uh the bulk of the marks came uh markdowns came in 2022 but to answer your question more specifically you know uh do lps worry about this absolutely and in the context actually of their asset allocation so you might have heard about the denominator effect what that really means is if you're a university endowment and you have a big pool of public equities and that went down you know 40 percent in 2021 suddenly your private portfolio is over allocated and so you know what generally happens is the private markets um in private markets you know pe and venture the the the marks start coming down but so there's a lag time and it's sort of that that trough or that uh that period of time where the the private marks haven't really caught up to the public marks that lps get um all twisted up so i think we're actually past that and um you know i think it's very rare to have an uh a fund manager that has you know a

SPEAKER_44: deck of corn in their portfolio that hasn't at least been looked at in terms of of current marks let's

SPEAKER_25: get to brass tacks on that let's say you have a fund manager and they're marking up their book you know or

SPEAKER_23: they're not marking down their book would this preclude you from investing in them is this like uh

SPEAKER_47: you know a deal breaker i think it's it's it's a red flag uh maybe a yellow flag but uh perhaps

SPEAKER_04: even a red flag you know it's either that they're not on on top of things they're not sophisticated enough to know that you know they should be looking at the valuations that they're carrying at just one easy example is that you know does the fund manager mark their safe up uh to you know for example um none of our fund managers do that but you know you see that on occasion but it is at least a yellow flag and where we actually have the benefit of sort of our little perch is that you know we might have three fund managers in a specific company and then we can actually see where each one's carrying them and then we'll actually proactively talk to each one saying hey these guys are carrying it at 50 uh markdown why are you carrying it at you know at the last round so we have an active discussion and we don't see it that often um i would say that in general our fund manager has been pretty good about about marking things down but you know it it is it it is something that uh writ large the venture capital community really needs to keep a better eye on and i i think that's uh i think that's why the lps are sort of on top of it for them and jason you're an lp and 20 funds so you both

SPEAKER_25: have the gp hat uh but also the lp had what are your thoughts on this when i'm an lp in funds i'm i'm

SPEAKER_28: a very simple individual investor uh as an lp i don't answer to an investment committee i'm the investment committee i don't have a cio or a family office set up as such so you know i'm just looking at the moic you know the multiple of my invested capital the two numbers how much did i put in i put a hundred thousand into this fund and ultimately how much did i get out now of course you can back

SPEAKER_50: into the irr and everything and you know i was kind of shocked as i became a fund manager michael

SPEAKER_28: over time and started seeing reports back from the people i was lp-ing right just that there was no standard here there really is not a standard on valuations and people were doing all kinds of cute things like oh somebody paid you know in a secondary market for shares of a company so i invested in the shares were worth 10 but there was a secondary transaction that occurred at 15. so where do you mark that company right yeah should you take the high water mark of you know some secondary transaction that occurred who knows who's buying those shares how sophisticated they are do you take the public market comps that you hear brad gerstner talk about all the time for sas companies and then apply them to private market companies well the private companies might have different growth rates and the amount of cash they have in the bank well this matters right and so there doesn't seem to be a gold standard of how to do this um i'm just always in favor of being as intellectually honest and rigorous as possible and focusing on the dpi eventually what do we distribute in terms of cash

SPEAKER_56: that's what's going to matter and i i had all these funds it was very interesting i'm sure you had this

SPEAKER_28: happen michael as well during this zerp environment 2019 2020 2021 some of them hit crypto uh you know

SPEAKER_58: lotteries and you just people would be like oh yeah we're we're we're 6x fund and i'm like okay

SPEAKER_56: sell all the shares and close right shop like we're done here and they're like oh yeah there's no ability to do that there's nobody buying these crypto assets at that price you know two years into the fund and they're 6x if you were two years into your fund michael and the fund was 6x the correct

SPEAKER_62: thing to do would be start liquidating right or start thinking about it at least yeah and and you

SPEAKER_04: know there's obviously a discount for private securities right um and especially with tokens and actual crypto positions um you know the market in in a lot of them weren't deep enough so that they can actually unload and so the proper thing there probably should have been to carry it at some

SPEAKER_25: sort of discount right just to play devil's advocate i've had multiple lps i won't state them but i've had multiple lps basically telling me that there is incentive for the for for them for the marks to be uh

SPEAKER_23: held higher you know mike uh yeah at a lot of the top lps there's revolving doors there's institutions where every two years there's a new team and many lps actually pay a bonus based on the marks um so it's not only an issue it's it's an issue of incentives do you not see that in some of your peers

SPEAKER_04: yeah absolutely i mean i i know of different lp entities where the annual bonus is actually based on irr which i think is doesn't make sense to me because that ir especially if you have a young portfolio can change so drastically right and i think i at least for us we don't really look at irrs until something's you know we might look at something that uh might be 10 years old and then that gives you a useful metric to compare against other asset classes but to look at an ir right now of let's just use an extreme example of a secondaries fund right a secondary fund is buying something let's say at 50 discount on their books they will mark it back up to what the nav is and so right there you have you know thousand thousand percent irrs now obviously that comes down over time but you know using irrs uh for a young portfolio doesn't make sense to me there's tons of incentives here and

SPEAKER_28: i always try to think about do we actually understand our portfolio this is something i've worked on as you know my organization has grown we're on our fourth fund now got 21 people just making sure we actually understand what's happening at our companies that's the bigger issue in many cases so sure you might have one gp getting cute and marking things up another gp being super pessimistic and

SPEAKER_56: conservative uh most are probably doing something in between the two but the more important thing is are you on top of these companies and you know where they're headed because i've been you know i've had friends who have very large positions in a billion dollar company that suddenly goes to zero and they read about it in the press and they didn't even know what was going wrong with that company i think we saw envision get blown out recently right and that was a company that was worth a couple of billion i'm sure michael some of your funds might have had exposure to it and then all of a sudden some top tier firm is now in the one from the first quartile to the fourth and they didn't actually know it was happening and i'm really examining myself as a fund manager right and thinking did i liquidate enough of these shares early because as a seed fund we sometimes have opportunities to

SPEAKER_73: liquidate at 500 million a billion and did we did we do the right thing in terms of getting dpi from tvpi

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SPEAKER_25: what's your you have a pretty prolific and large portfolio what's your best practice what's your cadence and follow-up and how do you like to follow up with entrepreneurs we're building software to do it

SPEAKER_56: actually so we we did two things that are unique it's a great question um number one we put into our side letters that we expect 10 updates a year from founders most founders do five we then uh put in our firm the past year a primary and a secondary contact for every single startup we then have every single startup in a slack room and we have in our database their cell phone numbers if we don't get an update we've also started to build software for this and so this year we started deploying the software very simple we ask people to answer five questions if they don't send updates number one how many employees do you have currently you know on january 1st what's the cash balance on january 1st what was your spend in december what was your revenue in december and then answer a question are you when are you planning to raise money next we're raising money we're not planning to raise money three months six months next year and when we just get the answers to like those five questions

SPEAKER_28: we can do a lot of math and we can look at over time how many employees does this company have when what's the burn and what's the growth rate etc and once we get compliance on that uh it works out pretty well and so it might take us five contacts with the founder to get an update and we just tell them hey just give us these answer these five questions and then i'll call them on the phone i'll text them or can you imagine like i call somebody on the phone and it's a you know a startup and i'm like hey it's jacal and they're like oh this is the first time you ever called me on my phone and i'm like yeah hey we sent like five emails i know you're super busy i don't want to be a pest i know what it's like to run a company but sometimes when people don't respond it's because

SPEAKER_56: they're really struggling with something we're here to help so are you struggling with something is there anything we can help with and man people open right up right they open right up ah yeah you know we lost our sales person i lost my ops person i lost my co-founder we lost his big client everything's a disaster we're thinking about shutting down and we can just have an honest conversation right and i think that's kind of the best practice i've come to in my second decade which is just giving founders permission to speak freely and not and then build a little software around it to scale it it's a great

SPEAKER_25: question it's a two-sided relationship if you want founders to be honest with you you have to be willing to take their honesty and to be productive and helpful michael you were going to say something

SPEAKER_04: about this approach yeah well yeah i mean i think that's a very uh smart approach and we we do some of that as well you know we structurally we have uh monthly calls with each one of our fund managers they're 30 minutes they're no agenda it's not a portfolio review so you know we let the fund manager talk about what they're thinking about what they're seeing in the market vcs being vcs they want to talk about their best companies so we get a lot of qualitative information around that you know new hires new contracts what the revenue is tracking to we actually have a rolling list of companies that are coming up for funding over the next quarter or two and uh so you know and we have a actually a salesforce based uh database so we use that and we capture a lot of qualitative that data that way but i think that discipline of doing monthly or bi-monthly calls is important for us to stay on top of

SPEAKER_91: where our fund managers are and actually where all the portfolio companies are at least the value

SPEAKER_93: drivers yeah there was another company pitch.com i think that was in the news this past week and i

SPEAKER_28: you know i hate to pick specific companies and you know beat up on whatever but the co-founder and the founder were sort of talking publicly about it but they had raised they were valued at a big number raised uh you know somebody had i think you know a small amount of money left and you know sometimes these things look really great on paper and then when you dig under the hood and you're looking at the reality of it you know somebody got really frisky with that last valuation and they didn't grow into it and you just have to sort of accept that and man it sucks when you have to mark things down or remove things from the portfolio but we're in a power law game so once you accept this is a power law you're going to hit you know two or three winners in your fund and they're going to represent what michael 99 of the returns yeah vast majority yeah so you just you you have to understand the game that's

SPEAKER_97: being played on the field and manipulating these numbers or tweaking them massaging them it's just

SPEAKER_00: it's short-term thinking yeah i mean david just bring it back to your original question i think it

SPEAKER_04: buys a lot of goodwill for fund managers to err on the side of conservatism being proactive in marking things down and being transparent to their lps i think lps really appreciate it when the fund manager is telling them that we proactively mark this down and here are the reasons why and that is an order of magnitude better uh position to be in a order of magnitude better dynamic than the lp having to look at a statement of investments and say hey what's this mark and then calling that gp up and saying how come we didn't mark this down what are you thinking um the other point i'd want to make is that none of our fund managers mark things up unless it's a new round led by an outside lead you can argue that companies that raised in 2018 or 19 and they just are doing so well they haven't needed to mark up and now they're doing 500 million in revenue and they're profitable but they're being held at 200 million valuation you could argue that maybe you should mark that up what are you doing that situation yeah i

SPEAKER_00: i haven't seen that yeah we've we've seen it in just basically two companies out of 4 000 that we

SPEAKER_04: were in and we told the fund manager that they should talk to their accounting firm and uh you know get their thoughts on whether they should actually mark the market um but you know our fund managers actually ended up not marking things up so i yeah i appreciate that we had that happen

SPEAKER_08: with com.com that we invested at four and a half million we bought six percent of the company and they

SPEAKER_28: just kept going up and to the right but they were so capital efficient they didn't need to raise money the second round was 250 million so between those two moments in time we had it at four and a half million on the books and three or four years maybe it was four years later boom all of a sudden they had this 250 million dollar round where we were able to sell some shares a modest amount but you know

SPEAKER_56: we locked in like a 5x for our investors selling 10 at 250 it was quite nice yeah nice yeah we never it

SPEAKER_97: never came across our minds to mark it up we're always just focused on helping the companies

SPEAKER_65: and not playing any games with the marks yeah how do you look at that michael you've you mentioned over 4 000 underlying portfolio companies what do you want your gps ideally to do when it comes

SPEAKER_00: to secondary that's a really interesting question because historically uh our fund managers have been

SPEAKER_04: pretty active with secondaries and you know we were thinking about what what's kind of like the right framework for this is it like are you a 10 10x moic on your original investment or on your total investment including the follow-ons or is it a percentage of the fund that you know it'll return where the games can start creeping in is where you know they're very close to being 1x dpi and they can they can get into carry by being uh by selling some shares of a company then we actually have to worry about are they selling too early but um in general i think our fund managers have been pretty good about actively thinking about how to get liquidity and i would say that at minimum um they would be they would start considering selling a portion not all of it but a portion at at least the 10x and you know in general um it's returned sort of 10 to 20 of their fund perhaps i think that's

SPEAKER_28: pretty good numbers we we look to pair our position uh when we're 10 20 30 40 x by just 10 percent and uh we did that with calm at 250 and then i think a billion and change and on that 376 378 000 investment you always remember the winning numbers 378 in a you know uh we wound up selling 20 of our position i think it wound up being about 12 or 13 million in total between those two transactions like a million at the first one and 12 of the second and um i remember having a conversation with one lp michael and they said uh oh my god this is the best investment i ever had i'm like congratulations or whatever and i said yeah we still have 80 of our shares and they said oh i don't understand and i said we just sold a portion of our position and they're like i still don't understand what do you mean i'm like okay we have this many shares a hundred thousand shares let's say a million shares sold 200 000 we still have the he's like what you're telling us there's we could do five times that and i was like yeah he just it kind of broke the lp's brain that we you know had this happen and it happened with um you know another sas company we had in peak zerp they went through our accelerator became a unicorn i think we're able to clear 16 or 17 million on a million dollar cost basis by selling 14 or 15 of our position amazing you really have to take advantage of those moments and i i kicked myself with uh robin hood uh we had so many opportunities

SPEAKER_56: you know at 30 and 40 uh before they went public i really believe in that team i still do i've personally held all my shares but when we distributed i think we wound up distributing between you know maybe at 15 or 20 or something in that range and it did go to 60 or 70 when it was public

SPEAKER_97: and so it's very hard to time the markets and uh yeah yeah you do the best you can the other advice

SPEAKER_116: i would always give our fund managers don't sell your entire position so we've had two cases where fund

SPEAKER_04: managers one of them sold uh uh their entire position at a 300 million valuation you know high fives all around but then we were thinking uh-oh um why did they sell their entire position no but um they're currently their last round was at 9 billion and they are filing to go public this would have made a 20x fund into a 100x fund which never happens yeah it's yeah that would have been very rarefied uh territory we have another fund manager who was basically the co-founder of a company he sold his entire position at a billion five the company's most recent round was done at 25 billion you could argue that maybe it's the the true value is somewhere between six and eight but

SPEAKER_91: again he missed out on multiple turns of dpi so you got to have schmuck insurance you can't sell your

SPEAKER_121: whole position just to talk personally about my personal uber position i still have a large portion of

SPEAKER_28: it it's trading today it broke a record but i sold a little bit back to the company years before the moss around at 32 a share then i sold a little bit to moss at i think 40 a share you know so i was able to pair the position take care of my family buy a home you know and do all that important stuff awesome right and still have so much skin in the game and i don't know that i'll ever sell another share of um uber i just had dara on the pod and i just have so much faith in that company that i and i was talking to freeberg about google and i was like what if you held on to your entire position or chamath where he held on to his entire facebook position you know it's you have to think these things through you know keep some portion of your position because it's so rare to

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SPEAKER_00: what i'd point out is one way we think about our fund managers is are they sort of like starry-eyed

SPEAKER_04: you know looking to save the world just uh dreamers finding great founders or are they also and i'm saying also are they also hardcore investors are they actually thinking about making money and you know you would think that vcs are all in it for that but they're actually not there are people who are just like in love with companies and what they're doing and the mission you know sort of the stereotype but we all we specifically look for investors someone who's actively thinking how am i going to make money does it make sense to actually think about a secondary here you know like jacal described that's that's ideal you know you always want someone to be thinking when is the right time

SPEAKER_00: to exit perhaps not the entire position but you know some some portion of it and actually make money

SPEAKER_56: there are contemporaries of mine who i've had conversations with who have said i i don't want to sell in the secondary round and i said why i'm selling you know whatever position and they said well

SPEAKER_12: i don't want to make the founders feel bad and i i don't want them to think i don't have faith in them

SPEAKER_56: and to michael's point like there are big hearted folks in vc who he's you know what he's describing is not like a rare case i think a lot of people feel this sense of loyalty and when we had a group of founders say to us hey we're selling in secondary will you pass on selling in secondary so that we can sell more uh this happened to me and i talked to my team and i and i said let me get back to you on that i talked to a couple of my mentors you know very high profile vcs who've been in it for multiple decades and uh they said well you also you also work for the lps and so the language i came up with was listen we're parry pursue with you whatever percentage you sell will sell you it's really in your best interest is what i told them you know for the community for me to be able to liquidate so i can raise future funds so that i can help the next group of entrepreneurs so i have to take advantage of this opportunity for my lps just so you know for the ecosystem it's good the founders like yeah we totally get it no problem but you know the founders took a shot they went to all their

SPEAKER_28: investors and said please don't please decline selling secondary and they put a little pressure not a lot and i think you know probably worked with half the investors and the other half were like like the lps need to get a taste here too they trusted us with those early investments and took

SPEAKER_23: the risk so you have to be thoughtful and jcal secondary has been controversial subject for for decades in silicon valley founders secondary is there a specific amount of money that you you think

SPEAKER_25: is good for founders to take off like you know i would feel very uncomfortable uh if they were taking large positions off giving exactly number michael yeah give the exact number two founders what could

SPEAKER_53: they take off each without you being worried i have a number in mind i want to hear michael's first

SPEAKER_04: though i think that if a founder would take say two million off the table um by the time the company is sort of at the series b stage that makes sense i i think a secondary at series a is utterly crazy that's nice and so and so you generally you see founder secondaries it's sort of series b maybe but typically even later stage right series c or later i mean ultimately what you want to avoid is um demotivating that founder they have to maintain that hustle and suddenly if they have a hundred million dollars in their bank account they may not wake up every morning um worried about the company they may not go to bed every night worried about the company and i think there is to jason and jason's point there is and to david your question there is probably a number and depends perhaps even on geography but let's just say bay area i would say that you know two to maybe three million uh maybe helps reduce your mortgage payment or eliminates it helps ensure that you you have you're comfortable

SPEAKER_70: that you can cover your kids schools and your living expenses but you know double digit millions is

SPEAKER_08: just ridiculous yeah my upper bound is 10 million because after taxes is you know seven um six and a

SPEAKER_28: a half whatever it winds up being again it really does based on geography as michael correctly pointed

SPEAKER_56: out that's exactly what i thought of what is your primary residence going to cost if it's a family if

SPEAKER_28: it's in the bay area it's two to five million dollars for a home i know that sounds crazy to some people who are living outside of new york la and uh the bay area when you start talking about private aviation or a second home that's when a founder is completely completely off the reservation they've jumped the fence they're distracted because i can tell you well you know and i'm 53 now when i got my second home at the age of 50 and i had a ski house my life became like super complex oh there's a second house and i have not gone in private aviation i literally have and i you know i've been sitting there with the jet card in my email box ready to sign and just didn't do it because i was like you know what i just want to stay focused and be normal once i start taking private jets i'm just

SPEAKER_56: disconnected i kind of like meeting people at the airport the fact that i can fly business class is a big enough win for me you know it's like delightful to be in united or american airlines business or first good enough for me as a kid from brooklyn so and i can tell you the number that was crazy was i don't know if you had anybody with exposure michael to the hoppin founder uh which my friend gerstner had access to he took 200 million off during covid great move on his part that was insane and um then there was bird and i think the bird founder somebody whispered to me that they may have

SPEAKER_65: taken 50 million off the table the scooter company he got a nice place place in miami there's your

SPEAKER_73: point like how focused are you going to be as a 30 year old person with a mansion or two yeah well you

SPEAKER_152: know the other thing that was driving this at least in the zerp era was the late stage guys as a way of

SPEAKER_04: competing were saying hey let's do a founder secondary we'll buy the shares and then post money post close we will give you more options so and to be honest in a way that's bribery and that's actually how uh some firms are competing in order to win a competitive deal at the late stage and you know who gets screwed in that is the early stage investors right and this is like the dark underbelly

SPEAKER_28: um and we fought it and i you know that now you put me in a really weird position i'm trying to protect my lps as a seed investor in the company we own 10 you come in and say hey we're going to give the founders this offer to win the deal so we'll put in 100 million and we're going to buy 25 million of their shares and we're only going to buy the founder shares not the other employee shares and

SPEAKER_56: then who is the founder going to say they want as their new partner at the board meeting exactly firm a or b well b is offering me 25 million dollars and they said we'll re-up you in the option pool so that's a bribe it's literally exactly and i was in a board meeting michael saying hey guys um we should fork this conversation let's make a pure fundraising decision for all shareholders

SPEAKER_28: and then make the secondary decision and the re-ups for founders at the first board meeting after we

SPEAKER_01: closed that and you know what happened i lost oh yeah and i was the bad guy for bringing even bringing it up you know because it's not founder friendly yeah that's this is in the past though

SPEAKER_00: i don't think a lot of that's happening now right zero none of it's happening now yeah right but that that did happen so that everyone knows uh in in the past five six years i mean that was i wouldn't say

SPEAKER_04: it was common but it was it was happening and that's how later stage firms were competing and you know they're making their best offer and you know they're appealing to some of the short-term

SPEAKER_06: thinking of the founders if you want to be generous you could say short-term thinking it's not a criticism of the founders because they're just acting rationally right so it's comparing we have

SPEAKER_08: multiple offers and we we pick the one that's best for us yeah so you don't blame it but it's bad hygiene i think for sure it's as michael saying it doesn't exist anymore but yeah wow that's a good

SPEAKER_15: first topic we went deep on some inside information on how things work in silicon valley

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SPEAKER_163: get the 20 off as well openphone.com t-w-i-s-t speaking of inside information uh no longer inside

SPEAKER_23: information and a move that's done the vc community keith or boy is leaving founders fund and going to

SPEAKER_25: coastline as a managing director uh keith was previously at coastline for six years prior to moving to founders fund in 2019 where he was a partner for five years the announcement of keith or boy returning came shortly after kosa announced their 3.1 billion dollar fundraise across their main their seed and their opportunity fund so keith will have a lot of capital to play with when asked about the change keith stated that coastless culture of weekly partner meetings which included debate and coastless hands-on investing approach and founder mentorship mentorship was a better fit for him

SPEAKER_49: than founders funds more individualistic approach jason are you buying this is this the reason keith

SPEAKER_08: uh moved to coastline well so there's there's two things occurring here that i think are of note

SPEAKER_28: uh number one this is succession planning i didn't see anybody mention that but kosa um is in his 70s um he's spry he was at the all-in summit he is sharp as attack but you know he's in his 70s and

SPEAKER_97: so i think this will be kosala raboi as a firm very soon and i think whenever kosala decides to hang it

SPEAKER_28: up this will be keith raboi's firm number two there is something to keith about debate you see him on podcasts you see him on twitter he made a funny comment on this podcast you know well i was on the internet and somebody said something that was incorrect so i felt the need to correct them like literally that's how he's wired if somebody on the internet says something that's incorrect he will correct them and you know wrong like this your actions that's a big burden it's well with you know four

SPEAKER_93: or five billion people on the internet it's a full-time job but i you know vinod loves keith

SPEAKER_28: because they're both candid and they're both like debaters now you go to founders fund and you think about peter thiel and obviously peter and keith and sax all went to sanford together stanford review all that kind of stuff they're all part of the same click but there there there does need to be a recognition of the culture at a firm how does this firm make decisions and and that's something i've learned being an lp and 20 funds i always ask about that and then i've really worked on it at launch how do we make decisions we have deal flow locked in we don't have to compete for deals because i have a good profile and i act at the seed stage where this generally it's not as

SPEAKER_56: cutthroat it's passing the hat a lot so then what's left really two things i have to really solve for do we make great decisions and do we double down which is also a decision and that's what i'm obsessed with and i think at founders fund brian singerman's approach has been hire really smart people make bets that they have conviction on or let them start their own companies and then in every fund put a third or some crazy number he's told me into one giant bet and uh you know that's a different culture than say costa's going for and so i think it's great to have that recognition that different cultures work there's consensus-based cultures there's solo freelancing kind of based cultures and i don't know my question for michael kim is do you have a preference for the decision making culture or do you see one win more than others yeah i mean a lot of the platform firms you can

SPEAKER_04: say are more siloed uh partners are more siloed and they have the authority to go ahead and make a decision a founder's fund clearly absolutely top tier firm um and they've done very very well with their model um you know one one one example um to just uh to amplify what jason was saying you know when they raised founders fund three they immediately put a quarter of that into palantir and that was a brilliant move wow um and in founders fund two you know uh they actually sold uh well so yammer was in there uh david sax's company prior company they took the proceeds from that and then peter went and you know basically uh took cash capital out of the different funds that they had and he put it all into air airbnb and that was a brilliant move they recycled it yeah yeah they recycled it and you know i think that kind of decision making and non-consensus thinking and high conviction non-social proof investing is is brilliant but it's not for everybody and you know the typical vc firm does have their monday meetings where they sit around and and argue about uh specific companies and that that works well too because there's that sort of um you know pushback that a particular partner might have on a company that he or she might be in love with and in in getting that feedback on additional diligence or why it won't work um i think is important but so it really depends on the type of people and how they're making the decision as opposed to this is the uh uh all you

SPEAKER_42: know it's it's one size fit all kind of decision making it also depends on to your point i think michael

SPEAKER_28: is is this firm you know nurturing and developing talent which our firm is doing with teaching people

SPEAKER_56: the skill of being a vc we're because we're small we can't afford to compete for you know with sequoia

SPEAKER_28: for partners given the scale of their fund so you know we're training up talent so we need to have more meetings we need to have more debate that's how people get good at the job they they put out their deal memo they say hey this is we were having an argument today uh non-consensus argument i want to put

SPEAKER_56: 25 000 which is our founder university bet you know first check into a company to help them form the company for 2.5 and there was like a nice debate going on about this company and i just came in and i said okay the person who wants to make this bet owns it we're making the 25k bet we don't have to over debate it but i love the debate great debate and the debate was so good in our organization and we have such a high volume of companies as an accelerator and a pre-accelerator we instituted two investment team meetings week every tuesday every thursday we do an investment team meeting and 1 30 till 3 30 you know it's this is not a short amount of time four hours of it a week

SPEAKER_28: we now record it transcribe it and summarize it that's like crazy vel but i want to have on tape the discussions and the transcript so we can go do a post-mortem right we didn't invest in airbnb

SPEAKER_175: what was the discussion who is the loudest person in the room saying don't do it who is the loudest

SPEAKER_28: person in the room saying we have to do it and so i'm very keyed into this as i go into my second

SPEAKER_176: decade and i try to build a firm like i'm trying to build a firm right now right it's a different

SPEAKER_04: thing than just great individually but i think you know i i don't know keith personally but my immediate thought was when i read the news khosla must have offered him some sort of assurance if not an agreement that he would be taking over the firm yes 100 and i think if you even go further back khosla was at kp back in the in the heyday right yep and if you read uh sebastian malabi's book power law each chapter is about different firms the kp for uh chapter really talks about how in the early 2000s you know there are there are kp's sort of uh on mount olympus and then they started hiring old guys and you know like al gore or like colin powell whereas uh in the chapter on sequoia makes it crystal clear that they were very focused on generational transitions bringing alfred and how the senior partners like doug leone would specifically put them on high profile boards and mentor them and giving them more air time giving them more um more decision making um and and basically building their gravitas and i think those those two chapters really stand out so my point here is that you know obviously khosla left kp and i think he probably is a very wise observer of venture capital funds and so he must be thinking about uh succession i would also argue that he's probably a very young 70 if i don't know his exact age but let's say he's 70. he probably has another 10 years to go so i don't think it's an imminent kind of thing but um it's it shows a lot of foresight with all the

SPEAKER_25: longevity investments he's making i think he's going to be around around for a while he also

SPEAKER_23: reported in the same article that he didn't want to start his own fund due to the operational intensity how do you look at that michael what are the pros and cons if keith was to leave and start his own firm

SPEAKER_25: i mean clearly he could do it how much do you think he'd be able to raise as a spin out you know

SPEAKER_04: lee fixell left tiger and raised billion dollar funds every every year almost so you know i think keith is in that league or even above that and or certainly peers and you know keith could raise that kind of capital i don't i have no doubt about that the question is what kind of investing does he want to do and what you know ultimately what's the appropriate fund size right if he wants to have a barbell strategy where he's investing in a bunch of early stage companies and then perhaps uh selectively late stage companies where he can write 100 million dollar checks you know so it really depends on the type of investing that he really likes i my my sense is that he likes to be hands-on and really work with founders and that suggests to me early stage investing so you know uh three to five hundred

SPEAKER_91: million dollar series a fund out of the gate with some seed exposure and the question is you know

SPEAKER_28: when you become a fund manager and you start raising larger funds i'm experiencing that in the last six months i have to go to the middle east i have to go to new york i gotta go to europe i gotta you know do phone calls at 10 pm i have to do relationship calls you know and maintenance calls so when you have to take over that function i think that's a 12 month ramp up so then does keith at his age want to spend a

SPEAKER_56: year raising that fund and even if he did it extraordinarily quickly in six months it's possible it's just not probable and the environment right now is really challenged even if he wanted to go raise that fund there are people who are pencils down right now i mean michael's active but that's true too i can tell you three out of five maybe lps in the united states are pencils down

SPEAKER_28: 60 70 are like can when's your closing date because we're done for this year right and that was 2023 and we're going to open up two slots in 2024 and we'll see what happens from there if we get stripe distributions or by 10 distributions etc so yeah it's got to decide how much of that overhead and then starting a firm you have to do all this back office stuff you got to hire operations people like this is it's it's not de minimis it is significant and you have to do it right and we had we had some missteps as a firm uh we you know with back office stuff and man i had to do cleanup and you know if you're if your numbers aren't cleaning you go to somebody like michael or you know let's

SPEAKER_97: say the next tier up the calpers of the world or you know etc it could just be a no based on you not having your package and your data room correct right like like a venture fund and oftentimes they

SPEAKER_23: won't even tell you why uh they'll just say thank thank you very much yeah well one thing i'd point out

SPEAKER_00: and j cal makes an excellent point about where lps are today you know i think with someone special

SPEAKER_04: starting a new firm then you might get some fomo and it's almost like fuel gauges the fuel gauge might read empty but i read somewhere that there's probably another 40 to 60 miles of range and so yeah i think

SPEAKER_00: lps will would be able to find the the capital to make a commitment to someone special and i think keith would probably be in that category yeah i would agree with that they would but it would still

SPEAKER_56: take three meetings and it would take a champion and it would take somebody saying to the investment board and the investment committee hey here's why we're making this exception right i'm sure keith you know he just loves to invest he likes to hang out with founders i get the sense that he probably doesn't all do respect to michael is delightful to hang out with but keith might not want to hang out

SPEAKER_12: with you know a bunch of lps all the time it might not be his bag he might just want to at this point his career is so successful he just might want to invest in the next company absolutely and i don't think

SPEAKER_28: it's a huge loss for founders fund i think they're going to do great no matter what that's one of the things when you have that many great partners you can afford to lose one right it's like being a team

SPEAKER_200: with a stacked group of all stars right you you'll he'll be they'll be fine too yeah i mean kevin

SPEAKER_04: hartz was there right and for a couple years and he moved on started a star you know uh nothing um against any of these groups but you know that's actually the mark of a resilient firm a very strong firm you know you lose a star partner or someone who's very promising you'll continue on and i

SPEAKER_42: think sequoia is a very good example of that yeah absolutely great and next up bill ackman

SPEAKER_25: everyone's favorite modern day conqueror has decided to go after business insider after business insider went after his wife nary according to timeline of events business insider sent bill ackman's wife nary a 12-page email on january 5th at 5 19 pm eastern business insider then gave nary only one and a half hours to respond to a 12-page email before publishing their allegations jason what do you think of this was business insider within its rights to go after bill ackman's wife there's

SPEAKER_50: kind of a rule like in the mafia and in other you know areas where respect is important you know you

SPEAKER_28: don't go after wives and kids like you would never do that it's it's not appropriate um in this case because bill was going after other people for plagiarism and his wife happens to be in academia academia it feels like it's fair game in a way but yeah i think that broadening the discussion out here for this podcast you have some very vocal fund managers out there and some of them have gotten very addicted i would say uh to social media and being heard the all-in podcast you know has become a bit of a joke to some people like oh my god what are we going to think about what's happening in this area of the world this conflict this crazy thing um oh i know we have to ask some vcs like i can

SPEAKER_56: imagine being an lp enactments fund you know or anybody else's fund who's taking on these really charged issues and wondering are they focused on their fund and their companies and their trades or are they focused on you know dei at harvard in this battle so i think you know while i appreciate him defending his wife and fighting the good fight and everything like that i do wonder i don't know michael if watching you know gps be spicy on social media or their podcasts etc does that factor into the public personas and chippiness and elbows and craziness your decision making or how you partner

David Sacks: with folks or you know just part of being it's part of being human and i think you know people might

SPEAKER_04: have larger platforms than other people and if they can use that for good which i think bill ackman is doing um i'm all in favor of that and you know the thing about bill ackman and his firm pershing square they're activist investors right so by definition uh bill is someone who's going to lead a crusade and you know i think overall his his funds have done well i mean i think there are some notable um problem childs like valiant for example um but in herbalife but as as a person i think it also october 7th you know a light bulb went on and the the testimony that the three presidents had in front of congress that was another light bulb and then he started digging in because it's clear that he's intellectually curious and oh by the way a crusader and you know so that's how he got on to that and then to your point uh jason you know they went after his wife you know bi went after his wife

SPEAKER_211: and that's verboten you can't do that and yeah or your to people's families so he went after he he's

SPEAKER_25: he's on a he's on a warpath and michael if you uh turn the tables limited partners obviously there was harvard mit and penn involved on the other end with the presidents could limited partners in what people call an access class could limited partners hurt themselves on their end i think so i mean i think

David Sacks: you know um certain firms that really have that that you know really have no issue raising their next uh

SPEAKER_04: their next funds um you know sort of the the absolute top tier bc firms let's just focus on bc you know they can pick and choose who their lps are and if there is a strong belief that you know just to pick on harvard that harvard now is completely overrun by a 200 person dei department and it's insidious and it's permeating through all of the the hiring that they're doing the areas the areas of study that they focus on in the courses that they offer their students uh an absolute top-tier firm who does not believe in that could say why am i funding this because the fact is a large chunk of a university's operating budget comes from the proceeds of an endowment it has to be five percent a year right like they have to do minimum but i know universities where it's like half or 40 percent annually and so the vc returns the distributions that i'm happily sending back to my lps then there's this uh epiphany that well some of that is actually ultimately funding these programs that i don't don't believe in so i think it's really going to work for right and i think when

SPEAKER_63: you become elite at this job it's such a good point mike you made two really good points number one

SPEAKER_56: thank you hackman's an activist like what do we expect him to do when he sees something that he perceives as unjust in the world but number two such a good point you know when i as a founder would go to sequoia's fat they would have a ceo dinner it was kind of like a dl thing but they would have all the ceos come to the golf course over there and michael moritz would come up and say i just would

SPEAKER_176: like to tell you what you're working for and uh the great returns we had the returns from google uh helped in uh ford foundation do the following and they'd show what the ford foundation was working

SPEAKER_97: on and here's an email we got from this foundation here's what they're doing in africa you know with you know malaria whatever and he would walk the ceos skipping the lps right this is just gp to ceo

SPEAKER_56: your hard work lets us make money and give it back to these incredible causes and you were just like wow capitalism is awesome and those same people as michael's pointing out they may not want to give to these endowments anymore and they might not want to make money for them anymore so that you know they could lose two sources of revenue the donations and oh i want to have my name on a building right and number two i i want to take the what are they they're usually typically 15 percent in vc

SPEAKER_28: 10 15 yeah some of them have gotten up to 20 25 percent like yale and certainly like 30 plus

SPEAKER_62: percent for private markets right including pe including pe yeah so i mean it's it's a double

SPEAKER_28: that's why i think this is like an important thing to discuss here is who are you making money for and

SPEAKER_97: and are you motivated to make money for those people um it's a really nuanced point but an important one

SPEAKER_00: yeah but then also sort of a a related topic is and i'll mention it since uh jason you mentioned the

SPEAKER_04: middle east you know how do you decide which authoritarian countries endowment or sovereign sovereign wealth fund that you feel comfortable enough taking you know um and you know there's kind of a danger in getting on a moral high horse to be honest and um we don't have capital from any sovereign wealth funds but i would say that you know i hear amongst uh lps and us lps and also u.s fund managers some debate about should i take money from uh an authoritarian company

SPEAKER_91: countries uh and uh you know sovereign wealth fund so there's i think there's debate about that too

SPEAKER_08: and i've i've been very public that i've been spending time there i don't have any announcements of of efforts we have in the region but i did meet with everybody and i was doing it more to get

SPEAKER_28: educated to be totally honest i felt when we would have these conversations on all in and you know i'm kind of thrust into this position of you know needing to have an opinion or be at least educated but i hadn't been to saudi i hadn't been to dubai i hadn't been to doha and uh you know and having spent time there now uh two trips uh in the last year basically in the spring and the fall i feel really educated and um my first job was working at amnesty international most people don't

SPEAKER_56: know that but i'm very passionate about human really okay yeah when i was in college in new

SPEAKER_28: york i just felt passionate about because i had seen peter gabriel and bruce springsteen play at the human rights now concert and i was like wow i really care about human rights it just spoke to me as a 18 19 year old in college when i was at fordham and i was an it specialist there and uh now i'm an adult and i'm in a position of power or you know writing checks and you know people are knocking on the door and i've met with them and i've come to the conclusion and people can come to different conclusions and i respect it that this group of the monarch states right they want to have a seat at the table they're investing they're lp and they're going to be on the same boards of the companies we're all investing in they've decided in the next 30 years and they've said this to him

SPEAKER_56: explicitly we can sell oil for 30 more years is our projections and in that time we're going to convert our economies to tourism real estate private equity alternative fuel and venture capital and venture capital is one of their favorite assets private equity not so much they did that game they really like company formation they have a large amount of capital and they're very smart and these are multi-generational folks who've been educated in the west because the other thing i learned when i

SPEAKER_28: was there all the people who are our contemporaries they went to oxford they went to michigan state they went to georgetown they went to fordham they went to nyu because they were all on these scholarships

SPEAKER_56: that were set up for the nationals there they're very westernized and the countries are making massive progress on personal freedoms and economic freedoms now they're not democracies but they've made progress and so then the question is you have to ask yourself do i want to participate with a group of people who are making massive progress and bending towards you know a better world or do i not want to participate and then have them work with putin and xi jinping because if you just take a look at what's happening in the region as well xi jinping and putin are spending a lot of time there as well and i think we're at this very interesting moment in time where either that region is going to tip one way or the other and it's their choice and so if we don't participate and you know build companies with them well then they're going to build them with xi jinping and and putin that's not a better scenario for humanity either and um they really want to reform you know you go to dubai now it reminds me of new york in the 90s i went to riad and you know it has changed more in the last three years than in 30 and i'm pretty enthusiastic about the entrepreneurial scene there as well people from hong kong singapore india they're all moving their companies to doha abu dhabi uh dubai and riad because there's angel investors and seed funds there and programs there and golden visas will give you a visa for 10 years so they're going to be a player the question is do we want to participate mike or not

SPEAKER_28: and you know i think i'm coming to the conclusion that if you build startups together and you build businesses together that's pretty good for the world i think one person's belief one person's belief i totally agree so absolutely it's an important topic and uh you know i'll probably make an announcement later this year that we're you know might be doing something there in relation to

SPEAKER_23: the things i'm known for i'll leave it at that okay great spicy well well michael i really appreciate you jumping jumping on the podcast and discussing these topics and i hope to see you soon absolutely

SPEAKER_234: yeah great job michael really appreciate it nice to see you guys take care all right david great job

SPEAKER_21: you've done two great episodes with me i really appreciate it and if you don't know about the liquidity podcast i used to call it the angel podcast but because our conference and what i do is expanding beyond just angel investors to include lps and gps uh decided to rebrand so the angel summit we do in june will be called liquidity and uh we're spinning out this content and having this liquidity podcast which is a niche niche broadcast for lps and gps david did a great job today awesome thank you jason uh

SPEAKER_23: thank thank you for mentorship and for uh for for being a great model for moderation oh thank you and

SPEAKER_21: where can people follow you on social media you got a social are you on the social media x.com for sure

SPEAKER_23: you could follow me on x d weisberg d-w-e-i-s-b-u-r-d and you could also follow me on my podcast where i interview limited partners including michael kim and i even had jay cal on the episode called the

SPEAKER_21: limited partner so check it out you just had friedberg on great i did have freeberg that's you did did you talk about all in at all i looked in the chapter we did not we talked about we talked

SPEAKER_242: about uh his life as an investment banker did you know i know i heard about that no all in talk i thought

SPEAKER_23: for sure you were gonna ask him about all in uh no i tried tried to uh vary it up a little bit keep it

SPEAKER_21: interesting very good very good all right we'll see oh and so if you're having a chance uh if you get on the liquidity feed or you search for liquidity podcast and your podcast player subscribe there probably once a week-ish and you'll get information about the event in june it'll be june 2nd 3rd and 4th i believe in napa for lps and gps only uh and angel investors high net worth individuals who participate in the space and we have a youtube channel search for liquidity podcast on there you'll probably find it and liquiditypod.com has all the links so if you have a chance and you like this subscribe to it or rate it that would be helpful because this is episode zero and the handle everywhere instagram tick tock youtube everywhere uh twitter x is liquidity pod liquidity pod and we got a nice beautiful logo for you all right we'll see you next time