All right.
Well, hopefully AirPods don't screw things up too bad.
Can look like humans on air.
And if we ever end up in a situation with microphones that are out of frame, it'll be game changing.
It'll be less like we're talking to each other.
Who got the truth?
Is it you?
Is it you?
Is it you?
Who got the truth now?
Is it you?
Is it you?
Is it you?
Sit me down.
Say it straight.
Another story on the way.
Who got the truth?
Welcome to Season 10, Episode 4 of Acquired, the podcast about great technology companies and the stories and playbooks behind them.
I'm Ben Gilbert and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.
And I'm David Rosenthal, and I am an angel investor based in San Francisco.
And we are your hosts.
We've done Sequoia.
We've done Andreessen Horowitz.
But we have not gone deep on one of the biggest stories in venture right now, crossover investing.
We are watching hedge funds like Tiger Global and KOTU come all the way down to seed investing.
And we're simultaneously seeing classically early stage venture capital firms like Sequoia completely reinvent their structure to hold on to their winners longer, even as they become public companies.
And today we wanted to analyze one of the firms that pioneered this dual approach of operating a hedge fund and a venture capital firm simultaneously Altimeter Capital.
There has been so much change in venture in the last few years.
More change, I think, in the last few years than in the decade that I was doing venture, than watching it before.
And listeners to tell the story right.
We are joined today by Brad Gerstner, the founder of the firm.
And actually, to tell you the truth, he is joined by us.
We actually recorded this episode in person, even with video stands microphones, everything at the Altimeter office on Sand Hill Road.
And for those of you who don't know, Brad has had an unbelievable career starting five companies.
So he's got a very different mentality than your sort of classic hedge fund guy.
On the investing side, he led the Series C in Snowflake and still owns a massive stake of the company.
He's led large investments and sat on the board of companies you know, like MongoDB and Roblox, and Zillow and Plaid.
He led the SPAC that took Grab public in Southeast Asia.
And he is widely known as one of the most knowledgeable people in the world on the business of online travel, after his involvement in Expedia Orbitz, Uber and many others.
And you forgot maybe the most important part.
I think he's the number one bestie guestie on our friends over at the All In pod.
I think that's probably right.
It's probably right.
All right, listeners, now is a great time to thank a new friend of the show, Koyfin.
And it's funny, they're new, but actually I've been using their product for years.
My research project for every single new acquired episode involves Koyfin.
So when they reached out to sponsor the show, I thought, well, this is convenient.
Indeed.
So Coifin is a financial research tool loved by both individual investors and financial advisors.
Individuals use it for stock research, graphing financials and portfolio tracking, and financial advisors use it to build model portfolios and create client proposals.
They have live market data and powerful analytics tools.
So it's kind of like a Bloomberg terminal, except without the huge price tag, right?
Yes, essentially.
It's a web app, and it's totally self-serve.
I've actually not talked to anyone at the company for the first few years that I used it.
So Koifin is a product that the broader market, like all acquired listeners, would use, not just Wall Street investment bankers.
It's where I pull things like growth rate or gross margins or the PE ratio or revenue multiples for every company we study.
And you can compare these things over time with historical graphs or against other companies.
It's often what I use when we're studying private companies too, like Rolex or Mars or Ikea, to look at the comparables, to estimate what these companies would be worth if they were public.
They also have a screener that lets you filter across thousands of stocks, so you can quickly surface investment ideas.
Yep.
So the general idea is, if you're someone who's used to living in data, you should have that at your fingertips as you think about investing.
Exactly.
It's got these great graphs for data visualization wrapped around institutional grade data.
So if you want to understand what assumptions are baked into the stock price today, Coifin is for you.
I was about to say that acquired listeners have a great offer.
But Koifin's free product is actually already really robust.
Which is what I was using for years.
I know.
I know.
But indeed for Acquired listeners and also for you, Ben.
If you go to koifincom slash acquired and you end up upgrading to paid, you'll get 20 off your first year.
Our thanks to Koifin.
That's K-O-Y-F-I-N dot com slash acquired or click the link in the show notes.
Well, we will cut over to our interview with Brad now, but please do know ahead of time that you can discuss this episode and everything else in the tech world afterwards with us at acquiredfm.
Slash, slack.
Join 11,000 smart, thoughtful people like yourself.
And we have some awesome new LP show content out there.
You can search Acquired LP Show in the podcast player of your choice.
And lastly, this is not investment advice.
Do your own research.
And now over to Brad Gerstner from Altimeter Capital.
Tell us about your family and your dad's experience with entrepreneurship.
Well, I grew up in a small rural town in northern Indiana near Notre Dame, first-generation college.
My dad had a classic immigrant story.
His parents had kind of given up everything in order to help put their only child through college.
He started at Northwestern.
They couldn't afford to finish there.
Ended up at Bradley in Illinois, got an engineering degree there.
And long story short, 1977, I was born in 71.
So 1977 he becomes a general manager of the auto parts manufacturer in this small town that employed most of the people in the town.
Is it like a GM?
Yeah, it was a supplier to GM, a supplier to Ford at the time.
And remember, our auto industry was under assault by the Japanese auto manufacturers.
You had double digit interest rates and inflation which, for the first time in 30 years, is all of a sudden a topic of conversation again.
With the Fed under Volcker?
Yeah, under Volcker.
We had you know, you remember stagflation the end of the 70s, which was low growth, high inflation.
And for some reason, you know, so there was an acquirer that came along to buy this plant.
They needed to get my dad and the workers to go along with the deal.
My dad said he could deliver the workers so long as they agreed not to lay anybody off.
Of course, they said they would do that.
Three months later, they were going to lay off all these people.
And in this small town, your words, your bond.
And my dad just couldn't live with himself with that outcome.
And so in a fit of lunacy, decided that he was going to start a competitor.
He knew nothing about starting a business.
There was no such thing in that part of the world as venture capital.
All he knew is that he knew how to make these parts and he knew he could inspire these men and women to join his cause and and it was a crusade and it was a you know, i look at it and i'm sure i look at it through rose-colored lenses, but it was a valiant crusade.
Unfortunately, he had to borrow money from the town bank.
In a typical acquired episode or a typical tech story, it's like This is the hero's journey and like he wins right.
And like you grow up in this like amazing, you know entrepreneurial journey and you're like this is awesome.
I'm going to go do the same for that.
That's not what happens, right?
I wish the story ended that way.
You know, for his sake.
I mean, he borrowed money from the bank, mortgaged the house, mortgaged the car.
And the punchline is there are moments in time where the deck is so stacked against you, notwithstanding all your best effort, notwithstanding all the extraordinary sacrifice of the team or maybe even the brilliance of the idea, it's not meant to be at that moment.
And in venture capital, if you fail, the risk is largely on the venture capitalist.
I mean, in Silicon Valley, failure is on the part of the founder.
So long as you conduct yourself in a way that's honorable.
It's a badge of courage that you gave it a go.
And we have an institutional structure where the venture capitalists can withstand that loss because they have a portfolio that they can cushion that with.
So I often, young founders will come in and say, well, I just don't know if I can take the risk.
They just graduated from Stanford.
They have no student debt.
They're getting money from a venture capitalist.
If they fail, they don't have to pay the money back.
If they win, they get a huge upside.
If they're at the stage where they're actually taking money from a venture capitalist and they have a term sheet and that's going to happen for them.
You've already won.
The personal risk there is extremely low.
There's no risk.
What risk are you talking about?
The risk is have a young family mortgage your house mortgage your car, double digit interest rates and inflation.
The business goes under.
My dad loses his health, he loses his house, he loses his marriage right.
That's risk, right?
And the beautiful thing about this country is we have created a system where we encourage risk takers.
Unfortunately, in 1980 in the middle part of the country, in a small town, my dad refused to declare bankruptcy.
He would work the rest of his life trying to pay back that money, because it was his word that he gave to the people who lent him the money.
And so I think about that when I hear from entrepreneurs, or when I even think about the risk associated with starting Altimeter or starting the other companies I started.
It's really not risk relative to the risk he undertook.
So I grew up around an entrepreneur, but it was not a heroic entrepreneurial story.
And my grandfather, my father's father, basically forbade us from becoming entrepreneurs.
And he said to the four grandchildren you can become professionals, you know doctors lawyers architects, but please don't become entrepreneurs.
And so I, you know, I felt like I owed that to him, even though I felt I was always kind of starting little enterprises in high school and thinking that way.
My brother did in college, but I went to law school.
And you thought you were going to go into politics, be a leader in government.
How far did you get on that path?
That was programmed pretty early.
I had studied in 91, 92 at Oxford.
I came back and worked for the US Senator from Indiana, Dick Lugar.
He was chairman of the Foreign Relations Committee at the time.
We were denuclearizing Russia at the time.
It was a pretty heady moment in time with a senior statesman, Rhodes Scholar, incredible human being, honored to work with him, stayed close with him.
And so when I graduated from law school and I went to work for a big law firm, I got a call from Senator Lugar asking me I don't know, I must have been 26 or 27 if I'd accept an appointment as Deputy Secretary of State in Indiana.
Evan Bayh, who went on to become governor and senator from Indiana, started there.
So it's kind of a known launching pad into Indiana politics.
So I became deputy secretary of state and faced this fork in the road that I was either going to run for secretary of state or I was going to go try to make some money.
And I concluded having grown up around a family that struggled for money.
In fact, my grandfather said, we don't have money problems.
We have lack of money problems.
I've heard you talk about this before.
Is it fair to say that you didn't want to go raise money to run a political campaign?
Yeah.
The idea of groveling for the rest of my career for money just didn't sit well with me.
Kind of a loon, but somebody I admired was the 1991 campaign of Ross Perot.
And he spent tens of millions of his own money to go on television in kind of a goofy way with poster boards and rail against the national debt.
And I thought...
Nobody owns this guy.
And Perot, people forget, he dropped out of the campaign three weeks before the election.
And I think he still got 17 or 19 percent of the vote.
He was an entrepreneur himself, right?
He started... EDS.
EDS, yeah.
Electronic Data Systems.
And I wouldn't say, you know, there's a lot about Ross Perot.
I don't know and it's not an endorsement of his politics, but it was.
But seeing that Yeah, it was a reminder to me.
It was like, okay, I can either shake a tin can for the rest of my life.
But like others who came before me, I said, hey, I'll go back to business school.
Maybe I can make, you know, a little bit of money.
And so the plan was go back to HBS.
How did you decide on wanting to go to HBS?
Did somebody inspire you or encourage you to do that?
It's a slightly embarrassing story.
I didn't really do much research.
I remember taking the entrance exam the last day, scrambling to fill out the application.
In fact, I didn't even finish the application because I ended up getting an interview.
And I remember the person who interviewed me He said, this is a unique situation.
I can't say that I've ever interviewed somebody who didn't have time to complete the application.
And so he started with, why didn't you have time to complete the application?
You're like, well, I'm Deputy Secretary of State right now.
I went through it.
And it wasn't, you know, it was just, I decided late.
And I was, I was working my ass off.
But I said, now's the time.
And we went through it.
So you know, that's a different outcome to the same story for Warren Buffett.
He wanted to go to Harvard Business School.
And he was so sure he was going to get in.
He didn't complete the application, was sure he was going to get in.
Of course, he didn't get in.
And then he had to scramble.
And that's how he ended up at Columbia.
And of course, the rest is history.
When I was in high school one of my first, you know, I worked and was going to school at the same time.
And this was after this episode with my father.
And the part of Indiana that I'm from.
They make all the RVs and conversion like vans in the country.
So I ended up with a job as kind of the right hand little chief of staff, go do anything.
I asked of a guy named Pete Legal.
And Pete Legal was starting a RV company.
And I worked for two years for Pete.
He had me doing everything in the accounting department, with the CFO out on the line helping to run purchasing for the Sierra RV line in 1987.
Here's the interesting thing.
Pete went on to build the largest RV company in the world that he sold to Warren Buffett.
And Warren has written a lot in his annual letters about Pete, who's just a legend of a human being was a great inspiration to me.
And it was funny because ultimately I became fond and friendly with Ted Weschler, who works alongside Warren.
And we worked on some deals together.
And you know the world.
We're going to talk about a deal that you worked on together in just a little bit here.
It really came full circle.
I have the same personality characteristic that you do around an aversion to asking people for money.
In fundraising for politics, I can see how that would be especially hard.
You've raised, I think, literally billions of dollars over the years for Altimeter.
What is it about the way that you fundraise now that hits differently in your psyche?
You know, I had the feeling at the time and maybe it's just because at that point in time I didn't believe in myself, perhaps the way I believe in myself now.
But it felt like a very personal ask.
Like, give me money for my campaign.
You know, now I am a steward.
I am a fiduciary on your behalf, and I believe I'm going to make you a lot of money.
And we have made a lot of money for our LPs.
And if you could see the letters we've received from university endowments, from foundations, from family offices, And the transformative things they outlined that we allowed them to do free education, dramatically more scholarships, whether it's the environmental causes, whether it's immigration causes, whether it's inner city schools.
So to me, I think there is the great causes.
I think, as somebody else coined the phrase, that we can work on behalf of in a way that's great for entrepreneurs, in a way that's great for our economy and in a way that helps to really transform some underlying causes.
So it's an easier ask for me because it doesn't feel quite so personal.
And even though when you're running for office it's in public service, it kind of felt to you more like hey, do this thing for me.
And I can't totally see the ROI for you as a citizen.
But What's kind of a problem if you can see the ROI for you for giving me the money to invest?
I think that's right.
Listen...
I've gone on to raise a lot of money for people in politics, for a lot of other great causes.
It's really easy for me to ask for others.
It's a more difficult ask when I'm a beneficiary of the ask.
And at 26, even with the support of your mentor.
It's not like you had the broad network to have so many people go ask on your behalf.
OK, so you get to HBS.
You get hooked up with two guys at HBS, David and Joel, who are going to start General Catalyst.
They themselves weren't people that you were like.
Oh it's obvious, you're going to start a venture capital firm, right.
Quite the opposite.
But I love them both dearly.
Let me rewind just a little bit before that.
1989 I really start getting enamored with email networks.
Working in Prodigy and following AOL in the 90s, really interested in investing.
1996, I'm graduating from law school.
Now, my grandfather, who I mentioned, left me $25,000 when he passed away.
And I day traded that $25,000 to put myself through law school and business school.
And I took the Series 7 because I thought man, maybe there's something these people know that I don't know.
I want to know the dark secrets of investing.
And then I realized, wow, none of these people know anything.
That's the dark secret.
The dark secret is there is no secret.
So 1996, when I'm graduating from law school, I also have this aha moment, like so many people did with the Netscape browser.
And I said this changes the game on this thing called the internet, which was just these computers talking and email networks, and it felt wonky and inaccessible.
And I remember gathering in the law school library a group of my friends, including the guy sitting in there who's now my general counsel.
And I said, you got to see this.
So from 1996, then I go back, work for this law firm.
We started getting litigation claims of people who are doing domain squatting in 1996.
Well, nobody in this 600-person law firm knew anything about the internet or domains or anything else.
So I raised my hand.
I said, I'll take all of that.
I helped them build the firm website, and I quickly became known as the internet guy.
But I was thinking, so if I go back to business school, I've got to find my way to Silicon Valley.
When I was graduating from law school.
I actually came out here because there was an innovative law firm out here called VLG, the Venture Law Group that was taking equity stakes at the time for doing work for companies.
So, I literally got on a plane.
I flew out here.
The office was right next to the Rosewood, across the street.
I just walked into their offices and said, hey, I'm looking for a job.
Now they didn't have a job for me, but it started to demystify this place for me and business school was going to be my pivot, my off-ramp to coming out here.
I go to business school in 1999.
I mean this is peak, this is peak peak, right.
And you know, mckenzie and goldman couldn't get anybody to show up at their interviews at hbs in 1999 because all your classmates are just so gaga, for every classmate is going to start a company, every classmate's going to work for a startup.
Consulting firms were being started that were internet only.
It was really an interesting moment in time.
Now again, I'm day trading CMGI out of the back of my finance classroom, knowing that this thing's going to zero, but I'm going to ride it while I can.
And is that like E-Trade or how are you day trading at that point?
Yeah, we had Bloomberg terminals right outside the classroom.
I had a Fidelity account actually, and I would do my research on the Bloomberg and then we'd place trades.
Listen, I was what's known as a poet.
I mean, I'm a lawyer from Indiana.
Show up.
I had never run a spreadsheet in my life.
And I show up and I have all these guys who've worked for hedge funds, private equity firms, venture firms, Wall Street guys, investment bankers.
And so all of a sudden I'm huddled around these machines with folks who knew a lot more than me.
Is poet in finance the same thing as like a fish in poker?
Exactly.
Yeah.
Let's put it this way.
We were transitioning to taking exams on computers, and there were two of us who took our finance exam with a calculator and a pen, and the rest did it with a spreadsheet.
I remember myself and a classmate of mine who was a doctor, Chris Gilligan.
And look at you now.
Look at all those chumps who used computers back then.
But I was hell-bent on coming to Silicon Valley.
1999, I start coming out here.
I was enamored with a small little search company that I had started to, you know, run all my searches on called Google, a hot startup called Tell Me, run by Mike McHugh.
Oh, yeah.
It was voice recognition.
Yep.
And sold to, ultimately sold to Microsoft.
And so I was very focused on coming out here.
One of my classmates, who had eventually become my wife, was very focused on staying in Boston.
And I'd met David and Joel.
And so I said, OK, maybe I can help start this venture firm, stay in Boston, and see where it goes.
So in 1999, 2000, we had a launch idea for the venture firm.
So a launch company, if you will, which was an online travel concept.
It was called NLG, National Leisure Group.
And basically what we were trying to build was the infrastructure think Shopify in some ways, the infrastructure that would power Expedia Travelocity Yahoo, others who were selling travel.
They were selling air tickets.
They were plugged into these global distribution systems.
But there was no GDS for selling vacation packages, cruises, and all these other things.
So we said, let's go build the GDS effectively for that.
And we partnered with SoftBank.
We raised, must be 50 million bucks for that business.
We bought a little business to give us kind of the kernel.
We built a digital layer on top of it.
And while the rest of the world was imploding, we found ourselves in a pretty enviable position.
We built the business to over a billion in gross bookings.
I think had over a thousand employees at the peak.
That was all like within a year, right?
That was within 18 months because, again, it worked.
People were actually buying this stuff online.
And we were plugging into existing pools of demand.
We weren't going out and having to create demand.
So Expedia launches a cruise or a vacation package booking engine.
And the next day, a lot of people are actually buying it.
And we're kind of the Shopify, if you will, inside.
And so Rich Barton, who ran Expedia, said, hey, we want to buy the business.
And then we ran into Dara Kashershahi, who was running M&A for Barry Diller at the time.
And he said, you know, I want to buy the business.
And to be clear, this is pre-IAC buying Expedia.
Correct.
So these are two completely different entities bidding against each other for your company.
Correct.
And I said to Dara, well, we already have an interested party that we're talking to.
And so he goes, well, let me talk to Barry.
And so he talks to him.
And they come back and he said, well, who is it?
And I said, well, I can't tell you that, but it's one of the big online travel players.
And he goes, well, I think Barry wants to buy them too.
Right.
And that's ultimately what went down between October of 2000 and May of 2001.
We put together a deal where USA Networks would be renamed IAC, bought both NLG and Expedia.
Oh, those were concurrent?
Concurrent deals announced together.
I remember being in the back of a limousine in Hollywood on my way to Barry Diller's house with Rich Barton.
And we looked at each other and we're like, strange world.
How'd we end up here?
This was the beginning of Barry transforming from a media guy into a media and technology guy and building IAC.
Yeah, it was USA Networks and it became IAC.
Well, I would say two things about that real quickly.
First, Barry was early to understand transactional commerce through a screen.
Because of Home Shopping Network.
Because of Home Shopping Network.
He also acquired Ticketmaster, and he also acquired an asset called 1-800-HOTELS, and he also acquired some catalogs.
And what they all had in common was transactional.
You know, they were all e-commerce based business models.
And they were through various mediums, the biggest being Home Shopping Network, which is through television.
So for him to squint a little bit and to see how all these transactions were going to move to the internet was not that difficult.
And the commerce engine, the commerce flywheel that was flying the fastest for him was 1-800-HOTELS that he would rename hotelscom.
So he was doing extraordinarily well in travel, understood that that would be a big category of online commerce.
And I remember very distinctly him talking about commerce through all the screens.
And that was in 1999, 2000, before most people saw it.
I think this is such an important thing to realize about the dot-com bubble because everyone looks back at it and makes jokes.
But the consumer behavior was there.
It was an objectively better way to transact in all these different mediums.
And the bubble burst because it was a speculative asset bubble and capital went away if you didn't have a business model.
But for those who did and who could be free cash flow positive – this is where all the demand was going and that never went away, right.
Could you feel that, in the moment of like, people still want to do this as long as I can't say that I did?
I was really worried about.
You got to remember the size of the bubble bursting, the change in risk premiums, right.
And then the events of September 11th 2001.
They were all so compressed and It's the fog of war right.
I think about all we really knew for sure is this internet thing wasn't going away.
There are going to be real businesses built around it.
But it was very unclear when you would have the capital required to build the businesses, where the capital was going to come from.
In hindsight it seems pretty simple, but I would say 2001 2002, 2003 turned out to be a gift.
But that's a slog when you're going through it.
I look at business models today that have negative unit economics, negative gross margins, raising money at super high valuations.
I have post-traumatic stress from that period, because if you are a high burn business with negative unit economics and you fly into a world where risk premiums change, it doesn't matter how good you are, you cease to exist right.
And they will change eventually.
I mean, that's the thing that...
Just look at what's happened over the course of the last eight weeks, right?
Growth multiples are down 50%.
Risk premiums have changed dramatically.
There are a lot of businesses that are in the category I just described.
That aren't going to make it.
So the natural thing to decide after all this is that you're going to go be a public markets investor, right?
Part of why we want to tell, hey, it's a great story.
But also what Altimeter ultimately becomes.
And you guys, I think, are Maybe the purest play example, certainly one of the first, if not the first, lifecycle investor.
It was just not at all obvious that you should go join a hedge fund at this point, right?
How did that happen?
Yeah, I mean, so there's a little bit more in between.
So September 11th happens, which is a really catastrophic event, particularly for our company that was an online travel company.
And so we negotiated kind of the soft landing with IAC.
I won't take you through all the trials and tribulations, but it was a good outcome for General Catalyst.
I thought I was going to go back and join David and Joel.
I knew they were two extraordinarily special human beings and they were going to build something really big, but I had kind of been bitten by the startup bug.
A friend named Bejo Sumaya, who now runs Lightspeed in India and Southeast Asia, had an idea.
And it effectively was, think of Yelp pre-Yelp.
And so Bejo and I started this business.
We bootstrapped.
It had a bunch of venture capital term sheets.
For a variety of reasons, didn't take them.
And we sold that business a couple years later to a public company in Seattle.
And again, in the first transaction, I'd worked really hard at NLG.
And I think I walked away after being the CEO and helping put the deal together with a million dollars which for a poor kid from Indiana, that was game changing.
But by Silicon Valley standards today, people would be like, are you clueless?
There was a lot of work that went into that.
The second business I started with Beige, I think I owned 40% of the business when we sold it.
That was four or five X the outcome.
And then when I thought about what I wanted to do, I had two competing ideas.
One was another operating business.
Like if you're an entrepreneur, you have these ideas, you have to get them out of your crawl.
But what I really thought that I was better suited for was investing.
And a person who made this clear to me was Rich Barton.
And Rich one day sat me down and he said, I don't think you're a great entrepreneur.
And I said, Rich, that's so insulting.
Why?
And he said- Especially from Rich, like the consummate entrepreneur.
Right, right, right.
Well, he keeps it real.
Apparently.
And he said- know, being an entrepreneur is the art of the possible.
Right you have to will things into existence.
And he said you know, you constantly think about what can go wrong when you're an entrepreneur.
Oftentimes you have to suspend disbelief and just think about what can go right.
And he said but as an investor, investors think about distribution of probabilities, not possibilities.
And And he's like I've always kind of observed you, like your training as a lawyer, how you think as an investor, like you're going to make a great investor.
And so I was like, you know what?
He's right.
And the best investment business model.
Right is kind of this venture capital hedge fund business model.
I thought there was going to be a lot of disruption occur in that business model.
Also, when you say this business model, this venture capital, hedge fund business model, until what you and now several others have done, that was not a business model.
These are two completely different types of businesses.
Correct.
I'll hit that in just a second.
But...
I wanted to start a business and I said I will start.
I think I can build a better version of this model.
At the time, if you really rewind the clock.
Warren Buffett, I don't know what year it was 1955 when he started his hedge fund.
He did both publics and privates.
He didn't distinguish, he just sought out great investments.
Paul Reeder, who started Park Capital, was doing private investments before Brad Gerstner showed up.
Seth Klarman at Baupost was doing private investments before we coined the term crossover, right?
David Abrams in Boston.
So I had a lot of legendary investors I looked up to that.
They never thought of the world in crossover, but they thought the world.
There wasn't this artificial constraint that I can only invest if you're pre-IPO or you're post-IPO.
What did private investments mean to them?
Did it mean what we think of or did it mean something else?
Well, I would say, for them, private investing was maybe buying auto dealerships or newspapers or textile companies, or whatever the case may be.
And, as you know, in value investing, which was really the rage of that couple of decades it was.
I'm going to find a company with a bunch of free cash flow.
I'm going to use that free cash flow to go invest in things that actually have higher returning characteristics.
Paul invested in that first company, NLG.
He was on the board.
We got to know each other quite well.
He saw me day trading in companies like Priceline and he thought this is interesting a CEO who actually is also an investor.
So I remember him saying to me, you ought to come work with me someday.
And so after we sold that company open list, I showed up and I said hey, I want to come work with you.
I can run the technology part of the business.
You don't have a technology business.
I'll build a technology business, both public and VC, okay?
Which is consistent with historically what you've done.
And I said, if I like the business, I'm going to start my own.
So you don't have to pay me.
Make me an apprentice.
All I ask is that we have lunch together every day and you teach me the hedge fund business.
Yeah, you'd made a couple million dollars at this point.
Right, right.
So, I mean, I didn't have a lot of money, but again, like... And did he take you on that deal?
He said, oh, great, you can quote-unquote work here and I won't pay you?
You know, the funny thing is he did say kind of come apprentice.
Yeah.
And I think I was two weeks in and he said, this is ridiculous.
Yeah.
He said, okay, I'm going to pay you.
You're going to do this.
And I will say it was one of the most extraordinary mentor-mentee journeys over the course of the next two and a half years.
He's a legend.
He doesn't get the credit he deserves.
And he gave me the autonomy to, on the public side, go invest in my entire book in Google and Priceline and a couple of great companies and then to go make some venture capital investments like leading the series be in Zillow.
And I remember at the time thinking, this is so easy.
I had such deep conviction in Google.
And I didn't have to have this highly diversified book.
And if it went down, Paul would come into the office and say, what do you think?
I'd say, buy more.
I'm heading to yoga.
But we had a really great run together.
I didn't realize that that was with Paul when you led the Series B in Zillow.
Because you were a Zillow board member from that point on for quite a long time.
Did you stay on the board of Zillow, sort of as an independent, even after leaving Paul's firm and starting Altamira?
No, I left the board.
I don't know if it was exactly contemporaneous. to that.
But about that time, by the end of 2000... I mean, listen, I learned so much from Paul.
And all kidding aside the idea of portfolio management, risk management Paul didn't call it essentialism, but running a simplified, concentrated portfolio around your best ideas was something that I absolutely.
I may have been constitutionally predisposed to believe that anyway, but we were just very symbiotic in our thinking about how to manage portfolios.
He couldn't have been more supportive.
And so I learned through some pretty heady times with him.
And then at the end of 2007, I kind of said to him, I think I want to do my own thing.
You led the Series B in Zillow as a crossover hedge fund.
Yeah.
The idea of crossover existed, as you said, not necessarily in tech and other domains, but also in tech with TCV and others.
They were not leading Series Bs in companies.
Because a Series B at that point in time is, what, $10, $15 million?
I mean, it's not a $50 or $100.
Yeah, that's right.
I'm trying to think the check size.
We may have put in $20 to $30 million.
And if I recall, it was a couple hundred million dollar valuation.
Yeah.
Listen to his credit.
And another OG, Jay Hogue, who started TCV, was already in Zillow by the time I came into Zillow.
Wait, he came in in the A with Benchmark?
Yeah.
Maybe it's the nomenclature.
I don't know if one was a C and an A and a B, but those were the first three rounds of institutional capital.
And Jay had a relationship with Rich from his days at Expedia.
I obviously had a relationship with Rich.
We knew he was a special entrepreneur.
I knew Bill And so it was a big idea.
It was a special collection of people out of Expedia led by Rich and Lloyd.
But I remember at the time talking to Jay about, you know, like technology crossover ventures.
Yeah.
You are the guy to do crossover.
And I remember sitting him down and saying, that's the winning model.
That's really the winning model.
Now I was coming at it with a more, I think, clear idea of public pool of capital and venture pool of capital.
TCV... had evolved into almost more of a later stage venture firm, right?
That held some public positions, but didn't have a hedge fund per se.
So I think I had a slightly different view, but credit where credit is due.
Their vision for where the world was going was ahead of their time.
Okay, so it's 2008.
End of 2007, beginning of 2008.
You tell Paul you're going to go out on your own.
You just keep nailing this timing.
Yeah, you're just like, hmm, the whole world's going go-go.
And just in case it falls off the edge.
I wish I was nailing it.
I got married at the end of 07.
We had our first child on June 3rd of 2008.
Remember, the world cracks were shown in August 2007.
Whenever you look at these stock graphs, they look like they're generally stable.
But man, the number of days of lost sleep.
But I remember saying to Michelle know, we didn't have that much money.
We were living in a few thousand square foot kind of subterranean apartment in boston.
We were having our first child and it was clear the world was getting tougher by the summer of 2008 and i said i think i'm starting.
You know, i'm going to start my own firm.
I'm going to tell paul and let's just say that when you're nursing a baby In September of 2008, October 2008, I have CNBC on.
It's like you just want to find the wastebasket to get sick in.
And I'm launching with no money.
Because you had a bunch of commitments and they dried up.
Right.
So at the end of 07, the track record had been good.
And so I talked to some university endowments, foundations.
Now, I didn't know this world at all.
I didn't know the world of LPs at all.
But I talked to a few people and they're like, hey, we'll give you some money.
And so I thought I was going to launch with 100 to 200 million bucks.
But it was clear.
By September October 2008, people thought the financial world might be over forever.
And...
It's hard now.
It's been a good century or two.
It's hard now to like put ourselves back in those shoes.
But when you think like people thought Lehman Morgan Stanley, Goldman Sachs, we're all going to collapse, right?
And nobody knew the contagion effects of that.
Nobody knew the impact on the dollar.
Nobody knew the impact, you know, the thought was it was going to be a very deep depression.
And so it's interesting just to put in the mind of the founder.
People say to me, oh, you picked a really great time to launch, okay?
Yeah.
I can assure you.
I was saying it, no, like sarcastically.
I mean, it was, in fact, one of my advisors who runs a big hedge fund.
What's a big hedge fund to you?
Well, he ran a multi-billion dollar hedge fund at the time.
And I just had an informal group of advisors.
And he said, you've made a huge mistake.
Go back to Paul and see if he'll give you your job back.
Whoa.
And don't do this, right?
And because I had organized my life in a really humble way, I didn't need money.
And I had started a few other companies.
And when I started them, I started them basically from scratch.
I knew what it felt like.
I knew that feeling, that founder feeling, on day one.
It was exciting and terrifying and i was like i got this.
Like the horse has left the barn i'm doing this and, to paul's credit, paul was like you got this And he had started par with less than 3 million in the SNL crisis in 1991.
And I had a roadmap, and I had a mentor who believed and I had a clear vision as to where I was going to go.
And I knew I was going to do it for a really long time.
And you also had about $3 million if our research is right.
Yeah, I had, I think on my day one investors, not to out them, but Paul was one of them.
My brother was one of them.
Now, my brother, my oldest brother is about 15 years older than me.
The side note is he's an architect.
He had saved his entire life, a million bucks like worked I don't know how many years 15 years to save a million bucks or something.
And he invested it all in a hedge fund.
I don't know why I laugh.
Put it in a hedge fund in L.A., And the guy stole all 200 million of this money that he had raised.
So my brother literally worked 15 years and his life savings went down the drain.
He scrambled together another half million bucks and he said, I'm giving it to you to invest.
Were you like, I don't want this?
I was like, I don't know if I can take this.
And I remember we were on a hike in LA and he said, I know you're going to do great with it.
And I said, well, here's the thing I promise you.
I may lose it all naturally, but I won't steal it.
He's like, I know where you live if you steal it.
And I can happily say less than a decade later.
He was retired and it had worked out fabulous for him.
What is it with your family and risk, right?
Like you've like gone, you know essentially gone bankrupt.
You know, a couple of times, not you, but you know your dad, your brother.
The thing with our family is we're incredibly close.
We support each other, even including my father.
He was famous.
He would have given you the shirt off his back and, you know, to know that you have those folks.
And so like, you know, again, I don't want to make it seem overly heroic.
We launched with very little money.
The first trade I placed was- And this is Altimeter, just for folks at home.
We launched on November 1st, 2008.
The first trade I made was into Priceline at $42 a share.
Which, of course, became Booking, after it later bought Booking and Booking- I bought Booking in 2004, 2005.
But that $42- People probably didn't recognize yet what a monster that was.
$42 a share.
I still owned it when it hit $2,000 this year.
And teach a class at Columbia Business School on it and you know securities analysis class on.
You know Graham and Dodd class on kind of like, what did people miss and what you know?
What did we see?
But at any rate, you know, that was the start.
I will say that when we launched I wanted to be in Silicon Valley, but I was in Boston because I had no dough.
And at the time, people who had invested in commingled funds, because remember, by the end of 07...
Everybody was starting to put privates in their public vehicles, right?
I remember, for example, that Bill Miller of Legmation famously invested in Zillow in 2006 or 2007 and then in 2008, sold all those shares back the company because everybody was unwinding their private positions.
And so when lps found themselves overly illiquid in 2008, that is how not to do crossover.
By 2008 they were like we do not want privates in public funds.
Huh right, so I had the vision, but it wasn't clear how that was going to be executed.
Because people really, you know, crossover fund, commingled fund, public private fund, that was a bad.
You know, those were bad phrases in the fall of 2008.
Why was it by 2007 that people had started adding these private companies to hedge fund portfolios?
So the observation I had is, probably in 2004, 2005 was, and I was a securities lawyer by training.
I had done a bunch, worked around a bunch of IPOs.
Maybe that helped.
But you know, I was like companies.
The private markets are becoming way deeper, way more liquid.
Companies are going to scale faster because the internet provides a network upon which they can scale.
And they're going to stay private longer because there are deeper pools of private capital.
And we've made it more difficult for them to go public post-2000.
Okay.
And then certainly post 2008.
Correct.
And TCV was there.
Chase had started Tiger.
Philippe had started Co2.
So we started to see examples of hedge funds that were really smartly, I think, starting to do some private investing.
And I thought I want to build the best crossover fund in the world that's based in Silicon Valley, built by a founder.
And I thought that was my differentiator, that I had a network in Silicon Valley.
Most of the other hedge funds were in New York or Boston.
Most of them were stock pickers, not founders.
And so I thought I can do this in a way that's really more empathetic and more closely aligned with founders, like true venture, but they could scale all the way into the public markets.
And so it was delayed in 2008 because nobody wanted commingled funds.
But by 2010, we had a great start in 2008, 2009, 2010.
And by 2010, people were like, OK.
Now we'll let you start to undertake your vision.
And so 2011, we started putting together the first dedicated pool of capital.
2012, I moved to Silicon Valley.
And that first dedicated pool of capital...
Dedicated for venture investing versus the single pool.
So we had a public pool of capital, which was long, short technology effectively.
We also became pretty well known for doing a lot of travel-related investments.
But in that pool of capital, we could also do a certain amount of private investing.
But we realized that for the venture and growth opportunities that we saw, we needed a longer duration pool of capital.
The strategy makes sense, and history has obviously shown that.
But how do you trade off?
If you're running a public book, you probably want to be pretty close to fully invested.
For privates, you need dry powder.
How did you solve that?
Is that by raising these dedicated pools? like any entrepreneur founder, right?
You have to see some market changes that give an opening for a new entrant, right?
Because the incumbents have advantages, right?
And so I believed that the very nature, the three things that I mentioned IPO is harder to do.
Companies scaling faster, deeper private pools of capital.
But I also believed that that was going to lead to the industrialization of venture, right?
That this thing, like the winners were gonna look different than the previous generation.
And this was an industry that was only a generation or two old.
Venture capital.
Venture capital.
And so we needed a long duration pool of capital.
We needed a product that suited our public market investors.
So we raised that first pool of capital.
Now, when I raised it, there was the requisite level of skepticism.
How do you think you're going to compete with Sequoia?
How are you going to compete with Kleiner?
How are you going to compete...
And we made very clear that I thought that the business building journey that started in that first institutional raise was different than what we intended to do.
Yeah.
Like I raised a lot of money, three different companies, right, as a founder.
And so-
Which, if it's two or three, raises per company or more, and think 30 firms you talk to to get one term sheet, like you knew, hundreds of venture firms at this point.
And had deep relationships with people who we had made money together.
So I assume your answer to that question of how you're going to compete with Sequoia at that moment in time was we're not.
We're not.
Okay.
So remember just these venerable early stage firms Mike Spicer and Jim White and the team over at Sutter Hill and my friends at Benchmark and friends at Sequoia.
Interestingly enough, Andreessen, I remember March of 2009, Allen and Company Conference, Arizona.
They're getting ready for fund one, right?
So the market bottomed. not in 2008, on March 9th, 2009.
And we were all at the Allen Conference.
Was this before or after they did Skype?
This was well before.
And I remember sitting at a table with my little pitch deck And I looked at a table next to me and it was Mark and Ben with their pitch deck.
And let's just say they scaled much, much faster.
But yeah, we were both there at the same time.
They had a vision, which was a brilliant vision, for the industrialization of venture, for how they were going to change venture.
And they've done it extraordinarily well.
Well, and fast forward to today, you're...
Your two firms are about roughly same, equal order of magnitude.
The AUM may be in a similar territory, but the firms are very different.
We can get to that in a little bit.
I'm looking around here.
I see 30 people.
That is very different.
Yeah, 30 versus 350.
And today's a full company offset, right?
But we raised that first pool in 2012.
It was basically passing the hat.
We had made good money for our LPs, passed the hat around the table.
I was the biggest LP in that fund by a long shot because I wanted to get it upwards of $100 million.
But that first fund, I think it had six investments.
And that fund, I don't think we will possibly have a return profile.
That fund, it definitely is up there in terms of great returning funds.
When you led the snowflake round, do you remember what the share price was?
I don't remember what the exact share price was.
I think the enterprise value at the time was somewhere around $175 million.
Okay, so that was 2012.
Well, the fund was vintage 2012, 2013, I think.
I'm not sure when that first round of Snowflake, more like 13, 14.
But that moment in time, did you have some insight that you felt nobody else had at that moment?
Or was it the right time?
Like how...
A few things.
Number one, I did have confidence that, you know, I was a decent investor, right?
So we worked really hard.
We're blue collar.
There's different ways to prosecute the strategy.
I think there's some people who work the cocktail circuit.
And you know we really were students of we're anthropologists about like where things were going and what was going to be big.
And at the time, there was a lot of pessimism, frankly, about cloud computing.
Salesforce, you know, had some quarters where they saw more deceleration than people thought.
And there were really kind of these obstacles.
One was the cost of computing the cloud versus the cost in a data center.
But the big one was this perception that I'll never put my customers' data in the cloud.
It was really a security issue.
Which then, let's just review history.
Everyone that decided that was not a tech company, that they needed to maintain an on-prem data center, got hacked and leaked customer data or lots of them.
And everyone who shifted to the cloud, ooh, do we really trust Microsoft and Amazon?
They're pretty good at that.
That was a good decision.
And they had thousands of people working on security, versus your data center that had two consultants.
But it was really the Sony hack, if you remember that.
Oh, yes.
Do we ever.
The Sony board hack, where I think it was Colin Powell, if memory serves me correct.
His email was hacked.
And in his email was the target list for Salesforce's M&A activity.
Whoa.
It was so much that came out of that hack.
And so like that-
All the Snapchat stuff.
All the stuff that got leaked.
And so if you were a board member or you were a CEO, you immediately said what if my email was hacked?
And that was like a game-changing moment.
But I would say for us, we had- For all of cloud.
For all of cloud.
Our view was it was safer and that it was only a matter of time before the cost and efficacy of computing the things you could do in the cloud would be better.
We were on the lookout.
I would say, one of the things that we were focused on at the time and this has been a, I think, theme for us over the last decade.
We have this view that not all software is created equal, right?
Not all ARR is created equal.
And if you rewind the clock to 2000, the largest sector of software was databases.
In 2000, if you aggregate the total enterprise value of companies that were principally driving their revenue from databases, it's about a trillion dollars in market cap in 2000.
So then, if you fast forward and you say well, every year we're producing more data than in all years of human history combined.
It's got to find a home.
We're only going to sensor more of it in the.
You know, build sensors to gather more data in the future.
Where is that home going to be?
And then I remember Bill Gates saying, somebody asked him a question.
I think it was Meg Whitman asked him the question, you know, isn't all the interesting stuff done?
And he said, Meg like, do you realize how barbaric it is the way we make decisions?
He said in the future right, we will have all this data stored and machines will analyze the data and help us make better decisions about how to diagnose an illness, about how to educate a dyslexic child, about how to maintain an aircraft's engine right.
It will all be decisions made by machines looking at data.
And so that was you know.
We did have a strong view that the entire database market was going to be remade.
It was going to be remade in the cloud, purpose built for the cloud.
And so, for us, that infrastructure layer in the cloud, all the enablement that would be required in order to get enterprises in the cloud, was something we focused on, I would say, more than probably anybody else.
And that proved to be a rich vein.
This is an interesting thing to talk about here because it's kind of a second pillar of Altimeter.
If I think about where you were first successful, it was really realizing that the internet is an amazing place to transact.
People want to transact there and they want to buy stuff and overwhelmingly they're originating that journey on Google.
And you sort of went down the list and said okay, what interesting businesses could people buy stuff from when they click through from Google?
Yes.
And so, you know, you've got Expedia, you've got Priceline.
Amazon.
A lot of travel, Amazon.
But then there's this like second.
I don't know if it's still an emerging thesis, since you did Snowflake in the sort of mid-2000 teens.
When was this?
2013, 2014.
It's totally separate.
It's this sort of like B2B, we're going to need the rising tide to power all these businesses.
Are there other sort of core pillars of areas where you look for where you're like oh, this is multi-trillion dollar opportunity where we want to have several bets in the portfolio on that.
Yeah.
One of the things you correctly identify, which is, I think, that unless you have an architecture, unless you have you know, unless you deconstruct what's going on in the world and try to understand the theme, the human behavior that's driving these events, then you just have a bunch of data points that are disconnected.
And as an investor.
Our job is to look at these complex fact patterns and try to make sense out of them.
So one of the things that was very clear to me in early 2000s is you know, the Internet is the most fabulous thing in the history of the world.
It connects all these people.
It unleashes all this productivity, but it's chaotic.
How the hell can you find anything?
And so those who could organize it.
So, if you think about that decade, that decade was the decade of search, horizontal and vertical search.
Booking.com was a vertical search company.
Kayak, vertical search company.
Zillow, vertical search company.
Google horizontal search business, Baidu horizontal search business.
And then there were these e-commerce businesses that were the beneficiaries, right?
They learned how to tuck into the underbelly of the discovery engines, right?
So that was an investable theme for a decade, right?
Google's desktop search, I think... didn't go negative until 2012, maybe the fall of 2012.
That's when there were fewer people searching on desktop on a year-over-year basis because people were switching to their mobile devices.
Which has a totally different entry point.
100%.
So as the anthropologists, what did we do in 2010?
I said, whoa, this whole search thing is going to get disrupted by this phone thing.
Now I don't know exactly how this is going to go down, but like, the way that we enter these phones is not through search as our principle metaphor.
Right.
And so then it became how do I become one of these icons right on the front of this iPhone?
There was, as you recall, Facebook famously building an HTML5, not building an app.
I remember Facebook became our largest investment in 2012 when it went on the cover of Barron's at 17 a share post-IPO.
When it broke through its IPO price.
Yeah, because everybody said they'll never be able to monetize this.
And if you did the work and I remember being at Google Zeitgeist in Arizona at the time talking to all these CMOs And they were like, oh my God, the sandbox for Facebook, like they're crushing it.
Like this is going to monetize better, not worse.
Right.
Mobile device, the stream on the mobile device, targeting on mobile devices, you know.
And so if you had a decade of search, you had to understand all search, all the companies that benefited from being in the underbelly of search, the Yelps and TripAdvisors.
By 2012, they had to be in your too hard bucket.
Right?
Right.
Because they had it too easy.
They acquired customers, millions of customers, effectively for free and they monetized them out the back door.
Well, the free game was over.
Right.
Right.
It's famously hard to start an OTA these days because well, you're going to compete against Expedia, bidding on the traffic from Google.
Good luck.
Right.
You know, then we started looking at who are going to be the beneficiaries of the switch to mobile.
So that was an architectural change.
And I think if you connected the dots, you probably, you know, you had some things go your way.
Who are the winners?
Who are the losers?
Software was similarly situated.
And so you know we had been investing in software in and around software for a long time, but it really started getting interesting about that period of time.
Because if you believed... Do you mean like B2B SaaS when you say software?
Like what specifically is interesting to you?
Yeah, or as you were starting to develop this thesis.
Well, I mean, if you just look at it, you said there's a trillion-dollar enterprise market, trillion dollars of annual enterprise spend and it's all going to shift right.
Yeah.
A, you need these market dislocations.
You need things changing, right, to create these opportunities for new entrants.
But then the second thing was you know, you asked a question, was it obvious or whatever?
In 2012, 2013?
I mean when David Cheria took over, you know Mongo I mean it was famously hard for him to get that last private round of financing done at a billion dollars.
And, you know, it had taken longer.
It was moving slower, but we looked at the product pipeline and we understood what the company was doing.
And it takes a long time for those companies to spin up.
But when those developer communities get going, they're incredibly sticky.
You know, as Buffett has said, the best investments, you have to be non-consensus and right.
The problem is being non-consensus is most often wrong.
Yeah, right.
Right?
Consensus is consensus for a reason.
And there's a zillion things in your life telling you you should be uncomfortable or in pain when you're doing something non-consensus because you got all these smart people telling you you're wrong.
Correct.
And if you're a founder of an investment firm, those are oftentimes career-ending decisions, right?
And so, you know, think about this.
This is kind of fund one, and we're doing something that's somewhat orthogonal to what the other folks are doing.
You know, I won't mention the firm, but probably one of the best-known firms, Silicon Valley, who passed on that rounded snowflake, you know, the partner said to me, like, I wouldn't do it, and here's why.
And we ended up doing it.
And By the way, his argument was a good one.
It was pretty compelling at the time.
One of the things we did in that story was, over Christmas that year we actually – we were aggregating a lot of data for our own hedge fund right.
So we were crawling web pages.
We were buying data.
You were building –
Like, we had a data warehouse, right?
And we punted.
You know Kevin, who's my partner and was, you know, kind of a young analyst at the time.
Computer scientist out of MIT said how about if, over Christmas, I'll replace our data warehouse with Snowflake, which was non-GA at the time, right?
It was in beta with a couple companies.
Wow.
And so we did that, and he's like, this is going to win.
This is the winning arc.
This is good stuff.
This is good stuff.
But he also wrote a bug report. right, of like the 10 bugs he found.
And he sent this bug bashing report to the founders, to Benoit and Thierry.
This is in the dictionary under how to win a deal.
Yeah.
And let's just say, they said, no other investor has done that.
Certainly no hedge fund.
Yeah, exactly.
Just to contextualize this for listeners, because I know people think like oh, Ben and David, they have like great investors on the show.
And I'm sure they get into like, they have some great investments.
Just to throw out some numbers, I think that round you mentioned was at $175 million valuation.
They IPO-ed somewhere around $4.4 billion.
This trading in a window, anybody know what their market cap is-ish today?
100-ish billion, I think.
100-ish billion.
The cool thing about what you're doing is you can hold for a long time, including when these things become public companies.
I'll just say it so it's coming from me.
I think Snowflake is still over half or as at the end of last quarter was still over half of Altimeter's public position.
It is unbelievable, both from a returns perspective but from a conviction perspective, to stick with founders with that sort of founder mentality.
Yeah. and this longevity this long.
I think that's the unique thing about this kind of capital platform.
Yeah, so I would say a couple of things.
One is it was an extraordinary investment, but it's also just an extraordinary partnership.
Its founding CEO, Mike Spicer, Bob Muglia, Frank Slootman, Mike Scarpelli.
I mean, these are deep relationships that become really important friends.
You work really hard through a lot of tough issues.
And when it's all said and done, the incremental dollar isn't going to change the answer.
But working side by side and building something that you're extraordinarily proud of.
It's what motivates me.
What I would say about that investment is for our venture investors.
I talked about two different pools of capital.
On the venture side, those are 10-year funds.
So last year we distributed an extraordinary return and a game-changing return for a lot of our partners.
But at the same time, on the public side and personally, we think this is going to be a multi-year compounder.
I think this company can be worth over 500 billion over the course of the next five to seven years.
They think it will be extraordinary.
And we have one of the best management teams in the business, going against one of the biggest TAMs in the business and delivering a really beloved service.
And so it's kind of a tragedy if you can't continue to participate in that.
But you have to match, right?
Like that's not the bet that the folks who invested in my venture capital firm made, that I'm going to hold this forever right.
And so you want to make sure You match and you align the interest of the LPs in the product that they're buying with the duration and the nature of the investment that you're making.
And so you know listen, Sequoia's innovated, you know, in a really interesting way around this permanent fund in this regard.
We have a structure that allows us to continue to, you know, partner and compound and continue.
I think you'll see more and more of this.
Rewind the clock.
You know, I started investing in Priceline when it was less than a billion dollar enterprise value, right.
Today it's upwards of 130 billion, right?
So they went public or you could buy them in the public markets for less than a billion.
Yeah, it would never happen today.
Right, Salesforce went public at 850 million.
Amazon, I think was sub 500 million.
And so I wouldn't say never say never.
In fact, I hope that we start to see a return of earlier IPOs.
It's great for the public.
I think it's great for retail investors.
I think it's great for companies.
They need the discipline.
Having companies running around with billions of dollars on their balance sheet and, you know, decacorn valuations and not the discipline of public markets, to me is not a great thing for the company, for the employees, for the founders.
It's not to say that they're undisciplined, but this idea that you can't innovate in the public markets is nonsense, right.
Jeff Bezos innovated plenty in the public markets Facebook in the public markets, and You know.
Look at what Mark Benioff has done in the public markets.
And so I think that the public markets not only is an important source of capital, but it provides a source of discipline.
Scarcity leads to ingenuity.
I hope that one of the things you know we'll talk maybe a little bit about our capital markets business, but I hope one of the things that we bring back to the IPO market is that companies don't feel like they have to wait until they get to 100 million or 200 million or 500 million of revenue in order to go public right.
I mean, just look at the crypto market if you want to know the appetite of the investing public to invest in speculative assets.
And we used to allow retail investors and others like myself To put myself through business school investing in CMGI while it was still venture risk in terms of its orientation, but we've largely deprived the public markets of that today.
And we may say that that makes it safer, but it also means that you're not going to see those 100x investments.
So if you have a pool of capital, if you're an LP or you're a GP...
And you want to think about this.
ByteDance, we invested in at $10 billion, okay?
Today it's marked, you know, somewhere between 350 billion to 500 billion, depending on which crossover fund you know, you look at.
Imagine that.
Over 300 billion of value creation that goes to the Sequoias, the Altimeters, the GAs, et cetera, of the world.
And no retail investor has access to that.
That's not a level playing field.
That's not a great outcome for folks.
And it's not to say that we should force companies to go public earlier, but we should reduce the friction, give them access to the capital markets and give retail investors the opportunity to participate in the upside of these companies.
All right, listeners, it's time to talk about another one of our favorite companies, Statsig.
Since you last heard from us about Statsig, they have a very exciting update.
They raised their Series C, valuing them at $1.1 billion.
Yeah, huge milestone.
Congrats to the team.
Timing is interesting because the experimentation space is really heating up.
Yes.
So why do investors value StatSeg at over a billion dollars?
It's because experimentation has become a critical part of the product stack for the world's best product teams.
Yep.
This trend started with Web 2.0 companies like Facebook and Netflix and Airbnb.
Those companies faced a problem.
How do you maintain a fast, decentralized product and engineering culture while also scaling up to thousands of employees?
Experimentation systems were a huge part of that answer.
These systems gave everyone at those companies access to a global set of product metrics, from page views to watch, time to performance.
And then every time a team released a new feature or product, they could measure the impact of that feature on those metrics.
So Facebook could set a company-wide goal like increasing time in app and let individual teams go and figure out how to achieve it.
Multiply this across thousands of engineers and PMs, and boom, you get exponential growth.
It's no wonder that experimentation is now seen as essential infrastructure.
Yep.
Today's best product teams like Notion OpenAI, Rippling and Figma are equally reliant on experimentation.
But instead of building it in-house, they just use Statsig.
And they don't just use Statsig for experimentation.
Over the last few years, Statsig has added all the tools that fast product teams need, like feature flags, product analytics, session replays and more.
So if you would like to help your team's engineers and PMs figure out how to build faster and make smarter decisions, go to statsigcom slash acquired or click the link in the show notes.
They have a super generous free tier, a 50000 startup program and affordable enterprise contracts for large companies.
Just tell them that Ben and David sent you.
I want to get your opinion on an interim moment.
Back to that first fund in the 2013-2014.
Feel free to argue with me on this.
But you said in fundraising, I'm not competing with Sequoia.
I'm not competing with Excel and the like.
And you weren't.
That Snowflake round, that Mongo round, those firms weren't leading those rounds.
Correct.
In the intervening years now, of course, they are and they're doing it in their own companies.
And that part of is contributing to stay private longer and all this.
How do you think about those years?
And like you're you know, you know, that first month, that's amazing.
Right.
And then you saw.
Of course you knew you had the publica guys, the go-tos and the tigers and the like, but then you saw the venture guys also coming into this space.
How did you view the market at that?
I mean, listen, what's happening is this happens in all markets, right?
The venture market is maturing.
I might argue the venture market has over-earned for many years, right?
And so the market's going to become more efficient.
It's going to be more competition, right.
With more competition, that means founders are going to have better access to capital, they're going to have more efficient markets.
So it means they're going to be, you know, presumably get a better price, less dilution, for the work that they do, which presumably is an incentive to invent more.
That's going to make the world a better place.
So like, i'm down with being part of the competition that makes venture more efficient.
Listen, i wasn't invited into the venture party, right.
There was a club out here on on sandhill road, and you know.
But this club respects meritocracy.
We come out here, we work really hard and we add value to the companies, and if you do that over a long period of time, right then, then i think you're going to be, you know, have a shot at being part of this ecosystem.
We collaborate as much as we compete, okay.
And when we compete, we're going to go at it.
We're going to lay out why we think we're the best partner for the company.
But we're also going to collaborate.
I know that what we're collectively doing makes America the best place on the planet to start a company, right.
There is no vibrancy.
I mean, we talked to a bunch of your founders in preparation and they were like well, it's wonderful.
Like, this is great.
This is like the best thing.
And so I got, you know, rewind to my dad's story.
Like what if a venture capitalist had handed my dad 5 million bucks, right?
He wouldn't have lost the house, right?
Like.
That's who we should encourage the risk takers, the bold ones, the ones who get into the arena.
And so I think it's an incredible honor to be able to do that.
But at the same time I don't think I'm entitled to be able to run the table on the crossover business model.
Everybody is going to compete for these different rounds.
My job, just like any other founder entrepreneur's job, is to build the best product.
Like, what is it that we do different for entrepreneurs than these other partners might do, right?
Or how do we fit into this system?
Actually, let's not make that rhetorical.
What is it that you do different than other...
Right.
And so I would say, with total respect to all those others first, I don't want to compete in that first round of institutional capital.
You know why?
Because Chaitin at Benchmark and Mike Spicer at Sutter Hill or the folks at Sequoia or the folks at – they do an incredible job.
I mean I started at GC. right?
Like I've been a day one founder.
I know what that first two to three years of gestation looks like.
And those firms, why does Andreessen have 300 plus people?
Because they really have built the infrastructure to help those early entrepreneurs win.
Same with Benchmark.
They're extraordinary.
I mean, and that's, it makes sense what you say, but that is a contrarian view today.
Well, I would say like, listen, the jury's out.
Tiger did, I don't know, 70 or 80 series A's and And seeds.
Seeds in Series A in the back half of last year.
I have, again, like Schleifer and Chase are great friends.
Lots of respect for those guys.
Ultimately, entrepreneurs get to make the choice, right?
And the story will be told down the line, right?
Are the entrepreneurs that take money from Roloff or from chaitin or from eric vishria or from, you know, from mike spies or ultimately, do they have a higher hit rate in terms of building successful and big outcomes than companies that take money from folks who raise their hand?
Say we're probably not going to be as value-add right, this is, this is more a new, we're more just a source of capital.
Yeah, I think that Tiger's building an extraordinary business.
I just am maybe I'm of the minority belief that early stage venture, those first two to three years, is craft building.
And we like to partner with founders who are wise enough to put around that early board table people who have been through the trenches.
And so that increases our probability of success and reduces, you know, we think the risk inherent.
And so we come in and partner then at that stage.
So you asked like, what is it that we do that's special?
I think that Altimeter has a founder's mentality.
We have the empathy of an early stage founder or venture capitalist, but we have the scalability of capital.
So some people I've heard say, hey, they bring the best of Tiger, but also the best of Sequoia.
If we ever get that compliment, and I think about our NPS among founders all the time, right?
That's the highest compliment.
That's what I want to do.
We want to increase their probability of success.
And when we start moving in that direction, we want them to know that we're side by side with them on the important issues they face recruiting a CFO, building their board, getting the company public, helping them raise capital and that we'll be first in line to write the check.
You're a reasonably concentrated portfolio.
So it's kind of like the benchmark mantra, but applied to later stage.
And that discernment ends up accruing value to companies because you have such a deep pool of capital.
So take a modern treasury, for example.
It does show up as value to them in the way that they can communicate to their customers like yeah, we're only a four-year-old startup.
But look, we're with Altimeter.
And it doesn't mean that the capital in your fund is on their balance sheet.
But because you do have a reasonably concentrated portfolio, that brand power actually can accrue to the company in a way that shows up to their customers.
A couple things.
First I would say that the level of concentration on portfolios, I think it's pretty consistent with the history of venture right.
Like.
The reality is if you don't have deals in your fund that on their own can return the fund, then you're probably overly diversified.
If you're overly diversified, you're going to provide vintage returns, which you know.
I'll just leave my money in the public markets, right.
If all I'm going to do is invest in, you know the top 10 15 of venture is going to take 80 to 90 of the returns.
So, Yes, I am in the business of finding the best companies in the world and helping them succeed.
I'm not in the business of taking the average of vintages and building a big fund around that.
That's a different game.
That's an asset gathering game.
And it's not a game I find particularly fun.
Not to mention it's never been a great idea for more than one vintage to just be the median of all venture investing.
That's not something you want to index.
Right.
Listen, I think it depends what you're promising your LPs.
I'm the largest LP in our hedge fund.
I'm the largest LP in our venture funds.
I'm only going to put my money into venture if I think I'm going to earn a superior return to having my money in a liquid security.
If I didn't think I could beat the return on Snowflake over the course of the next decade.
Put all my money in Snowflake and go Surf with my kids right.
But I actually think there's a noble service being provided.
I think we can deliver radically superior returns.
And so I would say it's not the concentration that leads to that value add for those investors.
It's because at Modern Treasury, we help Dimitri you know, bring other investors to the table.
We help them bring the CEOs of big banks to the table.
We help them with recruiting.
We're there during the high leverage moments in a company's history that can really help, you know, add fuel to the fire.
So you had mentioned earlier.
But talk to us about the capital markets business, because that feels like something that like again, if I'm a see, if I'm a Dimitri of modern church, like that's something that you know, even as the early stage guys are adding later stage operations, like that you can really bring in a way and have for Roblox, for Plaid, for so many others.
Yeah.
How did that start, and what is that business?
I'm talking to a well-known venture capital firm's LP meeting tonight about capital markets, what's going on in the public markets, what does it mean for their venture portfolio, et cetera.
That's just fundamentally different, right?
I'm an IPO lawyer, spent 20 years in the public markets.
We've worked on and participated in over 100 IPOs, right?
When the equity syndicate desk at Goldman Sachs and Morgan Stanley need to sell an IPO, they call us right.
They call long onlys.
And so we've been in and around that market for a long time.
Bill Gurley and Rich Barton and I, going back 20 years, were fascinated with how inefficient that market was, with mispricings in that market, with you know It's crazy.
It's just like when you step back and look at it, it's nuts.
Right.
Hombrecht and Quest were innovating with, you know, the modified Dutch auction around the Google IPO.
I mean, lots of fascinating stuff.
So if you're just like, if you're a student of this game and you're an IPO lawyer, like I was like you pay attention to it.
I helped Bill put on the Direct List Conference a couple years ago which we've seen a lot of progress on.
Again, just giving choice to entrepreneurs.
At the end of the day, if there's competition for the bank IPO, the bank IPO will be better.
And now there is.
The Direct List is an alternative for some companies, a better fit for some companies.
And the reason SPACs were interesting to me is if you really just close your eyes, it's just a third door into the public market.
And we go help you build a book.
We help you price the security.
We help you sell it to Capital Group and Fidelity and T-Row.
All three of these things are the exact same exercise.
You're selling 10% of your company.
You hope to sell it to great public market investors.
And you hope with the least amount of pain and distraction to step into the public markets.
And so I think this innovation in the public markets is a terrific thing for founders.
It's fun to be a part of.
But last year, we participated.
We anchored direct lists like Roblox.
We anchored IPOs like Confluent.
We anchored our own IPO like Grab by way of SPAC.
I saw on your website, yeah, you don't call it a SPAC.
You call it the Altimeter...
Yeah, altimeter IPO.
I mean part of what we're trying to do is we're trying to demystify the transition to the public markets for CEOs and boards.
Because frankly, I've done it over 100 times, but most founders will do it one time in their life.
Right.
And they just don't want to mess it up.
Like at that point, it's their baby, why on earth would you ever do anything but the standard?
Right.
And again...
I think Goldman and Morgan Stanley is maybe where my friend Bill Gurley and I have slightly different religions on this.
At the end of the day, this is really about pricing.
And if we price these things efficiently in any three of these doors, then they can be great outcomes for the company.
And if you have a bad sponsor, if you have a bad bank and an IPO and it goes poorly, then that's a busted process, right?
If you have a bad sponsor in a SPAC and you shouldn't be public, that's just a busted process.
If you try to take a company, if you try to direct list a company and you have a reference pricing round that's too high for where the business at it's going to be a busted process.
So we spend a lot of time.
I hired Chris Conforti out of Goldman.
He ran the equity syndicate desk at Goldman.
So he was the one selling all the IPOs for Goldman for a really long time.
What we said we want to do is just as a value add for all the private companies that we talk to, that we look at, is to really be able to give them the inside scoop right.
Like we're not a bank, but we'll tell you all the dirty secrets, right about a traditional IPO, a direct list or a SPAC.
You can't have credibility telling those secrets unless you've lived them, which we have in each of those doors.
And now we can offer what I think is the best insights to these founders.
And we have no economic finger in the scale because I can partner with you.
If you want to do a traditional IPO, great.
We can anchor it or just participate.
Direct list, we can anchor it or participate.
You want to partner with us and we'll build the book for you?
Great, we'll do a SPAC.
And there are different... prototypes, right?
Different archetypes for which each of those fit.
And I think, among the folks who are doing this, we're probably, you know might be first among equals in terms of our insights into how to get public.
What's the old mongerism, right?
You show me the incentive and I'll show you the outcome.
And in this case, you coming from the perspective of hey, you realize, when the banks are trying to sell an IPO, they come to me to buy the IPO.
So, having sat on that side of the table and not yet having an incentive, I can talk to you about how this would get marketed to me.
So you at least have that transparency.
And then I can tell you how I want to play in that process and you can give me feedback and tell me where I belong in your process.
Yeah, I think, listen, I see it.
Banks are getting more efficient.
The direct list product, like the competition, is leading to more choice and better outcomes.
Free market's a great thing.
Now is a great time to thank good friend of the show, ServiceNow.
We have talked to listeners about ServiceNow's amazing origin story and how they've been one of the best performing companies the last decade.
But we've gotten some questions from listeners about what ServiceNow actually does.
So today we are going to answer that question.
Well, to start, a phrase that has been used often here recently in the press is that ServiceNow is the quote-unquote AI operating system for the enterprise.
But to make that more concrete, ServiceNow started 22 years ago focused simply on automation.
They turned physical paperwork into software workflows, initially for the IT department within enterprises.
That was it.
And over time, they built on this platform going to more powerful and complex tasks.
They were expanding from serving just IT to other departments like HR finance, customer service, field operations and more.
And in the process, over the last two decades, ServiceNow has laid all the tedious groundwork necessary to connect every corner of the enterprise and enable automation to happen.
So when AI arrived, well, AI kind of just by definition is massively sophisticated task automation.
And who had already built the platform and the connective tissue within enterprises to enable that automation.
ServiceNow.
So to answer the question, what does ServiceNow do today?
We mean it when they say they connect and power every department.
IT and HR use it to manage people, devices, software licenses across the company.
Customer service uses ServiceNow for things like detecting payment failures and routing to the right team or process internally to solve it.
Or the supply chain org uses it for capacity planning, integrating with data and plans from other departments to ensure that everybody's on the same page.
No more swivel chairing between apps to enter the same data multiple times in different places.
And just recently ServiceNow launched AI agents so that anyone working in any job can spin up an AI agent to handle the tedious stuff.
Freeing up humans for bigger picture work.
ServiceNow was named to Fortune's World's Most Admired Companies list last year and Fast Company's Best Workplace for Innovators last year.
And it's because of this vision.
If you want to take advantage of the scale and speed of ServiceNow in every corner of your business, go to servicenowcom slash acquired and just tell them that Ben and David sent you.
Thanks, ServiceNow.
Okay, so as we move into kind of the analysis section, here there are two.
We of course want to do grading and ask you to paint.
You know what is your.
You know when you go to bed at night and you dream your best dreams of an A-plus scenario for Altimeter in three to five years versus, you know, a C-minus of like.
We survived but we missed some stuff.
We'll get to that.
Maybe first if you have thoughts on kind of like a bull versus bear case on the lifecycle investor model.
And that probably leads into grading.
What are the risks to what you have pioneered and are doing?
Listen, I think that I certainly appreciate the credit as a pioneer.
I don't think of myself as a pioneer.
Like I said, in many ways, it's back to the future.
Warren Buffett was my hero.
If you asked him, why do you do private investments?
He'd just say, I do great investments.
He's not private versus public.
In many ways, it's the LP community who wanted to put people in buckets.
And so I think, in order to generate alpha and above average returns in probably the most competitive market in the world, you have to be extremely passionate.
There are big sacrifices and trade-offs to be great in this business.
And for me, if you said Brad, you can only do public market investing, that wouldn't scratch my itch.
If you said you can only do venture investing, that wouldn't scratch my itch.
And so for me, it starts from the premise like, what do I want to do?
What can I be most passionate doing?
And the reason I think we attract some of the best analysts in the world is because most analysts don't want to leave their thinking cap at the IPO door.
Right?
They're like I spent all this time on this company and now you're telling me I can't make any more money on it.
I can't bet on it?
I can't invest in it?
What's that about?
I think that the maturation of the venture growth business model is here to stay.
We saw it in LBO.
We saw it in private equity.
That was a highly fragmented industry.
You now have a handful of global platforms that are prosecuting that strategy.
In venture, highly fragmented industry.
We're still in the middle of a lot of creative destruction.
You got solo GPs attacking, you know, venerable early stage firms.
You got a lot of firms that are vertically integrating upwards.
You got hedge funds who all say this venture capital stuff is easy.
I'm going to go do it.
You know, at the end of the day, what I love about this business is there's a scoreboard, right?
And the hedge fund, it's a painful scoreboard. right?
It's like every day.
And in the venture business, there's a lag.
But at the end of the day, your reputation among founders, I say a two-sided marketplace, right?
What's my NPS score among founders?
And what's my NPS score among funders? the people who entrust me with their capital.
And I get up every day thinking about how do we build the best product for both of those folks?
Because if we do and we deliver the returns, then we have a great business that I actually think is serving a really important part of the capital process.
It's really interesting the analogy to – I totally agree.
But the analogy to the LBO business and market, you're absolutely right.
I mean, I remember coming up being an investment banking analyst as you were starting Altimeter in those same days.
Yeah.
And the LBO market was vastly more fragmented than it is now.
And it has consolidated around some major players.
And they're niche players.
And there's lots of strategies that can work.
But yeah, I hadn't quite thought about it.
We are, I think, seeing the same thing in venture.
Right.
And if you think about what's happening in the private equity LBO world, you have some global, now public platforms.
Their cost of capital goes down.
And we've seen a compression in terms of returns because the market got more efficient.
And as the market got more efficient, returns went down.
What do I expect will happen over the full arc of time in venture?
We're going to compete away returns.
We've already witnessed it over the course of the last couple of years.
But that just means the returns that go to the premium players, the players who truly see the best stuff, that truly convert the best stuff, are going to be even more unique And the average return is going to be a much worse place to be for both LPs as well for the people prosecuting those strategies.
And for the founders who are backed by those firms, right, too.
I mean because there is a as we've been saying often on this show, there is a brand transfer and halo effect.
That happens in the venture markets.
For sure.
The signaling effect is profoundly important.
And I think probably underestimated.
Which is amazing considering how high it's estimated.
I'm with you.
Right, right.
And I think when you have the best partners not even the best funds it's the best partners at the best funds who do things together repeatedly.
It's because there's a shorthand around trust There's a shorthand around business building, right?
That increases the probability of successful outcomes.
And the signaling impact of that, like I underestimate it as a founder.
I don't underestimate it now.
And so it's not to say that folks who take you know who bootstrap take solo GP, you know take passive capital.
It's not to say they can't build big businesses, right?
But I don't think that that makes it easier for them.
At the end of the day, I think I said go public earlier because having that discipline and that scarcity, having some great early business builders that see those different patterns, they create the conditions that I also think drive success.
Well, and what's different now is you can go public early and you still have Altimeter or Benchmark or Sequoia or whoever has your shareholders.
It's not like you have to check your hat at the door.
Sure.
I think we're in the early phases of industrialization, you know, five years.
So how do I score myself?
Our returns for our partners, right?
Like we got to deliver excellent returns for our partners.
I say to my team is our NPS score with founders higher or lower at the end of the year?
Right, that is really important to me.
Right, that's the durability of the brand, that's the love for the brand.
You know, lots of software companies can increase revenue selling a shitty product with a aggressive sales force but ultimately that will not be a really valuable software company.
Right, you show me a software company where the product is flying off the shelves because the people on the other end really need and want the product and love the product.
Right, that company even it has lower revenue deserves a much higher multiple.
I think the same is true when I think about our business and what we intend to deliver.
And I guess this is a segue as well to a bigger issue, which is, what is this all about?
We are all part of one of the most fortunate systems, at one of the most fortunate times in the history of modern capitalism.
And I intend to use this platform to do things that matter.
And I think founders care about that.
And I think funders care about that.
Because, at the end of the day, helping some hedge fund guy make a little bit more money or some venture capitalist make a little bit more money is not what gets me up in the morning.
So I do think that the very essence of what we do.
Right.
Which is increasing the velocity of innovation.
Right.
Allowing Moderna to build an mRNA technology that can help solve a pandemic.
Right.
To transform the way software works so that you know that is the infrastructure that powers all discovery.
Right.
Like those things I think are intrinsically good.
But increasingly what I see is people who are using these platforms to drive diversity.
Right.
To use these platforms to tackle things like the wealth divide, which you know I care about with the Invest America initiative that I've talked about.
So the people who work here, right?
I think if you did a survey they would say you know I work there because you know great brand fun, love doing venture, love doing public.
But we also care about, like, the impact of what we do.
And I'm lucky to be able to lead that.
I really want to talk to you about Invest America because I think it's a fascinating concept.
And you mentioned we chatted about it when we were sort of preparing for this.
What is the idea there?
So rewind the clock.
I was definitely on the outside looking in.
I was not part of the ownership society.
I didn't know what stocks were.
But all else being equal, I never really felt deprived.
The Industrial Revolution in many ways was a great equalizer, right?
My grandfather was a welder.
He worked on the Manhattan Project.
He was a brilliant guy, self-educated, read textbooks.
But he could earn a wage and save.
That allowed him to leave 25000 for a grandkid who had gone to put himself through law school and business school.
The technology revolution will have even more positive impact on humanity, but it naturally tends toward concentration right.
It is not an equalizer in terms of, you know, wealth so far as I can see.
And the data, I think, you know, works against that.
It doesn't seem to have played out that way.
Because if you think about it, it's logical, right?
Mark Zuckerberg can have three or four billion customers for his product.
Even Carnegie and Rockefeller couldn't have billions.
Software and then the internet on top of that kind of compounds that advantage.
Right and so you know to me.
You know the social contract that we're going to have to have is gonna have to evolve right and i think this country is better positioned to evolve that social contract than just about anyone.
But part of it is first just making people feel right that they're part of the game.
And you know, the start of covid really drove this home for me because we had massive government intervention.
I went on CNBC on March 26, the bottom.
I remember watching your interview.
I wish I knew that was going to be the bottom.
Yeah, it was like an extraordinary day.
But at the end of that day I literally had grandmothers fathers doctors, lawyers.
Just email our website.
Wow.
Generic email saying, will you protect me?
Will you take my money?
Will you do this?
Oh, wow, wow.
Right?
There's just extraordinary fear in the world.
And I'm from Indiana.
Most of my friends didn't go to college in this small town.
And what happened when the government intervened is the stock markets ripped, okay?
Because the Fed went all in, Congress went all in.
But a lot of my friends working in those RV manufacturing plants were unemployed, right?
Lost their jobs.
And so we can't have a system where the owners win right because of the government intervening, but we only have 30 of people who belong to the ownership society.
And that's the public stock market.
That's not even like accredited investors, which is this tiny slice you're talking about earlier.
Yeah.
A small percentage of America that owns any equities.
Right.
So a very simple idea that I floated.
Chamath and I were on CNBC.
I'd been thinking about it for a long time.
I've abhorred the accredited investor laws for as long as I can remember because, as a securities lawyer, I remember studying securities law in law school and saying to myself hold on.
You mean to tell me that we've rigged the game so only rich people can invest in the best companies?
Well, they have to be protected, Brad.
Right?
And so, like, what's this all about?
Because the proxy for intelligence was money.
Right?
Jason Calacanis has talked about having an investor test, but I knew, I knew.
J. Cal loves that investor test idea.
By the way, I've seen dumber ideas.
I think he's on to something.
I appreciate that on principle, he has the same allergic reaction.
And maybe it's because he also grew up poor on the outside looking in.
And for those of us who did, now that we're on the other side, we say we got to fix that.
Right.
And so set aside a credit investor.
There's some ways we can attack that.
But one way we get everybody into the game.
OK, we have, I think, seven million children born a year in the United States.
If you gave every single one of them an Invest America account.
So think of that as a Robin Hood account on their parents phone.
That would eventually be on their phone.
And that just shows up from the government.
Shows up from the government.
You get your social security number, you get an Invest America account.
We fund the account based on means.
If your parents make over $200,000 a year, maybe we put a hundred bucks into the account.
Your parents can fund it up to $5,000.
So it's like a FAFSA type.
Right.
If you're under a certain threshold, we put 5,000 bucks in it.
Okay.
Can't take the money out.
Compounds at six, 7% for, you know, 50 years.
It's worth a million bucks.
Okay.
But much more importantly, the behavioral psychology, the behavioral economist knows the propensity of somebody who actually has a savings account, an investment account to save, goes up dramatically.
Okay.
So because you actually have a little snowball, you understand the law of compounding, right?
So if we want to educate and include and make everybody feel like the system isn't rigged against them, then they actually have to be part of the game.
We have a way to do this.
It doesn't cost a lot of money in the scheme of things like this is less than 20 billion a year for the federal government.
This is a drop in the bucket relative to trillion-dollar stimulus plans, trillion dollars of defense spending, and this is a game-changer, psychologically and otherwise, for everybody in the system.
Because now, over a period of 20 years, you've effectively gone from 30 of the people being owners to 100 of the people being owners.
And I think that that's you know again.
I'm sure there are other great ideas, but that's one that I really believe in.
What I intend to do is to fund people, right, to push this idea forward, okay?
There will be a lot of debate.
We've debated baby bonds for 30 years, and we've never done anything.
A bond is, so far as I can tell right, is spiritually connected but it's stuck in the old legacy of like the war bond.
Like it's safer, therefore we'll give you a bond.
But it doesn't appreciate.
Yep.
And the recipient doesn't learn much, right?
And so hopefully, we can harness the energy, the power, the lessons of that and make sure that every child in this country owns their tiny little slice of Apple, of Walmart, of Tesla, of the future SpaceX right.
You open it up and they see all of these names, their tiny little ownership of all of these names, and they see that grow over time.
We know how often they'll be looking at those phones.
We know how their parents will feel.
What I would say is they can't take the money out until a long way down the line.
That ensures a retirement program for basically everybody.
But you can add...
We could build adjacent accounts, right?
You could stick a 529 side by side with that that they could pull out at college.
I don't like the idea of a government program where we'll give you a little of this every year, right?
Give me title and ownership, right? right, to something.
This is mine.
And then let me benefit from American innovation.
Compound and benefit and be part of the system.
So that when, you know, I have two sons in fifth and seventh grade, right?
They're both interested in investing.
They both want Robinhood accounts.
They both want all this.
Now- I love it.
Asking for the Robinhood account is the new, I want my driver's license.
But think about how privileged-
That position is.
We should have a standard curriculum in this country for sixth graders.
Where it starts.
They walk into their math class, or whatever the class is, and they say open your Invest America account.
Everybody's on the same page.
You teach sixth graders in an inner city school today about stocks, you may as well be teaching them Mandarin.
They're not participants in the game.
And so to me, I talked to Seth Klarman from Bowpost.
He said, I'll write the curriculum.
I'll take that curriculum.
I talked to David Solomon at Goldman, the folks at Schwab, Fidelity.
Everybody sees this as a challenge.
This is a simple, simple idea that we could get behind and literally, in a single term, could change, over a period of a decade, the trajectory of every child born in this country.
Well, what's kind of cool is like you've – I think you've basically already seen evidence that this works with Robin Hood.
Robin Hood is not a – people still had to have the means to put money into Robin Hood and then decide to do it.
Some of them will prove to be amazing investors.
And some of this listen.
I mean.
Part of the challenge here is everybody says oh, you're letting people invest in the stock market.
What if it goes down?
So here's the deal.
We have 100 years of history, right?
Owning your slice of America is a good bet, as Warren Buffett likes to say.
Okay.
So I don't know if it's going to go down in the first year or up in the first year, and it doesn't particularly matter to me.
I know if you give these kids a slice of America over a period of 40 or 50 years, it's going to be worth a hell of a lot more in the future than it is when they get it.
But way more important is every day of their lives, they will feel like they belong to the system.
They're not on the outside looking in.
And the power of that psychologically to that child will dwarf the amount of money that's in that account.
Brad, before we wrap here, anything that you want to point listeners towards?
Or where could they find out more about you or Altimeter on the internet?
Yeah, I would say follow me at AltCap on Twitter.
I encourage all of our analysts to be on Twitter.
I think they're incredible brains and thought leaders and being online and sharing content.
I don't like to be a cheerleader on Twitter.
But I do like and encourage our analysts to pressure test their ideas, right?
Whether it's you know, Jamin talking about what's going on in, you know in software, or whether it's Vivek talking about what's going on in, you know, internet marketplaces or crypto, or Frida talking about what's going on in China.
And so I think I always say to people if they're interested in learning more about Altimeter, just follow this incredible group of analysts on Twitter.
But all of this said, we're truly lucky to be doing what we do.
You guys are doing this incredible podcast about founders and entrepreneurs.
This is a rather new experiment in the history of the world.
And I think it's yielded.
You read the Bill Gates annual letter at the end of every year.
And, you know, we live in the most peaceful, notwithstanding Ukraine.
We live in the most prosperous.
We live in the healthiest period of time in the history of humanity.
And one of the things that scares me is that people, during periods like this, they'll turn against capitalism or they'll turn against technology or they'll turn against whatever.
But it's very clear to me, I'm going to fight for that and fight for those founders.
And I think when we look back at this system in 10 years, it's going to be more vibrant, more capital, more access, more ideas.
And I think the secular curve around creative destruction and innovation has never been steeper.
And the ideas over the course of the next 10 years are going to dwarf the size of the ideas that emerged over the last 10.
So super optimistic.
In a way, Ukraine, I think, has, for me at least, helped remind me of that.
Ben and I were talking at dinner last night.
The old saying that I think has become forgotten a little bit in recent years is that capitalism is terrible, is the most terrible system, except for every other system that has been tried in the history of humankind.
I think it's about democracy, but it definitely applies to capitalism too.
Right.
Well, I don't think it's the only thing, right?
I don't think it's the only thing in life. but I think it's an enabler for everything.
Somebody reminded me the other day.
Julian Robertson, after an incredible track record in 1999, obviously got hit hard, money redeemed and they said are you bummed to no longer be in the public markets?
And he was the founder of Tiger Management.
Founder of Tiger.
And apparently he's reported to have said I didn't want to die looking at a quote on my Bloomberg for the yen anyway.
So yes, in this firm and in my life, my friends, my family, my kids.
There are a lot of things that resonate as more important, but I am a staunch defender of this beautiful system.
I tell you, it's a hell of a lot better than having to mortgage your house.
You think about the velocity of money.
If the risk you run, if you start that auto parts company you lose your health and you lose your house, there's not going to be a lot of risk-taking.
And risk-taking is the engine that moves humanity forward.
Business creation and experiments without personal guarantees are an incredible thing.
And it's amazing that we have a system that actually allocates a big slice of capital to go toward that.
But think about that.
That's a modern experiment.
I don't know.
Modern capitalism has been around for 500, 600 years.
Like, that's a 30-year-old experiment.
But you think about the impact that global sovereigns who are trying to effectively take fossil fuel dollars and turn them into technology dollars?
We have more dollars moving into this.
You know, you mentioned we have very few people who have access, okay, to the private markets.
I heard this statistic the other day.
You know, endowments and others have reaped the benefit, which makes me happy, but retail investors and the average investing public has not.
A 1 increase in penetration of the retail investing public to alternatives.
I heard is a trillion dollars.
Like I haven't run the math myself, but it's an extraordinary number.
And if you look at the retail channel, The accredited investor retail channel, through Goldman, through Morgan Stanley, through these other aggregators, as a percentage of the fundraise for Tiger, for Kotu, for Altimeter, it's going up dramatically relative to traditional LPs.
And so we'll do another episode and we'll talk about how we're going to unshackle ourselves from the accredited investor rules.
Would you ever consider a future for Altimeter where your LP capital is more directly from people?
For sure.
For sure.
I mean, like you know, our aspiration is not to be the biggest, but our aspiration is to have the scale, to have the level of impact that we can, to drive the highest MPS among founders and funders.
Like we want to deliver for both of those folks in that network.
And I think it's inevitable that an increasing percentage of these dollars can and will and should come from willing retail investors who want exposure to this incredible asset class.
All right, listeners, hope you enjoyed our interview with Brad.
He is unbelievable.
I mean, what a journey the last 20 years have been for him, building Altimeter and really helping to shape this industry.
Totally.
And personally I'm pretty excited about his sort of idea with Invest America and we'll definitely be watching to see where that goes.
Totally, totally.
Well, listeners, to round us out, you know the drill.
Join us in the Slack, acquire.fm slash Slack.
We're going to be talking about this episode and everything else.
We've got the Limited Partner Show where recently we've had awesome episodes with the folks from NCS Capital coming back to talk about the state of the markets.
David, Christina, Melas, Curiazzi joined us to talk about fintech.
We've recorded two more episodes that we haven't dropped yet to the general public that are rolling out to paid Acquired Limited subscribers.
And those folks can join at acquired.fm slash LP to get two weeks early access.
We've got a job board and some really great stuff on there.
I just added a couple.
The other day from Vanta, after we got to spend time with them at their office, met their head of engineering, spent some time with the team.
So really cool companies.
Go check those out.
And lastly, if you enjoyed this episode, share it with a friend.
You don't need to shout super loud from social media hilltops.
We like that high affinity one-to-one stuff.
So share it with a friend.
Think of someone that has kind of talked about some of these concepts with you and see if they'll take a listen and they might enjoy it just as much.
Indeed.
With that, thank you so much to Vanta, Vouch, and our friends at SoftBank Latin America Fund.
And listeners, we will see you next time.
We'll see you next time.
