I feel like I know you guys because I listen to you guys on your podcast.
And it's really fascinating because I think the three-part series on Berkshire is kind of like is your signature piece, because I think you guys said it's like oh geez, you never thought you could go beyond two hours.
And I know you guys have to cut a whole bunch of stuff out just to fit it into six hours, right?
I know.
But there's nobody who goes into the depth like you guys.
And so it's great to talk to you guys here.
Welcome to this special episode 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.
On today's show we have a guest that both David and I have looked up to for years Ho Nam from Altos Ventures.
Without giving too much away in this early intro, I will say that this episode could be summed up as what if you tried to be a value investor with Berkshire Hathaway's principles, but for early stage technology companies?
This episode is the perfect cousin to everything that we talked about on the All right listeners.
Now is a great time to thank a new friend of the show, Koifin.
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 Koifin.
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.
All right, now, as you know, this is not investment advice.
We may hold interest in some of the companies that we discuss on the show, and this is for informational and entertainment purposes only.
We also have one more exciting announcement today.
As the world opens up, we are marking the occasion by having an acquired party as we wrap Season 8.
Yes, that is an in-person event.
It is going to be here in Seattle at Gasworks Park on Thursday, June 24th at 5 p.m.
It'll have picnic vibes, so bring anything you want to eat or drink.
Rumors are circulating that David Rosenthal is even going to fly up for it.
We cannot wait to see you there.
Now, on to our conversation with Honam from Altos Ventures.
Ho, we are so excited to have you here.
This is an episode we've been wanting to do for a long time.
And just speaking personally, the last VCs we had here on the main show were Alfred Lynn and Doug Leone from Sequoia.
And of course, I have so much respect for them.
But even though Altos isn't as well known, I have learned just as much from following you over the years.
And I am so excited to share that now with everyone.
So I thought maybe a good way to start is Altos has made so many incredible investments, but I thought we could start off with probably your best known one, which is Roblox.
And I think it'll tell your whole story in a really nice way, including the most amazing part, which is how Altos ended up investing multiple hundreds of millions of dollars into one company Roblox, out of what was originally just an 85 million fund.
It was $86.5 million fund.
And you became the largest shareholder at the time of IPO.
Is that right?
That's right.
Well, we were also the largest shareholder from the beginning, but we increased our ownership percentage over time.
We increased it, and then it went down, and then it went back up.
So I'll tell you the whole story.
So we met Dave Buzuki late 2007, in the fall of 2007.
And the deal was referred to us by Mark Weinstra, who actually works for Roblox now full-time as a general counsel.
But at the time, he was a partner at Wilson.
And he was general counsel for one of our other portfolio companies a number of years ago.
It was an enterprise software storage company.
And he said, hey, I think you're going to really like these guys.
And we said, why?
Because he actually, Wilson Sonsini works with everybody, of course.
And so we knew Benchmark was looking at it.
We knew a number of other firms were looking at it.
Craig Sherman, actually, who was an EIR at Benchmark at the time that David, you know very well.
So I think Benchmark asked him to look at it.
We asked him to look at it because at the time he was CEO of Gaia and he knew something about social networks.
And anyway, he's a really smart guy.
We ended up doing the deal and we let Craig invest with us.
So he was actually... like right there from the beginning, before he even joined Meritech.
And he came in much later, of course.
So anyway, going back, Mark said, oh, you're going to really like these guys.
And I said, why?
He said, well, they're really scrappy, very capital efficient.
It's just like the Altos.
We like these really bootstrapped, kind of scrappy, capital efficient kind of entrepreneurs.
We don't like burning a lot of money.
And then he said, I don't think they really like VCs.
I said, really?
Okay.
Great.
They're going to love you guys.
Yeah, exactly.
Our kind of entrepreneur.
And literally, though, I mean, when we met and we got excited, we decided to give a term sheet.
I mean, they would not take our money until we had to be interviewed by the founder's father and brother, who were both on the board.
So like somehow we passed the test.
I was not even at that meeting.
It was my partner, Anthony and Han, who were there at the meeting.
And luckily they passed and they gave the blessing.
Like passed the test.
Yeah, they passed the test.
And our term sheet was for $2 million for a Series C financing.
A and B were all friends and family.
And they said, well, $2 million.
Wow, that's a lot of money.
That's just too much.
Yeah.
What year is this?
This is in 2007.
The deal closed in February of 2008, but when we were negotiating it was going through the holidays in 2007 to 2008.
Right before Bear Stearns blew up.
Yeah.
Oh yeah.
So they said it's like yeah, 2 million is too much, but we'll take one and a half million from you guys.
Okay.
We'll start with one and a half.
So that's how I got started.
And anyway, but backtrack though, before that, you know, why we decided to do the deal.
It's really interesting because my partner Anthony, really had a thesis and specifically he was looking for the next club, penguin.
I remember Club Penguin.
They're in British Columbia, right?
Yeah, yeah.
So a Canadian startup, which Anthony's Canadian.
So Canadian startup.
I think four or five different dads got together and created this company and then sold to Disney for like 400 million bucks.
So back in those days, I was like, wow, that's a huge exit, you know?
And you're investing out of an $85 million fund.
You're like, yeah, $400 million exit.
Great.
Fantastic, right?
That's a fun returner.
So he had a thesis, which is really interesting.
And then for me, I did not have a thesis around it.
And if somebody had told me it was like well, you should fund this company.
That's like a Lego 3D virtual online playground.
I would have told you that's kind of a dumb idea, right?
I would have said, it's like, why would I fund that?
I don't get that.
So this is kind of an interesting dynamic, because in a partnership you have different partners with different passions, different ideas, and you have this intermixing of different ideas right.
And so we debate it.
We talk about it.
But I might think it's something that's a really dumb idea.
Somebody else might have a thesis.
Now, you have this entrepreneur who walks in the door.
And why did I get converted from?
Well, this is the dumbest idea I ever heard to wow.
This is really interesting.
Well, when you show up at my door and then you have this little graph that shows 7 compounded growth on a weekly basis for 52 weeks in a row of engagement hours.
Well, that's kind of interesting.
If you graph that out in Excel, that is a classic exponential curve that just grew 33X in a year.
Okay, something's going on and they're not burning much money.
They're just early in the monetization phase.
They copied, exactly copied Club Penguin.
They had this Club Penguin, right?
Well, we had a club too.
We called it Builder's Club.
That's what it was.
Same exact pricing as Club Penguin, $5.99 a month.
And then when we first started talking to them, it was tiny.
And then by the time we closed the deal, I think maybe they were doing $50,000 a month.
So $500,000, $600,000 annualized run rate.
This is Roblox.
Yeah, this is Roblox.
Yeah.
So that was kind of like, okay, something's going on.
You have exponential growth and engagement.
You got early monetization.
And then the thing that was really interesting, two other things that kind of sealed the deal for us.
One is you did a YouTube search for Roblox.
It's a unique...
And back in those days, this was several years before Minecraft ever launched.
That was 2011.
And we found like 200 something hits on Roblox.
It's like, okay, so what are these videos, right?
We start going through all these different videos.
And some of these were really shaky videos, camcorder recordings of the computer screen.
And the kids were so proud of their creations, right?
Back in those days, it was really difficult.
Think about all the fiction points.
You're recording off of an analog camcorder your computer screen and then you have to get that off the tape, digitize it and then upload it on a slower bandwidth connections back in those days into YouTube, which was very early days of YouTube.
And then they were so proud of their creations, right?
They want to show it off to their friends.
So something is going on.
There's so much engagement, so much passion around this community.
You top it all off, you meet Dave Buzuki.
I mean, this guy had this vision and this inspiration going back so many years and he had four kids and he really wanted to do something good for the kids, for his kids, that he would be proud of.
And his prior company had done something to educate kids, teach 3D physics.
They had a little simulator.
Yeah, and that was a successful company.
Again, bootstrap, no venture funding, had a nice exit.
But even though it was designed to sell to elementary schools to teach kids physics, It was purchased by a CAD company, mechanical CAD company, so that Boeing engineers could use the physics simulator right.
So he was working for that CAD company and it's like okay, I think now I want to go back to my original passion do something good for the kids again.
So you meet a guy like that and in our original investment memo we talked about hey, I think this guy is like a hedgehog.
And the hedgehog concept was kind of new to us still.
We published this blog post in 2006 about the fox and the hedgehog in Silicon Valley.
And we wrote that blog post- Inspired by Jim Collins, right?
Yeah, Jim Collins, exactly.
And wrote that blog post long before we met Dave Buzuki.
But it's like, this guy is a total hedgehog, right?
But of course, it was very, very early in the journey.
And you only know when you're five, 10 years into it whether or not- that person truly is a hedgehog.
That's what we talked about in that blog post is hey, these people have hedgehog potential, but you won't know until you're 10 years into it.
And Ho, for folks who don't know, what is the fox and the hedgehog concept?
Yeah well, Jim Collins wrote about this in Good to Great and his conclusion was hey, these great CEOs, great companies are run by these hedgehogs that really have one big idea and they have one big mission in life.
Versus the Fox, who is very smart, very clever.
There may be polymaths.
They're the great serial entrepreneurs.
And they're very popular with VCs.
They could hang out at these cocktail parties.
And they're very smooth.
And they're really, really good at fundraising.
And the hedgehog is really this boring creature, not very good at fundraising, does not networking.
He doesn't even like VCs, doesn't want to meet anybody.
They're just too busy doing their own thing.
Nose to the ground, right?
That's kind of the hedgehog personality.
So Collins just kind of perfectly nailed it.
And when I wrote that blog post, I was thinking, oh yeah, I mean, this is just like Sam Walton.
I had Sam Walton in my mind.
He is one of the all-time great hedgehogs.
His book Made in America.
It's like, oh my God, that told me what the mind of an amazing entrepreneur looks like.
And we're very, very fortunate that he got sick at the end of his life, because he never would have written that book.
But because he would have been out duck hunting and visiting his stores and doing all those things he loved, right?
But he was kind of bound at home.
Everybody wanted him to write something.
He finally wrote it.
So we're very lucky that we got to get a glimpse into his mind.
And then Buffett, of course, is another amazing hedgehog, right?
You have this guy who at the time, I don't know how old he was. in his 80s or 70s.
He hasn't needed to work for money for decades, but he's still working.
He's now 90 or 91 years old.
He didn't need to work for money when he left Graham Newman.
That's right.
At age 25, you're right.
At age 25, he had enough to retire.
But they keep going.
They keep going on and on.
It's like the Energizer bunny.
They never run out of energy.
Why is that?
What is it about certain guys that become billionaires and they're still showing up to work?
Not only showing up to work, but they say they tap dance to work, right?
Bezos copied Buffett's lines.
Like, oh, I tap dance to work every day.
Buffett's still there, right?
And Sam Walton's still there.
To the end, to the very end, you have to carry them out with a stretcher, right?
Yep.
So there's some people who are just like that.
We're trying to study who are these people.
And then we're trying to incorporate some of that for ourselves as well.
How do we structure the work and surround ourselves with the types of people that give us joy, that motivate us to come back, to keep coming back, to keep doing it, rather than to say oh, I'm done?
I'm punching out.
So we're always thinking about that because our role model is the Buffett kind of guy.
We didn't set out to start the venture firm for ourselves.
So that we punch out at the age of 50 or 60.
It's like, well, why did I start something so I could give it to the next generation?
It's like, I think I'm going to just kind of be around for a while, right?
And the next generation could join us.
And they're fantastic people.
And these are people I want to invest in.
And we kind of think of the next generation as we are both LPs and GPs.
We want to invest in that next generation.
And I think that's one of the things that I think we observed, with some really enduring, where they are no longer thinking about the business as a GP.
They're really thinking about it as an LP and they become both LP and GP.
And there are certain folks like IGSB, right, that David knows about.
There is no distinction.
Yeah, they are the LP.
They've never had LPs in 52 years.
And so those guys are fantastic.
They'll be mad at us for bringing up their name in public.
Maybe.
For folks who don't know, the investment group of Santa Barbara which also came out of gsb business school, which altos did as well, which we'll get to uh and specifically jack mcdonald's investments class.
It's all their own money, there's no outside capital, but i believe they manage now probably approaching 10 billion plus uh out of uh out of santa barbara, and they have beaten their own path over 50 plus years.
It's amazing, before we move on from roblox, because i think this is relevant to how altos has evolved how did you end up making the untraditional moves of putting so much capital in?
Yeah, that's always a kind of a mystery for folks.
So this is what happened.
So we only got a one and a half million dollar piece.
And then, about a year later, first round actually came in, because they actually passed on the original round that we invested in.
But kudos to Chris Freilich for tracking it.
And they said, hey, look, can I really get in?
Throw in an extra half a million dollars.
And so, hey, yeah, we could use a little extra capital.
And so we got them to come in and we actually invested more in that round.
So every chance we got, we kept investing more.
And a lot of times, before we started doing these big SPVs, we actually bought secondary shares, I think on six separate occasions.
So every time we had a chance to pick up some shares whether it was from employees or founders or whoever people need a little bit of liquidity.
It's like, hey, we're happy to buy some more.
And every time, of course, the price changes.
Price keeps going up.
We value it based on what we thought were the right comparables.
And we price it at a certain level.
And we kind of had a similar kind of comparable.
Maybe we're valuing it at five times revenues or something like that.
So the price kept going up.
We kept buying more.
But at some point, we had this interesting discussion.
We were very lucky in some ways.
We thought about selling the company, and by that time, we had a pretty good gain.
We had a tiny fund.
Of course, it would be a very meaningful exit for that tiny fund.
Luckily, the offers came in at significantly below the price at which we were all willing to sell.
And even at that higher price, it's like, oh, we were really reluctant.
But it's like, okay, I guess we got to do this thing.
It's the right thing to do for the fund management business.
And we'll talk on this topic later because I think a lot of fund managers make decisions to serve the fund, but they may not be making the proper investment decision.
And you got to learn how to separate that.
Or perhaps serve the management company, like the institution that you are building with your investment firm.
That is not necessarily perfectly aligned with the actual investors in that particular fund.
Exactly.
And again, we felt those conflicting interests, right?
We've made those mistakes or we've made certain kinds of decisions.
And then we just sort of finally said hey look, let's just be very clear about why we're making decisions such and such a decision.
And it's okay to make a good business decision.
It's okay to make a decision that's very rational, that serves the fund or serves your business, whatever it is.
And it's also okay to make an investment decision, but just don't get those confused.
Just understand why you're making certain decisions.
So anyway, we had these bids, right?
And we said, well, geez, at that price, we're not going to sell.
Actually, we said at that price, we should be buyers, right?
And so some people did want to sell at that price and other people wanted to buy.
And so we said, hey, look, why don't we just buy some more shares?
So that was another secondary.
But it was only like a 2.2 million secondary, nowhere near the levels later.
So by this point, you've put five plus million into this company.
So it's becoming a meaningful percentage of the whole fund.
Yes.
So anyway, we bought more.
And then what ended up happening right after that round- was about a year later.
Again, the company continued to really perform.
That's when Craig, our friend from Meritech, comes back in the picture.
And he's known about this company from day one.
And he says, well, this is starting to look quite interesting.
Maybe we'll lead the next round.
And that next round was led at a significantly higher price than the price that we were talking about, which everybody was thinking about selling right.
So it's like, okay, look at 500 million pre, maybe it's time to sell a little bit, right?
Make our LPs happy, increase the DPI.
Now, so this DPI thing is very interesting, right?
This is the fund management business.
Yeah, Chris Duvos, right?
Who's a good friend of all of ours, right?
I mean, what does he say?
He says, it's all about the moolah and the koolah.
I love that like until the cash is in the bank, it's not for real and DPI just for folks.
It's distributed capital to paid in capital, so it's actually dollars.
Don't give me a markup like give me dollars in my bank account, exactly well, and look, we all live through the bubble, the dot com bubble, and you know, We thought we were going to be so successful.
We had all this huge gains and it just disintegrated on us.
Right.
And so we were all kind of burned by that.
And LPs are burned by that.
And the thing is, you know, look LPs, really don't know if something is a fraud or if something is for real.
Right.
They're trusting us.
They're trusting the fund managers.
And so, you know, they see all this gain after gain after gain, but it's all paper.
At some point, they have to convert that to cash.
Right.
Otherwise, you know, they never know.
And if you've been around for a long time, you know, it could go to zero.
So anyway, we had these pressures and says, oh, maybe we should increase the DPI.
It'll help us raise our next fund, right?
That's kind of how a lot of fund managers think.
And so we decided to sell 15% of our Roblox position.
So we were still the largest shareholder at that point after that.
And, you know, it makes our LPs pleased.
And anyway, we said, as we were selling that little piece, oh, it was such a tough decision.
We were saying I think that's going to end up being a 200 million mistake which, you know, 200 million mistake in the context of an 865 million fund is a pretty big mistake, right?
But we still did it anyway.
We still did it even though we thought it might be a $200 million mistake.
Well, it turned out to be more than a billion dollar mistake.
Right?
So anyway, but just remember that, because it was the pain of that mistake that really led us down this whole different path where we became an RIA right.
So we sold a little bit at that point.
And then fast forward a year or two later, a much bigger round happens, $2.5 billion pre.
And before that $2.5 billion pre round led by Tiger and Greylock also came in.
In that round, we had a number of other people start to get really interested in this company.
People were just begging to, like, can we have a chance to look at the company?
And we weren't really looking to raise money because the company again.
After the first 105 million of equity, we got to a point where we were cash flow positive and we just didn't need to raise any more money period.
So people could be knocking on our doors and we just kept saying, no, no, no.
But look at 2 billion.
We thought well, geez at 2 billion, maybe we should sell a little bit again.
We thought, hey, that worked okay last time.
At 2 billion, we could sell maybe only 10 of our position and still return a big chunk of the fund right.
So why not?
So we actually talked to some folks at $2 billion and they came in at slightly below.
Like they just yeah, our asking price was two and they for some reason couldn't quite get there.
They're offering like one seven one eight, and we just said yeah, we're just gonna pass.
This is like when buffett bought berkshire hathaway and he where he wanted to sell and uh, it was the chase family.
Right, it came in.
They they came in at uh, i think an eighth of a dollar below the price that they'd agreed, shook hands on a tender offer, And that's when Buffett said, all right, I'm not going to sell, I'm going to buy.
Yeah.
Well, I have another one of those great stories for you later.
Remind me, Wuwa Brothers.
You're just off by a little bit and it's just so dumb to be off by a little bit.
Just go for it.
So anyway, those guys were off by a little bit, and it's a lucky thing for us, because we waited a little bit longer and we got to the 25 billion valuation.
If we were willing to sell at two, we should be willing to sell at two and a half, right?
But it's all relative to how much progress is the company making.
And then the other key difference was, by the time we got to two and a half, we had registered to become an RIA.
And so that was a key difference.
And once we registered to be an RIA, we could do these SPVs and we could purchase secondary.
And RIA being registered investment advisor or advisory?
That's right.
Registered investment advisor.
And so VCs are exempt from SEC registration because we help create jobs and all of that kind of stuff.
And there's a lot of truth to that.
VCs are really small and it's really for the public investors.
But from an SEC perspective, if you do too much secondary Well, they look at it and say well, hey look, you're not creating any jobs here.
You're putting dollars into somebody else's pocket.
It's not going into the company.
It's coffers.
It's going to another shareholder's pocket.
Well, to me, that looks like a public trade, right?
Shareholder to shareholder transaction.
So we got to too much secondary.
That's kind of what happens.
By the way, before Ho continues, we should just anchor a price in people's minds.
So when he's talking about, we invested a million and a half, and then you mentioned something around a 500 million valuation round.
Now you mentioned a $2.5 billion valuation round.
It's like, man, how big can this company get?
Well, the public markets currently believe it's worth about $60 billion.
So it does indeed keep running.
Yes.
Yeah, it definitely keeps running.
So that 25 billion.
Because they didn't need money.
They only took a little bit of money into the company.
And then the rest of it was a tender offer to purchase secondary shares.
So there was a whole process going on.
Everybody got a chance to sell a little bit.
And remember, we sold a little bit in the last round at 500.
At two and a half, we told the company, you know something?
Thanks, but no thanks.
We're not going to be part of this tender process.
But what we did was we ran our own little tender process.
We said, you know something?
We will do this SPV and we'll participate in the round.
And then we will run a tender process amongst our LPs and say, hey look, if anybody really wants a chance at liquidity, here it is.
And if they want to roll over, you could also roll over.
So we don't want to force anybody out.
We wanted to give them a chance to roll over on a no fee, no carry basis.
Because the reason we were willing to provide no fee, no carry, is well, first of all, no fee because we're going to work with this company regardless, because we still had a big position there.
So why should we charge any fees?
And then no carry because we're crystallizing the carry as we did that distribution.
So they already paid us a fee carry from that fund.
So if they rolled over into this new vehicle, we shouldn't charge them anymore.
So it was a free rollover if they want to roll, but a lot of people decided to cash out.
So it was interesting.
And we cashed out some too.
As GPs, we've been toiling away for a long time.
We didn't have a whole lot of fund returners at that point.
And so we cashed out half of our carry and rolled over the other half.
So it was a good thing for everybody.
So we did that.
And then fast forward later, there was another round.
When we did the $2.5 billion, it was $125 million SPV.
After we did that, we didn't think we would ever do another SPV on top of that.
But yet again, at 4 billion, when that deal happened, we did another 125.
So that's how it starts to get big, right?
125 plus 125.
Now you got 250.
Plus we had another round after that, the pre-IPO round at $45 a share.
Now, when you think about all of these rounds though, it's kind of crazy to think even at the 45 a share, which people thought was crazy, right.
That was the $30 billion market cap.
All the rumors about Roblox going public was at $8 billion.
I have no idea where they pulled that out, but I think it was reporters saying well, if the last round was 4 billion, then the IPO must be at two times that.
It must be at $8 billion.
Everybody said it's going to go public at $8 billion, maybe $10 billion.
And this is famously the IPO that got pulled because people were like, oh actually.
Or the company presumably thought wow, looking around at where tech companies are being valued, going out today, this wouldn't make sense.
We actually should raise more in the private market and then decide if we want to go out next year.
Yeah, that's right.
Yeah, those pops were just kind of insane.
And we kind of felt helpless to control it, because if you do a traditional IPO, you have such a limited supply.
And a lot of people wanted access to this deal.
They didn't get a chance to invest.
And so they were going to buy.
But as soon as they did…
The price would spike up, and then we knew that it would come back down.
And we just didn't want people to get burned.
It just didn't seem right.
Also for the sellers, right?
All these employees and early shareholders, they wanted some liquidity.
And why should they sell at this artificially low price?
Just because that's kind of what the bankers wanted.
Doesn't make sense.
We wanted to try to explore and find the right price and we thought the right price was going to be much higher than the IPO price.
And we did find some investors to validate that.
Hey look, it should be at least 45 a share, which is 30 billion market cap way higher than that 10, 15 billion.
Maybe people thought it should be priced at.
And we bought more at that point.
And so that's again a key lesson too, in terms of how we think about the business and holding on to our winners longer.
So I think that kind of tells the whole Roblox story.
So I skipped a whole bunch of other things that happened in between, because this whole Roblox journey would not have happened at all.
In terms of making these big investments without this other little company called Wooa Brothers in Korea.
And that was one of our early winners.
And we always said that we didn't think Wooa Brothers was going to be our biggest winner.
But we always said for a number of years that this is our most important company.
And if we screw that up, we screw up all of Altos.
And the reason is we use that company to test out so many different theories about the business and about what we wanted to do, what kind of VC we wanted to be.
And Wuwa Brothers was the main reason that we registered to be an RIA, to do the first SPV.
So Wuwa is this little food tech company in Korea that did...
I think a billion in net revenue last year in GMV.
I'm not sure what it is, seven, eight billion.
Surprisingly big for a little country of South Korea.
But we had been involved with that company, again, from very early stages as well.
That company is so fascinating because the founder is one of these non-consensus founders.
He did not go to one of the top colleges in Korea.
In Korea, going to a top college is a really big deal.
Education is everything there.
He was a designer, went to design school, and started this little company that failed.
He was in debt there.
And he had to go back and try to pay off his debts.
And he started this company after he paid off the debts, or most of it.
And the company was growing pretty fast.
We decided to bet on it.
And we thought hey, this could be.
It was like the grub hub of Korea at the time, before the whole physical delivery.
And we thought, hey, we thought this company could be maybe $30, $40 million in revenue.
And maybe we could exit.
In Korea, you could take a tiny company like that public.
And we didn't think it would be that big, right?
But it got to 10 million run rate.
And we thought, hey, this is really starting to work.
And this is maybe a bigger market than we thought.
And the CEO comes to us and says, well, look, I took it this far.
And I think it's time to get a CEO, like new CEO.
This is such a great story.
And it's like, what do you mean?
It's like, well, because I don't know how to take it from 10 million to 100 million.
And some of the other board members were saying, oh, we've got to take this company public.
Like in Korea, you could take a tiny company like that public, but you have to be profitable.
So from 10 million to 20 million.
They wanted to get the company profitable and then take it public.
Around the time it was 20 million.
And we said, no, no, I don't think that's the right approach.
I think this is really starting to work.
It's time to step on the gas.
And we told the founders, like, you know, I think we could take it a little bit further.
Let's see what happens.
But let's raise a little more money and just kind of go for it.
You draft him back into service.
Yeah, it's sort of interesting because we are seen in Silicon Valley as these very stodgy conservative, pragmatic guys capital efficient.
We don't like burning a lot of money.
In Korea when we say this tiny little 10 million company should step on the gas, they think oh, these guys are rich.
Really aggressive, right.
And this is really very interesting.
It's like same exact approach because by the time we got to a hundred million, of course we were profitable or a cashflow break even.
We like companies to get to a self-sustaining phase around the time you get to triple digit millions.
And so around the time they got to a hundred million, the CEO came back to us again and he said wow, this is amazing.
Now we're at a hundred million in revenues and I think you have the wrong man for the job.
It's like, really?
Because I got it to 100 billion, but I don't think I'm the right guy to take it to a billion.
It's like, well, okay, let's see what happens.
Now, here's the fascinating thing.
He came to my partner Han, recently and said you know look, I think we're going to take this thing to 10 billion.
He's like, just watch me.
Now he's got the confidence.
He took it from 100 to a billion, and now he knows.
And of course, he's just become a fabulous, fabulous CEO.
Amazing.
He's the first Korean to sign the gifting pledge, right?
Yeah, yeah.
He recently signed the Buffett Gates gifting pledge.
First person ever to do that from Korea.
Now another founder from Korea recently signed.
So now they have two out of Korea all in the last few months, which is fantastic.
Yeah.
He's such a special guy.
He actually started selling some of his shares even very early before he became a billionaire, because he just felt like it was the right thing to give back and he made some promises.
We told him, he's like, you're crazy for selling the stock.
Because we were buying, right?
As we were buying, we told him, he's like, I don't think you should be selling that much.
But he's like, no, no, I got to sell it because I got to give 10 million to these guys, whatever.
He had made promises and so he sold his stock.
He's such an amazing guy.
So anyway, along this Wuwa Brothers journey, talking about missing out on price, we had again pressures feeling the pressures to return some capital to our founders.
And Wuwa Brothers was on a much faster growth trajectory in the early days compared to Roblox.
And maybe we thought we would sell 20% of our shares, right?
That returns a nice little percentage of the fund.
And we actually had shaken hands on a deal with a great we found this great long-term investor that they would be like an all toast.
We would leave the shares in really good hands because they would be really with the company for a super long time, not looking to flip out of it.
And we shook hands.
And then when we got the paperwork, the price was different.
It's like-
And it wasn't off by a lot, but it's like, but this is not what we agreed to.
So we just said, no, we call off the deal, right?
And it's a lucky thing, because what happened was we called off the deal but we were still interested in many of the other early investors were all interested in cashing out a little bit.
So by the time we found the next investor, which turned out to be Naver, and we wanted a strategic as well, because we thought Naver could become a competitor, and why not make them our friends rather than our enemies?
By the time we got to that deal, we actually got the price that we had wanted from the beginning.
Again, six months passes.
In a fast-growing company, six months makes you pause.
It's like, wait a minute.
At this price, we should be buyers rather than sellers? right?
It's like the same decision we made with Roblox a little earlier.
It's like yeah, we were thinking about selling at this price, but I think maybe we should be buyers.
Very similar to what Nolan Bushnell had told us about the Atari deal with Don Valentine, where it took so long to close the deal.
Months and months and months went by that when Don showed up with the final paperwork to sign, Nolan was like Hey, I think we're actually worth twice as much now.
And they were.
I mean, you just objectively look at their growth.
And only Nolan Bustell could have that conversation with Don Valentine.
It's always a moving target, right?
And you try your best.
Valuing a company is just an art, not a science.
You can't just apply simple formulas.
And it's a moving target.
It keeps changing on you.
So anyway.
So we decided okay, we had been talking about potentially becoming an RIA for years, like two, three years before this Woolworth Brothers decision.
We thought about doing an SPV for a coupon which was growing even faster than some of these other companies did.
It was an early rocket ship.
And we just could not get comfortable with the notion of becoming an RIA at the time.
For a small fund like ours, it was just a big, huge undertaking, a lot more overhead.
You had to have a chief compliance officer, a lot more legal costs.
And we'll get back to this, but at that time, how many people were at Altos?
What did the firm look like?
We were tiny.
This is before any of our next generation partners have joined us.
So it was still the three of us, just three partners.
Yeah.
And our receptionist was our office manager, our admin.
She's still with us.
We just had tiny little office.
So we decided not to do the SPV for a coupon, but we had been thinking about this for a number of years.
And we talked to a whole bunch of people who were registered and they told us it's like well, you know, my advice to you is just don't do it.
It's like, really?
But you're registered.
It's like, but yeah, it's a cost of doing business for us.
But for you guys, I don't think it's worth it.
So, I mean, literally we got that good, well-meaning advice from a lot of people.
So we just didn't do it for a coupon which probably turned out to be a billion dollar.
Mistake, right.
But that's fine.
That's one billion dollar mistake.
The Roblox thing was another billion dollar mistake.
We keep making all these huge billion dollar mistakes.
And it's like, you know, at some point we should stop making these big mistakes.
So-
So for Wuwa, we finally again, we went back to the same exact people that we had talked to before, who said you shouldn't do it.
We talked to some of those guys and we got some advice and we said you know something, despite all these costs, we were kind of doing the math on it.
And for this little 30 million SPV I think we'll make enough money on this to kind of justify all the added expenses and overhead, kind of forever you know, or at least for the 10 years.
I think it'll pay for all the 10 years of expenses if this turns out to be correct.
And then we thought, it's like, you know, there could be some other deals.
Like three years ago, we had Coupang.
Now we have Woo of Others.
There could be some other deals.
You just never know, right?
So we thought, okay, why not?
So we registered and we got it just in the nick of time.
We had to register very, very quickly to be able to close the And the 30 million SPV was 100 for secondary.
Not a penny of it went to the company.
We bought shares from other early investors like us that needed that liquidity.
And is that?
One of the things that you can't do if you're not an RIA is lead a whole round.
That's just secondary.
Yeah, the technicality is that it's 25% of any fund.
And so you could have a billion under management, but if you have a one fund, that's a 30 million fund.
And if 25 of that one fund happens to be secondary, then that triggers the registration requirement for the entire platform.
So that's kind of the math.
And so 30 million, 100% of it's secondary.
So that triggered the registration.
And so, because we had done that for Wuwa Brothers, that's what allowed us to do all those other Roblox SPVs.
Now, before this Wuwa SPV, that was the sixth fund that had invested in the Wuwa Brothers.
So I didn't tell that part of the story.
So we were investing fund after fund after fund into Wuwa Brothers.
And canonical VC dogma from LPs, but I think VCs also believe this is.
Cross-fund investing is a no-no.
It's a no-no.
People really don't like it.
And so, when we first started doing this, LPs were – well, first of all, when we first started doing it, that's because we were just not very good fund managers.
Right.
A lot of times you do it because you're just not doing a good job of reserving.
And if you run out of money, we ran out of money.
It's like, well, geez, we can't support our companies anymore.
So we had to beg our LPs like can we really use our new fund to help support some of our older companies?
So we did that and LPs didn't like it, but they gave us a little rope.
It's like, okay, you could do a little bit, but we're watching you.
Our eyes are on you.
We're going to start reading those quarterly statements that you send us now.
And we're going to make sure that you don't put good money after bad to support your crappy companies that run out of money.
Uh, but look, we made some mistakes, but we also made some good deals and our LP started to get more and more comfortable with us doing these crossovers.
And what brothers?
Uh, when we raised our first Korea fund, we we raised that fund primarily because of some of the lessons on war brothers.
We were starting to run out of money in our us funds for Korea.
So when we first started raising us funds from institutional um LPs in 2005 uh, they let us invest up to 10 of our fund anywhere outside of the US.
The reason is we asked for permission to do that because we started to see some interesting things in Korea.
It was worded in the legal documents that we could invest anywhere outside the US, but we were just only focused on Korea.
In that first fund we never reached that 10 limit, but in the next one we increased that limit to 15 because we continued to see more interesting deals.
It was in that second fund where we absolutely hit the 15 limit and then we wanted to go beyond that 15.
Why did we want to go beyond 15% limit?
To put more money into Wuwa Brothers.
That was the company that we really wanted to start to lean in on.
And so our LPs kind of relented and they said well, it's like well, we won't let you go up to 20, but we'll let you go up to 17.
It's like, okay, you know, beggars can't be choosers.
We'll take whatever we can get.
So the 17%, that incremental 2% all went into Wuwa, but we wanted more, right?
And so now we were stuck in that US fund limited at 17.
So that's when we went out and said, hey, we're going to raise a Korea fund, Korea-only fund.
Because some LPs actually liked that idea and wanted more exposure.
Their other LPs did not want more exposure to Korea.
There's all kinds of North Korea risk and they didn't even know how to categorize Korea.
It's like, well, it doesn't go into emerging market bucket.
So they don't know how to categorize it.
So some of our core LPs actually passed on that first Korea fund.
But luckily we were able to convince enough LPs to come along with us on that first 60 million Korea fund.
And when we raised that fund, we told our LPs the first investment we're going to make out of this fund is a crossover.
So lp, i mean you're literally doing everything that is gonna make lps nervous here.
Yeah, you're investing in a market they don't know and understand, while you're based out of the us and uh, your first investment's a crossover investment.
Those must have been some fun conversations.
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 stat seg 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.
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.
Ho, let me ask you a question.
This will take us a little bit into sort of firm history.
So we've thrown around Roblox, we've thrown around Coupang, we've thrown around WooWoo Brothers.
At this point, these multi-billion dollar investments, these things keep happening to you.
So you sort of like you know what excellent feels like now in terms of the results and then sort of backtesting that against what did those entrepreneurs look like when we invested very early in them?
Can you like take us back emotionally to what it was like the first time you started to see your first 3x 5x 8x, where you knew you had something in the portfolio, where you were looking at each other like hey, we actually might be good at this.
Like one of these companies might go and what your psychology was around that point in time.
Yeah, yeah, it's such a interesting question.
It's kind of complicated.
There's the people equation, and then there's also the business equation.
So I'll talk about the people a little bit, and we're going to talk about the business fundamentals.
So the people we already talked about a little bit.
We just have a bias towards certain kinds of entrepreneurs, what we call the hedgehog versus the fox.
And, you know, there's nothing wrong with foxes and nothing wrong with amazing serial entrepreneurs.
They're incredibly competent people.
They will make money over and over again.
But I call the great serial entrepreneurs just amazing people who just have not yet found their true life's calling right.
So you could be a serial entrepreneur, have a bunch of fantastic hits, but then you will find something that says, oh my God, this is it.
I found what my life's purpose is.
I'm here for the rest of my life.
We're looking for that match, company, founder, fit.
Sam Walton was like that.
Sam Walton was a very successful serial entrepreneur, very successful.
Even as a teenager, he was making all kinds of money.
He was making thousands of dollars, which is big money back in those days, just like Buffett was a very successful teenage entrepreneur.
He's always been fairly wealthy, fairly successful, but he did not start Walmart until age 46.
He was already a wealthy, successful guy.
But at 46, he found Walmart, and that was it.
That was it for the rest of his life, the one thing.
So we're looking for the people, the one thing, right?
And it's their true life's mission.
At this point in our lives, we're not looking for yet another deal to make money.
Why would we do that?
Don't show me another deal that just makes money.
Show me an opportunity to build something really special with special group of people that have a mission their life's mission, hopefully and how can we support them on that?
And guess what?
If you actually do that, the money will be there, right?
So don't worry about making money.
That cannot be the reason to do any deal.
It's got to be because you want to work with these people and it's got to be because we have a chance to build something right.
So it's about the people that that's such a critical component, right?
You've said a bunch to me and I love sort of adapting a Buffett analogy, but you want to find people and I think you all think of yourselves this way at Altos, where you're painting a masterpiece, versus you're painting by numbers.
And when you're painting a masterpiece, there is no formula and it's never done.
Yeah.
Every time it's just different.
Right.
And yeah, but Buffett calls Berkshire his painting.
That's my painting.
And when he buys a business you know from one of these great founders who've become a billionaire you know, says you know.
He tells him like you have this masterpiece.
I want to hang it in my museum.
Right.
I'm not going to touch it.
I'm not going to rip it apart.
Right.
Sell it off in pieces.
And I'm going to hold on to it forever.
It's a beautiful masterpiece.
And, and you know sometimes, you know, you paint you, you do the painting and it turns out to be not so good.
Sometimes it's a masterpiece, but it's just unique.
It's just different every time we're looking for those artists.
And there's a lot of people out there who, you know, want to want volume.
They want scale, uh, and, and paint by numbers will do it.
And you could build a much, much bigger business that way much, certainly much more predictable and much more repeatable.
And there's a lot of people who want that, right.
Or maybe a bigger business faster.
Yeah.
Yeah, GPs was LPs.
I think it's LPs that are driving it.
LPs really want predictability, repeatability.
They don't want to take too much risk, right?
And I kind of joke that like, look, I think everybody wants Bernie Madoff without the fraud.
Like nobody wants fraud, of course, but I think everybody wants Bernie Madoff.
They want nice, steady.
They don't want to be too greedy.
They just want that steady returns.
And there's a lot of big, big funds that they're just geared.
They're set up for that.
You know, company after company, deal after deal.
It's like a cookie cutter, right?
Crank them out out of a factory and it's a deal factory, a deal machine and the LPs want it.
It's okay.
Good for you.
That's fine.
We're just going to do something different over here.
And if you want that, you know, and it's a small piece of your portfolio, because we're not going to be able to, you know, crank it out in volume like that.
We just have our own little thing going.
So that was, that's the people side of the equation.
And then you said there's the business side of the equation.
Yeah, so there's a business side.
So around the time a company gets to about a 10 to 20 million scale, that's what we call first base.
That's kind of when we start to get a lot more curious about the business.
Around the time, let's say, Woolworth Brothers got to $10 million.
It was like, okay, I think we might have something here.
And we start to dig in.
Sometimes I might not even be paying attention.
If it's a company, of course, that I'm working with, I'm very involved with what's going on.
But as a partnership, we might not know about every single company.
But if somebody else's deal, whatever, if you get to first base, now you got my attention.
It's like, so wait a minute.
So what do they do again?
What is it that they're doing?
Like, I want to learn a little bit more about this little business.
So around 10 to 20 million, you get our attention.
We start to get curious.
Like we learn so much more about the people, the business, the market, because now we're a few years into it.
Right and what we've learned is that you know so many companies, venture-backed companies especially, are in a hurry to grow grow, grow and the faster you grow, the higher your valuation at the next round and everybody's really happy, right.
But i tell you, when you really step on the gas and we've done it before we've had companies go to 100 million in revenues and then the wheels start falling apart and it takes so much time, so much work to get a company to 100.
It's like the most heartbreaking thing in the world to have this thing that you worked so hard on start to fall apart on you.
And it's really hard to turn it around.
It's much harder to do a turnaround than to build it right from the beginning.
And I think almost every single company startup has a great culture in the beginning.
People say well, the culture gets set when it's like the first five people or whatever, and you got to do it right.
It's like, don't tell me about that.
Every little company has a great culture.
You know why?
Because...
Just to survive that little infant mortality phase.
If everybody's not pulling their weight, there's no place to hide.
Everybody is contributing.
Everybody knows what the heck is going on.
You have a great culture, every little company.
But not every great culture at every little company turns out to be great as they grow.
And so you have to pay a serious amount of attention.
So around the time you get to first base, that's when you get to your first 100 people and you really have to do it right.
And basically in our best companies they're accelerating in growth in the multiple hundreds of millions at a faster rate a lot of times in percentage terms, than when they were in the tens of millions.
That's what we're looking for, right?
We want this acceleration starting at 100 million rather than a deceleration and the wheels falling off at 100 million.
When we see something special and again, not every company that gets to 10 to 20 million is going to get to that hundreds of millions, but we're paying attention to it to see which of these have the opportunity to really scale up.
If we see the big potential, We get more careful and more patient with those because we want to do it right.
And we want to build the right kind of pieces, because by the time you get to 100 again, if you don't have the fundamentals down, it's just almost too late.
It's just really hard.
I mean, you could do it, but it's just it takes a lot of effort.
But if you keep doing it right, like if you're making the right kind of decisions at 10 20, 30 million rather than at 100 million, then by the time you get to 100 million you got some momentum building and you got some practice and you got the right fundamentals going.
And so at 100, you have this ability to start to accelerate.
And so that's what we're trying to do.
What are some examples of some of those key decisions in the 10 to 30 million revenue range that you got to take the time to get right in your experience?
Yeah.
Well, a big thing is people, people and culture.
It's so easy to just get people with fancy resumes and they'll take you there super, super fast.
And you just have to be careful.
I mean, I have no problems hiring people. talent.
And as companies grow, we have access to better and better talent.
You know, when you're at a startup, you just can't get the kind of people you get at 20 million.
And when you're at 20 million, you cannot get the kind of people you can recruit at 200 million.
And at 200 million, I will tell you, you cannot get the kind of people you can get at 2 billion.
I mean, you start to tap into better and better talent.
So all along the way we are trying to upgrade the talent, but also all along the way we're trying to develop the talent.
And we're really looking for signs of that of which are the people that we hired early days that are able to keep coming along with us.
And you have to be patient with some of those folks.
But it always makes me feel a little bit more comfortable with a company if I see certain people coming along.
And we have some history with them.
Because if I wake up one day and we're 100 million in revenues but I look at the management team and I don't know anybody on the team, it makes me very nervous actually.
I might know the business.
It might have a long 10-year history with the business.
But I just don't know these people.
Now I got to start the cycle all over again.
It makes me feel more comfortable when I've known these people for a while.
And some of them start as individual contributors.
And they become managers.
And then the directors and VPs.
And usually we get to know because we work with these companies for such a long time.
We get to know people at multiple layers, right.
We might know people at four or five different layers within the company at all different stages of their career development.
And again, those are the companies where we tend to get much more conviction around.
It reminds me of I remember talking about, of Zoom and I remember talking about this with Santi in our episode with him that you know it's such a, it's almost it's a very Altos like company.
I remember in the IPO prospectus going through the management team.
And they all were developed internally.
And they're all incredible, but it looks very different than, you know, often you'd see in sort of a typical venture path, just like you're saying, you see, you bring in the gold plated resumes at each stage, and they're, you know, they've done this, they've done that, they've done XYZ, but they've been with the company six months before the IPO.
Yeah.
Yeah, yeah.
And we certainly had some of that at Roblox too.
I mean, you can look at the IPO perspectives.
There's some people we brought in and there's other people like behind the scenes that have been there for a really long time.
Some amazing people, right?
And there's some people at the IPO perspectives.
That might not be like in the documents yet, but we know they're in the background and they're getting better and better.
And maybe five, 10 years from now, they're going to take over.
Who knows, right?
But we see that kind of a machinery being developed.
That's really interesting.
But that's, again, going back to people.
I mean, so much of this is really about people at the end of the day, right?
That's what certainly makes it more fun for us.
I mean, it's interesting because in Korea, right, we go to a lot of funerals.
It's like, it's so fascinating.
It's like, really?
Well, in Korea, like you don't have to go to all the weddings, but you do have to go to all the funerals.
It's like a really big deal.
So I think every month... These are not funerals of employees of companies.
These are of their like older family members, right?
Yes, yes, usually.
We have so many employees at our companies now, but I think we go to at least I don't know four or five funerals a month.
I mean, a lot.
It's a big deal.
And we take time to do that.
But we develop these relationships, right?
I've seen people who are single, they get married, they have kids.
And then at the other end, people who become empty nesters, right?
Or people, unfortunately, who do pass away.
So we've seen the entire life cycle having been in this for 25 plus years.
And it's kind of seeing the journey, the lifelong journeys of these people, and seeing these families grow up.
I mean, that's also one of the things that keeps us coming back.
But anyway, I keep going back to people, going back to the business though, the metrics.
I think we do like to see this capital efficiency, but we have no problem stepping on the gas.
It just depends on the business, right?
Coupang is a good example, where they got to profitability actually, or cash flow break even, but then really made a courageous decision to really step on the gas and build out the entire infrastructure.
And that really cannot be done without a serious amount of money.
And so that was the first billion-dollar check from SoftBank, and then they did another 2 billion check.
We have another company called Vivo Republica, another Korean company, FinTech Unicorn.
They're, I think, approaching a billion or so in revenues.
And that took some amount of capital.
That took a pretty good amount of capital because in the early days we were kind of losing money with every transaction, right.
It was Venmo of Korea.
And every single time you did a transaction, it cost us $0.50, right?
Not great gross margins.
Yeah.
As our volumes went up, we negotiated those rates down much, much, much lower.
And then also then as we got bigger because of network effects, some of the transactions we had zero cost because you could just leave it in your TOS account.
That TOS is the Venmo of Korea.
So if you leave it in the account and you do a money transfer within the network, it's zero cost.
But if you transfer it back to a bank, then it costs us whatever we negotiate with the bank.
But that is an example of a deal that really did cost us a lot of money.
But we were, again, this is a good example.
In places like US and China, you would just raise a ton of money.
It's like, hey, this is a great product market fit.
Go for it.
But there we were trying to slow down the growth because we were going to drive ourselves out of business.
We're this little venture fund.
We can't keep funding this burn rate.
So we actually did things like, oh, why don't we charge you a transaction fee.
After the first three, five, or 10 transactions, we will charge you.
It's like, and by charging people, we will slow down the growth.
We did that, of course, and that helped subsidize the burn.
It didn't slow down the growth that much actually, but at least we got some money.
You have to do clever things If you're, you know, if you're like, there's a saying, right?
Creativity loves constraints.
We try to constrain our companies, right?
In a way that forces them to think creatively about the product and about the business model, so that you don't burn crazy amounts of money.
Again, I have no problem stepping on the gas when I see something obviously good.
But again, we try to do it within the bounds of some reasonable constraints.
The number one rule for us is we have to be able to control our own destiny.
And it's not just to protect the Alto's ROI.
We're trying to protect the founders, right?
Because these founders, they start their companies.
And this is their life's mission, let's say.
Let's say we pick the right founder.
This is their life's mission.
The last thing I want to see happen is their life's mission blow up.
And it will blow up if you keep running out of money, right?
I want to see founders in control, not the investors.
If the founder keeps running out of money, guess what?
The founder is no longer in control.
Some big investor comes in, they're calling all the shots.
And before you know it, the founder could be gone.
And then again.
Now I'm staring at a bunch of execs that I don't know, I don't have a relationship with and I'm not sure what to do with that right.
I like having relationships with the company.
And I want to know who I'm working with.
And so we're trying to protect the founders.
We want them to be under control.
And if they're burning too much money, they're going to lose control over their own companies.
So we want to protect them and we want to protect our capital efficiency.
We care about price per share appreciation.
You could have these valuations keep going up, but you have so much dilution your price per share is not going up at the same rate, right?
Price per share appreciation matters.
Yeah.
Ironically yes, valuation is actually not the thing to watch which, of course, you're never going to see price per share in a TechCrunch article.
But it is funny how people just anchor directly on that valuation.
On this note, I want to take us in a little bit of an investment fundamentals direction.
So I think it's too easy to say well, there's two types of investing value investing and growth investing.
It's obviously some spectrum.
And I think you have, at least from the outside, mastered the art of identifying where and when to be on which places in that spectrum.
And so earlier you mentioned something like well with Roblox.
With our early investments, we paid something like 5x revenues on a valuation basis.
I assume, and I haven't looked at the numbers, that it's much higher than that now.
And so I also assume that at some point, when you were investing in those multi-billion dollar valuation rounds, that it was higher than 5x then too.
So when are you comfortable and how do you make decisions in fast-growing tech companies around what investment multiples make sense?
Yeah, that's a great question.
So we use these kind of rough metrics, whether it's 5x or 10x, when we don't know the business.
But once we know the business and we know what the potential is, then we kind of know hey, we could be monetizing more, but we chose not to for a whole variety of reasons.
And so we have to factor that in to the valuation equation.
And so until you really get to know the business, you really don't know how to value it.
So we have to use these dumb metrics.
But then, once we really get to know the business, then we feel like we are in a better position to value it than anybody else.
And so I like to say we're different than every other early stage VC because we never run out of money and we never run out of time.
Thanks to our LPs, we could just keep investing across multiple funds.
But we're also very different than any other later stage investor, because that's where most of our dollars go these days, right.
It's a later stage.
But we're different because we don't chase somebody else's unicorn.
We are going very deep into these companies.
And I like to say I'm a very slow learner.
So give me many years to get to know you and your business before I could even qualify myself to make that kind of a judgment call.
Buffett likes to talk about his circle of competence.
Our circle of competence is quite narrow.
It's our own companies, right?
Like you know, we look at other people's companies to try to learn, of course, but we're going to town studying our own businesses and trying to figure out which of those businesses have potential and trying to understand how does it work.
You know, when a company starts to work, that's a rare thing, as you know.
You know, we're all in the venture business.
It's hard to find something that actually works.
So when something is working, that should just tell you, maybe you should be paying more attention.
Like something is going on.
Try to understand what the heck is going on.
There's many, many explanations behind something that's working.
It could be the market.
It could be a competitive dynamic.
It could be the people are really special.
It could be you have some secret sauce.
Maybe you got lucky.
Whatever it is, try to unpack it and try to understand the components of it.
And then try to understand how this machinery works.
And as you understand the machinery, you start to understand what the potential is and how to value it.
So there's no easy formula, but that's kind of one way to think about it.
Now, this interesting comment about value versus growth, right?
I give a lot of credit to Jack McDonald, who taught investing for 50 years and he's no longer with us.
But that's the same class that the IGSB guys teach at.
We go back every year to teach that class.
Buffett used to come every year.
He always told us, hey, value and growth, is the same thing as far as he was concerned.
It's like two sides of the same coin.
That's what Buffett says, two sides of the same coin.
The way McDonald talked about it is, well, isn't growth just a component of value?
Of course it is, right?
The higher the growth, the higher the valuation potentially, right?
So it's just one of the many elements that we have to factor in to try to put a proper valuation on the business.
So that's kind of the way we've been thinking about it always for a long time.
And of course, these early stage venture deals, there are no metrics.
It's too early, so early.
So I just no longer even think about the venture deals as investments anymore.
I think about the venture portfolio as it's just the world's greatest discovery mechanism.
Try to learn about businesses, try to learn about people and once in a while we discover a very interesting opportunity and then we'll develop that opportunity.
It's not about you discovered it and you caught this lightning in a bottle and then now you're rich.
It's like, no, no, no, no, no, no.
It doesn't happen that way.
You discover the opportunity.
Now you got the next 10 to 20 years to figure out what to do with it.
If you don't show up for the next 20 years, you're not going to get paid big.
Maybe you'll get lucky and you go flip it to somebody because they're going to pay you a big forward valuation.
But if you're not lucky and somebody's not going to pay you for all the future cash flows, today you have no choice but to just build it.
You've got to do it yourself.
Do it the old-fashioned way.
Do it the hard way.
Just build a damn company instead of trying to flip it to somebody else and get paid.
That's what happened with Roblox.
Right?
Get paid for not doing it.
Let's just do it.
I remember when you told me this viewpoint.
It was such a like, I'd never thought of things this way before.
Yeah.
For me, so many light bulbs went off and really helped me evolve the way I think about investing over the past year.
It's tied to what we were talking about earlier that the out years of compounding are where the huge lion's share of the value is.
And so if you take the sort of, shall we say, traditional or normal VC approach of I'm looking for the markups, I'm looking to get paid, et cetera, I want growth and I want to offload it.
That's a pejorative way of saying it, but that's how a lot of these things traditional venture companies go.
You're missing out on the potential to go from Roblox going from 25 billion to 68 billion.
And that's 90% of the value.
Yeah.
And a company like that.
Again, we're not thinking about what's going to happen to the price in the next one or two years.
We're thinking about what can we do with this company in the next five to 10 years or 20 years.
The best ones will keep going longer.
We always like to talk about Geico.
I love the Geico story because that's a 70-year relationship between an investor and a company.
It's like, wow, that would be amazing to have a 70-year relationship.
I don't know.
Some of these tech companies, they might have a shorter life.
But you could have a nice 20, 30-year run, and we hope to have some of those kinds of runs.
The Geico story is the perfect transition to another topic I want to have you educate us on.
You also said to me once, passing, missing, that's all in your head.
That's just a construct.
You can always invest.
The Buffett Geico story illustrates that so beautifully.
He bought, he sold, he bought, he sold, he bought part, then he bought the rest of it.
You can always invest.
Tell us more about that.
Yeah.
Well, this is the thing.
If you've been around for as long as I have, you get to know these companies.
Now, of course, we defined our circle of competence for Altos, just our own portfolio.
But just as an investor, we've all been doing public investing now for decades.
And I've encouraged people to just do that.
We have our 401ks structured in a way that we could individually manage it.
And we want everybody to do that, so that they get to practice practice practice, practice with this tiny little 401k which is no longer that tiny, by the way.
And now we have the benefit of decades of experience when we have serious money to manage on the public side.
And so it's a fascinating, fascinating journey.
And this concept of you get to know these companies over the period of many years and many decades.
Right.
And you get to see these teams.
And once in a while, like whether it's a 2008 crisis or the dotcom crash you have these kind of strange things happen in the external environment.
That gave you this amazing gift.
And if you have a database, mental database, of various companies that you know about different models, different teams, that you could really get to know some of these public companies quite intimately.
I've been quite impressed by meeting some folks on Twitter who really know their businesses and they're public investors and they have no special access to those management teams like we do.
And yet they really know their stuff.
And like, wow, I've been very impressed.
And you know some of the CEOs.
It's like you know, we didn't invest in some of these companies, but I know these people.
And I realized these people have never met the guy, but they know him.
And it's like, they really do.
They study him.
I mean, because you can study these CEOs.
They're on videos, you know, on YouTube.
They're on podcasts.
You could read through the quarterly earnings calls.
And they're going really deep.
And if you start to go really that deep and then you follow them for 10, 20 years hey, you really do know.
There's a guy, Tom Russo, who's another GSB guy, speaks at that same class.
I think he's been investing for like 30-some years, ever since he saw Buffett speak at the class in the 80s.
And he followed some of these companies like Nestle for like decades.
I think I remember him talking about meeting some factory manager in China more than 20 years ago, and he does a factory tour.
He's just always looking into those companies.
It's the same company.
He's still invested in it, but now that factory manager has become some bigwig executive in Switzerland.
This is the Phil Fisher scuttlebutt.
Yeah, the scuttlebutt, just taken to an extreme.
So just get to know a bunch of companies.
And again, stick to the stuff that you know.
Why speculate on stuff you have no business speculating on?
Get to know a bunch of businesses and just realize, take some comfort in the fact that only a very small number of companies are truly special.
So you don't have to get to know everybody.
Maybe you do have to kiss some frogs to find a few princes.
So you get to have to know a bunch of businesses, good and bad, so that you could recognize a great one when it's staring at you in the face.
And again, if it's not so obviously great, then that's kind of easy.
If it's not obviously great to you, then it's not great.
What an easy thing.
Just pass.
What does your flow chart look like in your brain on deciding if a business is truly special?
What is the mental walk?
Is it first slice by sector and then look at a few key metrics?
Is it more people-oriented?
How do you even begin?
If I were to tell you, hey, company A is really interesting.
You should check it out.
How do you validate if I'm right or not?
Yeah, it's a good question.
So sometimes it's really really based on how special the company is, but it's also based on how does the market view the company.
Because if I think that the market's misunderstanding the company, then there's an opportunity for alpha right.
And so, again, we talked about people.
That has to be a critical equation.
You've got to look at the financials.
You've got to look at the balance sheet.
If it has too much debt, if some unforeseen event could kind of – put the company over the edge.
I tend to be shy of it, but I'm not totally afraid of that.
Because sometimes you have the best opportunities in public markets with companies that have a pretty good amount of debt.
Because they could go to bankruptcy, right?
But you have to use your judgment and say, okay, they have a good amount of debt.
Everybody thinks it's going to go BK.
But I think this company is not going to go bankrupt for the following reasons.
And if you have a thesis that everybody thinks it's going to go bankrupt and you don't think it will, then you have an opportunity to make an interesting bet that has asymmetric upside.
The classic example of this I'll always think of now is Buffett's Coca-Cola investment, where there was the New Coke disaster and the market thought, oh my gosh, I don't know that Coca-Cola would go bankrupt, but they've killed the golden goose.
And I don't know if this is how Buffett looked at it, but you could go back and look at that in time and be like okay, let's say Coca-Cola classic before it was classic is done.
They still have Diet Coke, which is the biggest soda in the world.
So there's a huge margin of safety there that people were not appreciating.
Yeah, absolutely.
One of my favorite examples was during the 2008 crisis.
There's a little company called Select Comfort.
Now it's called Sleep Number.
And I remember the Motley Fool was kind of touting the stock as this great stock and it was growing like crazy.
And then it completely cratered in the crisis.
And a lot of people were saying that, well, they're going to go bankrupt soon.
Or maybe not bankrupt.
But they were saying things like well, no one's going to buy a 3000, 4000 mattress in the middle of a crisis.
People say these kinds of things, which is just ludicrous.
It's like, really?
Seriously?
Nobody is going to buy this?
Like, is it revenue is going to go from $600 million to zero overnight?
Right?
Well, let's see what happens.
You could look at the financial statements.
You could listen to the quarterly earnings.
It's like well yeah, of course they're going to struggle and of course revenues are going to go down.
But they sold quite a lot of mattresses actually during the crisis.
And nobody goes to the shopping malls and, you know, traffic is a lot lighter.
But wow, you know lo and behold.
They, I think, sold like 650 million worth of mattresses during the right in the middle of the crisis.
So like the world just doesn't end.
When bad things happen, very few things just go to zero overnight.
So you just have to look at it.
And then the management team made a bunch of mistakes.
They were right in the middle of that SAP implementation switchover in the ERP, which is always really painful.
It's a fairly small company trying to do SAP.
They probably overreached.
I knew Intel was doing a SAP implementation back a number of years ago and, oh my God, that was such a nightmare implementation.
They spent hundreds of millions of dollars and it was just one of those things.
You know black holes.
Right.
So you could imagine a little company like select comfort trying to do it.
And yeah they, they kind of wasted up you know few tens of millions of dollars and they got in over their heads and things were getting a little bit tight around them.
You know, they had all these lease obligations and they they did have some debt again.
But this is where we had to like, apply the judgment of like well, they have debt, but like what are the chances that the lenders are going to come in and seize control?
Right.
I had to think about that.
Now you could imagine in the 2008 crisis.
So this is a little fun detour on the public investing.
But look at the Altos portfolio during the 2009 crisis.
We had some companies struggling, of course, and there was no prospects of raising more equity, so we had to rely on some debt.
And the bankers were getting awfully nervous, right?
And I remember literally sitting across the conference room table with one of the bankers and they were giving us a really hard time about one of our companies, you know, and we stopped making payments and we wanted to kind of renegotiate a few things.
Like, you got to give us a little more time.
You know, of course, you know, the bankers hold all the cards.
They could like, you know, seize control.
And I literally, I think I pulled out the keys It's like a mythical keys out of my pocket.
It's like, here it is.
Take the keys.
Like, good luck.
And as soon as it's like, just take over.
It's like, look, if you don't want to work with us, just take the keys.
It's yours.
They're probably like, nobody's actually pulled out keys before.
Keys.
It's like, here are the keys.
Nor do I want to operate this business.
Exactly.
Exactly.
They're like, well, I really don't want those keys.
It's like, what?
Like, what can you do with this?
It's like well, you know, if you want us to be involved, I think we might be able to do X Y Z, you know, but they have to work with us.
And so we knew that.
You know companies.
Of course, a lot of companies are going through trouble, but there are a lot of dead guys who don't necessarily want to take over the keys.
Take the keys.
There are some guys who do, by the way.
I mean, we've had the unfortunate experience dealing with some folks who are, you know, the loan to own guys right.
Yeah.
That's the whole strategy.
They want the keys.
That's the strategy, right?
They take the debt position, but they're really control guys.
They're more like private equity guys, but they happen to be on the debt side.
And so they're looking for the first opportunity to take over.
And so that's a different kind of a debt provider that you have to be careful with, because they will snatch those keys.
They will pry those keys out of your little clenched fingers, right?
So you have to know who you're dealing with.
But for the most part, most debt guys you can work with and they're good folks and as long as you pay them back, they're fine.
Eventually, we'll pay them back.
I think we've defaulted on very, very few loans in our entire history.
I'm trying to think, when's the last time we ever defaulted?
I really, to be honest, can't. tell you when we defaulted.
There's going to be some debt guy who's listening to this podcast and say oh, you stuck me with this thing once.
And I have no idea when it was.
Maybe it was 20 some years ago.
Who knows?
But we try not to.
We honor all our commitments.
I do want to ask that question a little bit of a different way.
And I think I asked you on a relative basis.
So we talked a lot about like when could there be attractive investing or windows like buying opportunities?
But what about like on an absolute basis?
I mean, what makes a company one of this incredibly rare 1 or less that are truly special businesses?
So I wrote an interesting blog post last year kind of answering this question, because people ask me this kind of a thing a lot.
Like what gives you conviction in a business, at the end of the day, to do these kind of crazy things where you're buying more.
Instead of cashing out a little bit, you're buying more shares when you're up.
So like what gives you that crazy conviction?
And so I wrote that blog post called How Do You Know?
And they're just like some really basic rules of thumb.
First rule is like, this is like kindergarten, right?
This is business 101.
First rule is, well, does the business make money?
Because if the company again we talked about the founders, trying to protect the founders, make sure that they stay in control.
If the company keeps running out of money and they have to keep raising more and more again, maybe in a frothy environment they could keep raising more and more at higher prices and they're going to be fine.
But what if the music stops?
What happens?
And so we want to make sure that we are within shouting distance of breakeven.
Even if we're not generating lots of cash, let's say that we know the path to survival right.
We know what belts we could tighten to make sure that we don't just go off the cliff.
So we want to make sure does the business generate cash or we see the path to profitability or cash flow break even?
So that's one.
Now, second rule, because obviously that's such a basic thing.
It's like, well, no duh, right?
That's the whole purpose of starting a company, so you could make some money.
Now, second rule is, of course, it's not good enough to just make a lot of money.
If you make a lot of money, as Bezos says, your margin is my opportunity.
So you have to have something more.
So the second thing is what Buffett calls a moat.
You have to have something that is protectable.
And again, the deeper you get into a business, the more you realize whether or not there's a moat and whether or not there's not a moat.
And again, sometimes it's not totally obvious.
And the moat can come in many different ways.
Obviously, network effects is one of those things.
You could have patents.
You could have know-how.
I think of all the things that I think about.
Network effects certainly are very powerful, but I think it's really the know-how.
There's so much discovery that happens.
As we figure things out along the way.
If we think that we have figured out some things that are not obvious to the outside world, those are the companies that are very interesting to me.
I think we uncovered some secrets. that other people don't know about.
And this is the thing that always puzzles me, when people say oh, we're killing it, we're doing so well, pounding the chest.
It's like, you know something, that's not the way I've seen it.
I think people who kind of uncovered some really interesting secrets, they wanna keep it a secret.
They're not blasting to the rest of the world the thing that they figured out.
They're keeping it nice and hush and they're kind of working at it and working at it and working at it.
But it's really the moat And it comes in, again, many, many different ways.
But if we feel like we figured some things out that is protectable, that is not replicable, maybe in some ways the best mode is, maybe not a secret.
You could tell your competitor exactly what you're doing.
You know, you guys talk about counter-positioning, things like that, right?
That's a classic example.
You could tell the competitor exactly what you're doing and they're still not going to replicate that right.
Because they can't or they don't want to.
That's just not their model.
Maybe that's even better.
I remember one of our companies meeting Amazon and they got very curious and they wanted to come in and And with most companies you have to be super, super careful, because they're going to come in and maybe act like they're going to buy you.
And then they come back and say, well, we decided to change our mind.
And then they release their own product.
This used to happen with Microsoft.
Amazon has done this now a number of times.
I think some other larger companies may do it.
And who knows?
It may not be with really bad intent.
Maybe they had already a project underway anyway and they were curious about it and they really thought you would be a part of it.
But they decided nah, you don't have anything special.
They just decided to go down their own path.
But with big players, sometimes you have to be careful about what you disclose.
But there are other companies, I will tell you that have met those kinds of companies like Big Scary, Amazon or whatever, and we said, oh yeah, I have no problems.
You could tell them exactly what we're doing.
You could tell them everything about what we're doing, we would have no worries whatsoever.
So it depends on the secret, depends on what you're doing.
Some things you could tell people like we tell people exactly what we do in terms of the crossover investing and the SPVs, the RIA, the structure of our deals.
I've been very open with it.
And if people want to do it, I think that's a good thing, because I think it supports more entrepreneurs.
We don't worry about them competing against us, because How many people are going to manage the, whatever the multiple billions of dollars under management, with zero management fees?
All of our SPVs are zero management fees.
If you want to charge zero management fees, I think that's good for the world.
Go for it.
No one seems to want to copy me.
You know, I've said...
I've had so many conversations with good friends of mine who are in the hedge fund business, right?
And then they go off and they want to do their own hedge fund.
And I've had so many of these conversations over the years.
And it's just like, I cannot believe people do not copy the Buffett, the BPL partnership structure.
Because I don't manage a public fund, right?
But it's like, hey, I think that's a fantastic structure.
You should do that.
You know, Munish Prabhai is doing it and Guy Spears doing it.
You know, a couple of guys are doing it, but not that many.
It's like, I don't know why you don't do it.
It's like such a great thing.
It's a win-win.
You charge 25% carry after a 6% hurdle.
Like you should do that.
And no management fees.
Yeah.
And they all know about Buffett and they know about that.
And then they look at me like like I'm like in some idiot, like like what the heck are you talking about?
Why would I give up the fees?
Right.
If I have a 5 billion fund and I have a guaranteed 2 fee every year, it takes a certain amount of ideological conviction, not even faith in your own abilities.
Because I think a lot of people say I know I'm going to outperform the market, and many do, but you truly have to be ideological about it in order to turn down the easy, standard default path to those fees.
Right.
Yeah.
So going back to your original question, Ben, first two.
So make money, have a moat.
Number three.
Now this is where it starts to get into very idiosyncratic portfolio construction, because the first two you want in every special top 1 kind of a business right.
But the third one is more narrowing your circle of competence and more narrowing what you choose to do with your life as an investor just to something that personally fits you.
And the third is really about the relationship.
The relationship is all about people.
And again, we like to go big on companies where we feel like we have a great relationship.
And if we don't have a relationship with the company in a very deep way, then we're like any other investor.
We're like an outsider looking in.
Now, I did say that some of these public investors are very impressive in that they are not like outsiders that I've ever known.
They really go deep into those companies.
But again, we like to have a special relationship.
And if we don't, then we get very nervous, holding onto a massive concentrated position in a company where we're, just like any other investor, an outsider looking in.
We have no proprietary knowledge.
At some point, of course, we had some proprietary knowledge in helping build some of these companies, but that knowledge decays over time.
And then we become like any other investor.
And so maybe we should just start to distribute our shares or sell our shares or whatever.
We should get out at some point.
And we all part ways as friends.
If the founder or the company found their new best friends, because now it's Fidelity or T Rowe Price or somebody else, we're no longer getting the updates.
And again, it's tricky.
We're kind of new into this whole public investing realm.
The relationship is very important to me personally.
And I think it does give us some advantages of insight.
And after a while, it just becomes a personal decision.
I think of some of these businesses as really like a family business.
You know, if you had a family business and it takes care of your family and generations.
Potentially, some of these family businesses go on for literally generations.
If your family business happens to do well, you and generations of your family will do quite well.
And if it fails, then your family fails.
And so you better make it work.
And there's nothing wrong with riding on the coattails of a great family business.
And there's nothing to say that you deserve something you don't deserve, right?
If the business doesn't do well, you don't deserve to do well.
And so I kind of... start to have an maybe irrational attachment to certain businesses.
We'll say, you know, something it's special to me and I'm not going to part with it.
Sort of like, like what Buffett says, like no matter what, he's kind of irrational.
He just, he just won't sell any business.
He might.
He might ride certain businesses down to zero, like with the Berkshire textile mills and so on.
So I'm okay doing that.
So I'm kind of perfectly happy holding on to the shares if I ever need capital.
So here's another thing that I used to have kind of a more difficult time selling certain shares, just because I kind of don't see the dollar value coming in.
I see dollar value times 10.
You have the Warren Buffett curse.
I have the curse.
And I used to give my wife a hard time.
It's like do you realize that this house that we're building is actually costing us this money instead of this other money?
Because I see the real value.
And we used to hate parting with it.
But now I've come to a realization that something, that's what it's there for.
The capital, we work hard to build this capital.
And then we want to return this capital to our LPs that are funding educational institutions hospitals, homeless shelters, all kinds of great causes.
When you need the money.
It doesn't matter if the stock's going to go up another 10x or 100x or whatever.
Who cares?
You need the money.
That's what it's there for.
You sell the stock.
You pay all your taxes.
And you should use that money.
And you should be very grateful that you have access to this capital.
But if you don't need it, why are you dancing in and out of a stock and paying all these taxes?
Why don't you just leave it alone?
Because that's one of the things that we've learned in investing in these public stocks for over all these decades.
And we've tried different strategies, right?
Again, we wanted to practice before we got better.
As we practiced, I tended to be the bigger trader.
I think my partners tend to be just, eh, just leave it alone.
The leave it alone strategy works pretty well.
We all go up and down together.
There's, of course, a lot of beta driving all the portfolios, and then there's some alpha.
And we have different strategies.
And so we're all kind of within dancing, shattering the sense of each other.
But I've seen the numbers kind of go up and down over the years.
And it's very fascinating to see the different personalities and different strategies manifest itself.
Some are more concentrated, some are more intact, some are, you know, more in value.
And I think that kind of the thing that works fairly well is kind of stick to what you know, stick to good people, good businesses.
And it's not that hard.
And it does not take up much of our mental bandwidth.
We kind of do it in our sleep.
Our primary job is to invest in the Altos funds, but I'm glad we did that side work so that we kind of have the experience and the conviction now that we have some serious amount of stocks to deal with.
I feel perfectly comfortable leaving a bunch of things alone.
And when I need the money, I might sell it or we start to transfer it to various charitable causes.
And it's great because we get to put all of the pre-tax money to work rather than having to put it after taxes.
It always surprises me that more VCs aren't active public market investors on the side, like you say.
It feels like if you're not doing it, you're just missing out on opportunities to practice.
Well, that's the thing.
And I realized that more than 20 years ago.
I mean, many, many years, because I got my first venture job back in 90.
So this is 30 years ago.
And I knew a lot of VCs and over the years following them.
And so many VCs have made a lot of money.
And a lot of them, it was very interesting.
They would turn their money over. to some wealth manager, to some other professional investors.
And this is, again, 30-some years ago.
I was very young.
I didn't know anything.
But I always thought, well, that seems kind of strange.
I thought you were the professional.
Aren't you a money manager?
So if you're the money manager, why are you turning it over to some other money manager?
In fact, that I didn't quite understand.
And of course, they would have the barbell strategy.
It's like, well, the venture is my risk part of the portfolio.
And I have this other thing than tax-free municipal bonds or whatever.
And there's some truth to that.
Of course, you should always have some amount of liquidity and amount of cash that again you are protected on the downside and make sure that you never risk your family capital.
There's a certain amount that you have to set aside.
But after that, the idea that you should turn it over to some other professional when you are the professional and you should try to be the best professional possible.
And whether you're public or private, it doesn't matter.
It's just fundamentals investing.
And you should try to be the best investor possible.
That's kind of what we wanted to be, right?
Almost from day one.
That's why the public part of it, even though it was tiny dollars.
And so I'm glad we had a chance to practice doing that for all those years.
Because what I wanted to test out was okay after like 27 years.
If I really suck as a public investor, then I'll be like every other VC.
Hopefully I'll make some money and I'll turn it over to the real professionals to manage my public portfolio.
And if I got a chance to practice for 20 years and I decided that I'm actually okay with this, then it's like okay, now I've had a lot of practice.
I'll just kind of continue to do it on my own.
And it kind of worked out that way.
It's like, oh, yeah, we feel perfectly comfortable doing it all on our own.
That's so cool.
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 we promised at the beginning of the episode that we would get into the whole Alto story.
I don't know that we have enough time.
I think we're gonna have to do another episode.
So maybe rather than and it is amazing, you know, coming out of GSB and the Jack McDonald investments class but maybe rather than that we can't let you go without talking Twitter.
Yeah, so I pulled some stats here, Ho.
As of February, you had tweeted 1,400 times ever.
And I don't think that's because you were late to Twitter.
I think you just didn't tweet a lot.
But in the last three months, you've tweeted 3,000 times and you've 7x'd your following.
So what's going on?
Was there an intentional strategic shift?
Did you just wake up and go, oh, this is fun?
What's going on?
Yeah, it's a good question.
So Twitter, I actually uninstalled the app. from all my devices for a number of years.
And I did that with Facebook too.
And then I got back into Facebook.
And I think I never really quite understood Twitter.
I never quite got into it.
And I think I finally am understanding it better now.
I'm still kind of a novice because I got back into it recently.
The reason I started to lurking on Twitter more recently was purely because we had some of these IPOs coming up.
And I wanted to see what the sentiment was.
And there were some analysis that was happening.
People were posting interesting analysis and thoughts on these IPOs.
And so that's why I started to re-engage on Twitter, just at least to follow.
And then, of course, as I was starting to read I got into some conversations with folks.
And I thought the analysis on Twitter was way better than a lot of these reporters.
Those articles could be written by a machine.
The AI might have done a better job.
In many cases, even than equity research analysts.
Yeah.
Oh, yeah, that's true.
So yeah, they just misunderstood the business.
Right.
But there's some people who did understand the business.
And I was kind of impressed.
I was like, wow, these guys kind of did their homework.
And they're quite insightful.
And like, how did they even get these insights?
I, you know, I want to just kind of engage like, hey, like, how did you figure this out or that out?
So anyway, I got into these conversations.
And then once you... get into these conversations i realized what the way i'm using it i don't know if i'm still using twitter properly or not but the way i'm using it i don't think anybody does yeah is it's just a it's a conversational platform it's not a pr broadcast platform i think i was kind of using it as broadcast put some news out there if i post something on facebook and linkedin i also used to post it on twitter and then i just completely got off of it for a while but now i just don't post very much on twitter that's kind of anything related to news or altos or whatever i just kind of engage in conversation and you know when i have a chance to look at the feed if there's some interesting comments i'll just kind of chime in and then people respond and when they respond and i kind of feel like i should respond you get those notifications and so that's kind of what happened and as i get again as i started to engage in twitter Then I think some various things triggered in my mind, and I started to write something.
I realized oh, this thread concept wasn't a big thing at the early days of Twitter, but I saw all these people doing threads.
It's like, oh, how does that work?
I remember Saturday morning, I posted something about Arthur Rock.
Something triggered my memory.
It's like, you know, Arthur Rock is so amazing.
And people, these young VCs, they don't even know who the heck he is.
And I remember this old Mike Moritz quote saying, and I think I put that in the thread.
It was some amazing, Moritz is so eloquent with his wording.
And he said like VCs.
You know, when you got a call from Arthur Rock, it was like the white smoke coming from the Vatican chimney.
I think that's what it was.
He'll say stuff that are so eloquent I could never imagine.
So anyway, it's like, yeah, I remember Morse saying it was like that.
It was like he was so legendary.
And so I just had one little tweet about Arthur Rock saying, yeah, you should remember Arthur Rock.
And then that one tweet then leads to another thought and then another thought and another thought.
And I then had this little tweet stream going.
So I did a whole bunch of tweets. like replying to myself.
And I thought there's some people who are like lurking following me on Twitter.
Make sure I don't say anything dumb.
They're saying it's like wow, you know, Ho is really funny because he just tweets and he's just replying to himself.
He's like having a conversation with himself because that's what it is, right?
It's like so I just kept so.
Then that became a tweet storm, which then, I think, got a whole bunch of impressions, like over 700000 impressions, or whatever.
It's like, oh, okay, well, and then that led to a whole bunch of followers.
So now I kind of I've done it, where I have this stream of consciousness, tweet storms, and then I have these conversations.
And that's kind of what I've been using Twitter for.
And I think some of the most valuable things though, on Twitter is just meeting certain people for the first time that I thought were quite interesting or impressive, and having these offline conversations through either DMs or Zoom calls.
In one particular case, I actually met the person in person as we were coming out of COVID and, And so there are some very thoughtful people out there and many of them are individual.
They're not institutional guys.
They're just individual investors, right?
And they're quite impressive, actually.
And I think as an individual investor, you have a lot of advantages over institutional investors, right.
You could be extremely concentrated.
You could be extremely long-term oriented.
You could stomach a lot of volatility.
If you could handle your own emotions.
You cannot handle that kind of volatility because that could put you out of business if you're an institutional manager.
So there are a lot of individuals who kind of approach it the way I would approach it, the way that I have been approaching it.
And so it's been interesting to exchange some ideas and learnings.
I would learn more from those guys than I would learn from any VC or any institutional fund manager.
Because if I talk to an institutional fund manager again, their institutional imperative is to protect the fund management business, not to get the best returns.
And if you're an individual just investing for yourself, trying to provide for your family, all you care about is the returns.
I like to talk to those people who care about only generating great returns.
Well, Ho, that's probably a great, great place to leave it.
Looking forward to following you a lot more on Twitter and hopefully more great stuff for years to come.
But it's been, I think, a gift to us all to get your wisdom over the last several months.
Yeah well hey, great to have uh beyond this podcast with you guys.
I've been looking forward to it.
I know we talked about it last year and finally got around to doing it, so it's been fun, such a blast.
We'll link in the show notes for everybody literally everybody.
Go follow ho on twitter.
He's a gift to the internet.
Any, any carve outs, anything else you want to?
You want to shout out before we uh, before we wrap here.
Yeah well, we didn't really talk about the whole history of Altos, but Larry Morse, I should give him a shout out because I think he's such a special guy.
I don't know if we would be in business without him.
I mean, he made a commitment to our fund in, I think, 2003 and we did not close that fund until 2005.
So he waited.
He honored his commitment for two years.
It took us that long.
We actually started fundraising in 2001.
So it took us two years to convince him.
And then he had to wait another two years to raise our first institutional fund in 2005.
And that was exceedingly difficult because again, this is coming out of the fallout of the dot-com crash, when we thought we were going to make all this money and it just all blew up.
And so you had to have some people who would just really bet on us as people.
This is the thing that I've learned over time is that whatever people decide, they decide for their own personal reasons.
It's not a purely irrational decision.
There are a lot of people who backed us before we had a track record for whatever reason.
We're always grateful to them.
They backed us when we had no track record.
Or I like to joke maybe they backed us when we had a bad track record.
And then there are other people who will look at our track record and might say well, you got lucky with this or that.
And so they might still not invest in us.
And so there are people who will pass on us when we have a great track record.
And there are people who will back us when we have no track record or maybe a bad track record.
So you just have to find your people.
Find the people who believe in you, who will back you no matter what.
And people will take the data and make whatever the heck decision they want to make.
And it no longer bothers me at all if people are doubting our approach or rejecting us for whatever reason.
Because there are plenty of people who think Warren Buffett can't cut it or is a fraud, or is lucky or whatever.
And it doesn't matter if you have a 55-year track record, there are going to be always doubters.
So the doubters just don't bother me at all anymore.
I love it.
All right.
Thank you, Ho.
Thanks, Ho.
All right.
Thanks, guys.
Well, with that, listeners, thanks so much for listening.
You should join us in the Slack.
We're going to probably be discussing this episode, acquire.fm slash Slack.
And with that, listeners, we will see you next time.
We'll see you next time.
