The Exchanges

Q I mean, you mentioned the couple that I've missed that in terms of a seven, 94, 97. How does today compare? Cause obviously, you know, March, 2020 was COVID extremely rare event causing market dislocations. How do you think today compares to the five others that you've seen that we mentioned?

A I think the difference between this and say, 87 and 97 with LTCM is that this is not a shock. This is not an episodic jolt. This is much more akin to O-one, when you had valuations getting stretched to the point of just lacking reason, and partly it was a function in O-one, and as it is today with too much liquidity, and you know, the sense that you have to be invested in inequities, fully invested, in order to To not be left behind. Very, very different than the dynamics of, you know, the global financial crisis or LTCM, or even in 94, that's when the Fed raised rates over the next 18 months by 300 basis points. Literally, the Fed funds rate went from three to six. Everything went kind of upside down, and while you didn't have a market crash, you had anemic, anemic equity markets as the Fed popped the bubble and you started to see things deflate as money got tighter. That's much more what we're seeing today. It's a combination of the Fed taking the air out of the balloon of liquidity, and then you have this valuation extremes, particularly in growth, that very hard to support with valuation models.

AI assessment note: “This is not a shock. This is not an episodic jolt. This is much more akin to O-one”

Q I mean, you mentioned the couple that I've missed that in terms of a seven, 94, 97. How does today compare? Cause obviously, you know, March, 2020 was COVID extremely rare event causing market dislocations. How do you think today compares to the five others that you've seen that we mentioned?

A I think the difference between this and say, 87 and 97 with LTCM is that this is not a shock. This is not an episodic jolt. This is much more akin to O-one, when you had valuations getting stretched to the point of just lacking reason, and partly it was a function in O-one, and as it is today with too much liquidity, and you know, the sense that you have to be invested in inequities, fully invested, in order to To not be left behind. Very, very different than the dynamics of, you know, the global financial crisis or LTCM, or even in 94, that's when the Fed raised rates over the next 18 months by 300 basis points. Literally, the Fed funds rate went from three to six. Everything went kind of upside down, and while you didn't have a market crash, you had anemic, anemic equity markets as the Fed popped the bubble and you started to see things deflate as money got tighter. That's much more what we're seeing today. It's a combination of the Fed taking the air out of the balloon of liquidity, and then you have this valuation extremes, particularly in growth, that very hard to support with valuation models.

AI assessment note: “I think the difference between this and say, 87 and 97 with LTCM is”

Q I mean, you mentioned the couple that I've missed that in terms of a seven, 94, 97. How does today compare? Cause obviously, you know, March, 2020 was COVID and this extremely rare event causing market dislocations. How do you think today compares to the five others that you've seen that we mentioned?

A So I think the difference between this and say, 87 and 97 with LTCM is that, you know, this is not a shock. This is not an episodic jolt. This is much more akin to a one when you had valuations getting stretched to the point of just lacking reason. And partly it was a function in a one and as it is today with too much liquidity. And You know, the sense that you have to be invested in inequities, fully invested in order to not be left behind. Very, very different than the dynamics of, you know, the global financial crisis or LTCM, or even in 94, that's when the Fed raised rates over the next 18 months by 300 basis points. Literally, the Fed funds rate went from three to six, and so everything went kind of upside down, and while you didn't have a market crash, you had anemic, anemic equity markets as the Fed Pop the bubble, and you started to see things deflate as money got tighter. So I think that's much more what we're seeing today. It's a combination of the Fed taking the air out of the balloon of liquidity, and then you have this valuation extremes, particularly in growth, that very hard to support with valuation models.

AI assessment note: “So I think the difference between this and say, 87 and 97 with LTCM”

Q and when it's easy to fundraise, it's hard to invest. And I think there's this really interesting kind of correlation between the two. Can I ask you, you know, you mentioned that, uh, kind of timing the peak, so to speak, well, Doug Leone said on the show before, venture capital's transition from a boutique high margin business to a commoditized low margin business. Do you agree with that statement?

A I don't. I think what Doug is referring to is the asset class being awash in capital. So there's necessarily going to become There's going to be a compression of returns when you look at the denominator effect because you're spreading aggregate returns over a much larger asset base, and unless you're creating proportionate exit outcomes that over, that Are at least proportional to that asset growth, then of course you're going to have return compression. But to me, it just further indicates, and this is something I talked about back when I was on Wall Street and wrote about when I was doing early blogging in 2006 and 2007 is this barbelling of the industry where yes, you're going to have more of the Andreessen's and the insights and these platforms that they're not really venture firms. They're Corporations that are multi-stage investment firms. That have some venture, that have some growth, that have some pre-IPO, and in the case of Insight, even pure PE. And then on the complete opposite side, you will always have the boutique investors that are actually helping foreign companies and helping the best founders design the experiments to race to product market fit and then serve as the Uh, the farm system for those larger asset gathers who can deploy much larger amounts of capital in order to scale the best of those that come out of the farm system. So I do not think you can rea…

AI assessment note: “I don't. I think what Doug is referring to is the asset class being awash”

Q his statement, you said you said we're awash with capital and the capital supply increasing so much, which obviously causes, you know, the worsening returns. Is there a going back from this? Like, can you retreat from that? Is it purely a cyclical motion or actually are we just seeing now venture is another asset class like PE and it will continue to have such high levels of capital supply?

A I would say the latter, Harry. I, I think that things have fundamentally changed and partly it's with New sources of liquidity becoming LPs in venture firms. You know, if you just Look at sovereigns. I mean, sovereigns were not major players in the last cycle of VC and now sovereigns are everywhere. And then you've got the number of family offices that are multi-billionaires or decabillionaires has skyrocketed. So just in prudent asset allocation, where is this money going to go? And this is where people like, you know, Mark and Ben were. Really very early in saying, we really need to build something that's scalable, that offers an array of products that can serve the largest and most sophisticated limited partners. And I think that's, that was a very keen insight and something that has served and likely will continue to serve them well. Now, It doesn't make them great, very early stage investors. That's the thing is very early artisanal VC is not scalable and it never will be. People have tried and they have failed. And because of the small asset size and I would say IA is certainly one of the best examples. Uh, it's hard to access. And as a result, there will be relatively few LPs that will have the opportunity to invest in the very best, very early stage firms, but that's okay because if, even if you can have a little bit of exposure to those best firms, those returns can be…

AI assessment note: “I would say the latter, Harry. I, I think that things have fundamentally changed”

Q to you because you are the answer of my concerns. Um, I'm concerned about liquidity, Roger. Like, we see M&A markets pretty much close up entirely. I don't think IPO markets will open for the twenty-twenty-four, bluntly. I don't think Stripe or Databricks will go out in 24. And I'm just going, where the fuck does liquidity come from this year? How do you think about and answer that question?

A I think probably the greatest source of liquidity now is going to be continuation files, and it's going to be existing portfolios, raising money from net new investors, yet it reflects today's valuations, and you basically get fresh capital to join the partnership Provide an off ramp for those who have your facial expression right now and are like, I just need some fucking liquidity. And it ends up being a win win. And I think that's a perfectly reasonable intermediate strategy for an environment where you, there's so much liquidity that's looking for returns that to mark somebody's attractive portfolio to market and say, okay, We're going to price this at a 20% IRR from our projections. We will step into a portion of your LPs and in some cases, GP shoes in order to generate liquidity. Great. Honestly, that's what Insight's done. That's what NEA's done. And I see this as being actually a very pragmatic technique, especially for managers that have stacked funds where there's some real gems in there that you've got some antsy LPs that are like, man, I need money to fund other parts of our mission, whatever it is. And Net new investors can come in and provide that liquidity. I, I think that's a really great strategy.

AI assessment note: “I think probably the greatest source of liquidity now is going to be continuation files”

Q Was that the right decision on reflection? And I guess, why was that the one time?

A So that was, sorry, it's been a long time. I'm not, I'm literally trying to recreate the, the context in my mind. You know, we had such an enormous position in the company. And we wanted to distribute something from fund two and to generate some recycling dollars. And it was what we've considered to be a fair price at the time. And it was part of this process. And wise did this brilliantly actually, you know, they, they made money, right? Like they generated actual money way in advance of going public. So they, they held these kind of annual employee tenders where we basically cleaned up the cap table. We brought in the super sophisticated, great pre IPO investors to then buy out some early investors and to give employees a measure of liquidity. And so it just basically continued to concentrate the cap table and shrink the number of holders, which makes life easier. And so we sold into one of those for the reasons I said, we ended up being able to return half of fund two and generate recycling capital. I mean, which, because remember fund two is a hundred and five billion, which obviously has done extremely well. That was great. And we actually, we had a similar result From a very different situation in fund one, when we sold simple to BBVA, because that generated the liquidity that we then invested in the trade desk series B.

AI assessment note: “we ended up being able to return half of fund two and generate recycling capital”

Q of M&A. You know, we used to have this, do you remember the small M&A kind of eight, 10 years ago when I eat 50, 60, seventy million dollar M&As that would, would generate the recycling quickly for you, and you could use dollars more effectively. We don't have any recycling now most often. Does that concern you, and do we see the end of, kind of, effective recycling, really?

A Really, the only way to get that recycling now is through secondary. Is similar to what we did in wise, like the, the BBVA simple thing. You're right. That was like a hundred and seventeen million MNA. Yeah. We don't see very many of those these days. And honestly, I just chalked that up to dumb luck. Like the timing ended up working out for us there. No, I mean, we were holding our breath, but recycling for a very early stage fund is a struggle, a real struggle just because of how, how early you're investing. How long, how kind of, uh, how long it is before some of those companies have these opportunities where I want to invest in that, but where am I going to get the capital from? It's like you've deployed, you need to reserve for your fees. Well, where do I get the money from? And that, which is why a lot of firms try and solve the problem with SPBs. We never would do that. So we forced ourselves into finding solutions for recycling. We got bailed out with the simple acquisition in fund one, and in fund two, we addressed it proactively through the sale, that sale of a little bit of our wise position.

AI assessment note: “Really, the only way to get that recycling now is through secondary.”

Q to public markets and to LPs, which they literally do, having been investors before, but believing that then they should be able to hold and maintain Management of that position. How do you feel about that? And I guess when you look at Datadog, when you look at the Trade Desk, you have many absolute bangers. How did you think about whether to distribute versus whether to hold and sustain?

A That is one of the hardest questions that Brad, Jesse and I have dealt with. Um, and we talked to tons of friends and mentors about this to try and develop our own philosophy. And I would say our behavior shifted post trade desk. Trade desk was idiosyncratic in that that was our first Grand slam, right? Like that was the franchise making investment. Our first IPO in 2016, you know, enabled us to return many, many, many, many, many multiples of our first fund. But because of that, we got out of that position much faster than we would have otherwise, because It was such a franchise making deal. So if you look at our average distribution price on TTD, it's probably two and a half million. It went IPO at a seven hundred million. That's, it was valued at seven hundred million on the day it went public. So we ended up doing two public secondaries within the first six months. And then we distributed shares over the next. 18 months. That was one where, because it was our first, we got out quick. So you think, well, what could have been? Early seed stage fund, fifty million dollar fund, first big win, return, whatever, five, six X net on that one position. Okay. Like we'll, we'll, we'll chalk that up as a win, but a lot of money left on the table, obviously. Now, personally, you know, we distributed shares. I held shares for a very long time. So I personally, and those LPs who didn't se…

AI assessment note: “those we've been much more measured and systematically distributing”

Q How much of an impact does it have to have an IPO company, a fund maker in the earlier years of a fund life cycle? Like there, it was your first, that was, that was a real flag bearer for you in those days.

A I'm trying to think of which impact was bigger. The one on how we felt about ourselves or how we were perceived in the market. I feel like we had a ton of respect in the market, even back, back then, even before the IPO instead of, you know, because by then we had already, we were just starting to deploy fund three, right? Fund two had wise and digital ocean fund one had data dog, and we had a bunch of other stuff in there that was really great stuff. So I think that we had the respect in the industry. Both by peers and our LPs, but I'm sorry, there is nothing like taking a company public where we owned 17% on the day of IPO.

AI assessment note: “I'm trying to think of which impact was bigger.”

Q Was it a consensus agreement deal? Did everyone want to do it?

A Oh geez. Remember, we met Jeff Green before I'd even set up the fund. Fund what? We met in the fall of 2009 and I incorporated IA in December of oh nine. And, and Brad was a consultant for me. He hadn't even started. And there was, and Ben Siskovic was there who was like, who had worked with me on our angel port on my angel portfolio. Yeah. I think we all felt very passionately about Jeff. He hadn't yet onboarded his co-founder, Dave Pickles, the CTO. We literally committed on the basis of a PowerPoint. And we, we worked on that deal with Founder Collective. So Eric Paley and I both sat on the board. And so we, we literally co-led the seed round together and then IA breached them three times before raising their Series A.

AI assessment note: “Yeah. I think we all felt very passionately about Jeff.”

Q speak To many immensely successful people about, um, I suppose to David Velez at Newbank about it, Justin Shore at Shore Capital, and it's that it's so challenging to bring children up in a world of financial abundance and make them feel ambitious and hungry and hustle. What have been some of your biggest lessons on how to create children with ambition and hunger in a world of financial abundance?

A I'll first say it's, it's hard as hell. Really hard, especially raising them in a place like New York City, where they went to school with kids whose parents might have different values than ours and needing to remain true to ours and for our kids to respect that. Our kids are young men, 26 and 23, and they're, it's still constant vigilance. This is an ongoing conversation. So thankfully, I think Karen and I, just because of who we are and how we live life, like there is not a disconnect between what we say and what we do. So like we, we walk the talk. We work hard. We care about other people. We believe in Investing in your community. We believe in humility and gratefulness. Like, this has been pounded into our kids' heads from day one, and they, and they've lived with it. Again, it hasn't been words. I've been present no matter how high-powered a job I had. I coached their teams. I never missed a birthday. I was at every school performance. I optimized for my family. Thankfully, I was able to do that given my career choices. Karen, clinical psychologist, has her own practice, could shape her, her schedule to be a full-time parent, active in the kids' schools, active in their activities, coach their baseball team, was commissioner of the baseball league. Like, we have done everything to align our actions and interests with what we want from our children. And I think if you wer…

AI assessment note: “we have done everything to align our actions and interests with what we want”

Q I mean, you mentioned the couple that I've missed that in terms of a seven, 94, 97. How does today compare? Cause obviously, you know, March, 2020 was COVID and this extremely rare event causing market dislocations. How do you think today compares to the five others that you've seen that we mentioned?

A So I think the difference between this and say, 87 and 97 with LTCM is that, you know, this is not a shock. This is not an episodic jolt. This is much more akin to a one when you had valuations getting stretched to the point of just lacking reason. And partly it was a function in a one and as it is today with too much liquidity. And You know, the sense that you have to be invested in inequities, fully invested in order to not be left behind. Very, very different than the dynamics of, you know, the global financial crisis or LTCM, or even in 94, that's when the Fed raised rates over the next 18 months by 300 basis points. Literally, the Fed funds rate went from three to six, and so everything went kind of upside down, and while you didn't have a market crash, you had anemic, anemic equity markets as the Fed Pop the bubble, and you started to see things deflate as money got tighter. So I think that's much more what we're seeing today. It's a combination of the Fed taking the air out of the balloon of liquidity, and then you have this valuation extremes, particularly in growth, that very hard to support with valuation models.

AI assessment note: “This is much more akin to a one when you had valuations getting stretched”

Q uh, I do want to, you know, in terms of the A, B crunch, you know, for me as an early stage manager, of course I have businesses that are entering this crunch. But Roger, what do I say? Cut, burn, see growth, reduce, And then make it even less of an attractive asset. What's the right thing for me as a manager board member to communicate in that environment?

A So I think it really depends, Harry, on whether or not your startup has achieved product market fit. And if there really is a issue purely of resource constraint, but they figured out their unit economics and they're growing month on month and attractive rate, then it might be, you know, that's a company you stretch for. And even though there may be fear and people from the outside don't necessarily want to lead around At evaluation, they find attractive. Maybe this is a time that you and others around the table lead an inside round if they've really hit it, but because of the current environment, new investors don't want to dip their toe in to a series A or series B versus seed or true growth. But that is hard, but that's also where some of the biggest money is made. I mean, and we have our own examples in the history of IA where we've done that, where, and probably our single best example of that is the trade desk. Where, you know, they started in late oh nine, could not have started at a worse time from a market perception standpoint, both in ad tech and the hangover from the global financial crisis. Yet, you know, the insiders were confident that Jeff Green, Dave Pickles, and the team were on the right track, and that they were doing something truly differentiated, and they were executing well. It just was in an unsexy area at a really bad time, and we couldn't really get n…

AI assessment note: “depends, Harry, on whether or not your startup has achieved product market fit.”

Q How do you think about capital concentration on a per-company basis, then? If you do that, you're going to be exceeding your limits, no?

A Well, it depends, right? So we co-led seed, and then it leads into two small bridges. So when the dust settled, we ended up having 2.2 million out of a fifty million dollar fund in the company. So that was still, you know, under It wasn't until after they had taken off like a rocket ship that we then wrote a three million check into the series B and had to be over 10% of the fund. By that point, that was a real risk capital, if you will, in the same way. But yeah, no, I do think that single position concentration issues very, very real and very, very important to bear in mind that you may believe very strongly the data may indicate that in fact things are going great, but you also know, Harry, you've been in the business long enough. You can have a company at the series A stage that has Really good metrics and feels like they've achieved product market fit that really hasn't. And if you end up bridging into a company like that, and there isn't a deep pocket around the table that can carry them, that's when you start to get into trouble. And that's where the discernment, like you can't do this with lots of companies. Like there may be a company that you have such deep conviction and you can't understand why nobody else is coming in with an outside term sheet, but where you have such conviction and you've studied the data, you've been as dis As passionate as you can. You've share…

AI assessment note: “we ended up having 2.2 million out of a fifty million dollar fund”

Q No, I mean, I'm fascinated to see if they do make that move, too. I do want to touch on something you said there, which is kind of M&A and exit environments kind of narrowing or closing in certain respects. How do you see both M&A and then kind of IPO markets changing, given where we're at today?

A So I think IPO markets are, they're open, they're going to be open, it's just going to be way harder, and there's going to be fewer companies with the performance of To have successful IPOs and not immediately trade down, which of course the street doesn't want to bring those names out anyway. So I think you're going to see a lot more companies that were on the 22 and 23 calendar pushed back a public listing. The M&A part is actually super interesting, Harry, and I think it's, I'm going to give you a very different answer now than I would have coming out of the GFC, where I would say the dynamics were similar from a market perspective, but the regulatory regime was very different. I think now with this Kind of antipathy towards big tech on both sides of the pond, especially with the US FTC flexing their muscles. Like I think a lot of the logical buyers of some of these companies that are really good companies, but are trading down 50 or 60% where you could offer a 50% premium, have a great, you know, still a very good exit for the investors, but at the same time get a good buy that's 30% cheaper than it would have been three months ago. I'm not sure the FTC is going to let those deals happen. So that adds a curveball in M&A that we have not had easily in a generation, which is this very, very restrictive regulatory environment where a bunch of the logical buyers, the FAANGs, fo…

AI assessment note: “So I think IPO markets are... The M&A part is actually super interesting”

Q you said about the portfolio approach you took there as an angel, uh, leading the, I think you said six rounds, but I want to start off today with some discussion on, on modeling behind VC and in micro VC, there's the diversification model of, 50 plus in a portfolio. I'm really intrigued. What's your take on this model? And how does that take then affect your strategy with IA?

A So, as somebody, again, who ran trading businesses for almost 20 years, I have both the keen appreciation of the benefits of diversification, but also the power of concentration. And in my experience as a seed stage investor as an angel during those five years preceding my starting the firm, I really came to see that the kind of the outsized benefits really accrued to my positions where I had made both, you know, significant early investments, but then followed on substantially in those businesses that appeared to be proving their hypotheses true. And so what that really led me to believe when I looked at modeling portfolio construction around the time that I started IA was that a much more concentrated strategy than a more traditional strategy. 40, 50, 60 portfolio constituent approach was what I felt had the best opportunity to generate the three to five X net returns that in the institutional construct I was seeking.

AI assessment note: “a much more concentrated strategy than a more traditional strategy. 40, 50, 60 portfolio constituent”

Q you said about the portfolio approach you took there as an angel, uh, leading the, I think you said six rounds, but I want to start off today with some discussion on, on modeling behind VC and in micro VC, there's the diversification model of, 50 plus in a portfolio. I'm really intrigued. What's your take on this model? And how does that take then affect your strategy with IA?

A So, as somebody, again, who ran trading businesses for almost 20 years, I have both the keen appreciation of the benefits of diversification, but also the power of concentration. And in my experience as a seed stage investor as an angel during those five years preceding my starting the firm, I really came to see that the kind of the outsized benefits really accrued to my positions where I had made both, you know, significant early investments, but then followed on substantially in those businesses that appeared to be proving their hypotheses true. And so what that really led me to believe when I looked at modeling portfolio construction around the time that I started IA was that a much more concentrated strategy than a more traditional strategy. 40, 50, 60 portfolio constituent approach was what I felt had the best opportunity to generate the three to five X net returns that in the institutional construct I was seeking.

AI assessment note: “a much more concentrated strategy than a more traditional strategy”

Q being an interviewer. But the first, the first question is, you said about runway there. And I always say to founders, go for the, you know, hailed and very common 18 months. You in the institutional seed, when they're searching for that product market fit stage, where it can take longer, what do you advise founders in terms of runway to raise for at this stage? Is 24 months optimal?

A So, I think it really depends on the maturity of the business and the degree of product market fit to the extent it exists at the time that we're investing at the institutional seed stage. Because clearly, when we invest, companies look Quite different. There are some where it's literally a PowerPoint and some early code and a couple of great founders, and there are other times when, you know, there's a product in market. While they may not have nailed product market fit, it's obviously much closer to being an evolved business than the former. In terms of runway, I generally say, 18 to 24 months. If a company already is product in market, and they're really just seeking kind of product market fit and refinement, if they actually execute Their hypotheses, well, the likelihood of them getting a preemptive inside 12 months is actually quite high. And so, having the extra six months of capital on the balance sheet is great. Conversely, if it's something that's much more development stage, I think absolutely having 24 months is critical. If there's one thing I do know, Harry, and as you, I'm sure know, and certainly will in your position as a VC, nothing ever goes the way you expect.

AI assessment note: “In terms of runway, I generally say, 18 to 24 months.”

Q the ability to king make and how capital can be used as a moat. We discussed Jason, you very well and eloquently discussed poly market raising two billion at nine billion. And then this week, CalSheep, the direct comp, raises from Andreessen and Excel at five billion dollars. Again, right after PolyMarkets raising at nine billion dollars. How did you think about this? Kingmaking not possible? What was the thoughts?

A I mean, this is, let's, let's be honest what's going on here. This is the purest regulatory arbitrage play of all time. Okay. If you can look, you can look at the cumulative market cap of regulated sports betting and look at how it has dropped in response to the rise of Polymarket and Calci, who are not subject to the same rules and regulations that they are. Literally, it's, we're going to take value here, and we're going to place it over here. And the combination of, at least in the United States, the current administration being extremely predisposed towards the prediction markets companies, and now Kalshi's announced that they're, like, they're going to India as part of their 140 country coverage. If they were to, if there was a level regulatory playing field, this would not be happening. But for now, this is one of those circumstances. So you talk about kingmaking, I think to an extent, they are trying to run as quickly as they can to get so big and so powerful that they will not face parallel regulatory scrutiny that the legacy companies have suffered through since PASPA.

AI assessment note: “they are trying to run as quickly as they can to get so big”

Q to you because you are the answer of my concerns. Um, I'm concerned about liquidity, Roger. Like, we see M&A markets pretty much close up entirely. I don't think IPO markets will open for the twenty-twenty-four, bluntly. I don't think Stripe or Databricks will go out in 24. And I'm just going, where the fuck does liquidity come from this year? How do you think about and answer that question?

A I think probably the greatest source of liquidity now is going to be continuation files, and it's going to be existing portfolios, raising money from net new investors, yet it reflects today's valuations, and you basically get fresh capital to join the partnership Provide an off ramp for those who have your facial expression right now and are like, I just need some fucking liquidity. And it ends up being a win win. And I think that's a perfectly reasonable intermediate strategy for an environment where you, there's so much liquidity that's looking for returns that to mark somebody's attractive portfolio to market and say, okay, We're going to price this at a 20% IRR from our projections. We will step into a portion of your LPs and in some cases, GP shoes in order to generate liquidity. Great. Honestly, that's what Insight's done. That's what NEA's done. And I see this as being actually a very pragmatic technique, especially for managers that have stacked funds where there's some real gems in there that you've got some antsy LPs that are like, man, I need money to fund other parts of our mission, whatever it is. And Net new investors can come in and provide that liquidity. I, I think that's a really great strategy.

AI assessment note: “greatest source of liquidity now is going to be continuation files”

Q his statement, you said you said we're awash with capital and the capital supply increasing so much, which obviously causes, you know, the worsening returns. Is there a going back from this? Like, can you retreat from that? Is it purely a cyclical motion or actually are we just seeing now venture is another asset class like PE and it will continue to have such high levels of capital supply?

A I would say the latter, Harry. I, I think that things have fundamentally changed and partly it's with New sources of liquidity becoming LPs in venture firms. You know, if you just Look at sovereigns. I mean, sovereigns were not major players in the last cycle of VC and now sovereigns are everywhere. And then you've got the number of family offices that are multi-billionaires or decabillionaires has skyrocketed. So just in prudent asset allocation, where is this money going to go? And this is where people like, you know, Mark and Ben were. Really very early in saying, we really need to build something that's scalable, that offers an array of products that can serve the largest and most sophisticated limited partners. And I think that's, that was a very keen insight and something that has served and likely will continue to serve them well. Now, It doesn't make them great, very early stage investors. That's the thing is very early artisanal VC is not scalable and it never will be. People have tried and they have failed. And because of the small asset size and I would say IA is certainly one of the best examples. Uh, it's hard to access. And as a result, there will be relatively few LPs that will have the opportunity to invest in the very best, very early stage firms, but that's okay because if, even if you can have a little bit of exposure to those best firms, those returns can be…

AI assessment note: “I would say the latter, Harry. I, I think that things have fundamentally changed”

Q You mentioned the liquidity element being kind of a lever that one could pull in terms of hedge funds and their fees. If we're being blunt, venture sucks for liquidity. It's long-term lockups and you have little choice. My question being, Would you invest in venture today, given the fundamentally lack of liquidity for such long periods of time and the challenge that ensues?

A I would, but I think when you think about how venture plays in a diversified portfolio, Unless you are a perpetual institution, right? And this, this was, uh, Dale Swenson's whole argument at Yale, right? Which was I'm investing money forever. I have some liquidity needs, but at the end of the day, my objective function is having the base of the endowment compound and attractive rates over extremely long periods of time. So he put, you know, I think it was north of 40% of Yale endowment and alternatives. And people thought that was bad shit crazy. And then you look at Yale's performance over very long periods of time. And they've kicked ass. I mean, he started doing this, I guess, in the eighties. So, 25 years of putting this through nineties and started putting this thing together and it built a gorgeous portfolio, but you need that kind of a holding period in order to be the optimal investor in the asset class. However, however, if instead of allocating 2030, 40% of your endowment to venture or alternatives that are illiquid, you did five percent. Seven percent. So it's as if you put it on the shelf, you focus all of your energy in manager selection, and then you just let it ride, let it ride, let it ride. That five to seven percent provides a lot of convexity in return when you have those liquidity cycles, because these things happen in bunches, Harry, you know, it's like il…

AI assessment note: “I would, but I think when you think about how venture plays in a diversified portfolio”

Q Do you worry that there'll be fair weather LPs? You know, often in venture it's, hey, choose the golden names because they are stable, they will stay with you for three funds. Do you worry that the new class of LP, whether it's new sovereigns, whether it's new corporates, family officers, whatever that may be, Do you fear that they may be fair weather and cyclical?

A So I think that corporates, I don't even need to make the argument. They are fair weather and they are cyclical. So as a generalization, there are obviously a few that are in it for the long haul, but it is very much a fruit of the day. Oh, there's new management. And they're like, we're going to foster this innovation culture. We're going to put money to work alongside VCs. And then there's a downturn. They get fired. And then they don't, and then they exit the asset class for a period. Then they come back and it's back and forth. I think that for the reason that we touched on earlier, that there is this just inexorable rise of wealth and liquidity that needs to be deployed. Venture is here to stay. And I see these sovereigns developing durable asset allocation strategies at which venture is a part. They can't leave. Like they, they need to deploy capital. And for them, it's going to be much more around who should I deploy my capital with? And do I fire certain managers or do I, have I really backed the best, the best ones? And I'm happy to just keep rolling it forward. So I think there's always the fair weather LPs, but I think it's much more the corporates going like this, but I think sovereigns and the largest, uh, wealth accumulators, they're not going anywhere.

AI assessment note: “They are fair weather and they are cyclical.”

Q When you look back at the trade desk, it's actually very rational. The, you know, as you said, 702 and a half, you're like, okay, do you regret it? And do you look back and go, that was silly? Or do you actually go, no, I still see it, but I can understand our rationale and thinking.

A I, I'm not a regretful person, Harry. That's just not, that's not the way I'm wired. So, You can always look back at 20, 20 hindsight and overfit a curb and say, well, this would have been the optimal thing to do, but that's not real life. Real life is. We discussed in great detail what our strategy should be. We discussed the balance between, well, what happens if the market goes to shit and we had this franchise making position? Well, how would we feel that? What about our brand? You know, we're going to be in this thing for the, for the long run. So I think we behaved incredibly rationally. And again, if it had been not IPO one, but IPO two, three, four, we would have behaved differently and we would have generated greater returns about the same token. You could say the same thing for wise and we've done very well on that. So it was kind of like, you know, dude, as long as you're thoughtful and as long as you go through the process of Analyzing the context and the trade-offs. It kind of is what it is. I lose no sleep over that.

AI assessment note: “I'm not a regretful person... I think we behaved incredibly rationally.”

Q I just want to finish on, on actually, Karen, you know, you mentioned her being such an ongoing and continuous, incredible, you know, force in your life, being your partner. Um, what's the most non-obvious secret to having such a brilliantly successful, sustaining marriage?

A Picking your battles. And what I mean by that, Harry is as long as we've been together and as well as we know each other, There are ways in which we still bug the shit out of each other. That's just natural. We're humans. And there's stuff that used to irritate me. That I would call out and she would get angry and vice versa earlier in our relationship. What has happened over time is a bunch of those things like stupid things, but annoying things hardwired. That's very, very hard to change. And unless it's really important, like biblically important in terms of the way it makes you feel about your partner, just fucking let it go. Just let it go. So that'd be one. And there's, there's, there's one other enormous one and maybe even the biggest one, which is It's not about winning. I used to feel that if we disagreed or had a fight and I knew I fucking knew I was right. You should never have the mindset of winning or losing versus your spouse, your partner. Never. That's just the wrong frame. You can have a disagreement, can argue and fight. Firstly, you should always fight fair. Words matter. And not being very conscious of saying hurtful things because you're hurt and you want to lash out. Like sometimes it's important to just take a breath and pause and not say that thing that you want to say because you're so red hot. Just don't say it because I guarantee you that next moment …

AI assessment note: “Picking your battles. And what I mean by that”

Q speak To many immensely successful people about, um, I suppose to David Velez at Newbank about it, Justin Shore at Shore Capital, and it's that it's so challenging to bring children up in a world of financial abundance and make them feel ambitious and hungry and hustle. What have been some of your biggest lessons on how to create children with ambition and hunger in a world of financial abundance?

A I'll first say it's, it's hard as hell. Really hard, especially raising them in a place like New York City, where they went to school with kids whose parents might have different values than ours and needing to remain true to ours and for our kids to respect that. Our kids are young men, 26 and 23, and they're, it's still constant vigilance. This is an ongoing conversation. So thankfully, I think Karen and I, just because of who we are and how we live life, like there is not a disconnect between what we say and what we do. So like we, we walk the talk. We work hard. We care about other people. We believe in Investing in your community. We believe in humility and gratefulness. Like, this has been pounded into our kids' heads from day one, and they, and they've lived with it. Again, it hasn't been words. I've been present no matter how high-powered a job I had. I coached their teams. I never missed a birthday. I was at every school performance. I optimized for my family. Thankfully, I was able to do that given my career choices. Karen, clinical psychologist, has her own practice, could shape her, her schedule to be a full-time parent, active in the kids' schools, active in their activities, coach their baseball team, was commissioner of the baseball league. Like, we have done everything to align our actions and interests with what we want from our children. And I think if you wer…

AI assessment note: “we have kept them grounded because we ourselves are grounded”

Q So, I do love you. So if you were a large-scale LP, and I was like, you know what, Roger, I've heard you, you are the man to lead our continuation fund strategy. Congratulations, day one. What do you do with that strategy? If you're head of strategy for the continuation fund program, what does that look like?

A It's a very interesting challenge because on the one hand, the very best firms and funds will do it, right? Because Well, there may not be liquidity today. They've got great portfolios. They've had tons of DPI in the past, and they're like, I don't give a shit if we don't distribute anything for five years, and neither do our LPs, because they've already made so much money. So they're off the table. Then you've got a bunch of MET managers who don't have that much interest in the portfolios, haven't delivered DPI, and they're just kind of fucked, right? And I think there is a whole swath of the industry that is going, it's like a slow motion train wreck. They are not going to be able to raise new funds. They're going to struggle, but the firms have so many funds behind them and so many assets. That they are eventually going to wither, but eh, they're not my target either, Harry. So, you know, what I'm, what I'm looking for are honestly the, the most promising early and mid-stage firms that started in an, in an unfortunate time when just as their companies were hitting their stride, the IPO market shut. And The M&A market became increasingly challenging with Lena Khan and the FTC getting much, much more aggressive, but they've got really great portfolios, but they haven't had a lot of DPI. That's where I would focus my energy is on those, those funds that are those firms that are…

AI assessment note: “That's where I would focus my energy is on those, those funds”

Q Penultimate one. Do the best founders need their VC? A lot of VCs like to pretend like we add this mythical value. Founders funds say, hey, the best founders don't need you. Don't worry.

A I think the best founders aren't dependent. I think the best founders benefit from really good VCs to act as a sounding board, especially in those earliest days and to, and to give them honestly, empathy and psychological support, because that is often the hardest thing to get when you're struggling at the beginning and trying to get to product market fit. So again, like to me, the very best companies that we've been involved with the founders were all amazing. They all were highly self-motivated and independent. Like they didn't want to lean on us as a crutch. And didn't. But I would say to a person, they all benefited from us as strong, stable, safe partners to process hard feelings and hard business problems in those early days.

AI assessment note: “I think the best founders aren't dependent. I think the best founders benefit”

Q I don't care about your performance. I care that I'm not getting fired. I'm probably going to be gone in five years. I'll probably be retired in 10. Performance for you will be 15 away. Honestly, it's okay. I just want to tell my team that I got in alongside MIT and Harvard and Yale. So actually, Is LP structures completely broken in that way? Let's put it that way.

A So LP structures, traditional LP structures are completely broken. And I, I've spoken a lot about this. You know, I feel a lot of the, um, Dumbing down a venture and too many venture firms being created. LPs have been enablers. They've been enablers on that end. And they've also been enablers on the completely opposite end, which is name your venerable Silicon Valley venture firm fund, 12, 1314, 15, when they have any return capital from fund four. And they've raised billions and billions and billions of dollars getting two and 20 managers that haven't Actually had DPI in a generation are getting paid ten million dollars on their fees. So the answer Perry is yes, but I would posit that as those traditional LPs as a percentage of the overall pool become diluted and much larger, much more return for after fee return focus investors like sovereigns Who don't give a shit. They want to make money. Their phone and their, the freshness of perspective, I would argue is good. Like that's healthy on the industry, but they are deploying enormous amounts of money, which is why I come back to the greatest disruption in a way is going to be in the mid and late stage venture scene where managers are going to want to and need to gather enormous amounts of assets. But the game in town is going to be this new LP class who is much more focused on fair fees and returns.

AI assessment note: “traditional LP structures are completely broken. And I, I've spoken a lot about this.”