Aug 10, 2023 · 55m · capital-allocators
Michael Carmen – Late-Stage Private Investing at Wellington (EP.332)
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Wellington Management's Michael Carmen shares insights on building an $8 billion late-stage private equity platform, detailing how public market expertise, rigorous valuation discipline, and cross-platform collaboration drive success across shifting market cycles.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 12.5% of the talking time here. How this is scored →
Ted as informed peer 3.1 Guest teaching 3.3 Guest disagreement 0.2 Ted pushing back 0.4
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 36:52 Dismissing fears of a permanently closed IPO market
Michael firmly rejects the pessimistic market narrative that the IPO window might stay closed indefinitely, citing four decades of historical data showing markets rarely close for more than two years.
Hardest push from Ted ▶ 4:50 Challenging tech research fit at a value shopTed directly challenges Michael's initial career premise by pointing out that Sanford Bernstein was renowned as a strict value shop, questioning how technology investing aligned with that philosophy.
Biggest teaching moment ▶ 25:00 Masterclass on software multiple compressionMichael educates the listener on valuation mechanics, explaining how 40x forward sales during 2021 translated to over 100x normalized earnings, and how the market has since retraced back to 6x historical norms.
Ted holds their own ▶ 4:50 Demonstrating firm-level historical market awarenessTed displays institutional memory by highlighting Sanford Bernstein's deep-rooted value tradition before Michael explains his transition to growth investing.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Michael Carmen's Early Career and Sanford Bernstein Beginnings | 4 | 2 | 0 | 2 | Ted demonstrates historical knowledge of Wall Street shops by pointing out Sanford Bernstein's legacy as a strict value house. Michael agrees and explains how working sell-side research there helped him realize he was fundamentally a growth investor. | |
| Navigating Early Buy-Side Roles and Joining Wellington Management | 3 | 3 | 0 | 0 | Ted guides Michael through his career stops and the transition from public equity stock picking to dedicated late-stage private equity. Michael explains the structural shift post-Sarbanes-Oxley where companies began staying private longer. | |
| The Late-Stage Value Proposition and Dedicated Sourcing Engine | 2 | 3 | 0 | 0 | Ted asks about the initial value proposition and sourcing strategy for Wellington's late-stage private fund. Michael outlines the transition from hybrid public-private investors to hiring a dedicated sourcing team. | |
| Rigorous Due Diligence and Cross-Platform Public-Private Collaboration | 3 | 4 | 0 | 0 | Ted asks how diligence operates across the funnel and leverages Wellington's broader research platform. Michael provides detailed examples of collaborating with sector specialists covering public tech, logistics, healthcare, and fintech. | |
| Decision-Making Dynamics and Portfolio Construction Across Sectors | 3 | 3 | 0 | 0 | Ted probes how private market decision-making and portfolio construction differ from running benchmarked public portfolios. Michael highlights managing sector risk, leaning away from software into healthcare and consumer, and the DraftKings public transition. | |
| Market Cycles, Valuation Resets, and Emerging AI Opportunities | 3 | 5 | 1 | 1 | Ted frames late-stage private growth as a deeply out-of-favor asset class after the 2021 bubble. Michael breaks down software multiple compression from 40-60x sales back down to historical averages of 6x sales and contrasts it with the emergence of AI. | |
| Global Deal Flow, Diligence Discipline, and Growth-Profitability Balance | 3 | 3 | 0 | 0 | Ted asks how Wellington filters opportunities in a normalized capital environment and works with founders. Michael discusses global deal flow and pushing portfolio companies to balance top-line revenue growth with bottom-line profitability. | |
| Bubble Selling Discipline, IPO Reopening Dynamics, and Patient Capital | 4 | 4 | 1 | 1 | Ted asks how Michael navigated the peak frenzy and addresses concerns about frozen IPO exit markets. Michael explains his 2021 discipline of selling 90% of available holdings and uses 40 years of cycle data to dismiss fears of permanent IPO shutdown. | |
| Case Study: SeatGeek Investment and Idiosyncratic Fundamental Risk | 3 | 3 | 0 | 0 | Ted asks for a concrete case study emblematic of the new market regime, followed by primary portfolio risks. Michael details the SeatGeek investment after the SPAC market collapsed and emphasizes that outcomes depend on idiosyncratic execution rather than macro GDP swings. | |
| High-Conviction Themes: Consumer, Healthcare, Fintech, and Software | 3 | 3 | 0 | 0 | Ted asks where Michael sees strong fundamental opportunities outside generative AI. Michael outlines specific sector theses across consumer marketplaces, kidney disease management in healthcare, Buy Now Pay Later fintech, and resilient SaaS. |
Statements from this episode (14)
It is extremely difficult to be a value investor in technology
“One of the things I think I learned was that it's really, really hard to be a value investor in technology”
Placing illiquid private assets in daily liquidity mutual funds is unsustainable
“That, that model of taking illiquid securities and putting them in daily liquidity vehicles maybe was not the best model for the longer term because it's just uncertain.”
Amazon's final private round valuation was just $60 million
“Amazon.com's last private round had a sixty million dollar valuation, and then they went public at several hundred million dollars, and obviously it's trillion dollar plus company.”
Wellington reviews 1,000+ companies to make 10 to 12 private investments annually
“We're now looking at north of a thousand companies every year, and we're probably signing NDAs with about a 150 to 200 that lead to, call it, 10 to 12 investments on average per year,”
Wellington's late-stage fund filters for $50M+ revenue and institutional backers
“We're looking for companies that are north of fifty million dollars of revenues. We're looking for companies that have other institutional investors in the cap table at the time of our investment.”
DraftKings went public because it exhausted all available private capital
“I remember saying to Jason Robbins that I think we've tapped into all we can tap into on the private side. And I think this is going to be a really interesting company on the public side. We have an incredibly large industry of Las Vegas casinos and Macau casi…”
Average software valuations retraced to six times sales by mid-2023
“What you saw since November of 21 to now is you've now retraced that entire move, and now the average software company is selling for six times sales, which is at the lower end of the range, and so now you're at a point that you can, again, underwrite to much …”
Wellington walked away from 2021 deals demanding term sheets within days
“It's amazing the number of deals that we had to pass on in 20, 21, because we get into the data room, and the company would say, like, hey, listen, we want term sheets by Thursday, and it was Monday. Well, we don't work that way. And so we're just going to hav…”
Wellington sold nearly 90% of its eligible late-stage holdings in 2021
“We ended up selling in 21 close to 90% of everything that came up, and that included selling some secondary stock in companies that weren't even public, and that's all from my experience from the tech bubble.”
Wellington's private growth team made only one software investment in 2021
“We,
Only did one software investment in 2021, invested in these other areas of the market that we're involved with.”
40 years of data show IPO markets rarely close over two years
“When I look back over 40 years of data, the market generally doesn't close for more than a year, and when it does close for more than a year, maybe it closes for two or so years.”
High-growth companies compounding at 50% benefit from delaying their IPO
“So my view is that as long as our companies are compounding at 3040, 50%, if it takes a year or two years or even three years, those companies are going to be two, three times larger, and unless valuations have just gone through the floor, we're probably going…”
Roughly 80% of the SPAC market traded under $5 by mid-2023
“Pretty much 80% of the SPAC market is trading under five dollars today”
95% of late-stage growth outcomes hinge on idiosyncratic execution, not macro
“When I look at all of the mistakes that we've made in the last eight, nine years, and all the successes that we've had in that same period of time, 95% of the time, if not more, it's idiosyncratic, is did we get the fundamentals right on the companies that we …”