The Exchanges

Q So how did you find your way into the investment world?

A It's a random walk, and I think that's helped us with Upper 90 because we came with fresh eyes into the VC world that hasn't changed that much in 20 years. My dad was always entrepreneurial. He was a small business lawyer. And worked for a gentleman that ended up starting this company called Telebank. Telebank was one of the first online banks, and I got an internship there with his help as a senior in high school in 1999. And Telebank went public that summer. The stock opened at 13 and closed at a 113 or something. It was wild. I always was really interested in technology and how to apply that to traditional businesses. I didn't know much about private equity or venture capital. I wish somebody had You know, told us you can get leverage on your investments and have all the upside, but I worked one summer following that at the white house for the Clinton administration. And then I ended up working in Hong Kong doing investment banking my junior year. And so I use those years to explore and try to do different things. And when I graduated from Wharton, I just didn't want to do investment banking or consulting. I wanted to be in a more fast paced And when I interviewed, Goldman was the one firm, and I really give them a lot of credit. They said, we're going to hire you if you're a cultural fit for the firm. And we see a lot more of you than you see of us at age 21. And so if you'…

AI assessment note: “I got an internship there with his help as a senior in high school”

Q Which two people have had the biggest impact on your professional life?

A I've already talked a lot about Jason. He really helped give me the confidence to go start something on my own, so I'm very grateful for him. People in finance, we pretend that we're risk-on, but we're really risk-averse, and you need someone to help you build up the confidence to do that sometimes. The two people outside of him, one is Mark Gerson. Mark's somebody, if I think about having touched a lot of different parts of my life, he introduced us to our rabbi who married Tiffany and I. He helped get the club set up with me, was the first person to commit to the fund, introduced us to Thrasio, which has been a marquee investment for us. We're the first capital in that company at a twelve million dollar valuation. People that have really been with you and always had your best interests and never really expect something in return. He's somebody who really stands out in a meaningful way. I've always really enjoyed it. And we both know him, Savneet Somebody who has a really creative, open-minded approach and thinking a step ahead, not just in ideas, but also he has this amazing connectivity with first-time founders. It's just like any business. It's finding people at that right stage. He's also expanding my mind, expanding my network and thinking of how to learn about these new industries. So those are two people that just kind of jump to my mind, but it goes back to your pet pe…

AI assessment note: “The two people outside of him, one is Mark Gerson... And we both know him, Savneet”

Q Yeah. So you did that for a long time. What was the progression of what you learned over the, like, 15 years you were in that world?

A You see the power of technology. One of my other bosses said something that really stood out with me. In the trading world, the average commission was one or two pennies. That's what you would pay to get something transacted per share. That really doesn't work for quant trading or fintech. You have to charge fractions of that. And one of the things that he said to me, he's like, a lot of people are really hesitant to change business models because they're worried about revenue loss. Like why hasn't the two in 20 model really changed for most people that are picking stocks effectively? He's like, but what most people don't realize is when you lower the cost of something, when you reduce the friction, the volume gains far exceed the loss of revenue. What you saw is when spreads and commissions started coming in, The volume on the NASDAQ and NYSE went up exponentially. And so there was much more revenue and total pie as costs came down. But I think as humans, it's hard to give up something near term for the belief that it will be bigger long term, which is very interesting for me to see the power of technology. As you reduce friction in a market, how much bigger the market becomes. Look at the Robin Hoods and other applications where you remove costs The market gains or the size gains are exponential.

AI assessment note: “when you reduce the friction, the volume gains far exceed the loss of revenue”

Q So how did you make this transition from, you're around FinTech, but it's e-trading to what you're doing today?

A When I was at Goldman, I thought it was really important to understand the client side of the business. Banks are really sales machines. You're selling product to clients. And I felt it was important to be on the other side to understand how does trading work and risk modeling. And I went to a company called Knight Capital, One of the really fascinating things that I learned at night was micro pricing. When trading on the New York Stock Exchange, every client effectively gets charged the same price. So if you have D.E. Shaw, which if they're trading against you, they're usually winning. Like they know at this microsecond that something's mispriced, and if you're selling to them, they're likely making money. So you don't want to trade against them on average. If you're trading against BlackRock, they have so much size. That if you're making a market, they're going to keep impacting and buying more. If my mom is buying a hundred shares of Google, she has no view of the market at this moment or no size behind your order. So Citadel and Knight went to all the retail firms and said, you're being overcharged because the market doesn't know it's you. So they said, if we know it's you, like an insurance business, like if we know you're healthy and young versus old. So we went to all the retail firms and said, we will build a bilateral relationship with you. And if we know we're trading…

AI assessment note: “When I was at Goldman, I thought it was really important to understand”

Q And what was your progression from that start?

A In any new career, I'm just going through this with my team. You just raise your hand and take on projects. If you do a good job, you get more responsibility. So my first client that I was covering was a company called GetGo. Just to give people a sense, GetGo traded more orders in a minute than all of Goldman's clients at the time in a day. How do you build systems to handle that level of transactional volume? Really it's FinTech. It's how do you look at data? How do you build algorithms? And how do you efficiently do a lot of little events? It was really the early days of FinTech and using data to price risk and do trading. I learned about operations and how to build product. And my boss at the time said, look, you're a natural salesperson, so we're going to put you in operations. I'm very thankful for that guy and force you to learn how things work and go in the bowels and you come out of it. And I think it makes you a stronger business person.

AI assessment note: “So my first client that I was covering was a company called GetGo.”

Q tail events, when you go in and lend to these companies, as you said, when it works, they want to refinance you for less. How have you solved this? You have to find something before everybody. If you do, you might not be able to hold it for very long. It sounds like a bit of a treadmill, and I'm curious how you've evolved just the lending piece over time.

A I think that we really want to be partners and a more efficient equity capital provider to companies. We think that more and more companies have a need for debt and equity, especially capital intensive businesses that are doing lending or acquisitions or rollups. What we learned is that, and it goes back to the way we built the firm, having alignment with the companies we're investing in is critical. And to create alignment, we do majority of debt, but we also invest in equity. So we will not invest in a business or provide debt, and we can't also be an equity partner. Sometimes some of the larger growth funds and VCs are upset because they want all the equity, but our view is that there's always room for upper 90 to be like the second. We don't want to lead, get Sequoia, but if you're not going to get one of the top VCs, you don't need five VCs that are all doing the same thing. Like, oh, we'll help you with talent, and we'll do this and that. 10 years ago that mattered, but now all those tools are available to the companies. So we're like, get the best lead. We're going to be number two. Our capital is greener because we can do debt and equity. And because we're also putting our money where our mouth is, we're not asking for warrants and freebies. We're going to be an aligned partner. So in a year, if you need to go and get, or can get cheaper debt, equity positive event, and…

AI assessment note: “we're aligned with you to be refinanced. It gives you a unique way”

Q How do you think about your value add for your portfolio companies?

A For sure. It's really focusing on how do you add value to the founders and how do you create a moat or compounding value. Our slogan now is it's not how much you raise, it's how much you own. Or another slogan is delay your egg. You've raised a seed, you've proven the model, now you want to get into another city or you want to do another cohort. Having a tool like us helps give you this ability to raise equity when you want versus when you need to. It's this bridge flex. Right now, going on to how do we help founders own more of their company? Credit, obviously, is a very valuable tool. Isolate the healthy assets. The other thing is tax and just general efficiency. So QSBS. Very powerful tool, you know, qualified small business. Jason's very curious about just tax laws and ways that founders have incentives to start businesses. So QSBS as an example, if you look at most companies, the founder is listed on the cap table as the founder. So they get a five million dollar QSBS exemption. The first five million of gains is tax free. If you hold it for five years and all these things, well, you can set up five trusts. And get five times a QSPS exemption. And then upon exit, you can roll them into one entity. So just think about that. Like you have a five million dollar tax free gain or a twenty five million dollar tax free gain. Little things like this that we as like, we're almost l…

AI assessment note: “how do we help founders own more of their company? Credit, obviously, is a very valuable tool.”

Q What was that evolution from a club of chairing a couple of deals to what became Upper 90?

A Jason gave me very good advice because during that one year off when I was working with all the startups, there's a temptation to go and join somebody else's startup. Like this is so exciting. And Jason's like, either start your own business Or go join a great company. Don't join somebody else's startup. You're taking all the risk, and you're the third guy in the door. The VC benchmarking data shows that the third employee should get 50 basis points, and it's ridiculous. That was very valuable advice, and so I went back to Goldman to help build the business that Knight had built, and Citadel had built, and to help with some of the investments that we're talking about. What evolved was we would meet every month, and we would share these best ideas. What happened is, if we're honest with ourselves, the real change is happening in the tech world. There's not much innovation happening in finance. It's really operational alpha and scale. You're seeing that the bigger are getting bigger, the bigger quant funds are getting bigger, and the bigger banks are getting bigger, and every neo bank is now having to become a bank. It's all the same stuff. We have a new product, but now it's all about acquiring customers efficiently. So it's a scale. What happened is all these ideas started coming in from the tech side. One of the first deals was a really fascinating company called film rise. An…

AI assessment note: “What evolved was we would meet every month, and we would share these best ideas.”

Q Did that become the investment philosophy for Upper 90?

A So we kept finding these repeatable deals where there was some detachable asset or cash flow. There was a few things that even though the participants were different, there were common goals. So number one is no one was really interested tying up their money for 10 to 12 years at this asset price to get a decent return. You had this big conundrum. You either had to tie your money up in private equity for 12 years or venture to get a decent MOIC, or if you wanted liquidity, you were getting very small yield. So how do we get a decent return without having to tie up our money for 10 plus years? And that was universal. Number two is that everyone felt like the private equity and venture world hadn't really been changed in a long time. And I saw firsthand how Quant came and changed long short equity. Unless you're an exceptional hedge fund stock picker, it's hard to beat the cost of an ETF or it's hard to beat a quant fund. You have to be good at what you do to get paid. And I think that that's going to come to the venture world too. It's been a momentum trade. And so if you're Sequoia or Forerunner or Bessemer, you have services and tools. I think it's going to be hard to prove that you should be getting two in 20 versus an ETF equivalent, which I'm sure will come to this industry or somebody doing something different. It's disruption plus how do we get a return that's shorter dur…

AI assessment note: “So we kept finding these repeatable deals where there was some detachable asset or cash flow.”

Q In the deals that you've done, what kind of idiosyncratic underwriting risks come up?

A We have a team now of almost 25 people. Credit as its own business is not a rewarding business in a lot of ways because Your best customers want to get rid of you as quickly as possible. And we like helping build companies and create enterprise value. We said we're only going to invest in a business if we're excited about the business itself. Then it does a credit stand on its own. When we look at credit, first thing is how diversified are these receivables? How diversified is the risk? Because you don't get paid to take more concentration, risk, and credit. So diversification is your friend. Number two is data is a truth serum. In these cases, you can log into somebody's Amazon accounts. You can actually verify all of their data from Amazon, from Apple. You can set up bank accounts that control the flow of funds. In a weird way, it's like the ability to do these things in smaller size changes because you control the cash flow and you have a canonical source of data. You want to make sure that you have excess spread. I'm just simpleton. If you can buy things cheap enough where you can charge enough VIG, There's a lot of room for error. An unlevered return is very different than a levered return. How much are you able to charge? How much inefficiencies exist? So we're looking for businesses that have meaningfully more book yield, 25, 30% annualized book yield, so they can servic…

AI assessment note: “first thing is how diversified are these receivables? How diversified is the risk?”

Q In what's clearly a competitive environment, you talk about even when you get past the A, you've got lots of equity checks from venture capitalists. How do you think about the duration of your advantage today?

A I view us as a startup as well, and we have to continue to innovate. We've done more deals recently in Latin America. You just always have to be hustling and adding value. One of the things that I've learned as I've looked back at my career Is it's much better to be in an industry with a wind at your back than to try to be the smartest person in an industry and data is everywhere. Everything is now captured in data, which means you're going to be able to finance almost anything in the future. So I think we're directly in the right trend. Founders right now face 20% dilution on average through the seed round and greater than 50% after the series B. That is going to change. A private equity firm or a growth equity firm coming into a series C or D sitting at the top of the caps table with liquidity preferences and all these downside protections, and they're ultimately earning more than the founders at exit. To me, it seems like that's going to change. I think Tiger's pushing it on the right side where they're like, look, they shouldn't be making 25% IRR. It should be 15. So they're like, we're going to make equity cheaper. And upper 90 on the other side is like, hey, you just need less equity if you're a capital intensive e-commerce or tech business. So both of those put a lot of pressure on traditional growth equity. Directionally, that creates a lot more opportunity. So I don't …

AI assessment note: “I don't think we need to be the only player in this space.”

Q When you're in and around this ecosystem of venture companies and growth, a lot of the model you've ascribed is a niche. It might be hard to see how you scale this. How do you think about the juxtaposition of those two things?

A As you get older, you think about what do you enjoy doing? Like, 70% of our deals come from our LPs, and our founders, almost all of them have become LPs. One of the most fascinating deals that we've done, Crusoe Energy, the founders, an amazing guy, Chase Lockmiller. He came from the quant trading world like me. He was actually at Gecko, then went to a company called Jump, was a poly chain, had this unique different set of experiences and was putting them all together in a weird way like I was with Upper 90. And he's like, there's more data needs and more data being captured than there's energy available in the world to crunch all the data and to store it. Where is a way to capture energy to use it for AI and data crunching? In the middle of the country, in the US, we're the biggest driller for oil, or one of the biggest drillers. Most of those projects have no pipeline. So the oil's drilled, it gets shipped out because it's valuable. The natural gas just gets flared because there's nowhere to put it. There's more natural gas that gets flared in the US every year than the amount of energy consumed in Africa and Japan. It's crazy. So he built these portable data centers that go on site to these oil fields where they are flaring the natural gas. He's getting effectively paid to take the natural gas and he's powering these on-prem data centers to mine Bitcoin. If I came to you an…

AI assessment note: “As you get older, you think about what do you enjoy doing?”