Altimeter (with Brad Gerstner)

all right well hopefully airpods don't screw things up too bad it can look like humans on air and if we ever end up in a situation with microphones that are out of frame it'll be game changing it'll be

let's like we're talking to each other who got the truth is it you is it you is he you who got the truth now

is it you is it you is it you sit me down say it straight another story on the way who got the truth welcome to season 10 episode 4 of

acquired the podcast about great technology companies and the stories and playbooks behind them i'm ben gilbert and i am the co-founder and managing director of seattle-based pioneer square

labs and our venture fund psl ventures and i'm david rosenthal and i'm an angel investor based in san francisco and we are your hosts

we've done sequoia we've done andreessen horowitz but we have not gone deep on one of the biggest stories in venture right now crossover investing

we are watching hedge funds like tiger global and co2 come all the way down to seed investing and we're simultaneously seeing classically early stage venture capital firms like sequoia completely

reinvent their structure to hold on to their winners longer even as they become public companies and today we wanted to analyze one of the firms that pioneered this

dual approach of operating a hedge fund and a venture capital firm simultaneously altimeter capital there has been so much change in venture in the last few years more change i

think in the last few years than in the decade that i was doing venture than watching it before and listeners to tell the story right we

are joined today by brad gerstner the founder of the firm and actually to tell you the truth he is joined by us we actually recorded this episode in person even with video stands microphones

everything at the altimeter office on sandhill road and for those of you who don't know brad has had an unbelievable career starting five companies so he's got a very different

mentality than your sort of classic hedge fund guy on the investing side he led the series c in snowflake and still owns a massive stake of the company he's

led large investments and sat on the board of companies you know like mongodb and roblox and zillow and plaid he led the spac that took grab public in

southeast asia and he is widely known as one of the most knowledgeable people in the world on the business of online travel after his involvement in expedia orbits uber and many others

and you forgot maybe the most important part i think he's the number one bestie guestie on our friends over at the all in pod i think that's probably right that's

probably right well listeners before we dive in we want to thank the presenting sponsor for all of season 10 vanta the leader in automated security and compliance

vanta brings a fascinating approach truly to the whole compliance process sock to hipaa gdpr and more and back with us today to help analyze her own

company we have ceo and co-founder christina cassiopo all right so christina i know from our previous conversations

that using vanta to get soc2 certified can actually help startups grow faster than they otherwise would have been able to what do you mean by that and do you have an example

yeah so one example i really like it's kind of looking at smaller generally fintech startups and you know canonical example here is you know a company like modern treasury right they're moving

money they need deep bank relationships to even launch their product and so again part of even launching their mvp or building it is going and

signing a partnership with a large bank today a lot of large banks sort of won't you know take your email take your call unless you are sock too compliant and so we actually work with a lot of i

mean modern treasury much larger now but started working with them one of sort of three founders on a couch and again they needed a sock too in order to even build their mvp let alone get customers so that's on the

very early side of the spectrum but actually we have a lot of again early fintech customers that just need one of these certifications in order to even build their product

so is it fair to say that this journey you're on right now of enabling earlier stage companies to get a sock 2 certification actually is one of the big forces behind the

fintech wave yeah i mean i think there is just a leveling of the playing field here right and this is a you know compelling startup theme and investment theme but i think vanta is very much a part of

taking something in our case compliance certifications that had been onerous and making it accessible for the you know two or three founders on a couch to go and do and let them accelerate their

business and also just honestly like compete with the like larger incumbents who are able to have the 50 compliance team that you know goes and looks at screenshots every week to make sure

everything is in good shape thank you to vanta the leader in automated security and compliance software if you are looking to join vanta's 2 000 plus customers to get

compliance certified in weeks instead of months you can click the link in the show notes or go to vanta.com acquired get that sweet 10 discount thank you vanta

well we will cut over to our interview with brad now but please do know ahead of time that uh you can discuss this episode and everything else in the tech world afterwards with us

at acquired.fm

at acquired.fm slack join eleven thousand smart thoughtful people like yourself and we have some awesome new lp show content out there you can search acquired lp show in the podcast player

of your choice and uh lastly this is not investment advice do your own research and now over to brad gerstner from altimeter capital

tell us about your family and your dad's experience with entrepreneurship well i grew up in a small rural town in northern indiana near notre dame first

generation college my dad had you know classic immigrant story his parents had kind of given up everything in order to help put their only child

through college he started at northwestern they couldn't afford to finish there you know ended up at bradley in illinois got an engineering degree

and long story short 1977 i was born in 71 so 1977 he becomes a general manager of the auto parts manufacturer and you know this small

town that employed most the people in the town was it uh like a gm uh yeah it was it was a supplier to gm a supplier to ford at the time and remember our auto industry was under assault by the

japanese auto manufacturers you had double digit interest rates and inflation which for the first time in 30 years is all of a sudden the topic of conversation again with the fed under

under volcker yeah under volcker we had you know you remember stagflation the end of the 70s which was low growth high inflation and for some reason you know so there

was an acquirer that came along to buy this plant they needed to get my dad and the workers to go along you know with the deal my dad said he could deliver the workers so long as they agreed not

to lay anybody off of course they said they would do that you know three months later they were gonna lay off all these people and in this small town you know your words are bond and my dad just couldn't live with

himself with that outcome and so in a fit of of lunacy decided that he was going to start a competitor he knew nothing about starting a

business there was no such thing in that part of the world as venture capital all he knew is that he knew how to make these parts and he knew he could inspire

these men and women to join his cause and and it was a crusade and it was a you know i look at it and i'm sure i look at it through rose-colored lenses but it was a valiant crusade

unfortunately he had to borrow money from the town bank in a typical acquired episode or a typical tech story it's like this is the hero's journey and like he wins right and like you grow up in

this like amazing you know entrepreneurial journey and you're like this is awesome i'm gonna go do the same thing that's not right i i wish i wish the story ended that way

um you know for his sake i mean he borrowed money from the bank mortgaged the house mortgaged the car and the punch line is there are moments in time where the deck is so stacked

against you notwithstanding all your best effort notwithstanding all the extraordinary sacrifice of the team or maybe even the brilliance of the idea

it's not meant to be at that moment and um in venture capital if you fail the risk is largely on the venture capitalist i mean in silicon valley failure is

on the part of the founder so long as you conduct yourself in a way that's honorable it's a badge of courage that you gave it a go and we have an institutional structure where the venture capitalists can

withstand that loss because they have a portfolio that they can you know cushion that with so i often you know young founders will come in and say well i just don't know if i can take the risk you know they just graduated from

stanford they have no student debt yeah you know they're getting money from a venture capitalist if they fail they don't have to pay the money back if they win they get you know a huge upside if they're at the stage where they're actually taking

money from a venture capitalist and they have a term sheet and that you know that's going to happen for them you've already won the personal risk there is extremely low there's no risk what risk are you talking about

the risk is have a young family mortgage your house mortgage your car double digit interest rates and

inflation the business goes under my dad loses his health he loses his house he loses his marriage right that's risk yeah right and the

beautiful thing about this country is you know we have created a system where we encourage risk takers unfortunately in 19 you know 80 in the middle part of the country in a small

town my dad refused to declare bankruptcy he would work the rest of his life trying to pay back that money because it was his word that he gave to the people who lent him the money and so

i think about that when i hear from entrepreneurs or when i even think about the risk associated with starting altimeter or starting the other companies i started it's really not risk relative to the

risk he undertook so i grew up around an entrepreneur but it was not a heroic entrepreneurial story and my grandfather my father's father

basically forbade us from becoming entrepreneurs and he said to the four grandchildren you can become professionals you know

doctors lawyers architects but please don't become entrepreneurs and so i you know i i felt like i owed that to him even though i felt i was always kind of starting little enterprises in high

school and thinking that way my brother did in college but i went to law school and you thought you were going to go into politics

be you know a leader in government how far did you get on that path that was programmed pretty early i had studied uh in 91 92 at oxford i came

back and worked for the u.s senator from indiana dick lugar he was chairman of the foreign relations committee at the time we were denuclearizing russia at the time it was a pretty heady moment in time with a

senior statesman rhodes scholar incredible human being honored to work with him stayed close with him and so when i graduated from law school and i went to work for a big

law firm i got a call from senator lugar asking me i don't know i must have been 26 or 27 if i'd accept an appointment as deputy secretary of state in indiana

evan bayh who went on to become governor and senator from indiana started there so it's kind of a known launching pad into indiana politics so i i became deputy secretary of state and

you know faced this fork in the road that i was either going to run for secretary of state or i was going to go try to make some money and i concluded having grown up around a family that struggled for money in fact my

grandfather said we don't have money problems we have lack of money problems i've heard you talk about this before is it fair to say that um you you didn't want to go raise money to run

a political campaign the idea of groveling for the rest of my career for money just didn't sit well with me kind of a

loon but somebody i admired was the 1991 campaign of ross perot and he you know spent tens of millions of his own money to go on television in

kind of a goofy way with poster boards and rail against the national debt and i thought nobody owns this guy and parole people forget he dropped out

of the campaign three weeks before the election and i think he still got 17 or 19 percent of the vote he was an entrepreneur himself

right he started eds eds yeah electronic data systems and i wouldn't say you know there's a lot about ross pearl i don't know and it's not an endorsement of his politics

but but seeing that yeah nobody told me it was like okay i can either shake a tin can for the rest of my life um but like others who came before me i said hey i'll go back to

business school maybe i can make you know a little bit of money and so the plan was go back to hbs how did you decide on wanting to go to hbs did somebody inspire you or encourage you to do that it's slightly

embarrassing story like i didn't really do much research i remember taking the you know the entrance exam like the last day scrambling to fill out the application in fact i didn't even finish the

application because i ended up getting an interview and i remember the person who interviewed me said this is a unique situation i can't say that i've ever interviewed somebody who didn't have

time to complete the application and so he started with why didn't you have time to complete the application you're like well i'm deputy secretary of state right now i went through i went through it and it wasn't you know it's

just i decided late and i was i was working my ass off but i said now's the time and we went through it and so you know that's a different outcome to the same story for warren

buffett he wanted to go to harvard business school and he was so sure he was gonna get in he didn't complete the application was sure he was gonna get in of course he didn't get in and then he had to scramble and that's how he ended

up at columbia and of course the rest is history when i was in high school one of my first you know i worked and was was going to school at the same time and this was after this episode with my

father and the part of indiana that i'm from they make all the rvs and conversion like vans in the in the in the country so i ended up with a job as kind of the

right hand little chief of staff go do anything i ask of a guy named pete legal and pete legal was starting a rv company and i worked for two years for pete he

had me doing everything you know in the accounting department with the cfo you know out on the line helping to run purchasing for the sierra rv line in 1987.

here's the interesting thing pete went on to build the largest rv company in the world that he sold to warren buffett and warren has written

a lot in his annual letters about pete who's just a legend of a human being was a great inspiration to me and it was funny because ultimately

i became fond and friendly with ted weschler who works alongside warren and we worked on some deals together and you know the world we're going to talk about a deal that you worked on together in just a little bit here it really came

full circle i have the same personality characteristic that you do around an aversion to asking people for money and in fundraising for politics i can see how that would be especially hard i mean

you've raised i think literally billions of dollars over the years for altimeter what is it about the way that you fundraise now that hits differently in your psyche you know

i had the feeling at the time and maybe it's just because at that point in time i didn't believe in myself perhaps the way i believe in myself now but it felt like a very personal ask

like give me money for my campaign you know now i am a steward i am a fiduciary on your behalf and i believe i'm gonna make you a lot of money and we have made a lot of money for our lps and if you

could see the letters we've received from university endowments from foundations from family offices and the transformative things they

outlined that we allowed them to do free education you know dramatically more scholarships yeah whether it's the environmental causes whether it's immigration causes whether it's inner

city schools so to me i think there is you know the great causes i think as somebody else coined the phrase that we can work on behalf of in a way that's great for uh entrepreneurs in a way

that's great for our economy and in a way that helps to you know really transform some underlying causes so it's it's an easier ask for me because it doesn't sound it doesn't feel quite so personal and even though when you're

running for office you know it's in public service it kind of felt to you more like hey do this thing for me and i can't totally see the roi for you as a citizen but

what's kind of a problem if you can see the roi for you for giving me the money to invest like i think that's right listen i've gone on to raise a lot of money for people in politics

to for a lot of other great causes it's really easy for me to ask for others it's a more difficult ask when i'm a beneficiary of the ask and at 26 even

with the support of your mentor it's not like you had the broad network to have so many people go ask on your behalf okay so you get to hps you get hooked up with two guys

at hbs david and joel who are going to start general catalyst they themselves weren't people that you were like oh it's obvious you're going to start a venture capital firm right quite the opposite

but um i love them both dearly let me rewind just a little bit before that 1989 i really start you know getting enamored with email networks

working in prodigy and following aol and in the 90s really interested in investing in 1996 i'm graduating from law school now my grandfather who i mentioned left me 25 000 when he passed

away and i day traded that twenty-five thousand dollars to put myself through law school and business school and i took the series seven because i thought man maybe there's something these people

know that i don't know i wanna know the dark secrets of investing and then i realized wow none of these people know anything that's the dark secret right the dark secret is there is no secret so

1996 when i'm graduating from law school i also have this aha moment like so many people did with a netscape browser and i said this changes the game on this

thing called the internet which was just these computers talking and email networks and it felt wonky and inaccessible and i remember gathering in the law school library a group of my

friends including the guy sitting in there who's now my general counsel and i said you got to see this so from 1996 then i go back work for this law firm we started getting

litigation claims of people who were doing domain squatting in 1996 well nobody in this 600 person law firm knew anything about the internet or domains or anything else so i raised my hand i

said i'll take all of that you know i helped him build the firm website and i quickly became known as the internet guy but i was thinking so if i go back to business school like i've got to find my

way to silicon valley when i was graduating from law school i actually came out here because there was an innovative law firm out here called vlg the venture line oh yeah oh yeah that

was taking equity stakes at the time for doing work for companies so i literally got on a plane i flew out here the office was right next to the rosewood across the street i just walked into

their offices and said hey i'm looking for a job now they didn't have a job for me but you know it started to demystify this place for me and business school was going to be my pivot my off-ramp to

coming out here so i go to business school in 1999 i mean this is peak this is peak peak right and you know mackenzie and goldman couldn't get

anybody to show up at their interviews at hbs in 1999 because all your classmates are just so gag offering every classmate is going to start a company every classmate is going to work for a startup

consulting firms were you know being started that were internet only um it was it was it was really an interesting moment time now again i'm day trading cmgi out of the back of my

finance classroom knowing that this thing's going to zero but i'm gonna ride it while i can and is that like like trade or how are you day trading at that point we had bloomberg

terminals right outside the classroom i had a fidelity account actually and i would do my research on the bloomberg and then we'd place trades listen i was what's known as a poet i mean i'm a

lawyer from indiana show up i had never run a spreadsheet in my life and i show up and i have all these guys who've worked for hedge funds private equity firms venture firms wall

street guys investment bankers and so all of a sudden i'm huddled around you know these machines with folks who knew a lot more than me is poet in finance the same thing as like a fish and poker

exactly let's put it this way we were transitioning to taking exams on computers and there were two of us who took our finance exam with a calculator and a pen

and the rest did it with a spreadsheet i remember myself and a classmate of mine uh who is a doctor chris gilligan and look at you now look at all those chumps

valley 1999 i start coming out here i was enamored with a small little search company that i had started to you

know run all my searches on called google a hot startup called tell me run by mike mchugh oh yeah and uh yeah and sold two ultimately sold to

microsoft and so i was very focused on coming out here one of my classmates who had eventually become my wife was very focused on staying in boston and

i met david and joel and so i said okay maybe i can help start this venture firm stay in boston and see where it goes so in 1999 2000 we had a launch idea for

the venture firm so a launch company if you will which was a online travel concept it was called nlg national leisure group and basically what we were trying to build

was the infrastructure think shopify in some ways the infrastructure that would power expedia travelocity yahoo others who were selling travel

they were selling air tickets they were plugged into these global distribution systems but there was no gds for selling vacation packages cruises and all these other things so we said let's go build

the gds effectively for that and we partnered with softbank we raised must be 50 million bucks for that business we bought a little business to give us kind of the kernel

we built a digital layer on top of it and while the rest of the world was imploding we found ourselves in a pretty enviable position we built the business to over a billion in gross bookings i think had over a thousand employees at

the peak and that was all like within a year right that was within 18 months because again it worked like people were actually buying this stuff online right and we were plugging into existing pools of demand we weren't going out and

having to create demand so expedia launches you know a cruise or a vacation package booking engine and the next day a lot of people are actually buying it and we're kind of the

shopify if you will inside and so rich barton who ran expedia said hey we want to buy the business and then we ran into dara kasher shahi who is running m

a for barry diller at the time and he said you know i want to buy the business and to be clear this is pre-iac buying expedia so these are two completely different entities bidding against each

other for your correct and i said to dara well we already have an interested party that we're talking to and so he goes well let me talk to barry and so he talks to him

and they come back and he said well who is it and i said well i can't tell you that but it's one of the big online travel players and he goes well i think barry wants to buy them too and that's ultimately what went down

between um october of 2000 may of 2001 we put together a deal where usa networks would be renamed iac bought

both nlg and expedia oh those were concurrent concurrent deals announced together i remember being in the back of a limousine in hollywood on my way to barry diller's

house with rich barton and we looked at each other and we're like strange world how'd we end up here this was the beginning of barry transforming from a media guy into a

media and technology guy and building iac you know yeah it was usa networks and it became iac well i would say two things about that real quickly first

barry was early to understand transactional commerce through a screen because of home shopping network because of home shopping network he also

acquired ticketmaster and he also acquired an asset called 1-800 hotels and he also acquired some catalogs and what they all had in common was

transaction you know they were all e-commerce based business models and they were through various mediums the biggest being home shopping network which is through television so for him to squint a little bit and to see how

all these transactions were going to move to the internet was not that difficult and the commerce engine the commerce flywheel that was flying the fastest forum was 1

800 hotels that he would rename hotels.com so he was doing extraordinarily well in travel understood that that would be a big category of online commerce

and i remember very distinctly him talking about you know commerce through all the screens and that was in you know 1999 2000 before most people saw it i think this is such an important thing to

realize about the dot-com bubble because everyone looks back at it and makes jokes but the consumer behavior was there it was a objectively better way to transact in

all these different mediums and the bubble burst because it was a speculative asset bubble and capital went away if you didn't have a business model but for those who did and who could you know be free cash flow

positive this is where all the demand was going and that never went away right could you feel that in the moment of like people still want to do this as long as i can't

say that i did i you know like i was really worried about you know you got to remember the size of the bubble bursting the change in risk premiums

right and then the events of september 11 2001 they were also compressed it's the fog of war right i think about all we

really knew for sure is this internet thing wasn't going away there are going to be real businesses built around it but it was very unclear when you would have the capital required to build the

businesses where the capital was going to come from you know and in hindsight it seems pretty simple but i would say 2001 2002 2003 turned out to be a gift but that's

a slog right when you're going through it yep i look at business models today that have you know negative unit economics negative gross margins raising money at super high valuations i have

post-traumatic stress from that period because if you are a high burn business with negative unit economics and you fly into a world where risk premiums change

it doesn't matter how good you are you cease to exist right and they will change eventually i mean that's the thing that just look at what's happened over the course of the last eight weeks right um growth

multiples are down 50 risk premiums have changed dramatically there are a lot of businesses that are in the category i just described that aren't going to make it so the natural thing to decide after all this is that you're going to go be a

public markets investor right like this but you know part of why we want to do it it's a great story but also like what altimeter ultimately becomes and this

you know you guys i think are maybe the purest play example certainly one of the first if not the first lifecycle investor you know it was just not at all obvious that you should go join a hedge fund at this point right like how did

that happen yeah i mean so there's a little bit more in between you know so september 11th happens which is you know really catastrophic event particularly for our company that was an online

travel company and so we negotiated kind of the soft landing with iac i won't take you through all the trials and turbulations but it was a good outcome for general catalyst i thought i was going to go back and

join david and joel i knew they were two extraordinarily special human beings and they were going to build something really big but i had kind of been bitten by the startup bug a friend named beijo

samaya who now runs lightspeed in india uh in southeast asia had an idea and it effectively was think of yelp pre-yelp and so beij and i started this business

we bootstrapped it had a bunch of venture capital term sheets for a variety of reasons didn't take them and we sold that business a couple years later to a public company in seattle and again in the first transaction you know

i'd worked really hard at nlg and i think i walked away after being the ceo and helping put the deal together with a million dollars which for poor kid from indiana that was

game changing but by silicon valley standards today people would be like you there was a lot of work that went into that the second business i started with beige

i think i owned forty percent of the business when we sold it that was four or five x the outcome and then when i thought about what i wanted to do i had two competing ideas one one was

another operating business like if you're an entrepreneur you have these ideas you have to get them out of your crawl but what i really thought that i was better suited for was investing and a person who made this clear to me

was rich barton and um rich one day sent me down he said i don't think you're a great entrepreneur and i said rich that's so insulting why

and he said especially from rich like the consummate entrepreneur right and you know he keeps it real and um apparently and he said you know being an entrepreneur is the art of the possible

right you have to will things into existence and he said you know you constantly think about what can go wrong when you're an entrepreneur oftentimes

you have to suspend disbelief and just think about what can go right and he said but as an investor investors think about distribution of probabilities not possibilities

and he's like i've always you know kind of observed you like you're training as a lawyer how you think as an investor like you're going to make a great investor and so i was like you know what he's right and the

best investment business model right is kind of this venture capital hedge fund business model i thought there was going to be a lot of disruption occur in that business model so when you say this business model this

venture capital hedge fund business model until what you and now several others have done that was not a business model these are two completely different types of business correct i'll hit that in

just a second but i wanted to start a business and i said i will start you know i think i can build a better version of this model at the time if you really rewind the clock

warren buffett right i don't know what year it was 1955 when he started his hedge fund he did both publix and privates right he didn't distinguish he he just

sought out great investments paul reader who started park capital was doing private investments before brad gerstner showed up seth clarman at bell post was doing private investments you

know before we coined the term crossover right david abrams in boston so i had a lot of legendary investors i looked up to that they never thought of the world in crossover but they thought the world you

know there wasn't this artificial constraint that i can only invest if your pre-ipo or your post ipo what did private investments mean to them did it mean what we think of or did it mean

something else well i would say for them private investing was maybe buying auto dealerships or newspapers or textile companies or whatever the case

may be and as you know in value investing which was really the rage of that couple decades it was i'm going to find a company with a bunch of free cash flow i'm going to use that free cash

flow to go invest in things that actually have higher returning characteristics paul invested in that first company nlg he was on the board we got to know each

other quite well he saw me day trading in companies like priceline and he thought this is interesting a ceo who actually is also an investor so you know i remember him saying to me you ought to

come work with me someday and so after we sold that company open list i showed up and i said hey i want to come work with you i can run the technology part of the business you

don't have a technology business i'll build a technology business both public and vc okay which is consistent with historically what you've done and i said

if i like the business i'm going to start my own so you don't have to pay me make me an apprentice all i ask is that we have lunch together every day and you teach me the hedge fund business yeah

you had made a you know a couple million dollars at this point so so i mean i didn't have a lot of money but again like and did he take you down that deal he said great you can you can quote-unquote work here with no and i won't pay you you know the funny thing

is he did say kind of come apprentice yeah and i think i was two weeks in and he said this is ridiculous [Laughter] um he said okay i'm gonna pay you you're

gonna do this and i will say it was one of the most extraordinary mentor mentee you know journeys over the course of the next two and a half years

he's a legend he doesn't get the credit he deserves and he gave me the autonomy to on the public side you know go invest in

my entire book in google and priceline and you know a couple great companies and then to go make some venture capital investments like leading the series you know be in zillow and i remember at

the time thinking this is so easy you know i had such deep conviction in google and i didn't have to have this highly diversified book and if it if it went down paul would come into the office say

what do you think i'd say buy more i'm heading to yoga right it was this like and uh and so but we had a we we had a really great run together i didn't realize that that was with paul when you

led the series be in zillow because you you were a zillow board member from that point on for quite a long time did you stay on the board of zillow sort of as an

independent even after leaving paul's firm and starting ultimately no i i i left the board i don't know if it was exactly contemporaneous uh to that but about that time

you know by the end of 2000 i mean listen i learned so much from paul and all kidding aside the idea of portfolio management risk management paul didn't call it essentialism but you

know running a simplified concentrated portfolio around your best ideas was something that i absolutely i may have been constitutionally

predisposed to believe that anyway but we were just very symbiotic in our thinking about how to manage portfolios he couldn't have been more supportive and so i learned through some pretty

heady times with him and then by two at the end of 2007 i you know kind of said to him i think i want to do my own thing you led the series b in zillow as a crossover hedge

fund the idea of crossover you know existed as you said in in not necessarily in tech and other you know domains but also in tech with tcv and and others they

were not leading series b's in companies at that like that series b at that point in time is what 10 15 million dollars i mean it's not a 50 or 100. yeah that's right i think i'm

100. yeah that's right i think i'm trying to think the the check size we may have put in 20 to 30 million bucks and if i recall it was a couple hundred million dollar valuation

listen to his credit and another og j hogue who started tcv was already in zillow by the time i came into zillow he came in in the a yeah and maybe it's you know the

nomenclature i don't know if one was a c n a and a b but those were the first three rounds of institutional capital and you know jay had a relationship with rich from his days at expedia yep i

obviously had a relationship with rich we uh we knew he was a special entrepreneur i knew bill as well and so it was a big idea it was a special collection of people out of

expedia led by rich and lloyd um but i remember at the time talking to jay about you know like technology crossover ventures

you are the guy you know to do you know crossover i remember sitting down saying this is what i like that's the winning model like that's really the winning mono now i was coming at it you know

with a more i think clear idea of public pool of capital and venture pool of capital tcv had evolved into almost more of a later

stage you know venture firm right that held some public positions but didn't have a hedge fund per se so i think i had a slightly different view but credit where credit is due their vision for

where the world was going was was ahead of their time okay so it's 2008.

end of 2007 beginning 2008. you tell

paul you're gonna yeah go out on your own you just keep nailing this time yeah you're just like really you're right the whole world's going go go and just in case i i wish i was nailing i got married at the end of 07.

we had our first child on june 3rd of 2008.

remember you know the world cracks were shown in august 2007. like whenever

you look at these stock graphs they look at like they're generally stable but man the number of days have lost sleep but i remember saying to michelle you know we didn't have that much money we were living in a few thousand square

foot kind of subterranean apartment in boston we were having our first child and it was clear the world was getting tougher by the summer of 2008 and i said i think i'm starting you know i'm gonna

start my own firm go tell paul and let's just say that when you're nursing a baby in september of 2008 october 2008 i have

cnbc on it's like you just want to find the wastebasket to get sick in and i'm launching with no money because you had a bunch of commitments and they

dried up right right so at the end of o7 you know the track record had been good and you know so i talked to some university endowments foundations now i didn't know this world at all like i

didn't know the world of lps at all but i talked to a few people and they're like hey we'll give you some money and so i thought i was going to launch with 100 to 200 million bucks but it was

clear by september october 2008 people thought the financial world might be over forever and it's hard now it's been a good century or two it's hard it's hard now to like

put ourselves back in those shoes but when when you think like people thought lehman morgan stanley goldman said were all going to collapse right and nobody knew the contagion effects of that

nobody knew the impact on the dollar nobody knew the impact you know the thought was it was going to be a very deeper depression and so it's interesting just to put in the mind of the founder people say to me oh you

picked a really great time to launch okay i can assure you i was saying it no like like uh sarcastically yeah it's a i mean it was in fact one of my advisors who runs a

big hedge fund what's a big hedge fund to you well he ran a multi-billion dollar hedge fund at the time and i just had an informal group of advisors and he said you've made a huge mistake

go back to paul and see if he'll give you your job back and don't do this right and because i had organized my life in a really humble way

i didn't need money and i had started a few other companies and when i started them i started them basically from scratch i knew what it felt like i knew that

feeling that founder feeling on day one it was exciting exciting and terrifying and i was like i got this like the horse has left the barn i'm doing this and to paul's credit paul

was like you got this you know and he had started par with less than three million dollars in the snl crisis in 1991

and i had a road map and i had a mentor who believed and i had a clear vision as to where i was going to go and i knew i was going to do it for a really long time and you also had about three

million dollars if right research was right yeah i had i think on my day one investors not to out them but paul was one of them my brother

was one of them now my brother is my brother oldest brother's about 15 years older than me the side note is he's an architect he had saved his entire life a million bucks like worked i don't know

how many years 15 years to save a million bucks or something and he invested it all in a hedge fund i don't know why i laugh put it in a hedge fund in la and the guy stole

all 200 million of this money oh my god so my brother literally worked 15 years oh my god his life savings went down the drain he scrambled together another half million bucks and he said i'm giving it

to you were you like and i was like i was like i don't know if i can take this i remember we were on a hike in l.a

and he said i know you're going to do great with it and i said well here's the thing i promise you i may lose it all naturally but i won't steal it he's like i know where you live and

i can happily say less than a decade later he was retired and it had worked out fabulous for him what is it with your family and risk right like you've like gone you know essentially gone

bankrupt you know a couple not you but you know your dad your brother the thing with a family is we're incredibly close we support each other even including my father he was famous he would have given you

the shirt off his back and you know to know that you have those folks and so like you know again i don't want to make it seem overly heroic we launched with very little money

the first trade i placed was and this is altimeter just for this we launched on november 1st 2008 the first trade i made was into priceline at 42 a share which of course became

booking after it later bought booking and booking i bought booking in 2004 2005 um but you know that 42. people

probably didn't recognize yet what a monster that was like 42 a share i still owned it when it hit 2 000 this year and teach a class at columbia business school on it and you know securities

analysis class on you know graham and dodd class on on kind of like what did people miss and what you know what did we see but at any rate you know that was the start i will say that when we

launched i wanted to be in silicon valley but i was in boston because i had no no dough and at the time people who had invested in co-mingled funds

because remember by the end of 07 everybody was starting to put privates in their public vehicles right i remember for example the bill miller of leg mason

famously invested in zillow in 2006 or 2007 and then in 2008 you sold all those shares back to the company because everybody was unwinding their

private positions and so when lps found themselves overly illiquid in 2008 so you know that is how not to do crossover

by 2008 they were like we do not want privates in public funds huh right so i had the vision but it wasn't clear how that was going to be executed um because

people really you know crossover fund co-mingled fund public private fund that was a bad you know those were bad phrases in in the fall of 2008. why was

it by 2007 that people had started adding these private companies to hedge fund portfolios so the observation i had

probably in 2004 2005 yeah was and i was a securities lawyer by training i had done worked around a bunch of ipos um maybe that helped but

you know i was like companies the private markets are becoming way deeper way more liquid companies are going to scale faster because the internet provides a network

upon which they can scale and they're going to stay private longer because they're deeper pools of private capital and we've made it more difficult for

them to go public post 2000 okay and then certainly post 2008 correct and tcv was there chase had started tiger

philippe had started co-2 so we started to see examples of hedge funds that were really smartly i think starting to do some private investing and i thought i

want to build the best crossover fund in the world that's based in silicon valley built by a founder right and i thought that was my differentiator right that i had a network in silicon valley

you know most of the other hedge funds were in new york or boston most of them were stock pickers not founders and so i thought i can do this you know in a way that's

really more empathetic and more closely aligned with founders like true venture but they could scale all the way into the public markets and so

it was delayed in 2008 because nobody wanted co-mingled funds but by 2010 we had we got off we had a great start in 2008 2009 2010 and by 2010

people are like okay now we'll let you you know start to uh undertake your vision and so 2011 we started putting together the first

dedicated pool of capital 2012. i moved

to silicon valley and that first dedicated pool of capital dedicated for venture investing right so so we had a public pool of capital which

was long short technology effectively we also became pretty well known for doing a lot of travel related investments um but in that pool of capital we could

also do a certain amount of private investing but we realized that for the venture and growth opportunities that we saw we needed a longer duration pool of capital the strategy makes sense and

history has obviously shown that but how do yeah how do you trade off like if you're running a public book you probably want to be pretty close to fully invested

for privates you need dry powder uh how did you solve that is that by raising these dedicated pools like any entrepreneur founder right you have to see some market changes

that give an opening for a new entrant right because the incumbents have advantages right and so i believed that the very nature the three things that i mentioned ipo is harder to do companies

scaling faster deeper private pools of capital but i also believe that that was going to lead to the industrialization of venture right that this thing would like the winners were going to look different than the previous generation

and this was an industry that was only a generation or two old venture capital venture capital yeah and so we needed a long duration pool of capital we needed a product that suited our public market

investors so we raised that first pool of capital now when i raised it there was the requisite level of skepticism like how you know how do you think you're going to compete with sequoia how do you how are you

going to compete with kleiner how are you going to compete and we made very clear that um i thought that the business building journey that started in that first

institutional raise was different than what we intended to do right like i raised a lot of money three different companies right as a founder and so

which if it's two or three raises per company or more and think 30 firms you talked to to to get one term sheet like you knew hundreds of venture firms at this point and and had

deep relationships with people who we had made money together so i assume your answer to that question of how you're going to compete with sequoia at that moment in time was we're not we're not okay so remember

just these venerable early stage firms you know mike spizer and and jim white and the team over at sutter hill and my friends at benchmark and friends at sequoia interestingly enough andreessen

i remember march of 2009 allen and company conference arizona they're getting ready for fund one right

so the market bottomed not in 2008 on march 9th 2009. and we were all at the allen

2009. and we were all at the allen conference was this before after they did skype um this was well before yeah and i remember sitting at a table

with my little pitch deck and i looked at a table next to me and it was mark and ben with their pitch and let's just say they scaled much much faster

and uh but yeah we were both there at the same time you know they had a a vision which was a brilliant vision for the industrialization of venture for how they were going to change venture and you know they've done it extraordinarily

well when fast forward today your your two firms are about roughly the same equal order the aum may be in a similar territory but the firms are very different we can get to that a little bit but they look

at around here i see 30 people that is a very different yeah 30 versus 350. and today is a full company right

but we raised that first pool in 2012.

um it was basically passing the hat we had made good money for rlps pass the hat around the table i was the biggest lp in that fund by a long shot because i wanted to get it you know upwards of 100

million bucks but that first fund i think had six investments and that fund i i don't think we will possibly have a return profile that fund it

definitely is is up there in terms of in terms of great returning funds when you led the snowflake round do you remember what the share price was i don't remember what the exact share price was

i think the enterprise value at the time was somewhere around 175 million dollars okay so that was 2012.

well the fund was 2000 and vintage 2012 2013 i think i i'm not sure when that first round of snowflake yeah that might be 13 14. but at that moment in time did you have some insight that you felt

nobody else had at that moment or was it the right time like how i a few things number one i did have confidence that you know i was a decent

investor right so we worked really hard we're blue collar there's different ways to prosecute the strategy i think there's some people who work the cocktail circuit

and you know we really were we're students of we're anthropologists about like where things were going and what was going to be big and at the time there was a lot of

pessimism frankly about cloud computing salesforce you know had some quarters where they saw more deceleration than people thought and there were really kind of these obstacles one was the cost

of compute in the cloud versus the cost in a data center but the big one was this perception that like i'll never put my customers data in the cloud right it was really a security issue

which then like let's just review history like everyone that decided that was not a tech company that they needed to maintain an on-prem data center got hacked and leaked customer data there were lots of them and everyone who

shifted to the cloud you know do we really trust microsoft and amazon they're pretty good at that right that was a great they had thousands of people working on security versus your data center that had two consultants

and um but it was really the sony hack if you remember that oh yeah oh right yes the sony board hack where i think it was colin powell if memory serves me correct

his email was hacked and in his email was the target list for salesforce's m a uh activity whoa there was so much that came out yeah and so like that all the

snapchat stuff all this all the stuff that got leaked and so if you were a board member or you were a ceo you immediately said what if my email was hacked and that was like a game-changing moment

but i would say for us for all of cloud to like excel for all that for all of cloud our view was it was safer

and then it was only a matter of time before the cost and efficacy of you know kind of computing the things you could do in the cloud would be better we were on the lookout i would say one

of the things that we were focused on at the time and this has been a i think theme for us over the last decade we have this view that not all software is created equal right not all arr is created equal

and if you rewind the clock to 2000 like the largest sector of software was databases right in 2000 if you aggregate the total enterprise value

of companies that were principally driving their revenue from databases it's about a trillion dollars in market cap in 2000 so then if you fast forward and you say well every year we're producing more

data than in all years of human history combined it's got to find a home we're only going to censor more of it in the you know build sensors to gather more data in the

future where is that home going to be and then i remember bill gates saying somebody asked him a question i think it was meg whitman asked him the question you know isn't all the interesting stuff done

and he said meg like do you realize how barbaric it is the way we make decisions he said in the future right we will have all this data stored

and machines will analyze the data and help us make better decisions about how to diagnose an illness about how to educate a dyslexic child

about how to maintain an aircraft's engine right it will all be decisions made by machines looking at data and so that was a you know our v we did

have a strong view that the entire database market was going to be remade it was going to be remade in the cloud purpose built for the cloud and so for us that infrastructure layer in the

cloud all the enablement that would be required in order to get enterprises in the cloud was something we focus on i would say more than probably anybody else and that proved to be a rich vein this is an interesting thing to talk about here because it's

kind of a second pillar of altimeter like if i think about where you were first successful it was really realizing that the internet is an amazing place to transact people want to transact there

and they want to buy stuff and overwhelmingly they're originating that journey on google and you sort of went down the list and said okay what interesting businesses could people buy stuff from

when they click through from google yes and so you know you've got expedia you've got priceline a lot of travel amazon but then there's this like second i don't know if it's

still an emerging thesis since you did uh snowflake and the sort of mid-2000 teens when was this 2013 2014. it's

totally separate it's this sort of like b2b you know we're gonna need the rising tide to power all these businesses are there other sort of core pillars of areas where you look for

where you're like oh this is you know multi-trillion dollar opportunity where we want to have several bets in the portfolio on that yeah you know one of the things you correctly identify which is

i think that unless you have an architecture unless you have you know unless you deconstruct what's going on in the world and try to understand the theme the human behavior that's driving

these events then you just have a bunch of data points that are disconnected and as an investor our job is to look at these complex fact patterns and try to make sense out of them so

one of the things that was very clear to me in early 2000s is you know the internet is the most fabulous thing in the history of the world it connects all these people it unleashes all this

productivity but it's chaotic how the hell can you find anything right and so those who could organize it so if you think about that decade that

decade was the decade of search horizontal and vertical search right booking.com was a vertical search company kayak vertical search company zillow vertical search company google

horizontal search business baidu horizontal search business and then there were these e-commerce businesses that were the beneficiaries right they learned how to tuck into the underbelly

of the discovery engines right so that was an investable theme for a decade right google's desktop search i think didn't go negative until 2012 maybe the

fall of 2012. that's when there were fewer people searching on desktop you know on a year-over-year basis because people were switching to their mobile devices okay so it has a totally

different entry point 100 so what as the anthropologist what did we do in 2010 i said whoa this whole search thing is going to get disrupted by this phone

thing now i don't know exactly how this is going to go down but like the way that we enter these phones is not through search as our principal metaphor

right and so then it became how do i become one of these icons right on the front of this iphone there was a few as you recall you know

facebook famously you know building you know an html5 not building there you know not building an app i remember facebook became our largest investment 2012 when it went on the cover of barons

at 17 a share post ipo would it broke through its ipo right because everybody said they'll never be able to monetize this and if you did the work and i remember being at google zeitgeist in arizona at the time talking to all these

cmos and they were like oh my god the sandbox for facebook like they're crushing it like this is going to monetize better not worse right mobile device the stream on the mobile device

targeting on mobile devices you know and so if you had a decade of search you had to understand all search all the companies that

benefited from being in the underbelly of search the yelps and trip advisors by 2012 they had to be in your too hard bucket right right because their principle they

had it too easy they acquired customers millions of customers effectively for free and they monetized them out the back door well the free game was over right right it's famously hard to start an ota

these days because what you're going to compete against expedia bidding on the traffic from google good luck right you know then we started looking at who are going to be the beneficiaries of the switch to mobile so that was an architectural change and

i think if you connected the dots you probably you know you had some things go your way who are the winners who are the losers software was similarly situated and so you know we had been investing in

software in and around software for a long time but it really started getting interesting about that period of time because if you believed do you mean like b2b sas when you say software like what specifically is interesting to you

today yeah or as you were starting to develop this thesis well i mean if you just look at you said there's a trillion dollar enterprise market trillion dollars of annual enterprise spend spend and it's all going to shift right so like

in investing a you need these market dislocations you need things changing right to create these opportunities for new entrants um but then the second thing was you know

you asked the question was it obvious or whatever in 2012 2013 i mean when david cheria took over you know [ __ ] i mean it was famously hard for him to get that last private round of financing done at

a billion dollars and you know it had taken longer it was moving slower but we looked at the product pipeline and we understood what the company was doing and it takes a long time for those companies to spin up

but when those developer communities get going they're incredibly sticky you know as buffett has said the best investments you have to be non-consensus and right

the problem is being non-consensus is most often wrong yeah right right consensus is consensus for a reason and there's a zillion things in your life telling you

you should be uncomfortable or in pain when you're doing something non-consensus because you got all these smart people telling you you're wrong correct and if you're a founder of an investment firm those are

oftentimes career ending decisions right and so you know think about this this is kind of fun one and we're doing something that's somewhat orthogonal uh to what the other

folks are doing you know i won't mention the firm but probably one of the best-known firms silicon valley who passed on that round in snowflake you know the partner said to me like i wouldn't do it and here's why um and we

ended up we ended up doing it and by the way his argument was a good one like it was pretty compelling at the time one of the things we did in that story was

over christmas that year we actually we were aggregating a lot of data for our own hedge fund right so we were crawling pages building like we had a data fine web warehouse right and we punted you know kevin

who's my partner and was you know kind of a young analyst at the time computer scientist out of mit said how about if over christmas i'll replace our data warehouse with this you know with

snowflake which was non-ga at the time right it was in beta with a couple companies wow and so we did that and he's like this is going to win like this is the winning arc it's good stuff this is good stuff yeah but

he also wrote a bug report right of like the ten bugs he found and he sent this bug bashing report to the founders to ben wanted this is in the dictionary under how to win a deal yeah

and let's just say they said no other investor has done that certainly no hedge fund yeah exactly just to contextualize this for listeners because i know people think like oh ben and david they have like great investors on the show and i'm sure they get into like

you know they have some great investments just to throw out some numbers i think that round you mentioned was at 175 million valuation they ipo'd

somewhere around 4.4 billion dollars and it's trading in a window anybody know what their market cap is ish today

100ish billion i think 100ish billion so the cool thing about what you're doing is you can hold for a long time including when these things become public companies i'll just say it so it's

coming for me i think snowflake is still over half or as at the end of last quarter was still over half of altimeter's public position it is unbelievable both from a returns

perspective but from a conviction perspective to stick with founders with that sort of founder mentality and this longevity this long i mean i think that's the unique thing about this

kind of capital platform yeah so i'll say a couple things one is you know it was an extraordinary investment but it's also just an extraordinary partnership right

his founding ceo mike spicer bob muglia frank slootman mike scarpelli i mean these are deep relationships that become really

important friends you work really hard through a lot of tough issues and when it's all said and done the incremental dollar doesn't isn't going to change the answer but working side by

side and building something that like you're extraordinarily proud of it's what motivates me what i would say about that investment is for our venture investors i don't know what it was at the peak but

you know i talked about two different pools of capital on the venture side those are 10-year funds so last year we distributed extraordinary returning a game-changing

return for a lot of our partners but at the same time on the public side and personally you know we think this is going to be a multi-year compounder i think this company can be worth over 500

billion dollars over the course of the next five to seven years i think it will be extraordinary and we have one of the best management teams in the business going against one of the biggest tams in the business and

delivering a really beloved service and so it's kind of a tragedy if you can't continue to participate in that but you have to match right like that's not the bet that my

uh the folks who invested in my venture capital firm made that i'm going to hold this forever right and so you want to make sure that you match and you align the

interest of the lps in the product that they're buying with the duration and the nature of the investment that you're making and so you know listen sequoia's innovated you know in a really

interesting way around this permanent fund uh in this regard we have a structure that allows us to continue to you know partner and compound and continue i think you'll see more and

more of this rewind the clock you know what i started investing in priceline when it was less than a billion dollar enterprise value right today it's upwards of 130 billion right so they went public or you could buy them in the

public markets for less than a billion yeah that would never happen today right salesforce went public at 850 million amazon i think was sub 500 million and so i wouldn't say never say never in

fact i hope that we start to see a return of earlier ipos it's great for the public i think it's great for retail investors i think it's great for

companies they need the discipline having companies running around with billions of dollars on their balance sheet and you know decacorn valuations and not the discipline of public markets

to me is not a great thing for the company for the employees for the founders it's not to say that they're that they're undisciplined but this idea that you can't innovate in the public markets

is nonsense right jeff bezos innovated plenty in the public markets facebook and the public markets you know look at what mark benioff has done in the public markets and so i think that that the

public markets not only is an important source of capital but it provides a source of discipline scarcity leads to ingenuity i hope that one of the things you know you will talk maybe a little

bit about our capital markets business but i hope one of the things that we bring back to the ipo market is that companies don't feel like they have to wait until they get to 100 million or 200 million or 500 million of revenue in

order to go public right i mean just look at the crypto market if you want to know the appetite of the investing public to invest in speculative assets right and we used to allow

retail investors and others like myself to put myself through business school investing in cmgi right before you know while it was still venture risk in terms of its orientation

but we've largely deprived the public markets of that today and we may say that that makes it safer but it also means that you're not going to see those 100x investments so if you're

if you have a pool of capital if you're an lp or you're a gp and you want to think about this bite dance we invested in at 10 billion

dollars okay today it's marked you know somewhere between 350 billion and 500 billion depending on which crossover fund you

know you look at imagine that over 300 billion dollars of value creation right that goes to the sequoias the altimeters the gas etc of the world and

no retail investor has access to that like it's not fair that's not a level playing field we don't like that that's not a great outcome for folks it's not to say that we should force

companies to go public earlier but we should reduce the friction give them access to the capital markets and give retail investors the opportunity to participate in the upside

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i want to get your opinion on an interim moment back back to that first fund in the 2013 2014 feel free to argue with me but you said in fundraising i'm not

competing with sequoia i'm not competing with excel and the like and you weren't they that snowflake round that manga around those farms weren't leading those rounds

in the intervening years now of course they are and they're doing it in their own companies and that part of is contributing to stay private longer and all this how did you think about those

years and like you're you know you you know that first fund that's amazing right and then you saw of course you knew you had the the public guys the go-to's and the tigers and the like but

then you saw the venture guys also coming into this space how did you view the market at that does that happen i mean listen what's happening is this happens in all markets

right the venture market is maturing i might argue the venture market has over earned for many years right and so the market's going to become more efficient it's going to be more

competition with more competition that means founders are going to have better access to capital they're going to have more efficient markets so it means they're going to be you know presumably get a better price less dilution for the

work that they do which presumably is an incentive to invent more [ __ ] that's going to make the world a better place so like i'm down with being part of the competition that makes venture more

efficient listen i wasn't invited into the venture party right there was a club out here on on sandhill road and you know but this club respects

meritocracy we come out here we work really hard and we add value to the companies and if you do that over a long period of time right then then i think you're going to be you know have a shot

at being part of this ecosystem we collaborate as much as we compete okay and when we compete we're going to go at it we're going to lay out why we think we're the best partner for the company but we're also going to

collaborate i know that what we're collectively doing makes america the best place on the planet to start a company right there there's no vibrancy i mean we talked to a bunch of your founders and preparation

and they were like oh it's wonderful like this is this is great this is like the best thing and so i got you know rewind to my dad's story like what if what if a venture capitalist had handed my dad 5 million

bucks right he wouldn't have lost the house right we like that's who we should encourage the risk takers the bold ones the ones who get into the arena and so i

think it's an incredible honor to be able to do that but at the same time i don't think i'm entitled to be able to run the table on the crossover business model everybody is going to compete for these different

rounds my job just like any other founder entrepreneur's job is to build the best product like what what is it that we do different for entrepreneurs than these

other partners might do right or how do we fit into this system actually let's let's not make that rhetorical what is it that you do different than other right and so i would say with a you know with total respect to all those others

first i don't want to compete in that first round of institutional capital you know why because cheating at benchmark and mike spiezer at sutter hill or you know the

folks at sequoia or the or the folks that they do an incredible job i mean i started at gc right like i i've been a day one founder i know what that first two to three

years of gestation looks like and those firms why does andreessen have 300 plus people because they really have built the infrastructure to help those early you know entrepreneurs win same with

benchmark they're extraordinary i mean and that's right it makes sense you say but that is a contrarian view today well i would say like listen the jury's out you know

tiger did i don't know 70 or 80 series a's and you know in seeds in series a in the back half of last year i have again actually like schleifer and

chase are great friends lots of respect for those guys ultimately entrepreneurs get to make the choice right and the story will be told down the line

right are the entrepreneurs that take money from roll off or from chaitin or from eric visry or from you know from mike spies or ultimately do they have a higher hit

rate in terms of building successful and big outcomes than companies that take money from folks who raise their hand say we're probably not going to be as value-add right this is this is more a new we're more just a

source of capital i think that tiger's building an extraordinary business i just maybe i'm of the minority belief that early stage venture those first two

to three years is craft building and we like to partner with founders who are wise enough to put around that early board table people who have been through the trenches and so that increases our

probability of success and reduces you know we think the risk inherent and so we come in and partner then at that stage so you ask like what is it that we do the special

i think that altimeter has a founder's mentality we have the empathy of an early stage founder or or venture capitalist but we have the scalability of capital so some

people i've heard say hey they bring the best of you know tiger but also the best of of sequoia if we ever get that compliment and i think about our nps among founders all the time right that's

the highest compliment that's what i want to do we want to increase their probability of success and when we start moving in that direction we want them to know that we're side by side with them on the

important issues they face recruiting a cfo building their board getting the company public helping them raise capital and that we'll be first in line to write the check you're a reasonably

concentrated portfolio so it's kind of like the benchmark mantra but applied to later stage and that discernment ends up accruing value to companies because you

have such a deep pool of capital so like take a modern treasury for example it does show up as value to them in the way that they can communicate to their customers like yeah we're only a four-year-old

startup but look we're with altimeter and you know it doesn't mean that the capital in your fund is on their balance sheet but because you do have a reasonably

concentrated portfolio that brand power actually can accrue to the company in a way that shows up to their customers a couple things first i would say that the the level of concentration on portfolios

i think it's pretty consistent with the history of venture right like the reality is if you don't have deals in your fund that on their own can return the fund then you're probably overly diversified if you're overly diversified

you're going to provide vintage returns which you know i'll just leave my money in the public markets right if all i'm going to do is invest in you know the top 10 15 percent of venture is going to

take 80 to 90 of the returns okay so yes i am in the business of finding the best companies in the world and helping them succeed i'm not in the business of taking the average of vintages and

building a big fund around that that's a different game that's an asset gathering game and it's not a game i find particularly fun not to mention it's never been a great idea for

more than one vintage to just be the median of all venture investing that's not something you want to index right you know listen i think it depends what you're what you're promising your lps right i'm the largest lp in our hedge

fund i'm the largest lp in our venture funds right i'm only going to put my money into venture if i think i'm going to earn a superior return to having my money in in a liquid security right if i

didn't think i could beat the return on snowflake over the course next decade put all my money in snowflake and go surf with my kids right but i actually think there's like a noble service being provided i think we

can deliver like radically superior returns and so i would say it's not the concentration right that leads to that value add for those investors it's because at modern treasury we help

dimitri you know bring other investors to the table we help him bring the ceos of big banks to the table we help them with recruiting we're there during the high leverage moments in a company's

history that can really help uh you know add fuel to the fire so you had mentioned earlier but talk to us about the capital markets business because that feels like something that like again i pharmacy if i'm a demetrius modern church like

that's something that you know even as the early stage guys are adding later stage operations like that you can really bring in a way and have for

roblox for plaid for so many you know others how did that start and what is that business well i think it's it you know so i'm i'm talking to a you know

well-known venture capital firms lp meeting tonight about capital markets what's going on in the public markets what does it mean for you know their venture portfolio etc that's just fundamentally different

right and i'm an ipo lawyer spent 20 years in the public markets we've worked on you know participated in over 100 ipos right when the equity syndicate desk at

goldman sachs and morgan stanley need to sell an ipo they call us right they call long onlys and so we've been in and around that market for a long time bill gurley and rich barton and i going

back 20 years um were fascinated with how inefficient that market was with mispricings in that market with you know uh

quest we're innovating with you know the modified dutch auction around the google ipo i mean lots of fascinating stuff so if you're just like if you're a student of this game and you're an ipo lawyer like i was like you pay attention to it

i helped bill put on the direct list conference a couple years ago which you know we've seen a lot of of progress on again just giving choice to entrepreneurs at the end of the day

great if there's competition for the bank ipo the bank ipo will be better and now there is right the direct list is an alternative for some companies a better fit for some companies and the reason

spax were interesting to me is if you really just close your eyes it's just a third door into the public market and we go help you build a book we help you price the security we help you sell it

to capital group and fidelity and t row all three of these things are the exact same exercise you're selling ten percent of your company you hope to sell it to great public market investors and you hope with the least amount of pain and

distraction to step into the public markets right and so i think this innovation in the public markets is a you know a terrific thing for founders it's fun to be a part of but last year

we participated we anchored direct lists like roblox we anchored ipos like confluent we anchored our own ipo like grab uh by way i saw your website yeah you

don't call it a spec you call it the altimeter yeah altimeter ipo i mean part of what we're trying to do is we're trying to demystify the transition to the public markets for

ceos and boards because frankly i've done it over a hundred times but most founders will do it one time in their life right and they just don't want to mess it up like at that point it's their baby

but the standard right and and again you know i think goldman and morgan stanley is maybe where my friend bill gurley and i have slightly different religions on this at the end of the day this is

really about pricing and if we price these things efficiently in any three of these doors then they can be great outcomes for the company and if you have a bad sponsor if you

have a bad bank and an ipo and it goes poorly then like that's a busted process yeah right if you have a bad sponsor and a spac you know and you shouldn't be public that's just a busted process if

you try to take a company you know try to direct list a company and you you have a reference pricing round that's too high for where the business is it's going to be a busted process so we spent a lot of time i hired chris conforti out

of goldman he ran to the equity syndicate desk at goldman so he was the one selling all the ipos for goldman for a really long time what we said we want to do is just as a

value-add for all the private companies that we talk to that we look at is to really be able to give them the inside scoop right like we're not a bank but we'll

tell you all the dirty secrets right about a traditional ipo a direct list or a spac you can't have credibility telling those secrets unless you've lived them which we have in each of

those doors and now we can offer what i think is the best insights to these founders and we have no economic finger in the scale because i

can partner with you if you want to do traditional ipo great we can anchor it or just participate direct list we can anchor it or participate you know you want to go you want to partner with us and we'll build the book for you great

we'll do a spec and there are different prototypes right different archetypes for which each of those fit um and i think among the folks who are doing this we're probably you know might be first

among equals in terms of our insights into how to get public that's the old mongerism right you show me the incentive and i'll show you the outcome and in this case you coming from the perspective of

hey you realize when the banks are trying to sell an ipo they come to me to buy the ipo so having sat on that side of the table and not yet having an incentive i can talk to you about how

this would get marketed to me so you at least have that transparency and then i can tell you how i want to plan that process and you can give me feedback and tell me where i belong in your process yeah yeah i i think listen

i see it banks are getting more efficient the direct list pro like the the competition is leading to more choice and better outcomes free market's a great thing

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acquiring employees can we take this up with our bosses let's get to work on that okay so as we move into the kind of the analysis section here there are two

we of course want to do grading and ask you to paint you know the what is your you know when you go to bed at night and you dream your your best dreams of an a plus scenario for altimeter in

three to five years versus you know a c minus of like we survived but yeah we missed some stuff we'll get to that maybe first if you have thoughts on kind of like a

bull versus bear case on the life cycle investor model yeah and that probably leads into grading what are the risks to like what you

have pioneered and are doing like yeah well listen i think that i certainly i appreciate the credit as a pioneer i don't think of myself as a pioneer like i said in many ways it's back to the

future right warren buffett was my hero he if you asked him why do you do private investments he just say i do great investments right he doesn't like it's not private versus public in many ways it's the lp community who want to

put people in buckets right and so i think in order to generate alpha and above average returns in probably the most competitive market in the world okay you have to be extremely passionate

right there there are big sacrifices and trade-offs to be great in this business and for me if you said brad you can only do public market investing that wouldn't scratch my edge if you said you can only do venture investing that wouldn't

scratch my edge and so for me it starts from the premise like what do i want to do what can i be most passionate doing and the reason i think we attract some of the best analysts in the world is because most analysts don't want to

leave their you know thinking cap at the ipo door right they're like i spent all this time on this company and now you're telling me i can't make any more money on it i can't bet on it i can't invest in it

like what's that about i think that the maturation of the venture growth business model is here to stay we saw it in lbo we saw it in private equity that was a highly

fragmented industry you now have a handful of global platforms right that are prosecuting that strategy inventure highly fragmented industry we're still

in the the middle of a lot of creative destruction you got solo gps attacking you know venerable early stage firms you got a lot of firms that are vertically

integrating upwards you got hedge funds who all say this venture capital stuff is easy i'm gonna go do it you know at the end of the day what i love about this business is there's a scoreboard

right in the hedge fund it's a painful scoreboard right it's like every day and in the venture business there's a lag but at the end of the day your reputation among founders i say

two-sided marketplace right what's my nps score among founders and what's my nps score among funders the people who entrust me with their capital and i get up every day thinking

about how do we build the best product for both of those folks because if we do and we deliver the returns then we have a great business that i actually think is serving you know a really important

part of the of the capital process it's really interesting the analogy to hey totally agree uh but the analogy to the lbo

business and market you're absolutely right i mean i remember coming to be an investment banking analyst as you were starting altimeter in those same days and uh the lbo market was vastly more

fragmented than it is now and it has consolidated around like some some major and they're niche players and there's lots of strategies that can work but yeah we are i hadn't quite thought about it we are sorry i think they're seeing the same thing in venture right and you

if you think about what's happening in the private equity lbo world right you have some global now public platforms their cost of capital goes down and we've seen a compression in terms of

returns right because the market got more efficient and as the market got more efficient returns went down like what do i expect that you know will happen over the full arc of time and venture right we're going to compete

away returns we've already witnessed it over the course of the last couple years right but that just means the returns that go to the premium players the players who

truly see the best stuff that truly convert the best stuff are going to be even more unique and the average return is going to be a a much worse place to be for both lps uh as well for the

people prosecuting those strategies so yeah to me and for the founders who are backed by those terms right too i mean because there is a as we've been saying talk often on this show there is a a brand transfer

and halo effect that happens in the venture markets for sure the signaling effect is is profoundly important and i think i think probably underestimated which is amazing considering how high it's

estimated i'm with you but right right and and i think when you have the best partners not even even the best funds it's the best partners at the best funds

who do things together repeatedly it's because there's a shorthand around trust there's a shorthand around business building right the increase is the probability of successful outcomes and

the signaling of the impact of that like i underestimate it as a founder i don't underestimate it now and so it's not to say that folks who take you know who bootstrap

take solo gp you know take passive capital it's not to say they can't build big businesses right but i don't think that that makes it easier for them right at the end of

the day like i think you know i said go public earlier because having that discipline and that scarcity right having some great early business builders that see those different patterns they create the

conditions that i also think drive success well and what's different now is you can go public early and you still have altimeter or benchmark or sequoia or whoever has your shareholders it's like

it's not like you have to check your hat at the door sure i think we're in the early phases of industrialization you know five years so how do i score myself our returns for our partners

right like we got to deliver excellent returns for our partners i say to my team is our nps score with founders higher or lower at the end of the year right that is really important to me

right that's the durability of the brand that's the love for the brand you know lots of software companies can increase revenue selling a shitty product with a aggressive sales force

but ultimately that will not be a really valuable software company right you show me a software company where the product is flying off the shelves because the people on the other end really need and want the product and love the product

right that company even has lower revenue deserves a much higher multiple i think the same is true um when i think about our business and what we intend to deliver and you know i guess this is a

segue as well to a bigger issue you know which is what is this all about we are all part of one of the most fortunate systems at one of the most fortunate times right in the history of modern

capitalism and i intend to use this platform to do things that matter right and i think founders care about that and i think funders care about that because

at the end of the day you know helping some you know hedge fund guy make a little bit more money or some venture capitalist make a little bit more money it's not what gets me up in the morning so i do think that

the very essence of what we do right which is increasing the velocity of innovation right allowing moderna to build an mrna technology that can you

know help solve a pandemic right to transform the way software works so that you know that is the infrastructure that powers all discovery right like those things i think are

intrinsically good um but increasingly what i see is people who are using these platforms to drive diversity right to use these platforms to to tackle things like the wealth divide which you know i

care about with with the invest america initiative that i've talked about so the people who work here right i think if you went if you did a survey they would say you know i work there because

you know great brand fun love doing venture love doing public but we also care about like the impact of what we do and i'm lucky to be able to lead that i really want to talk to you about invest

america because i think it's a fascinating concept and you you mentioned we we chatted about it when we were sort of preparing for this what is the idea there so rewind the clock

i was definitely on the outside looking in right i was not part of the ownership society you know i didn't know what stocks were and but you know all else being equal you

know i never really felt deprived the industrial revolution in many ways was a great equalizer right my grandfather was a welder he worked on the manhattan project he was a brilliant guy

self-educated read textbooks but he could earn a wage and save that allowed him to leave 25 000 bucks for a grandkid who would go on to put himself through law school and business school

the technology revolution will have even more positive impact on humanity but it naturally tends toward concentration right it is not an equalizer in terms of

you know wealth so far as i can see and the data i think you know works doesn't seem to have played out that right because if think about it it's logical right mark zuckerberg can have three or four billion customers for his product

even carnegie and rockefeller couldn't have billions software and then the internet on top of that kind of compounds that advantage and so you know to me you know the social contract that we're

going to have to have is going to have to evolve right and i think this country is better positioned to evolve that social contract than just about anyone but part of it is first just making people feel

right that they're part of the game and you know the start of kovid really drove this home for me because we had massive government intervention i went

on cnbc on march 26th the bottom um i remember watching it i wish i knew that was going to be the bottom yeah it was it was like an extraordinary day but at the end of that day i had i literally had

grandmothers fathers doctors lawyers just email our website generic emails saying will you protect me will you take my money what do you do

wow right there's just extraordinary fear in the world and i'm from indiana most of my friends didn't go to college you know in this small town and what happened when the government intervened is the stock

markets ripped okay because the fed went all in congress went all in but a lot of those my friends working in those rv manufacturing plans were unemployed right lost their jobs

and so we can't have a system where the owners win right because of the government intervening but we only have 30 percent of people who belong to the ownership society and

that's the public stock market that's not even like accredited investors which is this tiny slice you're talking about earlier yeah small percentage of america that owns any equities right so i a very

simple idea that i floated chamath and i were on cnbc i'd been thinking about it for a long time i i've abhorred the accredited investor laws for as long as i can remember because as a securities

lawyer you know i remember studying securities law in law school and saying to myself hold on you mean to tell me that we've rigged the game so only rich people

can invest in the best companies they have to be protected brad right and so like what what what's this all about because the proxy for intelligence was money right

jason calacanis has talked about having an investor test but i knew i knew loves that investor test idea like i've seen dumber ideas i think john

does something i appreciate that on principle he has the same you know allergic reaction and maybe it's because he also grew up poor on the outside looking in and for those

of us who did right you know now that we're on the other side we say we got to fix that right and so set aside a credit investor there's some ways we can attack that but

one way we get everybody into the game okay we have i think seven million children born a year in the united states if you gave every single one of them an invest america account so think of that

as a robin hood account on their parents phone that would eventually be on their phone and that just shows up from the government shows up from the government you get your social security number you get an invest america account we fund the account based on means if your

parents make over 200 000 a year maybe we put 100 bucks into the account your parents can fund it up to 5 000 so it's like a fafsa type right if you're under a certain threshold we

put five thousand bucks in it okay can't take the money out compounds at six seven percent for you know 50 years it's worth a million bucks okay

but much more importantly the behavioral psychology the behavioral economist knows the propensity of somebody who actually has a savings account an investment account to save

goes up dramatically okay so because you actually have a little snowball you understand the law of compounding right so if we want to educate and

include and make everybody feel like the system isn't rigged against them then they actually have to be part of the game right we have a way to do this it doesn't cost a lot of money right in the

in the scheme of things like this is less than 20 billion dollars a year for the federal government this is a drop in the bucket relative to trillion dollar stimulus plans you know trillion dollars

of defense spending and this is a game changer psychologically and otherwise for everybody in the system because now over a period of 20 years you've effectively

gone from 30 of the people being owners to a hundred percent of the people being owners and i think that that's you know again i'm sure there are other great ideas do you think but that's one thing i really believe do you think it should be a

discretionary account and people should be able to like uh like an ira or or so again like you know what i intend to do when you're running for governor of

indiana what i intend to do is to fund people right to push this idea forward okay there will be a lot of debate we've

debated baby bonds for 30 years and we've never done anything a bond is so far as i can tell right is spiritually connected but it's stuck in the old legacy of like

the war bond like it's safer therefore will give you a bond but it doesn't appreciate yup and the recipient doesn't learn much right and so hopefully we can harness

the energy the power the lessons of that and make sure that every child in this country owns their tiny little slice of apple of walmart

of tesla of the future spacex right and i think if they do think of how elegant that robin hood app is or your schwab or your fidelity app you open it up and

they see all of these names their tiny little ownership of all of these names and they see that grow over time we know how often they'll be looking at those phones we know how their parents will

feel what i would say is they can't take the money out right until a long way down the line okay that ensures a retirement program for

basically everybody but you can add we could build adjacent accounts right you could stick a 529 side by side with that that they could pull out at college i don't like the idea of a government

program well we'll give you a little of this every year right give me title and ownership right to something this is mine and then let me benefit from american innovation compound and benefit and be part of the

system so that when you know i have a i have two sons in fifth and seventh grade right they're both interested in investing they both want robinhood accounts they both want all this now

asking for the robin hood account is the new i want my driver's license but think about how privileged right that position is right we should have a standard curriculum in this country for sixth

graders where it starts they walk into their math class or whatever the class is and they say open your invest america account everybody's on the same page

you teach sixth graders in an inner city school today about stocks you may as well be teaching them mandarin they're not participants in the game

right and so to me you know i talked to seth clarkman from balpost he said i'll write the curriculum right i think you know i talked to david solomon at goldman the folks at schwab

fidelity everybody sees this as a challenge this is a simple simple idea that we could get behind and literally in a single term

could change over a period of a decade the trajectory of every child born in this country well what's kind of cool is like you've i think you've basically already seen

evidence that this works with robin hood you know robin hood is not uh people still had to have the means to put money into robin hood and then decide to do it

but it activated so many people to become investors in america and around the world over the last couple years that otherwise you know and and some of those people will prove to not be good

investors some of them will prove to be amazing investments and some of this listen i mean part of the challenge here is everybody says oh you're letting people invest in the stock market what if it goes down so here's the deal

we have 100 years of history right owning your slice of america is a good bet as warren buffett likes to say okay so i don't know if it's going to go down in the first year or up in the first year

and it doesn't particularly matter to me i know if you give these kids a slice of america over a period of 40 or 50 years it's going to be worth a hell of a lot more in the future than it is when they

get it but way more important is every day of their lives they will feel like they belong to the system they're not on the outside looking in and the power of that psychologically to

that child will dwarf the amount of money that's in that account brad before we wrap here anything that you want to point listeners towards or where could they find out more about

you or ultimate or on the internet yeah i would say follow me at altcap on twitter i encourage all of our analysts to be on twitter i think they're incredible

brains and thought leaders and you know being online and sharing content like i don't like to be a cheerleader on twitter but i do like and encourage our analysts

to pressure test their ideas right whether it's you know jamming talking about what's going on and you know in software or whether it's vivec talking about what's going on in you know

internet marketplaces or crypto or frida talking about what's going on in china and so i think i always say to people if they're interested learn more about altimeter just follow this incredible group of analysts on

twitter but all of this said we're truly lucky you know to be doing what we do you guys are doing this incredible podcast about founders and entrepreneurs this is a rather new experiment in the history of

the world and i think it's yielded you read the bill gates annual letter at the end of every year and you know we live in the most peaceful notwithstanding ukraine we live in the most prosperous we live in the

healthiest period of time in the history of humanity and you know one of the things that scares me is you know that people during periods like this they'll turn against capitalism or their turn against

you know technology or the tournaments whatever but it's very clear to me like i'm going to fight for that and fight for those founders and i think when we look back at this system in 10 years it's going to be more

vibrant more capital more access more ideas and i think the secular curve around creative destruction and innovation has never been steeper and the ideas over the course of the next 10

years are going to dwarf the size of the ideas that emerged over the last 10 so super optimistic and in a way ukraine i think has for me at least helped uh remind me of that ben and i were talking at dinner

last night like you know the old saying that i think uh has become forgotten a little bit in recent years is that capitalism is terrible is the most terrible system except for every other system that has been tried

in the history of humankind about democracy but it definitely applies to capitalism too right well i don't think it's the only thing right i don't think it's the only thing in life but i think it's an enabler for

everything you know somebody reminded me the other day julian robertson after you know an incredible track record in 1999 obviously got hit hard money redeemed and they said you know are you

bummed to no longer be in the public markets uh and he was the founder of tiger man tiger and apparently he's reported to have said you know i didn't want to die looking at a quote on my bloomberg for

the yen anyway so you know yes in this firm and in my life my friends my family my kids there are a lot of things you know that resonate you

know as as more important but i am a staunch defender of you know this beautiful system i tell you it's a hell of a lot better than having to mortgage your house you think about the

velocity of money if the risk you run if you start that you know auto parts company is you lose you you know you you lose your health and you lose your house there's not going to be a lot of risk taking and risk taking is the engine

that moves humanity forward business creation and experiments without personal guarantees are an incredible thing and it's amazing that we have a system that actually allocates a a big

slice of capital to go toward that but think about that that's a modern experiment i don't know modern capitalism's been around for 5 600 years like that's a 30 year old experiment but you think about the impact that global

sovereigns who are trying to effectively take fossil fuel dollars and turn them into technology dollars we have more dollars moving into this you know you mentioned we have very few

people who have access okay to the private markets i i heard this statistic the other day you know endowments and others have reaped the benefit which makes me happy but

retail investors and the average investing public has not a one percent increase in penetration of the retail investing public two alternatives i heard is a trillion dollars like i

haven't run the math myself but it's an extraordinary number and if you look at the retail channel the accredited investor retail channel through goldman through morgan stanley

through these other aggregators as a percentage of the fundraise for tiger 4 co2 for altimeter it's going up dramatically relative to traditional lps and so

we'll do another episode and we'll talk about how we're going to unshackle ourselves from the accredited investor rules would you ever consider a future for altimeter where your

lp capital is more directly from people for sure for sure i mean like you know our aspiration is not to be the biggest but our aspiration is to

uh have the scale to have the level of impact that we can to drive the highest mps among founders and funders like we want to deliver for both of those uh folks in that network and i think

it's inevitable that an increasing percentage of these dollars can and will and should come from willing retail investors who

want exposure to this incredible asset class all right listeners hope you enjoyed our interview with brad he is uh he's unbelievable i mean what a journey

the last 20 years have been for him building altimeter and really helping to shape this industry totally and personally i'm pretty excited about

his sort of idea with invest america and we'll definitely be watching to see where that goes totally totally well listeners to round us out you know the drill join us in the slack

acquire.fm

acquire.fm slack we're going to be talking about this episode and everything else we've got the limited partner show where uh recently we've had awesome episodes

with the folks from ncs capital coming back to talk about the state of the markets david christina milos curiazzi joined us to talk about fintech we've recorded two more episodes that we

haven't dropped yet to the general public that are rolling out to paid acquired limited subscribers and those folks can join at acquire.fm slash lp to

get two weeks early access we've got a job board and some really great stuff on there i just added a couple like the other day from vanta after we got to spend time with them at their office met their head of engineering spent some

time with the team so really cool companies go check those out and uh lastly if you enjoyed this episode share it with a friend you don't need to shout

super loud from social media hilltops we like that high affinity one-to-one stuff so uh share it with a friend think of someone that has kind of talked about some of these concepts with you and see

if they'll uh take a listen and and they might enjoy it just as much indeed with that thank you so much to vanta vouch and our friends at softbank latin

america fund and listeners we will see you next time we'll see you next time who got the truth is it you is it you is it you who got

the truth now huh [Music]