#277: Arjun Sethi on Data-Informed Investing

Arjun Sethi is a Co-founder and Partner at Tribe Capital. He previously built multiple successful companies with 9 figure exits. In this conversation, we discuss market timing for product-market fit, the cyclical nature of growth tactics, slow vs fast money, N-of-1 companies, and Tribe's view on cryptocurrency. =============================== Crypto.com is the only all-in-one platform that allows you to BUY / SELL / STORE / EARN / LOAN / INVEST crypto all from one place. Join over 1 million users currently using the Crypto.com app. Download and earn $50 USD using my code ‘pomp2020’, or use the link http://platinum.crypto.com/r/pomp2020 when you sign up for one of their metal cards today. =============================== Blockset by BRD is your hosted blockchain infrastructure. Blockset enables enterprises and developers around the globe to deliver high-quality blockchain-based applications in a fraction of the time, at a fraction of the cost. Using the services provided by Blockset, businesses can build professional custody solutions, accurate and near real-time portfolio management solutions, auditing platforms, commercial block explorers, and much more: blockset.com ===============================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Arjun Sethi is the co-founder and partner at Tribe Capital. He previously built multiple successful companies with nine-figure exits as well. In this conversation, we discuss market timing for product-market fit, the cyclical nature of growth tactics, slow versus fast money, N of one companies, and Tribe's view on cryptocurrency. I really enjoyed this conversation with Arjun, and he didn't disappoint. Before we get into the episode, I want to talk about the two sponsors for today. The first is Crypto.com. They're a pioneering

• 0:44Anthony Pompliano?

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• 1:27Anthony Pompliano?

  the major chains through a single, easy-to-use API. It acts as your hosted blockchain infrastructure, and it ultimately enables high-quality apps to be built at a fraction of the cost, in a fraction of the time. Go sign up for a free developer account at blockset.com and start building today. They were built by BRD, Bread, one of the first wallets in the app store in 2014, and one of the largest in the space today. They've taken everything that they've learned over the past six years to create Blockset, a robust, reliable, and strategic B2B offering for developers and enterprises. Thanks to them, you can now build at light speed using their unified API, that is, data from all the major chains. Go check it out at blockset.com. Again, blockset.com. Alright, let's get into this episode with Arjun. I really enjoyed it, and I hope you do as well.

• 2:12Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pom or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pom as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 2:41Anthony Pompliano?

  All right, guys. Bang, bang. I've got Arjun here. Thanks so much for doing this, man.

• 2:46Speaker 02

  Thanks for having me. Appreciate it.

• 2:48Anthony Pompliano?

  For sure. Let's just jump right into your background. You are one of the rare folks who's actually built a successful business, exited, worked at a large corporation, and now spends time investing. So kind of just walk us through your background.

• 3:02Speaker 02

  Yeah, so I actually grew up in the valley. So my dad had been in the startup ecosystem. My mom was there as well. And so I kind of watched them literally start their companies in the garage. My dad's first company that he'd started was a company called Berkeley Networks. There was just a ton of folks that came from Boston East Coast area. This is a, you're talking about semiconductor networking. See, the real people that built real companies at that time. They would, you know, they would literally be sleeping in the garage. Some people were in their backyard in their tents. I'm forgetting what kind of car someone had, but it was essentially like this big Volkswagen, like camper van in front of our house.

• 3:46Speaker 02

  And he would sleep in there and he would just come in and take showers. And so I kind of watched that. And to be frank, I saw that and thought to myself, why would anyone ever want to go through this much pain to start a company? And again, being a kid, in your mind, you think of starting a company as like, you know, starting a shop at a retail location. Maybe it's 7-Eleven or something like that. And so I never really like grasped, growing up, what it really meant to start a company or what was venture scalable, what was high growth, you know, what was revolutionary versus what's disruption oriented.

• 4:30Speaker 02

  And so I actually, and I think we kind of share this, I actually had enlisted for the Army in 99.

• 4:40Speaker 02

  And so I went, I went through basic, got out and you know, they take, they gave you a series of tests to see, essentially they're testing your IQ level around what are the types of things you can do. And so I never went into any sort of standard MOS. I actually went straight to Department of Defense and I started contracting with them. Before I was deployed out with folks in the army between 99 and 03. And during that timeframe, I, I, I think what I, I started learning was that there are so many unwritten rules to the rules and there's just so, you can push the boundary as much as possible, but just learning what's available, what's not.

• 5:20Speaker 02

  So I started taking classes. I went to community college at the same time. There's something at the time called Community College at the Air Force. I don't know if you remember that. Cause the army didn't provide it and the different military stipulations. And so then I eventually just transferred to University of Maryland. At College Park, taught a little bit of ROTC there as well. And then just, you know, studied math and history. Never finished math. I only finished history. And then the startup ecosystem was actually starting to get hotter and hotter. In California where I grew up. So I came back and started a bunch of companies and

• 6:00Speaker 02

  while I appreciated that you said, hey, I had a successful company. I had maybe 10 or 11. You know, starts that didn't work. They all failed and they're not on my LinkedIn. I don't want to talk about them because they're embarrassing. But I, I tried everything, you know, photo, photo sharing to micro payments to, you know, payments and wallets. This is, this is pre iPhone. This is during J2ME and Brew and you're trying to figure out how to use the phone. So timing was off, obviously by, you know, 10 to 15 years, but that was my background. And then eventually.

• 6:37Speaker 02

  You know, I started a social gaming company out of my time from Facebook on the Facebook platform. It was a company called LOL Apps. We scaled very quickly. I would say we had a lot of tailwinds and luck on our side. And, you know, we went to zero to 100 million in monthly active uniques, zero to 100 million revenue at some point. But it was never a straight line. It kept going up and down. Because our game would scale and then it wouldn't. And then we'd get another game and that wouldn't. And so, a lot of what we tried to do was get enough games to build distribution. Once we had distribution, we started distributing other people's products. We became our own platform. And not just here in the United States on Facebook, but we eventually moved to mobile.

• 7:22Speaker 02

  We started publishing games from Asia, here in the United States, and back into Asia in different markets. And eventually, we were acquired by Nexon in 2011. So for about quarter of a billion. And that was alongside a merger with a company called Six Wave. So, we all kind of came together and we were their outfit to publish games on mobile. And so, that was, you know, that was a wild ride because we were taught how to scale an organization. So, we went to a couple hundred people, fired a couple hundred people, went down to 30. Scaled again to a couple thousand people, fired 500, 600 people because the games had oscillated.

• 8:04Speaker 02

  And then, you had to build infrastructure from the ground up. So bottoms up. Had to think about what it meant to build data architecture, what it meant to measure your customers, what A/B testing really meant during that timeframe. Again, AWS was just coming and so we were using, you know,

• 8:27Speaker 02

  products like Softlayer, which eventually got acquired by IBM. And remember during this time, this is the first time where storage started getting cheaper. You could retrieve it faster, you could analyze on top of it. This is when data and analytics companies started emerging at a faster pace. So that was a time when... I was growing up and my companies were either succeeding or failing, but this is how you built your product and engineering teams. And so kind of fast forward from there, you know, I'd started another company called Message Me, sold that to Yahoo, was on the executive team there, scaled their whole mobile unit out to a couple billion in revenue from zero, where they went from desktop to mobile.

• 9:10Speaker 02

  And so, and we also acquired 250 companies. It's kind of a wild ride. And the only thing that helped us from our portfolio approach was using some sort of data analysis or frameworks to be able to leverage the data to make decisions in the future. And a lot of people say, they just use the word data and analytics and then, and they think all their problems are solved, but that's not true, right? It's more about what are you measuring, what are your frameworks? What's the philosophy around the data that you're collecting? And then how are you going to make decisions based off of that? And I think, you know, the companies that have done that really well have been Google during their time, Facebook probably, you know, the most prominent of them. And we're more biased there because that's our background.

• 9:54Speaker 02

  It's where a lot of our team comes from. Jonathan, my co-founder at Tribe, you know, essentially invented the data science practice at Facebook when he started there. So a lot of, you know, you have to kind of think about what does data help you do? And I started thinking about what does, what can data help us do in the private venture landscape? You saw a lot of companies and hedge funds and funds in general use, you know, third-party data sets and publicly available data sets to start thinking about how to invest in the public markets and have some sort of edge. And we've all heard that story, you know, there's a famous folks at Renaissance,

• 10:35Speaker 02

  they have their strategy, but you know, the list of folks that have been successful have been pretty long. And we, you know, we thought, okay, well, on, in the private markets, what's most important?

• 10:48Speaker 02

  And what was most important was the same work that we used to do when we built a company from the ground up from scratch, which is you have all this data. Storage is getting cheaper, retrieval of that is cheaper, and you should be able to analyze it. So what are the frameworks that you use to make good decisions? And so I eventually joined a firm called Social Capital. You know, there was three co-founders. Chamath, who's more famously known because he was at Facebook as well. And it started, you know, the growth initiatives and this type of thinking within Facebook. But he had also helped start this ecosystem of thinking, in my opinion, across the Silicon Valley ecosystem. And I had joined because Social Capital was the only firm that was thinking about leveraging

• 11:32Speaker 02

  data from companies, their primary data, to build bottoms-up view to make better decisions. And so what I really pushed for during that time was, great, we can do that. But how can we help to augment the companies that we work with? How can we make better decisions ahead of time? How can we store and query this over time so that we can get better at our decision-making? But as venture capitalists, how to augment our time of, you know, of our experiences, right? Like, I've been an entrepreneur at scale companies. Who cares? There's a certain amount of time that goes by that it's less relevant. But it only becomes relevant if I have data and context to understand how companies work and what's really happening versus, hey, I saw this company 10 years ago do this.

• 12:17Speaker 02

  Or I saw another company six months ago did this, you should do it too. Those are not really helpful. And a lot of my investors in my past used to do that. They would come into a board meeting and they would basically just, you know, reflect on other companies and what they were doing. And I remember one time there was this one investor who said, let's take a look at Living Social and Groupon. And you guys are very good at distribution. We should do the same thing. And I was like, we have a distribution retention for our games. We make money. We have profitable unit economics and we want, we need to scale that. And I think a lot of people focus on short-term metrics, short-term vanity metrics in some cases.

• 12:58Speaker 02

  And so a lot of, you know, my time and my colleagues' time have been spent around, what's the data that matters, the philosophy behind it, and how do you? Automate and build abstraction layers on top of that to make better decisions.

• 13:13Anthony Pompliano?

  Yeah, so let's go back for a second. The thing that you said in terms of you started a bunch of companies, some worked, some didn't, but timing was a big piece of this. I want to start a kind of a 10,000 foot view of just, I think a lot of entrepreneurs, especially earlier in their careers, don't understand that this may be the most important factor, right? It's just if the idea's time has come type thing. Maybe talk a little bit about through your experience, both in starting a company at the wrong time and then also starting one, you know, kind of at the right time for the Facebook platform and stuff like that.

• 13:41Speaker 02

  Yeah, so if you use the word timing, you know, it really goes back to, in my opinion, four pedestals. But people talk about product market fit. Product market fit is essentially just that it fits within a certain timeframe. And then you have a product that is working. How do you quantify that? In a market that has demand for that product, how large is that market at that time?

• 14:07Speaker 02

  And then what's the team behind it that substantiates those two aspects? And I'd say the other pedestal in our opinion that people kind of forget about is the distribution of that product into that market. And that's another piece there. I would say, you know, the, the, uh, timing really equals product, market, team, and distribution as a whole, if you want to look at it as a formulaic perspective. And the, you know, the products that I were, I was building and my colleagues were building, you can say that either the timing was off, that the market wasn't ready for it, or the product you built just wasn't working for the market that existed, right? Like, it's kind of either or.

• 14:50Speaker 02

  And I would say all of my products had a failure of one of the two at any given point when we, when we first started, right? Where, you know, the market was fairly saturated with a ton of the same types of products. So what you were building wasn't any differentiated, it was a commodity. And so we call that kind of red ocean markets, right? Where you're just building the same thing. It doesn't feel monopolistic, it doesn't feel like there's a unique value proposition, unless there's something really unique. And sometimes, unique means distribution, but a lot of companies don't have that either. But when you're starting off from scratch, you know, say zero to one, you don't have distribution. You're trying to figure out what's the wedge to get that distribution.

• 15:30Anthony Pompliano?

  And then in terms of how do you evaluate that? Right? So like I'm an entrepreneur. I want to go actually build this company. I've got this idea. How do I evaluate? Is this the right time for the product?

• 15:42Speaker 02

  Yeah, you know, what I'd say is who fucking knows? I think the part of that is that there's a certain amount of risk that you're underwriting in the beginning. You know, maybe it's a vertically integrated SaaS play into a certain type of market that's never seen software. Are they ready for not? Who knows? Maybe it's in a market that's not the United States. It's outside. So it could be energy, you know, real estate insurance. It doesn't matter. I think there's just a certain amount of risk capital that's needed and a certain amount of risk attribution of founders and teams that start with, hey, I've got this idea. I think I have this problem that I can solve. Let's just get it out there and see how the market reacts. And so I'd say there's a certain amount of risk capital for that

• 16:26Speaker 02

  and the types of people and partners that you want. There's no data at that time, right? Especially like, let's just say you and I are starting a company. It's the two of us.

• 16:35Speaker 02

  Or and maybe we get two to three people to act on top of it. What we're really doing is we're just building some sort of prototype. We're building something that has capital expenditures towards some sort of ROI. And that ROI might be nothing. Is that, hey, we just learned that this doesn't work. Or we just learned that the market doesn't exactly want our product this way. We're seeing all these demand signals to go a different direction. Let's build in that direction. And that's typically what you see for a lot of companies. It's really rare. It does happen, though, that someone says that I have this unique insight. I'm going to build this product and then I'm going to be able to sell it. What typically happens is they'll make that pitch and then they come out with the product. And then they start tweaking it for their customer,

• 17:19Speaker 02

  tweaking and tweaking and tweaking until they've honed in on it. Sometimes those companies start off as services, which is what we all know what SaaS has really turned into. And either that's top-down, mid-market, or bottoms-up. But you know, the main thing I would think through is that, you know, there's no real data in the beginning. You've got to have some sort of keen insight. And then as time goes on, and especially in today's day and age, you do have data that you're collecting on how your customers are interacting with your product. And the beauty of software products is that there's a leisure to it. There's breadcrumbs of how people use it. And that's actually where we come in, is that we have like this

• 18:02Speaker 02

  guide map of what it looks like to be a healthy company for your industry at your stage and lifecycle. And here's how you should measure yourself against that, or benchmark yourself against that. And if you could do that, then you know where you are in the quadrant or gradients of healthy to unhealthy. It's kind of like, you know, getting ready to run a marathon. Can you run it?

• 18:24Anthony Pompliano?

  Yeah, and I guess part of this whole idea of market timing is one, when are you bringing the actual product to market? But also, the growth tactics, right? You talk about the distribution. Obviously, there was a point in time where using Facebook for massive distribution and growth made a lot of sense. Maybe someone argued now it doesn't. How do you think about also the timing of the growth tactics that you're using?

• 18:47Speaker 02

  You know, you know what I find interesting is if you, I was actually reading the book from Howard Marks on mastering the market cycles. But what it really reminded me of is the cycles of distribution. That the same distribution techniques always work. It's just when do they work? And at what time do you use them? Like, if you go back in history, you know, there's people that were using, you know, the first ads for newspapers from the late 1800s and even the early 1900s to sell snake oil, right? And like vitamins and medicines, or liquors, or whatever they called it. And those tactics are the same thing.

• 19:32Speaker 02

  That people use today, it's just that you have the ability to make it work or not, right? Where the five hour energy just grew very quickly because they were on TBS at like late nights when people were tired. And so, so I think like if you have a much more longer term perspective on what distribution channels work and what don't. Now, email still works, SMS still works.

• 19:53Speaker 02

  Newspaper advertisements still work. It just depends on what your product is, who your audience segmentation is and and do you have a unique value proposition that will work? I've always kind of found it interesting that people say, hey, we have this new, unique distribution that we're going to go after. And then you can go back to and say, okay, well, over the last 50 years, like these are the people that have done it. Maybe we should just learn about how to do it better. Does your audience segmentation work there or not? I've always seen people try to use, you know, the Facebook tactics that we had used, you know, for enterprise infrastructure. Or hey, let's just buy some ads on Facebook for a top down sales model. And I always questioned them and said, well, why would you do that? That's not where your audience lies. It's not where your segmentation lies. It's not where you're going to have intent.

• 20:39Speaker 02

  What's the point? And so, you know, while we get these new channels, it's just, it's, you know, more of the same. It's just about how do you use those channels and how are you efficient with it?

• 20:50Anthony Pompliano?

  Yeah. One of the differences in the private markets and venture capital compared to the public markets. The public markets have a price associated to the asset every day it trades. There's a lot of volatility and so emotion becomes much easier to manipulate just because they're seeing something go up or down in value. Adventure Capital, you don't necessarily have the day to day price movements. But there's definitely a motion that gets involved in decision making. You guys, I think, have done a good job of just being super data driven. Maybe talk a little bit about how at Tribe, you guys are using data, how it, you know, affects the decisions you make and how you guys are using that once you make an investment to support the companies.

• 21:31Speaker 02

  Yeah, so I think there's a couple of ways to answer that question. There, you know, one is people use the word data-driven, where I'm really averse to that. Because it just means that you're just gonna go, like, you're not gonna be, you're not gonna think about what this data means in the first place. And so, we like to use the word data-informed internally. And so, we came out with this framework called the eight ball, where it was essentially, how do we quantify product market fit for any company that uses software or is enabled by technology in some way? And, you know, the, the reason we had that was, it's akin to financial accounting, right?

• 22:12Speaker 02

  If you, if you look at a statement of cash flow or balance sheet, you know, P and L, etc., these are standardized frameworks that were invented in the late 1800s to help guide you on what are the transparent things that you want to look at for a company before you dig in deeper. So, if you, if you look at a financial accounting statement, there's a very good chance that you won't be interested based on the financial, right? Like, there, you might say, no, right? Like, you're nodding your head, saying like, yeah, like, that company doesn't feel healthy to me, so I'm just gonna pass them and look on to the next thing. However, if you, if you find something that's interesting, and say, like, you know, this, the way in which this company has cash management, or efficiency, or, you know, overall, their

• 22:57Speaker 02

  overall cash flow in nature, maybe I should dig in deeper. And you start doing your work from there. Then you start thinking about demand signals, what does the overall, what does their customer base look like? What's the recurring nature of it? What does the margin structure look like? If it's lower, is there, is the market big enough? Is the volume large enough where they can get to a certain scale? You start asking these bigger questions about different industries, but then you're able to compare multiple companies to each other by using this and then dig in deeper. But, you know what? In the private markets, one of the issues has always been, how do you do that? What are the standardized frameworks that you use? Can, can you actually measure it? And financial statements don't work as well for early-stage. Mostly because those are all lagging indicators.

• 23:42Speaker 02

  So if you're investing in a seed plus or series A or series A, a lot of these companies have really de minimis revenue or revenue that's really not going to paint its picture yet. That's coming later. And so you're looking at forms of demand or engagement, which is what I call it. So you have to have standardized frameworks for that. And that's really where we've spent almost all of our time. Now you can take that and say, okay, great, you can actually do more, the more data you have, you can do more of that for even later stage companies. And we do that as well. Because investors typically kind of what I'd say regress to the mean is they just go back to the finances and say, hey, they said they're going to do this, but I don't see it reflected in the finances. Sure, but you could have said that for Facebook, Airbnb, Uber at some point,

• 24:27Speaker 02

  kind of, you know, Google at some point as well. Like you would never really understand how these businesses work unless you can look at what we call the software ledger.

• 24:35Speaker 02

  And that's understanding the demand signals for how a company works. So our framework was called the APAL. We published this, you know, about six years ago. My partner had done this. He had published this actually even while he was at Facebook. And you know, if you're coming into Facebook today as a product manager, you read this. If you are learning product market fit quantitatively, like what are the frameworks that you use at Stanford? They reflect our work. If you go to Sequoia's website, they have a section for product market fit. It links back to our work because we created a standardized framework to understand product market fit for a company at a certain lifecycle. And that's what we do really well is to just get those frameworks out for ourselves.

• 25:18Speaker 02

  And we have a ton of software to help automate that. We have a ton of software that stores all this for every company we've ever seen. So we can get better at better at not just evaluating. But giving this insights and feedback back to the company. Like if you're a founder and you're starting a company, the first question you ask everyone is like, what does it take to raise a series seed? What does it take to raise a series A? What does it take to raise a series B? What are the milestones I need to achieve? And we basically say, here are the fucking milestones that you need to achieve. And it's, uh, and here's the gradients of where you need to be. And, and here's what use of proceeds really look like and, and what people are going to gauge you on. And this is what we tell our entrepreneurs. This is where we think we can help.

• 26:00Speaker 02

  But, uh, more importantly, because it's standardized, this is where this is a standardized framework you can use to reflect back to the market as well. And so we use this as a foundation to understand where a company is at its, uh, uh, life cycle. And then what is it going to take to scale? Like what, um, you know, uh, is this going to take 20 million, 50 million, 80 million of subsidization of venture capital? Or the source of capital to get us to a certain size of scale? So what venture capital is all about, right? Which is the velocity of growth is what people are trying to invest in. I think a lot of people kind of forget that, right? Is it, is it a sublinear path? Is it super linear or is it just linear? And all companies have different, uh, uh, different stages.

• 26:42Speaker 02

  And, and at some point, I'm sure we'll talk about network effect because we both also come from that same background. But that's just as important, right? Is that you can only really think about network effect if you have a foundation to understand where a company is in its life cycle and do they have product market fit or not? You know, frankly, most products don't have product market fit. And that's what you want to know. Do you want to spend your time as a founder on something that's not working? And, and in my opinion, if I knew that earlier on, I would say, I wouldn't want to have done those 10 things. I would want to only focus on the two that started working because it had product market fit.

• 27:17Anthony Pompliano?

  Yeah, and I think part of this, what you're highlighting in terms of Sequoia and Facebook, really covering this stuff is the first part of this is it's a mindset. It's a philosophy, right? Of looking at building a business in a very scientific way, uh, measuring this stuff. And the part to me that's always been shocking is once you kind of see the light or you're Get indoctrinated to this. Then you look at user metrics, you see a whole different part of the business. Because it's not so much, hey, how many users do you have right now? You start asking differentiated questions like, what's your week over week growth? Your month over month growth, what's the retention look like? Like those more nuanced questions can tell you so much more about the business. And really what you guys have done is you've built software that can do this in a very automated, fast way. And also compare it back to other companies you see.

• 28:03Speaker 02

  Yeah, I mean, what we tell any companies that we work with and, you know, we always say, feel free to ask any of our companies. Why they wanted to work with us is a, I mean, you pretty much have the Facebook, the Uber or the Airbnb data science team as your capitalists. And, and, and, and I, and I say that not in a, in a joking ways, but that's our background. That's what we've been doing. And as individuals without software, we can only take you so far. And that's what most of the Joe Schmo's of the valley and the investors are, is that they pick someone or a, a, a collection of individuals that had some experiences qualitatively and bring them into a firm and say like, this is your guy or this is your girl.

• 28:45Speaker 02

  And she's going to help you get to where you want to, get to where you want to get to. Well, the problem with that, as you know, is that we just talked about cycles of things changing. Things change so fast, you know, the things that worked for my companies over the past 10 years are not going to necessarily reflect or work in the future. So what do you do? Well, you got to start with some sort of foundation. You got to understand your, your data, you got to understand the ground truth of what's working at your company to be able to make more informed decisions. So if you are a network effect company, or if you're a marketplace company, or you're a widget company, you're a grocery company. You're, you know, you're redefining what it means to be a delivery company here in the United States today.

• 29:25Speaker 02

  You know, given the COVID pandemic and environment, what, how should you think about measuring yourself versus, you know, what, you know, Facebook measures themselves again, you know, like DA you ever remu doesn't make sense. So it's more about like, you know, what, what are the ground truth type of metrics and demand signals that matter? And then the unit economics behind it. And a lot of people have their own frameworks for thinking through it. My biggest issue has always been, those are always lagging indicators, right? Like looking at someone's finances are lagging indicators for early stage, not late stage.

• 29:56Anthony Pompliano?

  And so how do you then take this super data-informed approach where you do have access to that software that you talk about? Do you say, hey, we're just going to listen to the data and the data is going to tell us what to invest in and what not to? Or is there still an element of like the kind of the art of investing? What a lot of people say it's my gut, it's my, you know, personal, you know, position or opinion on this, not actual data?

• 30:20Speaker 02

  Yeah, you know, I always go back to, look, the, why do you partner with venture capitals in the first place? The ideal situation is that they're, they are long-term patient capital with you that knows that your business is going to have ups and downs. You're not having price discovery like the private markets on a daily basis. You're only having price discovery, you know, sort of maybe like twice a year, if that, that seems at a high frequency already. And what you're, what you're really trying to do is understand micro and macro. And I think this is important, right? And the data sets behind that. And right now, we've been talking about

• 31:02Speaker 02

  primary data and micro. And understand what is it going to take for use of proceeds to get companies to the next stage, to, you know, to get them to a place where they can self-sustain. In some cases, some people call that profitability. Some people call that like, you know, high growth, which is what the market was, you know, valuing up until end of December 2019. It's, I think, kind of, the, the, the best way to think about it is like, what are the milestones that you're investing for in the future? And who are the folks that you're going to have around the table to do that? And so again, I go back to, the context has always been that let's focus

• 31:40Speaker 02

  on people. And then, as you mentioned, gut-driven investments. Or can you get a foundation or a context of a certain type of company? And you have software that helps augment that with, you know, with their workflow to help me be a better investor, or help me be a better board member, or an active investor? Remember, at the end of the, you have these active investors around you, right? That are coming on the board, spending time with them strategically, you need them to help you. They have a brand in some capacity. They have a network as well for helping to hire or corporate M and A, et cetera. And so you're choosing them. And so the people you choose are just as important as them having context into your business.

• 32:22Speaker 02

  And so the way I kind of explain this is, look, if I'm around a dinner table, and let's say, you know, it's a corp dev style conversation, you should expect your investors to have almost the same context into your business that you have. Maybe I'm not going to have all the nuances on like what you A B tested last week. Of course not. But I should be able to explain your business from the bottoms up around why it's so important. And if I can do that around the dinner table or, you know, over a Zoom call like this, because I have context, I have, you know, my data informed methodologies to do that, that will just make us better investors regardless. And I think that's always the case. That's the case when you are a G M of a business unit

• 33:05Speaker 02

  or a head of product for a company. It's the same thing. Head of product has no idea what's happening at the latest A B test, you know, three or four orders down. Like if you trace it, they don't know. They're hoping that their teams are accountable to get stuff done. And the same way I think about it is on our side, which is as active investors and minority investors in many cases, we should be accountable to understand what's happening at our company. And then therefore, the second order and third order effects of that is that we can help them strategically because we just know what's going on. If you ask any, you know,

• 33:39Speaker 02

  V C out there, how is your company doing? They'll say, that person is great. They have, they know what they're doing. I love how they're attracting the customer base. Like all these high level fluffy duffy shit. And then what they'll say is they're killing it. Even if they're not, and you have no idea what's happening. And you know, if I was an employee and I got introduced to a VC that just gave me those, I just, why would I work there? It just means that my investors have no idea what's going on and I can only really underwrite the team and the CEO. The capital around the table won't matter. And our whole goal is capital around the table should matter because in the past it has mattered.

• 34:24Speaker 02

  And if you really look at the venture capital industry and where they've been the most helpful, that's been the case.

• 34:31Anthony Pompliano?

  Yeah, speaking of that, you guys recently put together some work and pulled a bunch of data and analyzed around this idea of fast money and slow money. Maybe talk a little bit about what that means and then what that work showed.

• 34:43Speaker 02

  Yeah, so we did, we did two things. One was, you know, what was the failure rate of companies during some of these downturns? And then what, what are the behaviors of capitalists, you know, regardless of being venture capital hedge funds, private equity or family offices? What is their behavior in these types of downturns? And so, you know, what I kind of, you know, I always go back to, you know, most people don't understand cycles, in my opinion.

• 35:13Speaker 02

  They haven't, they haven't been around long enough to see multiple cycles and they haven't seen the lessons of past, you know, historical cycles. And so, you know, our goal was, you know, in, in the last two pieces that we wrote for, you know, for our founders and their audience, even our LPs, was to kind of give a perspective again on like, this is short term. Regardless of whatever we're saying, it feels like every day is a year and it feels like every week is a decade. Is that, you know, in six months, the world is going to be different. And so what you really want to know is what's going to be ahead in the future after the cycle, right?

• 35:56Speaker 02

  Like, and are you, are you, are we in fear mode or greed mode? And I would argue right now, we're in fear mode. And so what's happening is that that's been augmenting and propelling the way in which people behave. And so our whole goal was that in these analyses, if you read through them, You know, who are the folks that have the most fear? How do they retreat and how do they treat you? And are those the types of partners you want to have around the table? In a time of despair and fear? Uh, or do you want to have partners? Which we could define as slow money that are going to be there. Um, you know, through, uh, through the thick of it to understand where you are. And continue to support you and that may not be capital. It's maybe like strategically, we should think about doing X, Y, and Z.

• 36:37Speaker 02

  Uh, whereas the other folks, you know, they have a, a, a trade mentality or a, um, a flight to safety mentality and, and sometimes that mentality is not helpful. Towards company building, um, a multiple building and compounding.

• 36:51Anthony Pompliano?

  Yeah, and I guess part of that is, uh, you guys looked at not only the, uh, frequency of activity, but also kind of pre, during and after, uh, these crisis periods, you know, where people even just around, right? Cause I think one of the, the most telling things was just, there's a lot of transactional firms that, uh, were super active, you get crisis and then they basically disappear. They're, they're not even there anymore. Forget about being, you know, not great, they're just disappeared.

• 37:16Speaker 02

  Sure. Yeah, I mean, look, uh, every, as much as every cycle is similar, every cycle is also different. Uh, um, and so if you go back far enough, right? Like you can go back to the eighties, you can go back to the early nineties and then obviously the late nineties and then two thousand and one. And then you had two thousand and four and two thousand and five. Uh, people always forget there's these mini cycles as well, especially in the technology industry. We, we had twenty fifteen, uh, and twenty sixteen. And on the SaaS side with LinkedIn, sort of losing about fifty percent of their market cap. You have these things happen all the time and, and people can get fearful. And as you know, uh, press, PR and media can kind of come, uh, compound that. Uh, and conflate things, uh, where they might not be needed.

• 37:57Speaker 02

  And, and, and so, so it was more about, um, yeah, who, who's, you know, the venture tourists? So who are the capital tourists in this industry? Um, and, and you, and you guys obviously had, um, you know, the, the same type of winter in the crypto space. And the question is who comes back, who doesn't, who stays around? Who kind of believes in the long-term viability of a certain type of new market? And that's the same thing for venture, in my opinion, is that the folks that understand venture, the folks that understand cycles, the folks that understand long-term building are going to be sticking around. And they might not be able to stick around the same way they were before, but they're still around. And a lot of what we wanted to do was to make sure that we could give this information to our portfolio first,

• 38:42Speaker 02

  as well as the community around how to think about building your long-term strategy over the course of the next year.

• 38:51Anthony Pompliano?

  And so you also recently wrote a big piece on Korda and kind of this idea of N of one companies. Maybe let's just start with Korda and kind of walk us through the history you guys have had with that company and what's really driving a lot of the conviction there and then we can get into what N of one really means.

• 39:07Speaker 02

  Yeah, sure. So to give you some background, you know, a lot of our work as operators, you know, from our time in the Facebook ecosystem at Facebook was essentially, we spent all of our time understanding and building out data, infrastructure, products, features to augment and build network-based companies. Like that, that's our whole history. And when you have a network that's very strong, it doesn't matter what industry it's in. You know, you can, you know, you can call it, you know, a network in marketplace, etc. It doesn't matter. When you find something that's special and a network is being built, the question you ask is, how big does this get?

• 39:52Speaker 02

  And, and a lot of humans, in my opinion, have a hard time, one, thinking linearly. But imagine when you ask them to think exponentially. It's just, it's just so hard.

• 40:04Speaker 02

  And we spent all of our time looking at all types of demand signals, how to quantitatively measure network effect. Everyone says the word network effect, but no one really knows what that means. Every deck that you see for even venture investors or companies that are coming in, they'll say, we, we're, we have this type of network effect and this is why we're growing. And then you ask them to define, okay, well, what does that network effect really mean? They say, oh, we just do paid advertising. Well, that's not really a network effect. It just means you pay to acquire a customer. Or, you know, we go door-to-door style sales or bottoms-up or top-down and we have a network effect. You know, people know us, it's our brand. Well, that's also not a network effect. That's a, it's called a brand halo or scale of economy effect. Oh, sorry, economies of scale effect.

• 40:50Speaker 02

  And so what you really want to be able to measure is how your customers interact with each other. What you really want to be able to measure is, does your network allow you, does, as your network is being built, are your customers reinforcing each other? And so for the example we use for, you know, Facebook was that, you know, as more and more people came into your network, your experience on the Facebook platform improved. Right? Don't have just one friend, you have seven friends, you have 14, you have 20. And now those friends are sharing photos and those photos, regardless of how many people are linking it and liking it or commenting on it, it's valuable to you. And that's a network.

• 41:31Speaker 02

  And so we kind of always defined Facebook as, you know, the atomic unit around Facebook was actually the photos. Now, you could tag it, you could like it, you could reshare it. And eventually it became a media type, right? Where you don't share just your photos, you do videos and articles, et cetera. But you have all of these interaction points that are different. And the experiences that different customers have are different. It's not the same. Like your experience of the same article is, is, is different than my experience of that same article because it's just the way in which we are approaching it. And so you have this platform and this product, but it's different for everyone that's interacting on it. And so, you know, we had never obviously seen anything like that in our lives before, in an ecosystem that was created on top of it.

• 42:15Speaker 02

  You know, and that story obviously has gone through. And we've seen companies of similar nature have those types of network effects. You know, Alibaba, I'd argue, being one of them. You know, companies like WeChat in Asia, et cetera. So you kind of have these things pop up all over the world. And so when you start questioning and say, okay, I wonder what type of businesses and products will have similar style network effects in their industry? And will it be disruptive or revolution as that space? The first one we ever saw as investors was Slack. And so we kind of, you know, doubled down, tripled down, quadrupled down into that company. We were the first investors, you know, post pivot,

• 42:58Speaker 02

  when they went from a gaming, gaming company to a messaging company for enterprise. And we saw very similar characteristics of network effect there. We measured that quantitatively.

• 43:10Speaker 02

  Pre-revenue, and I think this is really important, around the engagement that was happening in that network, and what that was gonna mean, and the business that you can go. If you look at Slack's product market fit today versus what they had when they started, it's pretty much the same. Like, you can basically say, like, here's their foundation, and they've just been able to scale it up using the same sort of techniques. And what you're really augmenting is the friction they might have created when that product came out. If you really look at what's what makes Slack special, it's not just intercommunication, but it's external communication as well. You know, companies communicating with other companies akin to email. And so that was the pitch we made. And that was actually the first time

• 43:53Speaker 02

  we had taken these frameworks from Facebook and from Slack and started using the word "N of one." And this is while we were at Social Capital, like, using these frameworks and starting to use the word, is this company standalone by itself, category-defining? Does it have monopolistic characteristics for the wedge that they started in? And so this really gave us, what I'd say, a training ground to understand what it means to have a network effect business and where else could this be applied to. I think we got very lucky. We saw the exact same thing, quantitatively from the bottoms up for Karta, at that time called eShares. Like, the pitch of eShares was, and I'll give Henry a lot of credit as a CEO there, and one of the co-founders,

• 44:37Speaker 02

  was that he said, "I want to build a network effect. I don't know what that's gonna look like, but in order for me to do it, I need to have this centralized view of the world versus a decentralized view of what everyone else is happening." Right? He was very contrarian. Everyone else at that time was talking about crypto, blockchain, distributed systems. I'll be able to interact, like, you know, programmable money and currency. And what he came away with is that we need to be able to systematize and work within the bounds of what the customer wants first. And what that really was, was what we called the issuer or the assets or the stakeholders for a company. And that's what they had built out. And so it was the first time we saw engagement

• 45:21Speaker 02

  and network effects quantitatively for the bottoms up of employees engaging on a platform, companies themselves engaging on the platform, you know, similar to payroll-like benefits. GPs at firms and their back office engaging with the platform. And then their investors engaging with that platform. You had you had this really

• 45:43Speaker 02

  weird but extremely engaging set of nodes and edges interacting with each other. But they were so far away from each other at the same time, right? Like, you don't have the head of Harvard Endowment deal with someone at, you know, Gusto that owns a share. But they're both stakeholders of the exact same asset and they're all on the one platform. And so that was really exciting to us. And so, you know, a lot of what we wanted to do was understand, you know, they have one business, which was a core cap table business where you charge to understand

• 46:15Speaker 02

  what it, you know, what it means to manage your cap table and all the stakeholders that come on board there. There's a lot of competitors in that space at that time. And then they had another business called the 498, 498 that you had to do in order to define fair market value in order to issue options for your employees, right? It's very employee company and issuer specific. And over time, what you were able to see was that as the network got larger and larger, you know, again, akin to the photos parallel that I mentioned from Facebook and then building multiple businesses on top of it. Karta started saying, you know, because we had spent a lot of time with them talking about the N1 framework, talking about what atomic value means, talking about what it

• 46:56Speaker 02

  means to have gasoline on top of your atomic value and how to scale. You know, they they came up with another product for a different set of customers that were already on the platform that were engaging. And I think this is really important is that you have so many people engaging in the platform. What are the types of products and revenue line items that you use to start monetizing them? And then they built what we call fund administration, which is essentially, you know, all the back office work that you need to do to understand your portfolio, all the rules and compliance regulations that go with it for venture funds, private equity funds and hedge funds. And and and they launched that. And so what you had was this new revenue and new engagement and new product on the same network.

• 47:42Speaker 02

  And I think this was key, which is that it's all interacting with a portfolio of assets that you own, and then what are the types of products that you build for them? And what that's really led to is, what else can you do? There's banking and financial services for these companies, in some cases lending, because you have now a distribution of, you know, 15,000 companies in the platform. You know, we say a trillion in equity, and we think that's really important. It's kind of akin to DAU of M M U's of companies of engagement on Facebook platform. And then you have a million stakeholders in the platform. And so the question you really ask is, what happens when you 5X that, or 10X that, or 20X that, you know, worldwide?

• 48:26Speaker 02

  This is just in the United States alone. How large of a company is that? And it's the first time, in our opinion, in financial history, in the private markets, where you have a really good transparent look-through, and you can start building a new type of market. Like, if you really think about it, you know, people have talked about democratization of capital in this country, in the United States, where we're a democracy. Democratization of capital is only 30, 40 years old. Like, where you had, you know, securitized loans, collateralization of bond obligations of loans, etc. That industry is 40 years old.

• 49:09Speaker 02

  And look at how many jobs were created because of that. Look at how much access to capital so much more people got because of that. New underwriting procedures that came away because of that. And so, we kind of think about Carda in the same way, which is like, what happens when this network gets larger and larger? And what does democratization of capital look like in the private markets? Where liquidity has been so constrained for so long. And actually, this is where I get a lot more excited, is what happens now when the crypto markets get involved on top of a platform that has transparency? What does that actually mean versus a platform that didn't have transparency before? And I think that's what I started getting really excited about, which not just on Carda, but, you know, other areas and industries where you could do this.

• 49:52Speaker 02

  Real estate, you know, go back to mortgages and loans. You can go back to understanding, what does it really mean to have... Access to capital and I would call it democratization of capital in those industries. And what does that look like, not just here in the United States, but worldwide? As these things become more and more interconnected, which I think a lot of people forget about.

• 50:13Anthony Pompliano?

  Yeah, one of the things that you mentioned is kind of these early stage businesses where you can really start to see the network effects. And so if you put yourself in the operator seat at Facebook, I think it was like, can we get you 10 friends in seven days, right? Or something like that. At Slack, I think I've read that it was like 2,500 messages among the team and then you knew that you had them and they were going to stay retained. What were some of the metrics that you saw early on with a business like Carter, which maybe it's not as obvious to people that it's a network effect business, but you guys by looking at the data could really tell, is it number of stakeholders? Is it transactions, logins? Like, how do you actually think about that from the more tactical standpoint?

• 50:49Speaker 02

  Yeah, I mean, I would really urge anyone to read our, you know, Carter manifesto. There are a lot of things that are trade secrets. I won't go into that and, you know, it's competitive in some ways to companies that want to compete with Carter on the long term. But I think you hit the nail on the coffin, which is essentially that the stakeholders on the ecosystem and the equity value behind those stakes is what matters the most. And I always go back to, it's akin to DAU and ME, right? Like, your form of engagement is that, that not every, not every asset value or equity is going to be equal. And as time goes on, what does that really mean? And what are the types of products that you can build on top of it?

• 51:34Speaker 02

  Now, that's, that's the main thing. And again, when you're going back to a company, you're not talking about engagement with people logging in every day. What you're really talking about is the number of stakeholders that are in a company. In theory, you could say the larger number of stakeholders and the value of that stake that goes up over time makes that stake more important to the ecosystem up until a certain scale. And the question you have to really ask is like, what are you able to do with that over time? And what does, what do the companies in the ecosystem look like? What does that allow the companies in the ecosystem to do?

• 52:10Speaker 02

  Not just Karta itself, but like, I know a lot of people think about Karta, but it's like, if you are a company on Karta, what can you do now? You could stay private longer, just like Microsoft wanted to. They didn't want to go public. Facebook didn't want to go public. What are you allowed to do and how are you able to think about long-term growth? But at the same time, giving people access to be able to participate in that alpha, rather than saying it has to be in the public markets in the long term. If you really look at it, private markets have just gotten larger and larger and larger, and they're growing at an exponential rate. And I think that's the key. It's something that worries me at the same time, but it's also a trend that I don't believe is going away because of the way in which companies need to be built for long-term viability of investments rather than the short term.

• 52:52Anthony Pompliano?

  Yeah, and so one of the things that people usually talk about is always, how do I find product-market fit? How do I build the network effect? And from the investor seat, people talk about, do you have that monopolistic tendency? You guys use the terminology N of one. But what can happen between when you first get product-market fit or network effect? And it actually doesn't work out. Like, how have you seen people either break the network effect or actually make a mistake as they scale? And the reason why I'm asking that is, is it a situation where, kind of like betting on the right market, an average team can be successful because the market forces can take care of it? Or is this something where it's not good enough just to get the initial product-market fit or network effect?

• 53:34Anthony Pompliano?

  You've got to really actually make sure that you don't screw it up on the way to scale?

• 53:39Speaker 02

  Yeah, you know, that's a really good question. I would say that any example I give you will have a counter to it. And that, you know, I generally believe that if you are in an excellent market, your team can be average or below average and will still work.

• 54:00Speaker 02

  And the reason I say that is there are just so many companies where you can see that. And I won't name names, but I think they're quite obvious when you start digging into who they are. I think it's extremely rare to find a good team in a good market, building a good product. And, you know, I will be bold enough to say that I think, you know, Facebook has been one of those unique companies where they had all three. And you can see that in the way in which they execute and what they do. They've just been very, very good at executing their product across all these markets.

• 54:34Speaker 02

  Now you think about all the other companies and say, okay, well, what do they do really well versus what they don't? And most of these companies, I would just argue, they're just in very, very good markets. And they were able to have product market fit in those markets and they are riding on the tailwinds for as long as possible. Our goal is to try to find companies that were just like Facebook, that were able to recognize that they had a good product. They need to build out their team and make sure they can continue to execute and that they can continue to ride market tailwinds and use those tailwinds for the next adjacent markets that they want to get into versus hit into headwinds like a lot of companies do over time.

• 55:14Speaker 02

  And so I don't have any hard and fast rules there or what we advise. You know, our job as investors is, as I mentioned before, is think about micro and macro. The micro side is where we use our quantitative frameworks to help evaluate and judge companies, but then share all that back with the company, right? Our companies get like these 40, 50 page reports every quarter and they love it. I remember one team came to us and said, hey, we went on an offsite for three days. And all we did was go through line by line, your guys' whole analysis. And to me, that's great because that means we are adding value to our companies because we're just making them think. We're not telling them what to do. We're not telling them if they are good or bad.

• 55:56Speaker 02

  We're just giving them raw ground truth and a bottoms up view around how to view themselves. And it's up to them to make decisions on how to execute. And we've been doing that across, you know, multiple companies. We do that for a few public companies today. And we've been helping, you know, some folks even underwrite risk on the debt side using these same frameworks. Because the standard is and it's helpful. And I can't, and I can't echo that enough. I think it's really important to just make sure you have ground truths before you start any decision making. That's qualitative or quantitative. And then what I'd lastly add is that in order to understand macro environments, you need to have a perspective on micro. It's really hard to make any sort of projections.

• 56:38Speaker 02

  And I think we're all typically as humans, very bad at making sort of projections anyways.

• 56:44Speaker 02

  What's happening in the macro landscape, right? Like, I'm not an economist. You know, I, I won't, you know, I can't give you a very good, honest perspective on GDP and, you know, what's happening in the ecosystem today. But what I can tell you is if you give me a set of thousand companies where I have primary data, I'll be able to give you a pretty good bottoms up view and understanding how they're performing and how healthy they are.

• 57:07Speaker 02

  And the demand signals that go into it, because those are our frameworks. And ideally, that can help inform a macro perspective, right? As venture investors, our job is to understand what's happening today as clearly as possible. You know, benchmarks says this very well, very well, as investors, the reason they do well is to understand the present clearly. You need to, you need to understand that in order to understand the future, which is what is actually happening. It's really easy to say, we need to do these five things, or we need to build for the future, invest in, you know, biotech, sci-fi. And, and I think we think of that as well. But you got to understand bottoms up where we are in order to get there.

• 57:49Speaker 02

  If you want to get to the moon, you know, you gotta, you gotta launch rockets to get there. If you want a 3D print on the moon, you got to get there first as well. And so, understanding point A to point B, transportation, supply chain, all of that is a part of what we do.

• 58:03Anthony Pompliano?

  Yeah. How does that change when the macro environment changes? So, take like COVID-19, for example. There's a number of shifts, obviously. One, everyone's had to go sit in their house. Two, you get things like in the fundraising environment. There's definitely a bigger focus on profitability versus maybe growth. And then three is, I think a lot of people look around and they say, hey, valuations are going to change. They're likely to come down. How much? How quickly? There's a lot of questions. And if you don't have data, you don't have those answers. Or are you guys able to use some of the data frameworks and things that you've seen in those past cycles in order to inform it? Or, you know, like, how do you actually apply this in these kind of weird transition periods?

• 58:44Speaker 02

  Yeah, absolutely. You know, it's What's interesting is that when you get raw ground truth data, you're able to go back and reflect on things that might have happened in the past. And, you know, and I know it sounds like a history lesson, but like you go back to the 1600s and you go back to the 1700s, 1800s, and 1600s, you know, the, the, the currency of barter, or if you want to call it the reserve currency in some cases, was tobacco. You know, and after tobacco was cotton. And during that same timeline, it was cotton and sugar. Before we started moving into gold and silver because we had production. So if you go back far enough and you say, okay, well, what was happening to these markets at that time?

• 59:27Speaker 02

  Companies that were being created, incentive alignment that was happening, you know, you know, 400 year history of, I want to call it colonial and US capitalism. What was happening and, and, and had these types of things happened before? And the answer is yes, you know, we've, we've gone to war. We've shut down demand access to other countries and, and companies. As, as, you know, states were being formed here in the United States. Civil war, something very similar had happened.

• 59:55Speaker 02

  And so you really talk about that and you say, okay, well, what are the types of decisions you make as investors? What are the types of decisions you make as entrepreneurs? What are the types of decisions you make on a macro side for the small to medium businesses? That are essentially what 99% of, of the employee base in the United States? I think roughly like 1.5 trillion in payroll. Like the, all of these things have second, third and fourth order effects. And so when we think about COVID-19, one, it's a forced government shutdown. I'm not saying that's negative, it's just that's what it is. And, and we're, and we're fighting this war against a pandemic that is indiscriminate in some cases. Right? Like you and myself, any person of any purchasing power gets affected.

• 1:00:41Speaker 02

  So what, what, what does that mean for markets when demand can systematically get shut down? And has to get shut down? And then how long does it take to recover? So as investors, you kind of have to understand, okay, where are we in that cycle?

• 1:00:56Speaker 02

  What is the effect post-cycle? And is that still a down cycle of fear? And then what happens after that? And then what are the companies that are able to sustain and exist within that timeframe? Which are the ones that need help? Or subsidization, not necessarily from us? And then where do you start placing your bets from? In terms of growth? Where do you start placing your bets in terms of what needs to be built? It doesn't necessarily have to be software, you know, software, infrastructure, technology, energy, insurance, etc. The list kind of goes on. And where are going to be ecosystems that are going to either be rebuilt or augmented because of what's happening today? Right? And so a lot of people look at the short term. What do they say? They say, oh, great.

• 1:01:40Speaker 02

  You know, shipments are going up for essential items and groceries are going up. Well, humans also kind of regress. I mean, six months from now, we're going to do the exact same thing. And I'm pretty sure we're not going to do the exact same thing, but we're going to be really, really close. And so you go back to past cycles in China, when we had, you know, the first SARS situation. That country retrofitted itself to be able to withstand these types of things in the future. And they're doing a pretty good job to get out of it. I wouldn't say perfect.

• 1:02:10Speaker 02

  And so they were able to get to get to some sort of recovery faster. I'm not saying there isn't a downturn, but some sort of recovery. And so what does that mean here in the United States? And where do we start investing our dollars and our capital and our time? And everyone has a different perspective. And I think the cracks that you see today are housing, healthcare and education. We've been talking about it for 10 years, but you've never really seen the cracks till now. Now you see the cracks, right? Like on the healthcare side, I mean, this is a, you know, from a overall inflation rate since like 1995. I think it's like 55%. That basically means things have been getting more expensive. It's been getting harder and it's an out of reach for people. That were what I'd say, you know, a plumber that was making 30 to $50,000 a year today.

• 1:02:57Speaker 02

  Was making the same amount, you know, 20, 30, 40, 50 years ago. I mean, they just make less money than they did today because of that, and that's important. So the unskilled labor workforce versus the skilled labor workforce and the change of that as well. And so I'm going through a lot of concepts, talking about a lot of stuff, but I think those are the things that are important because those are what drive our demand and our economy. And then you have underlying companies that need to support that, may that be small to medium venture backed or large corporations.

• 1:03:28Anthony Pompliano?

  Yeah. Would it be fair to say when you're evaluating individual companies, you're very bottoms up, but hearing you talk through a lot of this in past conversations we've had, I think that you guys take this macro view of kind of where, where are we today macro wise, where are we going? And then you go look at the companies in those areas in which you guys believe will have upside in the future. And a lot of times it's even places where maybe they're not popular today, but they end up being. And then when you find those companies, you start bottoms up. Is that a fair way to view kind of the process you guys go through?

• 1:03:59Speaker 02

  I would say on a week to week basis, even on a month to month or a year to year, we might have

• 1:04:05Speaker 02

  theses that continue to get formed top down by our bottoms up work and vice versa, right? Where our assumption, like I, I think the way we think about is the, the, when we get into the room and we're assessing any company, anything bottoms up. Is that we just don't know anything. We just check everything at the door and say, we just don't know. So what are the assumptions we may have made that are wrong? What are the new assumptions we should start making now based on this data? And how does that help inform us for our long-term capital deployment? Remember, we're venture investors. So our timeline is five, 10, 15, 20 years in some cases. As an angel investor, I have a, I have an investment from 2005 that's still not liquid, right? It's still there and I'm still hanging on.

• 1:04:50Speaker 02

  And, and then when you start thinking about going from 10 to 50 to 100 to 200 investments, the, your, your thesis has to be different. You have to start thinking about your portfolio, your liquidity needs for yourself and your LPs, but also what you need to do in order to Make better decisions than macro and micro environment. The reason macro is important is you have to understand the bottoms up demand signals you see. Are they going to continue to see tailwinds or are they going to hit headwinds? Are they in a regulatory environment or not? And and I think, you know, what you've seen unfortunately in again, housing, education and healthcare. Sort of being the the main ones that focus on.

• 1:05:31Speaker 02

  The reason why they've had a harder time is that they're they're more akin to political and regulatory behavior. Where you have institutions that are set to make sure those things stay status quo. It's hard to innovate. And so even if you see a company that's bottoms up, they might have a small niche that's working. Then get slapped down by the regulatory. Side of the house and and sometimes that may or may not work, right? Like in the case of Uber, they hit a lot of.

• 1:06:00Speaker 02

  Turmoil sort of lift. They were able to make it through because what was happening is that we were moving away from a world of being regulated. To a world of being unregulated. To make it more beneficial to the consumer, make it more beneficial, in my opinion, to the folks that were being employed. To make money through that through that remnant inventory, same with Airbnb, et cetera. And so you kind of have to look at that and say, well, what is? What are going to be those types of chains that will happen? That are effective for education, healthcare and and housing. And the question you ask is, in this environment. Is that helping to accelerate some of those industries to deregulate? And get more innovation and to be able to help build in that direction? Or are they going to stay status quo?

• 1:06:45Speaker 02

  And that's where we spend a lot of our time thinking through, which is you have to understand that part of the macro. And and gather data on that side as well. And and that's the hard part, like that's the art on top of the science, which is. Science is not going to tell us what's going to happen. We're we can only know what's happening on the ground and we can only know, again, bottoms up. Making, you know, actual trends and demand signals. We don't know how long that's going to last, depending on what type of environment, what type of investment we're making. And so that's why we do focus a little bit of our time on lobbying. We focus a little bit of our time building those relationships. With, you know, the central government and, you know,

• 1:07:23Speaker 02

  I think a lot of people don't like to say it, but, you know, I think the biggest threat to the United States is not understanding what's happening in Europe, what's happening in Africa, what's happening in India, and what's happening in China, and in China more specifically. Now, I'm not, I'm not, like, I think longer term, we have a better model of incentive alignment here in the United States like we have over the last 400 years. However, China understands their incentive model, they're copying us, they're getting into that direction. And even though they are centralized, they've been figuring out ways to deregulate pieces of their economy to be able to innovate the same way which we do here in the United States. But at the same time, they do have a top-down macro perspective on what they need to focus on, and we've lost a lot of that,

• 1:08:06Speaker 02

  in my opinion, here in the United States, post-World War II, up until maybe the early to late 70s and 80s. You know, I went to a China, they called it the China Fintech Conference. And who, here's who put it up, you had the state government of China, the People's Bank, I'm forgetting the name, of China. You had the top 10 universities stand this up, and there was only one outside speaker and one outside participant, and that was me. And I went there with thinking, oh, I'm curious to see what's gonna happen. And I, and I, and I did a keynote speech there on behalf of not just us, but even our company, Cardon, what's happening in the financial industry.

• 1:08:50Speaker 02

  And on there, you know, before I had started, they had a couple of days of all the companies that were pitching. You had some of the, you had the heads of government, you had the heads of states there, you had the heads of universities there. You had innovation cycles, you had startup companies there, like the top 10. And then you had folks like Tencent, Alibaba, all these guys there, talking about what's gonna happen. You basically had the smartest people in the room, regardless of market cap, talking about what is important. And guess what they were talking about? They were talking about how much we need to pay attention to crypto. What reserve currencies look like in the future, where they need to innovate, where they need to subsidize, where the government needs to spend more time helping companies get off the ground, and where in the world should they be paying attention?

• 1:09:35Speaker 02

  And luckily for us, you know, we've been in the lead for a while, but we have to be kind of vigilant, is that they basically said the only country we need to pay attention to, the only innovation centers we need to pay attention to, nowhere else in the world we need to pay attention to, is the United States, and Silicon Valley specifically.

• 1:09:54Anthony Pompliano?

  It's incredible to hear that, that literally we sit around and we don't understand many of these regions, but they're just solely focused on us. You've mentioned crypto Bitcoin a couple of times, kind of how do you guys think about that entire sector of the world, and you know, what's possible there? Have you done any investing on that front?

• 1:10:14Speaker 02

  Yeah, we, so while we were at Social Capital, we invested in a company called Second Market, and Second Market had sold a portion of their company, I'm forgetting who they sold it to, is Nasdaq? Nasdaq Secondary Markets, that's what it became. And then they became a holding company, a market maker, and investor all at the same time. And so most of our exposure through crypto had been through them, and this is Barry's company. And, you know, they, they were essentially our, our overall holdings and exposure into the crypto markets, for blockchain crypto.

• 1:10:59Speaker 02

  And, you know, over time, what that really did was, one, we got exposure to all of these companies like Coinbase, some that you guys are in, co-investors with you guys, as well as us starting to think about where do we want to spend our time, and what are the types of bets that we want to make? And to be frank, we didn't make a lot after that. You know, I think a lot of it was for us to understand where are we in that cycle? Are we still in the winter? Are we still in a fear-based cycle of what crypto is going to look like? You know, Bitcoin and all the alternative currencies. And then what does it mean for the space? I think I still have a perspective that it's still very speculative. There is some volatility there. So it's hard to think about how you innovate on top of it. I think the main thing that's really interesting at the end of the day,

• 1:11:44Speaker 02

  and a lot of people have talked about this much smarter than I am, about it being programmable capital, programmable money. And so when we talk about democratization of capital, what does that mean? Could this be a facility to help augment that? And I think the answer is yes, absolutely. And I think there's been more innovation on what crypto and this protocol, you know, through blockchain and these methods that you can use outside of the United States and here in the United States. And I think that's where we are weak, where we're not even willing to understand it. We're just so scared of it from like a political nature. And that's what we kind of fight to push is, you know, how do we understand it more before we start thinking about investing in it?

• 1:12:28Speaker 02

  And I think you've got to have bottoms-up investing. You have to have top-down investing, top-down subsidies in some cases or research. Again, I always go back to World War II. You know, the, you know, during the time of Bush and the entity he created in alignment with our military to be able to just, you know, do basic research that could help propel industry on top of it. And I think we've lost that. And I think a lot of what I'd like to see over time, not just from the venture community, but accelerators, grant institutions, the government in some cases, to move back into, great, maybe crypto isn't where we want it to be today, but what could it be?

• 1:13:11Speaker 02

  And what can we start incentivizing people to work on? That's not just pure bottoms-up or speculative in nature. And I think what you've seen most so far has been speculative in nature. Some companies getting to a certain level of success, but then stagnate very quickly. And where we want to spend our time is not just, you know, financial markets, but just, you know, where does that help across the ecosystem? Go back to our roots of what we do really well is understanding product market fit quantitatively, understanding how that can scale and where we deploy our capital towards a business being built around being augmented, leveraging and utilizing distributed system crypto in some cases,

• 1:13:55Speaker 02

  blockchain, etc. Because the technology, it's a protocol that you can augment rather than it being the solution.

• 1:14:02Anthony Pompliano?

  Yeah. How do you think about like the market size being either empowering or limiting? And what I mean by that is crypto is big if you talk to some people, but on the grand scale of things, it's very, very small compared to most technology markets or kind of addressable user bases. Does that, do you shy away from that? Is it more something, hey, we understand where it is today. We kind of see if it continues to grow, you know, five, six, seven years from now, it could be the size that we need or just like, what's the thoughts there on a market sizing?

• 1:14:31Speaker 02

  Yeah, you know, the, everything starts small, right? I think people, as I mentioned before, people have a very hard time of understanding exponential growth. Like, how do you comprehend it? It's hard. And so when you think about crypto, what has already happened in the last 10 years? It's amazing, like how much it's compounded. Forget market cap, just the amount of people engaged, the amount of open source folks focused on it, applications that our people are trying to put together from payments to wallets to money transfer. Even if it doesn't work, who cares?

• 1:15:12Speaker 02

  People are trying and then once you get to a standardized framework that people start all agreeing to, that helps propel the next stage, the next stage, the next stage. So, I mean, even with the internet, look how long it took to get up and running. And so, so what I'd say here is that you, you, you've, you have people on the bottoms up. Doing things and you have a certain amount of risk capital there. I think the ICO market really fucks stuff up. I think there were a lot of people similar to what I'd say 99 to 2001. People just heard the word technology or dot com and wanted to get involved and I'd say it was like the it's the panic buying on the upward trend, but we're all going to lose out. And so like the moment my mom was saying, hey, should we look at crypto or my brother in law who knows nothing about the space saying,

• 1:15:57Speaker 02

  should I invest in Bitcoin? You know what? Things are fucked. And so, and I think, and we hit that during that, you know, a couple, a couple of years ago. And so now the question ends up being like, now we have a foundation. Where do we build from here? And so what I really pay attention to is like, what happens over the next two to five years and five to 10 years with, you know, with Bitcoin as the currency? I don't know if it ever becomes a reserve currency. I know a lot of people talk about it.

• 1:16:22Speaker 02

  But I go back, I always go back to history. What was reserved for a while? You know, you can say US was a reserve at some point, you know, post world, start post civil war up until World War One, you know, with the advent and the droppage of the gold standard. But there's always something that people kind of hold on to and will Bitcoin get pegged with other fiat currencies? I don't know. And what do you build on top of that versus that? But I, again, I always go back to, remember when we had securitization of mortgages, mortgage backed securities, securitized debt, collateralized bonds, obligations, loan obligations. That is only 30 to 40 years old. I think everyone forgets how large that industry is in the trillions.

• 1:17:09Speaker 02

  And, and how much billions of dollars get traded on that every single day? And what that looked like when it started? Pretty nascent. So here we are in the crypto markets. It may not ever yield anything, but it has a lot of legs where we've already started. And so you think forward 10 years, 15 years, what happens? What do you build on top of it? And you've already seen it. And I think you guys are already investors in, you know, in terms of lending, in terms, again, in terms of securitizing it. It seems small and it is nascent, but again, bottoms up, what happens over time? And what are the leading indicators and demand signals that you should really care about in order to either participate, invest or innovate on top of?

• 1:17:47Anthony Pompliano?

  Yeah, it makes a ton of sense. Two questions before you, I let you ask me one question to end this thing. You're the favorite book that you have or most important book you've ever read?

• 1:17:59Speaker 02

  Yeah, so there's always a new one that I'm reading. I actually always go back to reading the same book over and over again. And the books that I like reading are Mastering the Market Cycle. I like reading Irrational Exuberance. There's a book that my colleague Jonathan recommended to me called The Righteous Mind, just about how we think and what gets us there from a social contract perspective and social psychology. And I kind of put all of these things together and I reread them because my experiences change every three, six, 12 months, every two years they change. And I go back and I reread them and I know what I glean from it is just new learnings.

• 1:18:42Speaker 02

  And so I'm a larger fan of rereading the exact same books over and over again versus opening up. And the way, the reason I think about that is that, you know, as an entrepreneur, as an investor, you know, you'll read a lot of books about how to become an expert in something. It doesn't happen overnight. It takes five, seven, and people call it seven-year cycles. And so a lot of what I try to do is how do I take a lot of these lessons that other people have had on top of what I'm doing today? And how can I become more and more of an expert of what we can do really well? Not just me as an individual, but as a firm and as a team. And so those are the books that I like to read over and over again.

• 1:19:23Speaker 02

  And I think one book that I keep going back to as well is Zero to One by Peter Thiel. Like I think I'm much more in line with his types of philosophies, not 100% of them, but probably like a 70 to 80% overlap. And then, and then all of these other concepts and books. And those are probably my favorite books, books that are all around frameworks on how to think.

• 1:19:44Anthony Pompliano?

  You just rattled off some pretty good ones there, so it's not a bad answer. You've got an eye for space and made a number of investments and kind of spent a lot of time there. Believe in aliens? Think they're real?

• 1:19:58Speaker 02

  So let me tackle why I care about

• 1:20:04Speaker 02

  space or climate change and healthcare education. The reason I care about one is that I am a diehard American. I know it's kind of like a negative thing to say these days, but I'm here. Privileged to be born here. You know, we, my dad was successful because of the opportunities that lie here. And so a lot of what I think about is what are the type of next growth factors that are going to come to the United States? What's hard? What's hard to build? And what are the types of companies that we need to invest in to make that happen? So while we have this core business of how we think about quantifying and recognizing and amplifying product market fit. The way I think about it also is just being responsible is there is a certain amount of capital that we want to put because our overall historic loss ratios are low

• 1:20:49Speaker 02

  that we want to put towards, you know, high risk endeavors. But what should those high risk endeavors be? So I think about American exceptionalism and American ingenuity. And where can that be? I think about 3D printing, manufacturing, parts of education, parts of healthcare.

• 1:21:06Speaker 02

  And, and I think in order to do that, you need to have a certain amount of social capital, human capital and access to capital. And we're privileged to be in that situation. So we invested in space and a company called Relativity Space. And that was all about 3D printing rockets from the ground up, which sounds like a crazy idea when we invested in it.

• 1:21:30Speaker 02

  Where we could, again, where you could build and 3D print a rocket as quickly as possible. And the frameworks we use there was that what could happen where you could design, iterate and launch a rocket in sort of the same types of ways in which you think about software. Like if a rocket doesn't work, how can you redesign it, iterate it in 3D, print it and shoot it back up to see if it works? And so that's what this company's been doing. You know, when an engine didn't work, they would redesign, reiterate it. Something that would take people one or two years. They could do it in seven days or 30 days. So you take that concept down and say, well, what happens? We can do that not from just the engine, but the full rocket, full rocket to a multitude. To rockets to a multitude of payload and how do you get from point A to point B?

• 1:22:11Speaker 02

  Uh, so their whole goal is like, they want to get to the moon. They want a 3D print on the moon. Uh, and that's what we invested in was a company called Relativity Space. Uh, and again, it's all about uh, American ingenuity, um, American jobs, focused on building hard things. Uh, and so they're based out of uh, LA, Seattle and Louisiana. And um, and then another company was a company called Sealdron. It was the same concept, which is, you know, just as much as space, the world's oceans are just as hard to innovate on top of envelope. Uh, what do you build? And uh, there's this company called Sealdron that started, you know, uh, as a science project,

• 1:22:54Speaker 02

  but they were able to finally go from technology to platform to problem solving. Uh, and they do the same thing, you know, instead of NASA, the World's Oceans Institute, uh, that's similar is called NOAA. Uh, and the company works, uh, you know, very closely with them, uh, as well as being here in the United States and working with world governments, but even US government, to help understand, measure, um, uh, quantitatively, our world's oceans, our weather and what's happening on a minute by minute basis, not on a month by month or not by a, uh, you know, a cyclical six, six month timeframe. Uh, you, you want to know what's happening in the Arctic and the Antarctic now. You want to know what's happening on the buoy system that's in the Pacific Ocean. You want to know what that, because that is what informs us and what's happening for

• 1:23:37Speaker 02

  our uh, world's oceans, our weather, our fisheries, uh, oil exploration, if you want to call that from an energy perspective, defense of the United States, if you want to go that far as well, uh, uh, all the way into now how that affects our agricultural components here online. Like, all that stuff is important. Uh, and so there's a hard things and you have to invest those. And so we don't take as many bets in those areas, but we take a small amount of bets that we think uh, are again bottoms up where we have a macro perspective and we want to take moonshot bets. If you want to even call it loon shots, we'll do that, but we're investing behind people that know how to do this. And we're spending a lot of time asymmetrically with these teams where we can help them stop function. Um, and, and that's how I kind of think about it. And then to answer your question about aliens,

• 1:24:21Speaker 02

  do I think they exist? That's a hard one, right? Uh, I think. In the infinite realm of possibilities of what the universe looks like, my scientific side of me says, yes, they have to exist. We just don't know what they're gonna be. Are they humanoids or not? Or are they some sort of, you know,

• 1:24:42Speaker 02

  bacteria or a single cell organism that exists outside here? And I think, you know, we have

• 1:24:48Speaker 02

  theories about them already existing, you know, on other planets. May they be dead or alive. But I do think aliens exist and the question ends up being, are they more akin to how we are? And, you know, in my, in my lifetime, I'm not sure I want to meet anyone that's an alien or anything. Because that would scare the shit out of me. Because that would ruin the frameworks of how I think about this world and how we think about the macro. But at a high level, yeah, I mean, I do believe aliens exist and, you know, that might be think of me as an ace here. But, you know, the, you know, that's how I think about it.

• 1:25:27Anthony Pompliano?

  My whole thing is just if, if they exist, let's make sure we discover them. They don't discover us, right? It never really works out when, when you're the invaded. It's much better to be kind of the invader if it has to come to that.

• 1:25:38Speaker 02

  Yeah, I mean, there's this book. I don't know if you've read the Expand series at all. And then it became an Amazon, a sci fi show than an Amazon show. You know, there, it's kind of interesting to see how people think about, you know, science fiction and what it really means. My sense is, and as I mentioned, humans are bad at projections. My sense is that, you know, we're focused on becoming an interplanetary species first. And I think that's gonna, we're gonna be focused on for the next 200, 300 years. That's what I'd like to see happen. And that's where I'm putting our capital, personal and our venture firm over time. And you've seen some of our first bets there, but we look at that kind of across the board is that,

• 1:26:23Speaker 02

  if you think about the word growth and what that means and where we have to go over time with eventually a stagnate population, we'll get there, even though it doesn't seem like that, we'll get there. And new growth opportunities. Space is one of those areas that we need to focus on because the amount of things that we can do in space versus what we can do here. The physics of being online here on Earth is very different.

• 1:26:47Speaker 02

  And there's a lot more innovation that happens in space than they can. And so you want to make sure that you can reduce the friction, make it cheaper and build there across the same types of ecosystems that we invest in today. You know, biology, metals production, communication, et cetera. That's going to happen from space.

• 1:27:06Anthony Pompliano?

  Absolutely. You get to ask me one question to finish this thing up. What you got for me?

• 1:27:11Speaker 02

  Yeah. So why did you decide to invest versus operate? Same question back to you that you love asking us.

• 1:27:21Anthony Pompliano?

  I think that what I really began to realize is I enjoyed building businesses. But my favorite part about building the business is going from, hey, this would be a cool idea. Let's test it. Let's see if it works. Let's get some product market fit. And then when you get into the true like scaling part of it. To me, the day to day pieces of that were less exciting. And so for me, it was, how do I go as early as possible, find founders, and kind of continue to just do that same exercise over and over again in different markets. And when I first started investing full time, I don't know if I really had like some master plan, right? It was more of just like, I know this one thing I really enjoy doing.

• 1:28:04Anthony Pompliano?

  I know a lot of other people that are trying to do it, but they've never gone through that process before. And so as I kind of did that more and more and more, what I then started to understand is, hey, I like these markets. I don't like these markets. Here's the types of teams I like to work with, all of those things. And it's one of these pieces where you guys obviously have a lot of software and data analytics that that help inform this stuff. But like you specifically have probably done, you know, that that initial exercise, I don't know, 100 times now, right? And it's just like you've got the pattern recognition. You know, certain things that are not so much shortcuts, but just you can avoid the potholes, you can go ahead and you know, the tests to run, like all of those things can really accelerate a team to get answers.

• 1:28:48Speaker 02

  As much as you get to see patterns, we, like any other humans, we regress to the mean, I fuck up all the time. That's why, that's why we have this software to help. Help us make make sure we don't make those mistakes because our you know we our gut reactions thinking fast and slow are not you know uh are sometimes not in line with what's happening so. Yeah, I mean, I've I've been watching you uh for a while and I think, you know, we've obviously had invested in in one of your companies way back in the day and spent time and kind of watching your progression. Uh so I I think, you know, I I think it's really great to see where you've gotten to things that you care about now more than ever. And I'm watching that progression and I think what you do now and how you kind of inform people, it's really important. Um uh I think we all appreciate it. So, thanks.

• 1:29:33Anthony Pompliano?

  Of course, I appreciate you coming on here and we'll we'll definitely do it again.

• 1:29:37Speaker 02

  Awesome. Thanks for the time.