EP 31: Anonymous Fintwit Personality Compound248 Joins to Talk LP Allocation Strategy, the Yale Model, Spotify and Twitter

In the 31st episode Twitter poster Compound248 joins to discuss his own background, and why he chooses to stay anonymous on Twitter. Plus explanations on venture and endowments, thoughts on Spotify compared to TV streaming, the Twitter whistleblower and Elon deal, and his experiences starting his own private investment fund. (0:00) Intro (0:52) Compound248’s Background (4:24) Why be anonymous (9:15) Responsibilities of asset allocation (14:53) Why endowments led the way (18:15) Science of asset allocation (23:11) More triaging and less manager (25:32) Venture is building, not buying (30:06) Hypothetical endowment (34:51) How much of your fund is tech (37:51) The generalist is the patsy (42:04) Spotify (45:07) Spotify vs TV streaming (50:30 Rap caviar (54:34) Cash flow margin (1:01:04) Twitter (1:06:18) Twitter monetization (1:15:45) Whistleblower (1:20:27) Wrap up Mixed and edited: Justin Hrabovsky Produced: Andrew Nadeau and Rashad Assir Executive Producer: Josh Machiz Music: Griff Lawson 🎙 Listen to the show Apple Podcasts: https://podcasts.apple.com/us/podcast... Spotify: https://open.spotify.com/show/5WqBqDb... Google Podcasts: https://podcasts.google.com/feed/aHR0... Follow on Socials 📸 Instagram - https://instagram.com/cartoonavatars 🐦 Twitter - https://twitter.com/cartoonavatars 🎬 Clips on TikTok - https://www.tiktok.com/@cartoonavatars About the Show A Saturday morning podcast hosted by Logan Bartlett (Partner and Managing Director at Redpoint Ventures) covering the tech news with his friends and other people with industry expertise. Executive Producer: Rashad Assir Producer: Leah Clapper Mixing and editing: Justin Hrabovsky Check out Unsupervised Learning, Redpoint's AI Podcast: https://www.youtube.com/@UCUl-s_Vp-Kkk_XVyDylNwLA 🎥 Subscribe on YouTube: https://www.youtube.com/channel/UCugS0jD5IAdoqzjaNYzns7w?sub_confirmation=1 Follow on Socials 📸 Instagram - https://www.instagram.com/theloganbartlettshow 📱 X - https://twitter.com/loganbartshow 🎬 Clips on TikTok - https://www.tiktok.com/@theloganbartlettshow About the Show Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode of The Logan Bartlett Show, we sit down with the people behind today’s most important startups and extract the tactics, lessons, and frameworks they’ve learned the hard way. Conversations span hiring to GTM, product, growth, fundraising and everything in between - collectively forming the ultimate playbook to make you a better CEO, investor or board member. Tap follow and enable notifications to stay ahead of the game.

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

• 0:04Logan Bartlett?

  Welcome to 31st episode of Cartoon Avatars. I'm your host Logan Bartlett and I am here today with our second anonymous Twitter guest, Compound248, who I have been a longtime admirer of and we've been going back and forth for a little while about when we were actually going to do this. So I appreciate you coming on. I'm glad we were able to finally make this work.

• 0:27Speaker 01

  Yeah, thanks for having me. It was, there was definitely some back and forth to see, you know, how much of myself I had to reveal.

• 0:35Logan Bartlett?

  Yeah, that's right. Yeah, we were, yeah, we were gonna make you go shirtless at one point.

• 0:40Speaker 01

  I know, I know, but for the crowd.

• 0:42Logan Bartlett?

  Yeah, exactly, exactly. No, but it's, it's, it's great to have you on and I, I've been a longtime admirer of your, of your Twitter. So maybe just a level set for people that don't know you. I've, I've heard the story about how you, you got into it, but for, for people that haven't gotten that, maybe give a little bit of a quick bio as you describe it of both your career to date, as well as what got you as a, as in a non-fintwit influencer, as you will.

• 1:11Speaker 01

  Yeah, sure. So my, my bio to date is kind of did the classic investment banking thing for a couple of years and then really worked in an institutional investment environment, both for an existing entity and then helping build a business where we were a leading institutional investor. Helped do that for, you know, the better part of almost two decades. And while there, you know, helped oversee all sorts of different parts of our investment, everything from the LP hat where we're picking venture managers and hedge funds, setting asset allocation, reporting to clients, but also...

• 1:53Speaker 01

  You know, building out a direct investment effort and doing that for quite a number of years, which really was where my passion lied in the end. And so I left a number of years ago to start my own private investment fund. So you could think of it, it kind of looks like a hedge fund, but acts like a partnership that has the flexibility to invest in anything, anywhere, public, private, where we're really trying to capitalize on a long duration of capital and really built it around my own capital. We have, you know, 50 LPs or whatever it is, but they're, they're really joining for the ride with what I'm

• 2:35Speaker 01

  trying to do with my own money as opposed to trying to build a business and a product that we market. So the goal is stay small, stay nimble and be able to compound at really high rates. So, so that's the professional bio. The, the Twitter bio is, you know, sort of was involved a long time ago in kind of early Twitter as a user and then went dormant for the better part of a decade and came back like so many people during the, the COVID stay at home and ended up just kind of lightly tweeting, following. But when

• 3:15Speaker 01

  the original Robinhood GameStop explosion was happening in early 2021, there was a period people write, might remember where Robinhood actually restricted people from buying more GameStop as well as a number of other meme stocks. And it led to massive conspiracies that we're still honestly feeling the reverberations of. But I ended up putting together a bit of a long tweet that was, you know, probably a hundred tweets long, but that gave, I think, a real inside view of what's really happening, how Robinhood got caught off sides, why this was really a capital and risk management problem for

• 4:00Speaker 01

  them, a plumbing problem. And that, you know,

• 4:06Speaker 01

  It was just, it was a crazy thing. You know, I, I had a few hundred followers one day and then three days later I had like 12,000 followers. And so it was, you know, just, it was bizarre. I mean, I, I really had no expectation of anything. And so it's, it's built from there.

• 4:24Logan Bartlett?

  And so what was the, the original rationale behind doing it anonymously? I, I, obviously our jobs are a little different in that like access is one of the key points of what I wake up every day thinking about and the opportunity to invest in these companies. And so having some level of ideally positive sentiment associated with, with me, but at least awareness that I exist in the world is advantageous to that access. And so being public for me with my Twitter identity and doing this podcast and all that stuff. I, I think people can understand why, but for you, I mean, I, I would think there could be some benefit.

• 5:06Logan Bartlett?

  While access isn't as, as scarce in the public markets and some of the stuff that you're doing, you, you have equal opportunity to invest in some of these businesses as, you know, the, the next big public manager. There, there would seem to be some marketing advantages and some thought leadership advantages associated with being somewhat more public in your, in your persona. Obviously Jim Chanos has done it and, and we've seen Daniel Loeb get into it and a bunch of people, Philippe Lefont has now gotten into it. What was your thought process in doing it specifically anonymously?

• 5:42Speaker 01

  Yeah. I mean, I, I absolutely see your point and, and you have cultivated incredibly positive image around yourself. You're, you know, I think of you and my heart glows. But for myself.

• 5:54Logan Bartlett?

  I actually, that was one of the requisites that, for him to come on anonymously.

• 5:57Speaker 01

  Yeah, no, that was checklist, checklist box number one.

• 6:00Logan Bartlett?

  You get to keep your shirt on. Yeah, no, good. I'm glad you did.

• 6:03Speaker 01

  Exactly. No, I, I just, I have no real business need for it, right? I, I, as I said, I'm really not trying to build a business. I'm trying to build a track record that 30 years from now is the absolute best, ideally in the world, right? That, that's my goal. Now, will I get there? Whole nother story, but. I don't need more assets to have a better track record. And what I do need is the flexibility to change my mind. And, you know, not get attached to positions. Also, I think just kind of the potential compliance conflicts that come with being a public market investor and wanting to be

• 6:45Speaker 01

  a little more liberal in the way I, you know, share and think on the platform. And frankly, it just seems easier. And so I think I told you once that like my, my goal is to operate the account as if I wasn't anonymous, right? I'm not trying to do it to do anything embarrassing or to burn people or, you know, but, but I do want to feel like I'm unencumbered by the use of the platform. And I just feel, who knows, maybe someday I'll do a switch and obviously I have people like you and other friends who know who I am and it's, it's not that big a deal.

• 7:21Logan Bartlett?

  Yeah, I guess it started out, you know, I, I think Wall Street Senate originally wasn't known to be Jim Chanos and then it kind of evolved over time.

• 7:29Speaker 01

  He still doesn't technically acknowledge it. People call him Jim, but you never hear him say, hi, I'm Jim.

• 7:34Logan Bartlett?

  It's funny when he does like podcasts, it'll say like, joined by Wall Street Senate, Jim Chanos. And he, I guess he just never fully acknowledges it, but I, I think it's pretty safe to say that this is, that is Jim Chanos. Um, no, it makes sense. It's, it's interesting. As you move into the privates and all, all that stuff and some of these opportunities, I do think there's something to being anonymous. You know, if you go back, I mean, way back when, like Alexander Hamilton and a lot of like, a lot of the founding of the US Constitution and all that stuff.

• 8:02Speaker 01

  Yeah, the Federalist Papers.

• 8:04Logan Bartlett?

  Yeah, the Federalist Papers and all that, like all the influence around that stuff was actually based on anonymous writing. And so I think there is a great precedent to it. And also to some extent, I wonder at times, like, are people willing to go back and forth? More or less let ideas stand on their own when they're not anonymous, right? Like, how much do you have a bully pulpit in trying to push forward some of these ideas? And you might just be talking to people. That inevitably are going to agree with you because of your handle and not or maybe the opposite, right? Maybe you get trolls in your comments more and more. It's hard to know the counterfactual of all that stuff, but it's, uh, yeah, it's interesting. I mean, I respect the, you're certainly not doing it for the fame and glory. I'll, uh, I'll tell you like the amount of riches and

• 8:49Logan Bartlett?

  celebrity I've gotten out of this podcast thing. It's, uh, yeah. If you can get your hands on that sweet nectar, that's, uh, that's where the real juice, juice is to be squeezed.

• 8:58Speaker 01

  That's why I own, that's why I own a share, a stake in Spotify, right? I mean, it's just a rake on all the, that sweet podcast money.

• 9:05Logan Bartlett?

  That's right. Well, we'll, we'll get to that in a second. I, I'm fascinated by what Spotify is doing and I'm interested in your investment thesis there, but this might be boring and kind of arcane, uh, to a lot of people. Well, I think one of the things we haven't really gone into and some of the people we've talked to is actually the role of, uh, LPs in the asset class and the ecosystem. And I think because you were both at an established institution for a little while, uh, and, and then moved to, to a, uh, a fund that had a little bit more discretionary, um, ability to participate in emerging managers as well as do direct investing and all of that across publics and, and privates from an allocation standpoint. Um, I'd love to talk a little bit

• 9:50Logan Bartlett?

  about how you thought of your responsibilities in that role and, uh, and maybe just for people that don't really understand the world of, of asset allocation, uh, as it relates to public managers, as it relates to venture managers, as it relates to real estate. If you can give just a little bit of primer for people on like how that world kind of works. I realize this is a very big and comforting thing that we're, we're, you know, I'm asking you to take on, but I think that would be interesting, just how you thought about like the responsibility you had in that role and, uh, how you kind of view that landscape today.

• 10:30Speaker 01

  I think if you go back thirty or forty years and someone like David Swinson at Yale is getting started, right, when he's pre- pre-legend.

• 10:41Logan Bartlett?

  And David Swinson, for people that don't know, is renowned as the, you know, the, the, the person that built the model that so many endowments have followed over the years. He unfortunately recently passed, I think, earlier this year, right? But he sort of was the, the first to kind of build this, do they, they called it the Yale Endowment Model or something, right?

• 10:59Speaker 01

  Yeah, people call it the Yale Model or the Endowment Model. But if you go to like, sort of the moment he arrives in, in the early eighties, the dominant institutional investment approach is really a very simple portfolio that's a mix of stocks and bonds, right? So you, you could picture like the GM Pension Fund, General Motors Pension Fund, and they're gonna have, you know, an asset liability, like, target that they're trying to hit, right? So they, they know what they need to pay out and they can estimate, you know, what they're gonna need to pay out in future years. And that, that allows them to reverse engineer, okay, what kind of return do we have to generate?

• 11:39Speaker 01

  If we need to generate a six percent return and we think stocks can give us nine percent and bonds can give us five percent, you know, we can sort of dial it in by mixing that together. And in general, that was run in like a very conservative way for a long time, a sixty, forty, sixty percent stocks, forty percent bonds, seventy percent stocks, thirty percent bonds portfolio. And by the way, that worked really well when bond rates were in the late seventies and early eighties, you know, double digits or high single digits. You could kind of get a very diverse return set from both of those categories. David's innovation and a handful of other people at other schools kind of simultaneously, you know, was to say,

• 12:22Speaker 01

  look, that there's more than just these two things to do in the world. And as a matter of fact, even amongst those two things, we think there's an opportunity for outperformance, right, alpha? And so that started to bring in venture capital and over time hedge funds and whatnot. So by the time I arrived, call it twenty years ago, the endowment side of that world, pensions were still run pretty conservatively. The endowment side of that world, which is more, you know, my bailiwick, had become much more adventurous. And I would say had really

• 12:56Speaker 01

  Stepped away almost completely from a traditional asset allocation of we've got these buckets, we've got these targets, and had moved more toward call it talent acquisition, right? We're in the talent acquisition business. We want to go find Logan at Redpoint and basically we want to give him a bunch of money and get out of his way. If it's a scalable strategy, we might give him a ton of money and get out of his way, right? Like we'll let all the Logans and other fund managers of the world kind of create our asset allocation for us from the bottom up. If you Julian Robertson, who passed away yesterday, I think, you know, ran Tiger Management,

• 13:35Speaker 01

  which was kind of it's the hedge fund of, you know, the 80s and 90s and is the the godfather of so many great funds today. You mentioned Philippe LeFond, right? Came out of Tiger back in the day. Tiger Global obviously came out of Tiger. You know, his, if you invested with Tiger, he could truly, he could buy Japanese yen, or he could short, you know, European, like German auto manufacturers. And so he really was like running an asset allocation for you. You gave him $100 million and he's going to go try to optimize that anywhere in the world. So that that became a thing by the early 2000s, which which doubled with, at that

• 14:20Speaker 01

  time, you have the dot com crash, right? Everything sucks, but this one little piece of the world, these hedge fund managers are killing it, right? Like they nailed it. They they got the short side right. They got the long side right. They're putting up 20% annualized returns while the market is down. That just looks like, you know, the perfect strategy. And so over time, all this money flooded into that. And that really is a talent business. And certainly back then, that was the promise of it was you got to go find these genius investors and give them the money.

• 14:53Logan Bartlett?

  Hey, and one point, and I realized we're about to get into when you got into the the asset class in general, but one question to this, why were endowments? I mean, was it just Swenson was the one that was most aggressive? Was it that they didn't have to fund liabilities in the same way that a pension plan did? And so they they were the first that could be a little bit more aggressive? Like, why were why was endowment the one that really led the the way from a risk standpoint?

• 15:20Speaker 01

  You know, it's an interesting question. I have I'll surmise, which is Endowments that we think of them today, you know, Harvard has whatever 40 or 50 billion dollars, that same endowment 30 years ago was probably a couple hundred million or 400 million dollars. It was just a much less important asset. And so I think they had the flexibility to go get it, right? The other thing was, especially for those kind of like really blue chip universities, their alumni base were the people running these funds. And so it's not necessarily that they were investing in their own alumni, but the trustees who are involved with overseeing the endowment, they themselves had a huge amount of comfort with what private equity is, what venture capital is. And so I think

• 16:04Speaker 01

  there was just a really natural inclination there. And then frankly, you know, most endowments, you're paying out 5% every year, but you're also receiving 2% or 3% in gifts, could even be higher if you're at a great school, it could be a little less if you're at a maybe less, you know, philanthropic school. But, but actually that meant your, your like outflows were pretty low. So they had the longest timeline, time horizon of any institutional investor. So it gave them, I think, a whole bunch of little advantages that accumulated. And then frankly, you know, they were some of the first organizations to really build internal teams. And I think the teams all talked to each other and they still do. It's

• 16:48Speaker 01

  obviously a very incestuous place. I'm sure you see it when you're in the fundraising world. They, they all do reference checks with each other, you know, which is, you can, you can write your own question marks around that. But, but yeah, so they, lots of idea sharing. And I think it worked, right?

• 17:05Logan Bartlett?

  It's generated absolutely amazing returns. And so, so, so the dot com bubble, there was a bunch of asset flows into, I guess what we call these more risk assets, particularly from endowments, right? And they went into venture, which drove the, the last dot com bubble in a meaningful way. And ultimately for a while generated great returns and then there were major outflows. That was a period of exuberance, I think, for people that know the history of all this. Julian Robertson, rest in peace, actually called it quits because He was shorting for so long and ultimately was like, I just, something's off here. And I think the market actually corrected like three months after he wound down his fund or something like that.

• 17:43Speaker 01

  I mean, he goes on almost the exact top of the math.

• 17:46Logan Bartlett?

  Yeah, exactly. But he was right. It's just over a long, you know, it's one of these things. You can be right, but you have to be right with time as well. And so, so then there were a bunch of people that made, made a bunch of money actually hedging against the, a lot of the things in the public market. And there's obviously the story of George Soros and all the stuff he did in the early 90s with, with what was it, breaking the actual pound, right?

• 18:14Speaker 01

  Yeah, he broke the pound famously.

• 18:15Logan Bartlett?

  So these hedge funds, there were a bunch of inflows into this sector and the asset class ballooned quite a bit over the, and we've, we've referenced a bunch of the, the, the people here, but there were a bunch of dollars that flowed into the asset class over the, the 2000s. And that was when you got into the industry. Is that right?

• 18:36Speaker 01

  Yeah. And what I'd say from there, you know, that continued to work for a period of time. But as I was referencing, the endowments have now become huge, huge piles of capital. They obviously don't pay taxes, which really helps their compounding journey. And as they've grown in importance, interestingly, I think they've now started to put more quantitative and for lack of a better word, I'm, I'm not sure I agree with the, the implication of what I'm about to say.

• 19:05Speaker 01

  But they put more science into setting their asset allocation, right? So they went from these pure, let's just go find the smartest people to saying, you know what? That's really, that is true. We want to do that. We of course want to find the smartest people, but we also want to optimize the way all these pieces come together. And so real hardcore asset allocation from like a quantitative standpoint and figuring out how all the parts come together, that's become a very important part of what almost all of the leading endowments are doing today. Of course, you know, that one of the fun things of that is that because you're measuring, you know, you managed what you can measure. Well, one thing you can measure is stock prices every day.

• 19:46Speaker 01

  One thing you can't measure is venture capital portfolios every day, right? So anything that's illiquid looks awesome on all these metrics because they look less correlated than they really are.

• 19:58Speaker 01

  Right? We're going to get venture marks for Q2. You probably know better than me over the next, we've probably started getting them in the last two weeks and we'll get those marks for the next three weeks.

• 20:08Logan Bartlett?

  Yeah, we sent our letter out last week, I think.

• 20:11Speaker 01

  Yeah. And, you know, my guess is you guys weren't down quite as much as the NASDAQ was down, right?

• 20:17Logan Bartlett?

  That's because we're significantly better than.

• 20:18Speaker 01

  You are significantly better. That is now. And look, look how much less volatile you are too.

• 20:24Logan Bartlett?

  Yeah, exactly. You know, it's funny, I remember an investment I made and they just totally whiffed the first two quarters and now it's a $5 billion plus company in the private markets and we invested at, you know, it was like 100 million valuation or something. And, and I just totally would have sold if I could have. I was just like, these guys aren't executing, blah, blah, blah. And, you know, it's one of those things that the illiquidity can be a feature of the, of the private markets, right? But you're right. And this is an interesting point, I guess, at a macro level for the asset class. And we've talked a little bit about this on the podcast, but basically what's happened

• 21:04Logan Bartlett?

  over the last couple of months is the public book. So, so at a high level, a venture or an endowment maybe has a target of venture capital at 15% or something, right?

• 21:16Speaker 01

  Right. Which would be historically, that's a huge number, but that's where all the big endowments are now. And they kind of have to be there because the performance's been so good that they're at 15 anyway, even if they didn't mean to be.

• 21:26Logan Bartlett?

  Yeah, that's right. That's right. And so now they're at 15% and their publics of, let's say their publics were, I don't know, 30% or 40% or something like that. Publics have been whacked pretty hard over the course of the last six months, as, as I think everyone's seen. And that gets marked to market on a daily basis, right? Well, as that gets marked down, your privates are up now as a percentage of the overall pool because of the denominator effect here.

• 21:54Speaker 01

  Yes.

• 21:54Logan Bartlett?

  That the publics are getting whacked. And so the privates, if they're not being marked down every single day to the same extent, which they're not, that 15% target is now creeping up. For no reason other than the publics are getting marked down every single day, right?

• 22:10Speaker 01

  And on top of which, you know, if you're managing an endowment, you're managing to the assets in the ground, but you also, every time you partner with a private equity or a venture capital manager, you make an unfunded commitment, right? And so that as a percent where I commit $100 million to Redpoint today, and it's going to get drawn over the next, what, two to five years? Depends on the type of venture manager it is. And so that's a liability on my books. And the liability as a percent of my assets is growing because it's not shrinking, even though, you know, there's markdowns happening. So they have two things happening. To your point, the actual private amount is growing, which is probably a little bit of like

• 22:54Speaker 01

  vaporware, so to speak. And then the liability is growing and that's real. And so that that starts to make people nervous. I don't think anyone's at fear mode quite yet. But if you had another six months, like the first six months, I think you would start to see some endowments in fear mode.

• 23:11Logan Bartlett?

  How do you, how do you handle this? Cause one of the things I keep, I mean, we're seeing a lot of triaging with venture managers in general right now, right? And, and again, if you play through what we just talked about, right? And you wanted to be at 15%, maybe you gave commitments that take you, the public market trading down or whatever it is, takes you to 20%, right? And then you have outstanding liabilities and commitments that take you up to another 24%. So now you're 9% above where you wanted to be at all, right? And so a new manager is Logan spinning out and wants to go raise his new fund. And you're sitting there as Yale Endowment or Harvard saying, hey, Logan, great.

• 23:56Logan Bartlett?

  We loved what you did at Redpoint, but we just, we're so overweight here. And so what we're seeing right now is definitely some triaging of, of managers where when some of these people are going back out to fundraise right now, they're, the money's not there for them, right? And some of it's net new, but some of it's existing managers as well. How do you think as all this stuff sort of plays through, especially in the venture market here, which is kind of the funkiest venture in private equity, I guess, in general, or kind of funky markets for separate reasons here. But as you sort of think through, How this stuff plays through, do you think this inevitably ends up with just far fewer

• 24:39Logan Bartlett?

  managers and a bunch of triaging of all this?

• 24:43Speaker 01

  I mean, it depends on how long it lasts for, of course, but venture and private equity have similar characteristics, but they have one important difference, which I'll just point out, which is for buyouts for private equity, someone has to sell for another manager to buy, right? It's and therefore your flows are generally more well matched. Like you, you rarely will be in a moment in time where there's tons of capital going out and none coming back because either people, either transactions are happening or they're not, and that happens for both your assets and your liabilities. In venture, it's different, right? Venture is primary capital infusions. And so there's always capital going out and there doesn't always have to be capital coming back.

• 25:28Speaker 01

  And so you can get really over your ski tips in venture.

• 25:31Logan Bartlett?

  And just to say this back, because that's a nuanced point, but in private equity, right? The way you exit a business, if I own a house, right? And I always go to house as a simple example, right? If I sell, for me to get liquidity on my house, I quite literally have to sell it to someone else, right? That's the way like there's a buyer and so the, the order book is matched where there's a buyer and a seller. In venture, that's, that's not the case.

• 26:01Speaker 01

  Your building house is in venture.

• 26:03Logan Bartlett?

  Your building house is in.

• 26:04Speaker 01

  Capital going into the ground.

• 26:05Logan Bartlett?

  Your building house is in venture. And then even when there, there's an opportunity for liquidity, it might only be small bites over time, right? We're saying, hey, we're just selling off the bathroom right now. That's all you can sell. And you're saying, well, actually I want to sell the entire house. And it's saying, no, no, no, we're only selling off the bathroom. And so it doesn't get matched in the same way. And so it ends up being this, this illiquid kind of cycle that exists throughout, right?

• 26:32Speaker 01

  Yeah, right. So it's the most extreme version of that. And therefore the LP side of it is going to respond in a more aggressive manner to venture than to private equity, right? And then of course, you know, you somehow have to come up with the funds to fund the venture calls that are happening. And so where are you going to go get that from? You're, you know, if you're an endowment, well, bonds just had their worst six months, their worst six month start to the year ever in history. And equities, I think the S and P was down 21 in the first half and the NASDAQ was down 29 or something like that, right? Those, those are your two choices. You can go sell one of those two things, right?

• 27:17Speaker 01

  Or you can redeem from hedge funds, but actually that takes a while. So you don't have a ton of good choices about where to come up with liquidity. And so that's going to really have LPs put the brakes on taking risks in venture, right? So if you, if you're a really core manager and you want to raise the next fund, yes, they'll make the commitment. But if you're kind of on the second or third tier of how important you are or how comfortable they are, it's going to be a very, very hard environment. And, and I'm sure there are clients, LPs who are reaching out to venture managers saying like, you better not call the whole fund.

• 27:53Logan Bartlett?

  Yeah.

• 27:53Speaker 01

  Right?

• 27:54Logan Bartlett?

  No, no.

• 27:54Speaker 01

  It's not the time.

• 27:55Logan Bartlett?

  I know, I, I know that's happening for sure across the ecosystem because they don't want to fund, again, back to this, these are unfi- or these are funded liabilities, I guess, but they, they don't want them called because they don't, you know, necessarily have all the cash on hand, ready, ready to go on the LP side. One question that we, we were sort of going back and forth with a little bit, and as these, as these endowments have gotten as big as they have, right? And I don't know what Harvard is, 30, 40 billion dollars and Stanford's similar and, you know, MIT's similar and.

• 28:28Speaker 01

  Yale, Duke, Notre Dame.

• 28:29Logan Bartlett?

  Yale, Duke, all, all these are tens of 20 billion dollar plus type things. And as you start looking about the fees, in particular with hedge funds, as well as use some of these large private equity funds, as well as, I mean, venture is, is a small asset class related to all these, i- i- in relation to all these others, but it still is significant in terms of some of the dollars associated with this.

• 28:55Logan Bartlett?

  You had theorized at some point that there's a, you know, when is someone going to say, hey, we're paying $500 million, a billion dollars in fees a year, right? To all these different managers. We should just bring this in-house and, and why don't we go hire, you know, Compound 248 and Logan and a bunch of these people to come in-house and try to build it rather than outsourcing the talent, right? And this is sort of, it's akin to the build versus buy decision that a lot of tech companies ultimately need to make, right? Is Google is looking at, I mean, famously Dropbox, I guess, is a great example of like, they wanted to run their own servers and not use AWS, right?

• 29:39Logan Bartlett?

  And so they looked at it from a pure cost benefit standpoint and said, hey, we're going to do this ourselves instead of paying this bill to AWS. Now, what's missed in that calculation is the opportunity cost of having someone that's best in class doing it and all that. But do you think we're anywhere near one of these big endowments saying, hey, we're just going to build, you know, whatever, the Harvard Ventures and Harvard Private Equity Fund and run this themselves?

• 30:06Speaker 01

  We'll come back to Harvard in a second, but let's take a hypothetical endowment in like New Haven, Connecticut.

• 30:11Logan Bartlett?

  Sure.

• 30:11Speaker 01

  And let's say they're like $30 billion.

• 30:14Logan Bartlett?

  Yep.

• 30:14Speaker 01

  And in fiscal 2021, right? So their fiscal year is a school year. It ends in June. I think Yale was probably up something like 50%.

• 30:25Logan Bartlett?

  Yep.

• 30:26Speaker 01

  So if that means they went into the year and they're probably bigger than 30 billion, but they went into the year at 20 billion, they ended the year at 30 billion. They made $10 billion. Now, I would bet the vast preponderance of their assets pays incentive fees. So they easily could have paid.

• 30:46Speaker 01

  One to $2 billion in fees to managers in fiscal year 2021. So really, that's the question is how tolerable is that? Because I can almost guarantee you, if you were willing to take a budget of a fraction of $2 billion, if you were willing to take a budget of a quarter of a billion dollars, you could go out and rebuild world-class venture capital hedge fund, like everything. And so that's really your question is why don't they do it? At least that's how I perceive your question. And if you go back to the 90s, Harvard actually ran most of their endowment or a lot of their endowment internally.

• 31:29Speaker 01

  And ironically, they did great, but what did that mean? That meant they had to pay Wall Street wages and they had all the highest paid people at Harvard worked for the endowment. And of course, that's all filed and disclosed with, you know, as a not-for-profit, you've got to file all these. And so everyone could see the salaries and of course, you know, the summer of love, the class of 1969, like started a protest, so to speak, over the wage, over the compensation that Harvard endowment employees were receiving, even though they were really saving the school hundreds and hundreds of millions of dollars and their performance was great. And what did that end up doing?

• 32:11Speaker 01

  It actually ended up driving all those people out and they ended up starting lots of what are now famous funds as these like ex-Harvard employees who the day they went out, they basically like quintupled how much they could make. Yeah, they might've made $10 million at Harvard, but they could make $50 million a year in the real world. And so I think that is the hard thing is, you know, at University of Tennessee, I would bet the highest paid employee is the football coach. I was about to go there. Yeah, this is always whenever you see that. People accept it though, because they love it, right? Nobody loves the Wall Street guy who's like sitting next to, you know, the CFO at the University of Tennessee and they certainly don't want him or her to make as much as,

• 32:55Speaker 01

  you know, I don't know, UT's coaches, Phil Fulmer. Josh Heiple. Oh, I'm so sorry, man. Yeah. Anyway, yeah.

• 33:06Speaker 01

  Anyway, so yeah, I mean, it's really a political football.

• 33:10Logan Bartlett?

  Yeah.

• 33:10Speaker 01

  And so I, I, I just think it's going to be super hard. Now, you could get there. I, I think they could get there if Yale just started publicizing how much they pay in fees. Now, they don't want to do that either, right? Cause in the end, there's a risk that they could just be forced to index everything like, ah, this is crazy. You're paying $2 billion in fees, like, like, think of all the scholarships.

• 33:32Logan Bartlett?

  It's amazing. It's amazing how much all this stuff kind of comes back to like, uh, you know, uh, incentive design. We talked about this last week with like Google, you know, uh, and, and why ultimately like what you're bonused on and what you manage people towards and the existing structure of how you set all this stuff up ultimately, uh, leads to some level of calcification no matter what, right?

• 33:57Speaker 01

  Yes.

• 33:58Logan Bartlett?

  And so it's just, it's a lot easier to outsource this functionality and get back a net number to yourself where you can kind of plug your ears and close your eyes and say, hey, we went from 20 billion to 30 billion rather than, you know, it would be 32 if we didn't pay out those $2 billion, right?

• 34:17Speaker 01

  Think of the compounding on that, right?

• 34:19Logan Bartlett?

  Yeah, the compounding on that over the years. It's a fascinating, um, kind of change management problem. And an interesting point you have of getting from here to there, uh, risks throwing out a very good baby, uh, with some bathwater, right? Uh, is you could end up blowing up everything that you've built from trying to get, get from here to there.

• 34:38Speaker 01

  Yeah. I mean, hear no evil, see no evil, speak no evil on the fees. And then, you know, I think the, what's that Munger saying, Charlie Munger? It's show me the incentives and I'll show you the outcome.

• 34:49Logan Bartlett?

  Yeah. Yeah, it's interesting. Uh, well, shifting gears a little bit, I, I appreciate you going down that rabbit hole with me because I think all that stuff is, is fascinating. No, I, I, I love it. So, um, what you're doing now, uh, so you have, how much of it is, is, uh, tech broadly speaking, uh, in, in your, your current, uh, fund structure?

• 35:10Speaker 01

  So a year ago, I would have said my single biggest risk that I'm taking with my fund, if you wanted to look at it from an outsider's perspective, is that I had almost no tech, right? Um, now.

• 35:23Speaker 01

  I could kind of parse that today I've started to build now I've tracked it I've been following it we've had picks and shovels to tech but today I'd say that's probably you know a quarter to thirty maybe thirty percent of our assets and I mean again if you go back a year ago and there's all these great businesses that I would look at and admire but I wouldn't really dig in to you know the fundamental valuation because it's just like it's so far away from what I would buy that I'm not going to waste time they might have relevance to competitive dynamics but that's sort of where I'd end up but if you had told me a year ago hey this company is going to be down eighty percent I was a well then it will definitely be a buy right just because it's gotta be down eighty percent and now I look at tons of tech companies that are down seventy eighty ninety percent of course you're like well actually you know there's a lot of questions I mean the the end question of what the mature state you know margin profile and scale those are it's obvious for some companies and you know those are generally still pretty richly valued and where that uncertainty exists there's opportunity but you're you really need to be sure that you're going to be right because the you know to go down ninety if you've gone down eighty percent to go down ninety percent is another fifty percent so like it's not like you're taking no risk stepping in when something's down eighty percent right it really comes down to in the end how much cash is this business going to generate for me and so I'm I'm starting to build tech positions I probably have four meaningful positions and I'm a pretty concentrated investor but but it hasn't overwhelmed the portfolio yet

• 37:15Logan Bartlett?

  And so one of the things that I think you you do that's interesting to me is you you will dabble in a bunch of different areas right and you've alluded to it you'll do some early stage venture stuff you'll do some obviously public market investing I think you do some debt stuff is Well, and you'll do some things that look kind of akin to venture. One of the things that I'm very cognizant of at a personal level is like, there's a lot of smart people waking up every day, focusing on any individual company, any individual sector, any individual geography. And if I'm not that person waking up every day focusing on that, there's definitely someone far smarter than me that is, right?

• 37:58Logan Bartlett?

  And so I always worry that if I'm not singularly focused, I'm the fool in the room like that, right? And so I, I, I stay, I'm series B, series C, software mostly, you know, things with like 60, 70% gross margins at scale. I sort of have like a little box I stay in, right? And ultimately I'll deviate some from it, but you actually, and I think some of the great investors of all time, you know, Charlie Munger and Warren Buffett and a bunch of people have, have dabbled across business models, across different tranches of, of, securities and all of that. How do you think about making sure you're not the fool in the room? You know, investing in one of these businesses?

• 38:39Speaker 01

  The, the risk of the generalist is that you're the patsy at the table, right? Everyone else knows more about a situation than you do. The risk of the specialist is that you lack context, right? For sort of what's happening in the world and the ability to compare opportunities across sets, right? And, and I could argue maybe that's both a benefit and the cost of venture capital. And you kind of like take that as.

• 39:05Logan Bartlett?

  It's like David Epstein, Range book. Do you ever read that about like how specialization? It's like kind of the Tiger Woods versus Roger Federer example? And how many problems have been solved by generalists versus people specialized in a single ray?

• 39:18Speaker 01

  Yeah. So I read his sports gene book, but I've not read range, but I've heard him interviewed about it. So I totally get the concept and it's about sort of, you know, what is he called them wicked? Like there's basically environments that are more static and more dynamic.

• 39:32Logan Bartlett?

  Yeah.

• 39:33Speaker 01

  Right? And so tennis is a more dynamic environment and golf is a slightly more static environment. And then during the high jump is a very static environment. Like you know exactly what you're doing. And so investing is very much a wicked environment where it's a dynamic feedback. And so, you know, the the analog from yesterday only applies so much today. But, you know, for me, as the generalist, I I think it's really important for me to know, like, I could be the patsy at the table. And so when I'm looking, my first filter is, can I understand this business? Right? And for me, understanding it is, I can clarify what its competitive advantage is, what the competitive dynamic looks like.

• 40:17Speaker 01

  And I can crystallize what I think unit economics can look like. So if I look at something like Snowflake, and like, my head kind of glazes over. And e- even though I can kind of understand what the business does, I realize my ability to really be nuanced and have a view on what this can look like in five or 10 years is really low. So that's just becomes an easy pass. But then there's a lot of businesses that are ostensibly tech that are actually retail businesses. Or software businesses are actually quite easy to understand conceptually. Certainly, some of them are, or they look more like services businesses. And then you you can really, I think, compare across industries.

• 41:01Speaker 01

  And so I think one of the things that maybe people got caught off sides on in the last couple of years is thinking, you know, DTC e-commerce businesses are like a special kind of business model that have, you know, natural competitive advantages because they're tech and modern. When I would look at them and say, hey, you know, I I see the way they're reporting LTV to CAC, the lifetime value of the customer to the cost of acquiring the customer. And actually just fundamentally disagree with the way they calculate it, right? Which makes me, A, question the quality of the business and B, question the quality of the management team, like, pass, or maybe even short. So so I think it's doable, but you kind of have to pick your spots. And, you know, I I don't, I only need a handful of things, right?

• 41:46Speaker 01

  This year. Maybe I've acquired in any meaningful size, like five new investments. That's a pretty busy year for me.

• 41:55Logan Bartlett?

  Yeah.

• 41:56Speaker 01

  So, so I don't have to do everything, but the things I do do, I need to be able to understand and elucidate pretty clearly.

• 42:04Logan Bartlett?

  So, so let's talk about the things that you do in, in, in my world. And one of the ones that we alluded to at the top is, uh, is, is Spotify. Uh, and I, I think it's a fascinating company, uh, with a lot of, uh, interesting directions that they can go in from here. So what was your process, I guess, just for, for people that are interested in public market investings in general? Like, how, how'd you go about building conviction and thesis, a thesis around, uh, Spotify as a, as a business? Like, what were the, the actual things that you did to gain conviction? And then what, what was the thesis of where you thought they could go?

• 42:44Speaker 01

  Sure. So, I mean, Spotify, obviously a business that I was just sort of latently aware of, was aware of it pre-IPO as a consumer product, right? Streaming music, um, then was aware of it, obviously, when it direct listed and, and looked at it a handful of times at a light level over time. And basically kept coming away saying like, gosh, I kind of like the business, but it's just a hard price, right? And ultimately, and we'll, we'll get to it in a second. For me to make an investment, I need to have a view on what I think the end state like bounds around what the end state could look like. And it's hard to be really aggressive with Spotify's end state, which is what we'll talk about.

• 43:28Speaker 01

  And I think the market was implying that this is going to be one of the great business franchises. It's obviously a multi-billion dollar business. It's, it's a great company, but it's no Google.

• 43:41Logan Bartlett?

  And now you, you, the price was reflecting that.

• 43:44Speaker 01

  The price was, the price demanded that the company perform in a way that I would never be comfortable betting on.

• 43:51Logan Bartlett?

  Yeah.

• 43:51Speaker 01

  Right? That ultimately its margin structure in 2030 or whatever is much higher than I think it's easy to justify. And even today, it's a medium sized position for me because the hard thing is what is that margin structure going to be? And Spotify as a dominant is the leading, you know, business model for streaming music, streaming audio. However, And so you would think, okay, they've got this massive scale advantage. Scale is automatically going to give them, you know, the ability to take margin over time, et cetera. But realistically, they, they're one of, call it four or five important music distributors.

• 44:33Speaker 01

  And there's only four music suppliers and that's what really makes the business model challenging. Right. There's three big music labels, Warner, Universal and Sony. And then there's this kind of like co-op called Merlin. And those four run an oligopoly and they own the content. Right. So Spotify has to license the content from them. And they're never going to have an advantage over those four players. Because if Spotify doesn't have, you know, Universal Music on its service, it does not have a service.

• 45:07Logan Bartlett?

  Yeah. And that's what's interesting. And by the way, before Spotify went public, they had to actually renegotiate. Uh, I mean, there's clearly the, the, these labels basically act effectively as the mob. And they get to say to Spotify, how much margin Spotify is going to have. And so every, every time these negotiations come up, it ends up being some very tense negotiation. Or it has been historically, we can talk about the optimistic case of why it might not be going forward. But it's some tense negotiation of, hey, we'll give you this amount of, uh, we'll give you this amount of profit that you're going to be able to generate here. And it's negotiated not as a fixed upfront payment. It's negotiated as a percentage of Spotify's sales.

• 45:50Speaker 01

  That's a good share.

• 45:51Logan Bartlett?

  It scales linearly, right? So it's actually like gross margin is fixed in this case. Uh, and so it leads to this very interesting dynamic. And then the implicit thing that I think people understand when, when you say it out loud is that you need the back catalog to exist at all as a, as a, uh, as a publisher or as a aggregator of music. And so if, if you don't have the Beatles, I think Garth Brooks maybe is one of the few that's still holding out. But for a long time, there were a bunch more. And if you were missing Sony's back catalog or Universal's back catalog, there was a huge hole in what you had. And therefore, that was almost like not having a service at all, right?

• 46:34Logan Bartlett?

  If you didn't have the Beatles and Kanye West and, you know, Jay-Z was on title for a while, then people wouldn't use your service, right? Which is different than Netflix or HBO Max or whatever, where you're not, I just finished watching The Wire again for the second time and I'm watching Sopranos again for the second time. But I'm not watching that 25 times, right? I've listened to My Beautiful Dark Tasted Fantasy by Kanye 25 times, right? Or whatever it is, 125 times. And so that, it's just a very different dynamic between the two services, both because of the oligopoly nature of it, as well as, you know, the usage and behavior of their end consumers.

• 47:17Speaker 01

  Yeah, and I would add, it would be one thing for Spotify to not have the Beatles, as long as Apple Music doesn't have the Beatles and YouTube Music doesn't have the Beatles. It's a whole nother thing if it's only Spotify that doesn't have the Beatles, right? Because in the end, they're trying to sell a commodity product, which is access to all the music in the world. That's very different than Netflix. Netflix is trying to sell unique IP. You can only get Stranger Things on Netflix. You can only get, you know, certain licensed content on Netflix. And so because one is reselling a commodity product and one is trying to create and license unique content,

• 48:01Speaker 01

  that makes them like really different business models. Even though in our head, we think of them as, oh, they're both streaming services. The fundamental way they have to compete is totally different.

• 48:10Logan Bartlett?

  And so let's play this out for a second. Because I would have thought initially when they both went public, I sort of, and I don't know to what extent, Ben Thompson, I just read his stuff and it kind of blinds my thinking. Uh, you know, I'm just like, oh yeah, that's obviously the right take. But I originally sort of agreed with Ben, that having differentiated content was better, right? That Netflix had a better business because they had differentiated. Content versus all the other services that were out there and Spotify was worse because they had commoditized content on the backend. Now, I think we would both agree that the the linear scaling of cogs is worse, right? But like, you know, just the supply element

• 48:54Logan Bartlett?

  of it between the two, I think I would have, I definitely defaulted to Netflix having the better of the two.

• 49:00Speaker 01

  Right. So ask yourself, like, is Walmart worse than like Hermes, right? It's like, well, one has really unique content, like high-end fashion, and the other sells the same thing. Every store in the US sells, they just do it at scale. And that, and it means they have to operate with a really low-cost operating structure in order for them to generate margin over time, right? Because it's not like Spotify doesn't have any margin. Their gross margins are mid twenties and they would say like their music gross margin, because they're doing other things, podcasts and whatnot that are blending it down. They have advertising business models and they're doing other things. Their music

• 49:41Speaker 01

  gross margin is 28 and they think it could be whatever, call it 30 to 35 over time. So they have some pathway to gross margin expansion, but the real pathway to fundamental bottom line margin is through running a really lean business, right? So they need revenue to grow, gross margin to grow faster than that, and then free cash flow margin to grow the fastest because they're efficient with OpEx. And so that becomes your question is, does Spotify believe that? Right? Like, does Daniel Ek want to run a lean, efficient business? And of course, like, it's a commodity content product, but they're trying to bundle it and package it and customize it in ways that are unique, right? Your playlist, knowing

• 50:23Speaker 01

  your tastes, being able to integrate podcasts into it, which could have a fundamentally different gross margin profile over time, whatever. But yeah, I think you have to look at it and say, all right, my decision in owning Spotify is that the commodity content is a feature, not a bug. And we need to operate into that as a strength.

• 50:41Logan Bartlett?

  Yeah, I think that's kind of proven out in that, like, ultimately, it controlled the playing field by which you're competing, right?

• 50:51Speaker 01

  Totally.

• 50:51Logan Bartlett?

  Spotify has been able to out-execute on the pure UI and ML and just the overall experience on the front end, where the back end's all the same. It doesn't matter if it's Amazon or Apple or whatever. So they were able to focus their attention on the front end, which, which seems to have, just on the music side, and let's talk about the podcast side in a second, but seems to have given them leverage now over some of the music labels in the sense that, I don't know if this is explicit or implicit, but I'll tell you, those, those playlists that they've come up with, whatever, Rap Caviar or Beats, whatever, like, those are-

• 51:28Speaker 01

  They make artists.

• 51:30Logan Bartlett?

  Those are definitely having impact on the discovery side. Because when, when content is commoditized, or when it's the same across platforms, discovery becomes much more important, right? And now that Spotify has these great ML-driven playlists and all of that, they're actually increasingly getting leverage over the labels, right? Which is just this thing that I never really saw happening, but it's impressive to see how well they've executed on that.

• 51:58Speaker 01

  Yeah, I mean, so go back to the Walmart discussion, right? So the end cap, like, the very, the closest part to you when you're about to go down an aisle, that's the most valuable place for a consumer products company to place their product. And that's like the playlist. If you can get on Rap Caviar, you're on the end cap on like a retail, you know, strategy. Now, the other thing to your point is, I wouldn't say Spotify has leverage over the labels, but they've become highly useful to the labels. And I would say, at this point, the labels really can't walk away from Spotify either. They're gonna walk away from 20% of their revenue base if they do that. And a huge amount for their most popular artists, like, who are the most streamed artists as well, right?

• 52:43Speaker 01

  And so, I would say it's become a little more balanced. I don't think Spotify is ever gonna get the better of them, but they know Spotify is a great channel. For the labels and therefore their artists to reach the end user. So like, uh, you know, Justin Bieber coming to your town, Spotify can make sure you're aware of that, sell you tickets, sell you the T-shirt, you know, get you into their, um, you know, Justin Bieber fan club, whatever it is. And so that, that has become an extra piece of margin where even though they might not get a better deal on music from Universal, Universal's kind of able to pay them a little bit more through the back door a little bit. And, uh, you

• 53:26Speaker 01

  know, they, they pick up margin there. And so, yeah, that quote marketplace model has become very valuable, um, to Spotify. And that's a really high margin business because it really is more like, um, you know, if you look at Amazon, Amazon has the one P business, where that's a low margin, high capital intensity. They have the three P business where someone else is selling the products on Amazon marketplace. That's more like what the Spotify marketplace is. That's a really high, we just have a take rate. We, you know, we don't have to have inventory or anything that goes on.

• 53:56Logan Bartlett?

  Yeah, exactly. It could, it could become instead of paying per play, a number that's negotiated every couple of years. Hey, if you want to get on our rap caviar playlist, you know, that's incremental money to us and it's advertising or promoted or whatever. But that's like, kind of found money that has very, very high gross margins associated with it. So what was your long thesis? Uh, was, was it all of this stuff that was kind of playing out? Or how much is it related to transitioning, talking on, and nothing, uh, people that have podcasts like more is navel gazing about podcasts. So how much, how much is that a factor, uh, in there as well?

• 54:34Speaker 01

  I, I think so. So what my, my thesis was triggered by, in fact, obviously the stock has plummeted from, it was, I can't remember the highs, probably near 400. And I started getting interested in the mid hundreds. And I think it got all the way down to like 80, right? Or 80, maybe it was the high 80s. And so just to be clear, like I was buying all through there and no investment advice, et cetera. But, you know, I was early, it was a bit of a falling knife and. But at a hundred dollars, the what you have to believe about the business had like your expectations have gone down and now it really becomes okay in the long run. Can Spotify make a 5% free cash flow margin?

• 55:18Speaker 01

  Can they make a 10% free cash flow margin? Can they make a 15%? And what are the pathways to that? Like how, what do I have to believe to get there? So we talked about music gross margin going up and you're right, they've spent a huge amount of money investing in now becoming, depending on how you measure it, either the largest or second largest podcasting platform. And that has been a negative gross margin business, right? They paid Joe Rogan, whatever, a hundred twenty-five million dollars and that's cost a good sold. They need to sell advertising against his podcast and against all these others that now need to come through Spotify like yours to reach end users because they, you need to go where the listeners are.

• 56:00Logan Bartlett?

  Yep.

• 56:01Speaker 01

  And so they want to sell advertising there and that's going to go from being a gross margin drag to in the next year, probably being gross margin positive and maybe over the next five years could look more like the music business on a gross margin basis, which is a huge incremental driver of value. And so it's a handful of things like that, right? You've seen they start to roll out a lot more focus on video. It would not at all shock me if that becomes a bigger area, right? So when you watch, I mean, when you listen to a song, if there's a great music video it'll play, or if you're watching this podcast, you'll see this, you know, it's like being on YouTube, it's streaming while you listen.

• 56:42Logan Bartlett?

  We're in the beta program for that and it's been a little buggy, but they've done a good job with it. I think that's what's refreshing them and YouTube. It's funny, people talk about Apple Music and Apple Podcasts. From my vantage point, like the only two platforms that are actually innovating at all are Spotify and YouTube, right? And it's interesting to see the two of them converge and, and compete now. And ultimately, I mean, Spotify's been amazing. People rag on the Rogan deal and I, I personally am not, listen, I don't listen to him and I'm not a fan of, nor do I support a lot of things.

• 57:16Speaker 01

  Sucks on him though, you're gonna have to listen.

• 57:19Logan Bartlett?

  What's that?

• 57:19Speaker 01

  Zuck is on it today.

• 57:21Logan Bartlett?

  I know, I know, I know. I can't believe Zuck would want to go head to head with us on this. But yeah, I, uh, he's not my, uh, my personal cup of tea, but I respect what he does as a, you know, certainly as a person in the orbit and just that alone has driven so much, uh, uh, expansion in the podcast for Spotify. And now you look at some of the stuff they're doing with video and some of the stuff they're doing with discovery and YouTube as well. These are the only platforms that because it was so RSS based for so long, Apple Podcasts, I think, I think set back the industry's development for so long because they were so focused on this RSS feed only as a means of consuming.

• 58:04Logan Bartlett?

  And that limited a lot of things you can do around search. It limited a lot of things you can do around monetization and advertising. It limited a lot of things you can do around cross promotion and just all the different stuff that now Spotify and YouTube are actually experimenting with. And so it's interesting. I think our numbers, we're approaching Spotify passing, uh, Apple Music for us. Uh, and if you put in Spotify and YouTube, it's definitely more, um, in terms of where our listenership grows. And from a pure focus standpoint, um, we spend, you know, uh, 99% of our time focused on, I guess TikTok, you know, it's its own beast, but for discoverability and

• 58:45Logan Bartlett?

  making sure the content's actually good, like Spotify and YouTube are the two that we really, really play to. And so it'll be interesting to see how, how those two duke it out in the coming, you know, months and years ahead.

• 58:56Speaker 01

  Yeah. I mean, I think from a Spotify business perspective, they've crushed it on acquiring ears, right? Acquiring listeners. They have half a billion MAUs, monthly active users, and they have almost 200 million paying subs globally, right? So like, it's an open question. What can they do with all those ears? They deliver music. Now they're delivering podcasts. They've told you they're going to roll out audiobooks. I suspect there's some sort of video strategy coming, right? So like you've got these things that are all going to layer on top of it. And we already know they've been making the investment aggressively. So the hope as an, as from my standpoint, is that you're now going to be able to leverage that OpEx, that operating expense that they've been

• 59:41Speaker 01

  driving into these products and ride kind of a margin expansion over the next handful of years.

• 59:47Logan Bartlett?

  Yeah. Well, you know, I, I've gone back and forth with Daniel a few times over the years and I haven't invited him on because he can actually see my listener count. And I'm like, I, he is going to know exactly how many listeners I have. And so

• 1:00:01Speaker 01

  What am I doing on here?

• 1:00:02Logan Bartlett?

  Yeah. When I make that ask at some point, it's going to be at a point of like local, you know, maximum of like some big, it's, it's probably this episode in which we really just, you know, millions and millions of downloads and then I'll go to the ask. But no, I think it's, it's an interesting investment thesis and I'm excited. Listen, I, I don't really have a dog in this fight at all. Spotify has been great to me. YouTube's been great to me. And I'm glad both of them are innovating in this sector because I, it's one of these things that has infinite shelf space, right? And so it's funny. It's like when people, people are like, oh, do we really need you with a podcast? I'm like, I don't, you know, I don't know. Don't listen. Yeah. Like it's fine. It's not like I'm stealing a podcast

• 1:00:44Logan Bartlett?

  slot from someone else out there. Right? And so if we can enable the tooling for people to make this easier and let people discover different, different types of, of content that exists out there, that all seems like goodness to me. So I'm a big true leader of Spotify. Yeah, exactly. That's exactly right. So the other one that I think is interesting, and I can't believe we made it this long without talking about is Twitter. So you have a very detailed understanding of Twitter's business model. And so I don't want to go all the way into the details of it, but I think at one point you had talked about there's like kind of four pillars to the, the opportunity that exists for Twitter. And this is before

• 1:01:28Logan Bartlett?

  all the Elon stuff, but kind of the levers that they can potentially pull. I don't know if I'm, if I'm right on that, that, that it's the four, if you're going to be able to recall them off the cuff like this, but maybe, can you talk a little bit about Twitter as a business and where you saw the opportunity before it? When it was just the clown car that drove into the gold mine and not the clown car that drove into the gold mine with the clown driving the car, whatever it is today.

• 1:01:55Speaker 01

  Yeah, exactly. Who knows what you want to call Elon in that? Yeah, I mean, it's a pretty straightforward business model as sort of the redheaded stepchild of big tech, social media.

• 1:02:08Speaker 01

  It is a company that obviously bats above its playing weight in the blue check sphere of news happens and is magnified and clarified on Twitter before it hits the mainstream, right? So in some sense, it's arguably the most important news making platform in the world, but much smaller than TikTok or Instagram slash Facebook meta.

• 1:02:38Speaker 01

  And so, you know, Twitter has got 230 million monetizable daily active users. And the the pillars, and I can't remember how many there were, but you're right, I owned it. This was my only tech company a year ago.

• 1:02:55Speaker 01

  It was really, look, they they have begun to finally, after 15 years, they improve the backend of the platform, which is speeding up the iteration of product development. So the actual on screen product is improving for the first time in a decade. Right? We went 10 years where the major innovation was they went from 140 characters to 280. Right? And then it's a, as somebody joked, you know, at their Investor Day in early 2021, it's like they opened their outbox and said, oh, yeah, and we're going to do these 20 things over the next two years. We're going to roll out subscription products.

• 1:03:37Speaker 01

  We're going to go down the funnel on our advertising product. We're creating an audio product, right? Like this whole handful of things. So to me, coming back to unit economics, it comes back to you've got user growth. You've got revenue per user, right? And then, which is impacted by multiple things itself. One is, can you be more, can you monetize each moment more effectively? But it's also, can you get the same user to spend more moments on the platform? Right? So you need to give them more reasons to be there. And then, of course, in the end, you've got to have, you know, cost management and, you know, you need to be capital efficient. And so I think there was reason to believe that there's

• 1:04:22Speaker 01

  progress going to happen on all four of those fronts over the next five years. And so when you put them all together, it sort of leads to this accelerating improvement profile at the bottom line. Now, it happens that Elon showed up, you know, in the very beginning of April and like totally changed the investment thesis. And as you know, I completely sold the day he signed the deal and then actually subsequently have rebought as a merger arb. But I will say, like, if he had not showed up, I think the stock would have been crushed alongside Snap and Pinterest and Meta. And I think today I'd have to be facing, was I

• 1:05:06Speaker 01

  wrong? Or are we in like a moment in time where they're challenged? Because actually, their MDAU, their user number is continuing to grow quite nicely. But the value per user is facing serious headwinds. And some of that is, you know, downturn in advertising. Some of it might have to do with some of Apple's IDFA and ATT challenges. It's a little hard to know that because they're not telling you nearly as much due to the fact they're in the middle of the deal. But they're, they're not growing this year. And I would have said at the beginning of the year, on autopilot, they're probably going

• 1:05:46Speaker 01

  to grow close to 20%. So, and by the way, that's exactly the same for Snap and Pinterest. So you have to think like, you know, has something changed? If it's really Apple related, it might be a fundamental change that is going to take years to recover from. If it's just an advertising backdrop change, that's probably temporary, which would be better. But those are question marks that I would be facing right now.

• 1:06:10Logan Bartlett?

  Yeah, totally. Well, you, I guess, got out in a good place.

• 1:06:14Speaker 01

  It was the core of my thesis was Elon was gonna show up and bid 5420.

• 1:06:20Logan Bartlett?

  It's amazing how that works out. Elon, the Pied Piper of tech these days. No, I mean, it is interesting, like, take away all the Elon stuff, but I, just how poorly Twitter monetizes compared to the other platforms. I think, I think it's like, you know, in the US, 17 bucks or 18 bucks user, and there's only, whatever you said, 250 billion or a million on the platform compared to...

• 1:06:48Speaker 01

  And then most of those are not in the US, right?

• 1:06:50Logan Bartlett?

  Yeah, most of those aren't in the US compared to 2 billion on Facebook, and so...

• 1:06:53Speaker 01

  Yeah, I mean, just to get, like, make that even more stark, I think Facebook is about $200 per year of ARPU in the US on Facebook Blue, not Instagram, which probably is somewhere in that range as well. $200 a year, and you're right, Twitter is in like the low 20s in the US. So it's almost 10x on Facebook. I mean, it's incredible.

• 1:07:17Logan Bartlett?

  It's amazing what the timing of all this could have been, because the product innovation that you were seeing, and today they just launched podcasting as well, which I know they've been working on for a while, and, you know, they had their clubhouse competitor out really quickly, and they had Twitter Blue, which I think continued to have price elasticity and what they charge people for, and they had, you know, they're trying to charge the TweetDeck product as well, and there's just so many little things they can do to pick up that ARPU number. But yes, you're right, I actually, I was a holder of Twitter last summer as well, because I recognized that the innovation was happening on the product side, and it sort of felt like this was inevitable, that this was going to pick up and monetize better.

• 1:08:00Logan Bartlett?

  Now, there's been a lot of macro machinations, not to mention a certain richest person in the world that...

• 1:08:09Logan Bartlett?

  Have have kind of thrown that into chaos. And so maybe that's a segue. So you sold 100% of your position. You bought back in as a merger, kind of arb opportunity right now. So I think a lot of people have sort of their eyes have glazed over a little bit, mine included, with some of the the legalese and back and forth. That's kind of happening with between Elon and the courts and Twitter and all of that. And just this week, I guess, much the the security, I guess, who's formerly the CISO at Twitter, came out with some accusations of his own that seemingly at a headline level would back up what Elon has said. But if you dig in even for

• 1:08:50Logan Bartlett?

  one second, it actually contradicts what Elon is saying. So maybe give us a little bit of the state of play with your merger arb opportunity that exists right now.

• 1:09:00Speaker 01

  Yeah, I mean, so, right, we said 5420 is the takeout price and Elon's trying to terminate. And so Twitter sued him. And so we're gonna have a lead. We're gonna have a court case in October if nothing settles before then. And, you know, the stock is trading at call it 40 bucks today. And it was, it's been below that and a little above it. But that's a fair number. So $14 of upside and and maybe the price would be $20 if there was no deal. So 50% downside. So you can kind of impute what the market implied odds of that are of the deal closing. And that comes out to about 60% likely that Twitter wins.

• 1:09:40Logan Bartlett?

  And downside, your downside, you're saying there is, hey, based on what Snap and Facebook, whatever else have traded at, that's probably where it's gonna go.

• 1:09:49Speaker 01

  Right.

• 1:09:49Logan Bartlett?

  The upside of it closing is 5420. And so where is it trading today? And therefore, what does that implied probability exist between that spread?

• 1:09:59Speaker 01

  That's right. I can make $14 or I can lose $20. Like, how does that become economically neutral? It means you have 60% odds of making the 14 and 40% odds of losing 20. And that's like, neutral.

• 1:10:11Logan Bartlett?

  Who would have thought college football gambling and

• 1:10:15Speaker 01

  we're setting lines, we're setting lines.

• 1:10:17Logan Bartlett?

  Exactly. We should come up with a spread, you know, home field advantage gets you an extra half point here. But yeah.

• 1:10:22Speaker 01

  Yeah, well, so those are actual things that are happening. I can give you all the analogs. But the real question is, is 60% the right number? Now, if it's 65 or 55, it's that's not interesting. But I think before the whistleblower showed up, the odds are actually probably in I think just about any lawyer you talk to will agree, like well over 90%, Elon has no case. I mean, it's unbelievable how bad his case is, and I'm happy to walk into that, but just let me posit that he has a very bad legal case. And yet this spread exists, and so you have to wonder why. Right? Like, either I'm wrong, or there's something I'm missing. And I definitely think there's a big, like,

• 1:11:05Speaker 01

  Elon just gets out of everything. Like, right? You're the richest man in the world. You're gonna figure a way out of this. On the one hand, and then the other hand is like, it's hard to size up something where your downside is minus 50%. Yeah. So no matter how confident you are, it's like you're staring that as your downside. Those two things, I think have set up a really interesting, you know, situation. And then, you know, you have all these lightning bolts that keep showing up like a whistleblower.

• 1:11:32Logan Bartlett?

  Yeah. So I want to talk about the whistleblower in a second, but I guess the other question is, uh, then I would just have about this is like, let's say, let's play it all the way through and Elon loses everything, right? And the court rules against him and, you know, it actually is this 90% power of ability. What actually happens, right? Like, at what point can he stop saying no and being difficult? And like, how, what actually is the recourse that can exist? Because, you know, him getting out of everything, it's, I guess, as I theorize, what could happen from here, it, he keeps losing, he keeps losing, and he keeps saying no, and he keeps saying no. And then at some point, let's assume a settlement doesn't happen, because I, I happen to think that's probably the most likely thing that ultimately comes to pass.

• 1:12:15Logan Bartlett?

  But let's throw that to the side for the time being. Like, what can the court? Or what can the SEC, or what can anyone actually make him do?

• 1:12:24Speaker 01

  Yeah. So, so there's this theory that no matter how bad he loses in court, he's just gonna say, oh, I don't care. I'm not gonna pay for the company. Right, right. And, uh, you know, so let's just set the timeline. The trial starts October 17th. It finishes October 21st. And Anytime in the next, call it three to four weeks after that, you'll get the judge's ruling. And they got by my point about home field advantage, they got probably the single best judge Twitter could hope for to adjudicate the case. And she happens to be the chancellor, which is like the head of the Delaware Chancery Court. So that happens, call it, let's just say November 15th,

• 1:13:04Speaker 01

  right? Then let's assume he doesn't want to close. So he's going to appeal to the Delaware Supreme Court. Now you have to keep in mind, this is very unlike, we think of lawsuits and they take years and years. That is not how the Delaware Chancery operates because it's dealing with very time sensitive situations where, you know, there are banks that have committed $13 billion of debt. Like they can't just be hanging out there for years and years. And so this has to happen fast in order to resolve all these participants who have money and businesses on the line, right? And Twitter needs to be able to operate normally. So that appeal can

• 1:13:46Speaker 01

  literally take from days where the Supreme Court just responds and confirms the existing, you know, judgment, or it can take, call it three months. And so I would say by February of next year, we'll have the Delaware Supreme Court ruling on this and maybe much sooner than that. So at that point, if Elon loses and he says, I'm not going to pay, what happens? Well, it turns out Elon has some important stakes in other Delaware domicile businesses or Delaware legal entities, Tesla being one, where he has half a billion shares of Tesla, which is a Delaware corporation, SpaceX.

• 1:14:31Speaker 01

  Which is a Delaware corporation. And so if you're a Wall Street bank and this guy has, you know, a $44 billion judgment against him that he's refusing to cooperate with in Delaware court where you're signing agreements to take him public that are like Delaware contracts, he's just shut out. There's zero financing. And then you could imagine a situation where they actually go after his stock. It's a Delaware company, right? He owns Delaware companies and they come take his stock. And of course, you know, the most likely thing is at first, they just put in a ticking fee where they charge him $10 million a day for not showing up. And he says, All right, well, that's only three and a half billion dollars a year. Like,

• 1:15:13Speaker 01

  that's way cheaper than paying 44 billion. And then they move it to $15 million a day, or $20 million a day. And his legal risk just keeps accumulating and accumulating. He's shut out from financial markets and capital markets. He can't sign contracts. He can't acquire other companies. Like, he's just completely locked out of the world. So it's a terrible, terrible situation. And I just, I really don't see a path to him doing that. Yeah, got it. It would be economically like self-destruct button.

• 1:15:44Logan Bartlett?

  Yeah, that makes sense. And so, so with regard to the whistleblower case that that came up this week, how has that changed, altered, if at all, your, your opinion on what's, how this is going to play out?

• 1:16:00Speaker 01

  So I said 90. So Elon's basically saying, Hey, look, there's more spam on the platform than you say there is. And you're not giving me the data I need to confirm it. And this whistleblower came out with a huge ax to grind, right? He was the former head of security, got fired in January, and comes out and is just absolutely like slaughtering Twitter from the way he's describing things, like really like hate these guys. They're horrible. They're lying. They're lying to regulators. They're lying to the board. But in there, he says, as an aside, like Elon's very right to question how much spam there is on the platform, but the way Twitter presents it, actually, that's really a decent

• 1:16:44Speaker 01

  and good number. Their MDAU is perfectly fine. Maybe they shouldn't use MDAU, but like, that is the only user number they represent. And he says, that's a good number. Now, that's a great thing from my standpoint. Of course, I already thought it was 90 plus percent likely they were going to win. So that doesn't really help me as much as I would like. And on the one hand, then on the other hand, he's basically saying, look, Twitter has not been living up to its settlement agreement from a decade ago with the FTC, the Federal Trade Commission. And, you know, I mean, that's, so that's a new negative, right? So even though we got a positive on like, the main course of action, there's a new negative

• 1:17:27Speaker 01

  that shows up. Now, funny enough, like, none of those negatives that are in the whistleblower suit are in Elon's actual counter suit. So he actually doesn't have any of those claims in his legal case.

• 1:17:42Logan Bartlett?

  Because they aren't material to hit, like, what he had been focusing on, which is-

• 1:17:47Speaker 01

  Exactly. He didn't say anything about like, oh, the FTC might fine them $200 million, which by the way, even though that's a lot of money, that's actually probably not a material adverse event, which is like, the defined term that gets you out of a deal, which is, you have to understand, like, M A E has only ever happened once in the history of Delaware, like, major corporate law, once. There's been lots of times, people have tried to get out of deals for them, and that was a complete fraud. Like, the whole company was a complete fraud, right? Like, that's material. Like, the advertising downturn isn't, missing in your projections isn't, like, being hacked isn't, all those things

• 1:18:27Speaker 01

  are carved out. Like, it has to be very, very big, and has to be durationally significant. So it's not all obvious, like, having a $200 or $500 million fine, when tech companies get fined all the time, like, that amount of money. And by the way, we won't even know whether they get fined in the next few months. So we'll just have to have conjecture about it. Does that trigger an M A E? All that said, it's definitely like, heightens that risk. I don't know how much, it's a little hard to calibrate. So, but I think it's- It's unmitigated, not positive slash negative for, you know, Twitter's case. It's just not obvious like it really is so big that it matters.

• 1:19:06Logan Bartlett?

  Yeah, I got it.

• 1:19:07Speaker 01

  But man, it makes for good headlines. Like, it's incredible. Like, it's truly, I would have said a week ago, Elon's great hope is some lightning bolt of freedom shows up and God bless, like, an actual lightning bolt came down from the heavens in the form of this guy who, you know.

• 1:19:26Logan Bartlett?

  Doesn't he get a percentage of the, uh?

• 1:19:28Speaker 01

  Yeah, so I mean, yeah, so amazingly, the Washington Post is like his partner in leaking this to the public. Mudge's partner and they just are loving him, you know? I mean, they're like making out with him the whole time in their article. And I heard one of the Post journalists interviewed and he just said, you know, one of the amazing things about Mudge is he obviously could have taken a settlement from Twitter to just make this go away, but he's not in it for the money. And I was like, by law, he gets 10 to 30% of any fine or settlement that this generates. 10 to 30%, a $500 million fine, 30%, 150 million bucks.

• 1:20:11Speaker 01

  Like, he, there, there's, this is so massively self-enriching. Now, I'm not saying that's his motive, but you can't say it's not, you know?

• 1:20:20Logan Bartlett?

  Yeah, yeah, yeah. Show me incentives, right?

• 1:20:22Speaker 01

  Yeah, all the way back to our Munger quote. Show me the incentives, I'll show you the outcome.

• 1:20:26Logan Bartlett?

  Well, well, uh, thanks for doing this. We covered a lot of ground. Anything we didn't hit that, uh, that, that you wanted to talk through?

• 1:20:33Speaker 01

  No, this is great. I really appreciate you having me on. Um, I love following you on Twitter. You are, uh, you're one of the ones that makes me smile and laugh. And, uh, this podcast has been, it's been great and I've been thankful to be introduced to it.

• 1:20:47Logan Bartlett?

  No, thank you. I'm glad, glad we were able to do this and, uh, yeah, thanks for, uh, thanks for making the time.

• 1:20:52Speaker 01

  You're the man.

• 1:20:58Logan Bartlett?

  So that'll do it for the 31st episode of Cartoon Avatars. Thank you to Compound248 for coming on and talking through all of those kinda wonky topics, but really interesting to me, hopefully other people found that interesting. Look forward to seeing everyone next week. We have a guest, I think probably with our most Twitter followers ever, coming on next week, and so should be an interesting one. Maybe our first actual celebrity person, so look forward to seeing everyone next week. Have a good weekend.