Deven Parekh on the State of Startup Investing

Barry speaks with Deven Parekh, Managing Director at Insight Partners, a growth equity investment fund based in New York City. Since joining Insight in 2000, he has made more than 140 investments in enterprise software, data, and consumer internet businesses globally. Deven also currently serves as a Board Member for the Council on Foreign Relations, NYU Langone Health, the Carnegie Endowment for International Peace, and the Tisch Multiple Sclerosis Research Center. In this episode, they discuss the every-changing world of venture and private equity. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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

• 0:00Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

• 0:31Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:13Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

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• 2:32Speaker 03

  Bloomberg Audio Studios, podcasts, radio, news.

• 2:40Speaker 03

  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:47Barry Ritholtz?

  This week on the podcast, I have an extra special guest. What can I say about Devin Perek, Managing Director at Insight Partners, major venture capital slash private equity shop that has had just countless, countless exits. He was an early investor in Twitter, Buddy Media, eVestment, Aperis Insights, Website Pros, Turnitin. They focus on software, which is much broader and more varied than you might imagine. They are global in their footprint of where they put money to work, and they're not just early-stage investors. They do A rounds, B rounds.

• 3:28Barry Ritholtz?

  They will help provide liquidity for a company that's looking for a partial exit, as well as strategic investments and M&A, sort of from a private equity shop. I think Insight Partners is unique because they have a foot in both venture and PE worlds. I thought this conversation was fascinating, and I think you will also, with no further ado, my discussion with Insight Partners, Devin Parekh. Thanks for having me. So, let's start out way back when. You get a bachelor's in economics from Wharton. What was your original career plan? Not business. Not business. I actually...

• 4:11Speaker 05

  In high school was a total science nerd, you know, competed in Westinghouse. Oh, really? What, what area? Biochemistry, microbiology. Actually, won first place in microbiology at the International Science Fair. So my path was kind of being a doctor, probably being an M.D., Ph.D. I didn't actually start Penn in Wharton. I actually started in the College of Arts and Sciences. I started as a biochemistry major. I was doing research at the medical school my freshman year. And, you know, I think like in everything in life, there's a lot of fate in who your roommates are and the people you meet. And, you know, my roommates were all business and I was the only kind of science person.

• 4:53Speaker 05

  And I thought, well, maybe I should take, maybe I should take a finance course or an economics course. I did freshman year, found it really interesting. And after my freshman year, I decided rather than doing, working in science for the summer, I was going to work on Wall Street for the summer. And I managed to get a job in Wall Street between my freshman and sophomore year, which was unusual at the time, but I, but I did. And I came back after that and said, well, maybe I can put these two interests together. And I was going to do biochemistry and finance. I was going to do the dual degree, you know, with a degree in Wharton and a degree in college. Now they have preset programs for all of these things, but at the time they didn't.

• 5:35Speaker 05

  But it would involve taking, you know, between six and seven courses every semester and not, not, these were not easy classes. These were like organic chemistry and quantitative finance. And I just thought this isn't going to be a great college experience if I do both. I kind of needed to pick. And so I, I ended up picking Wharton. And of course, people are like, well, what was the thought process you went through when you did that? And the thought process probably was not, it was, I was impatient. And I saw the route for medical school was I was going to do four years of medical school. I was thinking at that point, I also wanted to research. I thought maybe I was going to get a Ph.D. It just seemed like a long time in school before I could actually start my career.

• 6:17Speaker 05

  As opposed to business, I could, I could kind of jump in right away. And I always thought. That at some point in the future, I would somehow bring these two interests together. I didn't know how.

• 6:27Barry Ritholtz?

  That was, that was the obvious question because I, on the list of areas you invest, I don't see a whole lot of healthcare or biotech or genomics. But have the twain ever met?

• 6:37Speaker 05

  They actually have. They have in two different ways. We do now have a team at Insight that does invest in, in kind of therapeutics, biotechnology kind of therapeutics. We have a team that does it. I'm involved in it, but I'm not the one doing those deals or leading those deals. But it's actually probably also manifested a lot more like philanthropically. I'm on the board of NYU Langone. We're funding a bunch of research there as well as a bunch of other, you know, kind of universities. So philanthropically, it's been a big focus of mine. And so it's been enabled, I've been able to bring, bring that kind of interest back into my life in a way that's been satisfying.

• 7:17Barry Ritholtz?

  Really interesting. So from Wharton, how do you end up on Wall Street? What's your first gig?

• 7:23Speaker 05

  Well, I worked for the summers, I worked at a small buyout shop after my freshman year, after my sophomore year, worked at Credit Suisse. And after my junior year, I was actually at First Boston at the time, after my junior year, I worked at DLJ and then I started at Blackstone.

• 7:39Barry Ritholtz?

  That's, that's quite a laundry list of.

• 7:41Speaker 05

  It was a laundry list. It was a laundry list. And I started as an analyst at Blackstone in 1991. And then had the opportunity, even kind of before I finished my analyst program, to go to a startup, but it was just not a tech startup. It was a investment banking startup that was founded by Jeffrey Berenson and Ray Manella, who used to be the co-heads of merchant banking at Merrill Lynch. And so I left Blackstone to go to what was then a no-name, and to some degree, it's still not well-known, firm. And I remember having a conversation with my dad at the time, who was like, he didn't really know who Blackstone was.

• 8:26Speaker 05

  And so when I took that job, he was like, well, why would you take Blackstone when you got all these offers from firms he'd heard of? And I was like, well, I think it's going to be a really good firm. And then finally, he got comfortable, that was a good idea, and I leave to go to this firm that no one's heard of. And I said, well, my downside case is I'll go to business school. It's really not, anyway, so I made that leap. And that was a.

• 8:46Speaker 05

  It was a great experience. They were primarily kind of M and A advisory, but then over time, they were trying to figure out how to get into the principal business in some way.

• 8:55Barry Ritholtz?

  How do you, how do you go from M and A to venture capital?

• 8:59Speaker 05

  So, the two co-founders of Insight, Jeff Horing and Jerry Murdock, started their pre, effectively the predecessor to Insight at Barron's Seminole. And Barron's Seminole was kind of a, a sponsor of these two guys who wanted to do something in technology really early. We were not technology experts. We didn't, the firm didn't know anything about technology, but we thought we could help them raise capital, or at least the guys who ran the firm thought they could help. But we didn't really have a lot of competency in software. I was the closest thing they had to somebody who understood technology, which just means that I used it. And so I was kind of working with, you know, Jeffrey

• 9:43Speaker 05

  and, Jeff Horing and Jerry Murdock. And then they kind of came to the conclusion that they were gonna kind of go do this on their own. That there wasn't really, like, the partnership didn't make sense for them. So they, they went off. They'd asked me-

• 9:58Barry Ritholtz?

  What year was that?

• 9:59Speaker 05

  They, uh, 95.

• 10:02Barry Ritholtz?

  Yeah.

• 10:03Speaker 05

  And they asked me at that time if I was interested in joining. And, you know, I was 25 and a vice president. And I was like, oh, well, why would I go join a startup? Like, now, all of a sudden, I lost my startup kind of bug. And so I didn't then, but I maintained a relationship with them. And then in, in, in 1999, when I was thinking of leaving Barron's to go do something on the principal side, I ended up kind of joining them when they were raising their first institutional fund.

• 10:26Barry Ritholtz?

  So, so what was that process like, going from what was really a startup to going to something that was barely, no longer a startup? Or was that really their first major outside fund?

• 10:39Speaker 05

  No, so they had, so they, at that point, had raised three funds. They were about to raise their fourth fund.

• 10:44Barry Ritholtz?

  So somewhat seasoned.

• 10:45Speaker 05

  Uh, it was primarily, at that point, there were very few institutional investors. So their fourth fund, Fund Four, was gonna be their first institutional fund. And so it was, the firm was very small from a number of people's standpoint. It was about 10 people. You know, today, we're 450 people. So it's a much larger firm today. But it was, I think the harder part of the transition is, you know, it's very different. Being an advisor, which I wanted this transition, but it's very different being an advisor, whose goal it is to kind of get a deal done, to being a principal where your goal is not just to get a deal done, but to make sure it's a good deal.

• 11:23Barry Ritholtz?

  Right.

• 11:24Speaker 05

  And that's a shift, that's a shift in mentality. There's not like an on off switch for that. But really, the way I looked at it is, I was, and the firm that I left very generously offered me the opportunity to take a pool of capital that they had and invest in technology, as kind of as a way to maybe get me to consider staying there. And I said no, and it wasn't really an economic decision. What I said was, I'm not really qualified to do that at that point in time. And that I'm, one of the reasons I'm making this shift is to actually learn how to do something.

• 12:00Barry Ritholtz?

  What was that learning curve like? Because I remember the 1990s and the late 80s, and it seemed like a ton of people just jumping into the venture worlds regardless of their credentials or academic qualifications.

• 12:17Speaker 05

  Well, I think in, I joined at late 99, 2000, you remember that time?

• 12:23Barry Ritholtz?

  Sure.

• 12:24Speaker 05

  In some ways, it was a great time, and in some ways, it was a terrible time. I think in retrospect, it ended up being a very good time for the following reason. Economically, it was not a great decision for years, because, like, you know, I think, I told my wife when I took the job, you know, she was, we'd just bought an apartment, and she was pregnant with her first kid, and I said, don't worry, I know I'm making less cash, but I can have all this equity. And like, that equity was like, five years I hadn't really, she was like, I'm not sure, I feel like this was the right trade. But, so, you get there in 99, and the deal pace is frenetic. And so, you think like, oh, I'm learning so much, I'm getting all these deals done. I also got put on a ton of boards, you know, of companies.

• 13:10Speaker 05

  And the first thing I figured out was, well, a lot of these companies didn't really have a business model without raising a lot more capital. It wasn't just us. It was just that was that was that time.

• 13:18Barry Ritholtz?

  Sure. It was a land grab in the early days.

• 13:21Speaker 05

  In the early days. And the market corrected very quickly, I think, four or five months after I got there. And when you look back, I mean, those were really, really hard years. But I actually think it's where you learn the most. You know, it's easy to be, it's easy to be a cheerleader when things are great. It's a lot harder to have to kind of dig into a business, including businesses that aren't going to make it, and try to get to the best possible outcome. So from a learning standpoint, you know, and I think this is sometimes the things I tell my kids, is like, the worst times sometimes are the ones where you're going to learn the most. And there's always going to be, you're going to get to the other side. It might not be the side exactly the way you wanted it, but there's no way you're going to look back and say you didn't get something out of that experience.

• 14:05Barry Ritholtz?

  It's so funny you say that. I started on a trading desk, and one of the things you figure out pretty early is you learn much more from your losers than you do from your winners. Same thing in venture?

• 14:16Speaker 05

  Same thing in venture. I think it's the same thing in life.

• 14:19Barry Ritholtz?

  Oh, really?

• 14:20Speaker 05

  Yeah, I think it's true in lots of things.

• 14:21Barry Ritholtz?

  Stumbles and fails are more instructive than...

• 14:25Speaker 05

  It could be jobs. It could be relationships. It could be, you know, even like you're, like, you know, right, if you think about the world today where, your world today where there's a tendency for parents, and I'll include myself in this, to be too involved, right? Oh, my son got a B because he had a bad teacher. Like, oh, like, guess what? We all have bad teachers and bad bosses and bad roommates and, but you learn to adapt. And I think sometimes you have to go through those things, and I think you learn from them, right? Bad relationships, I think you learn something from. So I think you have to, if you take the mindset that you can learn something in good times, you can learn something in bad times, I'd argue you probably learn more in the bad times. I think that's a, it's a valuable mindset to try to have. It's hard to have it when you're in the bad time.

• 15:10Barry Ritholtz?

  You know, you mentioned the role of serendipity earlier. Michael Mobison likes to point out, part of the reasons we may not learn much from the good times is it's very hard to distinguish between, hey, is this working out because I'm skillful or is this working out because I just got lucky?

• 15:27Speaker 05

  Rising tide lifts all boats.

• 15:28Barry Ritholtz?

  Yeah, that's right.

• 15:29Speaker 05

  And you don't know whether you're, you know, you're on a yacht or a boat with a hole. And so, but they all rise because the water's rising.

• 15:36Barry Ritholtz?

  At least temporarily.

• 15:37Speaker 05

  Exactly.

• 15:38Barry Ritholtz?

  That's right. So you mentioned you're on a ton of boards. U.S. International Develop, Development Finance Corp., Council of Foreign Relations, Carnegie Endowment for International Peace, NYU Langone. What's the attraction to all these boards?

• 15:53Speaker 05

  Well, those are the things I do, you know, outside of the office. You know, I think I've always had a belief that if you're successful, you kind of owe it to give back. So that's one. Two is intellectual interest, right? Like the things I'm involved in are things I've always been really interested in. And even in some of these, even in some of the, I talked about how I ended up going to Wharton because of who my roommates were. Another story was when I was in college, my freshman year, I went to go write for the newspaper, The Daily Pennsylvania, which is a pretty well-known college newspaper. And my roommate at the time went to go volunteer for College Democrats. This is, you know,

• 16:38Speaker 05

  first semester freshman year. Second semester freshman year, I asked my roommate to come check out the DP, the newspaper, and he came, he asked me to do the same. And senior year, I was president of College Democrats and he was editor in chief of the newspaper. Neither would have happened without us. Kind of having totally different interests and he's now in journalism. Right. So, um, you know, I just think that, that there's a lot of these things. And so those interests, that interest, uh, policy related things is an interest I've had ever since college. Um, and kind of over time, I've been able to engage in those things in a more meaningful way.

• 17:16Barry Ritholtz?

  Coming up, we continue our conversation with Devon Parekh, Managing Director of Insight Partners, discussing how the firm developed its expertise. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My special guest today.

• 17:37Speaker 00

  At K K R, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, K K R has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. K K R, understanding what matters. Visit kkr.com/whatmatters.

• 18:09Speaker 01

  This is the Bloomberg Tech Minute brought to you by Chat G P T. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs. And hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 18:52Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 19:31Barry Ritholtz?

  This is Devin Perk, Managing Director at Insight Partners, where he helped oversee over 140 investments, several of which, many of which, have had exits. So, so let's start chatting about Insight Partners' approach a little bit. You guys do everything from software investing to AI. How do you differ from other venture capitalists in the space?

• 19:56Speaker 05

  So I think the approach that we take is we're really software investors, but we're stage agnostic, right? And what does that mean?

• 20:02Barry Ritholtz?

  Meaning not just seed, angel, B rounds?

• 20:05Speaker 05

  Probably the only stage that we don't really play is seed and pre-seed. We're really, but we'll do everything from a Series A all the way to a buyout. We have the capability to go across the continuum. I think that's important both ways, right? Like if you're a, if you're a buyout investor as an example, particularly in a firm, in a field like technology, which is changing quickly, not knowing what's going on at the early stage, what could be coming that's disruptive, is kind of a risky way to be investing in more mature companies, particularly in an AI world, where that transformation is happening a lot faster. And the flip side, you know, I think on the early stage side, understanding what does it take for a company to actually be public?

• 20:50Speaker 05

  What does it take for a company to actually be able to raise the Bs and Cs and D rounds? And what are the key metrics to make the, and then having the network and ecosystem to be able to help companies do that? It's helpful to have your mid-stage and growth-stage business too. So I think the ability for us to be able to invest across that continuum really makes us pretty unique relative to most other software investors out there. There. The second thing is, you know, the way we source, though more firms are doing it now, which is, you know, we have over 60 people full time. That's all they do is deal sourcing. And, you know, think of it as our outbound sales team, but it's a really smart outbound sales team that are people who, when they're successful, end up being partners at Insight. And what we're able to do is have tremendous market intelligence because we're talking to

• 21:35Speaker 05

  anywhere from 20 to 30,000 companies a year, right? Obviously, investing in a much smaller set of those. And then the third thing is, is our kind of the value add approach, right? Because all investors like to say they add value. It's hard to do. We, very early on, in 2000, created what we call Insight Onsite. And the reason it's called Insight Onsite is because those team members are meant to be onsite at the company as opposed to in our office, right? So think of it as McKinsey or Bain. If you walk into the office, you won't see a lot of those people in the office because if they're doing their job, they're actually at their clients. In our case, our clients are portfolio companies. And what we've done is if you think about every functional area of a software organization, whether that be

• 22:20Speaker 05

  sales, marketing, product, customer introduction, strategy, and now AI transformation, we have a team for each one of those areas. And we have a team for each one of those areas that's also stage focused, right? So we have a team that works with early-stage companies. We have a team that works with mid-stage companies. We have a team that works with more mature companies. Because the recruiting needs for a company with $500 million revenue are very different than the recruiting needs for a company with $5 million revenue. And that team is over 125 people. That's focused on really making sure that the companies, they're getting the benefit of not just anything we know, best-in-class thinking outside the

• 23:00Speaker 05

  firm, best-in-class within the portfolio. And that, those three things together is really, I think, what allows us to have a very successful strategy.

• 23:10Barry Ritholtz?

  Huh. Really interesting. I was trying to conceptualize how Insight is sort of a venture fund, sort of a PE shop. Your explanation really explains why those, those titles and those descriptors really only just...

• 23:29Barry Ritholtz?

  Describe part of what the firm is doing.

• 23:31Speaker 05

  And I think things, just overall, things are blurring, you know, in this world. Like, you know, one of the areas that we're very active in right now is something that we call venture buyouts. And you'd say, well, okay, like, that seems like that's both.

• 23:43Barry Ritholtz?

  Right.

• 23:43Speaker 05

  And to some degree, it is. And but what is it really? Well, what's the biggest issue you hear right now in private equity? If you were to interview an LP, they'd say, well, I'm not getting enough money back. I don't have enough DPI, and so I'm over allocated. That's probably the number one complaint that institutional investors have. Well, if you look in venture, there's just a massive amount of funding of companies and company creation and funding over the last, so you have thousands of companies out there. Many of them have not reached a scale where they're ready to go public or have a strategic, really be focused on them, right? They just don't have the scale yet. And what we're able to do in those situations is find the ones that are interesting companies. And we go to the shareholders and say, we'll buy 70% of the company, we'll buy 100% of the company.

• 24:27Speaker 05

  You can either choose to roll some of your investment if you think there's upside. If not, we'll give you, we'll give you a return, whatever it is. And then we were able to take control of those companies. What happens in a lot of these venture companies is they have very diffuse cap tables, right? You have seven, six, five different people, five different opinions. It's actually hard for the CEO to get alignment with their board on what the strategy should be. We can create that alignment. And so maybe he really wanted, he or she wanted to execute an M and A strategy, but only half the investors were willing to put up more capital. We're able to, in that case, clean up the cap table and then make whatever changes in strategy, team, whatever it might be, that are necessary with a totally aligned board. That's a strategy that touches both.

• 25:09Speaker 05

  It touches some element of venture and it touches some element of private equity.

• 25:14Barry Ritholtz?

  Two of the people you work with, Ryan Hinkle and Richard Wells, as I'm doing my prep for this, anywhere I search for software as a service, I seem to come across Ryan Hinkle's name. Tell us what it's like working with those guys and working with the, the other. Founders, the two co-founders.

• 25:35Speaker 05

  Yeah, and others. So, you know, Mike Tripplett and Jeff Lieberman, and we have so many people who've kind of contributed to the success of the firm. You know, Ryan actually joined Insight as a summer intern right out of college.

• 25:51Barry Ritholtz?

  Wow.

• 25:51Speaker 05

  He's now on the investment committee. Richard Wells joined us out of Harvard Business School after a successful career at TCD and some other firms, and has been a huge driver of returns. He's had some great deals that have exited just this year. I think that one of the things that we're most proud about at Insight, and this is also, I think, very different than a lot of firms out there, is that if you look at the top four partners, the top six partners, the top eight partners, the vast majority of those people all grew up with it in Insight. And we've really created a culture, if you join Insight as an analyst, you can make it to the top. And that's very different than a lot of firms out there. And

• 26:35Speaker 05

  I think that's created a very positive entrepreneurial culture where we give people a lot of autonomy. We give people a lot of ability to find new areas to invest in, and magic happens.

• 26:49Barry Ritholtz?

  So, let's talk a little bit about that magic. You've made over 140 investments in various companies. I'm assuming that you're doing this as part of a group, as part of an investment committee. How does that work if everybody has a slightly different expertise or focus? Take us through the process of what companies get funded. How does that process go?

• 27:12Speaker 05

  Yeah, and look, first of all, that's the beauty of, I think, our model too, which is while we might all have slightly different focuses or areas, we're all just investing in software. If you contrast that to firms where somebody's a biotech partner, and somewhere's a software partner, and someone is an industrial partner, that's much, much harder because you really don't have any sense of each other's businesses. Here, the key metrics are common across all of these things. There might be some technical understanding around infrastructure product, or what might be happening in a particular vertical that a partner might have, but the key metrics are the same. And so, our process is that every deal, no matter how small or how big, goes through the same investment committee process.

• 27:54Speaker 05

  We meet once a week, kind of common like a lot of other firms out there. And the team, whoever the team is, presents the deal to the IC. We debate it, we ask questions, we ask for follow-up information. And out of that either comes, this is something we want to pursue, we don't want to pursue, we only want to pursue, but only at kind of this valuation. And the team then goes out and kind of executes on that. And then if, say, we sign a term sheet, they'll come back with a more detailed diligence package that goes through all the typical diligence things you'd assume. That gets reviewed and discussed again. Sometimes there's follow-up questions that come out of that, sometimes there's not. Has to get through that second approval process.

• 28:39Speaker 05

  And then if it gets through that approval process, then we would then fund. But before anything even gets there, we have a number of teams that are staffed with these sourcing analysts and associates and mid-level people that really do the hard work before something even gets to the investment committee. So Ryan and Richard both run a team. And, you know, they each have their slightly different focuses, but they each run a team. And they're meeting with their team on an even more ongoing basis to kind of prioritize the deals that we want to, they want to pursue. And then if it gets through their own team, then they would bring it to the overall investment committee.

• 29:17Barry Ritholtz?

  So I've heard some venture capitalists talk about valuation almost as if it doesn't matter, which as a public markets guy, I kind of shudder when I hear it. I think it was Marc Andreessen who once said, all right, we were early-stage investors in Facebook. Had the valuation been doubled, it practically wouldn't have affected our returns. My immediate answer was, well, there would have been half if the initial investment was double, but, you know, 100x point taken. How do you think about valuations, especially when you're looking at early-stage A or B rounds, where it kind of feels like...

• 29:57Barry Ritholtz?

  Total addressable market, growth projections. I don't want to say fabricated, but they're squishy best estimates.

• 30:05Speaker 05

  They're guesses.

• 30:06Barry Ritholtz?

  Yeah.

• 30:06Speaker 05

  Okay. But in an early-stage deal, like, it's a guess. I think the person who wrote a check in Palantir didn't know that Palantir was going to become what Palantir became. But they saw an entrepreneur with a vision, with a potentially large market, and decided to make the bet that this person could execute and turn it into that larger market, right? Look, I'm not going to say the valuation doesn't matter, but I think what you can say is that we have, it's a line that one of my partners uses, that we don't overpay, companies just miss their numbers. Which is just, I mean, it's said in jest, but really, the point is that generally, not always, but generally, the price we paid, if the company hit the

• 30:48Speaker 05

  numbers that we thought they were going to hit, even if the price seemed high on current revenue, is, feels reasonable. So, you know, companies that, even recently, AI companies that seemed expensive six months ago, don't look so expensive six months later, just based on kind of how their run rate revenue has changed. So, the way we think about this is we do care about valuation, we lose deals on valuation. But that doesn't mean the deals that we win aren't high absolute valuations. It's just, how much conviction do we have in the growth, right? And this is why these markets are not efficient. You can have very high conviction on XYZ company's growth, and I can have low conviction. And one of

• 31:33Speaker 05

  us will likely be right. And if I was right and did it, good for me. And if I was right and didn't do it, it just depends on who's right. So, I think the way we think about it is, we're, all of these deals today, certainly AI deals, on a multiple of revenue basis, are going to feel expensive. Of course, you have to look at growth adjustment.

• 31:55Barry Ritholtz?

  Mm-hmm.

• 31:56Speaker 05

  So even as a public market investor, you'd say that a company that's growing at 10% is going to have a different valuation than a company that was going to grow at 30%. Now, how do you even start thinking about a company that's growing at 100%?

• 32:08Barry Ritholtz?

  Right.

• 32:08Speaker 05

  Right? It's hard to think about. And it's not hard to think about it for a year, but if something can grow 100% for three years, and then even if it de-accelerates and compounds off three years of 100% growth, that's a pretty high multiple that you can pay. So, the way we really think and talk about it is not valuation doesn't matter, but we think about it in terms of if you're paying a high multiple, then your conviction needs to be high on the growth rate. Now, you're not always going to be right.

• 32:34Barry Ritholtz?

  Right?

• 32:35Speaker 05

  And that's part of the business. We just have to be right enough.

• 32:38Barry Ritholtz?

  Mm-hmm. And you mentioned software. The first thing that comes to mind is Silicon Valley, San Francisco, the West Coast. Insight Partners is New York City-based. I know you have offices around the world. Is there an advantage or disadvantage to being based here in New York?

• 32:57Speaker 05

  We think there's an advantage. Now, but maybe it's, you know, maybe we're just convincing ourselves that because we live here. But, you know, I think that not being in, I mean, I can tell you what the disadvantages are, but I think the advantage is not being in the bubble. Like, we're not all having breakfast at Buck's and talking about the same 20 deals. Now, maybe that's bad if those 20 deals are the deals you have to be in, but there's a tendency to have everybody kind of want to do the same thing. And I think not being in that every day lets you step back more and kind of decide what you want to do as opposed to what everybody else is doing. You know, I think there's a disadvantage too, like the strategic buyers are all out there. You know, we're not in the same flow of those companies sometimes as people who might be

• 33:42Speaker 05

  seeing those people all the time. But on balance... I think we've done OK and we've managed to sell to a bunch of strategics and so I don't think it's hurt us to be here.

• 33:52Barry Ritholtz?

  And I mentioned you have offices around the world. You literally, you know, it's not just New York, Silicon Valley, London. You guys are all over the place.

• 34:01Speaker 05

  Well, really, it's really, it's really four presence. It's New York, it's San Francisco, it's London, it's Israel. Those are really the four places we have.

• 34:09Barry Ritholtz?

  So how does being global help the firm? What do you learn from having that sort of global perspective?

• 34:16Speaker 05

  Well, I think we're pretty disciplined about how we've grown and I'd be surprised if you see us have, you know, a lot more offices in five years. If you look at, take Israel, which Jeff Hornig really drove that strategy for us to get into Israel. I think, and I might get the numbers wrong slightly, but I think we had 60 or 70 companies in the portfolio before we put the first person on the ground. And at that point, there were six firms that had, you know, five to 10 people there that had portfolios of five or 10, right? Because I think the thing that we want to avoid is if you put somebody on the ground before you have a portfolio, then they need to rationalize their existence

• 34:58Speaker 05

  by creating a portfolio. And maybe that's a good idea, but maybe it's a horrible idea. And by having the bar that if you want to do a deal in Israel, or you want to do a deal in India, you actually have to get on a plane and go 10,000 miles or fly, you know, 12 hours.

• 35:13Barry Ritholtz?

  That'd be a really good deal.

• 35:14Speaker 05

  You gotta be really excited about it, right? And so it creates a natural like, oh, no, I like this deal in Long Island better. OK, well, you spoke with your, you spoke with, and it probably should have a little bit of a better return in order, if it's that far away, right? And so we've kind of waited in these places to have really conviction that that's going to be a market because we have a lot of companies in that market before we add presence there. So there's plenty of places in the world where we have companies, more companies than funds that are in that local market.

• 35:47Barry Ritholtz?

  Really interesting. Coming up, we continue our conversation with Devin Parek, Managing Director at Insight Partners, discussing the state of startup investing today. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Devin Parek. Managing Director at Insight Partners. The firm runs over $90 billion in venture capital and various

• 36:22Speaker 01

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• 38:14Barry Ritholtz?

  stages of private equity. So you guys have a reputation for being software investors. Why have you focused on that one space? And how many different subsectors are included under software?

• 38:30Speaker 05

  Look, we've been doing software since 1995. And if you look since 1995 to today, I think it, I might be wrong about this, and maybe there's one other category that for which this is true, but I don't think since 1995 there's been a single year where the software industry declined in aggregate revenue through every recession, through every cycle. And as a percentage of GDP, it just continues to increase. The software component continues to increase. So, you know, I think if you had asked a bunch of us 10 years ago, we maybe thought, oh, maybe we're going to cap out on software, we're going to have to go do something else. That really hasn't been a problem. I don't foresee it being a problem.

• 39:11Speaker 05

  So it's a massive industry who's had great growth, but the projected growth over the next 10 years is very strong. So I think that we don't need a new category to go after. We like this category. This category's got amongst the highest growth rate of any category out there. And it's really well downside protected, too. If you were to talk, if you had a lender on, they would tell you that software's their lowest loss ratio.

• 39:36Barry Ritholtz?

  Huh. What catches your attention first when you're looking at either a startup in software or a reasonably developed company? Is it the founders? Is it the technology? Is it a combination of both?

• 39:50Speaker 05

  Well, I think it depends on stage. Like, you know, I think in an early, in an early-stage company, you know, founder and tech is really, really important, right? And market. Now, as you said earlier, you're making a guess sometimes on a market at a very, very early, at a Series A stage. Now, you're hopefully making an educated guess based on lots of pattern recognition of companies, based on lots of data and how big that market is, is measured in different ways. But it's a common mistake to underestimate a market, right? I mean, when we look back, it's a little bit more of a consumer example, but when we look back, you know, when we're looking at Uber... And we convinced ourselves that how could you ever pay a valuation that's higher than the total TAM?

• 40:30Barry Ritholtz?

  Right.

• 40:31Speaker 05

  And the total TAM was New York and San Francisco of black cars. Well, it turns out that's not really the total TAM of Uber today.

• 40:37Barry Ritholtz?

  Right.

• 40:38Speaker 05

  Forget about food delivery and groceries. I'm just talking about cars.

• 40:41Barry Ritholtz?

  Just yellow cars.

• 40:42Speaker 05

  Yeah. It's just because they went to Uber X and Uber X totally changed the TAM. So I, I, I think TAMS are not static.

• 40:48Barry Ritholtz?

  Right.

• 40:49Speaker 05

  And I think that's a very, very hard thing to recognize that, okay, maybe they're going after a small problem today, but that might be the Trojan horse to get into bigger and bigger markets over time.

• 40:59Barry Ritholtz?

  Right.

• 41:00Speaker 05

  And that's where intuition and pattern recognition and kind of seeing what a great founder is, which is why I look, early stage, I think is much harder than growth stage or buyouts where you have lots of data and financial metrics that you can kind of rely on.

• 41:14Barry Ritholtz?

  I, I love the idea of the Trojan horse. Somewhere along the lines, someone said you could practically ignore the seed stage or early stage business model because there's always going to be a pivot, the Trojan horse or the founders. How accurate is that, that point of view?

• 41:33Speaker 05

  Well, I mean, I think it, like in everything, when people make statements like that, they tend to focus on the winners.

• 41:39Barry Ritholtz?

  Mm-hmm.

• 41:40Speaker 05

  Right? So they'll look at XYZ company that pivoted and say, oh, look, everybody can pivot. Well, everybody doesn't pivot and you do have a huge, very high loss ratio at seed, early stage and even Series A. And the strategy is different. Right? You, you have a power law in Series A, you have a power law in seed and you have a power law even in buyout. It's just a different power law. In, in buyout, you can basically, your power law is not a lot of losses. It's, you can have some 1Xs or 1.5Xs, but you probably need a couple of 4X or 5Xs. In seed, you probably need 100X and you have a very high loss. In Series A, you need a bunch of 10 or 15 or 20Xs, but you can still have losses. So depending on what stage, there's this view that like power law only applies to venture.

• 42:25Speaker 05

  Really applies to all stages. It's just what a loss is, what a loss is, is defined differently. Right? A loss in a buyout might be just a 1X or a 0.8X. You can't really have a lot of zeros in buyout.

• 42:37Barry Ritholtz?

  Right.

• 42:38Speaker 05

  So I think the power law.

• 42:42Speaker 05

  Continuum is true across all these markets.

• 42:44Barry Ritholtz?

  So AI is obviously a really big sector today. What other sectors excite you the most? Or how much does AI fit into just looking out there as game changing technologies?

• 42:59Speaker 05

  Well, look, I think every firm, whether they're a venture firm, a buyout fund, doesn't really matter what type of investing people are doing. I think it'd be a huge mistake to ignore AI, right? Even if you're not investing quote unquote in an AI company, you'd better be thinking about how AI is going to affect your business model or how can it improve your business model? And those who don't, even people in services businesses, like if you're running a law firm today, you're running an accounting firm today, you really need to think about how is AI going to affect my business? So of course, in our case, in our more mature companies, a lot of what we're thinking about is how do we accelerate growth and revenue through new AI products? And how do we reduce costs and increase margin through applying AI technology in the companies?

• 43:44Speaker 05

  Or earlier and mid-stage companies are often AI native. They're actually going after a new market, the legal vertical or construction vertical with kind of a new AI focused product. I mean, I think what's true is that every company to some degree is an AI company. It doesn't mean that they're dot AI in their name. But every board meeting that we go to at Insight, we're talking about AI. And the irony is even the board meetings I go to at NY Langone, we're talking about AI. Board meetings I go to at CFR, we're talking about AI. Because if you're a medical, if you're a hospital today, you're thinking about how do I have a better experience for my patient? How do I think about increasing throughput?

• 44:26Speaker 05

  The average wait for a neurologist today across the country is eight to nine months to get an appointment. And imagine you're suffering from like a real problem and the doctor says, well, I'll see you, you know, next year. That's the average. Now, what if we can get AI to be able to help assess these problems earlier? And all of a sudden, You take the data from the best institutions and you make that available in an AI application. So now people in Appalachia have access to the same level of care as people who have the benefit of being able to be near Mount NYU Langone or Mount Sinai. And so I'm going broader in my answer to your question, which is I think AI is now affecting

• 45:10Speaker 05

  everything we do. And so I think everything, every company that we invest in, we're talking about what's the impact? Or, and then the other thing we talk about is like, the other big debate in, in kind of AI land is what will get owned by the LLMs and what will get owned by the application providers? Right? How much of this, how much of the value will accrue to the models, the Open AIs and Anthropics? And how much of the value will accrue to the applications? I don't think anybody can answer that question. We don't know.

• 45:45Barry Ritholtz?

  So I, I remember in the late 90s, when the dot com was just exploding, it kind of felt like a handful of companies were sucking all the oxygen down the room from everybody else. Is AI doing that? Like, I would imagine things like cybersecurity and fintech and other software-driven startups, are they starving for capital? Or is there just so much money out there that even AI can't suck all the money out of the room?

• 46:18Speaker 05

  There's a, you know, there's a tremendous amount of capital out there. And there are lots of companies outside of the ones that everybody knows that are growing really, really quickly, often serving a vertical market. I mean, what's still true is that if you have an application that is serving a market where there's a lot of domain expertise or data required, you still have a moat. And so I think this, you know, because one of the big debates is, oh, is, does AI mean that the software companies are going to be dead? We don't believe that. What we do believe is if you have a very generic application that doesn't have any vertical domain expertise, doesn't have any data moat, then I think you're at a significantly

• 47:02Speaker 05

  higher risk. But I think there's lots of examples. We're seeing them. We're investing in them in specific healthcare applications and legal applications, construction industry, where you have companies that have true business process, vertical expertise coupled with data moats.

• 47:18Barry Ritholtz?

  What other spaces have you excited besides AI, which is obviously going to have a giant, giant impact? What other areas are really interesting?

• 47:27Speaker 05

  I mean, I think, you know, cyber continues to be a really important area. And one could argue, and we're just, we have, I don't know if, we might just be announcing it. So I don't know whether we announced it yet, or, you know, investing in something that's kind of related, AI-related security. And so all, every time you have these big new platform shifts, you have infrastructure around that platform shift that's important, right? And so I think we're seeing a lot of next generation infrastructure investments, cyber investments. There's a lot of markets that we're seeing. And I think what's happening right now is if I'd answered this question, you know, a year ago, I would say, well, we're doing vertical applications.

• 48:08Speaker 05

  We're doing these types of horizontal applications. And now it's all getting bucketed into AI because it has an AI angle. But there are subcategories, you know, within, within AI. There's not like just one AI company out there. There's obviously lots of companies and it's just becoming that AI is becoming almost like an operating system that all of these new vertical applications are being built on.

• 48:33Barry Ritholtz?

  I haven't heard you mention crypto. Is that a space you guys explore or is that too specific?

• 48:39Speaker 05

  Well, I'll put in the past tense. We explored and, you know, just decided, well, one, we didn't do that well with it. And two, the fundamental problem that like we've seen in it is that when these companies would come in, we met with hundreds of companies in crypto. When these companies would come in and you'd say, okay, like, tell me what it is about your application that makes it better than if it were just in a relational database, right? Like a very simple question. You'd kind of get back like all kinds of technical answers and white papers and I'm like, right, but like as a user.

• 49:15Barry Ritholtz?

  What problems does this solve that I can't use?

• 49:19Speaker 05

  That I can't solve.

• 49:20Barry Ritholtz?

  Right. I can't use SQL for.

• 49:22Speaker 05

  We didn't just, we generally get a really good answer. Now, I don't want to, I don't want to say that there's not going to be any crypto applications that are going to be successful. I'm sure there will be. I mean, obviously, if you talk to CEO Visa, you talk to the CEO of Mastercard, they'll talk to you about stable coins and the impact stable coins could have. Obviously, administration that's very pro crypto, pro crypto regulatory. So I think you're going to see money being made in that category. We just, I mean, I guess we're used to trying to find applications where we see here's a clear business use, here's a clear payment for that business use, and here's how they can scale. We haven't really been able to decrypt that in crypto, but I'm sure there are others

• 50:05Speaker 05

  out there who understand that better, and I'm sure there'll be some winners, but we've just chosen to not focus on it.

• 50:11Barry Ritholtz?

  So let's talk about some winners. I see a run of exits that Insight Partners is associated with. You're an early investor in Twitter, which IPO'd, Buddy Media, acquired by Salesforce, eVestment, sold to NASDAQ, Alibaba, JD.com, Duck Creek, Appris, the list goes on and on. Tell us about some of these exits. You guys really have put together quite an impressive list.

• 50:39Speaker 05

  Well, I'd rather talk about our exits from this year.

• 50:42Barry Ritholtz?

  Okay, so keep it current.

• 50:44Speaker 05

  Yeah, which, you know, so my partner Jeff Horing led our investment in Wiz, which sold to, you know, Google, well, I should say, signed a definitive agreement to sell to Google, hasn't closed yet, for $32 billion, largest venture-backed acquisition by a strategic. My partner, Richard Wells, led an investment in a company called Central Reach, which does software for autism clinics. We sold that for just under $2 billion to Roper Industries. And then my partner Jeff Lieberman led a deal called DotMatics, which we sold to Siemens for just over $5 billion. And, you know, the interesting thing about both, the interesting thing about those deals is...

• 51:28Speaker 05

  One's a traditional early. So we did WIZ as a series, I think B, and then kind of continued to participate along the way. Both, you know, Central Reach and DotMatics were venture buyouts. But the multiples on money were like venture multiples of money.

• 51:49Barry Ritholtz?

  Really?

• 51:50Speaker 05

  So venture returns with buyout dollar deployment. It's a good combination.

• 51:54Barry Ritholtz?

  Yeah.

• 51:54Speaker 05

  And so, and I think we've got, we've got more coming over the course of this year. So I think we've had a really strong year. One of the things that I think contributed to that is I think historically, we were not great on liquidity. And by that, I mean, not that we didn't have good companies. We just didn't focus a lot on liquidity. And as big LPs and our funds, we're generally, the GP is tied or close to tied as the largest investor in the fund. So we're pretty aligned with our investors. We kind of were focused on multiple of money and not so focused on IRR. I mean, within reason, we're focused on IRR, but it wasn't what we. And I think over the last 10 years, 15 years, you've seen a massive transition in the institutional LP base of a shift from Moec to IRR.

• 52:39Barry Ritholtz?

  So I want to, I want to stay there because it's kind of fascinating. I had no idea, because I don't play all that much in the venture space or the private equity space, that, hey, we have longstanding liabilities that we eventually want to meet. And even though we knew this was locked up for, depending on the fund, five, seven, nine years, we'd like to see some exits sooner than later. When did this start happening? And what do you think is driving this?

• 53:05Speaker 05

  Well, I mean, it's, it's probably been happening for years, but it's accelerated in the last, you know,

• 53:10Barry Ritholtz?

  Post pandemic?

• 53:11Speaker 05

  Yeah. Post two, post two or three years, when you had the correction and people felt over allocated. And 21 had this huge peak of investing. And so now there's this big bubble of investing, but not enough liquidity coming back relative to the deployment. In the last two to three years, it's accelerated. And so we, you know, we, we took that feedback seriously. I don't think we're the only ones who got that feedback. But we actually put a liquidity committee together. It's from People across the firm, both our financial function, our investment team, our operating team. And we now have quarterly liquidity meetings where we target companies for liquidity. We kind of talk about what the IR is from here. And I think the, and that was set up about 18 months ago.

• 53:55Speaker 05

  But I think a result of that is, you know, I don't want to say it's a direct result because you can't press a button.

• 54:01Barry Ritholtz?

  Right.

• 54:02Speaker 05

  But a focus on it, everyone talking about it, everybody feeling like they have accountability to that process. I think has led to a lot more liquidity over the last. So I think we've gotten an ROI on really putting focus against it.

• 54:15Barry Ritholtz?

  Really interesting.

• 54:16Speaker 05

  You know, our LPs gave us feedback on it. You know, I think we thought about it. We said, yep, it's fair feedback. Let's make a change. Let's make an adjustment.

• 54:25Barry Ritholtz?

  So you mentioned the boom in 21 and then the pullback in 22. You started in the mid 90s. You've lived through numerous boom and bust cycles. What's your big takeaway from those experiences?

• 54:39Speaker 05

  Well, I think when you're living in the depth of it, it feels like it's never going to end. And it always ends.

• 54:47Barry Ritholtz?

  And this too shall pass?

• 54:49Speaker 05

  This too shall pass. And I think that's, it's a hard, it's a hard lesson because it's, listen, the thing that's still the hardest to do is, you know, Warren Buffett's investment, everybody's scared. And you get yourself ready and you've got your, you know, I'm going to put, move X dollars to the Vanguard index fund. And then you don't do it. Why? Because you don't think it's ever going to pass, right? Because if you thought it was going to pass, of course you'd do it. And human psychology is really, really hard to change. I'm including myself in that definition.

• 55:21Barry Ritholtz?

  It's so difficult to fight the crowd. When everybody's running for the exit, you have to be built a certain way.

• 55:27Speaker 05

  I still remember when the market, 2008, the market was, you know, was really crashing.

• 55:32Barry Ritholtz?

  Uh huh.

• 55:33Speaker 05

  And I remember having a conversation with somebody who know the markets really well, well-known person. He said, yeah, GE can't roll their commercial paper.

• 55:42Barry Ritholtz?

  Yeah.

• 55:42Speaker 05

  And I was just like, holy crap.

• 55:43Barry Ritholtz?

  That was after AIG and Lehman and September 08?

• 55:47Speaker 05

  And I remember, it was like a Friday and it was a long week and I called my wife and I'm like, you know, honey, let's just like go out for dinner. She was like, let's stay in. And we're having this like five minute back and forth. I'm like, why are we talking about this? And she was like, well, I thought maybe we should save some money. I'm like, it's not that bad. We could go out to dinner.

• 56:05Barry Ritholtz?

  Well, but Ben Bernanke. Former chairman of the Federal Reserve famously sent his wife out to the ATM to get cash in case the system went bad. If he was terrified, it just shows you, human nature is, we're always going to be scared.

• 56:22Speaker 05

  So I think that the thing, so I don't know that you could ever teach people to like, oh, move money. But I think the, the hard part is really, besides maybe not making as much money as you could make, the hard part is just feeling like it's never going to end. Right? And now having been through this as many times as, you know, I have and my partners have, you know, I think it's easier to recognize that, no, there's, there's light at the end of the tunnel.

• 56:46Barry Ritholtz?

  Makes, makes perfect sense. Let me throw you a curveball question before we jump to our favorite questions. So we talked about AI and we've talked about cycles. What do you think investors in this space, either technology or startup, or M and A or ventures, are not really talking about or thinking about, but perhaps should be? What, what's the most important topic, asset, geography, policy, that's getting overlooked but shouldn't?

• 57:17Speaker 05

  I think people still, as much as we talk about it, I don't think people, I think people still underprice what happens if there's a real cyber risk. A real, we think about cyber as, oh, my Citibank account got hacked. We think about cyber as, you know, I got a phishing email at work. By the way, all those things are bad and bad things can happen out of them. And, you know, everyone has probably dealt with some version of that.

• 57:38Barry Ritholtz?

  I mean, I'm more concerned about someone taking control of the electrical grid.

• 57:41Speaker 05

  I think we still, I mean, I think, like, I don't want to make it sound like the government doesn't think about it. I think they do. But I think it's just people, I don't think we realize like, the level of risk if physical infrastructure were kind of taken over. And it, there've been examples of it happening.

• 58:00Barry Ritholtz?

  Like physical infrastructure, be like the electrical grid or something more specific?

• 58:04Speaker 05

  Water, water purification plants, electrical plants. I mean,

• 58:09Speaker 05

  Hospital systems going down, right?

• 58:10Barry Ritholtz?

  Well, we've seen, we've seen a lot of ransomware with that.

• 58:13Speaker 05

  We've seen that in individual institutions.

• 58:15Barry Ritholtz?

  Right.

• 58:16Speaker 05

  We've not seen it systemically.

• 58:20Barry Ritholtz?

  Right.

• 58:20Speaker 05

  And, you know, that's a, that's a pretty, that's a, that's a pretty

• 58:25Barry Ritholtz?

  Pretty terrifying.

• 58:26Speaker 05

  That's a pretty terrifying risk. Now, I'm not saying, I mean, I'm answering your question as to something that I worry about that maybe we don't worry about enough. I'm not necessarily sure it's like, I don't know how to price that into the market. It's not really a market answer. It's just something that I think like, it's, it's an asymmetric risk.

• 58:44Barry Ritholtz?

  No, that's the right, so I'm not looking for a market, you know, asymmetrical dollar bet. You're raising an issue that perhaps we're not paying enough attention to.

• 58:53Speaker 05

  I think as, as the average, the average investor, the average person, I don't think, I, I think that risk is way bigger than we think it is.

• 59:00Barry Ritholtz?

  Huh.

• 59:00Speaker 05

  If you talk to people in government, they would probably, they would agree with that.

• 59:04Barry Ritholtz?

  All right, so we only have a certain amount of time. Let, let's jump to our favorite questions we ask all of our guests, starting with, who are your mentors who helped shape your career?

• 59:15Speaker 05

  Well, you know, I think to a few different mentors. I, I was in elementary school, a pretty indifferent student, to the point where, you know, I had Indian parents who were like, you're supposed to have good grades and, and, you know, I, I didn't have bad grades, but like, I was kind of an indifferent student, didn't really focus a lot on school. I had a teacher in third grade who said, you shouldn't spend more than 30 or 45 minutes on your homework. I'd go home, look at the clock, 45 minutes, close my book. And, and then I had a teacher in sixth grade, Mr. Brown, I'll never forget Mr. Brown, who for whatever reason, and I still can't tell you why, saw some potential, you know, saw something in me that maybe other people didn't see, and all of a sudden, I went from like indifferent student to like a straight A student.

• 1:00:00Speaker 05

  And it was that year, he took interest in me, he would say, hey, look, you're really good, right? You should focus more on these things. And, and so for me, sixth grade, Mr. Brown, very transformational mentor, in a way, because he made me believe that I had something that I didn't really think I had. The, and then my dad gave me three important things he told me was, one of them's kind of funny. He's like, you really need to learn how to, you need to be able to speak well, you need to be able to read well. And he's like, if you're living in this country, you should know how to play a sport. Right. And so he, the way he tried to implement those is he made me take a speed reading class in elementary school.

• 1:00:44Barry Ritholtz?

  Was that useful?

• 1:00:46Speaker 05

  I speed read.

• 1:00:47Barry Ritholtz?

  You do?

• 1:00:47Speaker 05

  Yeah.

• 1:00:48Barry Ritholtz?

  No loss of comprehension?

• 1:00:49Speaker 05

  No loss of comprehension. He made me take a public speaking class with college students when I was at high school. And I was so scared of public speaking. I never could imagine then that I'd be doing a, you know, a podcast. And he didn't, he didn't succeed on sports, but his idea was, he was like, you know, you should, you should learn how to play golf. You know, like, that'd be a good thing to know. And at Livingston High-

• 1:01:13Barry Ritholtz?

  Did you?

• 1:01:14Speaker 05

  Well, I, I, I, I played golf horrifically. But the, but in high school, you could join the golf team. It was a no cut team. That doesn't mean you were going to get to play, but-

• 1:01:26Barry Ritholtz?

  Paracity letter.

• 1:01:27Speaker 05

  But, but you got to, you got to learn. And I just said, I'm not doing that. So I got, I got two out of the three. But I think those two out of the three have been really, really important.

• 1:01:37Barry Ritholtz?

  Huh.

• 1:01:38Speaker 05

  And have had a very, very positive impact on my life. And of course, along the way, there have been lots of people at, at all the places I've worked that have been mentors as well.

• 1:01:47Barry Ritholtz?

  Very, very interesting. Coming up, we continue our conversation with Devin Parekh, Managing Director at Insight Partners. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Devin Parekh, Managing Director at Insight Partners. Let's talk about what's keeping you entertained these days. What are you watching or listening, streaming podcasts, anything along those lines?

• 1:02:19Speaker 05

  Oh, we could, we, this, we could do a whole, we could do a podcast-

• 1:02:22Barry Ritholtz?

  Okay.

• 1:02:22Speaker 05

  On the podcast. But I, my wife and I just finished watching Friends and Neighbors with John-

• 1:02:27Barry Ritholtz?

  So good.

• 1:02:27Speaker 05

  I thought it was great.

• 1:02:29Barry Ritholtz?

  So good.

• 1:02:29Speaker 05

  I really enjoyed it. That's just pure kind of entertainment.

• 1:02:32Barry Ritholtz?

  Absolutely.

• 1:02:32Speaker 05

  On the podcast side, you know, I, just like I speed read, I can only listen to podcasts if I speed listen. So I listen to all these at 2.4x, which drives my wife bananas because I'll get in the car and, you know, I'm listening to something. It goes to the, you know, the Apple thing. And she's like, turn this off. But, you know, there's a bunch, interestingly, in-

• 1:02:57Speaker 01

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• 1:03:39Speaker 01

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• 1:04:19Speaker 06

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• 1:04:49Speaker 05

  Reading, I tend not to read a lot of business-y books, but in podcasts, I do listen to that. So, but the ones I listen to, I listen to Acquired, I listen to Business Breakdowns, I listen to Nikolai Tangen's, where he interviews the CEOs. I listen to Invest Like the Best. I listen to you. I listen to Lex Friedman. And then I'm...

• 1:05:10Barry Ritholtz?

  At the FT?

• 1:05:12Speaker 05

  No, Lex Friedman's got his, he's a... Affiliated with MIT in some way.

• 1:05:16Barry Ritholtz?

  Oh, okay.

• 1:05:17Speaker 05

  He's got his own podcast. He gets really, really interesting people to come on. I'm involved in Carnegie and CFR, so they both have a podcast. One's called Grand Tamasha, which is on India, which is just a policy area. I'm interested in why it matters is CFR's podcast. So I've got a, driving to the Hamptons is easy because I can, I have hours and hours of kind of content.

• 1:05:38Barry Ritholtz?

  Really interesting. Let's talk about books. What are, what are some of your favorites? What are you reading currently?

• 1:05:43Speaker 05

  Well, I, I read a lot. And, you know, I think two books that I just gave, both my, one kid just graduated from college and one is, you know, two years out of college, three years out of college. I gave both of them, I don't know if they've both read both, but I gave them both books to read. One is Psychology of Money by Morgan Howden.

• 1:06:03Barry Ritholtz?

  Sure.

• 1:06:04Speaker 05

  I thought that was a great book. I wish I read that when I was 21, but I still felt like it was valuable. The other is called Five Types of Wealth by Sahil Bloom.

• 1:06:13Barry Ritholtz?

  Sure.

• 1:06:14Speaker 05

  I thought that was a great book. And those are more, I wouldn't put those as entertainment, but I found those, if you read those books and you kind of try to apply them to life, I thought both of those were really useful. Then, and then a lot of what I read is around topics that like are around our philanthropy, right? So, you know, one book I read, which is, this is not an upper, it's a book called Anatomy of an Epidemic by Robert Whitaker, which is about the use of psychiatric drugs in this country.

• 1:06:47Barry Ritholtz?

  Uh huh.

• 1:06:48Speaker 05

  And this is not an uplifting book. It, of course, there's an epidemic of anxiety and depression.

• 1:06:54Barry Ritholtz?

  I was going to say, anything about American healthcare or psychology.

• 1:06:58Speaker 05

  But it motivated, it motivated, it's a, one of the areas that we're philanthropically investing in is next generation ways of dealing with psychiatric conditions. And that book kind of was a starting point, you know, of that. And then the really depressing book I'm reading right now is, it's a new book. It's called Nuclear War by Annie Jacobson. And it's, we talked about what are these theories, what are the scenarios out there that, you know, we're underpricing? And, you know, I just felt with what happened over the last two years, you know, I think we all, you know, we used to have fallout shelters and everyone just think, oh, nuclear war, that's, that's, that's done. There's like, there's no risk of that. And

• 1:07:41Speaker 05

  I think the last couple of years just reminded me that like, nah, it's not done. Like now, it's not a high probability, maybe, but it's not done. And what this book does is it actually starts at time zero. A nuclear bomb drops. What actually happens, right? What is the defense mechanism that the offensive person uses? What's the defensive mechanism that the other country uses? What happens from, I mean, and it goes into it in not very uplifting detail. And it was just a good reminder that you have this thing out there that still has the chance to obliterate the world as we know it, right? And it's not a 0% probability. It's a low probability, but I think it is important to understand tail cases.

• 1:08:21Barry Ritholtz?

  Yeah, to say, to say the very least.

• 1:08:23Speaker 05

  We're ending on a very depressing note, so we might want to start, you might want to end on something more, more fun.

• 1:08:28Barry Ritholtz?

  No, it's, listen, you know, sometimes you, you mentioned, um, so to make this positive, you mentioned Sahil Bloom. I had him as a guest on the podcast. You mentioned Morgan Housel. I've had him several times. He wrote the foreword to my book. Both those guys, younger, all their work is much more uplifting, much less depressing.

• 1:08:48Speaker 05

  Yeah, I should have started.

• 1:08:49Barry Ritholtz?

  I wonder if that's an age thing?

• 1:08:51Speaker 05

  Yeah, I should have, I should have, I should have ended with that, but, um.

• 1:08:53Barry Ritholtz?

  No, it's, it's absolutely fine. Listen, sometimes you gotta, you know, you gotta shake people up and say, hey, this is a real risk and, you know, non-zero is a, a pretty significant risk when the outcome is so catastrophic.

• 1:09:06Speaker 05

  Correct.

• 1:09:07Barry Ritholtz?

  Um, so final two questions. What sort of advice would you give to a recent college grad interested in a career in either startups, venture capital, or private equity?

• 1:09:18Speaker 05

  Yeah, so I think that, uh, keep your intellectual curiosity broad. Uh, and I was, I was just speaking to our summer interns a, a month ago, and somebody asked me, like, what's your advice? And I said, like, I think the mistake a lot of people make is they decide, okay, I want to be in venture capital, so all I'm gonna do is read TechCrunch and listen to tech podcasts and. This is to make you a very interesting person. And, you know, I've probably had more dinners or one deals because we found a common interest in art or a common interest in wine. It doesn't, I'm using the things I happen to be interested in, but it doesn't have to be those things.

• 1:09:54Barry Ritholtz?

  Right.

• 1:09:55Speaker 05

  And, you know, everyone has intellectual interests outside of the thing that they want to do. And I would encourage them to like pursue those and pursue those with passion because it's going to make you a way more interesting, well-rounded person. And don't just be so micro-focused on that thing. And I just think it makes you a better investor, it makes you a better person, it makes you more interesting. So that's one. Two, in a world where we start getting people to do, you know, varsity soccer when they're three, allow a little serendipity in your life, right? I wouldn't have ended up doing what I was doing if I just followed the plan. And, you know, something's interesting, try it. And it turns out you might like it.

• 1:10:39Speaker 05

  Now, you might not like it and go back to your original plan, but we've forgotten serendipity. It's why I still subscribe to paper newspapers. Because I'm probably the only person in my building that might still get paper newspapers, but because there's serendipity. When you're flipping through the newspaper, it's the article that you weren't looking for.

• 1:10:55Barry Ritholtz?

  Right.

• 1:10:56Speaker 05

  Is where you learn something.

• 1:10:57Barry Ritholtz?

  You don't have that same, same discovery. And I, and I am very aggressive looking for interesting things.

• 1:11:03Speaker 05

  Me too. And I think you don't get that.

• 1:11:05Barry Ritholtz?

  You really don't.

• 1:11:06Speaker 05

  Economist is a great example. If you just get the digital economist and you see the article in AI, I'm going to read that. Guess what? I probably already know that, right? I'm reinforcing knowledge that I have. Maybe I learned one tidbit that I didn't know. It's when you open it up and, oh, there's this interesting article about nuclear that I don't know anything about. And I read it and say, oh, wow, this is maybe, this is, this is a, this is a real tail risk. Maybe I should understand this.

• 1:11:28Barry Ritholtz?

  I will give you the one exception to this is The Times doesn't do this well, but The Wall Street Journal does. So you go to the digital edition of the Wall Street, WSJ.com, but you could also click in today's paper, you get the breakdown by sections.

• 1:11:46Speaker 05

  And then you.

• 1:11:47Barry Ritholtz?

  Money and invest.

• 1:11:48Speaker 05

  And then you can kind of click through.

• 1:11:49Barry Ritholtz?

  And as you scroll through it, it's the equivalent of flipping the newspaper page where you get those, oh, I never would have.

• 1:11:54Speaker 05

  No, people always laugh because I show up on a news, I'll show up on a plane and I've got my newspapers and they're like looking at me like I'm, like a Martian, you know? And I'm like, no, it's, there's a reason.

• 1:12:03Barry Ritholtz?

  No, absolutely. And, and our final question. What do you know about the world of investing today that would have been helpful to know back in 1995 when you were first getting started?

• 1:12:14Speaker 05

  Well, I think a really important one that applies to investing, but I also think it applies to life is oftentimes people don't trust their instinct because they don't think their instinct is a real thing. They think their instinct, the gut, they have these words that people use, but the reality is it's micro slicing a lot of data that you've experienced earlier in your life. Now, maybe at 21, your gut's not worth a lot, okay? It's probably worth a lot in certain things, maybe some human interactions and things like that. It's probably not worth a lot in investing because you just don't have a database. But even at my age, you don't, like you have this inclination to not trust your gut. Like, there's something about this deal that just doesn't make sense, but, oh, but the revenue looks good and the margins look good, and so I'll just overlook my gut.

• 1:12:57Speaker 05

  And I've just generally, when I've overlooked my gut, it's not been, it's not been, it's not, it's not been a good thing.

• 1:13:04Barry Ritholtz?

  You mentioned pattern recognition earlier. Your intuition improves as you get more experience.

• 1:13:09Speaker 05

  As you get more experience and more data.

• 1:13:10Barry Ritholtz?

  You know, Blink is perhaps overstates the case, but there's a lot there.

• 1:13:15Speaker 05

  But it's, but it's, I agree, I've read the book and I think it overstates it, but, but there's a, there's something there.

• 1:13:21Barry Ritholtz?

  There's something there.

• 1:13:22Speaker 05

  You know, at the core. And then the second one is, I think, what we talked about earlier. Good times come, bad times will invariably come, and good times will invariably follow, and you just have to have confidence that both are going to be there and that you're going to learn from both.

• 1:13:35Barry Ritholtz?

  Devin, this has been absolutely fascinating. Thank you for being so generous with your time. We have been speaking with Devin Parekh, Managing Director at Insight Partners. If you enjoy this conversation, well, check out any of the 550 we've done over the past 11 years. You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever you find your favorite podcasts. Be sure to check out my new book, How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth and How to Avoid Them, How Not to Invest, wherever you find your favorite books. I would be reme-

• 1:14:16Speaker 07

  If I did not thank the crack team that helps put these conversations together each week, Alexis Noriega is my video engineer, Anna Luke is my producer, Sage Baumann is the head of podcasts at Bloomberg, Sean Russo is my researcher. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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