E419: Venture Capital Has a Liquidity Crisis

Venture capital was designed around a relatively simple model: invest in a startup, help it grow, and eventually exit through an acquisition or IPO. David sits down with Benjamin Black Powerlaw Corp. (Nasdaq: PWRL), Akkadian Ventures, Ben invests in growth-stage technology companies while providing alternative liquidity to founders, employees, angel investors, and venture funds. In this episode, Ben and David unpack the evolution of the venture secondary market, why great companies staying private longer creates an entirely different opportunity set, how sophisticated investors price illiquid private-company shares, and why liquidity itself is becoming a critical piece of venture capital infrastructure. The result is a different way to think about private markets: the investment opportunity doesn't end after the primary financing round.

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

• 0:00David Weisburd?

  Venture capital has traditionally been reserved for high net worth individuals, institutional investors, but you think that's going to change. Why?

• 0:08Speaker 01

  The reason why we excluded so many people was really about paperwork. In the early days of venture, it was all about access to very fragile, opaque, and small companies that needed to be sophisticated investors how to write them.

• 0:28Speaker 01

  Today, the private companies that I'm underwriting are among the largest and most consequential enterprises on earth. And a global network of investors are excited and about trying to get access to these companies. And for them, it's just a brutal problem. And all we've given them is a shadowy market of SPVs that they have to navigate. Because where there is demand, structures will come up to meet that demand. And that's where we are today. This market is completely unregulated, like the SEC has nothing to say about it. And so if you think about it, we spent 40 years protecting ordinary investors

• 1:13Speaker 01

  from the best performing asset class in modern history. That's not really an investor protection.

• 1:21David Weisburd?

  In the early 2000s, you had Amazon's IPO, Google's IPO, and venture investors or private investors oftentimes had a 10 to 50x. And the public markets actually ended up doing much better if you had held that stock. What's behind that?

• 1:37Speaker 01

  The IPO market has changed massively.

• 1:40Speaker 01

  Back in the day when I started, you'd go public with 30 million of revenue and have a $500 million market cap. That was seen at that point as the next point in the creation of the company. And then public market investors who are able to participate in the incredible growth of those private companies. And we've got a whole system of mega funds and late-stage businesses and sovereign wealth that can keep these compounding amazing companies private pretty much forever. And that becomes like a moral problem, like to cut out 90% of the world's investors from the best companies for decades is not what anyone had in mind when we created the private markets and the public markets.

• 2:25David Weisburd?

  At Acadian, you did 875 secondary transactions.

• 2:31David Weisburd?

  Why was there such an active secondary market in venture today?

• 2:36Speaker 01

  When I started doing secondaries back in the day, 2010, if you believe it or not, I'm going to age myself here. It was obviously such a need to me. And what's happened, and why we have secondary markets?

• 2:48Speaker 01

  We look at venture in our little tiny bubble. But whenever in any other industry, like private equity, REITs, private credit, when the duration of the asset goes too long, investors have a problem. In every other market, once that duration problem got there, a secondary market was created. We are just going down the path of every other industry that's out there that has a private and public market.

• 3:19David Weisburd?

  This ties back to earlier in the conversation where if companies are staying private longer because there's more capital and they don't have to go public early, like the Amazons of the Googles of the early 2000s. Now you can stay private longer, but the problem is that the fund lives for the venture capital funds that invest in the early stage, they haven't gone longer.

• 3:41Speaker 01

  VCs, for all their talk about innovation and their claim to be innovative, providing innovation, have not innovated on their product. The product everyone sells is a 10-year liquid fund. Now, I challenge you to go to any venture capital conference and raise your hand, ask the audience to raise your hand and say, does anyone believe that the 10-year fund is going to actually end at the 10th year? Like, we're now in the world of infinite extensions because the time duration from investment to liquidity has gone so far beyond 10 years. It's kind of a joke. I'd argue the board is on fraud.

• 4:26Speaker 01

  Like, we're selling a product that we know is not going to work the way it's intended. And that's a real problem. And that drives people away from venture capital. I talk to investors all the time who would like exposure to venture, but do not want to sign up for a 20-year fund. It's just gotten kind of ridiculous.

• 4:49David Weisburd?

  This preference for non-blind pool funds or non-10-year funds isn't just retail investors or family offices. I've had multiple Ivy League endowments tell me that, all things being equal, meaning same fees, they'd rather be going into direct opportunities versus blind pool funds because they have this issue now of having unfunded liabilities on their balance sheet.

• 5:07Speaker 01

  We are in a bubble, in our little venture capital bubble. And what we have to remember is that we are competing with a whole bunch of other asset classes for capital from institutional investors. Right? And so many institutional investors who I talk to are so exhausted with the time duration of venture capital that they're just doing other things. I'll tell you an actual story on this. One of our longtime LPs, when I went out to raise my sixth fund, he said, Ben, he said, in VC, you guys think a 3X fund is a DPI, the 3X fund is a win. But when it takes you 11, 12 years to deliver 3X, it's not really that great.

• 5:50Speaker 01

  I can much more reliably invest in a handful of lower middle market buyout funds and generate a 3X fund in a fraction of the time. And so he doesn't deploy at all to venture anymore. And it's those investors that I'm interested in bringing back into the industry.

• 6:08David Weisburd?

  You did these 875 secondaries. When it comes to the secondary market, do you think that it's now overheated? Or do you think it's still underinvested in terms of versus the primary market venture capital?

• 6:23Speaker 01

  Back in 2012, even up to 2022, like there was lots of situations where I could find a good company and be the only better. But the sheer number of new entrants, like every Tom, Dick and Harry, every sovereign wealth fund, every family office is now competing through the platforms that can make it easy to compete on, like Hive or Forage or Jeez, your Poison. Having those people in the market really makes it tough to get great pricing. The pricing that venture capital needs when you have to buy common stock at a discount because it's inferior security and you have everyone that's just willing to buy common stock at the last round price or sometimes even higher, it makes it very difficult.

• 7:07Speaker 01

  And so I think that the direct secondary market for what are called traditional secondary firms has gotten really difficult because of the level of buying activity that's happened because of these platforms.

• 7:22David Weisburd?

  Is that only in the late-stage opportunities or do you see that cycling down lower in the market?

• 7:27Speaker 01

  That's really only in the late-stage opportunities. You're a secondary market buyer today that's looking to generate institutional quality returns. You have to find diamonds in the rough, companies that are like very good companies, but people don't quite understand why. And this goes back to your concentration question. All of the competitiveness is really focused on such a small number of companies. But there's still a lot of value out there to be found in the smaller companies. And you still go get your discounts. Let's remember what our secondary funds, the whole model was.

• 8:01Speaker 01

  A pre-primary on gets done, we invest a year later at a 40% discount, which gives you a massively better cost basis and entry point for a company. That's why secondaries worked for a very long time. And it can still work in the $200 million company that is growing 30%. That's a good business, but it's not hot. There you can still go find opportunities and anybody who's running secondary funds focusing on those opportunities.

• 8:32David Weisburd?

  The secondary market, whether venture capital or private equity or other asset classes, has benefited from this information asymmetry. Some people have information about the assets. Some people do not. Is information alpha still readily available in the venture capital market?

• 8:50Speaker 01

  Absolutely is. We now have a multi-billion dollar asset class where the buyers and often sellers have no idea about how the company is actually doing. It is an information scarce market now. The people that have information have just a massive advantage in this market. It's not illegal to have insider trading, right? Like, one party in a transaction can have all the information and being selling to another company that doesn't. And getting information ends up becoming the most important part of a secondary process. You have to be able to make sure that you have information parity if you're going to make an investment. In some companies, you can do it. And when we can't find it, then we just pass.

• 9:36David Weisburd?

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• 10:20David Weisburd?

  to filings and earning calls, and they own the retrieval layer on top of it. So every answer links back to an exact verifiable source because the answer is only as good as what's underneath it. And with AlphaSense, you know exactly what that is. The edge goes to whoever could trust their information and prove it. See it for yourself. Start your free trial at alpha-sense.com/HowIInvest. That's alpha-sense.com/HowIInvest. There's a famous decabillionaire that was accused of insider trading in the public markets. And I always said, his model was actually pretty brilliant, which he would pay all the different investment banks full fees on huge trades. So you'd basically be paying for information.

• 11:04David Weisburd?

  And I always said, if only he had done that within the private markets, he would have a lot more money probably and not have dealt with the issues I had to deal with.

• 11:12Speaker 01

  There's one side that, I think, again, the smaller companies, the ones with that only have a couple of people following them, I think that's probably true. But because the demand on the buy side at the big companies, there are no discounts out there in those companies. Nobody's selling at a discount, right? So even if he has information, he's still got to bid against all the other buyers out there that are happy, excited to transact at whatever price the market will bear to get access to those companies. So I'm not sure it would create the level of alpha that you think.

• 11:47David Weisburd?

  So let's talk about PowerLaw,

• 11:51David Weisburd?

  a public vehicle to access venture capital.

• 11:56David Weisburd?

  How did you come up with that idea?

• 11:59Speaker 01

  Was thinking, after six funds, what do I want to do for fund seven? My first two funds returned themselves really fast. And I looked around and said, the world is choking, choking on 10-year liquid funds.

• 12:19Speaker 01

  I want to go out again, even though I'm in the hottest part of the market, secondaries, right? Like, this is a good time. A lot of people perceive this is a great time for secondaries. I'm not sure I agree. But I looked around and said, does the world need another 10-year liquid fund? And I'll say, I've always been product and differentiation focused. Like, how can we differentiate ourselves against the competition? When I came across closed-end funds as a vehicle to hold late-stage private assets, I realized that this wrapper, this new kind of wrapper, gave LPs exactly what they wanted, which was exposure to late-grade names,

• 13:04Speaker 01

  but in a wrapper where I ask them for one year of illiquidity so I can get the fund deployed, gone through the SEC, and then traded. And then from there, it's choose your own adventure for the LP. They get to decide when they exit. They get to decide when this portfolio is, when their view is topped out or whatever, or they don't like the way you're management. And then they can exit whenever they want. That is like crack for LPs, for a group of LPs that are very frustrated with venture, that are sick of just putting their money into massive blind pools to do growth stage. And that's really what inspired us to go down the incredible rabbit hole of taking a VC fund public.

• 13:48Speaker 01

  And that was where the inception of the idea came from.

• 13:52David Weisburd?

  What did you learn going down this rabbit hole?

• 13:55Speaker 01

  It's really hard. There's a reason why many people don't do it. The opportunity for closed-end fund is created by something called the 1940 Act. And 1940 Act is the same law that created index funds, ETFs, mutual funds, interval funds. And then closed-end funds are like this little dirty stepchild that people don't use so much. But yet, an industry that has experienced adventure and with laws within the 1940s, and trying to take a venture fund and fit it within all the rules and regulations. It means that my life now is no longer really spent in looking at deals.

• 14:39Speaker 01

  I spend my life translating venture capital assets to lawyers and accountants and fund administrators, because they all have to be 40 Act specialists. I spend my life translating how these venture assets are supposed to fit in the framework created by law in 1940. There's tremendous uncertainty. The lawyers don't really understand it. And that is the hardest part, trying to make that all work. And that is something that I went into it with eyes only partially open. I sort of saw this and said, we can deal with this. But it's proven to be an extremely difficult

• 15:19Speaker 01

  process to get all the vendors and all the key stakeholders aligned in how to apply those rules to venture capital assets.

• 15:29David Weisburd?

  You went in knowing that it was going to be difficult. You just didn't know the order of magnitude, how difficult it was going to be.

• 15:35Speaker 01

  I'll give you some real examples of this, just to make it just a drive at home. I really thought, naively, that we were going to be able to pull off like this closed-end fund just with our existing team, right? And by the way, the fees on a closed-end fund, it takes you like 18 months of incredible hard work just to get to charge your first set of fees. I had to hire a full-time, very fancy CFO. I had to hire a Chief Compliance Officer. I had to hire two law firms. I had to hire second general counsel to deal with the regulatory side of the businesses full-time. And none of that were things that I thought I needed before I went down this path. So that gives you a sense of how difficult it is

• 16:21Speaker 01

  and sort of the investment that you have to make if you're going to try to create a publicly traded closed-end fund.

• 16:28David Weisburd?

  Who are the early investors in the public vehicle? And has that surprised you?

• 16:34Speaker 01

  I would say that the early investors

• 16:37Speaker 01

  are pretty sophisticated. Like, most of the capital came from large wealth platforms. And so we're talking about very high net worth individuals investing through a wealth platform, one of the wealth management platforms. We also have many family offices, many of the traditional investors that would normally make an allocation to a VC fund, who looked at this and said, this is a way better model, right? And so the early investors, I would say that it's all about what expectations were. Like, people are really happy and really impressed with the underlying performance of the fund. The market has been terrible for the last two months since we got out. And so sophisticated investors who were like, look at this portfolio and say,

• 17:20Speaker 01

  this is an amazing set of companies, in my opinion. They're fine because they're just planning to hold this portfolio for a long time. I think the folks that were hoping to get some massive premium when it goes public, I'd say they're less happy. But we also have 600 investors. So we hear from a lot of different types of people. And you can't make everyone happy. I would say that the ones that I care about are happy.

• 17:46David Weisburd?

  It's a recurring pattern that hundreds of GPs have told me is that with any product, unless, I guess, you have a 20x VC fund that has 5x DPI in year two, you're going to have some LPs invariably that are going to be unhappy and some LPs that are happy. You can't maximize to making every single person happy.

• 18:05Speaker 01

  You never can. And there's just 1,000 points in time where people can second-guess you. And if that bothers you, you're in the wrong business. Like, just don't be in it. If you want to be loved, don't be in this business. If you want to be loved by everybody, right? So the people that understand the asset class totally get it. But I've always had a rule that no matter how small the LP, I will talk to anyone who wants to talk to me at all times. And so you can always get on my calendar if you're an LP in PowerLaw or Acadian. And I get to talk to them a lot. And it's so interesting because most of their opinions are based on very shallow perspective on what's happening.

• 18:50Speaker 01

  And I revel in those conversations because I give them the bigger picture. And once they get the bigger picture, then they're like, oh, okay. And by the way, I differentiate myself from most of these VC funds sheerly by the fact that I take all their phone calls. And so they're very appreciative when I will just take the time to explain to them why I did things or what's going on. Now, as a public company, I'm much more limited in what I can say. So when I have these calls, this is like the underside. We're a public company. I have, I can't provide the material, non-public information. You can't help that information vacuum. And the information vacuum, people put in to that space,

• 19:35Speaker 01

  almost always what's the most negative interpretation of what's going on. But to the extent I can, once I educate them on the bigger picture, then the objections kind of go away.

• 19:48David Weisburd?

  Talked in the beginning of the conversation about these SPVs. It's almost become a dirty word in some parts of the market. And I think for the first time historically, you have.

• 20:00David Weisburd?

  Executives from top companies like Andurall and Anthropic disavowing these SPVs. Have you had any issues with getting on cap tables due to the misinterpretation of asset class?

• 20:16Speaker 01

  I feel like I'm back in the early days of secondaries. Like when I started doing a secondary in 2010, nobody knew what a secondary was. I spent my time going around to CFOs and CEOs and explained to them like, this can be a market. Like this can be a way for your employees to get liquidity. You're in year eight, like show your employees some love. And at that time, I'll tell you this, half the industry loved it and thought what I was doing was really cool. And half the industry hated it. We are at the nascent point in this whole process of bringing closed end funds to market. And so like what you said is really important, like people, it's just a new thing.

• 20:57Speaker 01

  So we've spent the last year really figuring out how to navigate that, how to sell to companies and say, look, and do you want to be in the list of the top 20 private companies? Along with many of your best peers, or I can go to your competitor, I don't say that. But the implication is that I want you in my fund. And I'm going to spend the next three years before you go public, educating the retail markets about how great your company is. And just like in the early days of secondaries where I had to get in and explain to them how you had this phrase. I was like, secondaries are the way that you show your employees you love them. It's a marketing event for you.

• 21:40Speaker 01

  And now I'm saying, look, you can go take more money from some big institution. It's not going to change your life at all, but we're going to be out there talking, screaming at the top of our lungs about how great next three years. And so there's a pitch here, right? The number of companies that are really resistant, it's pretty small. Like it's a lot less than the number of companies who said, we would never do secondaries. Back in the day, like I would say, half the companies that I went to at the early days of Acadian were like, get out of here. I'm not interested. This just creates too many problems and the VCs hated it. This is actually easier sell in a lot of ways.

• 22:19Speaker 01

  So over time, as this gets more normalized, and we already see like really great companies like Stripe, for example, that is just totally fine with this. And we've already split into like the tiny number of companies that really resisted and fine. It's a big world. You go out and find a company that doesn't resist it. And that is something that with the maturation of this asset class, I think it all becomes normalized. And it's gonna be like, why aren't you out there providing retail access to your company? By the way, providing like the people out there are angry that they can't get access to these companies.

• 22:58Speaker 01

  It's a policy problem for the industry that the greatest companies are held out from access to the public markets during their period of growth. I get this from people all the time. It's fundamentally unfair. So just for the politics and the PR value, like giving retail investors access, showing them that you recognize that they deserve a seat at the table too, is a really good thing to do for your company. Now, the small group, they're resistant. That's fine. We move on.

• 23:36David Weisburd?

  Speaking of early days, in I think the mid 2010s, when the Fidelities in Wellington look into the market, there was this concern about fidelity now marks your startup valuation every quarter. And now that messes up with internal valuations, with primary raises, with 49A valuations, et cetera. Are there trade offs there in terms of yes, maybe these companies get access to retail, but now they have to share information. They have to share valuations and all these things.

• 24:09Speaker 01

  First of all, they don't have to share anything. Two points to this. Number one, there are already so many marks out there that are public already. And guess what's happened? Nothing. The all, this is a perfect example of a philosophical or made up fear that has turned out to be not a problem. And now you can go on to different sites and see exactly where every public mutual fund is marking the company. So the fact that you have one more fund, that's a public fund marking the company too. And by the way, all the marks seem really close to each other. So it is really, it's just a non-issue. That doesn't come up.

• 24:49David Weisburd?

  And the information sharing?

• 24:51Speaker 01

  Information sharing. So information is like anything else. Like there are companies that are very positive information, companies that aren't. Now, but now it's important to say, as a closed end public fund, the biggest downside to the vehicle is that we're extremely restricted in what we can say about the portfolio companies. The only things that I can say about the public companies are things that are already in the public sphere. When data breaks raises around and we go to the pitch book, that's just publicly built. The company doesn't have to do anything. That information is already out there. But it's not, what we're not doing is getting proprietary inside information about the financial performance of the company and then repeating it.

• 25:35Speaker 01

  We can point to their public statements on the revenue and we can provide that. But we are not allowed as a regulatory matter to expose any additional financial information that we get as a part of our investment process with the public. It all has to come from third parties.

• 25:56David Weisburd?

  As we've discussed, these are some of the hottest companies in Silicon Valley, like Stripe that you mentioned. How are you able to access these companies?

• 26:05Speaker 01

  For 16 years, we have a team that has been very successful in using the secondary markets and now primaries as well to get access. So I didn't start this yesterday. When we came up with the idea of a closed end fund and we came up with the idea, look, we're going to go after a list of companies. We're going to market that to LPs and then we're going to go get a percentage of them. Like we are a acquisition machine and there are just so many ways we can create exposure. We can participate in primary round. We can do individual secondaries. We can buy SPVs, which we've done. But what it little unlocks is like, there's a lot of pent up demand for liquidity if we had inside SPVs.

• 26:48Speaker 01

  And so we can buy those just LP interest. We can do that. I have, having such a deep set of experience with a team that's been acquiring positions in companies is what really differentiates us from the other people that are doing this. Because that's what we're really the best at. You give us a company, there's a way we're going to be able to create exposure. Not all the time, but it's going to be a lot better than somebody just starting this anew. They have to figure all that stuff out. We got 16 years of knowing how to do that. So that's kind of, I think, our core competitive advantage.

• 27:25David Weisburd?

  And the evergreen structure, this is something you set up one time, or is there a plan to create another vehicle?

• 27:31Speaker 01

  Right now, we're focused on making Power Law successful.

• 27:35Speaker 01

  And that is what I think about 24 hours a day. But what people don't understand about every construction is a couple of things. Like, once you're public, you can raise more capital in the public markets through a number of different mechanisms. You can put debt, non-dilutive debt on the portfolio.

• 27:56Speaker 01

  You can do what's called an ATM and at the market offering. This means you can sell shares into the market if you're trading at a premium to raise additional money that way. You can even do private placements and like raise the money privately and then have it to put it into the fund. And so there's a lot of opportunity to grow your asset base once you're public. When I started looking at this and then comparing it to a 10 year liquid fund where you have a set of, what $500 million of committed capital? And then you have to invest that over five years and then it's, your fees decline.

• 28:34Speaker 01

  And you can't raise more money for it. I saw that as just like an extraordinary advantage in terms of how to build these portfolios over time. We can start with a relatively small fund and build liquidity base in the market after we're public. But same time, what I don't have to do, and this is the best part. In year three, when I've deployed my capital, I don't have to go raise a new fund. And these funds are evergreen. It's permanent capital. And so that we can just sit there and grow the capital base over time without having to go start again with a new fund. Has for future funds, I'm sure they're going to come. The timing of those is up in the air at this point.

• 29:18Speaker 01

  But we've created infrastructure. One of the things we did was most firms, when they do this, they hire a bunch of consultants to provide a lot of the extra services that are needed. We built everything in-house. We hired full-time people to do all those jobs.

• 29:34David Weisburd?

  Something that I believe for many years, and now it's becoming almost this meme in Silicon Valley is building these internal moats, famously SpaceX became vertically integrated. Now, almost every defense company is becoming vertically integrated, meaning it builds a lot of these competencies inside. These hard things that compound with time that maybe don't allow you to go from zero to one as quickly, but just massively compounded and continue to build enterprise value.

• 30:02Speaker 01

  Even though we're VCs, we're entrepreneurs too, right? We spend a lot of time thinking about moat.

• 30:09Speaker 01

  Part of the moat is just we're the first VC fund that's done this. We're the first VC fund that is going out and trying to bring best practices about underwriting, portfolio construction to the public markets. But a huge amount of the moat is just how difficult it is to create one of these vehicles. Now, you can do it. People do it. But I will tell you this. I have gotten a lot of VCs that have called me up. It reminds me of the early days of secondaries. People were like, Ben, how do I do a secondary, right? And I had a lot of lunches with VCs. And once I get into the infrastructure that they have to create

• 30:50Speaker 01

  and you have to learn a very complicated, detail-oriented structure where rules are crazy and they don't make sense. And you have to build a team that can manage all of that.

• 31:05Speaker 01

  That itself is a moat. The ultimate moat is going to be just great performance and building a brand. And it's something we're in the early days of. And because being able to make this repeatable will require that.

• 31:19Speaker 01

  But

• 31:21Speaker 01

  and we're going to have competition. Any financial product, moats, I would say, compared to SpaceX are relatively thin. Everything that we do is that are in public documents, right? Like you can go read all the decisions we made. You may not know why we made those decisions. But you go read how we did it, right? Like the basic structure. So every financial product can be copied. They will be copied and that's okay. So when we think about long-term defensibility so that we can get an outsized share of the market compared to our size. That's why we built the expertise in-house so that it's repeatable, that we know every part of it, that we have control over every part of it. And it was expensive to do that.

• 32:06Speaker 01

  So in doing this from scratch, it does require. And like I said, you have to commit some upfront costs and you don't get your fees until you're actually trading in the public markets. And that takes a long time. So you have to pretty significant investment to make one of these happen.

• 32:23David Weisburd?

  How much did you invest before you saw your first dollar?

• 32:26Speaker 01

  That's a good question. So we raised 408 million and deployed the vast majority of that. But we started this project, my first meeting where Mike and I, Mike Dinsdale is my partner, CFO of DocuSign, DoorDash and Gusto. And when I showed him closed-end funds and sort of pitched to him, hey, look, this is a really interesting thing to do. He absolutely loved it.

• 32:51Speaker 01

  Then we had an offsite. And for context, my traditional secondary business was a value business. We buy $100 million software companies growing 30% at four or five times revenue. And all my investors want to talk about discounts. And I was a deep value guy. My reputation was like one of the most disciplined guys on price around. And I went to my team, who I've all trained, right? My investment philosophy. And I said, no, no, no, for the next fund, we're going to go buy the highest priced, high-growth companies that we've been passing on for years, because we think the numbers are crazy.

• 33:33Speaker 01

  They looked at me like, and one of them said, Ben, you're violating every rule about investing that you ever taught us. And I just simply said, well, part of being investors, you got to have a flexible mind. And my point was, we got a better wrapper here for going after those assets. Everyone else is still doing it the traditional way. And if we have a different wrapper, I have a better way to exit. That is a way to create value for our investors. And when I made it clear that this is what we are doing, and I got a lot of pushback. Then they all came around eventually. But when I had to raise the first parallel, we only went out to raise 200. But

• 34:17Speaker 01

  my traditional LPs were just like, Ben, you were a value guy. We didn't invest in you to go buy Stripe at full price. Like, that's not why we're with you. And I lost a lot of those LPs in going to

• 34:33Speaker 01

  create the fund. But the idea was, it had so much traction that I was easily able to replace them and in fact, double the amount of money we had planned to raise. So at that point, the team had come along and said, yeah, this is clearly an idea meeting a need.

• 34:50David Weisburd?

  Last time we chatted, you were on this crusade to create dozens, if not, I think you mentioned 100 other closed-end funds. Is this just shodding fruit? Do you want to see other people suffer? Or why do you want more competitors?

• 35:03Speaker 01

  Clearly, we've shown that there's investor demand for the closed-end fund wrapper, right? And also, these businesses compared to 10-year liquid funds have some real fundamental advantages. What did I discuss? One is our fees are based on net asset value. So as net asset value goes up, our fees go up, right? We can't get carried interest, so that's a downside. But you can get the little pieces of the fund at the beginning. But the fact that fees can grow and that key point is these vehicles last forever. They're fundamentally better businesses than 10-year funds if you're willing to suffer the payment of regulatory nightmares

• 35:49Speaker 01

  and the problems of being public and having everybody in the public sort of react and comment on you and managing a stock price every day was something I didn't have to do. I think that the business opportunity is so compelling that lots of other people will end up doing it, right? And the key is, right now, we are in the early stages of the Wild West of all this. It's secondaries in 2011. The secondary is before Facebook said it was all okay. Every time the SEC sees one of these things, they're getting more intelligent about what the regulatory structures are. Once the regulatory structures are clearer, it's going to be a lot less painful. Because we all just want to know what the rules are.

• 36:31Speaker 01

  So my point is, as this gets normalized and as more companies see, hey, it's perfectly fine to have a closed-end fund that's publicly traded that has my position in it. It's going to get easier and easier to do these things. The easier it gets, the more people will want to do it. I could come up with 100 ideas for funds that should exist as publicly traded closed-end funds. And so if I can come up with those ideas, somebody else is going to come up with them and do that. That's why I think it's going to grow.

• 37:02David Weisburd?

  You're now in your second innovation in the venture space. You mentioned secondaries in the early 2000s. Direct secondary specifically was very innovative. Today, it's closed-end funds. As these markets evolve, is there almost a game theory in that you want a certain amount of competitors out in the market with you?

• 37:22Speaker 01

  100%.

• 37:24Speaker 01

  I think this is the same with any industry. When you are all alone as a startup,

• 37:30Speaker 01

  it's really hard to create the market all by yourself, right? But if I have competitors out there with me and I can get into the opportunity set, I'm confident I will find our investors that fit our philosophy. And our philosophy is one of active management of these portfolios using traditional VC portfolio construction and management policies. And I bring 16 years' experience in doing that. And so I would say that is really sort of at the core of what we're trying to do.

• 38:03David Weisburd?

  We talked earlier about this technological moat that you're building by doing everything in-house. What other competitive advantages are you trying to build as an early mover in this market?

• 38:16Speaker 01

  The most important competitive advantage we can have is just good performance, right? The second place where I'm trying to

• 38:28Speaker 01

  spend my time in thinking about is the closed-end fund structure has a lot of places where, as a manager, your interests diverge from the LPs, from your shareholders. I keep on using that word, but we have shareholders now, not LPs. And I'm going out there in the world as a, whatever is good for the shareholder is what's good for us over the long term. Even when those difficult decisions that come up where you're kind of conflicted, that building a reputation as being a manager that thinks every day about what's best for the shareholders and how to make them the most money possible.

• 39:09David Weisburd?

  Ben, it's been an absolute masterclass. Thanks again for jumping on the podcast for a second time and looking forward to chatting again soon.

• 39:17Speaker 01

  All right. Thank you.