Special: Ho Nam from Altos Ventures — A Different Approach to VC

What do you get when you combine Berkshire Hathaway's approach with early-stage venture capital? Altos Ventures. We're joined by Altos's wonderful Ho Nam to discuss their highly unusual approach to VC, which has resulted in them becoming significant shareholders in great companies like Roblox, Coupang, Woowa Brothers and Krafton (makers of PUBG). This episode is an absolute must-listen for anyone in our industry — Ho is one of the best and most under-the-radar thinkers in Silicon Valley, and has many lessons to offer us all! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Topics covered: Altos's 13-year+ journey with Roblox, and how they deployed over $400m into the company out of an $86m fundAltos's heritage in Jack McDonald's Investments class at Stanford GSB, and the influence of Jack, Phil Fisher and Warren & CharlieHow Altos successfully "value invests" in venture capital, and reconciling cashflow potential with growth"Good fundraisers" vs. "bad fundraisers" and correlation with returnsAltos's unique fund structure and how they're architected to stay with companies longer than a typical venture capital firmHo's Twitter presence and how (and why) he went from de minimus followers to one of the top FinTwit accounts in a few monthsLinks: Ho's amazing Twitter presence: https://twitter.com/honamHo's "Foxes and Hedgehogs" post: https://altos.vc/blog/foxes-and-hedgehogsHo's "How do you know?" post: https://altos.vc/blog/howdoyouknowHo's "Venture Lotto" post: https://www.altos.vc/blog/venture-lottoSam Walton's Made in America: https://www.amazon.com/Sam-Walton-Made-America/dp/0553562835

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

• 0:00Speaker 00

  I feel like I know you guys because I listen to you guys on your podcast and it's really fascinating because I think the three-part series on Berkshire is kind of like is your signature piece because I think you guys said it's like, oh geez, you know, you never thought you could go beyond two hours. And I know you guys have to cut a whole bunch of stuff out just to fit it into six hours, right? I know. But there's nobody who goes into the depth like you guys. And so it's great to talk to you guys here.

• 0:36Ben Gilbert?

  Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.

• 0:52David Rosenthal?

  And I'm David Rosenthal and I am an angel investor based in San Francisco.

• 0:57Ben Gilbert?

  And we are your hosts. On today's show, we have a guest that both David and I have looked up to for years, Ho Nam from Alto's Ventures. Without giving too much away in this early intro, I will say that this episode could be summed up as, what if you tried to be a value investor with Berkshire Hathaway's principles, but for early-stage technology companies? This episode is the perfect cousin to everything that we talked about on the Berkshire trilogy. Now, before we dive in, I want to say, first, if you are new here, join us in the Acquired Slack. We'll be talking about this episode and everything going on in the tech and investing news of the day. That's acquired.fm/slash/Slack.

• 1:43Ben Gilbert?

  All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 2:02David Rosenthal?

  Yep, your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 2:23Ben Gilbert?

  Right, and that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap, and the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 2:44David Rosenthal?

  In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 3:03Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you. All right, now, as you know, this is not investment advice. We may hold interest in some of the companies that we discuss on the show, and this is for informational and entertainment purposes only. We also have one more exciting announcement today.

• 3:45Ben Gilbert?

  As the world opens up, we are marking the occasion by having an Acquired party as we wrap season eight. Yes, that is an in-person event. It is going to be here in Seattle at Gasworks Park on Thursday, June 24th at 5:00 PM. It'll have picnic vibes, so bring anything you want to eat or drink. Rumors are circulating that David Rosenthal is even going to fly up for it. We cannot wait to see you there. Now, on to our conversation with Honam from Altos Ventures.

• 4:16David Rosenthal?

  Oh, we are so excited to have you here. This is an episode we've been wanting to do for a long time. And just speaking personally, the last VCs we had here on the main show were Alfred Lin and Doug Leoni from Sequoia. And of course, I have so much respect for them. But even though Altos isn't as well known, I have learned just as much from following you over the years, and I am so excited to share that now with everyone. So I thought maybe a good way to start is Altos has made so many incredible investments, but I thought we could start off with probably your best known one, which is Roblox.

• 4:56David Rosenthal?

  And I think it'll tell your whole story in a really nice way, including the most amazing part, which is how Altos ended up investing multiple hundreds of millions of dollars into one company, Roblox, out of what was originally just an $85 million fund.

• 5:15Speaker 00

  It was $86.5 million fund.

• 5:18Ben Gilbert?

  And you became the largest shareholder at the time of IPO, is that right?

• 5:23Speaker 00

  That's right. Well, we were also the largest shareholder from the beginning, but we increased our ownership percentage over time. We increased it and then it went down and then went back up. So I'll tell you the whole story. So we met Dave Bazooki late 2007, in the fall of 2007. And that deal was referred to us by Mark Weinsta, who actually works for Roblox now full time as a general counsel. But at the time, he was a partner at Wilson. And he was a general counsel for one of our other portfolio companies a number of years ago. It was an enterprise software storage company. And he said, hey, I think you're going to really like these guys. And we said, why? Because he actually, Wilson Cincini works with everybody, of course.

• 6:07Speaker 00

  And so we knew Benchmark was looking at it. We knew a number of other firms were looking at it. Craig Sherman, actually, who was an EIR at Benchmark at the time, that David, you know very well. So I think Benchmark asked him to look at it. We asked him to look at it because at the time he was CEO of Gaia and he knew something about social networks. And anyway, you know, he's a really smart guy. We ended up doing the deal and we let Craig invest with us. So he was actually like right there from the beginning before he even joined Merit Tech. And he came in much later, of course. So anyway, going back, Mark said, oh, you're gonna really like these guys. And I said, why? He said, well, they're really scrappy, very capital efficient. You know, just like the Altos, you know, we like these really bootstrapped, kind of scrappy,

• 6:51Speaker 00

  capital efficient kind of entrepreneurs. We don't like burning a lot of money. And then he said, well, and they really, you know, I don't think they really like VCs. I said, really? Okay.

• 6:59David Rosenthal?

  Great. They're gonna love you guys.

• 7:01Speaker 00

  Yeah, exactly. Our kind of entrepreneur. And literally though, I mean, when we met and we got excited, we decided to give a term sheet. I mean, they would not take our money until we had to be interviewed by the founder's father and brother, who were both on the board. So like somehow we passed the test. I was not even at that meeting. It was my partner, Anthony and Han, who were there at the meeting. And luckily they passed and they gave the blessing.

• 7:26David Rosenthal?

  Like passed the test.

• 7:27Speaker 00

  Yeah, they passed the test. And our term sheet was for $2 million for a Series C financing. A and B were all friends and family. And they said, well, $2 million. Wow, that's a lot of money. That's just too much.

• 7:40David Rosenthal?

  What year is this?

• 7:42Speaker 00

  This is in 2007. The deal closed in February of 2008. But when we were negotiating was going through the holidays in 2007 to 2008.

• 7:51David Rosenthal?

  Right before Bear Stearns blew up.

• 7:54Speaker 00

  Yeah. Oh, yeah. So they said, it's like, yeah, $2 million is too much, but we'll take one and a half million from you guys. Okay, we'll start with one and a half. So that's how it got started. And anyway, but backtrack though, before that, you know, why we decided to do the deal. It's really interesting because my partner, Anthony, really had a thesis. And specifically, he was looking for the next Club Penguin.

• 8:16David Rosenthal?

  I remember Club Penguin.

• 8:18Speaker 00

  Yeah, yeah. And my other partner, Han, his two daughters were totally hooked on Club Penguin. So they loved Club Penguin. And then Anthony got all excited about Club Penguin because it was another one of those great bootstrap success stories. They never raised any venture funding.

• 8:33David Rosenthal?

  They're in British Columbia, right?

• 8:35Speaker 00

  Yeah, yeah. So a Canadian startup, which Anthony's Canadian. So Canadian startup, I think four or five different dads got together and created this company and then sold to Disney for like 400 million bucks. So back in those days, I was like, wow, that's a huge exit, you know?

• 8:51David Rosenthal?

  And you're investing out of an $85 million fund. You're like, yeah, $400 million exit. Great.

• 8:55Speaker 00

  Fantastic, right? That's a fund returner. So he had a thesis, which is really interesting. And then for me, I did not have a thesis around it. And if somebody had told me, was like, well, you know, you should fund this company that's like a Lego 3D virtual online playground. I would have told you, that's kind of a dumb idea, right? I would have said, it's like, why would I fund that? I don't get that. So, you know, this is kind of an interesting dynamic because in a partnership, you have different partners with different passions, different ideas, and you have this intermixing of different ideas, right? And so we debate it, we talk about it. But I might think it's something that's a really dumb idea. Somebody else might have a thesis.

• 9:36Speaker 00

  Now, you have this entrepreneur who walks in the door, and why did I get converted from, well, this is the dumbest idea I ever heard, to, wow, this is really interesting. Well, when you show up at my door, and then you have this little graph that shows 7% compounded growth on a weekly basis for 52 weeks in a row of engagement hours. Well, that's kind of interesting. If you graph that out in Excel, that is a classic exponential curve that just grew 33X in a year. Okay, something's going on. And they're not burning much money. They're just early in the monetization phase. They copied, exactly copied Club Penguin. They had this Club Penguin, right? Well, we had a club too. We called it Builders Club. That that's what it was. Same exact pricing as Club Penguin, $5.99 a month.

• 10:21Speaker 00

  And when we first started talking to them, it was tiny. And then by the time we closed the deal, I think maybe they were doing $50,000 a month. So $500,000, $600,000 annualized run rate. This is Roblox. Yeah, this is Roblox. Yeah. So that was kind of, it's like, okay, something's going on. You have exponential growth in engagement. You got early monetization. And then the thing that was really interesting, two other things that kind of sealed the deal for us. One is you did a YouTube search for Roblox. It's a unique name. And back in those days, this was several years before Minecraft ever launched. That was 2011. And we found like 200 something hits on Roblox. It's like, okay. So what are these videos, right? We start going through all these different videos.

• 11:04Speaker 00

  And some of these were really shaky videos, camcorder recordings of the computer screen. And the kids were so proud of their creations, right? Back in those days, it was really difficult. They're so, think about all the fiction points. You're recording off of an analog camcorder, your computer screen. And then you have to get that off the tape, digitize it, and then upload it on a slower bandwidth connections back in those days into YouTube, which was very early days of YouTube. And then they were so proud of their creations, right? They want to show it off to their friends. So something is going on. There's so much engagement, so much passion around this community. And you top it all off, you know, you meet Dave Bazooki. I mean, this guy had this vision

• 11:47Speaker 00

  and this inspiration going back so many years. And he had four kids and he really wanted to do something good for the kids, for his kids that he would be proud of. And his prior company had done something to educate kids, teach 3D physics. They had a little simulator. Yeah. And then that was a successful company, again, bootstrap, no venture funding, had a nice exit. But even though they were, it was designed to sell to elementary schools to teach kids physics. It was purchased by a CAD company, mechanical CAD company, so that Boeing engineers could use the physics simulator, right? So, so he was working for that CAD company.

• 12:26Speaker 00

  And it's like, okay, I think now I want to go back to my original passion, do something for good for the kids again. So you meet a guy like that. And in our original investment memo, we talked about, hey, I think this this guy is like a hedgehog. And the hedgehog concept was kind of new to us still. You know, we published this blog post in 2006 about the fox and the hedgehog in Silicon Valley. And we wrote that blog post.

• 12:50David Rosenthal?

  Inspired by Jim Collins, right?

• 12:51Speaker 00

  Yeah, Jim Collins, exactly. And wrote that blog post long before we met Dave Bazooki, but it's like, this guy is a total hedgehog. Right. But of course, it was very, very early in the journey and you only know when you're five, 10 years into it, whether or not that person truly is a hedgehog. That's what we talked about in that blog post is, hey, these people have hedgehog potential. But you won't know until you're 10 years into it.

• 13:13Ben Gilbert?

  And Ho, for folks who don't know, what is the fox and the hedgehog concept?

• 13:17Speaker 00

  Yeah, well, Jim Collins wrote about this in Good to Great, and his conclusion was, hey, these great CEOs, great companies are run by by these hedgehogs that really have one big idea and they have one big mission in life. Versus the fox, who is very smart, very clever, they're maybe polymaths, they're the great serial entrepreneurs. And they're very popular, you know, with VCs, they could hang out at these cocktail parties. And they're very smooth and they're really, really good at fundraising. And the hedgehog is really this boring creature, not very good at fundraising, does not networking. He doesn't even like VCs, doesn't want to meet anybody. They're just too busy doing their own thing, nose to the ground, right?

• 14:01Speaker 00

  That's kind of the hedgehog personality. So Collins just kind of perfectly nailed it. And when I wrote that blog post, I was thinking, oh yeah, I mean, this is just like Sam Walton. I had Sam Walton in my mind. He is one of the all time great hedgehogs. His book, Made in America, is like, oh my God, that told me what the mind of an amazing entrepreneur looks like. And we're very, very fortunate that he got sick at the end of his life because he never would have written that book. But because he would have been out duck hunting and visiting his stores and doing all those things he loved, right? But he was kind of bound at home. Everybody wanted him to write something. He finally wrote it. So we're very lucky that we got to.

• 14:41Speaker 00

  Get a glimpse into his mind and then and then Buffett, of course, is another amazing hedgehog. Right. You have this guy who at the time he, I don't know how old he was in his eighties or seventies. You know, he hasn't needed to work for money for decades, right? But he's still working. He's now 90 or 91 years old.

• 14:59David Rosenthal?

  He didn't need to work for money when he left Graham Newman.

• 15:01Speaker 00

  That's right. Like at age 25, you're right. At age 25, he had enough to retire. But but they keep going. They keep going on and on. It's like the Energizer Bunny. They never run out of energy. Why is that? What is it about certain guys that become billionaires? And they're still showing up to work and not only showing up to work, but they say they tap dance to work. Right. Bezos copied Buffett's lines like, oh, I tap dance to work every day. Buffett's still there, right? And Sam Walton's still there to the end, to the very end. You have to carry them out with a stretcher, right?

• 15:33David Rosenthal?

  Yeah.

• 15:33Speaker 00

  So there's some people who are just like that, like we're like trying to study who are these people? And and then we're trying to incorporate some of that for ourselves as well. How do we structure the work? And surround ourselves with the types of people that give us joy? That motivate us to come back, to keep coming back, to keep doing it. Rather than to say, oh, I'm done. I'm punching out. So we're always thinking about that because our role model is the Buffett kind of guy. We didn't set out to start the venture firm for ourselves. So that we punch out at the age of 50 or 60. It's like, well, why did I start something so I could give it to the next generation? It's like, I think I'm gonna just kind of be around for a while, right?

• 16:17Speaker 00

  And the next generation could join us and they're fantastic people. And these are people I want to invest in. And we kind of think of the next generation as we are both LPs and GPs. We want to invest in that next generation. And I think that's one of the things that I think we we observed with some really enduring franchises. Where they are no longer thinking about the business as as a GP. They're really thinking about it as an LP and they become both LP and GP. And there are certain folks like IGSB, right? That David knows about.

• 16:48David Rosenthal?

  There is no distinction.

• 16:49Speaker 00

  Yeah, they are the LP. They've never had LPs in 52 years. And so those guys are fantastic.

• 16:55David Rosenthal?

  They'll be they'll be mad at us for bringing up their name on in public. But for for folks who don't know, the Investment Group of Santa Barbara, which also came out of. GSB Business School, which Altos did as well, which we'll get to. And specifically, Jack McDonald's Investments class. It's all their own money. There's no outside capital. But I believe they manage now probably approaching 10 billion plus out of Santa Barbara, and they have beaten their own path over 50-plus years. It's amazing. Before we move on from Roblox, because I think this is relevant to how Altos has evolved. How did you end up making the untraditional moves of putting so much capital in?

• 17:34Speaker 00

  Yeah, that's always a kind of a mystery for folks. So this is what happened. So we only got a one and a half million dollar piece. And then about a year later, first round actually came in because they actually passed on the original round that we invested in. But you know, kudos to Chris Frelick for tracking it. And they said, hey, look, can I really get in? Throw in an extra half a million dollars. And so, hey, yeah, you know, we could use a little extra capital. And so we got them to come in and we actually invested more in that round. So every chance we got, we kept investing more. And a lot of times, before we started doing these big SPVs, we actually bought secondary shares, I think, on six separate occasions. So every time we had a chance to pick up some shares,

• 18:16Speaker 00

  whether it was from employees or founders or whoever, that people need a little bit of liquidity. It's like, hey, we're happy to buy some more. And every time, of course, the price changes, the price keeps going up. You know, we value it based on what we thought were the right comparables. And we price it at a certain level. And we kind of had a similar kind of comparable. Maybe we're valuing it at five times revenues or something like that. So the price kept going up. We kept buying more. But at some point, you know, we had this interesting turning point. We were very lucky in some ways. We thought about selling the company. And by that time, you know, we had had a pretty good game. We had a tiny fund. Of course, it would be a very meaningful exit for that tiny fund.

• 19:00Speaker 00

  And luckily, the offers came in at significantly below the price at which we were all willing to sell. And even at that higher price, it's like, oh, we were really reluctant. But it's like, okay, I guess we gotta do this thing. It's the right thing to do for the fund management business. And we'll talk on this topic later because I think a lot of fund managers make decisions to serve the fund, but they may not be making the proper investment decision. And you've got to learn how to separate that.

• 19:30Ben Gilbert?

  Or perhaps serve the management company, like the institution that you are building with your investment firm that is not necessarily perfectly aligned with the actual investors in that particular fund.

• 19:41Speaker 00

  Exactly. And we've, again, we felt those conflicting interests, right? We've made those mistakes or we've made certain kinds of decisions. And then we just sort of finally said, hey, look, let's just be very clear about why we're making such and such a decision. And it's okay to make a good business decision. It's okay to make a decision that's very rational, that serves the fund or serves your business, whatever it is. And it's also okay to make an investment decision, but just don't get those confused. Just understand why you're making certain decisions. So anyway, we had these bids, right? And we said, well, geez, at that price, we're not going to sell. Actually, we said, at that price, we should be buyers. Right?

• 20:23Speaker 00

  And so some people did want to sell at that price and other people wanted to buy. And so we said, hey, look, why don't we just buy some more shares? So that was a time that, you know, we kind of stepped up and did significantly more than the little nibbles secondary. So that was another secondary, but it was only like a 2.2 million secondary, nowhere near the levels later.

• 20:44Ben Gilbert?

  So by this point, you've put five plus million into this company. So it's becoming a meaningful percentage of the whole fund.

• 20:51Speaker 00

  Yes. So anyway, we bought more. And then what ended up happening right after that round was about a year later, again, the company continued to really perform. That's when Craig, our friend from Merit Tech, comes back in the picture. And he's been, he's known about this company like from day one, right? And he says, well, you know, this, this is starting to look quite interesting, you know, maybe we'll lead the next round. And that next round was led at a significantly higher price than the price that we were talking about that, you know, which everybody was thinking about selling, right? So it's like, okay, look at 500 million pre. Like maybe it's time to sell a little bit, right?

• 21:34Speaker 00

  Make our LPs happy, increase the DPI. Now, this DPI thing is very interesting, right?

• 21:40David Rosenthal?

  This is the fund management business.

• 21:41Speaker 00

  Yeah, Chris Stuvos, right? Who's a good friend of all of ours, right? I mean, what does he say? He says, "It's all about the moolah in the kula."

• 21:50David Rosenthal?

  Yeah.

• 21:51Speaker 00

  I love that. Like, until the cash is in the bank, it's not for real.

• 21:55David Rosenthal?

  And DPI, just for folks, is distributed capital to paid in capital. So it's actually dollars. Don't give me a markup like, give me dollars in my bank account.

• 22:04Speaker 00

  Exactly. Well, and look, we all lived through the bubble, the dot com bubble. And, you know, we thought we were gonna be so successful. We had all this huge gains and it just disintegrated on us, right? And so we were all kind of burned by that and LPs are burned by that. And the thing is, you know, look, LPs really don't know if something is a fraud or if something is for real, right? They're trusting us, they're trusting the fund managers. And so, you know, they see all this gain after gain after gain, but it's all paper. At some point, they have to convert that to cash, right? Otherwise, like, you know, they never know. And if you've been around for a long time, you know it could go to zero.

• 22:46Speaker 00

  So, anyway, we had these pressures and so, oh, maybe we should increase the DPI. It'll help us raise our next fund, right? That's kind of how Altos of fund managers think. And so we decided to sell 15% of our Roblox position. So we were still the largest shareholder at that point after that. And, you know, it makes our LPs pleased. And anyway, we said, whereas we were selling that little piece, oh, it was such a tough decision. We were saying, "I think that's gonna end up being a $200 million mistake." Which, you know, $200 million mistake in the context of an $86.5 million fund is a, is a pretty big mistake, right? But we still did it anyway. We still did it even though we thought it might be a $200 million mistake.

• 23:31Speaker 00

  Well, it turned out to be more than a billion dollar mistake, right? So anyway, but just just remember that because because it was the pain of that mistake that really led us down this whole different path where we became an RIA, right? So we sold a little bit at that point. And then fast forward a year or two later, a much bigger round happens, two and a half billion dollar pre. And and before that two and a half billion dollar pre round led by Tiger and Greylock also came in in that round, we had a number of other people started to get really interested in this company, right? People were just begging to like, can we have a chance to look at the company? And we weren't really looking to raise money because the company, you know, again, after

• 24:15Speaker 00

  the first 10 and a half million dollars of equity, we got to a point where we were cash flow positive and we just didn't need to raise any more money, period. Right? So people could be knocking on our doors and we just kept saying, no, no, no. But look at at 2 billion dollars, we thought it was like, well, geez, at 2 billion, maybe we should sell a little bit again. Like we thought it was like, hey, that worked okay last time at 2 billion, we could sell maybe only 10% of the of our position and still return a big chunk of the fund, right? So why not? So we actually talked to some folks at 2 billion and they came in at slightly below. Like they just, yeah, our asking price was two and they, for some reason, couldn't quite get there. They're offering like 1.7, 1.8 and we just said, eh, we're just gonna pass.

• 25:00David Rosenthal?

  This is like when Buffett bought Berkshire Hathaway and he where he wanted to sell. And it was the Chase family, right? It came in, they they came in at, I think, an eighth of a dollar below the price that they had agreed, shook hands on a tender offer.

• 25:15Speaker 00

  Yeah.

• 25:16David Rosenthal?

  And that's when Buffett said, all right, you, I'm not gonna sell, I'm gonna buy.

• 25:18Speaker 00

  Yeah. Well, I have another one of those great stories for you later. Remind me, Woowa Brothers, like, you know, you're just off by a little bit and it's just so dumb to be off by a little bit, just go for it, right? So anyway, those guys were off by a little bit and it's a lucky thing for us because we waited a little bit longer and we got to the two and a half billion dollar valuation. If we were willing to sell at two, we should be willing to sell at two and a half, right? But that, but it's all relative to how much progress is the company making? And then thing is, the other key difference was by the time we got to two and a half, we had registered to become an RIA. And so that was the key difference. And once we registered to be an RIA, we could do these SPVs and we could purchase secondary.

• 25:59Ben Gilbert?

  And RIA being Registered Investment Advisor or Advisory?

• 26:02Speaker 00

  That's right. Registered Investment Advisor. And so VCs are exempt from SEC registration because we help create jobs and all of that kind of stuff. And there's a lot of truth to that. You know, VCs are really small and they can't, you know, it's really for the public investors, right? But from a SEC perspective, if you do too much secondary, well, they look at it and say, well, hey, look, you're not creating any jobs here. You're putting dollars into somebody else's pocket. It's not going into the company's coffers. It's going to another shareholder's pocket. Well, to me, that looks like a public trade, right? Shareholder to shareholder transaction. So, so we got to too much secondary. That's kind of what happens.

• 26:41Ben Gilbert?

  By the way, before Ho continues, we should just anchor a price in people's minds. So, you know, when he's talking about, we invested a million and a half, and then you mentioned something around a $500 million valuation round. Now you mentioned a $2.5 billion valuation round. It's like, man, how big can this company get? Well, the public markets currently believe it's worth about $60 billion. So it does indeed keep running.

• 27:04Speaker 00

  Yes. Yeah, it definitely keeps running. So that $2.5 billion, because they didn't need money, they only took a little bit of money into the company and then the rest of it was a tender offer to purchase secondary shares. So there was a whole process going on. Everybody got a chance to sell a little bit. And remember, we sold a little bit in the last round at 500. At 2.5, we told the company, you know something? Thanks, but no thanks. We're not going to be part of this tender process. But what we did was we ran our own little tender process. We said, you know something? We will do this SPV and we'll participate in the round. And then we will run a tender process amongst our LPs and say, hey, look, if anybody really wants a chance at liquidity, here it is. And if they

• 27:49Speaker 00

  want to roll over, you could also roll over. So we don't want to force anybody out. We wanted to give them a chance to roll over on a no fee, no carry basis. Because the reason we were going to provide no fee, no carry is, well, first of all, no fee because we're going to work with this company regardless because we still had a big position, right? So why should we charge any fees? And then no carry because we're crystallizing the carry as we did that distribution. So they already paid us a fee, carry from that fund. So if they rolled over into this new vehicle, we shouldn't charge them anymore. So it was a free rollover if they want to roll, but a lot of people decided to cash out. So it was interesting and we cashed out some too, right? As you know, GPs, we know, we've been toiling away for a long time. We didn't have a, you know, a whole lot of fund returners at that point.

• 28:33Speaker 00

  And so we cashed out half of our carry and rolled over the other half, right? So it was a good thing for everybody. So we did that and then fast forward later, there was another round. When we did the two and a half billion, it was a hundred twenty five million dollar SPV. Right? After we did that, we didn't think we would do, ever do another SPV on top of that. But yet again, you know, at four billion, when that deal happened, we did another hundred twenty five. So that's how it starts to get big, right? One twenty five plus one twenty five. Now you got two fifty plus we had another round after that. The pre-IPO round at forty five dollars a share. Now, when you think about all of these rounds though, it's kind of crazy to think even at the forty five dollars a share, which people thought was crazy, right? That was thirty billion dollar market cap.

• 29:16Speaker 00

  And all the rumors about Roblox going public was at eight billion. And I have no idea where they pulled that out, but I think they just, it was reporters saying, well, if the last round was four billion, then the IPO must be at twice, two times that. And so it must be at eight billion. So everybody said the second, it's going to go public at eight billion, maybe ten.

• 29:34Ben Gilbert?

  And this is famously the IPO that got pulled because people were like, oh, actually, or the company presumably thought, wow, looking around at where tech companies are being valued going out today. You know, this wouldn't make sense. Like, we actually should raise more in the private market and then decide if we want to go out next year.

• 29:51Speaker 00

  Yeah, that's, that's right. Yeah, these, those pops were just kind of insane. And we kind of felt helpless to control it because if you do a traditional IPO, you have such a limited supply and you, you just can't. And a lot of people wanted access to this deal. They didn't get a chance to invest. And so they were going to buy, but as soon as they did, the price would spike up. And then we knew that it would come back down and we just didn't want people to get burned. It just didn't seem right. Also, also for the sellers, right? All these employees and early shareholders, they wanted some liquidity. And why should they sell at this artificially low price? Just because that's kind of what the bankers wanted. Doesn't make sense. We wanted to.

• 30:33Speaker 00

  Try to explore and find the right price and we thought the right price was going to be much higher than the IPO price. And we did find some investors, right, to validate that, hey, look, it should be at least forty five dollars a share, which is thirty billion market cap, way higher than that ten, fifteen billion, maybe people thought it should be priced at. And we bought more at that point. And so that's again, a key lesson to in terms of what, how we think about the business and, and holding on to our winners longer. So I think that kind of tells the whole Roblox story. So I skipped a whole bunch of other things that happened in between because this whole Roblox journey would not have happened at all

• 31:15Speaker 00

  in, in terms of, you know, making these big investments without this other little company called Woowa Brothers in Korea. And that was one of our early winners and, and we always said that we didn't think Woowa Brothers was going to be our biggest winner. But we always, always said for a number of years that this is our most important company. And if we screw that up, we screw up all of Altos, right? And the reason is we use that company to test out so many different theories about the business and about what we wanted to do, what kind of VC we wanted to be. And Woowa Brothers was the main reason that we registered to be an RIA to do the first SPV. So Woowa is this little food tech company in Korea

• 31:56Speaker 00

  that did, I think, a billion in net revenue last year in GMV. I'm not sure what it is, seven, eight billion, you know, surprisingly big for a little, little country of South Korea. But we, we had been involved with that company again from very early stages as well. And that company is, is so fascinating because the founder is one of these non-consensus founders. He did not go to one of the top colleges in Korea. And in Korea, you know, going to a top college is like a really big deal, right? Education is everything there. And so he, he was a designer, went to design school and started this little, little company that failed. And so he was in debt and he had to go back and, and try to pay off his debts.

• 32:41Speaker 00

  And he started this company, you know, after he paid off the debts or most of it. And, and the company was growing pretty fast. We decided to bet on it and we thought, hey, this could be, it, it was like the grub hub of Korea at the time, you know, before the whole physical delivery. And we thought, hey, we, we thought this company could be maybe thirty, forty million dollars in revenue. And and maybe we could exit in Korea, you could take a tiny company like that public. And we didn't think it would be that big, right? But it got to 10 million run rate and he thought, hey, this is really starting to work. And this is maybe a bigger market than we thought. And the CEO comes to us and says, well, you look, I took it this far. And I think it's time to get a CEO, like new CEO.

• 33:25David Rosenthal?

  Such a great story.

• 33:26Speaker 00

  And it's like, what do you mean? It's like, well, because I I I don't know how to take it from 10 million to 100 million. And and some of the other board members were saying, oh, that we got to take this company public. Like in Korea, you could take a tiny company like that public, but but you have to be profitable. So from 10 million to 20 million, they wanted to get the company profitable and then take it public around the time it was 20 million. And we said, no, no, I don't think that's that's the right approach. I think this is really starting to work. It's time to step on the gas. And we told the founders, like, you know, I think we could take it a little bit further. Like, let's see what happens, but let's let's raise, you know, raise a little more money and just kind of go for it.

• 34:02David Rosenthal?

  You draft him back into service.

• 34:04Speaker 00

  Yeah, yeah, it's sort of interesting because, you know, we are seen in Silicon Valley as these very stodgy, conservative, pragmatic guys, capital efficient. You know, we don't like burning a lot of money. In Korea, when we say this tiny little 10 million dollar company should step on the gas, right? Uh, like they think, oh, geez, guys, these guys are really aggressive, right? And this is really very interesting. It's like same exact approach because by the time we got to 100 million, of course, we were profitable, we were or cash flow break even. We like companies to get to a self sustaining phase by around the time you get to triple digit millions. Uh, and so around the time they got to 100 million, the CEO came back to us again and he said, wow, this is amazing. Now we're at 100 million in revenues and I think you have the wrong man for the job.

• 34:49Speaker 00

  It's like, really? Because I got it to 100 million, but I don't think I'm the right guy to take it to a billion. It's like, well, okay, let's see what happens. Now, here's the fascinating thing that he he came to my partner, Han, recently and said, you know, look, I think we're going to take this thing to 10 billion. Like he's like, just watch me like now he's got the confidence. He took it from a hundred to a billion. And now he knows. And of course, he's just become a fabulous, fabulous CEO. Amazing.

• 35:19David Rosenthal?

  He's the first Korean to sign the gifting pledge, right?

• 35:21Speaker 00

  Yeah, yeah. He recently signed the Buffett Gates gifting pledge, first, first person ever to do that from Korea. Now another founder from Korea recently signed. So now they have two out of Korea, all in the last few months, which is fantastic. And, and you know, he's such a special guy. He, he actually started selling some of his shares even very early before he became a billionaire. Cause he just felt like it was the right thing to give back and he made some promises. And, and we told him, he's like, you're crazy for selling the stock, you know, because we were buying, right? When, as we were buying, it's like, we told him, it's like, I don't think you should be selling that much. But he's like, no, no, I gotta sell it because I gotta give 10 million to these guys, whatever. He had made promises and so he sold his stock. So he's such a, such an amazing guy.

• 36:04Speaker 00

  So anyway, along this Woowa Brothers journey, right? Talk about the missing out on price. We had again pressures, all the feeling the pressures to return some capital, right? To our, our founders and Woowa Brothers was, was on a, a much faster growth trajectory in the early days compared to Roblox. And maybe we thought we would sell 20% of our shares, right? That returns a nice little percentage of the fund. And we actually had shaken hands on a deal with a great, we found this great long-term investor. They, they would be like the Altos. They, we would leave the shares in really good hands because they would be really with the company for a super long time. Not looking to flip out of it. And we shook hands and then when we got the paperwork, the price was different.

• 36:48Speaker 00

  It's like, oh, it's like, it's like, and it wasn't off by a lot, but it's like, but this is not what we agreed to. So we just said, no, we called off the deal, right? And it's a lucky thing because what happened was we called off the deal, but we were still interested. And many of the other early investors were all interested in cashing out a little bit. So by the time we found the next investor, which turned out to be Naver. And we, we wanted a strategic as well because we thought Naver could become a competitor and why not? You know, get, you know, make them our friends rather than our enemies. By the time we got to that deal, we actually got the price that we had wanted from the beginning. But again, six months passes in a fast growing company, six months like makes you pause.

• 37:33Speaker 00

  It's like, wait a minute, at this price. We should be buyers rather than sellers, right? It's like the same decision we made with Roblox a little earlier. It's like, yeah, we were thinking about selling at this price, but I think maybe we should be buyers.

• 37:45Ben Gilbert?

  Very similar to what Nolan Bushnell had told us about the Atari deal with Don Valentine, where it took so long to close the deal, months and months and months went by that when, when Don sort of showed up with the final paperwork to sign, Nolan was like, hey, I think we're actually worth twice as much now. And they were. I mean, you just objectively look at their growth.

• 38:05David Rosenthal?

  And like only Nolan Bushnell could have that conversation with Don Valentine.

• 38:09Speaker 00

  It's always a moving target, right? And you try your best, you know, the valuing of companies is just, it's an art and not a science. You can't just like apply simple formulas and it's a moving target. It keeps, it keeps changing on you. So anyway, so we decided, okay, you know, we had been talking about potentially becoming an RIA like for years, like two, three years before this Woo Wa Brothers decision. We thought about doing an SPV for a coupon, uh, which was, you know, growing even faster than some of these other companies was early rocket ship. And we just could not get comfortable with the notion of becoming an RIA at the time. It was just, you know, for a small fund like ours, it was just a big, huge undertaking, a lot more overhead.

• 38:53Speaker 00

  You had to have a chief compliance officer, a lot more legal costs.

• 38:56David Rosenthal?

  And we'll get back to this, but you know, at that time, how many people were at Altos? What did the, what did the firm look like?

• 39:02Speaker 00

  We were, we were tiny, but this is before any of our next generation partners had joined us. So it was still the three of us, just three partners. Yeah. And, you know, our, our receptionist was our office manager, our admin. She's still with us, you know, we just had tiny little office. So we decided not to do the SPV for a coupon, but we had been thinking about this for a number of years and we talked to a whole bunch of people who were registered and they told us, it's like, well, you know, my advice to you is just don't do it. It's like, really? But you're registered. It's like, but yeah, it's a cost of doing business, business for us, but for you guys, I don't think it's worth it. So, I mean, literally we got that good, well-meaning advice from a lot of people. So we just didn't do it for coupon, which probably turned out to be a billion dollar mistake, right? But that's fine.

• 39:48Speaker 00

  That's one, one billion dollar mistake. The Roblox thing was another billion dollar mistake. We keep making all these huge billion dollar mistakes. And it's like, you know, at some point we should stop making these big mistakes. So, so, so for Woo Wa, we finally, again, we went back to the same exact people that we had talked to before, who said, you shouldn't do it. We talked to some of those guys and we got some advice and we said, you know something, despite all these costs, we were kind of doing the math on it. And for this little $30 million SPV, I think we'll make enough money on this to kind of justify all the added expenses and overhead, kind of forever, you know, or at least for the 10 years. I think it'll pay for all the 10 years of expenses if this turns out to be correct. And then we thought, it's like,

• 40:30Speaker 00

  you know, there could be some other deals. Like, like three years ago, we had coupon, now we have Woowa Brothers. There could be some other deals. You just never know, right? So we thought, okay, why not? So we registered and we got it just in the nick of time. We had to register very, very quickly to be able to close. And the $30 million SPV was 100% for secondary. It was not a penny of it went to the company. We bought shares from other early investors like us that needed that liquidity.

• 41:01David Rosenthal?

  And is that one of the things that you can't do if you're not an RIA is lead a whole round that's just secondary?

• 41:07Speaker 00

  Yeah, the technical technicality is that it's 25% of any fund. And so you could have a billion under management, but if you have a one fund, that's a $30 million fund, and if 25% of that one fund happens to be secondary, then that triggers the registration requirement for the entire platform. So that's kind of the math. And so $30 million, 100% of it secondary. So that triggered the registration. And so because we had done that for Woowa Brothers, that's what allowed us to do all those other Roblox SPVs. Now, before this Woowa SPV, that was the sixth fund that had invested in the Woowa Brothers. So I didn't tell that

• 41:48Speaker 00

  part of the story. So we were investing fund after fund after fund into Woowa Brothers.

• 41:56David Rosenthal?

  And canonical VC, you know, dogma from LPs, but I think VCs also believe this is cross fund investing is a no-no.

• 42:04Speaker 00

  They said, no, no, people really don't like it. And so when we first started doing this, LPs were

• 42:10Speaker 00

  Well, first of all, when we first started doing it, that's because we were just not very good fund managers. Like, a lot of times you do it because you're just not doing a good job of reserving. And if you run out of money, we ran out of money. It's like, well, geez, we can't support our companies anymore. So we had to beg our LPs, like, can we really, like, use our new fund to help support some of our older companies? So we did that, and LPs didn't like it, but, you know, like, they gave us a little rope, right? It's like, okay, you could do a little bit, but we're watching you. Our eyes are on you. Right?

• 42:45Ben Gilbert?

  We're gonna start reading those quarterly statements that you send us now.

• 42:49Speaker 00

  And we're gonna make sure that you don't put good money after bad, right? To support your crappy companies that run out of money. But, look, we made some mistakes, but we also made some good deals. And our LP started to get more and more comfortable with us doing these crossovers. And Woowa Brothers, when we raised our first Korea fund, we raised that fund primarily because of some of the lessons on Woowa Brothers. We were starting to run out of money in our US funds for Korea. So when we first started raising US funds from institutional LPs in 2005, they let us invest up to 10% of our fund anywhere outside of the US. And the reason is, we asked for permission to do that because we started to see some

• 43:33Speaker 00

  interesting things in Korea. It was worded in the legal documents that we could invest anywhere outside the US, but we were just only focused on Korea. And in that first fund, we never reached that 10% limit, but in the next one, we increased that limit to 15% because we continued to see more interesting deals. And so it was in that second fund where we absolutely hit the 15% limit, and then we wanted to go beyond that 15%. And why did we want to go beyond 15% limit? To put more money into Woowa Brothers, right? That was the company that we really wanted to start to lean in on. And so our LPs kind of relented, and they said, well... We won't let you go up to 20%, but we'll let you go up to 17%.

• 44:14Speaker 00

  It's like, okay, well, you know, beggars can't be choosers. We'll take whatever we can get. So the 17%, that incremental 2% all went into Woo Wa, but we wanted more, right? And so now we were stuck in that US fund, limited at 17. So that's when we went out and said, hey, we're going to raise a Korea fund, Korea-only fund. Because some LPs actually liked that idea and wanted more exposure. There are other LPs did not want more exposure to Korea. You know, there's all kinds of North Korea risk and, you know, they didn't even know like how to categorize Korea. It's like, well, that's not really emerging, it doesn't go into emerging market bucket. And I feel like, you know, so they don't know how to, how to categorize it. So some of our core LPs actually passed on that first Korea fund.

• 44:58Speaker 00

  But luckily, we were able to get enough, convince enough LPs to come along with us on that first $60 million Korea fund. And when we raised that fund, we told our LPs, the first investment we're going to make out of this fund is a crossover. Woo Wa brothers.

• 45:14David Rosenthal?

  So LP, I mean, you're literally doing everything that is going to make LPs nervous here. You're investing in a market they don't know and understand. While you're based out of the US and your first investment's a crossover investment. Those must have been some fun conversations.

• 45:30Ben Gilbert?

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• 45:44David Rosenthal?

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• 45:58Ben Gilbert?

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• 46:08David Rosenthal?

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• 46:25Ben Gilbert?

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• 46:41David Rosenthal?

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• 46:58Ben Gilbert?

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• 47:07David Rosenthal?

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• 47:18Ben Gilbert?

  Ho, let me ask you a question. This will take us a little bit into sort of firm history. So we've thrown around Roblox, we've thrown around Kupang, we've thrown around Wooa Brothers. At this point, you know, these multi-billion dollar investments, like these things keep happening to you. So you sort of like, you know what excellent feels like now in terms of the results and then sort of backtesting that against what did those entrepreneurs look like when we invested very early in them? Can you like, take us back emotionally to what it was like the first time you started to see your first 3X, 5X, 8X, where you, you knew you had something in the portfolio where you were looking at each other like,

• 48:00Ben Gilbert?

  hey, we actually might be good at this. Like, one of these companies might go. And what your psychology was around that point in time?

• 48:09Speaker 00

  Yeah, yeah, it's such an interesting question. It's kind of complicated. There's the people equation, and then there's also the business equation. So I'll talk about the people a little bit, and then we'll talk about the business fundamentals. So the people, we already talked about a little bit. We just have a bias towards certain kinds of entrepreneurs, what we call the hedgehog versus the fox. And you know, there's nothing wrong with foxes and nothing wrong with amazing serial entrepreneurs. They're incredibly competent people. They will make money over and over again. But I call the great serial entrepreneurs just amazing people who just have not yet found their true life's calling, right? So you could be a serial entrepreneur, have a bunch of fantastic hits, but then you will find something

• 48:51Speaker 00

  that say, "Oh, my God, this is it. I've found what my life's purpose is. I'm here for the rest of my life." Like, we're looking for that match, company-founder fit. And you know, Sam Walton was like that. Sam Walton was a very successful serial entrepreneur, very successful, even as a teenager. He was making all kinds of money. He was making thousands of dollars, which is big money back in those days, just like Buffett was a very successful teenage entrepreneur, right? And so he's always been fairly wealthy, fairly successful, but he did not start Walmart until age 46. He was already a wealthy, successful guy. But at 46, he found Walmart, and that was it.

• 49:31Speaker 00

  That was it for the rest of his life, the one thing. So we're looking for the people, the one thing, right? And their true life's mission at this point in our lives, you know, we're not looking for yet another deal to make money. Like, why would we do that? Like, don't show me another deal that just makes money. Show me an opportunity to build something really special with a special group of people that have a mission, their life's mission, hopefully, and how can we support them on that? And guess what? If you actually do that... The money will be there, right? So don't worry about making money. That cannot be the reason to do any deal. It's gotta be because you want to work with these people and it's gotta be because we have a chance to build something. Right? So it's about the people that that's such a critical component.

• 50:17David Rosenthal?

  You've said a bunch to me and you know, I love sort of adapting a Buffett analogy, but you want to find people. And I think you all think of yourselves this way at Altos where you're you're painting a masterpiece versus you're painting by numbers. And when you're painting a masterpiece, there is no formula and it's never done.

• 50:39Speaker 00

  Yeah, every time it's just different, right? And yeah, Buffett calls Berkshire his painting. That's my painting. And when he buys a business, you know, from one of these great founders who've become a billionaire, you know, says, you know, he tells him like, you have this masterpiece. I want to hang it in my museum, right? I'm not going to touch it. I'm not going to rip it apart, right? Sell it off in pieces and I'm going to hold on to it forever. It's a beautiful masterpiece. And, and you know, sometimes, you know, you paint, you do the painting and it turns out to be not so good. Sometimes it's a masterpiece, but it's just unique. It's just different every time. We're looking for those artists. And there's a lot of people out there who, you know, want to want volume. They want scale.

• 51:19Speaker 00

  And paint by numbers will do it. And you could build a much, much bigger business that way, much certainly much more predictable and much more repeatable. And there's a lot of people who want that, right?

• 51:29David Rosenthal?

  Or maybe a bigger business faster.

• 51:31Speaker 00

  Yeah, it was GPs was LPs. I think it's LPs that are driving it. LPs really want predictability, repeatability. You know, they don't want to take too much risk, right? And I kind of joke that like, look, I think everybody wants Bernie Madoff without the fraud. Like, nobody wants fraud, of course, but I think everybody wants Bernie Madoff. They want nice, steady. They're not, they don't want to be too greedy. They just want that steady returns. And there's a lot of big, big funds that they're just geared. They're set up for that. You know, company after company, deal after deal. It's like a cookie cutter, right? Crank them out out of a factory and it's a deal factory, a deal machine and the LPs want it. It's okay. Good for you. That's fine.

• 52:10Speaker 00

  We're just going to do something different over here. And, and if you want that, you know, and it's a small piece of your portfolio. Cause we're not going to be able to, you know, crank it out in volume like that. We just have our own little thing going.

• 52:22David Rosenthal?

  So that was, that's the people's side of the equation. And then you said there's the business side of the equation.

• 52:27Speaker 00

  Yeah, so, so there's a business side. So, you know, around the time a company gets to about a 10 to 20 million dollar scale, that's what we call first base. That's kind of when we start to get a lot more curious about the business. Around the time, like, let's say Woo Wa Brothers got to 10 million, it was like, okay, I think we might have something here, right? And we start to dig in. And like, sometimes, like, you know, I might not even be paying attention. If it's a company, of course, that I'm working with, I'm very, you know, involved with what's going on. But as a partnership, like, we might not know about every single company. But if somebody else's deal, whatever, you know, if, if you get to first base, now you got my attention.

• 53:09Speaker 00

  It's like, so wait a minute, so what do they do again? Like, what is it that they're doing? Like, I want to learn a little bit more about this little business. So around 10 to 20 million, you get our attention, we start to get curious. Like, we learn so much more about the people, the business, the market, because now we're a few years into it, right? And what we've learned is that, you know, so many companies, venture-backed companies especially, are in a hurry to grow, grow, grow. And the faster you grow, the higher your valuation at the next round. And everybody's really happy, right? But I tell you, when you really step on the gas, and we've done it before. We've had companies go to 100 million in revenues, and then the wheels start falling apart. And it takes so much time, so much work to get a company to 100.

• 53:53Speaker 00

  It's like the, the, the most heartbreaking thing in the world to have this, this thing that you worked so hard on, start to fall apart on you. And it's really hard to turn it around. It's much harder to do a turnaround than to build it right from the beginning. And, you know, I think almost every single company, startup, has a great culture in the beginning. People say, well, you know, the culture gets set when it's like the first five people or whatever, and you gotta do it right. It's like, eh, don't tell me about that. Every little company has a great culture. You know why? Because, like, just to survive that little infant mortality phase, if everybody's not pulling their weight, like, there's no place to hide. Everybody is contributing. Everybody knows what the heck is going on. You have a great culture, every little company.

• 54:36Speaker 00

  But not every great culture at every little company turns out to be great as they grow. And so you have to pay a serious amount of attention. So around the 10th time you get to first base, that's when you get to your first 100 people and you really have to do it right. And basically, in our best companies, they're accelerating in growth in the multiple hundreds of millions at a faster rate, a lot of times in percentage terms, than when they were in the tens of millions. That's what we're looking for, right? We want this acceleration, starting at 100 million, rather than a deceleration and the wheels falling off at 100 million. And so when we see something special, and again, not every company that gets to 10 to 20 million is going to get to that hundreds of millions, right?

• 55:20Speaker 00

  So, but that's what we, we're paying attention to it to see which of these have the opportunity to really scale up. And if we see the big potential, we get more careful and more patient with those because we want to do it right. And we want to build the right kind of pieces. Because by the time you get to 100, again, if you don't have the fundamentals down, it's just almost too late. It's just really hard. I mean, you could do it, but it's just, it takes a lot of effort. But if you keep doing it right, like if you're making the right kind of decisions at 10, 20, 30 million, rather than at 100 million, then by the time you get to 100 million, you got some momentum building and you got, you got some practice and you got, you got the right fundamentals going. And so at 100, you have this ability to start to accelerate.

• 56:04Speaker 00

  And so that's what we're trying to do.

• 56:06David Rosenthal?

  What are some examples of some of those key decisions in the, you know, 10 to 30 million dollar revenue range that you got to take the time to, to get right in your experience?

• 56:16Speaker 00

  Yeah, well, a big thing is people. People and culture, you know? It's so easy to just get, get people with fancy resumes and, and they'll take you there super, super fast. And you just have to be careful. I mean, I have no problems hiring talent. And as, as companies grow, we have access to better and better talent. You know, when you're at a startup, you just can't get the kind of people you could get at 20 million. And when you're at 20 million, you cannot get the kind of people you could recruit at 200 million. And at 200 million, I will tell you, you cannot get the kind of people you can get at 2 billion. I mean, you start to get tap into better and better talent. So all along the way, we are just trying to upgrade the talent, but also all along the way,

• 57:00Speaker 00

  we're trying to develop the talent and we're really looking for signs of that, of which are the people that we hired early days that are able to keep coming along with us. And you have to be patient with some of those folks. But if you could, like, it always makes me feel a little bit more comfortable with a company if I see certain people coming along and, and, and we have some history with them. Cause if it's a, if I wake up one day and we're a hundred million in revenues, but I look at the management team and I don't know anybody on the team. Makes me very nervous, actually. I might know the business, it might have a long 10 year history with the business, but I just don't know these people. Now I gotta start the cycle all over again. It makes me feel more comfortable when I've known these people for a while. And some of them might, you know, start as individual contributors and they become managers and then the directors and VPs.

• 57:45Speaker 00

  And, and usually we get to know, because we work with these companies for such a long time, we get to know people at multiple layers, right? We might know people at four or five different layers within the company, at all different stages of their career development. And again, those are the companies where we tend to get much more conviction around.

• 58:05David Rosenthal?

  It reminds me of, um, I remember talking about, of Zoom, and I remember talking about this with Santi in our episode with him that, you know, it's such a, it's almost, it's a very Altos like company. I remember in the IPO prospectus, going through the management team, and they all were developed internally and they're all incredible, but it looks very different than, you know, often you'd see in sort of a typical venture path, just like you're saying, you see, you bring in the gold plated resumes at each stage and they're, you know, they've done this, they've done that, they've done X, Y, Z, but they've been with the company six months before the IPO.

• 58:42Speaker 00

  Yep, yep. And, and we certainly had some of that at Rollbox too. I mean, you can look at the IPO prospectus, there are some people we brought in and there's other people like behind the scenes that have been there for a really long time. Some amazing people, right? And, and there's some people at the IPO prospectus that might not be like in the documents yet, but we know they're in the background and they're getting better and better. And maybe five, 10 years from now, they're going to take over. Who knows, right? But we see that kind of a machinery being developed. Uh, that's really interesting, but that's again, going back to people. I mean, so much of this is really about people at the end of the day, right? That's what certainly makes it more fun for us, right? You know, I mean, it's interesting because in Korea, right?

• 59:24Speaker 00

  We, we go to a lot of funerals. It's like, it's so fascinating. It's like, really? Well, in Korea, like you don't have to go to all the weddings, but you do have to go to all the funerals. It's like a really big deal. So I think every month-

• 59:37David Rosenthal?

  These are not funerals of, of employees of companies. These are of their like older family members, right?

• 59:41Speaker 00

  Yes, yes, usually. We have so many employees at our companies now, but I think we go to at least, I don't know, four or five funerals a month. I mean, a lot. It's, it's a, it's a big deal and we, we take time to do that. But you know, we develop these relationships, right? I've seen people who, who are single, they get married, they have kids. And then, and then at the other end, people who become empty nesters, right? Or, or people who unfortunately who do pass away. So we've seen the entire life cycle, having been in this for 25 plus years. And it's kind of seeing the journey, the lifelong journeys of these people and seeing these families grow up. And that's also one of the things that keeps us coming back. But anyway, I, I keep going back to people, going back to the, the business though, the metrics.

• 1:00:23Speaker 00

  I think we do like to see this capital efficiency, but we have no problem stepping on the gas. It just depends on the business, right? Coupon is a good example where, you know, they got to profitability actually, or cash flow breakeven. But then really they made a courageous decision to really step on the gas and build out the entire infrastructure. And that really cannot be done without a serious amount of money. And so that was a billion dollar, first billion dollar check from SoftBank and then they did another two billion. We have another company called Viva Republica, another Korean company, fintech unicorn. They're I think approaching a billion or so in revenues. And you know, that took some amount of capital. That took a, a pretty good amount of capital because

• 1:01:05Speaker 00

  in the early days, we were kind of losing money with every transaction, right? It was Venmo of Korea and every single time you did a transaction, it costs us 50 cents. Not great gross margins. Yeah. As, as, as our volumes went up, we negotiated those rates down much, much more. Much lower and then also then as we got bigger because of network effects, some of the transactions we had zero costs because you could just leave it in your TOS account. That TOS is the Venmo of Korea. So if you leave it in the account and you do a money transfer within the network, it's zero cost, but if you transfer it back to a bank, then it costs us whatever. We negotiate with the bank. But that is an example of a deal that really did cost us a lot of money. But we were, again, this is a good example.

• 1:01:49Speaker 00

  In places like US and China, you would just raise a ton of money. It's like, hey, this is like great product market fit, like go for it. But there, like, we were trying to slow down the growth because we were gonna like drive ourselves out of business, right? We're this little venture fund, we can't, you know, keep funding this burn rate. So we actually did things like, oh, you know, why don't we charge you a transaction fee? After the first three, five or 10 transactions, we will charge you. So, so we, it's like, and by charging people, we will slow down the growth. Right? And so we did that, of course, and that, you know, helped subsidize the burn. It didn't slow down the growth that much, actually, but at least we got some money. Right, so, so you have to do clever things.

• 1:02:32Speaker 00

  If you're, you know, if you're, like, there's a saying, right? Creativity loves constraints. We try to constrain our companies, right? In a way that forces them to think creatively about the product and about the business model so that you don't burn crazy amounts of money. Again, I have no problem stepping on the gas when I see something obviously good. But again, we try to do it within the bounds of some reasonable constraints. The number one rule for us is we have to be able to control our own destiny. And it's not just to protect the Altos ROI. We're trying to protect the founders, right? Because the founders, they start their companies and this is their life's mission, let's say. Let's say we picked the right founder, this is their life's mission. The last thing I want to see happen is their life's mission blow up.

• 1:03:18Speaker 00

  And it will blow up if you keep running out of money, right? I want to see founders in control, not the investors. If the founder keeps running out of money, guess what? The founder is no longer in control. Some big investor comes in, they're calling all the shots. And before you know it, you know, the founder could be gone. And then again, now I'm staring at a bunch of, you know, execs that I don't know. I don't have a relationship with, and I'm not sure what to do with that. Right? I like having relationships with the company. And I know I want to know who I'm working with. And so we're trying to protect the founders. We want them to be under control. And if they're burning too much money, they're going to lose control over their own companies. So we want to protect them and we want to protect our capital efficiency. We care about price per share appreciation.

• 1:04:00Speaker 00

  You know, you could have this valuations keep going up, but you're have so much dilution, your price per share is not going up at the same rate, right? Price per share appreciation matters.

• 1:04:09Ben Gilbert?

  Ironically, yes, valuation is actually not the thing to watch. It's a, which of course it's, you're never going to see price per share in a tech front article, but it is funny how, how people just anchor directly on that, on that valuation. On this note, Ho, I want to take us in a little bit of a investment fundamentals direction. So I think it's too easy to say, well, there's two types of investing, value investing and growth investing. It's obviously some spectrum. And I think you have, at least from the outside, mastered the art of identifying where and when to be on which places in that, that spectrum. And so earlier you mentioned something like, well, with Roblox, with our early investments, we paid something like 5X revenues on a, on a valuation basis.

• 1:04:52Ben Gilbert?

  I assume, and I haven't looked at the numbers, that it's much higher than that now. And so I also assume that at some point when you were investing in those, you know, multi-billion dollar valuation rounds, that it was higher than 5X then too. So when are you comfortable and how do you make decisions in fast growing tech companies around what investment multiples make sense?

• 1:05:16Speaker 00

  Yeah, that's a great question. So we use these kind of rough metrics, whether it's 5X or 10X, when we don't know the business. But once we know the business and we know what the potential is, then we kind of know, hey, we could be monetizing more, but we chose not to, for a whole variety of reasons. And so we have to factor that in to the valuation equation. And so until you really get to know the business, you really don't know how to value it. So we have to use these dumb metrics. But then, once we really get to know the business, right, then we feel like we are in a better position to value it than anybody else. And so, you know, I like to say, like, we're different than every other early-stage VC, because we never run out of money and we never run out of

• 1:06:01Speaker 00

  time. Thanks to our LPs, we could just keep investing out of, across multiple funds. But we're also very different than any other later-stage investor, because that's where most of our dollars go these days, right, to later stage. But we're different because we don't chase somebody else's unicorn. We are going very deep into these companies. And I like to say, I'm a very slow learner. So it took, give me many years to get to know you and your business, before I could, like, even qualify myself to make that kind of a judgment call. You know, we kind of, you know, Buffett likes to talk about his circle of competence. We, our circle of competence is quite narrow. It's our own companies. Like, you know, we, we look at other people's companies, try to learn, of course. But

• 1:06:45Speaker 00

  we're, we're going to town, going, studying our own businesses, and trying to figure out which of those businesses have potential, and, and trying to understand, how, how does it work? You know, when a company starts to work, that's a rare thing, as you know. You know, we're all in the venture business. It's hard to find something that actually works. So when it gets, when it, something is working, that should just tell you, hey, maybe you should be paying more attention. Like something is going on. Try to understand what the heck is going on. There are many, many explanations behind something that's working. It could be the market, it could be a competitive dynamic. It could be the people are really special. It could be you have some, you know, secret sauce. Maybe you got lucky. Whatever it is, try to unpack it and try to understand the components of it.

• 1:07:30Speaker 00

  And then try to understand how this machinery works. And as you understand the machinery, you start to understand what the potential is and how to value it. So there's no easy formula, but that's kind of one way to think about it. Now, this interesting comment about value versus growth, right? Like I give a lot of credit to Jack McDonald, who, you know, taught investing for 50 years. And he's no longer with us, but that's, that's the same class that the IGSB guys teach at. We go back every year to teach that class. Buffett used to come every year. He always told us, hey, value and growth is the same thing as far as he was concerned. It's like two sides of the same coin. That's what Buffett says, two sides of the same coin.

• 1:08:11Speaker 00

  You know, the way McDonald talked about it is, well, isn't growth just a component of value? Like, of course it is, right? Growth, if the higher the growth, the higher the valuation potentially, right? So it's just one of the many elements that we have to factor in to try to put a proper value, valuation on the business, right? So that's kind of the way we've been thinking about it always for a long time. And of course, in these early stage venture deals, there are no metrics, right? It's too early, so early. So I just no longer even think about the venture deals as investments. I think about venture, my, the venture portfolio as it's just the world's greatest discovery mechanism. Right?

• 1:08:56Speaker 00

  Try to learn about businesses, try to learn about people. And once in a while, we discover a very interesting opportunity and then we'll develop that opportunity. And it's not about you discovered it and you caught this lightning in a bottle and then now you're rich. It's like, no, no, no, no, no, no. It doesn't happen that way. You discover the opportunity. Now you've got the next 10 to 20 years to figure out what to do with it. And if you don't show up for the next 20 years, you're not going to get paid big. You know, maybe you'll get lucky and you go flip it to somebody because they're, they're going to pay you a big forward valuation. But you know, if you're not lucky and somebody's not going to pay you for all the future cash flows today. You have no choice but to just build it. You've got to do it yourself. Do it the old fashioned way. Do it the hard way. Just build a damn company instead of trying to flip it to somebody else and

• 1:09:41David Rosenthal?

  That's what happened with Roblox.

• 1:09:43Speaker 00

  Right? Get paid for not doing it. Like, let's just do it.

• 1:09:46David Rosenthal?

  I remember when you told me this viewpoint. It was such a like, I'd never thought of things this way before, but for me, so many light bulbs went off and really helped me evolve the way I think about investing over the past year. It's tied to what we were talking about earlier, that the out years of compounding are where the huge lion's share of the value is. And so if you take the sort of, shall we say, traditional or normal VC approach of, you know, I'm looking for the markup, so I'm looking to get paid, et cetera. You know, I want growth and I want to offload it. You know, that's a pejorative way of saying it, but that's how Altos of these things,

• 1:10:30David Rosenthal?

  traditional venture companies go. You're missing out on the potential to go from, Roblox going from $2.5 billion to $68 billion. And that's 90% of the value.

• 1:10:44Speaker 00

  Yeah. And, you know, a company like that, again, we're not thinking about what's going to happen to the price in the next one or two years. We're thinking about what can we do with this company in the next five to 10 years or 20 years? The best ones will keep going longer. You know, we always talk to, like to talk about GEICO. I love the GEICO story because that's a 70 year relationship between an investor and a company. It's like, wow, that would be amazing to have a 70 year relationship. You know, I don't know, some of these tech companies, they have, they might have a shorter life, right? But, you know, you could have, you could have a nice 20, 30 year run and we hope to have some of those kinds of runs.

• 1:11:18Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the Agentic Operating System that is redefining how the world's best legal teams work.

• 1:11:32David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:11:48Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:12:03David Rosenthal?

  And that's how you get features that customers love, like Tabular Review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:12:27Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:12:46David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:13:16Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 1:13:41David Rosenthal?

  The GEICO story is the perfect transition to another topic I want to have you educate us on is you also said to me once, passing, missing, that's all in your head. That's just a construct. You can always invest. The Buffett GEICO story illustrates that so beautifully. Like he bought, he sold, he bought, he sold.

• 1:14:03Speaker 00

  Yeah.

• 1:14:03David Rosenthal?

  He bought part, then he bought the rest of it. You can always invest. Tell us more about that.

• 1:14:08Speaker 00

  Yeah. Well, this is the thing. If you've been around for as long as I have, right? You get to know these companies. Now, of course, we defined our circle of competence for all. It's just our own portfolio. But just as an investor, like we've all been doing public investing now for decades, right? And I've encouraged people to just do that. We have our 401ks structured in a way that we could individually manage it. And we want everybody to do that so that they get to practice, practice, practice, practice with this tiny little 401k, which is no longer that tiny, by the way, right? And now we have the benefit of decades of experience when we have serious money to manage, right? On the public side.

• 1:14:46Speaker 00

  And so it's a fascinating, fascinating journey. And this concept of you get to know these companies over the period of many years and many decades.

• 1:14:57Speaker 00

  Right? And you get to see these teams. And, and once in a while, like whether it's the 2008 crisis or the dot com crash, you have these kind of strange things happen in the external environment that gave you this amazing gift. And if you have a database, mental database of various companies that you know about, different models, different, you know, teams that you, you could really get to know some of these public companies quite intimately. I've been quite impressed by meeting some folks on Twitter who really know their businesses and they're public investors. And they have no special access to those management teams like we do. And yet they really know their stuff.

• 1:15:39Speaker 00

  And like, wow, I've been very impressed. And, and you know, some of the CEOs, it's like, you know, we didn't invest in some of these companies, but I know these people. And I realized these people have never met the guy, but they know him. And it's like, they really do. They study him. I mean, because you could study these CEOs. They're on videos. You know, on YouTube, they're on podcasts. You could read through the quarterly earnings calls and they're going really deep.

• 1:16:08Speaker 00

  And if you start to go really that deep and then you follow them for 10, 20 years, you really do know. There's a guy, Tom Russo, who's a class, another GSP guy speaks at that same class. I think he's been investing for like 30 some years, ever since he saw Buffett speak at the class in the 80s. And he follows some of these companies like Nestle for like decades. And I think I remember him talking about, you know, meeting some factory manager in China, like more than 20 years ago. And he does a factory tour. He's just always looking into those companies. It's the same company. He's still invested in it, but now that factory manager has become some big wig executive in Switzerland.

• 1:16:49David Rosenthal?

  This is the Phil Fisher scuttlebutt.

• 1:16:51Speaker 00

  Yeah, the scuttlebutt, just taking to an extreme. So you just get to know a bunch of companies, you know, and again, stick to the stuff that you know. Like, why speculate on stuff you have no business speculating on? Like, get to know a bunch of businesses and, you know, just realize, take some comfort in the fact that only a very small number of companies are truly special. So you don't have to get to know everybody, right? Maybe you do have to kiss some frogs to find a few princes, right? So you get to have to know a bunch of businesses, good and bad, so that you could recognize a great one when it's staring at you in the face. And again, if it's not so obviously great, then that's kind of easy. If

• 1:17:33Speaker 00

  it's not obviously great to you, then it's not great. What an easy thing, just pass.

• 1:17:39Ben Gilbert?

  What does your flow chart look like in your brain on deciding if a business is truly special? Like, what is the mental walk? Is it first sliced by sector and then look at a few key metrics? Is it more people oriented? How do you even begin? If I were to tell you, hey, company A is really interesting, you should check it out. How do you validate if I'm right or not?

• 1:18:01Speaker 00

  Yeah, it's a good question. So sometimes it's really, really based on how special the company is, but it's also based on how does the market view the company? Because if I think that the market's misunderstanding, The company, then there's an opportunity for alpha, right? And so again, we talked about people, that has to be a critical equation. You got to look at the financials, you got to look at the balance sheet. If it has too much debt, if some unforeseen event could kind of put the company over the edge. You know, I tend to be shy of it, but I'm not totally afraid of that. If I think they have, you know, because sometimes you have the best opportunities in public markets with companies that have a pretty good amount of debt. Because they could go to bankruptcy, right?

• 1:18:46Speaker 00

  But you have to use your judgment and say, okay, they have a good amount of debt. Everybody thinks it's going to go BK. But I think this company is not going to go bankrupt for the following reasons. And if you have a thesis that everybody thinks it's going to go bankrupt and you don't think it will, then that's a pretty, you have an opportunity to make an interesting bet, right? That has asymmetric upside.

• 1:19:08David Rosenthal?

  The classic example of this I think of, I'll always think of now is Buffett's Coca-Cola investment where the market, there was the new Coke disaster. And the market thought, oh my gosh, I don't know if the Coca-Cola will go bankrupt, but like this is, this is, they've killed the golden goose. And I don't know if this is how Buffett looked at it, but you could go back and look at that in time and be like, okay, let's say Coca-Cola classic, you know, before it was classic is done. They still have Diet Coke, which is the biggest soda in the world. So there's a huge margin of safety there that people were not appreciating.

• 1:19:44Speaker 00

  Yeah, absolutely. You know, one of my favorite examples was during the 2008 crisis. There's a little company called Select Comfort. Now it's called Sleep Number. And I remember the Motley Fool was kind of touting the stock as this great stock. And it was like, you know, growing like crazy. And then it completely cratered in the crisis. And a lot of people were saying that, well, they're going to go bankrupt. Or maybe not bankrupt, but they were saying things like, well, no one's going to buy a $3,000, $4,000 mattress in the middle of a crisis. Like people say these kinds of things, which is just ludicrous.

• 1:20:28Speaker 00

  It's like, really, seriously, nobody is going to buy this? Like, is it revenue is going to go from 600 million to zero overnight? Well, let's see what happens. You could look at the financial statements. You could talk to, listen to the quarterly earnings. Like, well, yeah, of course, they're going to struggle, and of course, revenues are going to go down. But they sold quite a lot of mattresses, actually, during the crisis. And nobody goes to the shopping malls, and, you know, traffic is a lot lighter. But wow, you know, lo and behold, they, I think, sold like $650 million worth of mattresses during, right in the middle of the crisis. So, like, the world just doesn't end. You know, when bad things

• 1:21:09Speaker 00

  happen, very few things just go to zero overnight. So you just have to look at it. And then the management team made a bunch of mistakes. They were doing, right in the middle of that SAP implementation, switch over on the ERP, which is always really painful. And it's, you know, fairly small company trying to do SAP, they probably overreached. You know, I knew that Intel was doing a SAP implementation back a number of years ago. And, oh my God, that was such a nightmare implementation. And they spent, like, hundreds of millions of dollars. And it was just like one of those, you know, black holes, right? So you could imagine a little company like Comfort trying to do it. And, yeah, they kind of wasted up, you know, a few tens of millions of dollars, and they got in over

• 1:21:54Speaker 00

  their heads. And things were getting a little bit tight around them. You know, they had all these lease obligations. And they did have some debt, again, but this is where we had to, like, apply the judgment of, like, well, they have debt, but, like, what are the chances that the lenders are going to come in and seize control? Right? I had to think about that. Now, you could imagine, in the 2008 crisis, now I have my, you know, that's, so this is a little, you know, fun detour on the public investing, right? But, like, look at the Altos portfolio during the 2008, 2009 crisis. You know, we had some companies struggling, of course, and there was no prospects of raising more equity, so we had to rely on some debt. And the bankers were getting awfully nervous, right?

• 1:22:38Speaker 00

  And I remember literally sitting across the conference room table with one of the bankers, and they were giving us a really hard time about one of our companies, you know, and we stopped making payments, and we wanted to kind of renegotiate a few things. Like, you got to give us a little more time. And, of course, you know, the bankers hold all the cards. They could, like, you know, seize, seize control. And I literally, I think I pulled out the keys. Like, it's like a mythical keys out of my pocket. It's like, here it is. Like, take the keys.

• 1:23:05Speaker 00

  Like, good luck. And as soon as like, just take over. It's like, look, if you don't want to work with us, just take the keys. It's yours.

• 1:23:13David Rosenthal?

  They're probably like, nobody's actually pulled out keys before.

• 1:23:16Speaker 00

  Keys. He's like, here are the keys.

• 1:23:17Ben Gilbert?

  Nor do I want to operate this business.

• 1:23:19Speaker 00

  Exactly, exactly. They're like, uh, I really don't want those keys. It's like, like, what can you do with this? It's like, well, you know, if you want us to involve, I think we might be able to do X, Y, Z, you know, let's, you know, but they have to work with us. And so we knew that, you know, companies, of course, a lot of companies are going through trouble, but there are a lot of debt guys who don't necessarily want to take over the keys, take the keys. There are some guys who do, by the way. I mean, we, we've had the unfortunate experience dealing with some folks who are, you know, the loan to own guys.

• 1:23:52David Rosenthal?

  Yeah.

• 1:23:53Speaker 00

  Right?

• 1:23:53David Rosenthal?

  That's the whole strategy.

• 1:23:54Speaker 00

  They want the keys. That's the strategy, right? They take the debt position, but, but they're really control guys. They're more like private equity guys, but they happen to be on the debt side. And so they, they're looking for the first opportunity to take over. And so, so that's a different kind of a debt provider that you have to be careful with. Because they will take, snatch those keys. They will pry those keys out of your little clenched fingers, right?

• 1:24:17Speaker 00

  But, but so you have to know who you're dealing with. But for the most part, most debt guys you could work with, and they're, you know, good folks and they, you know, a- a- as long as you pay them back, they're fine. Eventually we'll pay, pay, pay them back. We, we've, I think we've defaulted on very, very few loans in our entire history. I'm trying to think, like, when's the last time we ever defaulted? I, I can't, I really, to be honest, can't tell you when we defaulted. There's going to be some debt guy who's listening to this podcast going to say, oh, you stuck me with this thing once. And I have no idea when it was. Maybe it was 20 some years ago. Who knows? But we try, we try not to. We, we honor all our commitments.

• 1:24:55Ben Gilbert?

  I do want to ask that question a little bit of a different way. And I think I asked you on a relative basis. So we talked a lot about like, when could there be attractive investing or windows, like buying opportunities? But what about like on an absolute basis? I mean, what makes a company one of these incredibly rare 1% or less that are truly special businesses?

• 1:25:16Speaker 00

  So I wrote an interesting blog post last year, kind of answering this question because people ask me this kind of a thing a lot, like what gives you conviction in a business at the end of the day? To do these kind of crazy things where you're buying more, instead of cashing out a little bit, you're buying more shares when you're up. So like what gives you that crazy conviction? And so I wrote that blog post called "How Do You Know?" And there are just like some really basic rules of thumb. First rule is like this is like kindergarten, right? This is business 101. First rule is, well, does the business make money? Right? Because if the company, again, we talked about the founders, trying to protect the founders, make sure that they stay in control. If the company keeps running out of money and they have to keep raising more and more,

• 1:26:00Speaker 00

  and again, you know, maybe in a frothy environment, they could keep raising more and more at higher prices and they're going to be fine. But what if the music stops? What happens? And so we want to make sure that we are within shouting distance of breakeven, even if we're not generating lots of cash, let's say, that we know the path to survival, right? We know what belts we could tighten to make sure that we don't just go off the cliff. So we want to make sure is the business generate cash or we see the path to profitability or cash flow breakeven? So that's one. Now, second rule, because obviously that's such a basic thing. It's like, well, no duh, right? That's the whole purpose of starting a company to so you could make some money.

• 1:26:45Speaker 00

  Now, second rule is, of course, it's not good enough to just make a lot of money. If you make a lot of money, as Bezos says, "Your margin is my opportunity." Right? So you have to have something more. So the second thing is what Buffett calls a moat. You have to have something that is protectable. And again, the deeper you get into a business, the more you realize Whether or not there's a moat and whether or not there's not a moat, right? And again, sometimes it's not totally obvious and the moat can come in many different ways. Obviously, network effects is one of those things. You could have patents, you could have know-how. And I think of all the things that I think about, I mean, network effects certainly are very powerful, but I think it's really the know-how. There's so much discovery that happens, right?

• 1:27:30Speaker 00

  And as we figure things out along the way, if we think that we have figured out some things that are not obvious to the outside world, those are the companies that are very interesting to me, right? It's like, I think we uncovered some secrets that other people don't know about. And this is the thing that always puzzles me when people say, oh, we're killing it. We're doing so well, you know, pounding the chest. It's like, you know something, that's not the way I've seen it. I think, I think people who kind of uncovered some really interesting secrets, they want to keep it a secret. They're not blasting to the rest of the world, the thing that they figured out. They're keeping it nice and hush and they're kind of working at it and working at it and working at it. But it's really the moat and it comes in, again, many, many different ways.

• 1:28:15Speaker 00

  But if we feel like we've figured some things out that is protectable, that is not replicable, maybe in some ways the best moat is maybe not a secret. You could tell your competitor exactly what you're doing. You know, you guys talk about counter positioning, things like that, right? That's a classic example. You could tell the competitor exactly what you're doing and they're still not going to replicate, right? Because they can't or they don't want to. That's just not their model. Maybe that's even better. I remember one of our companies meeting Amazon and they got very curious and they wanted to come in. And, and you know, with most companies, you have to be super, super careful

• 1:28:56Speaker 00

  because they're going to come in and maybe, you know, act like they're going to buy you. And then they come back and say, oh, you know, we decided to change our mind. And then they release their own product. This, this, this used to happen with Microsoft. Amazon has done this now a number of times. I think some other larger companies may do it and who knows? It may not be with really bad intent. Maybe they had already a project underway anyway and they were curious about it and they really wanted. Thought you would be a part of it, but they decided now you don't have anything special. They just decided to go down their own path. But with with big players, sometimes you have to be careful about what you disclose. But there are other companies, I will tell you, that have met those kinds of companies like a big scary Amazon or whatever.

• 1:29:39Speaker 00

  We said, oh, yeah, I have no problems. You could tell them exactly what we're doing. You could tell them everything about what we're doing. We would have no worries whatsoever. So it depends on the secret, depends on what you're doing. Some things you could tell people like, like we tell like people exactly what we do in terms of the crossover investing. And the SPVs, RIA, the, you know, the structure of our deals. I've been very open with it. And if people want to do it, I think, I think that's a good thing because I think it supports more entrepreneurs. We don't worry about them competing against us because how many people are going to manage the whatever the multiple billions of dollars under management with zero management fees? We have a lot of our, all of our SPVs are zero management fees. Like if you want to like charge zero management fees, I think that's good for the world. Go for it.

• 1:30:24Speaker 00

  No one seems to want to copy me, you know, I've had.

• 1:30:28Speaker 00

  I've had so many conversations with good friends of mine who are in the hedge fund business, right? And then they go off and they want to do their own hedge fund. And I, I've had so many of these conversations over the years and it's like, it's just like. I cannot believe people do not copy the Buffett, the BPL partnership structure. I think like, cause I don't manage a public fund, right? But it's like, hey, I think, I think that's a fantastic structure. You should do that, you know, Munish Prabhas doing it and Guy Spears doing it, you know, a couple of guys are doing it, but not that many. It's like, I don't know why you don't do it. It's like such a great thing. It's a win win. You charge 25% carry after a 6% hurdle. Like you should do that.

• 1:31:02David Rosenthal?

  And no management fees.

• 1:31:04Speaker 00

  Yeah. And they all know about Buffett and they know about that. And then they look at me like, like I'm like in some idiot. Like, like, what the heck are you talking about? Like, why would I give up the fees?

• 1:31:14Ben Gilbert?

  Right. If I have a $5 billion fund and I have a guaranteed 2% fee every year, you know?

• 1:31:20Speaker 00

  Yeah.

• 1:31:20Ben Gilbert?

  Yeah. Yeah. It takes a certain amount of ideological conviction. Not even faith in your own abilities, because I think a lot of people say, I know I'm going to outperform the market and many do. But it is, you truly have to be ideological about it in order to turn down the easy, standard default path to those fees.

• 1:31:39Speaker 00

  Yeah. So, so going back to your original question, Ben, first two, so make money, have a moat. Number three, now this is where it starts to get into. Very idiosyncratic portfolio construction because the first two you want in every special top one percent kind of a business, right? But the third one is more narrowing your circle of competence and more narrowing what you choose to do with your life as an investor, just to something that personally fits you. And that's, the third is really about the relationship. The relationship is all about people. And again, we like to go big on companies where we feel like we have a great relationship. And if we don't have a relationship with the company in a very deep way, then we're

• 1:32:23Speaker 00

  like any other investor. We're like, we're like an outsider looking in. Now, I did say that some of these public investors are very impressive in that they are not like outsiders that I've ever known. They really go deep into those companies. But again, we like to have a special relationship. If we don't, then we get very nervous holding on to a massive concentrated position in a company where we're just like any other investor and outsider looking in. We have no proprietary knowledge. You know, at some point, you know, of course, we had some proprietary knowledge in helping build some of these companies, but that knowledge decays over time and then we become like any other investor. And so maybe we should just start to distribute our shares or sell our shares or whatever.

• 1:33:07Speaker 00

  We should get out at some point. And we all part ways as friends, you know, the, if the founder or the company found their new best friends, because now it's fidelity or T. Rowe Price or somebody else, we're no longer getting the, the updates. And again, it's tricky, like we're, we're kind of new into this whole public investing realm. The, the relationship is very important to me personally, and I think it does give us some advantages of insight. And, and after a while, it just becomes a personal decision. And I think of some of these businesses as really like a family business. You know, if you had a family business and it takes care of your family and generations potentially, some of these family businesses go on for literally generations.

• 1:33:51Speaker 00

  If your family business happens to do well, You and generations of your family will do quite well. And if it fails, then your family fails. And so you better make it work. And, and there's nothing wrong with riding the, on the coattails of a great family business. And you, there's nothing to say that you deserve something you don't deserve. Right? If the business doesn't do well, you don't deserve to do well. And so I kind of start to have an maybe irrational attachment to certain businesses as well. Say, you know something? It's special to me and I'm not gonna part with it. Sort of like, like what Buffett says, like no matter what, he's kind of irrational. He's just, he just won't sell any business.

• 1:34:33Speaker 00

  He might, he might ride certain businesses down to zero, like with the Berkshire textile mills and so on. And so, yeah, I'm okay doing that. So I'm kind of perfectly happy holding on to the shares. If I ever need capital. So here's another thing that I used to, I used to have kind of a more difficult time selling certain shares. Just because I kind of don't see the dollar value coming in. I see dollar value times 10. It's like,

• 1:35:00David Rosenthal?

  You have the Warren Buffett curse.

• 1:35:02Speaker 00

  Right, like I have the curse, right? So, and I used to give my wife a hard time. It's like, do you realize that this house that we're building is actually costing us this money? Instead of this other money? Because I see the real value. And it's like, and I, we used to hate parting with it. But now I've come to a realization that, you know something? That's what it's there for. The capital, we work hard to build this capital. And then we want to return this capital to our LPs that are funding educational institutions, hospitals, you know, homeless shelters, all kinds of great causes. And then we use it for our personal needs to build a house, to take care of somebody's medical needs, educational needs. When you need the money, it doesn't matter if it's the stock's going to go up another 10x or 100x or whatever. Who cares? You need the money. That's what it's there for.

• 1:35:45Speaker 00

  You sell the stock, you pay all your taxes, and then you should use that money. And you should be very grateful that you have access to this capital. But if you don't need it, Why are you dancing in and out of a stock and paying all these taxes? Just why don't you just leave it alone? Because you know, that's one of the things that we've learned in investing these public stocks for over all these decades. And we've tried different strategies. And, and you know, I think we, again, we wanted to practice before we got better. As we practiced, I tended to be the bigger trader. I think my partner seemed to be just eh, like just leave it alone. The leave it alone strategy works pretty well. You know, I've seen, you know, we all kind of go up and down kind of together. And there's a, of course, a lot of beta driving all the portfolios.

• 1:36:29Speaker 00

  And then there's some alpha and we have different strategies. And so we're all kind of within dancing, shadowing the sense of each other. But I've seen the numbers kind of go up and down over the years. And it's very fascinating to see the different personalities and different strategies manifest itself. Some are more concentrated, some are more intact, some are, you know, more in value. And I think the kind of the thing that works fairly well is kind of stick to what you know, stick to good people, good businesses. And it's not that hard and it does not take up much of our mental bandwidth. And we kind of do it in our sleep. Our primary job is to, you know, invest in the Altos funds, but I'm glad we did that side work.

• 1:37:08Speaker 00

  So that we kind of have the experience and the conviction now that we have some serious amount of stocks to deal with. I feel perfectly comfortable leaving a bunch of things alone. And when I need the money, I might sell it or we start to transfer it to various charitable causes. And it's, it's great because we get to put all of the pre-tax money to work rather than having to put it after taxes.

• 1:37:33David Rosenthal?

  It always surprises me that more VCs aren't active public market investors on the side. Like you say, it feels like if you're not doing it, you're just missing out on opportunities to practice.

• 1:37:44Speaker 00

  Well, that's the thing and I realized that more than 20 years ago. I mean, many, many years, because I got my first mentor job in, you know, back in 90. So this is 30 years ago and I knew a lot of VCs and over the years following them. And so many, you know, VCs have made a lot of money and a lot of them, it was very interesting. They would turn their money over. To some wealth manager, to some other professional investors. And this is again, thirty some years ago, I was very young, I didn't know anything, right? But I always thought it's like, well, that seems kind of strange. Like, I thought, I thought you were the professional. Aren't you a money manager? So if you're the money manager, why are you turning it over to some other money manager? Like, that, I didn't quite understand.

• 1:38:27Speaker 00

  And of course, they would have the barbell strategy. It's like, well, the venture is my risk part of the portfolio. And, you know, I have this other thing, then tax-free municipal bonds, or whatever. And, you know, there's some truth to that, of course. You know, you should always have some amount of liquidity and amount of cash that, again, you are protected on the downside. And make sure that you never risk your family capital. There's a certain amount that you have to set aside. But after that, the idea that you should turn it over to some other professional when you are the professional, and you should try to be the best professional possible. And whether you're public or private, it doesn't matter. It's just fundamentals investing. And you should try to be the best investor possible. That's kind of what we wanted to be, right?

• 1:39:12Speaker 00

  From, almost from day one. That's why the public part of it, even though it was tiny dollars. And so I'm glad we had a chance to practice doing that for all those years. Because, you know, what I wanted to test out was, okay, after like twenty seven years, if I really suck as a public investor, then I'll be like every other VC. Hopefully, I'll make some money and I'll turn it over to the real professionals to manage my public portfolio. And if I got a chance to practice for twenty years and I decided that, you know, actually, I'm actually okay with this, then it's like, okay, now I've had a lot of practice, I'll just kind of do it, continue to do it on my own. Right? And, you know, it kind of worked out that way. It's like, oh yeah, we feel perfectly comfortable doing it all on our own.

• 1:39:53David Rosenthal?

  That's so cool. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:40:02Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:40:12David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you ship next.

• 1:40:33Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:40:45David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started. Okay, so we promised at the beginning of the episode that we would get into the whole Altos story. I don't know that we have enough time. I think we're gonna have to do another episode.

• 1:41:07David Rosenthal?

  So maybe rather than, and it is amazing, you know, coming out of GSP and the Jack McDonald Investments class, but maybe rather than that, we can't let you go without talking Twitter.

• 1:41:18Ben Gilbert?

  Yeah, so I pulled some stats here, Ho. As of February, you had tweeted 1,400 times ever, and I don't think that's because you were like late to Twitter. I think you just like didn't tweet a lot. But in the last three months, you've tweeted 3,000 times and you've 7xed your following. So what's going on? Was there an intentional strategic shift? Did you just wake up and go, "Oh, this is fun"? What's going on?

• 1:41:44Speaker 00

  Yeah, it's a good question. So Twitter, you know, I actually uninstalled the app from all my devices for a number of years. And I did that with Facebook too, and then I got back into Facebook and... And I think I never really quite understood Twitter. I never quite got into it. And I think I finding am understanding it better now. I'm still kind of a novice because I got back into it recently. The reason I started to lurking on Twitter more recently was purely because we had some of these IPOs coming up. And I wanted to see what the sentiment was. And there were some analysis that was happening. People were posting interesting, interesting analysis and thoughts on these IPOs.

• 1:42:24Speaker 00

  And so that's why I started to, you know, reengage on Twitter, just at least to follow. And then as of course, of course, as I was starting to read, I got into some conversations with folks, right? And, and I thought the, the analysis on Twitter was way better than, you know, a lot of these reporters, you know, like those articles could be written by a machine, right? The AI might have done a better job.

• 1:42:47David Rosenthal?

  In many cases, even than equity research analysts.

• 1:42:50Speaker 00

  Yeah. Oh, yeah, that's true. So, yeah, they just misunderstood the, the business, right? But there are some people who did understand the business and I was kind of impressed. I was like, wow, these guys kind of did their homework and they're quite insightful. And like, how did they even get these insights? I, I, you know, I wanted to kind of engage like, hey, like, how did you figure this out or that out? So anyway, I got into these conversations and then once you get into these conversations, I realized, well, the way I'm using it, I don't know if I'm still using Twitter properly or not, but the way I'm using it now.

• 1:43:20David Rosenthal?

  I don't think anybody does.

• 1:43:21Speaker 00

  Yeah, is it's just that it's a conversational platform. It's not a PR broadcast platform. I think I was kind of using it as broadcast, put some news out there. If I post something on Facebook and LinkedIn, I also used to post it on Twitter. And then I just completely got off of it for a while. But now I just don't post very much on Twitter. That's kind of anything related to news or altos or whatever. I just kind of engage in conversation and, you know, when I have a chance to look at the feed, if there's some interesting comments, I'll just kind of chime in and then people respond. And when they respond and I kind of feel like I should respond, you get those notifications. And so that's kind of what happened. And, and as I get, again, as I started to engage in Twitter. Then I think some various things triggered in my mind and I started to write something.

• 1:44:05Speaker 00

  And I realized, oh, you know, this thread concept wasn't a big thing, I think, early days of Twitter. But I saw all these people doing threads. It's like, oh, how does that work, you know? And I remember like Saturday morning, I posted something about Arthur Rock. Something triggered my memory. It's like, you know, Arthur Rock is so amazing. And people, these young VCs, they don't even know who the heck he is. And, and I remember this old Mike Moritz quote saying, uh, and I, I think I put that in the thread. It was some amazing Moritz. Moritz is so eloquent with his wording. And, and he said, like, like VCs, you know, uh, when, when you got a call from, uh, Arthur Rock, it was like the white smoke coming from the Vatican chimney.

• 1:44:47Speaker 00

  I think what it, that's what it was. He'll say stuff that are so eloquent, I could never imagine. So anyways, like, yeah, I remember like Moritz saying, like, it was like that. It was like, he was so legendary. And so I just had one little tweet about Arthur Rock saying, like, yeah, you should remember Arthur Rock. And then, you know, that one tweet then leads to another thought, and then another thought, and another thought. And I then had this little tweet stream going. So I did a whole bunch of tweets, like replying to myself. And I thought, there were some people who are like lurking, following me on Twitter. Make sure I don't say anything dumb. Um, they're saying, it's like, wow, you know, Ho is really funny because he just tweets and he's just replying to himself. He's like in a conversation with himself. Because that's what it is, right? It's like, so I just kept, boo, boo, boo.

• 1:45:31Speaker 00

  So then that became a tweet storm, which then I think got a whole bunch of impressions, like over 700,000 impressions or whatever. It's like, oh, okay, well. And then that led to a whole bunch of followers. So, so now I kind of, I've done it where I have this stream of consciousness, tweet storms, and then I have these conversations. And that's kind of what I've been using Twitter for. And I think some of the most valuable things, though, on Twitter is just meeting certain people for the first time that I thought were quite interesting or impressive, and having these offline conversations, uh, through either DMs or Zoom calls. In one particular case, I actually met the person in, in person. As we are coming out of COVID. And so there are some very thoughtful people out there.

• 1:46:14Speaker 00

  And many of them are, you know, individual, they're not institutional guys. They're just individual investors. Right. And they're quite impressive, actually. And I think, I think as an individual investor, you have a lot of advantages over institutional investors. Right, you could be extremely concentrated. You could be extremely long-term oriented. You could stomach a lot of volatility. If you could handle your own emotions. Right. You cannot handle that kind of volatility because that could put you out of business if you're an institutional manager. So there are a lot of individuals who kind of approach it the way I would approach it, the way that I have been approaching it. And so it's been interesting to exchange some ideas and learnings.

• 1:46:55Speaker 00

  I would learn more from those guys than I would learn from any VC or any institutional fund manager. Because if I talk to an institutional fund manager, again, their, you know, institutional imperative is to protect the fund management business, not to get the best returns. Right. And if you're an individual just investing for yourself, trying to provide for your family, all you care about is the returns. I like to talk to those people who care about only generating great returns.

• 1:47:26David Rosenthal?

  Well, Ho, that's probably a great, great place to leave it. Looking forward to following you a lot more on Twitter and hopefully more great stuff for years to come. But it's been, I think, a gift to us all to get your, your wisdom over the last several months.

• 1:47:40Speaker 00

  Yeah. Well, hey, great to have you be on this podcast with you guys. I've been looking forward to it. I know we talked about it last year and finally got around to doing it. So it's been fun.

• 1:47:49David Rosenthal?

  Such a blast. We'll link in the show notes for everybody, literally everybody. Go follow Ho on Twitter. He's a gift to the internet. Any, any carve-outs? Anything else you want to, you want to shout out before we, before we wrap here?

• 1:48:04Speaker 00

  Yeah, well, you know, we didn't really talk about the whole history of Altos, but Larry Morris, I should, I should give him a shout out because I think he's such a special guy. And he, I don't know if we would be in business without him. I mean, he made a commitment to our fund in, I think, 2003. And we did not close that fund until 2005. So he waited, he honored his commitment for two years. It took us that long. We actually started fundraising in 2001, so it took us two years to convince him. And then he had to wait another two years to raise our first institutional fund in 2005. That was exceedingly difficult because again, this is coming out of the fallout of the dot com crash, you know, when we thought we were going to make all this money and it just all blew up.

• 1:48:49Speaker 00

  And, and so you had to have some people who would just really bet on us as people. And, and, and this is the thing that I've learned over time is that, you know, whatever people decide, they kind of decide for their own personal reasons. That it's not, it's not a purely irrational decision. There are a lot of people who backed us before we had a track record for whatever reason. Right? We're always grateful to them. They, they backed us when we had no track record or I like to joke, maybe they backed us when we had a bad track record. And then there are other people who will look at our track record and might say, well, you got lucky with this or that, you know? And so they might still not invest in us. And so there are people who will pass on us when we have a great track record.

• 1:49:32Speaker 00

  And they will people, there are people who will back us when we have no track record or maybe a bad track record. So you just have to find your people. Find the people who believe in you, who will back you no matter what. And, you know, people, you know, will take the data and make whatever the heck decision they want to make. And it, it no longer bothers me at all if people are doubting our approach or, you know, rejecting us for whatever reason, because there are plenty of people who think Warren Buffett. Can't cut it, or is a fraud, or is lucky, or whatever. And it doesn't matter if you have a 55-year track record. They're going to be always doubters.

• 1:50:14Speaker 00

  So the doubters just don't bother me at all anymore.

• 1:50:18Ben Gilbert?

  I love it.

• 1:50:19David Rosenthal?

  All right. Thank you, Ho.

• 1:50:21Ben Gilbert?

  Thanks, Ho.

• 1:50:22Speaker 00

  All right. Thanks, guys.

• 1:50:24Ben Gilbert?

  Well, with that, listeners, thanks so much for listening. You should join us in the Slack. We're going to probably be discussing this episode. acquired.fm/Slack. And with that, listeners, we will see you next time.

• 1:50:38David Rosenthal?

  We'll see you next time.