20VC: ARK Invest's Cathie Wood on Why ARK Has Not Had More Outflows Despite Performance, How the Global Tech Equities Market Will Go From $7Trn to $210Trn in 8-10 Years, The Future for Facebook and How Elon Musk and Jack Dorsey Could Create the Biggest Di

Cathie Wood is the CEO & CIO @ ARK Invest, focusing solely on disruptive innovation, primarily in the public equity markets. ARK has become renowned for opening up its research and becoming a ‘sharing economy’ company in the asset management space. Prior to ARK, Cathie spent twelve years at AllianceBernstein as CIO of Global Thematic Strategies where she managed over $5 billion. Cathie joined Alliance Capital from Tupelo Capital Management, a hedge fund she co-founded, which managed $800 million in global thematic strategies. Prior to Tupelo Capital, she worked for 18 years with Jennison Associates LLC as Chief Economist, Portfolio Manager and Director. In Today's Episode with Cathie Wood We Discuss: 1.) Entry into Hedge Funds at 20: How did Cathie get her first role in the world of finance at the tender age of 20? What is Cathie running from? What is Cathie running towards? What are some of Cathie's biggest lessons from seeing the dot com bust at Tupelo? What does Cathie know now that she wishes she had known when she started investing? 2.) Why Benchmarks and Passive Investing are Bad: Why does Cathie believe that benchmarks and indexes have become dangerous for consumers? Why does Cathie not believe what everyone else does regarding inflation? How much of the performance of large-cap tech stocks is tied to the growth of passive investing? Why does Cathie think the Fed is making a huge mistake? 3.) Time to Pick Companies: Why does Cathie believe that Facebook is emerging as an attractive value stock? How does Cathie believe Elon Musk and Jack Dorsey could build the largest universal wallet? If Cathie were to put all her money into one of their companies, what would it be? Why does Cathie believe Zoom is one of the most misunderstood companies? 4.) Why Venture: Why Now: Why did Cathie decide to do a venture fund with ARK now? Why did Cathie decide to do a no-carry structure with a higher management fee? How does that align incentives with investors? In venture, the asset chooses the capital, how does Cathie analyze why the best founders in the world will pick and work with ARK over other amazing VCs? What is the single biggest risk you are underwriting when investing in ARK's venture fund? Items Mentioned in Today's Episode: Cathie's Favourite Book: The Emperor of All Maladies: A Biography of Cancer

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

• 0:00Speaker 00

  Innovation is priced in the global markets, public and private, somewhere in the seven to eight trillion dollar range. We believe that seven to eight trillion is going to 210 trillion in the next eight to 10 years. That's a 30 fold increase.

• 0:17Harry Stebbings?

  I mean, I really, really hope so as a technology investor. That would make me very happy. This is the one you've been waiting for. Welcome back. This is 20 VC with me, Harry Stebbings. And today I'm joined by the one and only Kathy Wood, CEO and CIO at ARK Invest. With performance in the public markets, ARK has had a tough year and we do not shy away from the hard questions in this one. Prior to Arc, Kathy spent 12 years at Alliance Bernstein as CIO of Global Thematic Strategies, where she managed over $5 billion. Kathy joined Alliance Capital from Tupelo Capital Management, a hedge fund she co-founded, which managed $800 million in global thematic strategies. And I want to say a huge thank you to Francis Padraza for the intro and question sessions today. Really do so appreciate that.

• 1:02Harry Stebbings?

  But before we move into the episode today, Harvard Management Company is constantly seeking out the next generation of great investors and entrepreneurs. HMC has managed Harvard University's Endowment for nearly 50 years and was one of the first institutional investors in venture capital. Their experience and long-term investment horizon make some ideal partners to get world-changing ideas on a path to viability and success. They work as a true partner, providing insightful perspectives to help managers succeed. I personally have had the pleasure of working with the HMC team and can say that they are truly exceptional partners and savvy investors. Whether you are launching your first fund or your fifth, HMC welcomes the opportunity to partner with both developing and established managers. Have an idea you want to share with the team?

• 1:46Harry Stebbings?

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• 2:30Harry Stebbings?

  And finally, Market X. Market X provides investors with a streamlined platform to access, evaluate, and exit global growth stage to pre-IPO technology companies. Plus, Market X allows you to learn from global experts and get intimate interviews with startup executives behind the companies you're investing in. Their track record includes the likes of ByteDance, Airbnb, SpaceX, and many more incredible companies around the world. In addition, Market X enables individual investors and private fund managers to create their own syndicates, helping every investor to become a professional VC. And since their inception, Market X has covered over 300 pre-IPO companies and have worked with more than 50 growth-to-late-stage portfolio companies. In 2021, they had five IPOs and acquisitions alone.

• 3:14Harry Stebbings?

  Visit marketxventures.com and check out their YouTube channel, Market X Ventures. But it's now time to hand over to the one and only Kathy Wood, CIO and CEO at ARK Invest.

• 3:30Speaker 02

  You have now arrived at your destination.

• 3:34Harry Stebbings?

  Kathy, I'm very excited for this. I've been looking forward to it for a long time. So thank you so much for joining me today.

• 3:39Speaker 00

  I'm really happy to be here, Harry. I know you have one of the best VC podcasts, if not the best VC podcast. So we are thrilled, given that we are such a newbie in the space.

• 3:51Harry Stebbings?

  I did my research and take me back to the beginning. How did you make your way into the world of finance at, I believe, the tender age of 24?

• 3:57Speaker 00

  Actually, it was the tender age of 20. I was introduced to Capital Group, which is a very well-known, very large asset manager on the West Coast, LA, by Art Laffer. Art Laffer, if you know Laffer Curve, supply side economics. I knew very little about the investment business, but I was fascinated by economics. Generally and thinking about the way the world was going to work in the future. And so he thought I'd be a good candidate. That's where I started.

• 4:28Harry Stebbings?

  I always believed that we're this kind of function of our histories. And so with that as a starting point, everyone's running from something and everyone's running towards something. What are you running from Cathy and what are you running towards?

• 4:39Speaker 00

  I've been very clear that one of the things that I've been running from in the traditional asset management world is indexed based investing. So benchmarks, you've heard S and P 500, NASDAQ, Russell. I've watched our industry go through an arc. In the early eighties, when I moved to New York, indexing and benchmarks weren't a thing. We were all investing in the future, trying to figure out how the world was going to work. And the eighties and nineties were very much like that. And then we got the tech and telecom bubble and bust. And that was the first, oh my gosh. What happened during the last 20 years is we've had a move towards benchmark sensitivity

• 5:22Speaker 00

  or passive investing outright, just let me invest with the benchmarks, that's safety. We actually think that is becoming a very dangerous way to invest. Because if we're right about the amount of innovation that is evolving today. We've centered our research and investing around five innovation platforms, genomic sequencing, robotics, energy storage, artificial intelligence and blockchain technology. And those are all converging. So it's becoming very disruptive to the traditional world order. And I think even though the burden of proof is on us because passive has done so well over the past 20 years, it's been self fulfilling as more and more assets moved into passive

• 6:06Speaker 00

  or benchmark sensitive. I think the pendulum has swung too far and especially given how much innovation is evolving now that is really going to destroy the way the world has worked and create a whole new world.

• 6:19Harry Stebbings?

  I read about Tupelo, a firm you co-founded and Bunny, the lesson there. And you're going from 1.2 billion to 200 million. I always find that we learn a lot from hard times. How did that impact your mindset going through that bust and seeing that happen?

• 6:33Speaker 00

  Well, I wasn't there for most of that. When we built the firm from two hundred and fifty million of the family's wealth, we built it at our peak. We were in somewhere, I don't remember the one point two billion. I more remember eight hundred to a billion, somewhere in there. And we did that with very little in the way of flows. So that was two hundred and fifty, that was a triple to a quadruple over two years. Now, consider the years, it was ninety eight and ninety nine. And then in year three, two thousand, when I was there, we were down twenty percent. By my calculations, we were up from the beginning, two to threefold,

• 7:17Speaker 00

  even after that twenty percent correction. And the reason I left is my co-founder and I reached a bit of an impasse in terms of our investment strategy. As we had moved into ninety nine, we knew that too much capital was chasing too few opportunities. Too early, many of the technologies were not even ready. And so we were buying puts to serve as protection throughout, actually, late ninety nine, throughout the two thousand period, as investors were buying the dips, we were buying puts. In January of two thousand one, it was very early, it was probably the first week, we agreed to disagree, and that was the Fed eased.

• 8:02Speaker 00

  I didn't want to take the puts off, my partner did, this was really her family's fortune. And so off they went. And I just decided that all that work, putting the puts on and then just having to let go, probably it wouldn't be a good place for me to stay. So I was there, as I mentioned, from the two hundred and fifty million to somewhere between eight hundred and a billion. I take full responsibility for the twenty percent decline in two thousand. As we were building puts, though, I don't take any of the responsibility for anything else that happened, and I have no idea where it landed.

• 8:39Harry Stebbings?

  Carol, you mentioned the excess supply of capital there, chasing too few deals. Too much cash chasing them. Many investors in venture say that's where we are in the venture cycle today. I actually personally would agree with them. How do you feel about that? Obviously, you've just launched your venture platform, The Fund. How do you feel about that in venture?

• 8:57Speaker 00

  So since 2021, our strategy has been destroyed and any innovation strategy and now more growth strategies are being sucked into this. And venture as well. We're seeing down rounds all over the place. I guess Instacart is maybe 30% of its peak or roughly. So we're seeing the down rounds and personally, I like starting businesses and portfolios during down times. We're nascent and so we could average into what I do believe could be a set of significant drawdowns in the private world that has already happened in the public world. Now, the fund that

• 9:37Speaker 00

  we have launched is a public-private crossover fund. Sure, at maturity, our desire is to get it close to 75% private and 25% public to allow more liquidity. But right now, we're not near that. So we're getting close, but we will continue if we get flows in to use public stocks because we believe there is a bit of an arbitrage opportunity here. And we are buying into down rounds in the private markets at the same time. I also think, I want to make this clear, that the

• 10:16Speaker 00

  private markets have innovation more right in terms of valuation than the public markets do. Many of our stocks are down 80%, some are down 90% from their peaks, which is just ridiculous. And I think that's because these stocks are not in benchmarks. And I just described how the traditional world in a risk-off period sells our stocks and moves back close to their benchmarks because they think that's where the safety resides. And maybe it does.

• 10:53Speaker 00

  Everyone's pushing into them, but if we're right, fundamentals are going to disrupt that way of thinking during the next few years.

• 11:01Harry Stebbings?

  When you see that eighty, ninety percent down, do you doubt yourself when you see down eighty to ninety percent? What do you tell yourself when you see the red and you're like, oh, my gosh?

• 11:10Speaker 00

  Many people ask me why I have such strong conviction. How could I have such strong conviction when these stocks are down that much? It comes directly from our research. And if you don't think we are double checking and triple checking our research and our assumptions going into the research. And basically, our clients and the social world is helping us battle test those assumptions. What we see as our stocks go down eighty to ninety percent, if we're right, we're seeing the total rate of return expectation increase for the next five years. So we keep our eye on that prize.

• 11:51Speaker 00

  And if our research is correct and the world has not changed, we've just moved into a risk off period with inflation and interest rates. This move back towards benchmark stocks, the reason our stocks are going to be dumped. We wouldn't be selling our stocks, we'd be picking them up. And that's what we do, we average down during risk off periods. And we also concentrate our portfolios towards our highest conviction names. So we've moved our flagship portfolio from fifty eight names down to thirty two, thirty three names. And we're further consolidating in this risk off period, but we tend to bottom out in that low thirties range.

• 12:33Harry Stebbings?

  Do you worry that the market can remain irrational longer than companies can remain solvent? We're seeing certain stages of certain public markets where it's like, oh, my God, you've got double the cash than you do your market cap. Do you worry about that?

• 12:45Speaker 00

  This was the refrain when it came to Tesla in early two thousand nineteen, when, my goodness, the traditional asset management world was saying, well, this company is going bankrupt. It's running out of cash, can't scale the Model Three. And our research was telegraphing something completely Different and my answer to our critics at that time is the markets are not closed. This is not oh eight oh nine. If you look at the very loyal shareholders on the front page of holders, you will find a group of holders that if you do an IPO or a secondary, we're going to be buying into that secondary. And that was absolutely right. And that's how I feel

• 13:27Speaker 00

  about the stocks in our portfolio right now. Invitae is probably the biggest lightning rod in the portfolio. And our conviction there remains as high as ever. Sean George, who was the CEO, couldn't bear the thought of shutting down some of his projects. But he brought in someone from Amazon. He'd been working with him for several years. We think they have streamlined and are going to become one of the most, if not the most important molecular diagnostic testing company. And I'll also say in the private world, we think a contender is Frename. And we have that as one of our first holdings.

• 14:11Harry Stebbings?

  I spoke to many mutual friends and friends of yours before the show, and conviction was something that many of them cited when talking about your investment strategy. There's also always a time to sell. And when we look at the last decade, it's been categorized by this like, never sell, always hold on to your winners in this boom market, zero interest rates. My question is, when you're managing a public book, how do you think about when's the right time to sell? And how to manage liquidity in that way? Because there is a time.

• 14:37Speaker 00

  Oh, absolutely. In fact, as we were reaching the peak in 2021, many of our stocks were beginning to fall below our minimum hurdle rate of return over a five-year period. That number is 15% for the public portfolios. And as they were falling below that 15% mark, we were not raising the earnings or the valuations, we were selling the stocks. And a very good example is Nvidia, for example. It is one of the most important artificial intelligence chip companies in the world. We've owned it since. We started ARC, but we sold out of it because everybody in the public market needed an AI chip company

• 15:21Speaker 00

  or an artificial company so that they could check the box for their clients. Nvidia was in the index. It was therefore much more of a safe stock than some of the other stocks. And they took the valuation up to crazy levels. So we were selling, especially as we were concentrating our portfolio towards our highest conviction names. We ended up selling out of Nvidia and only recently, since it has had a tumble, have we re-initiated our position. So we're quite disciplined and I think one of the reasons we are is because of this concentration strategy. To go from fifty-eight names to thirty-two or thirty-three names means we have to sell twenty-some-odd names.

• 16:03Speaker 00

  So we definitely have a sell discipline and usually the names that go, and I always say this to our analysts, and I do believe we have the best analyst team when it comes to innovation in the world. The reason we do is because their responsibilities are broken out not by sector or industry, but by technology. They're technology specialists. They are sector generalists because we expect our technologies to scale to mass market levels. So in order to do that, a technology has to cut across sectors.

• 16:39Harry Stebbings?

  You mentioned Nvidia there being kind of part of index and the benefits that come from it. The kind of a question I have is that how much of the performance of large-cap tech is tied to the growth of passive ETF index investing, do you think?

• 16:50Speaker 00

  Last year, the market reached all-time highs in 2021 as we were selling off. It was the FAANGs, it was Microsoft, it was Nvidia. If you look at the NASDAQ one hundred, accounted at that time for nearly fifty percent of that index. And they also accounted for a very substantial percentage of the S and P five hundred and the NSCI. Yes, there was this crowding into indexes, supported those stocks. And now look what's happened. We didn't own them. We thought the FAANGs, we saw it tick. TikTok coming and we did not own those stocks for different reasons. TikTok when it came to Facebook and Netflix competing for time. Social commerce when it came to Amazon.

• 17:34Speaker 00

  And also this cyclical concern about inventory building because of all the supply chain issues. So we've made some great calls, both macro and micro, and they are starting to pay off now. But we're still in a risk off market and I am seeing glimmers of hope. Our strategies are starting to outperform now on days when some of these big benchmarks don't. And that's what usually happens as we're coming towards the end of a bear market. At the end of the bear market, the saying goes, the new leadership shows itself. We're always the new leadership and most of our stocks are not in those benchmarks. Only three are Tesla, Zoom, and I'm talking about our public portfolios.

• 18:18Speaker 00

  Tesla, Zoom and Nvidia. Those are the three. There's much less than a 10% overlap.

• 18:25Harry Stebbings?

  You mentioned the word risk there and Kathy, I'm a Brit. I get very uncomfortable asking difficult questions. Mention the word risk. People suggest that you have zero risk management. Why do you think they do and why are they wrong?

• 18:36Speaker 00

  Well, I think the reason they say that is there are so many generalist strategies out there. We are not a generalist strategy. We know who we are. We're focused exclusively on a slice of the market. And it is up to asset allocators, not us. We're not an asset allocator. We're giving asset allocators an opportunity to make up for the massive short that we believe they have in their portfolios. And that short is truly disruptive innovation. That's all we do. So those who are saying this, and I've seen some wirehouses saying this.

• 19:16Speaker 00

  But if you go to their due diligence departments, their due diligence departments understand what we are. We are a slice of an equity portfolio. And it is up to advisors or asset allocators to determine.

• 19:33Speaker 00

  How big a slice of the pie our strategy should represent, that's not our decision. And we just do one thing, we don't have to worry about asset allocation. We are, we believe, filling an unmet need in the marketplace. Yet many people consider what we're doing to be extremely risky. And it is volatile because the future is filled with uncertainty. Whereas these benchmark stocks are more about the past and their past successes. So do you understand why? I don't understand why people say we don't at a risk. I've just given you the story about our concentration towards our highest conviction names.

• 20:17Speaker 00

  We're selling a lot of our portfolio to concentrate. Again, some of those sales are very good because we have a doubt. Wait a minute, there's a management turmoil or a lot of turnover and just little red flags that don't force us, they maybe we lower one of our scores, but not to a level that puts us in yellow or red territory. But when we're forced and it's a self-discipline to concentrate the portfolio, we will let a name like that go.

• 20:48Harry Stebbings?

  The trouble with being alone is that in your world, not in mine, in venture, like pure venture, old school venture, there are outflows in your world. Given performance and people generally being less comfortable with uncertainty, why do you think ARC hasn't had more outflows?

• 21:04Speaker 00

  Yes, we've been really gratified by our asset retention and I think traditional asset management industry is astonished by it. There are a few reasons, we believe. One, we give our research away. We are on social media, giving it away, not when it's finished, but as it's evolving. So those who are following us on social media, they are taking the journey with us. They understand what we're doing, why we're doing it, and they also understand, because we say this all the time, we have a five-year investment time horizon, this for the public world. We have a Five-year investment time horizon. If you don't have a five-year investment time horizon,

• 21:49Speaker 00

  maybe we're not right for you because we are a very volatile strategy. So last year, our net flows, now they were front-end loaded to be sure, they were seventeen billion dollars. That's net. There were redemptions, but we kept seventeen billion of the flows last year. This year, we haven't even outflowed one out of that seventeen billion. And I think the reason is we give our research away. Another really important reason is investors know that we are providing them with something they're not going to get anywhere else. And that we're a really good diversifier. And the key to long-term outperformance and risk control,

• 22:34Speaker 00

  if you are an asset allocator, is to diversify. So what should people do now that we are down? At our worst, we were down seventy-nine percent. Really good asset allocators will be buying our strategy. And they'll be selling some of the more index strategies that had held up.

• 22:51Harry Stebbings?

  In terms of the social media side, for venture, it's common. For public markets, it's not common. Until I read one journalist say it's like playing poker with your cards turned up. Why is that wrong? I thought that was an interesting analogy.

• 23:03Speaker 00

  When I started in the business, which, as we discussed a little earlier, was quite a while ago, I'll give you the year, it was nineteen seventy-seven and I was in college. There were no computers, there were no mobile phones, no mobile internet. Information was really scarce. And we had to pay a lot and spend a lot of time digging it up. And not just from companies, but even the government, going to the government, calling the government. That was then, and here we are now. Information is ubiquitous, it's how you put it together. I think it will be considered a very provincial in, let's say, three to five years' time. Here, a firm saying, well, we don't share any of our research because it's our secret sauce.

• 23:45Speaker 00

  We've all got all this information, all of these different points of view. They're all out there, pick one. We pick the one that. Fits in with our research. We're sizing opportunities using Wright's law, a relative of Moore's law, to try and understand cost declines. And then we could do our bottom-up analysis. We are as stock research-driven as any other bottom-up team out there. And then we have a six-point overlay just for innovation, a scoring system.

• 24:15Harry Stebbings?

  You obviously decided to launch a new venture fund within ARC as a new product. Why did you decide to launch a new venture fund for retail?

• 24:21Speaker 00

  What is one of the biggest questions, most frequent questions we have received over the nearly nine years since ARC has been in existence? Retail investors saying to us, and they're usually young. They're usually saying, why is it that just because we don't meet an income or asset threshold, we can't be accredited? We can't participate in these huge growth opportunities when we probably know more about those opportunities than the people who are investing them in the institutional world? I will tell you, from just what I've seen in the public world,

• 25:02Speaker 00

  if we were to use knowledge as the metric for accreditation, the accredited investors for ARC would be those retail investors. They are passionate about innovation and they know so much about it. And many of them are working in the industry or in the various communities. So we've talked to Hester Purce at the SEC, who really believes that we have to modify or revolutionize this accreditation process because it's not American. It's truly not American to use income and asset thresholds when knowledge could be an accreditation measure or metric.

• 25:44Harry Stebbings?

  Is it not a fundamental nightmare in terms of LP management and fund management to have this fundamentally, maybe not new structure, but innovative structure with this diversification of LPs?

• 25:55Speaker 00

  Structure you're referring to here is the Interval Fund, a retail investment wrapper that was

• 26:03Speaker 00

  devised and approved by the S E C in nineteen ninety three for this purpose to give retail investors a shot at some of these great growth opportunities, right? But because of the tax advantages that private equity and venture capital specifically have in this case, the businesses chose to focus on private equity. We have chosen to focus on retail in this way.

• 26:29Harry Stebbings?

  Can I ask, I saw the terms of the fund and I was like, what? It's a zero percent carry fund, Cathy. Can you help me understand the incentive alignment between investor and you? When is a zero percent carry fund for you?

• 26:42Speaker 00

  So we don't have a carry. If we did have a carry, we could only accept accredited investors. So we said, okay, because interval funds can have a carry. Our management fee is two point seven five percent compared to the two and twenty. If you compare a top quartile venture fund, and we hope we're in that category, to this fee structure, so two and twenty versus two point seven five, just for the management fee. Over the life of that mutual, I mean, that venture capital fund, you're probably going to be paying a nine percent fee on average per year when it's all said and done and tallied up.

• 27:24Speaker 00

  For us, it's two point seven five percent.

• 27:28Harry Stebbings?

  I'm hiring people always. If you want the best talent, they want to see a lot of millions on that carry sheet. If it's on fees alone, I don't understand how you can attract the talent and actually create that alignment to make them so hungry to get the best companies in the world if it's just fee based, which you'll get anyway.

• 27:44Speaker 00

  I just want to wrap up what I was saying before. The correct arithmetic, if I were to say this precisely, if you were to compare our management fees all in, the two point seven five versus the venture two and twenty, that top quartile fund, you would have to pay. Forty percent more in fees over time. So just wanted to close that loop there. Because there's a nuance here. Our 2.75% is on NAV versus the 2 and 20 in VCs. It's on a different base. Okay, so got that. In terms of attracting talent, we've attracted our talent. Our analysts are our talent. And we are not using different analysts for private than public

• 28:29Speaker 00

  because they've been following these private companies the whole time. We have to. All we do is focus on disruptive innovation. Well, what is our, one of our biggest risks? That one of our companies is disrupted by a new technology or a new company coming through the private pipeline. So we have been monitoring and following and analyzing these companies for years. That's the first thing. The second thing is, we give all of our analysts equity in ARC. From the beginning, they will benefit not just from our success with this venture fund, but from all of our funds. The ETFs, the separately managed accounts, the mutual funds, the international funds. So we're set up very differently.

• 29:15Speaker 00

  I know that in other traditional asset management firms, there's a group of analysts on the private side and a group on the public side. That to us makes no sense. One of the other reasons I feel this way is because if we really believe a company is going to blaze a trail and be successful from early stage to mega cap, we want to stay with it and we can stay with it. Not only can we stay with it in our venture funds, but then we've got feeders of all these ETFs and mutual funds for this. It's a beautiful thing. And by the way, the top tier venture funds out there love this. They want to be known. At first, I thought they were just interested in what we're doing as a curiosity.

• 30:00Speaker 00

  But they have really embraced us in a way that I didn't expect, introducing us to some of their top ideas because they're trying to figure out a way to DTC, direct to consumer, we are direct to consumer and we can partner with them to help them move towards that place. We know Sequoia also has a fund of funds that's an evergreen fund. So the big VCs out there know that this is the way the world is going to work, I believe.

• 30:34Harry Stebbings?

  There's one interesting element here, which is in venture, it is one of the only asset classes, I believe, where the asset chooses the capital. In all others, the capital chooses the asset. My question to you is, in the top decile, which is, as we all know, what drives performance for all funds, there is 50 people chasing it. And it's Ben Horowitz at Andreessen who turns up to Ali at Databricks with an Easter egg and a present for his wife and says, please take my money over someone else. When you have a crossover team and there's not the star power of a Ben Horowitz, a Bill Gurley, a Roloff Botha, there's a question of, respectfully, are you going to win access to the best deals?

• 31:11Speaker 00

  Well, I think that many companies have asked us, when they are private, what would it require for us to get into your portfolios? And we have our top-down analysis and our screening metrics, our metric scoring system, and we can explain to them what it takes to get into our portfolios. Our research carries a lot of weight out there. I think that because we're quite selective, we are very concentrated, as I just mentioned, in our flagship public fund, we're down to 32 names. We are showcasing these companies as the companies that we think in the public markets are the most innovative and most

• 31:55Speaker 00

  disruptively so that we have found. Now we can do this in the private world. And I do believe our selectivity, which is a function of our research. We know what we're looking for. Now, we don't own this yet, but I can tell you this story. We did with Square, now called Block, when the brouhaha erupted over Elon putting Bitcoin on Tesla's balance sheet and the Environmentalists saying, what are you doing? This is so environmentally unfriendly. We turned around and with block were able to show how if you incorporate Bitcoin into utility ecosystems

• 32:38Speaker 00

  so that they earn more money for that extra power from sunshine or wind that they would just waste and instead they put it when their storage is full into Bitcoin mining. They can overbuild solar and wind. Or you can put Bitcoin mining machines into natural gas fields and take the flares which are pure methane, which is 150 times more toxic than carbon dioxide in year one. You can turn that into Bitcoin mining and do that around the world. So Exxon's doing that. It's six different, maybe many more now, fields around the world. So we were with our research to go back and say, okay, what companies out there are doing this?

• 33:22Speaker 00

  We found a private company, Crusoe Energy. Oh, let's talk to them. We were able to talk to them. We said, we've been looking for you. That is a very appealing comment to a founder who's on a mission to do something, to blaze a trail and transform the world, make it a better place. That's what innovation does. It's very appealing to have a portfolio manager, member of the investment committee, the leads. We have two leads, so Will Summerlin and Max Friedrich, really helping us to connect with all of these venture capital firms, the best of the best. They have just opened doors. We are getting more than our fair share of attention

• 34:07Speaker 00

  in terms of the VC space, both from the VCs themselves, the best VCs, and from the best private companies out there that we believe are going to be transformative.

• 34:18Harry Stebbings?

  How does one think about capital planning in an evergreen, open structure? If you have a closed-end 400 million fund, you can say, okay, we're going to do 20, 20 million checks. That's diversified enough. We're going to lead Series A. You can plan efficiently. In open-ended structures and evergreen structures where the capital is varying, how do you think about planning? Do you want to lead? Do you have a check-sized desire? What does that construction look like?

• 34:43Speaker 00

  Well, we're quite small now. We're certainly walking before we run. But we have many more opportunities in terms of secondaries. I know a lot of VCs are limited to twenty percent secondaries. We're not limited. We don't face those limits. We can use convertibles. We can get very creative with this fund. And we have a surprise degree of flexibility here. We'll start from right now, Series B, and as we scale, we'll get bigger. We will not be leading deals right now. We're very grateful for the introductions that these wonderful and top-tier venture funds are giving us. So we want to walk before we run.

• 35:28Speaker 00

  The most important thing I'll say is most people in the world today do not understand how much innovation is on the way and how much we'll be able to scale into this market. And just to give you some markers there, we believe today that truly disruptive, logically-enabled innovation is priced in the global markets, public and private, somewhere in the seven to eight trillion dollar range. So it's less than ten percent of the global equity cap, public and private. We believe that seven to eight trillion is going to two hundred and ten trillion in the next eight to ten years. That's a thirty-fold increase.

• 36:12Speaker 00

  We think there's going to be incredible opportunities. We're going to need strategies that can really scale and stick with it. We're evergreen. We want to be with companies from early stage to mega cap. And we can because of our structure.

• 36:28Harry Stebbings?

  A final question before we do a quick flight. When you think about the bet that people are taking on you and investing in your fund, what's the risk that people are underwriting when they're evaluating, do I invest or not into Ox Venture Fund?

• 36:40Speaker 00

  Before we started the venture, we described, so that people could really understand what we were doing in the public markets. We said, we are the closest you will find to a venture capital fund in the public equity markets.

• 36:53Speaker 00

  Have to have a long term investment time horizon and the stomach to deal with the volatility. If you need to look at your portfolios every day and they will be able to look at their portfolios here every day now. Because everything will be mark to market every day. Now, of course, there will be liquidity events will pop the venture just as a takeover would pop our public funds. But if you don't have that long term investment time horizon and real conviction that the innovation that we're seeing today is going to create massive investment opportunities. If you don't believe that as a starting point, then you shouldn't be involved.

• 37:34Speaker 00

  If you can't have a long term time horizon, you probably shouldn't be involved or just with $500. Maybe you can take that risk because that is our minimum.

• 37:44Harry Stebbings?

  I do want to move into a quick fire round. So I say a short statement, you give me your immediate thoughts. Does that sound okay?

• 37:49Speaker 00

  Okay.

• 37:50Harry Stebbings?

  So Kathy, what's the favorite book and why?

• 37:52Speaker 00

  I'm known for saying the Bible and the reason is obvious there. But in terms of innovation, The Emperor of All Maladies, The Biography of Cancer. How we turn cancer from man's worst enemy to man's best friend. Just like we turned wild dogs from man's worst enemy to man's best friend.

• 38:12Harry Stebbings?

  How do you evaluate Facebook's current state?

• 38:15Speaker 00

  I think that Mark Zuckerberg is probably investing in an idea before its time. When I think about metaverse, I think about Zoom. We're already in the metaverse in Zoom. Who knows where Zoom is going to take that? So a little bit before its time. However, just in looking at their last quarterly results, I am shocked at their engagement still. This is becoming a value stock. We're not value investors. It's not what we do. But if I were in the public markets as a value investor, I might take a look at this because it's engagement. So daily average users over monthly average users, 67% hasn't changed, has 3 billion plus users.

• 38:58Speaker 00

  It's pretty astonishing what they've done. I think they're going to have to pivot away from this. And maybe have a more graceful entry into the metaverse instead of brute force.

• 39:08Harry Stebbings?

  Tell me Elon and Twitter, what do we think of what's happened?

• 39:11Speaker 00

  I am pretty excited about this. Our best social network, getting the word out, engaging with people is Twitter. It truly is the global public town square. There are a lot of ways he could go with this. He's talking about subscription along with advertising and most people don't think that will work. But I'm an old newspaper analyst and that worked really well back then. I think he's going to try and iterate and test Vine. I remember my son using Vine. That was TikTok. I watched my son, he was six years old at the time or whatever, but he loved it. And it was just a little before its time. Hey, you never know. I also think, now this is the wild card.

• 39:55Speaker 00

  Elon is a big fan of vertical integration. And when you think of Tesla, what is Tesla? It's the internet on wheels. Okay, he's got that vertical integration, right? Well, a lot of people are getting annoyed at Apple for its walled garden. I wouldn't be surprised if somehow Elon figured out a way to disrupt Apple. The car is the ultimate mobile device, but it does equip him in some sense to understand what it takes to deliver a mobile device and everything app. And we have looked at WeChat Pay and the opportunity in digital wallets.

• 40:37Speaker 00

  It's enormous. And with Square or Block Cash App, Jack Dorsey is, and Elon, they've been talking. You could tell from all the docs that were released around the case. I wouldn't be surprised if they got together and we had one of the most interesting digital wallet opportunities ever.

• 40:54Harry Stebbings?

  What's the best investment advice you've ever received?

• 40:57Speaker 00

  Mine is if you have the evidence, data, if you're data driven. And the world is saying one thing, they're sure that inflation is a problem and that it's going to be impossible to get rid of. And you have data that's telling you the opposite. And you start betting in the opposite direction based on the data, especially if the data accumulates, which it is, you're going to make a lot of money. And so our strategy, having been as destroyed by this fear of inflation, is a prime candidate for that beneficiary. Now, consider the source, consider the source.

• 41:31Harry Stebbings?

  How would you describe your relationship to money, Cathy?

• 41:33Speaker 00

  Here's how I'd describe it. Where I have conviction, I, and this is more on the investing side. I think advisors looking at how I have in my own portfolio are shocked at how much I'm all in to innovation between our funds, crypto and private funds. I feel I'm very blessed to be able to take this risk so that I can just vote with my conviction and I don't have to be as well diversified as others do. I don't really think about it too much. Honestly, I'm focused on ARC and making sure we're doing the right thing.

• 42:10Harry Stebbings?

  You can put all of your money in one company. Which company do you put it in?

• 42:14Speaker 00

  Because we believe the autonomous opportunity is massive and is not priced at all in Tesla's stock. We would still put Tesla near the top or at the top of the pack. If you look in the flagship fund, it toggles between first and second. Zoom, I mentioned, is already in the metaverse and yet people are treating it as a stay-at-home COVID play when we think it and Microsoft are the two beneficiaries of the first rip-and-replace cycle that we've seen in the enterprise communication space since the early 90s, when Cisco was building out the internet. Now, but that was on-prem and hardware-oriented. Now we're moving into the cloud and it's not Cisco taking us there, it's Microsoft and Zoom.

• 42:59Harry Stebbings?

  Final one, ARC. This is your life's work. What do you want it to be in 20, 30 years' time?

• 43:05Speaker 00

  Oh, I want it to be what it is now. I want it to be known first and foremost for its deep research into technologically-enabled innovation for a couple of reasons. Not only to make sure that we are on the right side of change from an investment point of view, meaning we are getting people away from those benchmarks, which are, we think, going to fall into disfavor, and getting them onto the right side of change. They're short innovation now. We'd like them to get long innovation, truly disruptive innovation. But I'd also like it to be a place where anyone can come, parents, grandparents,

• 43:48Speaker 00

  professors, grade school teachers, and learn how the world's going to work so that they can educate their children, their grandchildren, their students, how the world's going to work and get them on the right side of change. Because, let me tell you, there are so many amazing things happening now, so many opportunities opening up that those who do move on to the right side of change are going to have wonderful lives.

• 44:18Harry Stebbings?

  Cathy, I've absolutely loved this. Thank you so much for joining me today and you've been a wonderful guest.

• 44:22Speaker 00

  Oh, thank you, Harry. Thank you for doing all of the homework you did and for the great questions and for the tough questions. Those are how people get to know us best. So, thank you, Harry.

• 44:34Harry Stebbings?

  And did you know that if you head over to YouTube and search for 20VC, two zero VC, you can see all of our interviews by video. They are fantastic. And they also have some extended clips there as well. If you'd like to see more from us also on the site, you can go to 20vc.com. But before we leave you today, Harvard Management Company is constantly seeking out the next generation of great investors and entrepreneurs. HMC has managed Harvard University's endowment for nearly 50 years and was one of the first institutional investors in venture capital. Their experience and long-term investment horizon makes them ideal partners to get world-changing ideas on a path to viability and success. They work as a true partner, providing insightful perspectives to help managers succeed. I personally have had the pleasure of working with the HMC team

• 45:19Harry Stebbings?

  and can say that they are truly exceptional partners and savvy investors. Whether you are launching your first fund or your fifth, HMC welcomes the opportunity to partner with both developing and established managers. Have an idea you want to share with the team? Just send it to [email protected]. And speaking of amazing partners with HMC there, Mercury is building full-stack banking for startups. Apply in under 10 minutes from anywhere for FDIC insured bank accounts, physical and virtual debit cards, domestic and international wires. Integrations with Gusto, Stripe, QuickBooks, Plaid, basically every other tool your startup uses. They also offer unusual features like API access, custom team management,

• 46:01Harry Stebbings?

  and their newly launched Mercury Treasury, a cash management product for high-growth startups. And they'll even help you build your startup with Mercury Raise, which is so cool. It's a program to connect you to Silicon Valley's top investors. Head to mercury.com/signup to apply. And finally, Market X. Market X provides investors with a streamlined platform to access, evaluate, and exit global growth stage to pre-IPO technology companies. Plus, Market X allows you to learn from global experts and get intimate interviews with startup executives behind the companies you're investing in. Their track record includes the likes of ByteDance, Airbnb, SpaceX, and many more incredible companies around the world. In addition, Market X enables individual investors and private fund managers

• 46:44Harry Stebbings?

  to create their own syndicates, helping every investor to become a professional VC. And since their inception, Market X has covered over 300 pre-IPO companies and have worked with more than 50 growth to late-stage portfolio companies. In 2021, they had five IPOs and acquisitions alone. Visit marketxventures.com and check out their YouTube channel, Market X Ventures. As always, I so appreciate all your support. We have an incredible 20 Sales episode coming out on Wednesday with one of the great sales leaders of the last decade, so stay tuned for that.