← Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
73 Strings' Yann Magnan - the opportunity for AI to automate private markets
00:45:18
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- [00:00]
Podcast Host / Narrator
This episode of the Altcos Mainstream Podcast is brought to you by Ultimus, a leading full service fund administrator for asset managers in private and public markets. As private markets continue to move into the mainstream, the industry requires infrastructure solutions that help funds and investors keep pace. Ultimas is a leading full service fund administrator for asset managers in both private and public markets, offering a wide range of capabilities across registered funds, private funds and public plans, as well as outsourced middle office services. Delivering operational excellence, Ultimas helps firms manage the ever changing regulatory environment while meeting the needs of their institutional and retail investors. Ultimas provides comprehensive operational support and fund governance services to help managers successfully launch retail alternative products. Trusted by institutions, investment consultants, registered investment advisors, state governments and fund managers, Ultimas provides solutions for nearly every investment structure in the marketplace. Visit www.ultimusfundsolutions.com to learn more about Ultimas technology enhanced services and solutions or contact Altimus Executive Vice President of Business Development Gary Harris on email@gharrisultimasfundsolutions.com we thank Altimus for their support of Alts Going Mainstream.
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Podcast Chorus / Group Voice
Everybody gets a piece we're going mainstream Everybody's gonna We're going mainstream all my family see see you on mainstream we're going mainstream From Wall street to Melrose Avenue, we're going mainstream Venture capitalists to athletes to creators to the person who has collected trading cards we're going mainstream In a collision of culture and finance, we're going mainstream.
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Podcast Host / Moderator
Welcome back to the Altcos Mainstream Podcast. Today's episode is with a founder who is building mission critical valuation and portfolio monitoring software for alternative asset managers. We are joined by Yann Magnan, the co founder and CEO of 73 Strings, to discuss how valuation work and portfolio monitoring is moving from manual to automated and why that's so important for the industry. 73 Strings has leveraged AI and automation to more seamlessly and cost effectively extract data, monitor portfolios and streamline middle office processes for valuations. 73 Strings works with a number of the industry's top alternative asset managers and has received investment from Blackstone, Fidelity International Strategic Ventures and Broadhaven Ventures, amongst others.
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Michael (Interviewer / Host)
Yan has brought his experience as a.
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Podcast Host / Moderator
Senior member of the Duff and Phelps team, where he was EMEA Market Leader and a member of the Global Operating Committee and as a partner at EY's Transaction Advisory Services team to help bring valuation and portfolio monitoring solutions into the mainstream. Yan and I had a fascinating conversation about how technology innovation is impacting private markets. We discussed the challenges with Manual Valuation services Businesses how to create uniformity and standardization with private markets Fund performance data How AI is changing private markets Post investment reporting processes does automation in private markets help big funds or small funds more? The evolution of post investment Private markets Market structure the biggest technology innovation that's still missing in private markets. Why the growth of the Wealth Channel.
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Michael (Interviewer / Host)
And Evergreen Funds increases the need for.
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Podcast Host / Moderator
More streamlined reporting and valuation solutions.
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Michael (Interviewer / Host)
Thanks Yan for coming on the show.
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Podcast Host / Moderator
To share your views and wisdom on private markets.
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Podcast Chorus / Group Voice
We're going mainstream.
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Michael (Interviewer / Host)
Yan, welcome to the All Cos Mainstream podcast.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
I'm Michael. Very glad to be here.
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Michael (Interviewer / Host)
Pleasure to have you. You've built such an interesting business that is so important right now in a part of private markets market structure that really needs to be revamped in 73 strings. Excited to get into that. But first, I think your background explains a lot of why you've been able to build 73 strings. So we'd love for you to start with your background and how you ended up in the valuation services world.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Well, thank you, thank you for that. Thank you for this introduction. Yes, I got into 73 Strings, which is a technology SaaS business focusing on valuation for alternative investment founds basically because I come from the evaluation industry. I spent 25 years first at EY, second at one of the US consultancy at that point in time called Duff and Phelps, now known by the name of Carl. And the core of what I was doing was corporate finance and more specifically valuation of non listed assets. So I got into that business valuing assets for clients and getting to realize pretty fast that a lot I was doing as a consultant, a lot I was asking my consultants to do for me and a lot that I was seeing being done at my clients. Everything was manual. Manual as in Excel, Google search and email. And I thought that's very inefficient, number one. Number two, that's a bit of waste of the time. These consultants that we hire from the best universities, the best engineering schools is really a waste of their intellectual capabilities. But they spend all this amount of time collecting data, going through data, putting that into a model, checking that it's all correct and checking again. Because I'm a bit of a paranoid guy. So I like to get things checked quite a few times. I was thinking there must be ways to do things differently. And as I saw the technology evolve and evolve pretty fast. Look, I mean, as you can see, I'm a bit the older guy. When I started doing valuation in France or working in my previous firm, we had this very old Mac Laptop and Excel was just like a disaster on that things progressed and then at some point in time you think there must be ways to do things differently when it comes to valuation. So how do we make that happen? And yeah, that's basically one of the genesis of 73 strings. The other genesis is that I met with a group of fantastic co founders that you know, we are like minded, so like minded people thinking how to progress, how to make things evolve, how do things differently while knowing the industry that we address and the pain points that we address really, really well. And I think that was the key driver behind early success but quite good success of 73 Strings.
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Michael (Interviewer / Host)
That's part of the reason why gray hair is good in private markets. Because the experience matters, it's important. And understanding how to navigate and work with a lot of big players, work with strategic partners, strategic investors, all of what you have. What were some of the things that you saw while being in the valuation services business that you said this needs to be automated and it can be automated or you're asking yourself the question can this be automated? And then you figured out how to put structure around that process.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
So the first thing that really struck my mind back probably like already 20 years ago is that I was a more junior valuation guy. I was tasked to work on a M and a assignment. We had to do a valuation of a business and to do that we had to develop private business and we had to develop benchmarks to public companies. I don't remember what the business was, to be honest with you, but I remember private business. We had a peer sample of private companies and it was like 5, 6pm at night and we had to speak to the client the next day with some ideas and so on. And so I turned to my junior, I tell him, okay, can you assemble real quick benchmarks of these peer companies revenue growth and EBITDA margin and various financial ratios and so on and collect that information from brokers reports and so on. And the guy told me, yeah, but it's going to take three days I think, I mean, come on, why, why is that? I mean you have to go through all this paperwork, all this amount of documents and find for the relevant data and then plunge this data into a model and then cross check that everything is correct. Yeah, it's going to take two to three days. And I thought, I mean that's nonsense. How is that, how can that happen? Of course that was some time ago. Then all the data sources like CAP IQ and FactSet and Refinity came to market with a way of looking at that data in an automated way. But, but still I've been thinking there should be a way for people that have to value these non listed assets, that have to take a look as to how they compare to other type of companies to pull in the information in a much faster way, to pull in the intelligence in a much faster way, to go through the vast amount of data and documents that you have to go through to collect and pick this relevant information in a much faster way. And that's where we started thinking with few colleagues, I mean AI should probably be helpful there actually. And yeah, so that's one of the starting point.
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Michael (Interviewer / Host)
One question that comes up from that is how much is the lack of uniformity a real challenge? There's lack of uniformity and standardization around how funds may value companies assets and their valuations, how they look at their revenues, their valuation multiples, their methodologies. There's so much difference in the way that firms may apply their own valuation methodologies. Can you standardize and create uniformity within the valuation process or is it automation will get you part of the way there and then there will still be a large manual component to this.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
My view is that you can automatize that work partially, but only partially. A significant component of any valuation process is actually the view management that goes into it. And you would have a different view on certain parts of a business that I would have. And it's very important that we have these different views. The evaluation process is more like a language that helps you articulate a view on the business and in the end form a view on the value of the business. But your human judgment is going to be very important. My human judgment is going to be very important. I don't think that we should automate that part of the process. Automating the calculation. I mean that's of course that's the simple things that you have to do. Automating how you get or facilitating I would say rather than automating, facilitating how you get to faster human judgment, how you get faster, the information that will help you form a view as to how this business is really comparable to that other one which by the way that does not exist. There's not one business that fully compares to another one. So how do you understand the nuances faster so that you can come up faster with the adjustments that you need to make in your valuation processes and in your valuation analysis so that in the end you come up with the proper construct of this relation.
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Michael (Interviewer / Host)
Do you think AI will eventually be smart enough where it will actually do a better job of the qualitative side of what you just described. The human judgment around valuation.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Possibly, but I would not bet on that. And I think we are years away from that happening. If it happens. The work we are doing at 73 strings, facilitating the valuation for the owners of the non listed assets, ultimately the objective of this work, or the objective for our clients is to report their valuation to their LPs, to their investors.
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Michael (Interviewer / Host)
And do it faster.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
And do it faster. So do it faster. Technology can help the issue. When you say you want to report something to a third party, and we're talking about money and real money and very significant money, the issue is that someone has to be accountable for that. You can't just spit out a number. You have auditors that are at play as well that will look into what things are being done. So can AI come up with a very good estimate of the value of an asset? Yes, probably. I would actually be ready to bet that there's already some very interesting hedge funds that are doing that quite effectively. But here is the thing again, the world I live in, the issue is not just about doing the validation. It's providing a level of comfort to the LPs that it's done properly and that someone is responsible and accountable for that. So the moment you put an AI algorithm into it that just spits out a number, you're defeating the purpose. So what I'm saying, will AI get there? Potentially. But the key thing for AI to get there will be to find a way that the other part of the equation, the LPs and their auditors and the regulators as well, will be comfortable that the AI is coming up with the right answer. Because if they are not, who are they going to put the blame on if something goes wrong?
- [12:20]
Michael (Interviewer / Host)
I think that brings up a really interesting question related both to 73 strings, but also more broadly around technology being built in private markets. You rely on different stakeholders and technology solutions to be able to do the work that you do at 73 strings. Where do you feel? At least right now as a business, your work starts and stops at 73 strings and then where do you include and partner with other service providers?
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Our work starts with the data or the documents that are sent from the portfolio companies, the borrowers, to our clients. That's where we're picking up the work, we're picking up these documents. We have developed a set of technology that can read any Type of document, PDF, PowerPoint, Excel, email. What am I missing? Well, probably a board deck, a quarterly report, an annual report, whatever.
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Michael (Interviewer / Host)
And it can read someone's mind. And it can read someone's mind maybe.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
At some point, and collect these documents, identify the relevant KPIs, collect the KPIs, standardize this information, create consistency and then that information is used for valuation. So from that perspective, what we need is, well, not much. Eventually we need a Dropbox from the portfolio company. Eventually that could accelerate certain things. But most often we are seeing that the portfolio companies would send these documents by email to the investment teams and it would be automatically forwarded to our platform and it's done.
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Michael (Interviewer / Host)
Even if different companies report their metrics in different ways, you're still able to handle all that? Because I think that's part of the challenge when you think about different categories. Accounting is one example. Part of the challenge with something like automation of certain things like accounting or same here where it's valuations is everybody may have a different way of reporting something.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Yeah, everybody has a different way of reporting something. And the GPS typically have one way, they want to have one way of looking into each and every information. Because we want to be able to look through their portfolio, look across their portfolio and understand when they invest into one specific strategy or one specific sub industry, they want to be able to benchmark companies, they want to be able to understand or to learn from one company and replicate with the other one. But if you want to do that, you need to make sure that the data that you get is very consistent and standardized. Otherwise you just can't do anything out of that. The beauty of technology is that you can do that automatically. Now we have 98.6% accuracy. When we do that, it's just like massive. And so it's done automatically. It saves a lot of time. That means that these very smart people that work in these gps, they don't have to spend like two or three hours at night just collecting these numbers and putting that in the proper standard and proper format. I mean, that's a lot of time saved that they can use to do something else. Much more value add. So that's a bit the basic value proposition here. But what we are seeing happening is what I was saying as well is that once all this data is in one place, properly structured, probably standardized, there's so much more that you can do out of that. That's why you can start thinking about AI algorithm that can be like early warning signals, red flags. How can you inform the business back with certain information that are not obvious to see if, if the information is scattered across multiple folders multiple Dropbox, multiple Excel spreadsheets, it's just undoable.
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Michael (Interviewer / Host)
Does a tool like 73 strings, which is incredibly impactful because of what it's doing to make information much more easily accessible, faster to get and transparent. Does it actually remove the need for certain human processes and even potentially certain service providers or does the process really stay the same?
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
The process stays the same. But of course the moment you're saying that certain tasks are done faster, of course that definitely removes the need for a certain amount of time that is spent doing this type of work. Is that a good or bad thing? Well, I guess of course it's tough for people that will be impacted. But here's the thing is that the industry is growing so fast and there's such a lack of resource in the industry that anyway, what I'm hearing from my clients is that their key pain point is that they want to make sure that they can grow as fast as they can. They want to make sure that they leverage the resources that they have as best as they can. They want to make sure that these resources are not spending 30% of their time doing things that the machine could do. Then that they focus on where they really bring value. So from my perspective, it's only going to be helpful to the industry, only going to be helpful to continue to grow the industry and to continue for these resources to continue to grow into their own jobs.
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Michael (Interviewer / Host)
You bring up a really important point which is the moment in time we are at in this industry which is one, the acceleration of focus on the wealth channel and the capital that's coming in from the wealth channel. That dovetails with another big trend which is the rise of evergreen structures where reporting happens more frequently. They're open ended or evergreen vehicles. The reporting and valuation become even more important, particularly as you're getting to the individual wealth client. They need more frequent valuations. And then there's also a massive rise in private credit which the size and scale of those funds are growing. The number of assets that could be in those funds could grow. What do you think about those two trends? Really accelerating the need for better valuation software post investment to get this data quicker, analyze it better and create more transparency.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
The answer to that is definitely yes. I mean we are seeing that happening and we are seeing that happening actually really, really fast. When we started the 73 string journey, that was four years and a half ago, we were thinking okay, valuation world is mostly is quarterly. Some clients are actually doing twice a year, but the entire market is going to move quarterly. Fast forward four Years later, four years and a half later, and we've seen an acceleration in the past year with all these funds targeting the retail investors in particular here in the US and retained investors wanting, by the way, to invest into private. There's very significant appetite. So it's market going towards a joint point of contact. So it's perfect. But the issue is that you have to change a lot of the processes that you operate on a regular basis. And when it comes to what we do, what we are seeing happening is that if you want to attract retained investors into private capital, you have to make sure that they get the proper information, but they get this information in a frequent basis because as you said, the funds are evergreen. If you want to get retained investors, people like you and me, to invest into private, you will have to offer us that we can get in when we want, we can get out when we want as well. So that's higher frequency. That's also a question as to the robustness of evaluation, because there's going to be actually transaction and again, this real cash is going to be transacted based on this valuation. So you need to be pretty sure that you have done the work properly, that you have documented the work properly. But if you have a regulator or an editor coming to you and saying, hey, what have you done here? You can very quickly share that information and you get the proper approval to get that done.
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Michael (Interviewer / Host)
Is the industry ready to handle this new way of doing things? When it comes to things like Evergreen Structures, I mean, some of these structures may have daily tickers, right? So there's daily, certainly monthly frequency rather than quarterly frequency. With a lot of these fund structures, is the industry ready to handle all that?
- [19:57]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
I think the industry will get ready really, really fast. But as you can imagine, on a pure technology standpoint, the implications are just massive. Moving from quarterly to monthly, I mean, that's fine. This is largely doable. I mean, there's definitely a bit of extra stress on the infrastructure, a bit of extra cost as well. Moving from monthly to daily, it's a totally different beast. And that's happening as well, really fast. Actually, it's not new daily valuation. There's been mutual funds here in the US U seats in Europe and we've been doing daily valuation on public assets for years. And they have started to guide private assets into, into the mix as well, maybe a bit more recently, but that's happening. But it's growing really, really fast. And you have to make sure that you're technology infrastructure is capable of coping with that. And that's something significant. But look, I mean, the industry is very, very resilient. It's moving really fast. Lots of very smart people. And what I'm seeing happening is that the guys that are at the forefront of this new trend, I mean, they are on top of it, and they are doing what needs to be done really, really fast.
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Michael (Interviewer / Host)
Well, you mentioned some of the firms that are at the forefront of this trend. They tend to be the largest firms in the industry. One of those firms, the largest firm in the industry by AUM, works with 73 strings. Blackstone. They use 73 strings for various funds and valuations on those funds. How did that partnership come about? And when you think about working with a firm like them, what did it take to be able to work with them, as well as when you think about what that means for how you construct the infrastructure of the business, that probably cascades down to other customers. If you're working with Blackstone, you can work with other large alternative asset managers and then smaller.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Yeah, I mean, very good question, and of course, a bit difficult for me to answer because, I mean, that question should be turned to Blackstone.
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Michael (Interviewer / Host)
I had the cto, John, on the podcast.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Yeah, yeah, yeah, yeah, yeah. He's a great guy. Look, what I would say is that I think for these very large clients, a lot is about getting these variations done faster with a higher frequency as well. Faster as in, basically, if you want to report to your LPs today, it's a common view that the main roadblock in terms of getting the information ready is actually the valuation process. Everything else, accounting and so on, can be done as fast as possible at the end of the quarter or at the end of the month. The evaluation process, unless you digitalize it, is the one that will drag the reporting to the LPs the most. So clearly that's one thing, how to get this process higher frequency faster than the other thing that we're seeing happening with these large clients, but not only the large clients, by the way, as well, is that as we're discussing or alluding to in the past few minutes, it's also a lot about the data. And what we are seeing happening with our early clients is that they want to make sure that they have a control on their data. They want to make sure that they get all their data standardized in one place to be able to use it for valuation, but for more than that as well. And that's also a key driver of this type of adoption.
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Michael (Interviewer / Host)
On that point, how extensible do you think creating A valuation methodology, leveraging technology and digitalizing that for private equity is then extensible to other asset classes like private credit or infrastructure or secondaries.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
I mean, the thought process is the same. The methodologies and the workflows would be very different from one asset class to another one. You are not thinking about monitoring a company and valuing a company in the same way if you are a large cap private equity investor as compared if you are a early stage venture capital fund. Just to take two extremes. Private credit, again, totally different beast. So what I'm saying is that the thought process is the same in the sense that you're still receiving data, you need to collect data, you need to standardize data, you need to use that for the evaluation process. But in the nitty gritties, things would be pretty different. And I think that's what enabled US at 73 strings to build a product that fits really well with the industry that actually we got into that as consultants and we had seen many, many use cases. So day one, when we started pushing our valuation platform to the next level in 2020, 2021, what I told to my team, I want to build a platform that could be used for the entire marketplace. And I want to build a platform thinking if ever we are not successful being a SaaS company, we should be using the technology ourselves and we would be having clients that would be private equity, potentially corporates as well, and private credit. So we need to be able to address all of these use cases. So day one, we built our platform so that it could work with all these use cases. But that meant that, I mean, we spent two years and a half building the platform because there were so many use cases that we had to develop. But yeah, so that's the coin. So within one specific industry, it's a bit more structured, I would say.
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Michael (Interviewer / Host)
I think that brings rise to a really interesting question. So when you talk about private equity being so different than private credit when it comes to valuations, my mind goes to Howard Marks, the co founder of Oaktree, his most recent memo. He writes these memos every month. Roughly the most recent one was on asset allocation. And what he was basically saying was that there's only two principles in investing really think about there's equity and there's debt, because debt is fixed income. Equity is you're not getting a fixed return. You might have more upside, but there's also downside. And those are two fundamentally different ways of thinking about things. And I think that's a really interesting concept to think about when it comes to valuations. And when it comes to thinking about what the atomic unit of value is with valuations, I'll bring in another analogy in private markets is Carta has done this on the cap table side. They started their atomic unit of value was the company's equity. How do you think about the concept of the atomic unit of value in the context of valuation? And to bring it back to the Howard Marks example, the difference in how you'd actually go about thinking about the atomic unit of value when it comes to equity. So all the private equity valuation work you do versus debt private debt valuation.
- [26:29]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Work you do, I'm probably a bit biased in the way I'm looking into this thing. And the reason why I'm a bit biased is because we have developed a technology that can virtually and in reality actually extract any type of data point in any type of document and attach a label to it. What that means is that we can collect from a board deck that the venture capital fund would receive. Like if there is 1,000 data points in there, we can collect 1,000 data points, we can put that in the data lake, we can attach a label to it, we can standardize this information. So the reason why I'm saying that I am biased is that to me the atomic unit of value in this industry is that level of granular data. If you have all this data, there's.
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Michael (Interviewer / Host)
Nothing that you can't do, whether it's equity or debt, whether it's equity or.
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Debt, but you're getting that data from the company. If you're getting that data from the company, company, you get everything you need for sure and more. And that's why we start thinking when I get all this data, actually I can probably do much more with that data.
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Michael (Interviewer / Host)
So that brings up a really interesting follow up to that, which is you're working with both the private equity side of certain firms as well as the private credit side of these firms. There are obviously different valuation methodologies and you have different structures and processes for the products that you sell to each business unit. Is there any crossover or connective tissue in terms of sharing some of that data? Obviously only within a single fund or firm, but where it may actually help that firm on the private equity side or the private credit side, if you have data from the other prospective business unit, based on what you just said.
- [28:12]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
The answer is yes. I would say in theory, because in practice there might be situation where even within the same gp, you can't share information from one fund to another one, as simple as that. But in practice what is doable is that once you have collected all this data, once you have allocated to the portfolio companies something that could be called like a unique identifying number, something like that, then if one party agrees to share that data with another party because they have an interest to do, it can just be done automatically. It's just there. It's not just that you're sharing the data, you're sharing the data with the underlying source document with all the audit thread that goes with it. The amount of time saved plus the comfort that you Give to your IPs and your auditors is just massive.
- [29:01]
Michael (Interviewer / Host)
Brings rise to a really interesting concept which is another trend we're seeing in private markets is the big firms are getting bigger. They're adding different investment strategies or funds to their platform and they're becoming multi strat. So the ability to actually leverage all the data they have across the different business units I imagine would be helpful over time.
- [29:25]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
It's not that it would be helpful. I think that's going to be the next gold mine of the industry. That's where definitely size will matter. I mean size matters on many things, but in particular on that the bigger you are, the more investment you have done, the more various use cases you've been able to see. If you have all this data and you have standardized that data and you can use that with proper set of calculation algos, however you call that, then you're getting so much smarter than your competitor. As simple as that. Smarter, faster. If you're capable of informing your investment team few weeks earlier than your competitors, hey, we're seeing something here. There's a pattern. There might be a risk that is coming up. You should speak to that company. I mean that's invaluable I think.
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Michael (Interviewer / Host)
Brings up a really interesting question which is do you think the automation of a lot of this data will benefit the larger firms more than the smaller firms or vice versa?
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Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
It will benefit the larger firms because they have a capacity to move faster. Definitely the smaller firms they will need to react to pretty fast. Definitely to make sure that they keep up with that trend. And they will need to find ways as well to complement their data set if their existing data set is a bit limited.
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Michael (Interviewer / Host)
Yeah, I mean it's interesting because on one hand smaller firms can leverage technology like 73 strings to automate a lot of what they would do in the post investment processes and their operations function. So they may not need to hire as many people. Obviously they'll still have to work with service providers as everybody will. But does that benefit them from a cost perspective as much as it would benefit a larger firm who will probably have more people, more assets to value and track. But also they get the benefit of that too.
- [31:17]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
I would say that our pricing model is developed in a way that, yeah, I mean, it's going to create value for everybody.
- [31:23]
Michael (Interviewer / Host)
So it brings up an interesting question from a business building perspective. As you build a business in private markets, you've chosen, and for good reason, to work with many of the largest firms in the industry. What did it take to build technology from the relative outset to work with the industry's largest firms? A lot of startups will start bottoms up and go upstream, starting with smaller customers and then growing in size and scale to the enterprise level as they build their business, particularly in enterprise or enterprise software vertical SaaS. You chose to work with the largest firms first. Why did you do that and what was the thought process behind that?
- [31:59]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
I would start answering to that question by saying, actually we chose to work with the larger firms because we could afford to, to start with. And the reason why we could afford to is because we had developed the platform in the first two years, as I explained, basically thinking we want to be able to cover multiple use cases. We want potentially to be able if we would like to use that technology for ourselves. That's not our play today. Definitely not. But that was the mindset a bit coming from a EY auditor background, I thought I need to have a plan B if ever my plan A, that plan A does not work. But the reality is that when we went pitching our solution to our first clients, first potential clients, at that point in time, they were already large multi strategies type of fund. Actually our first client was Eurasio, French manager. 40 billion under management. They do private equity, small mid large, they do growth equity, they do venture and they do private credit. And so we could afford to go to a UAZ and tell them, look, we have a solution that you will be able to use across the board. What do you think about that? So when you're in that position, of course you're thinking that's a pretty interesting play because as I'm going to work with these large clients, multi strategies that will enable me to continue to build up my solution, to continue to add new features, because I'm certainly going to discover new pain points, new use cases. I work with your Azio or as I start working with Blackstone. And then when you're in that position and you've been able to advise the larger guys, that's when you can Start going to the smaller guys, all due respect, and say, look, we have this set of solutions. It's been developed across multiple large clients and it's going to fit your purpose. So I thought as an entrepreneur, but it was a pretty interesting way to go and probably again we could afford it. I know that trying to go the other way around, starting with small and then trying to get up the chain, always a bit more difficult, especially in that industry because again, when you get to the bigger boys, the pain points and the use cases can be pretty complex.
- [34:04]
Michael (Interviewer / Host)
What do you think were some of the reasons why you were able to, even as an earlier stage company, be able to work with such large firms from the outset?
- [34:14]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Migrate air maybe? No, I mean, to me it's a question of, for our first clients, it's a lot. The question of trust. Trust that we understand what their pain points are and trust that we will deliver on what we promised. And that comes from 20 plus years of experience. Not just me, by the way. I mean 73 stream is a very large team and a fantastic team. It's basically trusting us that we know what we are talking about and we are going to deliver. And we have tons of past clients that can attest to that, that we know what we're talking about and that we are going to deliver.
- [34:57]
Michael (Interviewer / Host)
So you talk about experience being important in all of this. Another piece of the puzzle that I think is really important in private markets is getting the right strategic involvement around the table. You have strategic investors, Blackstone, who's also a customer, Fidelity International. What's the value of having strategics and why did you decide to go that route? And related to that, do you think there's something different about private markets where it's imperative as an entrepreneur to involve strategics in the business rather than keep them on the outside?
- [35:33]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
The value that we're getting from our investors is just fantastic. Weatherites, by the way, are first set of investors when we did our seed. The family offices and the friends and families that, you know, helped us not just with capital but with consistent advice and permanent advice. And then Blackstone and Fidelity International and new guys bringing extra pair of eyes, extra expertise. What's actually interesting is that the conversation with Blackstone started with them as potential client and then one day I received a call saying, hey, we are very likely going to become a client, but we think that we should become an investor as well. I was honestly very, very annoyed about that. Because here is the thing, is that I learned a lot from Blackstone as a client for our Solution. And I learned a lot from them being a minority investor into my company as well. They have an experience and an expertise in helping grow the companies like us. That is massive. And the team that is led by Stevie is just been fantastic with us. And for us, same with our friends at Fidelity International. They've been there, they've done that, they've seen many use cases that they can tell us, oh, be careful with that. Or on the contrary, you should move faster on that side of things. So very important to me, I would just say they are strategic. Yes, they are minority investors, which is something very important to us as well. But we are going to continue to grow to add, if possible, more investors in the mix. And strategic in the sense people that don't just bring capital, but bring also more than that experience, expertise, network are going to be very relevant to us.
- [37:19]
Michael (Interviewer / Host)
It's an interesting question too, because when you think about a lot of successful market data businesses in other categories, capital markets, market trade, web market access, just as a few examples, Acadia Soft is another example. They brought the industry together. ICapital has done it in private markets too. Do you feel that there's an importance around that, particularly for something like valuations? And what I'm really getting at here with this question is does creating industry participation, not just in a customer sense, but also in an investor sense, move you closer towards standardization and uniformity around data and processes that'll make private markets go faster?
- [38:00]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Yeah. And the answer to that is definitely yes. I think there is a strong use case that there is a technology out there that would facilitate this reporting and valuation work and also data standardization work that would be useful for the entire industry. And that's what we're hearing from our investors and from the industry generally speaking, that anything that can be done to get these things done faster anyways is in the interest of the industry. So short answer is yes.
- [38:33]
Michael (Interviewer / Host)
Brings up another interesting question, which is you build 73 strings at a time when the industry is moving increasingly fast. We talked about this Evergreen structures, the growth of private credit. You have to do valuations more efficiently and much faster than has been the case. Do you think you could have built 73 strings 5, 10 years ago? Or was the industry not ready from a technology and architecture perspective to be able to do the things that you want to do with the foundations that you've leveraged from the presence of enterprise software around data lakes and things of that nature?
- [39:14]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
It's a question of the maturity of technology and also the cost of that technology. So five or 10 years ago? Well, we started five years ago. Ish, but 10 years ago, what I think is that the technology was probably not fully there yet and more importantly, the cost of it would have made it not relevant for the bulk of the market. Now things have changed. Technology is much more mature. We have multi multiple options available in terms of technological choice if we want to develop something new, if we want to move fast. Cloud infrastructure is very robust, very secure as well. That's another piece that's very important is the safety of data. Our clients are very sensitive, as they should, to the security of their data. And we live in a world now where things are pretty complex, but the other way around there's multiple solutions that can help make this data really safe. So all of that is pretty mature at this point in time, at that. Also one reason why things are accelerating so fast at this very point in time.
- [40:23]
Michael (Interviewer / Host)
So we talked about looking backwards to kind of get here today. Looking forwards in private markets, you sit in such an interesting perch within the industry because you see all the data and you see what's happening with all that data. What do you think this data can be leveraged for going forward?
- [40:42]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
I think that this data that our clients are collecting and aggregating and the moment it starts to be standardized in some kind of cloud infrastructure, there's definitely a case to be made that how can you aggregate that data? Anonymize that data, of course, and create benchmark indexes out of that. That would be relevant to inform back the market as well. So that's probably something that's going to develop, I would say, in the next few years. There's been some recent developments going in that direction, recent transactions that point in that direction as well. And yeah, I guess everybody's seeing that.
- [41:20]
Michael (Interviewer / Host)
Something is Burgess getting acquired by MSCI, Prequent getting acquired by BlackRock.
- [41:25]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Yeah.
- [41:26]
Michael (Interviewer / Host)
Model portfolios coming out.
- [41:27]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Yeah, yeah.
- [41:28]
Michael (Interviewer / Host)
BlackRock Partners Group is one example of that. I Capital has model portfolios as well. It's really interesting to think about. So do you think that looking forward, private markets will start to look more like public markets in the future?
- [41:40]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Yeah, I mean, I think it's going to converge at some point in time. I can hear people say, but private should stay private. Yes, of course. But if you want to grow private, the only way would be that it's closer and closer to public in the way it operates. Because the way to grow the private industry is to attract more investors. And the way to attract more investors will be to make sure that the information is as transparent as possible, as frequent as possible, that people can benchmark one investment to another one really fast. And yes, probably brings up more regulation.
- [42:12]
Michael (Interviewer / Host)
Interesting intellectual question though, because there are detractors of private markets who say it's quote unquote volatility laundering because the lag time in valuations mean that you don't necessarily have the same volatility that you'd have with a value or mark as you would in public markets. The other side of that is the fact that private markets are private saves investors from themselves at times because they can't trade out of it. And over a longer period of time, perhaps they're better off just being patient and holding despite the volatility that they may or may not be able to see on a daily basis. As an example, what does creating more readily available valuation and transparency around valuations, which I think we all agree is a good thing, but what does that do to the concept that I just brought up, which is the fact that sometimes there's a good reason in private markets why things are private or illiquid. How do you think about those two competing or counterbalancing features?
- [43:15]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
I think the key driver behind that question is actually the willingness to attract retail investor into the private capital industry. That's the key thing. If you stick to a private capital industry that is mostly financed by institutional LPs. And what you said is, I mean, of course there's interest that private tests private, that information is shared when it is shared, that valuations don't move too much to a certain extent. But the moment you want to attract retail investors into the mix, again, you and I and only going to get into there if we think that we can invest 10,000 at some point in time and we can exit if we want to, whenever we want. And when we do that and when we look at that, we're always going to compare what we can do with private against what we can do in public. If public is volatile, you would expect that private will be volatile as well, because if it's not, then you're creating a bias at some point in time. I mean, to me, the real revolution in the industry in the way the industry operates, in the way the industry looks into their processes and how to report to VLPs, is going to come from that retail investors trend, which is.
- [44:37]
Michael (Interviewer / Host)
A really exciting trend because it really brings private markets to the next stage. I think this has been a fantastic overview of how we got here, both in terms of your career as well as where the industry has evolved to from a valuation perspective. Congrats on everything you built. 73 strengths and it was a pleasure to have this conversation.
- [44:56]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Thank you, Michael. Pleasure to be here with you.
- [44:58]
Michael (Interviewer / Host)
Thanks for coming on the show.
- [44:59]
Yann Magnan (Guest, Co-founder and CEO of 73 Strings)
Thank you.
- [45:02]
Michael (Interviewer / Host)
Thanks for listening to this episode of Altgoes Mainstream. I hope you enjoyed it. You can read more about Alts at my substack, altgoes mainstream.substack.com Thanks a lot.
- [45:12]
Podcast Host / Moderator
And have a great day.
- [45:13]
Podcast Chorus / Group Voice
We're going mainstream.