Podcast Summary: E157: DA Wallach: Spotting Genius in Elon & Zuck's Early Days

How I Invest with David Weisburd Episode 157 features an insightful conversation with DA Wallach, a distinguished investor who blends his background in the music industry with a keen eye for groundbreaking technologies and visionary entrepreneurs. In this episode, DA delves into his early interactions with Elon Musk and Mark Zuckerberg, his transition from a recording artist to a venture capitalist, and his strategic approaches to investing in sectors like AI and biotechnology.

1. Early Recognition of AI’s Impact and Investment in SpaceX

DA Wallach begins by discussing his early recognition of artificial intelligence's transformative potential. He highlights his acquaintance with Demis Hassabis, founder of DeepMind, and Elon Musk’s foresight in technological advancements.

DA Wallach [00:00]: "Elon rightly appreciated that was just the beginning."

DA recounts how these interactions illuminated the strides AI was making, particularly in gaming, serving as a proof of concept that propelled his interest in investing in innovative technologies.

2. Investing in SpaceX: A Decade-Long Success Story

DA shares the story of his investment in SpaceX, emphasizing his initial impressions of Elon Musk and the pivotal moments that solidified his confidence in Musk's ventures.

DA Wallach [01:19]: "I was really excited to meet Elon. I met him at a dinner through friends and obviously was just super impressed by the kind of intrepid stuff he was doing and asked him if I could invest."

He notes that meeting Elon socially in Los Angeles, prior to SpaceX and Tesla becoming household names, set the stage for what would become a highly successful investment.

3. Transition from Music to Investing: The Spotify Connection

DA’s journey from a rock musician to a venture capitalist is both unconventional and inspiring. He recounts his time with the band Chester French and how serendipitous events led him into the tech investment sphere.

DA Wallach [05:25]: "I started to devote more and more of my energy to business."

DA explains how facilitating a meeting between Mark Zuckerberg and record executive Jimmy Iovine inadvertently introduced him to Spotify, leading to his investment and role as the company's artist in residence.

4. Networking with Industry Titans

A significant portion of the conversation focuses on DA's philosophy towards networking and building relationships with influential figures such as Mark Zuckerberg, Elon Musk, and Ron Burkle.

DA Wallach [07:38]: "I always want to be the dumbest guy in the room and I always want to be inspired by everyone around me."

DA emphasizes the importance of humility and the desire to learn from those whose work he admires, fostering genuine connections rather than superficial relationships.

5. Contrarian Investing: From Rarity to Mainstream

DA discusses the evolution of contrarian investing, noting how once a distinct strategy has become widely adopted, making it harder to find unique investment opportunities.

DA Wallach [15:27]: "Contrarianism has gone from being actually rare to now being something that everyone is chasing."

He reflects on the challenges of identifying truly unique opportunities in a landscape where many are following prevailing trends, emphasizing the need to seek out what others overlook or undervalue.

6. Unique Approach as an Investor: The Influence of Music

DA draws parallels between his music career and his investment philosophy, highlighting how aesthetic judgment and personal taste play crucial roles in his decision-making process.

DA Wallach [19:33]: "It's possible to bring a sort of aesthetic point of view to investing."

He believes that the ability to recognize beauty and coherence in business plans and strategies guides his investments, distinguishing him from others who may rely solely on quantitative metrics.

7. Partnership with Ron Burkle and Establishing Inevitable Ventures

DA narrates his introduction to billionaire Ron Burkle and the subsequent formation of Inevitable Ventures, marking a significant milestone in his investment career.

DA Wallach [25:18]: "Ron saying, wow, I think you could actually be a professional investor and I want to do that with you."

This partnership leveraged DA's unique network and Burkle's extensive experience, fostering a collaborative environment focused on early-stage venture investments.

8. Venture Capital Approach to Biotech and Healthcare

DA elaborates on his foray into the healthcare and biotechnology sectors, driven by his concern for the inefficiencies in the US healthcare system and the technological advancements revolutionizing medicine.

DA Wallach [33:26]: "Medicine is one of the most fundamental things we do as a civilization."

He outlines his strategy of targeting early-stage companies with innovative solutions in drug development, diagnostics, and medical devices, aiming to be at the forefront of the next era in human medicine.

9. Portfolio Construction and Risk Management in Biotech

Transitioning to portfolio management, DA explains how investing in biotech differs from traditional venture capital due to the inherent risks and probabilistic nature of success in this field.

DA Wallach [39:49]: "We start by targeting roughly an equal weighted portfolio, and from there we will double down or triple down on investments where we over time gain more confidence in the prospective return profile of that opportunity."

He emphasizes diversification and rigorous data analysis to mitigate risks, ensuring that failures do not significantly impact the overall portfolio.

10. Continuous Learning and Embracing Failures

DA touches upon the invaluable lessons learned from both successful investments and failures, underscoring the importance of a robust investment process over mere outcomes.

DA Wallach [47:17]: "I like the second type of mistake less because if you're doing this right, you're guaranteed to miss things."

He advocates for a disciplined approach to investing, where the focus remains on refining strategies and learning from each experience to enhance future decision-making.

11. Conclusion: Embracing Uniqueness and the Future of Investing

In wrapping up, DA reflects on the influence of interacting with top-tier entrepreneurs and the importance of maintaining a unique perspective in the ever-evolving investment landscape.

DA Wallach [45:07]: "The next great entrepreneur doesn't look like Elon Musk, doesn't look like Mark Zuckerberg. They look like them."

DA’s journey illustrates the fusion of creativity and analytical rigor, offering a compelling narrative for investors seeking to blend diverse experiences with strategic foresight.

Notable Quotes:

• DA Wallach [07:38]: "I always want to be the dumbest guy in the room and I always want to be inspired by everyone around me."

• DA Wallach [19:33]: "It's possible to bring a sort of aesthetic point of view to investing."

• DA Wallach [33:26]: "Medicine is one of the most fundamental things we do as a civilization."

• DA Wallach [45:07]: "The next great entrepreneur doesn't look like Elon Musk, doesn't look like Mark Zuckerberg. They look like them."

Final Thoughts

DA Wallach's insightful conversation on How I Invest with David Weisburd offers a rare glimpse into the mind of an investor who seamlessly bridges the worlds of music and technology. His emphasis on contrarian thinking, aesthetic judgment, and continuous learning provides valuable lessons for both aspiring and seasoned investors. By leveraging his unique background and forging meaningful relationships with industry leaders, DA exemplifies a forward-thinking approach to venture capital and biotechnology investment.