← How I Invest with David Weisburd
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- [00:00]
A
Before you became a family office Investor, you spent two decades bootstrapping SaaS companies. What did that teach you about being an investor?
- [00:07]
B
What it taught me about being an investor is really kind of putting myself in the shoes of the founders that I'm investing in. I can see clearly the challenges that they have. I can relate to them very well. I can see their blind spots because I have about 20 years of experience doing that. It's just generally built a instinct inside of me about what companies do well and which ones don't and which founders do well and which founders don't don't and whether or not they have the chops.
- [00:40]
A
And obviously when you're investing, you're also competing against very sophisticated venture capitalists. What edge do you have there that VCs don't have?
- [00:47]
B
One of the edges and not for all VCs, right, is that I was a founder for a long time. So one of the things that I just mentioned, what makes me different than like, let's say like larger VCs, for example, I'm investing my own capital, right? And I don't have the same kind of incentive structure where I have to deploy capital like VC funds do because they, that's how they make a living. So it's a totally different mindset. Also because I was a founder, I think a lot of founders relate to me better. I think the age of the family office investing in venture is come upon us because there's no investment committee to go through like a traditional vc. Family offices can be just as smart money and just as nimble and not be as onerous as venture capitalists are. What's also interesting, I think for the founders who want these types of syndicates is that they are getting access to investors that can really add value. Except instead of being like a black box in a VC where VCs obviously have LPs that invest in them. Right? But you never get to see who those LPs are.
- [01:54]
A
Right.
- [01:54]
B
The way I work is really kind of open source. I give the diligence materials in a data room to all, to everybody. They can see all the memos and cap table financials. You know, you name it, they can see it. And I usually do a zoom with the founder where everybody joins and they can hear the hear the founder speak about the company and also ask questions. So it's really transparent. And I think that kind of radical transparency is very different than what's been traditionally vc, something more.
- [02:25]
A
Why is that so different than the traditional venture co invest process?
- [02:29]
B
Most co invest processes. You have to be in the main fund to do a co invest which is a black box I would say. And then they're only kind of allowing select LPs to go into their best deals and they write an investment memo and tell and ask you if you want to invest or not. I don't think that they allow you to really get into the weeds and do your own underwriting. People really want that semblance. Not, not. It's not even a semblance, it's actual control. They want to be able to create their own portfolio. I think that post exited founders, ultra high net worth individuals, family offices, they are very sophisticated and they can make their own decisions. Right. They're buying secondaries in anthropic, they're doing secondaries in SpaceX Knurling and they want to be the ones that can also underwrite that next unicorn. They're just as smart as any other vc just to be honest with you. There's nothing magical or unique about a VC in my opinion.
- [03:26]
A
Interesting. It's a trend not only in family offices but also in institutional investors. I recently spoke to an Ivy League endowment and they talk about that. They're really focused on minimizing their unfunded liability, being able to do more direct deals, being able to have access to liquidity, being in their own kind of pools of capital so that they could transact if liquidity needs came to mind. So it's not just family offices that are. Yeah, institutional investors avoiding blind pool funds. Institutional investors are really focused on how do we get more into direct deals, how do we get more into co invest and how do we control our destiny.
- [04:03]
B
That for me in specific is why I've also I've thought about it and a lot of people have asked me to do it. I haven't really kind of created a fund. First of all I'm not really interested in that because I think that although I am invested in some funds, just as a practical matter I'm invested mostly in, I wouldn't say generalist VC funds but in very niche emerging managers or really high conviction managers that are doing very specific things like biotech VC or crypto VC or synthetic biology vc, things that I just really wouldn't first of all know how to underwrite because they're just way out of scope for me. But I want to have access, I want to have exposure to those industries. And I'm usually picking 1, 1 to 3, let's say exceptional managers. And I tend to like emerging solo managers. They have an edge, usually and also I, I can also see their deals more often and they're willing to share more often with me. And then I can do those co invests with them or maybe even do my own syndication for something that I think is exceptional.
- [05:12]
A
Some of these SPVs that you're doing, they get as large as nine figures, 100 million plus. Tell me about how you get to these kind of quantums on single deals.
- [05:22]
B
You got to be really lucky first and foremost, let's just say, because I think for me it's been a combination of luck, combination of really selecting only the best of the best that I think are outliers in terms of doing co invest for them. For me, the way it's really kind of worked is I usually write a C check into companies and then when the time comes and they've kind of hit, let's say, and there's a real name lead or they've kind of hit some sort of technical milestone. My investment, by the way, just to kind of back up so that it's a little bit clearer. My VC investments are barbelt, right? So I am investing in really deep tech, frontier tech companies. And I've been doing this for about six or seven years when it wasn't as fashionable as it is now. So that entails a lot of hardware companies fall into that, in that, in that theme. Let's just say robotics, quantum AI, which is a too much of a general term. I would say synthetic biology, those types of things. Right. And then I'm barbelling it with things that I think that cannot be crushed or killed or vaporized by those frontier technologies that I just mentioned. Right. And so what, what, what would constitute that? It's a very hard thing to define, but I can give you concrete examples of that. Right? So we just invested in a company called NARA Organics, which is a baby formula, right. So the idea being that regardless of how much AI or robots or whatever there are, you're going to feed your baby baby formula. And as a practical matter, I know way too much about baby formula. It's a beautiful business and I could spend a lot of time telling you about that. But that's, I'm trying to give an idea. Or we did AG1, for example, athletic greens, which a lot of people probably who listen to podcasts know, who are early investors in that company. We did a, a company called Flex Storage, which is a competitor to pods, where they bring storage units to you. Right. And they're tech enabled. And there's a lot of reasons why it's better than pods, but the idea being that you're going to always need to store your stuff, right? So that's the other end of the barbell. And maybe those will not have the same kind of, let's say trillion dollar outcomes that a deep tech company can have. But they they're still really good investments. So I think the flexibility of that is is unique as well.
- [07:46]
C
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- [09:32]
A
invest I think the closest thing to that is Founders Fund. They like to go super early or super late. Once it's consensus, they basically you could think of it as alpha and smart Beta.
- [09:40]
B
Just to kind of retrace back to your original question. How did some of these get very large? We did. We did. I'll give you an example. One of the larger ones that we did is figure right which is which is a humanoid robotics company. The CEO is Brad Adcock. It's gotten a lot of attention lately because it's freaking awesome. Just to be honest with you. If you've seen the videos, it's an autonomous humanoid.
- [10:04]
A
It sells itself.
- [10:05]
B
Yeah, it sells itself. But you know, when we first did that zoom with Brett. Right. I'll never forget it because it was really polarizing because I brought in a bunch of investors with me as well to, and, and, and by the way, I've been convinced by my investors sometimes never to, to not go forward and a deal isn't good. So that, that actually works in my favor. Sometimes I have the blind spot, right. And I'm kind of using this hive brain to tell me where I'm going wrong. Right. Which is unique.
- [10:36]
A
I think it's kind of the original angel groups. So these angel groups, I was part of one in Silicon VALLEY probably around 2010 or so. And you actually get a lot of value through crowd wisdom. And sometimes there's just so many different lenses to look at it, and sometimes you end up in the same situation, but you have higher conviction. Sometimes you change your mind, sometimes you are a no, and now you're a yes. It's all over the place. But just hearing different perspectives is so valuable. It's something that venture firms have as their strength. Maybe their weakness is they have too much money, but their strength is they have this different ways of looking at the same deal.
- [11:06]
B
Having too much money is adverse incentive, by the way, because you can, you'll, you'll ignore some of the signals just to kind of deploy funds, you know, after all, they're human, right? So like that's, that's the way it works. It was really polarizing. It was. Brett just had a hand, just like this robotic hand. And, and, and all he had was like 10 engineers that he had recruited from Apple, Tesla, Boston Dynamics. He had put 20 million bucks of his own money in which really kind of stood out in alignment with investors. He had obviously the pedigree from Archer and Vettery, before that being a post exited founder. But after that, that, that zoom, I got two different types of texts. Either people were like, this guy's freaking bananas, I'm out. Right? Or this guy's the next Elon. I mean, he was, he's a visionary. He is this. And that actually gave me signal, right? That gave me real signal being. Because by the way, those two types of texts were being sent to me by very smart people that I really, really, really respect. It wasn't just random people, right. And, and so I, I knew there was asymmetry in that. I didn't know he was going to win 100% and it's still yet to be seen if he's going to win. Right. Even though he's. They just raised at a, you know, 40 billion or something dollar, you know, 40 billion valuations. And they have Microsoft and Nvidia and all these other guys backing them. But those are the unique situations that you can get into where you get valuable insight by doing these, doing it this the way that I do it.
- [12:44]
C
Let's say Was this a $2 billion round?
- [12:49]
B
No, it was the A round. It was a $300 million round. So I think we did close to 5 million in the A round. And then.
- [12:59]
A
So it's essentially $300 million on a prototype, which this was a while back was unusual.
- [13:06]
B
Correct. People thought it was insane. And by the way, a lot of people right now think for agentic AI companies that are like SSI, that is raising for like a 30 billion with no revenue. Right. That seems insane to people. And it very well could be. Or if they're right, it might just be really cheap. I don't know this. It's only time to tell can tell. But that's how these things get really big. Because all of a sudden, at the $40 billion valuation, the mark is like whatever 65 times. Do 65 times. And you see how those numbers work. We did a much larger raise in the B round because Microsoft and OpenAI and Nvidia and all these other major investors came in and, you know, people are mostly followers and leaders at that point. And we were able to raise, I think, close to like 40, 40 million in that. In that round.
- [14:01]
A
In order for you to get these allocations in later rounds, is it prerequisite that you come in early or could you have gotten in at the series B, Series C?
- [14:10]
B
It's much easier, let's just say. Right. Because I already have the. Let's say the relationship and that kind of thing. I have come in into later rounds on certain, certain companies. We just did, for example, Power Dromics, which is a brain computer interface company like Neuralink, based out of Austin. And you know, they've been around for 10 years, but they, they don't get the spotlight because Elon. They're not Elon. Right. But they got FDA approval and that kind of. And Matt Angle is an extraordinary founder. They're based in Austin. That's a later stage one that we came in alongside PIF and neom, which is, you know, the Saudi Fund.
- [14:46]
A
One of the reasons I wanted to have you on the podcast is you kind of have two sides to you. You have the crazy deep tech investor who goes very bullish on certain opportunities, but you also have the family office lens where you're building a portfolio strategy. And you do have a rational side to you, not just investing into crazy startups that could go 100x or 0. Because I do think family offices, depending on the dynamics, many of them are actually over diversified. You call it deworsified. And there's these principal agent problems where the principal's job is not to lose money and they're not really trying to increase the family office. You're obviously in growth mode.
- [15:27]
C
Tell me how you build your portfolio
- [15:28]
A
construction when you're looking to grow, not just preserve your capital.
- [15:32]
B
I actually don't believe in preserving your capital, just to be honest, because I think it's like this false sense of security. I mean, just look at how much the dollar fell this year. Look at inflation. I live in Miami. You couldn't give away the houses like six years ago that, that are now selling for tens of millions or if not hundreds of millions of dollars. So this idea that like, oh, let's just say I'm just making up a number, right? I'm worth $50 million. I'm good. Let me just make this like last is this, it's a fallacy, right? If you're not growing, at least at the pace of inflation, you're really deteriorating, right? And so I'm very cognizant of that. Maybe it's because I'm younger, I'm 48, right? So I still have some juice left in me and I want to do things and I was a founder, so I still have that bug in me too, right? But I listen to a lot of smart investors and I don't see them trying to preserve capital. I see them trying to grow the pie. And really, if you even look at these institutional investors, they have much bigger allocations to things that have more alpha, like venture, right, or crypto or these types of things. And obviously I'm not reckless, right? Like, I haven't, I, I put away enough that if, if something bad happens, I, I, I can fall back on it. But with the rest of the stuff, I'm, I'm, I'm trying to get thoughtful alpha, right? And so I, I do do real estate, for example. I, I've, I, I've invested in a lot of real estate. I have a lot of real estate exposure. We've done, we have shopping centers, industrial, I've done a hotel, which was the bane of my Existence, to be honest with you. We did the Boca Hotel, I could tell you. The Marriott and Boca, which we, I bought like two weeks before COVID And, you know, I learned, I learned how to run a hotel, let's just put it that way, right. Which I never thought I would do. And, and, and, and it became the worst investment because of COVID the best investment because everybody came, everybody came to South Florida and we had these crazy adrs.
- [17:41]
A
And you picked the one location in the US that actually was growing during COVID Yes.
- [17:46]
B
And then, and then like, like about a year and a half ago, then it started going severely downhill because people stopped coming right. As much. And then everybody got priced out of Boca. So even just getting labor got quadruple the price. And then insurance prices went four or five times. So it became a bad business again. Right. Time will tell you whether something's good or bad. And I got, I got out of that unscathed. I actually broke even finally. We sold that just about six months ago. But, you know, I am trying to find alpha in real estate too. Hence trying to do the real, Giving a shot to doing a hotel, which I never had done before. Now we're trying to do things where we can actually own the business on top of it or partner with someone where we do the improvements and then there's a real operating business and we can get part of the profits, not just rent. Right. So I'm a partner in this, in this racket club called the Racket Lounge in South Southampton and New York. And it has pickle paddle tennis and paddle's grown. A lot of people are very, very into that, that sport right now. And, you know, it's a members only club. We own the real estate and then we brought in a partner to operate the club. I'm trying to do more unique things than just buying, let's say a five cap multifamily, right. That I could, you know, increase rents.
- [19:14]
C
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- [22:17]
A
I had Roger Vincent, who spent a lot of time at the Cornell Endowment and one of the things that he talked about is one of the mistakes that investors make is they double diversify. So they diversify within the fund. Sometimes they'll diversify, they'll triple diversify, then they'll diversify within the fund asset class. So let's call it venture. So you, you invest, you diversify within the fund, then you invest, diversify within the venture asset class. And then everything has to be diversified. And that's where you actually get a poor performance versus if you look at venture as playing a role, which is outperformance and the spikiness, and you build around that, you realize you're not going to have 80% of your money in this really spiky asset class. But you take venture for what it is, which is sometimes it'll outperform, oftentimes it underperforms, and it rarely loses money as an asset class. But I think that's something that you uniquely do in your portfolio. You don't optimize every asset class as if it's your entire portfolio.
- [23:09]
B
No, I don't. I think what, what I think is reasonable is probably unreasonable to most. If you're trying to preserve capital. I would say if you're not, I think it looks very reasonable. Right. This is what you have to do. I mean, like, what else can you do, right? I mean, obviously I have the largest allocation personally to equities, to public equities. And recently I think public equities have actually been acting like venture and giving venture, venture like returns, especially for during this AI boom. And if you were in the right sectors and that kind of thing going back to your, the spikiness thing, right, that you just, you just spoke about. I think that's really interesting because you really have to be built for VC or crypto or these types of things because it's very hard psychologically to consecutively lose. Because, you know, sometimes the spikiness is like you lose 12 times and then you hit, right? And you know by that tenth time you're like, man, I really suck at this. Why am I doing this? Right? Like, it's very hard to keep going because psychologically it could ruin you, right? Especially if you, if you suffer big losses, you know, because, because they were all consecutive.
- [24:27]
A
Said another way, the J curve is learned helplessness. It's like, no, no, no, no for seven years. And although people know to expect it, just feeling it, it's just very different when you're just constantly being reinforced and then suddenly you have something that returns 5x your portfolio in year 10. You're like, what just happened? I technically got a 4x in my entire portfolio, but that felt. I don't want to do that again.
- [24:48]
B
If you think about it, that's what happens to founders. Like, so that. That kind of founder mentality is like, you're just told no so many times, and then when you get a yes and you get a win, it feels like, I don't know, you just won the lottery, right? So it's almost like one and the same. I would say.
- [25:05]
A
You got into crypto in 2012 very early, and you bet big. What early signs did you see in crypto that made you really double down in it?
- [25:13]
B
In 2012, I had a development team in Kyiv. We had about 50 developers there. And at that time, it was a smart thing to do because actually, Kyiv has amazing talent. Ukraine has amazing technical talent. They actually are very close in culture to Americans, especially the young people. And so it was a really good cultural fit. So we had developers here and developers there, and they needed to play nice with each other and understand each other. And I would go and visit for a month or, you know, and also we. I spent a couple of months there setting up the office and hiring people. It was, it was a group of developers there that just kind of installed a miner on my Mac and taught me about it. And these guys were young and smart and PhD students. I just got curious because they, they, they were, they were curious. I, you know, just. I didn't go that deep initially, just to be honest. I bought. I mean, I guess you could, for very little money, you could buy a lot of Bitcoin, right? At that time. And in fact, I have a funny story. I. I Learned about ripple XRP and, and back then, I think it was 2013 or 14 or it was around that time, it was 2013, ripple had their own wallet. That was the only way you could actually own Ripple. At least that I knew of.
- [26:26]
A
Right.
- [26:26]
B
Maybe there were other ways. And the way that you would actually buy Ripple or get onboarded was you had to go through some crazy exchange that, I mean, I don't know, was it. Anyway, I have a degree in computer science, and I couldn't figure it out, but you literally went to a Wells Fargo bank, right? You filled out the deposit slip and you put your wallet address or your wallet ID on, on the deposit slip, and you would deposit cash. And then, like, I don't know, miraculously, a couple days later, Ripple would show up in your wallet. Right. Like, if you can imagine that, that's pretty crazy. And at that time it was like, I don't know, fractions of a cent. And I bought maybe a couple, couple thousand dollars worth, maybe $5,000 worth, I think. And then I forgot about it. And that $5,000 would probably worth, I don't know. I can't, I can't. I don't even want to calculate it because I lost it. Because that's, that's the, that's the moral of the story. Ripple discontinues their wallet. I get an email, it goes to my spam, I lose the key. I can't, I can't, I can't recover it anymore. And like, I feel, I don't know, maybe one day it'll come back to me, but probably not. I have like one of these war stories I'm not, I'm not doing. First of all, it's dangerous to do crypto, I think, just to like, own a lot of like crypto in a wallet or something like that. I, I just buy the etf and I tend to buy, mostly buy the, the, the bitcoin etf and I just buy it for my kids whenever I get a chance.
- [27:51]
A
I had this argument the other day about that, which is there's this bitcoin purist argument, which is if you own Bitcoin in etf, it's kind of like owning gold in etf. When the government seizes Bitcoin at some point, then owning the ETF isn't going to help you. It's not truly decentralized. But my counter argument to that is if you actually run the math. So let's say for now, 20, 30 years from now, the government seizes Bitcoin, which I think probably less than 10% chance at that point. First of all, it's very unlikely that the government will actually seize Bitcoin. They'll probably force sell. So you'll wake up in the morning and all your ETF will be sold and now you'll have cash. It's very unlikely that they're just going to literally take your Bitcoin etf. There's no real precedent for that. On top of that, to me, the benefit of holding an ETF outside of safety and all these things is that now I can use it and I could borrow against it. I could leverage. So whatever, 10, 20% gain or whatever 10 to 20% loss, I would hypothetically have in year three, 30 discounted back today if I'm getting an extra 5, 10% return on that bitcoin. Not that I'm saying you should lever bitcoin things like that. But you could put it into real estate or other safe assets. I feel like that's a much better trade than actually keeping it in cold storage and you know, waiting for this nuclear option.
- [29:11]
B
I understand both sides of the argument. You know, I've heard Michael Saylor speak and you know, he's got a really good argument about why you want it in a wallet. My parents, you know, my parents came during the Iranian revolution to the United States. You know, I viscerally know what it's like to leave with nothing, you know, and have to escape. There's definitely that kind of value in having it in a wallet. But as a practical matter and from a family office standpoint, I agree with you. I know that Coinbase has solutions for this where you can borrow against your bitcoin now, but as a practical matter, like even for estate planning, it's almost impossible to estate plan for a wallet. I don't even really think they have a good solution for it. So you want some sort of custodian. I tend to agree with you. I think it's much safer and a much better outcome to just buy the ETF.
- [30:08]
A
Today you're up to a dozen entities with 850 million AUM of deals you've invested in. You brought in other investors into what breaks at that scale, what's proven hard.
- [30:19]
B
You have to grow your team. And basically I've come to the point where either I want to continue to what started as a, let's just say a side thing, right? Do I really want to kind of grow this into a full fledged business, you know, asset management business? I'm leaning towards doing that because I'm having a lot of fun doing it. It lets me vicariously live through, through founders and back the types of companies that I really am interested in, whether they are deep tech or not. Right. But I really like keeping this format because I like to have it in a way where the investors that are coming in with me are really my partners and making the decision. I'm not making the decision for them, they're making it on their own. Right. They're deciding whether or not this company is worth backing or this founder is worth backing because they're informed and they're empowered. As long as I can do it that way and we can continue to have hits, I'll keep doing it. And I'll continue to do the other things where I'm writing seed checks by myself because they may be just too crazy to show to other people or too boring or whatever it may Be
- [31:28]
A
have you evolved that strategy where you really want to go to at least series A, but really series B and beyond for co invest, or are you putting other people into seed checks?
- [31:37]
B
It's very hard to do seed checks really, like early, early seed checks, except for like let's say now with these AI companies because they're not really usually raising a lot of money, right? So as a practical matter, the economics of creating a co investment vehicle, I mean, I know that there are these angel list guys that do it, right? They may raise a couple hundred thousand dollars here and there, but at my level, unless we're doing a significant amount into a company, it just really doesn't, it's not, it's not worth the effort, let's just say. And it's also like it's not economically good either because of the expenses that are for the vehicle, for maintaining the vehicle too. So it eats away at your returns. It may likely happen more because now you're seeing seed and A rounds that are in hundreds of millions of dollars and maybe even billions of dollars in valuations where they can actually raise large amounts of capital. But someone's raising a million dollar seed round, you know, it just doesn't make, it's not, you know, it's much more, it's just much more simpler to just write a check to them. We're not taking the whole thing, right? There's going to be a bunch of other maybe 50, $100,000 check people that are going into that seat or angel, angel round as well.
- [32:53]
A
But you find writing that C check is a way to put your foot in the door, build the relationship and then you have that optionality as the company.
- [33:02]
B
And I consider that seed check gone. I consider it zero.
- [33:07]
A
I literally found myself as a seed investor. I just found today that I get surprised now when I get seed lessons back. I've internalized that. It's lost money. I just put it out there and then it's like, okay, the money's gone. And I realized because I'm like, oh. Like, oh, that's crazy. I do have these investments. Like they're not actually zeros. I have to remind myself, yeah, some
- [33:24]
B
of them do materialize, some of them don't. Some of them lead to other opportunities. For me in particular, the two keys to this is having extraordinary deal flow, right? And being able to obviously identify that deal flow. It's hard. Which one of those are the outliers? That's hard. And then also having a network that trusts you, right? Those are the two things that you need. And part of that, part of that seed investment is ensuring that I'm going to get the best deal flow. Because founders remember you when you help them in the beginning, right? And maybe it's not even that founder. It could be they're, they're in, they're in SF or they're in wherever they are and they're talking to another founder that they think is amazing and they're like, you really need to talk to Shane because he's, he's a good guy or something like that. You just never know the serendipity of it. Basically.
- [34:17]
A
Speaking of the founder relationships, what percentage of the time are you relying on pro rata rights versus the relationship of the founder?
- [34:24]
B
Usually the pro rata is not enough. It's really the relationship. It's like we've shown that we can add value. I've shown that I can support that founder the way that they want to be supported and that I'm also not the type that overwhelms the founder. Right. I'm not constantly asking them for board materials or this or the other thing. It's actually irrelevant in the end of it. Like I could have all the financials and all the, all the updates I want. It'll make no difference in the outcome. It really won't.
- [34:56]
A
In the institutional investing space, governance is the key source of alpha. Having good governance and seed startups, you can have great governance. No product market fit. It matters. Absolutely zero.
- [35:09]
B
What does a liquidation preference mean when the thing goes to zero? Nothing. It means nothing.
- [35:15]
A
You've had historic career, you're only in your 40s, but you've had two large exits. You were early in so many great companies, Perplexity figure and many others. If you could go back and give younger Shane one piece of timeless advice, what would that be?
- [35:30]
B
The biggest piece of advice is you can't really conflate the magnitude of a potential outcome with the probability that you'll actually capture it. And, and what do, what do I mean by that? I mean, there look, that ripple story that I told you is a great example, right? I like, I wasn't able to capture that. Right? It, it, it's literally I wasn't and I'm still not able to capture it. Right. And so I think one of the things that have kind of been downside protecting me is I do see a lot of outliers, right. That I don't do because I just don't see the exit or how it can be monetized. And I don't think A lot of people really contemplate that, right. I was in a co investment with my friend at Red Sea Venture, Scott Bernbound Convoy, which was kind of like uber, Uber Freight. It was one of the first ones. And we, I went into him, I went in with him as seed and you know, it got like a five or three billion or five, I don't remember exactly. A couple years later got a 3 or $5 billion valuation. And we could have sold into that and we didn't. Right. And then Covid literally decimated the company and it went to zero. And so I think there, there is this thought of, you know, you hold, you hold, you hold or hodl or whatever it is, but there, there definitely have to be times when you take the take, take the win. And it's very hard in a venture mindset to also temper that. Right, because you're going for the moon, right? And not just for yourself, getting returns for yourself, but also getting returns for the investors. No one's going to hate you for making a profit.
- [37:17]
A
I'll take the other side of that. So I've evolved my thinking. I've had many different Things. I sold DraftKings. I returned roughly 90 million to investors in DraftKings. In many ways the top of the market post Covid, complete luck. Obviously the company was good, the investment thesis was good, but the exit was lucky. I've had Robinhood that I got in with Sequoia because it was during COVID and then I sold it at the wrong time, basically. And then, well, the quote unquote wrong time because I had another 10x, I had Palantir that did the same thing. I did really good, but I missed another 10x and I just did the math. And if I had just held everything, I would be doing much better. So if I basically just turned it into kind of my public S&P 500. I was having dinner with Anthony Pompliano on this very topic and he's like, I never sell. And I'm like, wow, that's like really interesting. I never thought about that strategy, which is basically just building this public portfolio.
- [38:05]
B
In venture, he never sells. He never sells or in public.
- [38:07]
A
He was talking about Bitcoin and a couple, like, if he really believes in the asset, he never thinks about selling. Like it just never, never enters his, his, his mindset. And I was thinking about, I'm like, okay, that's really, that's much more directionally smart than what I do. With two caveats. One is if the founder is no longer leading the company I think that's where a lot of the alpha comes from is these founder living driven companies that are still public, they can still, they still have that 10x. I think Amazon has gone up a thousandx in store in public and same with Google. So that's one caveat. The second caveat is what you referenced which is if it's somebody else's money, you have to, you have to have some win. Yeah, there's career risk, there's reputation risks. It doesn't necessarily make it the right strategy, it makes it the right, I guess like asset management strategy.
- [38:49]
B
It's the right thing to do because not everybody is going to, you know
- [38:52]
A
and not everybody has the same bullishness.
- [38:54]
B
Right. And also, especially if you're doing it my way where it's not an actively managed fund right there, it's a bunch of co invests. Not everybody goes into every, every deal. Right. So you can't aggregate them. So when you do get a win, you, you and by the way you don't have to take the entire thing, right. Like you can, you can liquidate part of it. It's a fine line. And, and by the way you, you, you're very right about that. Maybe the strategy is never to sell. And just at the end of the day those really, really outlier ones like Amazon and Google that, you know, even 10,000x after they went public, you know they, they totally make up for all the, all the ones that didn't do so do so well, obviously full disclosure,
- [39:36]
A
this is what I do in my own shares. This is not what I do with LP shares. Obviously like we're talking about, if you take that thought experiment and play it out, if you have 500 of these companies, first of all they're going to come to a mean. And the question is what are you going to do with the money if you're going to sell it, pay 35% taxes and then buy the S&P 500. Why do that versus having a founder led S&P 500? I know it's not the most sophisticated but as a rule of thumb I found it to be a useful race.
- [40:01]
B
Well, I think EquityZen did something similar to this. I saw them try and figure this out with secondaries. It was an interesting deal where they were going to founders and I think they do it with forward contracts. Right. So it's not actual thing but they tried to make kind of like an index of startups which is pretty smart. I think it's yet to be seen if it outperforms the S and P, but I think they did something similar.
- [40:24]
A
And then for taxable investor, even just that drag, are you going to really outperform by 35%? And then now you have tax loss harvesting. So not tax advice, but you have firms like aqr Quintino that allows you to put your shares in kind up to 20% of a portfolio into a tax loss harvesting. So now you're harvesting tax losses against these concentrated positions. You might, let's say you have five companies, you could be harvesting huge losses in capital gains and there's even ones that you could do around, around income as well. So now you have. Not only you don't have the tax drag, you also have tax alpha or structural alpha on top that I think there's an argument for that. It's, it's not a very conservative position to have and it's not necessarily a sexy position or it doesn't make you seem like a genius. Where, oh, if I had sold these nine and bought this one, like I've never seen, like so many of these narratives are revisionists in history. I'm often at these dinners with these large investment banks and they're always saying the same thing, like they saw every little thing. It's almost absurd. And people eat it up. People literally eat it up at the dinner. They're sitting there eating up these narratives. And it just kind of, it's not very intellectually honest, to say the least.
- [41:32]
B
The best you can do is just make smart decisions with the information that you have at the time. And if, I think if you do that consistently, you'll tend to win more than lose. And that's just, it really boils down to that, I think. And, and, and part of that intelligent decision making is whether or not to sell, not just whether or not to invest in the first place, right?
- [41:51]
A
It's hard, man. It's hard when you're liquid. I have this whole concept of the virtue of illiquidity. I have made all my money in my career by being locked up. And I'm getting better at holding liquid positions. It's a skill that I'm building. But it's so damn hard when you have a 10x and it goes down 20%. You're like, I mean, I have an 8x. Do I not lock it in? It's a hard, I mean, look at,
- [42:10]
B
look at right now with SaaS companies. Like I, for example, I bought Atlassian at IPO, right? It's arguably an amazing company. I mean, it's literally almost back to its IPO. Price I was up 2000% at one point during COVID on that stock. I mean, they're not the only ones that are getting murdered, right? I mean today in particularly is a very bad day, unfortunately for the markets. But I'm not selling it. It's just really taking everything out of me not to do it. Right.
- [42:37]
A
So even when you don't sell, it still hurts. That's why I think I'm a big fan of illiquidity. Again, some portions of your portfolio in venture. I got into the $4 billion evaluation on anthropic and now it's having some issues, but it was just at 350 billion. And I'm sitting here thinking, a lot of people are like, oh, I can't wait for it to ipo. I'm like, no, don't ipo. Keep on compounding. Because I think personally not financial advice, I think it's going to be a multi, multi trillion dollar company. Perhaps at a 10 trillion plus company. It's hard to imagine today, but if you just go from first principles on their revenue growth. So I don't want the ability to sell. My mentor Eric Anderson said that on your worst day as an entrepreneur, if someone brings you a suitcase of $100 million and puts it in front of you and you're having a shitty day, it's not as easy to say no as it is maybe on a regular or great day.
- [43:24]
B
Absolutely. I mean, think about all those people who sold at the last space extender. They probably want to kick themselves right now because now they know it's going to. There's. I mean it's pretty. I think it's pretty known now that they're going to go public and. 1.75. Yeah, 1.75 trillion. I mean if I had sold at the $800 million tender, I would be kicking myself right now.
- [43:45]
A
I'm also an investment of mine, but more at 90 billion. So a little bit later stage, but still looking good.
- [43:51]
B
I came in at double. I came in at like, I think it was 180 or 200 or I don't remember something like that. But when I did it, by the way, I thought it was overpriced. Me personally, the thing that did it for me is one of my friends was invited to go to SpaceX here down in Orlando and he took me with him. And I've only seen magic two places in my life, like true magic. One was at SpaceX where we kind of got to put our heads in the engine and I touched a starlink which was like, I don't know, unbelievable. We drove Teslas down the. Down the landing strip where the. Where the shuttle used to land. It was like the most incredible experience I ever had. And I came back and I'm like, I never wanted to buy SpaceX. And I was like, I need to buy SpaceX no matter what the price. And then figure. Figure is absolutely magical. I don't, like, I don't think that people really understand what it's like to see a humanoid robot literally walking around autonomously and doing things. Initially, it's kind of like this. It's really visceral because, you know, you're a primate and that reptilian part of your brain, all of a sudden, like, ignites, and the hair goes on, goes up in the back of your neck, and you're like, what kind of animal is this kind of thing? And then, you know, after a couple minutes, that. That dies down, but then it's just off. It's really insane.
- [45:10]
A
Well, Shane, this has been absolute masterclass. Thanks so much for jumping on podcast.
- [45:14]
B
Thanks so much for having me. I really. This was a lot of fun. Thank you.
- [45:17]
C
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