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- [00:01]
Host
So you built Altra on the heels of the private markets and the illiquidity in 2022. Tell me about how you built your firm.
- [00:08]
Jamie
Altra Venture Partners invest in the next generation of category defining technology companies in the private markets. And we largely do so by providing liquidity to early stakeholders through something called secondary transactions. What preceded the opportunity in 2022 was 13 years of close to zero interest rates, followed by interest rates rising from near zero to five plus percent very quickly in starting in March of 2022. And while five percent is still low from like a historical standpoint relative to what was priced in across asset classes at the time, this was hugely disruptive. And so you saw public equities start to correct very quickly, especially the high growth public tech stocks that had been pricing in you know, close to 0% discount rates and crazy valuations. Because of that, the NASDAQ was down like 33% that year. the low, the S and p was down 25%. Crash credit markets, which are directly linked to interest rates, adjusted very quickly. Late stage venture where we sit is a very illiquid and inefficient asset class and really needs a prolonged period of fear and pain for valuations to capitulate. And so for most of 2022, valuations were still very high. There weren't really new rounds getting done. Most of the companies had raised and did not need to raise new capital. We actually didn't see the bottom in venture until mid 2023 when it was off about 50% from the 2021 highs. But over the period of 2022, I was kind of looking at this market and saw a really interesting opportunity emerging where you had some of the best private tech companies in the world still in the private markets. They didn't need to raise new capital. So how do you take advantage of a market cycle and invest in some of these incredible companies at sometimes hugely discounted or you know, attractive valuations? There was a lot of fear. A lot of the buyers had had come out of this market. There weren't that many to begin with. And so we came in and were buying some really incredible companies at like 40 to 80% discounts from where they
- [02:00]
Host
were trading previously in March 2022. Interest rates went from 0 to 5 over a short period of time. Everything just plummeted down in valuation. We basically looking for the baby in the bathwater and that there were some good assets that were dragged down with the badasses.
- [02:15]
Jamie
To be fair, valuations I think did need to reset across the Board. But we went from a period where valuations were pretty lofty, multiples were very high. Obviously there were very discount rates kind of being implied in those valuations to great companies that were still growing a lot, were generating free cash flow, you know, growing 50% year over year. And all of a sudden valuations looked very reasonable, like very attractive relative to historical norms, relative to public markets. So there was just a lot of opportunities to, to kind of add to those types of companies.
- [02:41]
Host
And did you raise in 2022 or were you already in the middle of fundraising?
- [02:44]
Jamie
So I actually ended up spinning out and launching what is now Ultra Venture Partners at the beginning of 2023. We made our first investment, I think in June of that year and the market bottomed in July of 2023. So the timing was good.
- [02:56]
Host
Oftentimes there's corrections in markets and there's so many buying opportunities, but paradoxically there's no supply of capital for new funds. How did you actually raise in such a market?
- [03:04]
Jamie
That's a good question. So if you remember early 2023, it was kind of a delayed impact, but that's when the banks were blowing up, right? Like SVB went under, Credit Suisse was acquired. I mean there were a lot of pretty big failures in the banking system. So there was a lot of fear in the market in early 2023. I started my career in like a bank failure environment or shortly below or shortly before in the global financial crisis. And so to me this was actually a really exciting opportunity. But when we went out to raise from our investors who are largely pine net worth individuals and family offices, it was really hard. Like I think we raised $6 million in the entire year for 2023. It has gotten much easier since then. But at the time where we were seeing the biggest opportunities was definitely the most challenging to raise new capital.
- [03:44]
Host
Do you think that helped you as a fundraiser and helped you build this franchise? Starting in the most difficult possible market?
- [03:49]
Jamie
It builds resilience. I think, you know, going out and starting your new fund from scratch and kind of a new and nascent market as a first time fund manager, I think takes a little bit of resilience to begin with. But like I just saw such an enormous almost once in a career, once or lifetime type opportunity emerging here that I had to do it and I just stuck with it.
- [04:11]
Host
I think about it as a barbell strategy. Really bad markets are great for resilience and really good markets are good because it teaches you that it works. It's like I pitched, I followed up and they invested. You know, needless to say, it's 2021, it's the easiest market of all time. But there's something there of like seeing success over and over that's, that's really helpful as well. When you look at the secondary market, specifically in the venture asset class, why are so many people just buying portfolios? Why won't anyone underwrite a single company?
- [04:33]
Jamie
It's interesting that you say that. I actually feel like I see more people focused on the single company, single asset type acquisitions in the market where we're playing, which is very late stage venture. The portfolio acquisitions are a little bit more of like a private equity strategy where you can come in, provide liquidity to. An LP is a very illiquid market. You have to underwrite the entire portfolio. The gp, you know, the exit profile of all of these companies. You usually come in and buy these at a discount. You can mark it up right away or most people do mark it up right away, you know, and then you have to manage all of those out. So I think it's just a very different piece of the market and there's a lot of big players and private equity like players that are doing that. That's not where we're play. We are, we are heavily concentrated and have the goal of building positions in the best private tech companies in the world. We have a fund that does this. We also do it on an individual basis through some of our co investment opportunities that are targeting like building that concentrated portfolio of the companies that will kind of create the most value and generate those power law dynamics.
- [05:25]
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- [07:11]
Host
I invest Double click on that. Tell me about your strategy today.
- [07:14]
Jamie
The the underlying goal is to continue to build positions in the companies that we think will create the most value in the late stage private markets. And we're very flexible. So I say it's opportunistic in terms of how we do this. So it's not this is not traditional venture capital like where we're playing late stage venture and secondaries are really their own asset class and their own set of players that are emerging. And we invest kind of across a broad variety of transactions so we can come in as a minority investor in primary rounds, we can help fill pro rata for early stage funds. In later stage rounds we do a lot of secondary transactions so we can do direct secondaries where we come in and provide liquidity to early investors. So early funds, it could be angel investors, it could be executives or early employees of the company. We come into company LED tenders and we can team up with other funds and do large transactions where maybe we can't do a $300 billion transaction, but we can team up with one or two other large funds to do a large secondary block in the market. So we're very flexible, we're very collaborative. We've also done like equity swaps with you know, company executives where they actually become an LP in our funds in return for shares. Yes. So they would like swap in shares of the company and then they get
- [08:18]
Host
some tax efficient structure and do that.
- [08:22]
Jamie
It can be it depends how you structure becomes a little bit more complicated. Like when we've done it, we basically paid cash for the tax component and just let them like crystallize it at that point in time and then they swap in the rest of the equity and then they get exposure to a diversified portfolio of like another it's like
- [08:36]
Host
these exchange traded funds in the public markets but you've taken into the private
- [08:39]
Jamie
market and it's very unique to our strategy. I don't know if we created it. When I mention it, people are often surprised. Like I don't think that it is widely done in the market.
- [08:47]
Host
The corollary in the public market. So if you have $100 million in Robinhood, let's say you were on the founding team and you don't want to be exposed 100 million to Robinhood. In the public markets they have these vehicles called exchange traded funds. You could put in your $100 million in kind and you get a portfolio of S&P 500. The reason people do that is you don't have to pay taxes on it. You get diversified and then you could defer, defer your taxes while minimizing your concentration. So that's, that's been around for a while. But private markets, it's the first time I'm hearing about that.
- [09:14]
Jamie
I don't think it really exists outside of like a secondary transaction. Right. So like this is kind of growing in prevalence and I do think if we expand that like piece of our kind of program, there are ways to, to layer in like more tax efficient ways to do it.
- [09:25]
Host
Secondaries are famous for having lower information rights. How do you deal with that? And is there ever a case where you're able to underwrite an opportunity with low or no information is.
- [09:35]
Jamie
Ooh, good question. The secondary markets and late stage venture as a whole are very opaque. It is hard to get access to information. I have a very institutional background and we try and bring a more institutional level of diligence to what we do. So if we can't get access to enough information to underwrite what we're buying and project out exit value and likely financial forecast and things like that, then we just don't do it until we can get access to more information. So there are companies that we haven't invested in that I would have loved to invest in and we just didn't get the opportunity along the way to get access to enough information to really underwrite what we were buying and our kind of long term views on the company. With that said, the amount of information we get varies on the type of transaction, who we're working with, whether it's directly with the company, whether it's coming into a tender that the company's running and there's a data room. So like it varies dramatically. Once we get access to information, we can underwrite it. I'll say like that view, unless something changes materially in the market can kind of hold for some period of time, whether it's six months or something. And so maybe we can then do transactions where we don't have additional information because we've already done this diligence and formed this view. The biggest issue for like a lot of smaller investors in this market is that they literally don't know what they're buying. Like you see like, you know, share prices on marketplaces. I don't even know how they calculate what the valuation is, you know, associated with it because they don't have, they don't have, they don't have the share count. And actually I see sellers coming into me frequently who quote a share price and evaluation. That's completely wrong. And, and you know, we often have access to more information than the sellers buying from like it's a, it's a very asymmetric market in terms of like who has information and who doesn't.
- [11:09]
Host
Speaking of the market, venture secondaries, specifically single stock venture secondaries. Who are the investors there? Are they the same investors as typical venture capital LLPs?
- [11:19]
Jamie
Primary investments in private companies fall under a venture exemption with the SEC. So when I started Altra, only 2% of venture capital companies were registered as an RIA with the SEC. Today it's closer to 9 or 10%. So it has grown dramatically over the last three or four years. And you're seeing a lot of like the later stage players register. I think a big driver of this is secondary opportunities. So secondaries are not venture exempt. So we'll have to register other funds that are playing in this space in any meaningful way. We'll have to register. But what that means is that the rest of the venture capital industry, who knows these companies the best, who have been investing in them all along the way, are not the natural buyers or players in this space. And so you're actually seeing capital come in from different parts of the market to kind of create this late stage and secondary ecosystem. So the big venture capital companies are now kind of becoming these big cross asset RIAs. You're seeing a lot of like public crossover funds come into the market, like really large institutions. Franklin T. Rowe, Fidelity Neuberger, like really big names are starting to play here. CO2 Tiger have always kind of been in the space, family offices, sovereign wealth funds and even like the major strategics. So like we're seeing Amazon and Microsoft and Nvidia are now all massive late stage venture investors. And so it's a different set of players than traditional venture. But I think the opportunity in late stage Venture and secondaries is so interesting that there is a lot of capital coming.
- [12:36]
Host
Are the limited partners different than in the traditional venture capital limited partners? In these venture capital exempt funds, it's
- [12:42]
Jamie
a different asset class in terms of risk, in terms of duration, in terms of potential returns. I mean there's definitely some crossover in the LP base. You know, people that are naturally interested in early stage tech, I think inherently understand what we're going for in later stage tech. We also have a lot of public market investors and here's why. The way that I think about it, like for my own portfolio, like if you go Back to the mid-2000s, the best venture backed private technology companies would go public after five to six years on average at sub $500 million valuations. And so Amazon, Apple, Netflix, Google, they had to go public to access growth capital. So venture capital or venture capital as an industry was still a pretty niche industry that really funded the creation of companies. Once they hit scaling mode, they had to go public to access enough capital to grow. Which means that investors, both retail and institutional investors, got to participate in all of that upside. So like if you bought Amazon at the IPO, it's sub $500 million, it's now a $2.3 trillion company. That's like 4000x plus return. Like I can't quote you the math in my head today those companies are staying private for 10, 15 plus years and are worth hundreds of billions. We've now seen a trillion dollar plus company created in the private markets. And so so much of that value creation is happening in the private markets behind closed doors. And so the way we think about it from a portfolio construction standpoint is that investors need to shift some capital from public markets into late stage private just to recapture the same type of innovation and growth profile, compounding upside that they used to be able to get in the public markets. So Altra exists because some of the best private tech companies in the world are staying private for longer. And so much of that value creation is happening behind closed doors.
- [14:24]
Host
Small traditional public growth companies are now late stage private companies. The same risk return kind of dynamics.
- [14:31]
Jamie
The companies we invest in look like mid and large cap public companies from a size stage and risk standpoint, they're just really inaccessible to most investors.
- [14:40]
Host
Just to demonstrate this concept, both SpaceX and anthropic going public, both my portfolio companies, full disclosure, are trying to get into the S&P 500 ahead of being listed. Sorry. They're trying to get into the NASDAQ index ahead of being listed, which Obviously categorically means you're one of the largest companies. So they're trying to get into the largest pool of large growth companies at the time of listing just to show you how crazy it is.
- [15:04]
Jamie
Which I think makes perfect sense. Right. Like it. Given the scale that they're at, it doesn't really make sense for there to be this kind of like arbitrary delay just because that what was baked in historically.
- [15:12]
Host
What about dpi? How do you underwrite DPI in secondaries versus a traditional venture fund? How do you think about that?
- [15:18]
Jamie
A traditional venture fund is a 10 year fund. The average life of a traditional venture fund is actually 14 plus years. So like the 10 years is kind of made up. Right. It's like out the window. Our first fund is a five year fund with three potential one year extensions just depending on the market and so forth. And it's fairly concentrated. Like intentionally we're two years into our fund one we've already started returning capital to our investors through exits and IPOs and secondary liquidity. So it's a much shorter duration. Liquidity is higher, it's not liquid. It's still an illiquid asset class, but it is more liquid than early stage venture. Right. And the duration is certainly shorter. I think most of the companies in our portfolio are likely or have the potential to go public in the next two to five years.
- [16:01]
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- [19:35]
Host
When I think about getting access to venture, the analogy I just use on other podcasts is exposure therapy. So a family office wants to get into venture. How do they decrease their risk? I think one of the necessary components is you don't want to start in emerging managers to begin and that's even for the benefit of emerging managers. Because if you invest and then you wait until year 10 to get your money back, you're not going to keep on investing in asset class. There's a couple of alternatives to that. There's late stage, there's secondary funds with minimized J curves. You can invest later stage as well. So it's a really critical success factors because as retail comes into venture capital, if they start going into the very early stage, it's not going to be good for the industry.
- [20:09]
Jamie
That's right. I think if you are new to it, you get kind of burnt out waiting for, for those returns that really come 8 to 14 years out.
- [20:20]
Host
People talk a lot about, well, we educate our clients but I don't know if you could educate someone on a 10 year DPI. It's something that must be experienced. My very first investment, 2008 in a startup, it took me seven years to get back my money. Obviously I was 22 years old so I was more impatient but it's, it didn't feel like seven years, it felt like 70 years.
- [20:35]
Jamie
Seven years is a pretty good outcome too. Yeah, a lot of my early angel investments were gosh about nine years ago now. I mean we're just starting to see
- [20:44]
Host
like a few exits so it's easier said than done. And of course once you get the money you're like, oh I love this. Like that wasn't hard at all. Let me do it again.
- [20:50]
Jamie
Well, and along the way so many of them fail that you like, you just, you know, you just feel like
- [20:53]
Host
you've, it's a lot of negative reinforcement before you even get, get the money. You've emphasized your concentrated portfolio a couple times. Talk to me about your portfolio construction and what the principles behind it.
- [21:04]
Jamie
What we've seen is that power law dynamics hold true throughout the equity market. So from early stage venture capital, it's 1 to 2% of early stage companies create the vast majority of returns for early stage funds. In the public Markets it's the Mag 7 has generated a vast proportion of the returns both across the S and p and the Nasdaq over the last year, five or 10 years. The same has held true in late stage private markets where the top 10 and really like the top seven companies have generated an enormous amount of the growth and value over the last five years. And so we are intentionally very concentrated. Percent of our portfolio is in our top 10 positions and we have maybe 25 investments in total. And so it's intentionally very concentrated in the companies that we think will continue to create that power law dynamic and create the most value. And we'll start to build positions in companies that we think could move into that over time, but don't want to dilute our exposure much. Kind of outside of that group.
- [22:05]
Host
The best public investors tell me the same thing. I was honestly surprised to hear that, that they think about it as power laws. They think about it as a buy and hold strategy. So they're thinking about it like venture investors. Maybe not 14 year timeline, but what asset would I want to own for five to seven years? And you invest in kind of the trading up and down is noise, but they're looking at it very much like private investors.
- [22:24]
Jamie
It's compounding, right? Like the power of compounding. Buy the best companies in the world and hold them long term and let them grow. And I think what we're doing is just allowing people to get exposure to those companies three to five years before they go public and really take advantage of that compounding.
- [22:40]
Host
You've built this amazing ecosystem around you and you're great at partnering with outside other funds, other people. Talk to me about your strategy and how you built your deal sourcing network and your relationships.
- [22:51]
Jamie
It's still quite inefficient. Despite the types of companies like in the space, the actual market is still very nascent. Right. Like it was really created over the last like 15 years and most of the value has been over the last five years. So players are just coming into the space. But it's still a very relationship driven and very inefficient market. There is no marketplace, right. And so so much of my job, once we identify the companies that we want to invest in, it's really just figuring out how and how to continue doing that over time.
- [23:20]
Host
And so you pick the asset first and the structure second.
- [23:23]
Jamie
My view is that the best companies are not hiding, it's just hard to invest in them. So every once in a while kind of an up and coming company will come through and we'll due diligence on it. Usually don't invest right away.
- [23:34]
Host
But like we actually did this exercise, we looked at series B and series C companies led by the very top investors and over 90%, probably close to 95% of them were led by top series A companies. This whole meme of these companies coming out of left field and somebody in their basement comes out of Stealth and raises $100 million from, from Sequoia. It's not a comm.
- [23:53]
Jamie
Oh, interesting. I don't think. I thank you for sharing that.
- [23:55]
Host
That's interesting. I was surprised as well because I guess if you think about it in retrospect, it's like the exception proving the rule. The fact that this is such a big story when a company comes out of out of nowhere is the proof that usually you have these leading indicators. Yeah, sometimes it's not the multi stage funds, it's the top seed investors, but it's these known parties through known social networks bringing it from the seat to the series A to Series B.2 Series C, between seed and series A, there are people that emerge from, from nowhere or you know, there might be an Australian company or Israeli company that wasn't within Silicon Valley but within A and B. It's actually quite predictive who your series A investors.
- [24:27]
Jamie
Very interesting. A big part of my job to figure out how to invest in these companies. Right. So is the company approving direct transfers on the cap table? Are investors roaring at certain prices? So like are we, you know, going to put in an offer and then an existing investor just comes and takes it from us? Right, yeah.
- [24:42]
Host
Breakup fees or anything like that around them?
- [24:43]
Jamie
No, it's not, not common. Certainly not at our transaction size. Maybe that exists at like, you know, billion dollar deals.
- [24:49]
Host
So first you figure out if you do all the diligence, will it actually clear?
- [24:52]
Jamie
I think there's actually far more transition risk in this piece of the market than there is company risk. So a lot of our diligence is focused on how to invest in the companies and then how to get the transactions closed. So who do we know on the cap table that we could potentially like give them a call and say do you have any LPs in your fund that maybe want some liquidity? Because where you invested you're up 50x
- [25:13]
Host
and this is a fund tender.
- [25:14]
Jamie
There's like a lot of different things, right? So like let's say we have like a handful of friends from funds that are on the SpaceX cap table, maybe they have some LPs in one of their early funds that would like some liquidity. So like you give them a call, maybe there's an upcoming tender, maybe we can participate Directly, maybe one of those funds will get a large allocation and we can become an LP in the fund that takes down that allocation. Maybe there's an opportunity for someone who's very close to the management team to sell a hundred million dollar block and it's more likely that that will get approved than some random ex employee. So I would say there's like good sellers and less good sellers depending on your relationship with the company and ability.
- [25:50]
Host
And there's a funny dynamic too where the company might hate one of its early employees and either they want to block them or they want to part ways forever. There's this kind of almost, almost binary.
- [25:59]
Jamie
Totally, totally. So that's all part of our diligence
- [26:02]
Host
process of like depends on how much therapy I guess.
- [26:04]
Jamie
Is this pre approved? Does the company, you know, have beef with you? Can we actually get this through if we're going to spend time on it?
- [26:12]
Host
What percentage of the time are you getting filled in your allocation on the first deal versus building up your position?
- [26:17]
Jamie
Because we launched in 2023 and have been kind of continuously raising capital over that period of time, we've just continued building positions in the best companies and I think we'll continue to do that going forward. Even within our next fund strategy, we will start with positions I don't think we'll ever be one and done on the best companies.
- [26:38]
Host
I love the Stanley Drunken Miller strategy of invest investigate. You invest, you get a little exposure, you learn more and then you decide whether to invest more. It's politically incorrect to talk about it as a strategy in finance, but I think some of the best investors do put a toehold, get some exposure, learn a lot and if their conviction grows, can, can write larger and larger checks. Are you ever trying to learn through your investment?
- [27:00]
Jamie
Absolutely. And some of it is okay, maybe learning more about the company, but also just seeing how the company grows, how the market evolves. And I think over time as the company de risks and you get more conviction in your early thesis, or maybe the thesis changed, but you have even more conviction. You just continue layering on and building those positions.
- [27:20]
Host
What percentage of time do you identify a company and you're not able to access it in any way that's happened
- [27:26]
Jamie
a few times more often is that we get access but we pass on like 95% of what we see because of some of the risks that we talked about on the transaction side, it could be counterparty risk, it could be closing risk, it could be over risk, structural risk. Like there's a lot this is like still Kind of like the wild wild west. So like you see a lot of weird stuff out there and so it has to check a lot of boxes on like the legal side for us to be able to move forward with it. And so more often we get access, but either we don't have enough information to make a decision or there's just a risk that we can't get comfortable with. And so our default is to pass on it. If I'm going to lose sleep over some risk that we took, it's like an automatic pass for us even if we like the company and want to invest in it.
- [28:18]
Host
One of the trendiest thing going on in finance right now is continuation vehicles. They just passed $100 billion at Michael Woolhouse from TBG that raised a $1.9 billion fund to do this in the buyout space. Just recently had really my first serious conversation on this with Scott Voss from Harbor Vest. They're trying to starting to do these continuation vehicles. Continuation vehicles is a fund might be in their 12th year. They have one asset, they might have SpaceX, that's 100 million. They don't want to have to liquidate it through the secondary market. So they do this GP LED continuation vehicle. Do you see that entering venture and if so, why?
- [28:49]
Jamie
Potentially we haven't seen it in a big way yet, but as more of these companies in a portfolio start to look like public companies, but the funds that invested in them early on are now 15 years old. Like at some point I think this comes in like we're seeing a lot of crossover between like private equity, you know, public markets, late stage venture secondaries. Like the lines are kind of blurring about what this asset class looks like. And so I do think we'll start to see more of those, especially among the larger shops. I'm not sure that a lot of like the early stage venture funds are. We'll see how it translates. I think you have to have like a decent size AUM to to even just like have the legal wherewithal to pull off a continuation vehicle. But yes, I do think we'll probably see more of those just to give time for those companies to stay private compound, but also provide DPI liquidity to earlier investors.
- [29:34]
Host
I think there has to be a couple things that are present for these deals to happen. One is they have to be a certain critical mass. So in private equity, the buyout, the original investment might be 100 million, now it's 2 billion. So there's an entire ecosystem that'll help you. There's bankers That'll go and find that $2 billion for the GP. There's LPs that will do significant diligence. And in the venture space, I think this will happen ironically in these. You, you talked about these private companies, these private max 7 in the anthropics and open AIs. If it's a big enough position and if it's something that either a banker or the GP themselves could go out and raise a hundred million dollars for like an open AI and anthropic, I think that's going to happen. The reason for that is multifold. One is the GPS don't want to sell their best assets. It's not in anyone's interest. The LPs want liquidity and the GPS emerging managers specifically. Right now it's very difficult to fundraise. They want to show that dpi. Mark, when you do a continuation vehicle, it's technically a secondary as it relates to your fund and fund math. So you're able to show full dpi, which is such a huge differentiation now going into the private markets. So I think we're going to see it. I think a lot of GPS would love to do it, but their transaction size is too small to get a lot of help. So they're going to have to kind of beg, borrow and steal and find LPs. Oftentimes for assets that are not SpaceX and anthropic, it's going to be much more difficult. But I do see this becoming bigger force in the venture market. I think there's going to be a memetic aspect to it. Once a couple of people do it, LPs will get more comfortable with it. GPS all have other GP friends. They'll kind of start learning about this. So I do see this coming probably as early as 2027.
- [30:58]
Jamie
I think you're already starting to see it on a single asset basis. They're just not calling it continuation funds. It's happening in a single asset vehicle where old LPs are selling and maybe there's a pool of them, new LPs are coming in like we participate in those.
- [31:12]
Host
They're not are these portfolios or single single assets?
- [31:14]
Jamie
So these are single asset. I think you'll start to see more portfolios across those like multi billion dollar, you know, funds. But right now it is happening. It's just happening on like an individual basis.
- [31:23]
Host
And those gps, how are they finding the new investors for these continuing what I would still call continuation vehicles?
- [31:29]
Jamie
A lot are potentially LPs within their existing portfolio and then others in the ecosystem like, like us, there's family offices. I mean we haven't talked about it yet, but I would say probably 50% of this quote unquote market functions through kind of boutique brokers and investment banks that are trying to match buyers and sellers.
- [31:50]
Host
The secondary market that you've talked about, the secondary players went from the black, a black market where people were literally selling forward contracts, SEC was gray on it, did not love it, to the scaled market with high forge equities. Then, then these are acquired by larger players like the Morgan Stanley's and the Charles Schwab's. What's the second order effects on that? Are we going to see more institutionalized secondaries and where is that market and is that going to feed into retail?
- [32:14]
Jamie
A lot of these acquisitions that you mentioned by like Schwab and Morgan Stanley were driven by retail demand and trying to figure out a way to service that demand. You also said that we went from black market to sc. I do not think we're anywhere near scaled on this market. I think we're still kind of just, you know, maybe in gray territory, but trying to figure out how.
- [32:33]
Host
And in many ways, and I think this is the elephant secondaries is that it'll never be fully scaled because private companies care who's on their cap table.
- [32:39]
Jamie
So there's a huge amount of retail demand for access to these companies and there's a lot of players trying to figure out how to provide that, that, you know, retail like seat that retail appetite, I guess. I don't think that it's going to change anytime soon because the companies don't really want it, right? They want to control who's on their cap table. They want to control what the pricing is. If they wanted to be fully liquid, they would just go public. And so I think there's just like a structural inconsistency there where like just because there's a lot of demand does not mean it's going to become an official marketplace.
- [33:13]
Host
So another way the CFO of SpaceX OpenAI anthropic doesn't have want to deal with individual investors texting them when they're going to go public and messaging them and asking for infrastructure. They want to deal with a couple trusted counterparties that could make it efficient and they want to focus on building their business.
- [33:27]
Jamie
I think that's right. I mean I think there's a lot of structural reasons why companies are staying private for longer. One, they can raise all the capital they need in the private markets now, at least the best companies, right? Like we have yet to see the limit on how much one of these companies can raise. OpenAI just raised $110 billion round in
- [33:44]
Host
the private market, which is twice as much as SpaceX is reportedly raising in their IPO.
- [33:47]
Jamie
In their IPO, right. So like what is the public market anyway? Aside from a lot of volatility and maybe headache for some of these companies, they control who their investors are. Maybe they don't want to deal with like the road shows and the day to day volatility and the quarterly earnings reports and like they just want to grow confidentially for, you know, the, the future, like when you're trying to build a rocket to mars, like what are quarterly earnings, you know, related to that? So I think there is a lot of noise in headache about being public. At the same time, I think a lot of these companies will eventually become public companies just because the, the dealing with the liquidity for employees and executives and early investors is a headache. Right. It becomes a full time job in and of itself.
- [34:24]
Host
The positive and negative reinforcement of being a public company is so destructive to long term shareholder value. A funny way to explain this is if you, if you're a private investor, you have these quarterly updates and you're talking to the board and then you're a public investor. Now after every quarter somebody comes in and if you miss your mark, by the way, they just throw like ice water in your face. First time you're gonna be like, this guy's an asshole, why is he doing that? And then after three, four times, you're gonna be essentially learned helplessness and you're gonna be like, oh, okay, I need to focus everything on hitting my marks. Let's sandbag the numbers. Let's not invest into this R and D that in 5 years could 10x the company. There's so many downstream consequences of being a public company, and private CEOs to their credit have been able to prepare for these and have been aware of it. But it's, it's also one of those things that's very difficult to internalize until you're a public CEO.
- [35:09]
Jamie
Yeah, I think that's right.
- [35:11]
Host
Jamie, you mentioned you started your career in the global financial crisis. If you could go back to when you first started your career, what is one piece of advice you'd give a younger Jamie that would have either accelerated your career or helped you avoid causing mistakes?
- [35:23]
Jamie
Gosh, I wish I could go back even like a little bit before that and learn how to become comfortable with failing faster, if that makes sense. So I don't know about you. I'm like, first child type A perfectionist. I didn't like not being good at things when I was younger, and I think I carried that into my career. I think as I've gotten older, I've embraced trying new things. Being bad at things as, like, a learning experience, even failing. Right. Like, nobody likes it, but, like, viewing it as actually incredible feedback so that you can pivot and do something else quickly as opposed to, like, no one wants to fail. Slow. Right. Like, just like, leaning in, trying harder things, failing faster, and really embracing that as a part of the learning journey. It's one piece of one chapter and a success story. It is not at all the end of the road.
- [36:13]
Host
So I'll tell you two anecdotes which are actually the exact opposite of each other. One is, at our firm, me and my partner Curtis, we've created this culture of, you have to celebrate shitty first versions, and every first version is bad. Yeah. Nobody. Van Gogh's first painting was not good. Everybody's first version is bad. It's by definition shitty. So you must celebrate it. So we have this culture when somebody does something and it's really. And it's bad, including me and Curtis, everybody, we celebrate it.
- [36:35]
Jamie
I love it.
- [36:36]
Host
And you have to have, like, this policy because the default is like, that's just shit. That's just bad. And then two, the exact opposite. Just to show you how much of a perfectionist I am, I was. I've never really learned how to ski. And I was sitting with, actually, my great uncle and my wife, and I was telling him, well, I need to find a ski simulator in New York, and I need, like, four. Four days of full ski simulation so I could be, like, on second. And they're like, you could just get an instructor on the first day. I'm like, yeah, touche. I'm like, that's how just goes Thunder
- [37:02]
Jamie
Ridge for an afternoon and, like, just put on some skis and try.
- [37:04]
Host
Well, that's how reluctant. And I used to be more perfectionistic. I like to think I've evolved, but that's how ingrained it is in adults. Like, not to be bad at anything. Like, we create these elaborate systems. I've been, like, planning the ski simulator for, like, probably three years, just so I can't. And I still haven't done it.
- [37:20]
Jamie
You started three years ago. Like, you'd probably be a decent or.
- [37:22]
Host
Well, if I just booked the ski trip, I would do it on the first day. It's even worse than that. But something about the human mind and the lack of plasticity. As we get older, our egos become so fragile that it is very difficult to start.
- [37:33]
Jamie
I feel like my I have less of an ego than I did when I was younger. Like, I don't care what people think anymore. Like trying to think speed out of them.
- [37:40]
Host
Like it's like somewhere like in your early 30s you like the most, you go to school the most on happy and then you start to care less and less.
- [37:45]
Jamie
Yeah. If you can, if you can pull that forward a little bit, I think life will be happier.
- [37:50]
Host
Well, Jamie, thanks so much for jumping on and sharing everything and looking forward to doing this again soon.
- [37:55]
Jamie
Thank you for having me. This was great. Thanks.
- [37:57]
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