A (2:42)

You mentioned that you differentiate yourself in banking by being relationship versus transaction driven. Does that always work in banking? To me from the outside it seems like sometimes attract transaction oriented and the short termism is the right model for that business.

B (2:56)

You're correct.

A (2:58)

Is that why you changed to investing?

B (3:00)

One of the reasons, yeah. I mean banking rewards transactional bias and the culture attracts people who are, you know, fairly coin operated and you know, and that leads to a certain behavior. My idea of fun was never bonus time on running an investment bank, just everybody has claims to doing everything and I think one should be more modest in life about one's accomplishments. So did we build a successful bank? Absolutely. But you know, and what was the joyful part of it was working with entrepreneurs to help them be successful, bringing in young people and teaching them the business and training them. They've gone on to incredible jobs and responsibilities throughout Silicon Valley and elsewhere. So that was very rewarding. But the nature of it is very financially driven and some ways driving for an extra 5 or 10% or more on a transaction. It's great. But that doesn't really lead to massive wealth. Massive wealth is when you have alignment and you have long term compounding. And that's where I've been focused on.

C (4:00)

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A (5:46)

Paul Graham had this essay about Nice people could still make great investors on this exact point, which is if you're in the next stripe, if you're in the next Airbnb, if you're in the next Uber, even if you under negotiate and give up that last 5%, you still will get 100x versus a 95x, or you'll get a 300x versus a 240x and you could still be very successful. In certain industries that inherently have high upside and non zero sum dynamics, you're

B (6:09)

looking for what we call asymmetric upside and we're never the highest bitter in the things that we go into. We always try and offer a fair price because you have to have some margin of error, but at the same time, you know, you're trying to get in the best companies at a reasonable price. We're not looking for a deal per se. We're looking to align ourselves with, you know, really high quality entrepreneurs and be their financial partner. Being a successful partner is having a, you know, balance in the relationship in terms of governance, in terms of equity, ownership incentive, mentoring and development of the team and helping them be successful not just in the work environment or elsewhere in their life as well.

A (6:54)

Tell me about this turkey sandwich test they use to determine whether you want to invest in a company.

B (6:58)

Well, look, I think maybe American cuisine is evolving a bit, but you kind of look at it and say I'm going to invest in a company for five years, seven years or longer and you're going to have at least four board meetings a year. So you said, well do I want to have 20 or 30 turkey sandwiches with this individual, he or she? And now maybe you get a little more diversity and food choices nowadays. But it really is a long term commitment and you realize the balance sometimes. Recently we recruiting a new CEO for one of our companies and interviewed 30 candidates. I thought to myself this is more dates than I went on when I got married. What is going on here? You know, it comes down to it's a long term commitment. So you know, it's like do you want to sit next to this person flying from New York to LA or LA to London? I mean, you know, because you're going to spend a lot of time with the CEOs and is there a certain chemistry there that you can. Mutual respect and ability to communicate. And everyone's different and we have very different types of CEOs or not just different animals, there may be different species, you know, I mean so, but it's, it's so, it's great. I mean it's, it's a beautiful thing about it but you really have to sit and think about that long term commitment.

A (8:10)

It's interesting because there's almost two aspects here. There's managing the fund, which is where can I invest to maximize my returns. But there's also managing the career and the compounding benefits of career. Some of the top angels, going back to some of my mentors, some of them would make checks into companies, 25 50k checks just to learn about the industry and for information. Knowing that that information in a new side of the market like say crypto will allow them to later deploy 5, $10 million much more effectively. There's these different ways that you manage your own career and the compounding on your career that you don't necessarily in a single fund.

B (8:41)

I agree with you. One has to think about not just your income statement life but your balance sheet, you know, your goodwill, your, and your network which translate in your ability to help companies. I mean sure, we've put our toe in the water in certain sectors or backed certain seed funds, get access to information and you know, I don't know if that's worked or not but you know, you're trying to help people be successful. And usually that comes full circle. With our investors money and March Capital. We try and build portfolios of 12 to 15 companies per fund. Most of our money comes in in years two to five, what we call early growth. We're helping a company scale up and we invest and we follow on. And if there's a big fall on, we might do a cross fund investment. We also offer to the later stage investments to our LPs. We have about $650 million worth of co invest on top of the 1.65 billion. But you have to be very careful that the dollars you're deploying are well deployed. That's the key.

A (9:43)

You're known for Taking very high conviction bets and doubling down, sometimes tripling down into companies. What's your framework for when you know to double down?

B (9:51)

That's why I go to church every week. It's important to understand the psychological forces that exist in, in investing. And I was pleased to be invited on today. And you've got a background in psychology at Harvard, and it's an interesting mix of the MBA and the psychology. And I. There's a lot in the psychology investing that people tend to overlook. Or, you know, there's biases. We all have biases. And oftentimes when you're doubling down, you, you, you, you already have a conviction about that company and it's hard to change your mind. There's recent information that gives you a recency bias. There's some star investor coming into the rounds. That's another bias.

A (10:31)

Social proof.

B (10:32)

Yeah, social proofing, you know, and so you think about, it's like a half dozen, and you say, well, the last round, what we did at 30 times forward revenue, this round's only at 15 times forward revenue. So it's a great deal, you know, so you, you have this, you know, transitory valuation bias, but then you got to step back and say, wait a second, you know, what do we really think the outcome is going to be here? And invert down to. Usually we build a risk curve where you say, all right, what are the three probabilities? And start my career in the intelligence world where you say, well, there's a, you know, what's the percentage that something bad happens, like you lose money or, you know, and then. Or you just. Dead money, you know, what's the bad scenario and what's the most likely scenario and what's the upside? And then what are the probabilities across those three and how do you weight it?

A (11:21)

Speaking of doubling down, you have one of the most famous conferences in tech, the Monte Summit. I was lucky enough to be invited this past.

B (11:30)

We were delighted to have you join us.

A (11:31)

Thank you. And you've compounded that over 23 years.

B (11:34)

Yeah.

A (11:34)

Now, I went in year 23 and I saw something really nice, but I imagine it didn't start like that in the beginning. How has that evolved over time? And what's made you invest so much into this conference?

B (11:43)

The first conference was in, gosh, what would it be? 2,000.

A (11:49)

2003, I think.

B (11:50)

Yeah, 2003. And you say to yourself, what were we doing? We're coming out of a tech bust, right. And I had the theme, technology is back. And some of our investors said, that's just so asinine. And Forbes really liked us. They ran a cover story, Technology is back. And a guy publisher sent me a note, Hey, I just had to take that line. It's great. And we had 48 private companies and 24 public companies. And you know, and one of the companies was the Facebook, you know, year one and, and there was a fellow running it, Van Otto or something like that, he was president and he came down and he presented and, and we had some amazing companies there that year, I remember. But I didn't know what would make people show up. So I used to coach little league back there for my boys. And my, one of my assistant coach was Glenn Fry, who was from the Eagles. So I said, so I hired Glenn to come play with his band, you know, and I figured if we had a dinner the night before with the Eagles playing, people might show up for the conference the next day, second round for the conference. And so, and it worked, you know, and we, we had about, I don't know, 425 people there that year. And, and we launched it and it was at that time, it was a conference for the bank. And so our goal was to bring clients in and finance them, bring clients in and sell them to the larger strategics who are, take companies public. And we'd build these great relationships that worked very well. We're able to monetize it that way and how we paid for it. And when I sold the bank, you know, exited 2012, I'd go around and see people and I said, you know, appreciated working with you over the last decade or two and I want to tell you what I'm planning to do. This is March Capital. And they'd say, well, you know, I really admire you and everything you've done for the tech community. I'm glad you're going to stay in the tech community and I'm not going to miss any of your bankers, but I missed the conference. So on the whole I kept hearing this over and over again. I thought, you know, geez, we ought to keep the conference, right? And so we relaunched it at March Capital. And it's been a great way for us to bring investors, including our own LPs, you know, other LPs, sovereign wealth funds and whatnot, and entrepreneurs and corporate execs together and some government leaders and military leaders and whatnot together to talk about the, you know, the innovation economy and key issues facing it and how we could all collaborate. And it's sort of nonpartisan, not really political. It's just like right down the middle of the aisle and. But very practical. And we had about 1200 plus people there this year, about 180 speakers and 120 companies were there in different capacities presenting and talking and, you know, it's a great success. But what it really is is a community. It's a lot of work to do it right. We pride ourselves in doing it right and being well run. But it's all. But it's, it brings joy too. I mean, you think about, I have people from all over the world who come in and, you know, from a couple dozen countries and I think of the travel that saves me. I don't gotta, you know, and our ability, the velocity of the meetings that we have. And it's great. And the companies really like it and it gives us a chance to have all of our investors together at the front end of it and then roll into the summit. And we do some things in the community during it as well, to have a reception at the Getty and we fund children's education programs there. So it's one of the many things that we do as part of our foundation outreach at March Capital and also myself, family. And so there's a lot of good things going on alongside. You see a lot of people in government there that maybe we've supported through tough times or good times and all bipartisan initiatives at the national level, work with most of the presidents up to recently. It's good, right? It's all good. Yeah.

A (15:31)

I think a lot of people misunderstand. People always ask me, how do you have time for a podcast? Or I'm sure people ask you, how do you have time for conference? They don't understand the downstream efficiencies. If you just focus your effort on something, one singular thing that you could compound, that you could invest into and make great and make it as a resource for people you don't have. There's a lot of things we don't have to do. We don't have to really spend a

D (15:51)

lot of time fundraising.

A (15:52)

We don't have to spend a lot of time branding ourselves with GPS, having these 30 minute Zoom meetings that nobody knows who you are, you don't know who they are. There's so many downstream consequences of doing one thing really well.

B (16:03)

One fellow came and said, you know, I read about you in the STIFEL annual report and everything you're doing in the community, they featured you. I said, they did. Can you send me a copy? I was like, yeah, well, Kbrick, because of that, we want to invest you're like great.

D (16:17)

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B (18:35)

I mean, so there is this downstream effect. You don't even know what it is. Right. Don't get in the way of compounding. That was one of Charlie's. If something's compounding like the conference is compounding, I think I got 10 million social views in the couple weeks around the conference. 10 million. I mean, usually you have to get arrested to get that many social views, but it's all positive. Right?

A (18:56)

You're very bullish on American dynamism and this new crop of companies trying to solve now Department of War issues for the US Why are you so bullish on American dynamism?

B (19:10)

I just don't think it's America. It's Western Europe as well. We had a former defense minister of Germany there and Katie Gutenberg, I don't know if you heard him speak, but he said we have a $100 billion set aside for spending or investment in infrastructure, the defense industry and Germany, and we could grow that to 500 billion. His partner is a number two in the administration, so he's speaking with some authority. And 40% of that will come from traditional suppliers, 40% of that will come from new suppliers, and 20% will come from commercial sector. So you just basically had some of their Signal that there's $200 billion of funding available for innovative defense companies just in Germany alone. So that's actually a big number. And I think, you know, Silicon Valley was always allergic to Department of Defense or acted like it was, and recently they've become a lot more focused on it. There are things you can do that are in the intelligence world with software, or you can do things that go bang, or you can work on areas that are critical technologies. And that's where we're more focused on, which could be quantum computing, cyber super intelligence. And some of that's manifested through the Genesis project. Project was being run out of the Energy Department by Deputy Secretary Harry, who came from IBM as the head of research. This year they're going to spend about $3 billion on funding competitive technologies to improve our standing vis a vis China and some of these critical technologies. And several of our companies are in the middle of that. For example, could we use superintelligence to create synthetic versions of rare earth minerals? To provide a little bit more independence from certain supply chains and things like that. So there's various ways to play it. It's a huge opportunity. We can't do everything. And so we're kind of focused the intelligence side of it. Your other question though is kind of like there's American dynastism and there's sort of the dynamic US Economy. And I think that's a very interesting question. I mean, you know, I think when one works with new early stage companies and growth stage companies and you're helping them scale, you have to be optimistic. You just kind of play it out. I mean, the US economy is about a $30 trillion economy now. And you know, in between 10 and 15 years from now, say 12 years from now, it's could easily be $50 trillion economy sort of wealth creation is unprecedented and it creates a lot of opportunities across the board and government revenue to pay down debt, investment and infrastructure in different areas. So I, I think we're entering a very dynamic period of innovation and growth and wealth creation. Now, one could argue that it's skewed, you know, between the concentration of wealth and. I think that's a, that's a real issue. I think it's. But I would rather double the wealth than not double it. And we just got to figure out how to handle that properly. Now at the summit, we had a gentleman there named Matt Mahan, who's centrist candidate, Democrat, running for governor, and he's not liked by his fellow Democrats because he's basically saying, you know, we haven't done a very good job in California. And, and if we.

A (22:18)

That's controversial.

B (22:18)

Yeah, that's controversial. It shouldn't be. Right. But if you look at what I just talked about on a national level going from 30 trillion to 60 trillion, or the global economy going from 120 trillion to doubling. Let's look at California. Ten years ago our economy was about $2 trillion and now the economy is 4 trillion. So the economy in California doubled in 10 years. So this is a real world scenario we're going to face. And what's happened in those 10 years? Well, government population in California is flat to down. You've probably had a couple million people leave and a couple million illegal immigrants show up, but it's roughly the same population. You've had a 25% increase in government employment by the state of California and you've had a doubling of tax revenue from around 170 billion to over 350 billion. Yet even with 350 billion of revenue, we still can manage to run an $18 billion deficit this year, plus have massively unfunded off balance sheet pension obligations. So even if you double the, you can still make a mess out of if you're not careful. And then on top of that they'll say, well, we don't tax enough, so we're going to put a wealth tax in which then you have people buying homes in Florida, right? And you see it, the headline news is correct because a 5% tax on the assets of people, assets they control people of more than $1 billion. And that's written as an initiative, so the language can't be changed. If it passes, it's poorly written. So if you control 10 to 1 voting shares like Zuckerberg does, he'll be taxed on the shares that he controls rather than the ones he actually owns. So it's like a 50% tax on wealth.

A (23:54)

Sergey Brana and Larry Pace.

B (23:57)

I guess the good news, they're just saying tax rich. They're not saying eat them. So there's some upside there. But you look at it and say, okay, and why is that? Well, the problem is that you have this K shaped growth where you have the highest level in spite of all the investment in California, you have the highest level of homelessness in the country. You have about a poverty rate which is the highest in the country. About 16, 17% in California is tied with Louisiana, you know, some of the worst schools in the country. I mean, go on, on. It's, you know, we're not getting what we should get for the money. And as a result of that, we have a situation where between the median and the top 10% income is a much higher ratio than it's ever been, you know, or lower if you're on the low end of that. And, and there's this greater and greater inequality of, you know, now the median income in California has grown from about, you know, about $60,000 a year to $100,000 a year over the last 10 years. So that's gone up quite a bit. But there's that bottom 20% have really suffered. A lot of them are new immigrants because people middle class left. So you had a little bit of hauling out. But you know, the challenge is, is how do you give that bottom 10, 20% a leg up? And a lot of the policies that we're pursuing don't actually work. And then we get in our own way by making housing so expensive because of permitting, we can't get insurance in California and the schools aren't very good So I say all that because I say we're going to be like the dog who catches the car. So we got to figure out what the hell we're going to do. Right. If we can really double our economy to 30 trillion to 60 trillion, what. What are we going to do when we do that? I mean, it's a great opportunity. We just had a golden opportunity. Imagine being governor of California and say, you know, you're here for eight of these 10 years and we're going to dou. Double the wealth of the state. Your tax revenues are going to double. Let's do something good with it. And they pooch it entirely. Right. You know, and that's what's happened. And by just bringing that subject up, he's ostracized. Right. It's not like it's all facts. I didn't say anything that isn't, you know, factual. It's not political. And I'd rather blame somebody in Washington for all this. Right. And, and it's. And so I think it's a really interesting question about how, as a citizen investor and you're growing entrepreneurs and you're helping them be successful and you're creating jobs, you're doing a lot in the community, how you effectively partner with the government to sort of, you know, keep things on track.

A (26:20)

David Freeberg recently publicly said that 87% of founders that he knew were thinking about or already planning to leave California. And I think there's. There's two different questions. One is, what do you do from a tax standpoint? And this wealth tax, I've run it through AI There doesn't seem to be a positive economic rationale on it, except, like, as a political stance.

B (26:43)

Yeah.

A (26:43)

And then if you don't do the tax and you have all this innovation, how do you distribute and how do you invest into the wealth gap? It's two different questions, and people are really combining into one question because it's politically expedient. But the question is a first, first, do no harm. First, make sure that you're not killing the golden goose. And now that the golden goose is there, how could you make the system work better for the state? How do you improve education? How do you do all these things without actually killing the revenue source?

B (27:10)

Yeah, that's it. That's a challenge. And I'm not a government employee, but I think we need to elect people at Los Angeles and then a whole nother case, California and elsewhere, that can do that. And that's lower the noise a bit and get on with the work. I work closely with Steve Wesley when he was a cfo, a Democrat, and Arnold, a Republican, a bipartisan to balance the budget 25 years ago. We were very successful. No, it can be done. I mean, the opportunities are massive. That's why I say we're creating this massive amount of wealth. Let's invest it intelligently. Let's create a better world.

A (27:54)

As a VC, you've really been investing since 2014. What's something that you've recently changed your mind on?

B (28:01)

I've been giving out some thought lately, and I think we're pretty Socratic. And I changed my mind every week, you know, because. Because end of the day, there's nothing better than to get around the table with eight or ten intelligent people and, and say, what are you seeing? And we start most of our board meetings with our portfolio companies. We might have three or four really great funds in it with us. Usually there's a. And I always say, all right, before we start and we go down this path of PowerPoint, can everyone talk for a minute or two about what's the most interesting things they're seeing in the market? At least a fascinating conversation. And it puts the whole board conversation in a context which is kind of relevant and current. The great news about AI is, you know, I. I think it gives everybody a chance to reboot their business. People saying, you know, you're going to be killed by AI or, you know, this business we put out business, it's really giving everybody a new with, if they have the right mindset, a new lease on life. Because you can say, you know, I can. We bought all of our companies together, and I challenged them the morning of the 10th. We're doing things differently in March capital, very differently. And I want each of you to really think hard about it, listen and learn over the next couple days. And we have McKinsey here doing some case studies and BCG and others and thought leadership and come back the next month or so with how you're going to do things differently. And. And it's like, it's all quite positive. There's not this sort of sass apocalypse and all, you know, doom and gloom. I kind of changed my mind and said, you know what, everybody has a reboot here, right? The venture business was kind of going down the drain in 2022. You know, people put a lot of money to work and really bad investments. You know, there was no liquidity. And AI gave it a whole new lease on life. It was like dead.

A (29:59)

It's the one thing I learned the most Potently through the podcast is you have to keep on investing in every vintage. I was extremely lucky to invest in anthropic, the $4 billion round in 2023. And had I not known this idea of just keeping money at stake and investing every vintage, I would have missed it.

B (30:17)

You do up to a point. You have to be in every vintage, but every vintage may not be a year. That's one thing I would say. So tell me about that. Well, so as I was talking about, AI comes along, creates a whole new lease on life, and you have AI native companies and you have the companies that had to reinvent themselves. And that's really interesting work. We have companies that say, I'm going to double my sales, triple my profitability and grow. And over the next three, every day, I got a note from one of our CEOs that they've gone off. One said, well, I got back, my co founder didn't want to do what I did, and five of the eight management members agreed with me. So three of them left, the co founder's gone, and we've cut a third of the team. We're going to accelerate our growth and we're going to be profitable. We won't need any raising more money. Love, Bob. It's like, this is great. I get one of those every day now, right? And so I'm thinking, hallelujah, right? I want more of this, you know, and, and, and it's like, now come back to the vintage thing. It's like we raised a fund in 2021 and we do a final close in 2022, we do a few investments, and I'm like, oh, my God, what did we just do? And early 2022, interest rates go up. They're Iron Rule Capital Markets. A 1% increase in interest rates results in 10% change in valuation. So 5 1/2 points.

A (31:37)

That's basically math.

B (31:38)

Yeah, 55% drop boom flows through the privates. And so I said, look, we're going to freeze investments for a year, let things settle down, let this AI permeate, and then we'll start making some investments at the end of 2022, early 23. So we invested, then we put our money to work, and then the average Series b was probably 220 and 21 dropped to half of that, or 50%. Well, dropped at about 140 to 120 and then went back up 125 to 240. So he had these V's and it was a couple year cycle. So to answer your question, you know, there was a peak in 2021, trough in 2223, peaking again late 2425. And it's pretty high right now. And people say, well, okay, what's going to happen next? First of all, I'll start by saying, I have no idea. But I'm going to give you. I summarize. In New York, I gave a talk, I was at the New York Athletic Club and a lot of of LPs and family offices, and I asked, what do you guys have the most exposure to? And most of them were exposed to private equity. And the largest within that was software. I said, all right, well, you're not going to like this, but you're all screwed, you know, because there's going to be a 40% reset on software prices and you're in leverage bets. And so the debt holders are going to own the companies. And so, you know, but even then the debt probably won't be very high quality, so you really shouldn't be investing in that category. You know, everyone's like looking at me, who is this guy? You know, where do you, where do you find this guy? Yeah, who brought this guy? You know? And I'm like, yes, right. You know, you want, you want the honest answer. And then now people go, how'd you know that? You know? And you say, well, you know, I was just kind of looking at it, you know, it seemed to me like what made sense. And. But people believe what they want to believe and they see what they want to see and they hear what they want to hear. And we have these filters and biases from earlier now people think, okay, there's this incredible investment in AI infrastructure, really is. It's unprecedented. And even with all that investment, assuming it, it's made and there's power to power it, which I think we'll figure some of the stuff out. It's not going to be easy. There's still going to be a shortage of supply of compute. And you have compute, you have inference computing, which is higher margin training compute, lower margin, maybe they go to more pre training, ship to higher margin compute. We're at this inflection point where companies are really going to grow. So this is a great time to put money work. And so I'll suck it up on the valuations. But I'd say, well, wait a second, there's only so much money in the world, right? As I walk around New York this week and call on heads of banks and big investors, and you look at where the capital flow's going and there's more and more money being sucked out of the system by the large hyperscalers who never needed financing before to build out infrastructure. And you go, okay, that's great. But the effect of that is there just isn't as much liquidity around for the other areas. And so I think we're, you know, unless there's some change, I think, you know, you're starting to see the liquidity start to dry up. People don't really think about liquidity flows when they're in venture. They, you know, they, they don't think

A (34:54)

about the relative competition for capital.

B (34:57)

They think, well, you know, I'm a

A (34:59)

mid sized fish when I tell some venture capitalist that's but they're inherently competing with lower middle market pe. They look at me like I'm full. What do you mean? I'm competing with lower middle market pe. I'm competing outside other emerging managers. But from the LP standpoint, they're looking at the entire portfolio and they're thinking, where do I get the best bank?

B (35:14)

Yeah, where do I get the bank? And the capital markets Money is flowing in the structured finance with the hyperscalers and there's less money available for other categories. And I think it's going to be a tough financing market for a number of companies. And I think you will see a correction in the private valuations again. And therefore let's revisit this in a year and see if I'm right. Come back for Monte 2027.

A (35:39)

Well, Jamie, you're an absolute legend. Thanks so much for jumping on the podcast and looking forward to doing this in a year.

B (35:45)

Well, we'd be delighted to do it and come on out to sunny Southern California next March 9th and 10th will be and we'll set up a studio for you there and we do a few of these. So I look forward to having you. Thanks for having me today.

A (35:57)

Thank you, Jamie.