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- [00:00]
Alex Rodriguez
Alex I'm Alex Rodriguez.
- [00:02]
Jason Kelly
And I'm Jason Kelly.
- [00:03]
Alex Rodriguez
And we're back with more episodes of our show the Deal.
- [00:10]
Jason Kelly
We've got behind the scenes conversations with sports, greatest business people and athletes from Serena Williams and Stephen A. Smith to Bill Belichick and Melody Hobson.
- [00:18]
Barry Ritholtz
I got dangerous in seeing up arrows. Up arrows.
- [00:22]
Jason Kelly
Catch up on the interviews you've missed and listen to all new episodes every Thursday on Apple Podcasts, Spotify, YouTube or wherever you get your podcasts.
- [00:33]
Alex Rodriguez
Bloomberg Audio Studios Podcasts Radio News this is Masters in Business with Barry Ritholtz on Bloomberg Radio.
- [00:47]
Barry Ritholtz
This week on the podcast, I have an extra special guest. What can I say about Devin Parekh, managing director at Insight Partners, major venture capital slash private equity shop that has had just countless, countless exits. He was an early investor in Twitter Buddy Media Investment, Apris Insights website Pros turniton. They focus on software which is much broader and more varied than you might imagine. They are global in their footprint of where they put money to work. And they're not just early stage investors. They do A rounds, B rounds. They will help provide liquidity for a company that's looking for a partial exit as well as strategic investments and M and a sort of from a private equity shop. I think Insight Partners is unique because they have a foot in both venture and PE worlds. I thought this conversation was fascinating and I think you will also. With no further ado, my discussion with Insight Partners, Devin Parek.
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Alex Rodriguez
Thanks for having me.
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Barry Ritholtz
So let's start out. Way back when you get a bachelor's in economics from Wharton, what was your original career plan?
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Alex Rodriguez
Not business. Not business. I actually in high school was a total science nerd. Competed in Westinghouse. Oh really?
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Barry Ritholtz
What area?
- [02:19]
Alex Rodriguez
Biochemistry. Microbiology. Actually won first place in microbiology at the International Science Fair. So my path was kind of being a doctor, probably being an MD, PhD. I didn't actually start Penn in Wharton. I actually started in the College of Arts and Sciences. I started as a biochemistry major. I was doing research at the medical school my freshman year and I think like in everything in life there's a lot of fate in who your roommates are and the people you meet. And my roommates were all business and I was the only kind of science person. And I thought, well, maybe I should take, maybe I should take a finance course or an economics course. I did freshman year, found it really interesting. And after my freshman year I decided rather than doing working in science for the summer, I was going to work on Wall street for the summer. And I managed to get a job in Wall street between my freshman and sophomore year, which was unusual at the time, but I did. I came back after that and said, well, maybe I can put these two interests together. And I was going to do biochemistry and finance. I was going to do the dual degree with a degree in Wharton and a degree in college. Now, they have preset programs for all these things, but at the time they didn't. But it would involve taking between six and seven courses every semester. And these were not easy classes. These were like organic chemistry and quantitative finance. And I just thought, this isn't going to be a great college experience if I do both. I kind of needed to pick, and so I ended up picking Wharton. And of course, people are like, well, what was the thought process you went through when you did that? And the thought process probably was not. It was. I was impatient. And I saw the route for medical school was I was going to do four years of medical school. I was thinking at that point I also wanted to do research. I thought maybe I was going to get a PhD. So I seemed like a long time in school before I could actually start my career as opposed to business. I could kind of jump in right away. And I always thought that at some point in the future I would somehow bring these two interests together. I didn't know how.
- [04:28]
Barry Ritholtz
That was the obvious question because on the list of areas you invest, I don't see a whole lot of healthcare or biotech or genomics. But have the twain ever met?
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Alex Rodriguez
They actually have. They have in two different ways. We do now have a team at Insight that does invest in kind of therapeutics, biotechnology kind of therapeutics. We have a team that does it. I'm involved in it, but I'm not the one doing those deals or leading those deals. But it's actually probably also manifested a lot more. Like, philanthropically, I'm on the board of NYU Langone. We're funding a bunch of research there, as well as a bunch of other kind of universities. So philanthropically, it's been a big focus of mine. And so it's been enabled. I've been able to bring that kind of interest back into my life in a way that's been satisfying, really interesting.
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Barry Ritholtz
So from Wharton, how do you end up on Wall Street? What's your first gig?
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Alex Rodriguez
Well, I worked for the summers. I worked at a small buyout shop after my freshman year. After my sophomore year worked at Credit Suisse. And after my junior year, I was actually First Boston at the time. After my junior year, I worked at DLJ and then I started at Blackstone.
- [05:39]
Barry Ritholtz
And that's, that's quite a laundry list of.
- [05:42]
Alex Rodriguez
It was a laundry list. It was a laundry list. And I started as an analyst at Blackstone in 1991 and then had the opportunity, even kind of before I finished my analyst program to go to a startup. But it was not a tech startup. It was a investment banking startup that was founded by Jeffrey Berenson and Raymond Ella, who used to be the co heads of merchant banking at Merrill Lynch. And so I left Blackstone to go to what was then a no name and to some degree it's still not well known firm. And I remember having a conversation with my dad at the time who was like, he didn't really know who Blackstone was. And so when I took that job he was like, well why would you take Blackstone when you got all these offers from firms he'd heard of? And I was like, well, think it's going to be a really good firm. And then finally he got comfortable. That was a good idea. And I leave to go to this firm that no one's heard of. And I said, well, my downside case is I'll go to business school. Like it's really not. Anyway, so I made that leap and that was a, it was a great experience. They were primarily kind of MA advisory but then over time they were trying to figure out how to get into the principal business in some way.
- [06:56]
Barry Ritholtz
How do you go from M and A to venture capital?
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Alex Rodriguez
So the two co founders of Insight, Jeff Horing and Jerry Murdoch, started their pre. Effectively the predecessor to Insight at Barron Cimonella and Barons Manila was kind of a sponsor of these two guys who wanted to do something in technology really early. We were not technology experts. The firm didn't know anything about technology. But we thought we could help them raise capital or at least the guys who ran the firm thought they could help. But we didn't really have a lot of competency in software. I was the closest thing they had to somebody who understood technology, which just means that I used it. And so I was kind of working with Jeff Waring and Jerry Murdoch and then they kind of came to the conclusion that they were going to kind of go do this on their own. That there wasn't really like the partnership didn't make sense for them. So they went off. They'd asked me what year was that they 95. And they asked me at that time if I was interested in joining. And I was 25 and a vice president. And I was like, oh well, why would I go join a startup now? All of a sudden, I lost my startup kind of bug. And so I didn't then, but I maintained a relationship with them. And then in 1999, when I was thinking of leaving, Barron said, go do something on the principal side. I ended up kind of joining them when they were raising their first institutional fund.
- [08:27]
Barry Ritholtz
So what was that process like, going from what was really a startup to going to something that was barely no longer a startup? Or was that really their first major outsourcing?
- [08:38]
Alex Rodriguez
No. So they had. So they at that point had raised three funds. They were about to raise their fourth fund, so somewhat seasoned. It was primarily at that point that very few institutional investors. So their fourth fund, Fund 4, was going to be their first institutional fund. And so the firm is very small. From a number of people standpoint, it was about 10 people. Today we're 450 people. So it's a much larger firm today. But it was, I think the harder part of the transition is, you know, it's very different being an advisor. I wanted this transition, but. But it's very different being an advisor whose goal it is to kind of get a deal done to being a principal where your goal is not just to get a deal done, but to make sure it's a good deal. And that's a shift in mentality. It's not like an on off switch for that. But really, the way I looked at it is I was. And the firm that I left very generously offered me the opportunity to take a pool of capital that they had and invest in technology as kind of as a way to maybe get me to consider staying there. And I said no. And it wasn't really an economic decision. What I said was, I'm not really qualified to do that at that point in time. And that one of the reasons I'm making this shift is to actually learn how to do something.
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Barry Ritholtz
What was that learning curve like? Because I remember the 1990s and the late 80s, and it seemed like a ton of people were just jumping into the venture worlds, regardless of their credentials or academic qualifications.
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Alex Rodriguez
Well, I think in. I joined it late 99, 2000. You remember that time?
- [10:23]
Barry Ritholtz
Sure.
- [10:24]
Alex Rodriguez
In some ways it was a great time. In some ways it was a terrible time. I think in retrospect, it ended up being a very good time for the following reason. Economically, it was not a great decision for years because I think I told my wife when I took the job, we just bought an apartment and she was pregnant with her first kid. And I said, don't worry. I know I'm making less cash, but I can have all this equity. And that equity was like five years. I hadn't really. She was like, I'm not sure. I'm not sure. I feel like this was the right trade. But so you get there in 99 and the deal pace is frenetic. And so you think like, oh, I'm learning so much. I'm getting all these deals done. I also got put on a ton of boards of companies, and the first thing I figured out was, well, a lot of these companies didn't really have a business model without raising a lot more capital. It wasn't just us. It was just that was that it.
- [11:19]
Barry Ritholtz
Was a land grab in the early days.
- [11:20]
Alex Rodriguez
It was a land grab in the early days and the market corrected very quickly. I think four or five months after I got there. And when you look back, I mean, those were really, really hard years. But I actually think it's where you learn the most. It's easy to be a cheerleader when things are great. It's a lot harder to have to kind of dig into a business, including businesses that aren't going to make it, and try to get to the best possible outcome. So from a learning standpoint, and I think this is sometimes the things I tell my kids is like the worst times sometimes are the ones we're going to learn the most. And there's always going to be, you're going to get to the other side. It might not be the side exactly the way you wanted it, but there's no way you're going to look back and say you didn't get something out of that experience.
- [12:05]
Barry Ritholtz
It's so funny you say that. I started on a trading desk and one of the things you figure out pretty early is you learn much more from your losers than you do from your winners. Same thing in venture.
- [12:17]
Alex Rodriguez
Same thing in venture. I think it's the same thing in life.
- [12:19]
Barry Ritholtz
Oh, really?
- [12:20]
Alex Rodriguez
Yeah. I think it's true in lots of things.
- [12:22]
Barry Ritholtz
Stumbles and fails are more constructive than.
- [12:26]
Alex Rodriguez
It could be jobs, it could be relationships, it could be, you know, even like you're. You, like, you know. Right. If you think about the world today, where your world today, where there's a tendency for parents, and I'll include myself in this, to be too involved. Right. Oh, my son got a B because he had a bad teacher. Like, well, like, guess what? We all, all have bad teachers and bad bosses and bad roommates. But you learn to adapt. And I think sometimes you have to go through Those things, and I think you learn from them. Bad relationships, I think you learn something from. So I think you have to. If you take the mindset that you can learn something in good times, you can learn something in bad times, I'd argue you probably learn more in the bad times. I think that's a valuable mindset to try to have. It's hard to have it when you're in that time.
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Barry Ritholtz
You know, you mentioned the role of serendipity earlier. Michael Maubouson likes to point out part of the reasons we may not learn much from the good times is it's very hard to distinguish between, hey, is this working out because I'm skillful or is this working out because I just got lucky?
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Alex Rodriguez
Rising tide lifts all boats.
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Barry Ritholtz
Yeah, that's right.
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Alex Rodriguez
And you don't know whether you're on a yacht or a boat with a hole, but they all rise because the.
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Barry Ritholtz
Water'S rising, at least temporarily.
- [13:37]
Alex Rodriguez
Exactly.
- [13:38]
Barry Ritholtz
That's right. So you mentioned you're on a ton of boards. U.S. international Development, Finance Corp. Council of Foreign Relations, Carnegie Endowment for International Peace, NYU Langone. What's the attraction to all these boards?
- [13:54]
Alex Rodriguez
Well, those are the things I do, you know, outside of the office. You know, I think I've always had a belief that if you're successful, you kind of owe it to give back. So that's one, Two is intellectual interest. Right. Like the things that I'm involved in are things I've always been really interested in. And even in some of these, even in some of the. I talked about how I ended up going to Wharton because who my roommates were. Another story was when I was in college, my freshman year, I went to go write for the newspaper, the Daily Pennsylvania, which is a pretty well known college newspaper. And my roommate at the time went to go volunteer for College Democrats. This is first semester of freshman year. Second semester, freshman year, I asked my roommate to come check out the dp, the newspaper. And he came, he asked me to do the same. And senior year I was president of College Democrats and he was editor in chief of the newspaper. Neither would have happened without us kind of having totally different interest. And he's now in journalism. Right. So, you know, I just think that there's a lot of these things and so those interests that interest policy related things is interest I've had ever since college. And kind of over time I've been able to engage in those things in a more meaningful way.
- [15:17]
Barry Ritholtz
Coming up, we continue our conversation with Devin Parek, managing director of Insight Partners, discussing how the firm developed its expertise. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My special guest today, I'm Alex Rodriguez.
- [15:39]
Jason Kelly
And I'm Jason Kelly.
- [15:40]
Alex Rodriguez
And we're back with more episodes of our show the Deal.
- [15:47]
Jason Kelly
We've got behind the scenes conversations with sports, greatest business people and athletes from Serena Williams and Stephen A. Smith to Bill Belichick and Melody Hobson.
- [15:55]
Barry Ritholtz
I got dangerous in seeing up arrows. Up arrows.
- [15:59]
Jason Kelly
Catch up on the interviews you've missed and listen to all new episodes every Thursday on Apple Podcasts, Spotify, YouTube or wherever you get your podcasts.
- [16:07]
Barry Ritholtz
Is Devin Parek Manag, managing director at Insight Partners, where he helped oversee over 140 investments, several of which many of which have had exits. So, so let's start chatting about inside Partners approach a little bit. You guys do everything from software investing to AI. How do you differ from other venture capitalists in the space?
- [16:31]
Alex Rodriguez
So I think the approach that we take is we're really software investors, but we're stage agnostic.
- [16:37]
Barry Ritholtz
And what does that meaning not just seed angel.
- [16:40]
Alex Rodriguez
So probably the only stage that we don't really play is seed and precede. We're really. But we will do everything from a series A all the way to a buyout. We have the capability to go across the continuum. I think that's important both ways, right? Like if you're a, if you're a buyout investor, as an example, particularly in a firm in a field like technology, which is changing quickly, not knowing what's going on at the early stage, what could be coming that's disruptive is kind of a risky way to be investing in more mature companies, particularly in an AI world where that transformation is happening a lot faster. And the flip side, I think on the early stage side, understanding what does it take for a company to actually be public, what does it take for a company to actually be able to raise the B's and C's and D rounds and what are the key metrics and having the network and ecosystem to be able to help companies do that. It's helpful to have your mid stage and growth stage business too. So I think the ability for us to be able to invest across that continuum really makes us pretty unique relative to most other software investors out there. The second thing is the way we source though more firms are doing it now, which is we have over 60 people full time. That's all they do is deal Sourcing and think of it as our outbound sales team. But it's a really smart outbound sales team that are people who, when they're successful, end up being partners at Insight. And what we're able to do is have tremendous market intelligence because we're talking to anywhere from 20 to 30,000 companies a year. Right. Obviously investing in a much smaller set of those. And then the third thing is kind of a value add approach. Right. Because all investors like to say they add value. It's hard to do. We very early on in 2000 created what we call Insight on site. And the reason it's called Insight on site is because those team members are meant to be on site at the company as opposed to in our office. Right. So think of McKinsey or Bain. If you walk into the office, you won't see a lot of those people in the office because if they're doing their job, they're actually at their clients. And in our case, our clients are our portfolio companies. And what we've done is, if you think about every functional area of a software organization, whether that be sales, marketing, product, customer introduction, strategy, and now AI transformation, we have a team for each one of those areas, and we have a team for each one of those areas that's also stage focused, right? So we have a team that works with early stage companies, we have a team that works with mid stage companies, we have a team that works with more mature companies. Because the recruiting needs for a company with $500 million of revenue are very different than the recruiting needs for a company with $5 million of revenue. And that team is over 125 people that's focused on really making sure that the companies, they're getting the benefit of not just anything we know, best in class, thinking outside the firm, best in class within the portfolio. And those three things together is really, I think, what allows us to have a very successful strategy.
- [19:46]
Barry Ritholtz
Huh. Really interesting. I was trying to conceptualize how Insight is sort of a venture fund, sort of a PE shop. Your explanation really explains why those, those titles and those descriptors really only just describe part of what the firm is doing.
- [20:07]
Alex Rodriguez
And I think things just, overall things are blurring, you know, in this world. Like, you know, one of the areas that we're very active in right now is something that we call venture buyouts. And you say, well, okay, like that seems like that's both. And to some degree it is. And, but what is it really? Well, what's the biggest issue you hear right now in private equity? If you were to interview an lp, they'd say, well, I'm not getting enough money back. I don't have enough dpi. And so I'm overallocated. That's probably the number one complaint that institutional investors have. Well, if you look in venture, there's just a massive amount of funding of companies and company creation and funding over the last. So you have thousands of companies out there. Many of them have not reached a scale where they're ready to go public or have a strategic really be focused on them. They just don't have the scale yet. And what we're able to do in those situations is find the ones that are interesting companies. And we go to the shareholders and say, we'll buy 70% of the company, we'll buy 100% of the company. You can either choose to roll some of your investment if you think there's upside. If not, we'll give you a return, whatever it is. And then we were able to take control of those companies. What happens in a lot of these venture companies is they have very diffuse cap tables. You have seven, six, five different people, five different opinions, actually. Hard for the CEO to get alignment with their board on what the strategy should be. We can create that alignment. And so maybe he really wanted. He or she wanted to execute an M and a strategy, but only half the investors were willing to put up more capital. We're able to, in that case, clean up the cap table and then make whatever changes in strategy, team, whatever it might be that are necessary with a totally aligned board. That's a strategy that touches both. It touches some element of venture and it touches. Touches some element of private equity.
- [21:50]
Barry Ritholtz
Two of the people you work with, Ryan Hinkle and Richard Wells. As I'm doing my prep for this anywhere I search for software as a service, I seem to come across Ryan Hinkle's name. Tell us what it's like working with those guys and working with the other founders. The two co founders.
- [22:11]
Alex Rodriguez
Yeah, and others. So, you know Mike Triplett and Jeff Lieberman, and we have so many people who've kind of contributed to the success of the firm. You know, Ryan actually joined Insight as a summer intern right out of college now on the investment committee. Richard Wells joined us out of Harvard Business School after a successful career at TCV and some other firms and has been a huge driver of returns, had some great deals that have exited just this year. I think that one of the things that we're most proud about at Insight, and this is also, I think, very different than A lot of firms out there is that if you look at the top four partners, the top six partners, top eight partners, the vast majority of those people all grew up with an insight. And we've really created a culture. If you join insight as an analyst, you can, you can make it to the top. And that's very different than a lot of firms out there. And I think that's created a very positive entrepreneurial culture where we give people a lot of autonomy, we give people a lot of ability to find new areas to invest in and magic happens.
- [23:25]
Barry Ritholtz
So let's talk a little bit about that magic. You've made over 140 investments in various companies. I'm assuming that you're doing this as part of a group, as part of an investment committee. How does that work if everybody has a slightly different expertise or focus? Take us through the process of what companies get funded, how does that process go?
- [23:48]
Alex Rodriguez
Yeah, and look, first of all, that's the beauty of I think, our model too, which is while we might all have slightly different focuses or areas, we're all just investing in software. If you contrast that to firms where somebody is a biotech partner and somebody's a software partner and someone is an industrial partner, that's much, much harder because you really don't have any sense of each other's businesses. Here. The key metrics are common across all these things. There might be some technical understanding around infrastructure, product, or what might be happening in a particular vertical that a partner might have, but the key metrics are the same. And so our processes that every deal, no matter how small or how big, goes through the same investment committee process. We meet once a week, kind of common like a lot of other firms out there. And the team, whoever the team is, presents the deal to the ic. We debate it, we ask questions, we ask for follow up information. And out of that either comes this is something we want to pursue, we don't want to pursue, we only want to pursue, but only at kind of this valuation. And the team then goes out and kind of executes on that. And then if say we sign a term sheet, they'll come back with a more detailed diligence package that goes through all the typical diligence things you'd assume that gets reviewed and discussed again. Sometimes there's follow up questions that come out of that, sometimes there's not. Has to get through that second approval process. And then if it gets through that approval process, then we would then fund. But before anything even gets there, we have a number of teams that are Staffed with these sourcing analysts and associates and mid level people that really do the hard work before something even gets the investment committee. So Ryan and Richard both run a team and you know, they each have their slightly different focuses, but they each run a team and they're meeting with their team on an even more ongoing basis to kind of prioritize the deals that we want to, they want to pursue. And then if it gets through their own team, then they would bring it to the overall investment committee.
- [25:53]
Barry Ritholtz
So I've heard some venture capitalists talk about valuation almost as if it doesn't matter which. As a public markets guy, I kind of shudder when I hear it. I think it was Marc Andreessen who once said, all right, we were early stage investors in Facebook. Had the valuation been doubled, it practically wouldn't have affected our returns. My immediate answer was, well, they would have been half if the initial investment was double. But, you know, 100x point taken. How do you think about valuations, especially when you're looking at early stage A or B rounds where it kind of feels like total addressable market growth projections? I don't want to say fabricated, but they're squishy best estimates.
- [26:41]
Alex Rodriguez
They're guesses. Yeah, Okay. I mean, look, but in an early stage deal, like, it's a guess. I think the person who wrote a check in Palantir didn't know that Palantir was going to become what Palantir became, but they saw an entrepreneur with a vision, with a potentially large market and decided to make the bet that this person could execute and turn into that larger market. Right. Look, I'm not going to say the valuation doesn't matter, but I think what you can say is that we have, it's a line that one of my partners uses that we don't overpay. Companies just miss their numbers, which is just, I mean, it's said in jest, but really the point is that generally, not always, but generally the price we paid, if the company hit the numbers that we thought they were going to hit, even if the price seemed high on current revenue, feels reasonable. So companies that, even recently, AI companies that seemed expensive six months ago don't look so expensive six months later just based on kind of how their run rate revenue has changed. So the way we think about this is we do care about valuation, we lose deals on valuation, but that doesn't mean the deals that we win aren't high absolute valuations. It's just how much conviction do we have in the growth? Right. And this is why These markets are not efficient. You can have very high conviction on XYZ companies growth and I can have low conviction. And one of us will likely be right. And if I was right and did it, good for me. And if I was right and didn't do it, it just depends on who's right. So I think the way we think about it is all of these deals today, certainly AI deals on a multiple of revenue basis are going to feel expensive. Of course you have to look at growth adjustment. Even as a public market investor, you'd say that a company that's growing at 10% is going to have a different valuation than a company that was going to grow at 30%. Now how do you even start thinking about a company that's growing at 100%? It's hard to think about. It's not hard to think about it for a year. But if something can grow 100% for three years and then even if it decelerates and compounds off three years of 100% growth, that's a pretty high multiple that you can pay. So the way we really think and talk about it is not valuation doesn't matter, but we think about it in terms of if you're paying a high multiple, then your conviction needs to be high on the growth rate. Now you're not always going to be right. And that's part of the business. We just have to be right enough.
- [29:16]
Barry Ritholtz
You mentioned software. The first thing that comes to mind is Silicon Valley, San Francisco, the West Coast. Insight Partners is New York City based. I know you have offices around the world. Is there an advantage or disadvantage to being based here in New York?
- [29:33]
Alex Rodriguez
We think there's an advantage. Now maybe it's, you know, maybe we're just convincing ourselves that because we live here. But, you know, I think that not being in, I mean, I can tell you what the disadvantages are, but I think the advantages, not being in the bubble, like we're not all having breakfast at Bucks and talking about the same 20 deals. Now maybe that's bad if those 20 deals are the deals you have to be in, but there's a tendency to have everybody kind of want to do the same thing. And I think not being in that every day lets you step back more and kind of decide what you want to do as opposed to what everybody else is doing. You know, I think there's a disadvantage too. Like the strategic buyers are all out there. You know, we're not in the same flow of those companies sometimes as people might be seeing those people all the time. But on balance, I mean, I think we've done okay, and we've managed to sell to a bunch of strategics. And so I don't think it's hurt us to be here.
- [30:29]
Barry Ritholtz
And I mentioned you have offices around the world. You literally, you know, it's not just New York, Silicon Valley, London. You guys are all over the place.
- [30:37]
Alex Rodriguez
Well, really, it's really, it's really for presence. It's New York, it's San Francisco, it's London, it's Israel. Those are really the four places.
- [30:46]
Barry Ritholtz
So how does being global help the firm? What do you learn from having that sort of global perspective?
- [30:52]
Alex Rodriguez
Well, I think we're pretty disciplined about how we've grown, and I'd be surprised if you see us have a lot more offices in five years. If you look at Take Israel with Jeff Horning really drove that strategy for us to get into Israel. I think I might get the numbers wrong slightly, but I think we had 60 or 70 companies in the portfolio before we put the first person on the ground. And at that point, there were six firms that had five to 10 people there that had portfolios of five or 10. Because I think the thing that we want to avoid is if you put somebody on the ground before you have a portfolio, then they need to rationalize their existence by creating a portfolio. And maybe that's a good idea, but maybe it's a horrible idea. And by having the bar that if you want to do a deal in Israel or you want to do a deal in India, you actually have to get on a plane and go 10,000 miles or fly, you know, 12 hours.
- [31:49]
Barry Ritholtz
Got to be a really good deal.
- [31:49]
Alex Rodriguez
You got to be really excited about it. Right. And so it creates a natural, like, no, I like this deal in Long island better. Okay, well, you spoke with your, you know, you spoke with. And it probably should have a little bit of a better return in order if it's that far away. Right. And so we've kind of waited in these places to have really conviction that that's going to be a market, because we have a lot of companies in that market before we add presence there. So there's plenty of places in the world where we have companies, more companies than funds that are in that local market.
- [32:23]
Barry Ritholtz
Really interesting. Coming up, we continue our conversation with Devin Parek, managing director at Insight Partners, discussing the state of startup investing today. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in business on Bloomberg Radio. My extra special guest this week is Devin Parekh, managing director at Insight Partners. The Firm runs over $90 billion in venture capital and various Alex I'm Alex Rodriguez.
- [32:58]
Jason Kelly
And I'm Jason Kelly.
- [32:59]
Alex Rodriguez
And we're back with more episodes of our show the Deal.
- [33:05]
Jason Kelly
We've got behind the scenes conversations with sports, greatest business people and athletes from Serena Williams and Stephen A. Smith to Bill Belichick and Melody Hobson.
- [33:14]
Barry Ritholtz
I got dangerous in seeing up arrows. Up arrows.
- [33:18]
Jason Kelly
Catch up on the interviews you've missed and listen to all new episodes every Thursday on Apple Podcasts, Spotify, YouTube or wherever you get your podcasts.
- [33:26]
Barry Ritholtz
Stages of Private Equity so you guys have a reputation for being software investors. Why have you focused on that one space and how many different subsectors are included under software?
- [33:43]
Alex Rodriguez
We've been doing software since 1995 and if you look since 1995 to today, I think I might be wrong about this and maybe there's one other category for which this is true. But I don't think since 1995 there's been a single year where the software industry declined in aggregate revenue through every recession, through every cycle. And as a percentage of gdp, it just continues to increase. The software component continues to increase. So I think if you'd asked a bunch of us 10 years ago, we maybe thought, oh, maybe we're going to cap out on software, we're going to have to go do something else. That really hasn't been a problem. I don't foresee it being a problem. So it's a massive industry who's had great growth, but the projected growth over the next 10 years is very strong. So I think that we don't need a new category to go after. We like this category. This category has got amongst the highest growth rate of any category out there and it's really well downside protected too. If you were to talk, if you had a lender on, they would tell you that software is their lowest loss ratio.
- [34:49]
Barry Ritholtz
What catches your attention first when you're looking at either a startup startup in software or a reasonably developed company? Is it the founders? Is it the technology? Is it a combination of both?
- [35:02]
Alex Rodriguez
Well, I think it depends on stage. Like, you know, I think in an early, in an early stage company, you know, founder and tech is really, really important. Right? Right. And market now, as you said earlier, you're making a guess sometimes on a market at a very, very early, at a series a stage. Now you're hopefully making an educated guess based on lots of pattern recognition of companies Based on lots of data and how big that market is, is measured in different ways. But it's a common mistake to underestimate a market. Right. I mean, when we look back, it's a little bit more of a consumer example. But when we look back, I remember looking at Uber and we convinced ourselves that how could you ever pay a valuation that's higher than the total tam?
- [35:42]
Barry Ritholtz
Right?
- [35:42]
Alex Rodriguez
And the total TAM was New York and San Francisco of black cars. Well, it turns out that's not really the total TAM of Uber today. Right. Forget about food delivery and groceries. I was just talking about cars. Yellow Cab. Yeah. Just because they went to uberx and uber x totally changed the TAM. So I think TAMs are not static. Right. And I think that's a very, very hard think to recognize that, okay, maybe they're going after a small problem today, but that might be the trojan horse to get into bigger and bigger markets over time. That's where intuition and pattern recognition and kind of seeing what a great founder is. Which is why, look, early stage, I think is much harder than growth stage or buyouts where you have lots of data and financial metrics that you can kind of rely on.
- [36:27]
Barry Ritholtz
I love the idea of the Trojan horse. Somewhere along the lines someone said you could practically ignore the seed stage or early stage business model because there's always going to be a pivot. The trojan horse are the founders. How accurate is that, that point of view?
- [36:45]
Alex Rodriguez
Well, I mean, I think it like in everything when people make statements like that, they tend to focus on the winners, right? So they'll look at XYZ company that pivoted and say, oh, look, everybody can pivot. Well, everybody doesn't pivot. And you do have a huge, very high loss ratio at seed, early stage and even series A. And the strategy is different, right? You have a power law in series A, you have a power law and seed and you have a power law. Even in buyout, it's just a different power law. In buyout you can basically your power law is not a lot of losses. It's you can have some 1x's or 1.5x's, but you probably need a couple of 4x or 5x's. In seed, you probably need 100x and you have a very high loss. In series A, you need a bunch of 10 or 15 or 20 x's but you can still have losses. So depending on what stage, there's this view that power law only applies to venture, really applies to all stages. It's just what a loss is what a loss is is defined differently. Right? A loss and a buyout might be just a 1x or a 0.8x. You can't really have a lot of zeros and buyout. Right? So I think the power law continuum is true across all these markets.
- [37:56]
Barry Ritholtz
So AI is obviously a really big sector today. What other sectors excite you the most? Or how much does AI fit into just looking out there as, as game changing technologies?
- [38:11]
Alex Rodriguez
Well, look, I think every firm, whether they're a venture firm, a buyout fund, doesn't really matter what type of investing people are doing. I think it'd be a huge mistake to ignore AI. Right? Even if you're not investing, quote unquote in an AI company, you better be thinking about how AI is going to affect your business model or how can it improve your business model and those who don't, even people in services businesses. Like if you're running a law firm today, you're running an accounting firm today, you really need to think about how is AI going to affect my business. So of course in our case, in our more mature companies, a lot of what we're thinking about is how do we accelerate growth and revenue through new AI products and how do we reduce costs and increase margin through applying AI technology in the companies or earlier and mid stage companies are often AI native. They're actually going after a new market, the legal vertical or construction vertical with kind of a new AI focused product. I mean, I think what's true is that every company to some degree is an AI company. It doesn't mean that they're AI in their name, but every board meeting that we go to at Insight, we're talking about AI. And the irony is even the board meetings I go to at Nylangone, we're talking about AI, board meetings I go to at cfr, we're talking about AI. Because if you're a medical, if you're a hospital today, you're thinking about how do I have a better experience for my patient, how do I think about increasing throughput? The average wait for a neurologist today across the country is eight to nine months to get an appointment. Now imagine you're suffering from a real problem and the doctor says, well, I'll see you next year. Now what if we can get AI to be able to help assess these problems earlier? And all of a sudden you take the data from the best institutions and you make that available in an AI application. So now people in Appalachia have access to the same level of care as people who have the benefit of being able to be near nyu, Lingone or Mount Sinai. Right. And so I'm going broader in my answer to your question, which is I think AI is now affecting everything we do. And so I think every company that we invest in talking about what's the impact or and then the other thing we talk about is like the other big debate in kind of AI land is what will get owned by the LLMs and what will get owned by the application providers. Right. How much of this, how much of the value will accrue to the models, the OpenAI's and the anthropics, and how much of the value will accrue to the applications? I don't think anybody can answer that question. We don't know.
- [40:57]
Barry Ritholtz
So I remember in the late 90s when the dot com was just exploding, it kind of felt like a handful of companies were sucking all the oxygen in the room from everybody else. Is AI doing that? Like I would imagine things like cybersecurity and fintech and other software driven startups, are they starving for capital or is there just so much money out there that even AI can't suck all the money?
- [41:29]
Alex Rodriguez
No, there, there's a, you know, there's a tremendous amount of capital out there and there are lots of companies outside of the ones that everybody knows that are growing really, really quickly, often serving a vertical market. I mean, what's still true is that if you have an application that is serving a market where there's a lot of domain expertise or data required, you still have a moat. And so I think this, you know, because one of the big debates is, oh, is does AI mean that the software companies are going to be dead? We don't believe that. What we do believe is you have a very generic application that doesn't have any vertical domain expertise, doesn't have any data moat, then I think you're at a significantly higher risk. But I think there's lots of examples. We're seeing them, we're investing in them in specific health care applications and legal applications, construction industry, where you have companies that have true business process vertical expertise coupled with data moats.
- [42:30]
Barry Ritholtz
What other spaces have you excited besides AI, which is obviously going to have a giant, giant impact? What other areas are really interesting?
- [42:39]
Alex Rodriguez
I think, you know, cyber continues to be a really important area and one could argue, and we're just, we have, I don't know if we might just be announcing it, I don't know whether we announced it yet, but you know, investing in something that's kind of related AI related security. And so all. Every time you have these big new platform shifts, you have infrastructure around that platform, platform shift, that's important. Right. And so I think we're seeing a lot of next generation infrastructure investments, cyber investments. So there's a lot of markets that we're seeing. And I think what's happening right now is if I'd answer this question, you know, a year ago I said, well, we're doing vertical applications, we're doing these types of horizontal applications. And now it's all getting bucketed into AI because it has an AI angle. But there are subcategories, you know, within, within AI. There's not like just one AI company out there. There's obviously lots of companies and it's just becoming. That AI is becoming almost like an operating system that all of these new vertical applications are being built on.
- [43:45]
Barry Ritholtz
I haven't heard you mention crypto. Is that a space you guys explore or is that too specific?
- [43:51]
Alex Rodriguez
Well, I'll put it in the past tense. We explored and decided, well, one, we didn't do that well with it, and two, the fundamental problem that we've seen in it is that when these companies would come in, we met with hundreds of companies in crypto. When these companies would come in and you'd say, okay, tell me what it is about your application that makes it better than if it were just in a relational database. Like a very simple question. You'd kind of get back like all kinds of technical answers and white papers. And I'm like, right, but like, just like as a user, what problem does.
- [44:29]
Barry Ritholtz
This solve that I can't, that I can't solve for.
- [44:33]
Alex Rodriguez
We didn't just generally get a really good answer. Now, I don't want to say that there's not going to be any crypto applications that are going to be successful. I'm sure there will be. I mean, obviously if you talk to CEO Visa, you talk to the CEO of mastercard, they'll talk to you about stablecoins and the impact stablecoins could have. Obviously an administration that's very pro crypto, pro crypto regulatory. So I think you're going to see money being made in that category. We just, I mean, I guess we're used to trying to find applications where we see, here's a clear business use, here's a clear payment for that business use, and here's how they can scale. We haven't really been able to decrypt that in crypto, but I'm sure there are others out there who understand that better. And I'm sure there'll be some winners, but we've just chosen to not focus on it.
- [45:23]
Barry Ritholtz
So let's talk about some winners. I see a run of exits that Insight Partners is associated with. You're an early investor in Twitter, which IPO'd Buddy Media, acquired by Salesforce Investment, sold to NASDAQ, Alibaba, JD.com, duck Creek, APRIS. The list goes on and on. Tell us about some of these exits. You guys really have put together quite an impressive list.
- [45:51]
Alex Rodriguez
Well, I'd rather talk about her exits from this year. Okay, so keep it current. Yeah, which, you know. So my partner Jeff Horing led our investment in Wiz, which sold to Google, I should say signed a definitive agreement to sell to Google, hasn't closed yet for $32 billion. Largest venture backed acquisition by Strategic. My partner Richard Wells led an investment in a company called Central Reach, which does software for autism clinics. We sold that for just under $2 billion to Roper Industries. And then my partner Jeff Lieberman led a deal called Dotmatics, which we sold to Siemens for just over $5 billion. And you know, the interesting thing about both, the interesting thing about those deals is one's a traditional early. So we did Wiz as a series, I think B, and then kind of continued to participate along the way. Both Central Reach and dotmatics were venture buyouts, but the multiples on money were like venture multiples of money really. So venture returns with buyout, dollar deployment, it's a good combination. I think we've got more coming over the course of this year. So I think we've had a really strong year. One of the things that I think contributed to that is I think historically we were not great on liquidity. And by that I mean not that we didn't have good companies, we just didn't focus a lot on liquidity. And as big LPs in our funds, we're generally the GP is tied or close to tied as the largest investor in the fund. So we're pretty aligned with our investors. We were focused on multiple money and not so focused on, I mean, within reason we're focused on irr, but it wasn't what we. And I think over the last 10 years, 15 years, you've seen a massive transition in the institutional LP base of a shift from MOIC to IRR.
- [47:51]
Barry Ritholtz
So I want to, I want to stay there because it's kind of fascinating. I had no idea because I don't play all that much in the venture space or the private equity space that, hey, we have long standing liabilities that we eventually want to meet. And even though we knew this was locked up for depending on the fund, five, seven, nine years, we'd like to see some exits sooner than later. When did this start happening and what do you think is driving this?
- [48:17]
Alex Rodriguez
Well, I mean it's probably been happening for years, but it's accelerated in the last year.
- [48:22]
Barry Ritholtz
Post pandemic?
- [48:23]
Alex Rodriguez
Yeah, post two or three years when you had the correction and people felt overallocated and 21 had this huge peak of investing. And so now there's this big bubble of investing but not enough liquidity coming back relative to the deployment. In the last two to three years it's accelerated. And so we, you know, we took that feedback seriously. I don't think we're the only ones who got that feedback, but we actually put a liquidity committee together. It's from people across the firm. Both, both our financial function, our investment team, our operating team and we now have quarterly liquidity meetings where we target companies for liquidity. We kind of talk about what the IR is from here and I think the, and that was set up about 18 months ago. But I think a result of that is, you know, I don't want to say it's a direct result because you can't press a button, but a focus on it, everyone talking about it, everybody feeling like they have accountability to that process, I think has led to a lot more liquidity over the last. So I think we've gotten an ROI on really putting focus against it. Really interesting. Our LPs gave us feedback on it. You know, I think we, look, we thought about it, we said, yeah, it's fair feedback. Let's make a change, let's make an adjustment.
- [49:37]
Barry Ritholtz
So you mentioned the boom in 21 and then the pullback in 22. You started in the mid-90s. You've lived through numerous boom and bust cycles. What's your big takeaway from those experiences?
- [49:51]
Alex Rodriguez
Well, I think when you're living in the depths of feels like it's never going to end and it always ends.
- [50:00]
Barry Ritholtz
This too shall pass.
- [50:01]
Alex Rodriguez
This too shall pass. And I think that's a hard lesson because listen, the thing that's still the hardest to do is Warren Buffett's investment. Everybody's scared and you get yourself ready and you've got your I'm going to move X dollars to the Vanguard Index fund and then you don't do it. Why? Because you don't think it's ever going to pass. Right. Because if you thought you were going to Pass. Of course you'd do it. And human psychology is really, really hard to change. And I'm including myself in that definition.
- [50:33]
Barry Ritholtz
It's so difficult to fight the crowd when everybody's running for the exit. You have to be built a certain way.
- [50:39]
Alex Rodriguez
I still remember when the market, 2008, the market was, you know, really crashing. And I remember having a conversation with somebody who know the markets really well, well known person, he said, yeah, GE can't roll their commercial paper, right? And I was like, holy crap.
- [50:55]
Barry Ritholtz
That was after AIG and Lehman.
- [50:57]
Alex Rodriguez
And I remember, and I remember it was like a Friday and it was a long week. And I called my wife and I'm like, you know, honey, let's just like go out for dinner. And she was like, let's stay in. And we're having this like five minute back and forth. I'm like, why are we talking about this? And she was like, well, I thought maybe we should save some money. I'm like, it's not that bad. Like, we could go out to dinner.
- [51:17]
Barry Ritholtz
But Ben Bernanke, former chairman of the Federal Reserve, famously sent his wife out to the ATM to get cash in case the system went bad. If he was terrified. It just shows you human nature is we're always going to be scared.
- [51:34]
Alex Rodriguez
I think that the thing. So I don't know that you could ever teach people to like, oh, move money. But I think the hard part is really, besides maybe not making as much money as you could make, the hard part is just feeling like it's never going to end. Right? And now having been through this as many times as I have and my partners have, you know, I think it's easier to recognize that, no, there's light at the end of the tunnel.
- [52:00]
Barry Ritholtz
Makes perfect sense. Let me throw you a curveball question before we jump to our favorite questions. So we talked about AI and we've talked about cycles. What do you think investors in this space, either technology or startup or M and A or ventures, are not really talking about or thinking about, but perhaps should be. What's the most important topic? Asset geography policy. That's getting overlooked. But shouldn't.
- [52:29]
Alex Rodriguez
I think people still, as much as we talk about it, I don't think people. I think people still under price. What happens if there's a real cyber risk? We think about cyber as, oh, my Citibank account got hacked. We think about cyber as, you know, I got a phishing email at work, by the way, all those things are bad and bad things can happen out of them. And, you know, everyone has probably dealt with some version of that.
- [52:50]
Barry Ritholtz
I mean, I'm more concerned about someone taking control of the electrical grid.
- [52:54]
Alex Rodriguez
I think we still. I mean, I think. I don't want to make it sound like the government doesn't think about it. I think they do, but I think it's just people. I don't think we realize, like, the level of risk if physical infrastructure were kind of taken over and there have been examples of it happening, like physical.
- [53:12]
Barry Ritholtz
Infrastructure, the electrical grid or something more specific.
- [53:16]
Alex Rodriguez
Water.
- [53:16]
Barry Ritholtz
Water.
- [53:16]
Alex Rodriguez
Water purification plants, electrical plants. I mean, hospital systems going down. Right.
- [53:22]
Barry Ritholtz
Well, we've seen. We've seen a lot of ransomware with that.
- [53:25]
Alex Rodriguez
We've seen that in individual institutions. Right. We've not seen it system systemically. Right. And, you know, that's a. That's a pretty. That's a. That's a pretty terrifying. That's a pretty terrifying risk. Now, I'm not saying, I mean, I'm answering your question as to something that I worry about that maybe we don't worry about enough. I'm not necessarily sure. It's like, I don't know how to price that into the market. It's not really a market answer. It's just something that I think, like, it's. It's an asymmetric risk.
- [53:56]
Barry Ritholtz
No, that's the right. So I'm not looking for a market, you know, asymmetrical dollar bet. You're raising an issue that perhaps we're not paying enough attention to.
- [54:04]
Alex Rodriguez
I think as the average. The average investor, the average person. I don't think. I think that risk is way bigger than we think it is. And if you talk to people in government, they would probably. They would agree with that.
- [54:15]
Barry Ritholtz
All right, so we only have a certain amount of time. Let's jump to our favorite questions we ask all of our guests, starting with, who are your mentors who helped shape your career?
- [54:27]
Alex Rodriguez
Well, you know, I think to a few different mentors, I was in elementary school a pretty indifferent student, to the point where, you know, I had Indian parents who were like, you're supposed to have good grades. And, you know, I did have bad grades, but, like, I was kind of an indifferent student. Didn't really focus a lot on school. I had a teacher in third grade who said, you shouldn't spend more than 30 or 45 minutes on your homework. I'd go home, look at the clock, 45 minutes, close my book. And then I had a teacher in sixth grade, Mr. Brown. I'll never forget Mr. Brown, who, for whatever reason, and I still can't tell you why, Saw some potential, you know, saw something in me that maybe other people didn't see. And all of a sudden, I went from like, indifferent student to like a straight A student. And it was that year he took interest in me. He would say, hey, look, you're really good, right? You should focus more on these things. And so for me, sixth grade Mr. Brown, very transformational mentor in a way, because he made me believe that I had something that I didn't really think I had. And then my dad gave me three important things he told me was one of them is kind of funny. He's like, you really need to learn how to. You need to be able to speak well, you need to be able to read well. And he's like, if you're living in this country, you should know how to play a sport, right? And so he. The way he tried to implement those is he made me take a speed reading class in elementary school.
- [55:56]
Barry Ritholtz
Was that useful?
- [55:58]
Alex Rodriguez
I speed read.
- [55:59]
Barry Ritholtz
You do?
- [55:59]
Alex Rodriguez
Yeah.
- [56:00]
Barry Ritholtz
No loss of comprehension?
- [56:01]
Alex Rodriguez
No loss of comprehension. He made me take a public speaking class with college students when I was in high school. And I was so scared of public speaking. I never could imagine then that I'd be doing a, you know, a podcast. And he didn't, he didn't succeed on sports, but his idea was he was like, you know, you should learn how to play golf. You know, like, that'd be a good thing to know. And Livingston High School, well, I play golf horrifically. But in high school, you could join the golf team. It was a no cut team. That doesn't mean you were going to get to play, but varsity letter, but you got to learn. And I just said, I'm not doing that. So I got two out of the three, But I think those two out of the three have been really, really important and have had a very, very positive impact on my life. And of course, along the way, there've been lots of people at all the places I've worked that have been mentors as well.
- [56:59]
Barry Ritholtz
Very, very interesting. Coming up, we continue our conversation with Devin Parekh, managing director at Insight Partners. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Devin Parek, managing director at Insight Partners. Let's talk about what's keeping you entertained these days. What are you watching or listening? Streaming podcasts. Anything along those lines?
- [57:31]
Alex Rodriguez
Oh, we could, we could. This, we could do a whole. We could do a podcast on the podcast, but my wife and I just finished watching Friends and Neighbors with John.
- [57:39]
Barry Ritholtz
So good.
- [57:40]
Alex Rodriguez
I thought it was great.
- [57:40]
Barry Ritholtz
So good.
- [57:41]
Alex Rodriguez
I really enjoyed. That's just pure kind of entertainment. Absolutely. On the podcast side, you know, I just like, I speed read. I can only listen to podcasts if I speed listen. So I listen to all these at 2.4x which drives my wife bananas because I'll get in the car and you know, I'm listening to something. It goes to the, you know, the Apple thing and she's like, turn this off. But you know, there's a bunch of. Interestingly, I'm Alex Rodriguez.
- [58:09]
Jason Kelly
And I'm Jason Kelly.
- [58:10]
Alex Rodriguez
And we're back with more episodes of our show the Deal.
- [58:17]
Jason Kelly
We've got behind the scenes conversations with sports, greatest business people and athletes from Serena Williams and Stephen A. Smith to Bill Belichick and Melody Hobson.
- [58:25]
Barry Ritholtz
I got dangerous in seeing up arrows. Up arrows.
- [58:29]
Jason Kelly
Catch up on the interviews you've missed and listen to all new episodes every Thursday on Apple Podcasts, Spotify, YouTube or wherever you get your podcasts reading.
- [58:38]
Alex Rodriguez
I tend not to read a lot of businessy books, but in podcasts I do listen to that. So. But the ones I listen to, I listen to acquired. I listen to business breakdowns. I listen to Nikolai Tangen's where he interviews the CEOs. I listen to invest like the best. I listen to you. I listen to Lex Friedman and then I'm at the ft though Lex Friedman's got his own. He's a affiliate with MIT in some way. He's got his own podcast. He gets really, really interesting people to come on. I'm involved in Carnegie and cfr, so they both have a podcast. One's called Grand Tamasha, which is on India, which is a policy area I'm interested in. Why It Matters is CFR's podcast. So I've got a. Driving to the Hamptons is easy because I have hours and hours of kind of content.
- [59:27]
Barry Ritholtz
Really interesting. Let's talk about books. What are, what are some of your favorites? What are you reading currently?
- [59:31]
Alex Rodriguez
Well, I, I read a lot and you know, I think two books that I just gave both. One kid just graduated from college and one is, you know, two years out of college, three years out of college. I gave both of them. I don't know if they both read both, but I gave them both books to read. One is Psychology of Money by Morgan Howe. I thought that was a great book. I wish I read that when I was 21, but I still felt like it was valuable. The other is called Five Types of Wealth by Sahil Bloom. Sure, I thought that was a great book. And those are more. I wouldn't put those as entertainment, but I found those. If you read those books and you kind of try to apply them to life, I thought both of those were really useful then. And then a lot of what I read is around topics that like, are around our philanthropy. Right. So, you know, one book I read which is this is not an upper. It's a book called Anatomy of an Epidemic by Robert Whitaker, which is about the use of psychiatric drugs in this country. And this is not an uplifting book. Of course there's an epidemic of anxiety.
- [60:41]
Barry Ritholtz
And depression going to say anything about American health care or psychology, but it motivated.
- [60:46]
Alex Rodriguez
It motivated. So one of the areas that we're philanthropically investing in is next generation ways of dealing with psychiatric conditions. And that book kind of was the starting point, you know, of that. And then the really depressing book I'm reading right now is it's a new book. It's called Nuclear War by Annie Jacobson. And it's, we talked about what are these theory. What are the scenarios out there that were underpricing. And you know, I just felt with what happened over the last two years, you know, I think we all, you know, we used to have fallout shelters, like a nuclear war. That's, that's, that's done. There's like, there's no risk of that. And I think the last couple of years just reminded me that, like, now it's not done. Like now it's not a high probability maybe, but it's not done. And what this book does is it actually starts at time zero. A nuclear bomb drops. What actually happens? Right. What is the defense mechanism that the offensive person uses? What's the defensive mechanism that the other country uses? What happens from. I mean, and it goes into it in not very uplifting detail. And it was just a good reminder that you have this thing out there that still has the chance to obliterate the world as we know it. Right. And it's not a zero percent probability, it's a low probability. But I think it is important to understand tail cases.
- [62:09]
Barry Ritholtz
Yeah. To say, to say the very least.
- [62:10]
Alex Rodriguez
We'Re ending on a very depressing note. So we might want to start. You might want to end on something more fun.
- [62:15]
Barry Ritholtz
No, it's. Listen, you know, sometimes you mentioned. So to make this positive, you mentioned Sahil Bloom. I had him as a guest on the podcast you mentioned Morgan Housel. I've had him several times. He wrote the forward to my book. Both those guys younger, all their work is much more uplifting, much less.
- [62:37]
Alex Rodriguez
An age thing. Yeah, I should have ended with that.
- [62:40]
Barry Ritholtz
But no, it's absolutely fine. Listen, sometimes you gotta shake people up and say, hey, this is a real risk and non zero is a pretty significant risk when the outcome is so catastrophic.
- [62:54]
Alex Rodriguez
Correct.
- [62:55]
Barry Ritholtz
So, final two questions. What sort of advice would you give to a recent college grad interested in a career in either startups, venture capital or private equity?
- [63:06]
Alex Rodriguez
Yeah, so I think that keep your intellectual curiosity broad. I was just speaking to our summer interns a month ago and somebody asked me like, what's your advice? And I said, I think the mistake a lot of people make is they decide, okay, I want to be in venture capital. So all I'm going to do is read TechCrunch and listen to tech podcasts and it just make you a very interesting person. And you know, I've probably had more dinners or one deals because we found a common interest in art or a common interest in wine. It isn't. I'm using the things I happen to be interested in, but it doesn't have to be those things. Right. And you know, everyone has intellectual interests outside of the thing that they want to do and I would encourage them to like pursue those and pursue those with passion because it's going to make you a way more interesting, well rounded person. And don't just be so micro focused on that thing. I just think it makes you a better investor, it makes you a better person, makes you more interesting. So that's 1, 2. In a world where we start getting people to do varsity soccer when they're three. Allow a little serendipity in your life. I wouldn't have ended up doing what I was doing if I just followed the plan and you know, something's interesting, try it and it turns out you might like it. Now you might not like it and go back to your original plan, but we've forgotten serendipity. It's why I still subscribe to paper newspapers. Because I'm probably the only person in my building that might still get paper newspapers, but because they're serendipity. When you're flipping through the newspaper, it's the article that you weren't looking for.
- [64:42]
Barry Ritholtz
Right.
- [64:43]
Alex Rodriguez
Is where you learn something. Guess what?
- [64:44]
Barry Ritholtz
You don't have that same discovery. And I am very aggressive looking for interesting things.
- [64:51]
Alex Rodriguez
Me too. And I think you don't get that. You really don't Economist is a great example. If you just get the digital Economist and you just see the article in AI I'm going to read that. Guess what? I probably already know that, right? I'm reinforcing knowledge that I have. Maybe I learned one tidbit that I didn't know. It's when you open it up and oh, there's this interesting article about nuclear that I don't know anything about. And I read it. Oh, wow. This is. Maybe this is, this is a, this is a real tail risk. Maybe I should understand this.
- [65:15]
Barry Ritholtz
I will give you the one exception to this is the Times doesn't do this well, but the Wall Street Journal does. So you go to the digital edition of the wall street WSJ.com but you could also click in today's paper, you get the breakdown by sections and then.
- [65:34]
Alex Rodriguez
Invest, and then you can kind of click.
- [65:36]
Barry Ritholtz
And as you scroll through it, it's the equivalent of flipping a newspaper page where you get those. Oh, I never would have People always.
- [65:42]
Alex Rodriguez
Laugh because I show up on a news, I'll show up on a plane and I've got my newspapers and they're like looking at me like I'm like a Martian, you know? And I'm like, no, there's a reason.
- [65:50]
Barry Ritholtz
No, absolutely. And our final question. What do you know about the world of investing today that would have been helpful to know back in 1995 when you were first getting started?
- [66:02]
Alex Rodriguez
Well, I think a really important one, it applies to investing, but I also think it applies to life is oftentimes people don't trust their instinct because they don't think their instinct is a real thing. They think their instinct, the gut, they have these words that people use. But the reality is it's micro slicing a lot of data that you've experienced earlier life. Now maybe at 21, your gut's not worth a lot. Okay, it's probably worth a lot in certain things, maybe some human interactions and things like that. It's probably not worth a lot in investing because you just don't have a database. But even at my age, you don't like, you have this inclination to not trust your gut. Like there's something about this deal that just doesn't make sense. But, oh, but the revenue looks good and the margins look good. And so I'll just overlook my gut. And I've just generally when I've overlooked my gut, it's not been. It's not been. It's not, it's not been a good thing.
- [66:51]
Barry Ritholtz
You mentioned pattern recognition earlier your intuition improves as you get more experience.
- [66:57]
Alex Rodriguez
You get more experience.
- [66:58]
Barry Ritholtz
You know, blink is perhaps overstates the case, but there's a lot.
- [67:02]
Alex Rodriguez
But it's, but it, but it's. I agree. I've read the book and I think it overstates it. But, but there's a, there's something, there's something there, you know, at the core. And then the second one is I think what we talked about earlier. Good times come, bad times will invariably come, and good times will invariably follow. And you just have to have confidence that both are going to be there and that you're going to learn from both.
- [67:23]
Barry Ritholtz
Devin, this has been absolutely fascinating. Thank you for being so generous with your time. We have been speaking with Devin Parekh, managing director at Insight Partners. If you enjoy this conversation, well, check out any of the 550 we've done over the past 11 years. You can find those at Bloomberg, iTunes, Spotify, YouTube. Wherever you find your favorite podcast. Be sure to check out my new book, how not to Invest. The ideas, numbers and behaviors that Destroy wealth and how to Avoid Them. How not to Invest. Wherever you find your favorite books, I would be remiss if I did not thank the crack team that helps put these conversations together each week. Alexis Noriega is my video engineer. Anna Luke is my producer. Sage Bauman is the head of podcast at Bloomberg. Sean Russo is my researcher. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.
- [68:35]
Alex Rodriguez
I'm Alex Rodriguez.
- [68:36]
Jason Kelly
And I'm Jason Kelly.
- [68:37]
Alex Rodriguez
And we're back with more episodes of our show the Deal.
- [68:43]
Jason Kelly
We've got behind the scenes conversations with sports, greatest business people and athletes from Serena Williams and Stephen A. Smith to Bill Belichick and Melody Hobson.
- [68:52]
Barry Ritholtz
I got dangerous in seeing up arrows. Up arrows.
- [68:56]
Jason Kelly
Catch up on the interviews you've missed and listen to all new episodes every Thursday on Apple Podcasts, Spotify, YouTube or wherever you get your podcasts.