Horse Barn: HVAC, Windsurf, Vanguard

Summary

Money Stuff: The Podcast – Episode Summary: "Horse Barn: HVAC, Windsurf, Vanguard"

Release Date: July 18, 2025
Hosts: Matt Levine and Katie Greifeld
Publisher: Bloomberg

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1. Introduction to Search Funds

In this episode, Matt Levine and Katie Greifeld delve into the concept of search funds, a unique entrepreneurial path primarily pursued by recent MBA graduates aiming to acquire and manage small, often unglamorous businesses.

Notable Quote:
Matt Levine (02:05): “I'm only really excited to talk about search funds, if I'm being honest, because...”

2. The Allure of Search Funds

Katie explains the appeal of search funds, highlighting how they offer MBA graduates a structured yet entrepreneurial route to ownership.

Key Points:

• Search funds involve raising a six to seven-figure fund from investors, typically family or professional backers, known for offering attractive returns.
• Founders, referred to as "searchers," spend years sourcing and acquiring a suitable small business, often with aging owners looking to retire.

Notable Quote:
Katie Greifeld (03:02): “A search fund is like you go to business school, you graduate, you raise a like six or seven figure fund from investors...”

3. Case Study: Dan Schweber's Acquisition of an H Vac Company

The hosts discuss a Business Insider article featuring Dan Schweber, a searcher who successfully acquired an HVAC (referred to humorously as "H Vac") company in New Jersey after extensive outreach.

Key Points:

• Schweber sent 3,600 initial emails, conducted 375 introductory calls, arranged 30 introductory meetings, and secured six letters of intent.
• His persistence culminated in the purchase of an HVAC business, showcasing the grit required in search funds.

Notable Quote:
Matt Levine (04:32): “He emailed the guy 12 times... I don't think I've ever made it to the 12th email.”

4. Impact on the Employees and Company Dynamics

Katie explores how the acquisition by a search fund affects the existing employees and the broader company culture.

Key Points:

• Transitioning from a long-standing owner to a young, often MBA-educated CEO can be jarring for employees.
• The new leadership typically brings in optimized business practices, aiming to enhance operational efficiencies and profitability.

Notable Quote:
Katie Greifeld (07:09): “...the founder and owner of the business is getting a bunch of emails. How do the employees react when you tell them this 32-year-old now owns the business...”

5. Potential Paths and Outcomes for Searchers

The discussion shifts to the long-term prospects for individuals who embark on search funds, including the potential for significant financial rewards and career trajectories.

Key Points:

• Successful searchers can exit with substantial payouts, though the majority earn between $4 million to $10 million (16:12).
• There exists a possibility of scaling by acquiring multiple small businesses, potentially evolving into private equity magnates.

Notable Quote:
Katie Greifeld (10:00): “There are two paths to that outcome. There's the outcome of being a private equity associate and there's the outcome of taking over an H Vac company.”

6. Acqui-Hiring in the AI Industry: The WindSurf Case

The conversation transitions to the AI sector, focusing on the controversial acqui-hiring practices involving companies like Windsurf.

Key Points:

• Windsurf, an AI coding assistant startup, was subject to multiple acquisition attempts. OpenAI's failed $3 billion bid contrasted with Google's $2.4 billion deal focused on acquiring top talent rather than the entire company.
• The subsequent acquisition of remaining assets by Cognition left Windsurf's employees without their intended roles, highlighting the precarious nature of acqui-hiring in tech.

Notable Quote:
Katie Greifeld (23:10): “...Google was trying to acquire the top talent from Windsurf to feed into the maw of having AI researchers do AI at Google...”

7. The Role of Vanguard and Index Fund Holdings

The hosts examine the significant influence of Vanguard, an index fund giant, in the landscape of corporate ownership and its indirect exposure to cryptocurrencies through holdings like MicroStrategy.

Key Points:

• Vanguard's Total Stock Market Index Fund is among the largest, holding shares in a vast array of public companies, including those outside the S&P 500.
• This pervasive ownership means Vanguard holds substantial stakes in companies like MicroStrategy, which owns significant amounts of Bitcoin, thus providing indirect crypto exposure to investors.

Notable Quote:
Matt Levine (33:40): “Vanguard is one of the biggest shareholders of every single public company...”

8. Implications for Crypto Exposure through Index Funds

The discussion highlights how index funds inadvertently offer exposure to cryptocurrencies, bridging traditional investing with digital assets.

Key Points:

• Companies like MicroStrategy serve as vehicles for crypto exposure within index funds, allowing investors to gain indirect access without holding cryptocurrencies directly.
• This method satisfies institutional and conservative investors who may be wary of directly investing in volatile assets like Bitcoin.

Notable Quote:
Katie Greifeld (37:01): “The bitcoin treasury companies are interesting because they give you a way to own crypto if your only investment is the total stock market.”

9. Conclusion and Final Thoughts

Matt and Katie wrap up by reflecting on the evolving nature of business acquisitions, the strategic moves of big tech in the AI space, and the broader implications for investors and entrepreneurs.

Key Points:

• The intersection of traditional business practices with modern investment strategies continues to reshape industries.
• Both search funds and AI acqui-hiring represent strategic approaches to growth and talent acquisition in their respective fields.

Notable Quote:
Matt Levine (45:15): “I wanted to say that when we mentioned last week that we were going to name your bird friend of the show Bill Ackman, we got approximately 20 emails saying of Perching Square Capital Management.”

---

Key Takeaways

• Search Funds offer a structured path for MBA graduates to acquire and manage small businesses, requiring significant persistence and offering substantial financial rewards for success.
• Acqui-Hiring in the AI industry reveals the intense competition for top talent among tech giants, often leaving startups and their employees in uncertain positions.
• Vanguard’s Dominance in index fund management results in wide-reaching ownership stakes, including indirect investments in cryptocurrencies through companies like MicroStrategy.
• Investment Strategies are increasingly blending traditional and modern approaches, providing diverse opportunities and challenges for investors and entrepreneurs alike.

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For Further Information:
Subscribe to the Money Stuff newsletter on Bloomberg.com, listen to daily episodes on Apple Podcasts or Spotify, and engage with the hosts by sending questions to moneypodloomburg.net.

Transcript

[Karen Moscow]

Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow.

[Nathan Hager]

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[Karen Moscow]

Find us on Apple, Spotify or anywhere you listen.

[Unknown]

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[Matt Levine]

I'm excited for today's episode. I'm only really excited to talk about search funds, if I'm being honest, because.

[Katie Greifeld]

I want to get straight into you, your future as a H vac technician.

[Matt Levine]

Yeah, I was reading this article as a guide, you know.

[Katie Greifeld]

Right. The appeal of the search fund is that like, who among us hasn't wanted to own a lucrative H vac business in New Jersey?

[Matt Levine]

Just run into the swamps of New Jersey and get into waste management. Wait, that's a different thing.

[Katie Greifeld]

It's a similar thing.

[Matt Levine]

It is similar. I was talking about. There's all these in the Sopranos way. Yeah, right, right, right, right, right, right, right, right.

[Katie Greifeld]

Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about st. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Matt Levine]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Katie Greifeld]

Wouldn't that be a great story though, if you're like some 28 year old Harvard MBA and you're like, I'm starting a search fund and you scour the earth and you send cold emails to a bunch of people and you end up getting into the waste management business in New Jersey and you're like, oh great, now I can like be my own boss and like run this lucrative business and then like the mob shows up.

[Karen Moscow]

Yeah.

[Matt Levine]

Surprise. Yeah. Now you have, you have many bosses and they'll kill you. I had never heard of search funds before.

[Katie Greifeld]

Really? I read about it.

[Matt Levine]

Even as a Dedicated Money Stuff reader. I guess I never absorbed it, but I was so charmed by this piece. This is probably the longest article I've read in a long time, but I read it start to finish in Business Insider, right?

[Katie Greifeld]

There's a Business Insider story about search funds. I love search funds so much because search funds are like, if you get a business degree from a fancy school, the highest calling could be running a duct cleaning business or I always say pest control. Like pest control to me is the archetypal search fund. I don't know if it's actually that common a search fund use, but basically, right. A search fund is like you go to business school, you graduate, you raise a like six or seven figure fund from investors. The investors, I think are often like your family, but sometimes are professional investors because the returns on search funds are really good. And then you go out and search for years to find a boring small business whose somewhat aging owner is looking to get out of the business and sell to some young whippersnapper. And then you buy it and then you run it and you use the tips and tricks that you Learned in your 2 years of business school to optimize it. And you're like a little private equity kingpin, except instead of being an associate at a big private equity fund, it's just you. And instead of rolling up a giant business, you buy one pest control company and then you run the pest control company. It's so good.

[Matt Levine]

It is so charming. And I mean, reading this Business Insider article, okay, so it's told through the lens of this man, Dan Schweber, I believe his name is. And I mean, I thought that. I deal with a lot of rejection as a journalist. Being a search fund founder, what do you call them? Just a search funder.

[Katie Greifeld]

Searcher.

[Matt Levine]

A searcher.

[Katie Greifeld]

Yeah.

[Matt Levine]

Being a searcher sounds absolutely grueling in terms of dealing with the word no. By the end of it, he sent 3,600 initial emails, 375 introductory calls, just 30 intro meetings and six signed letters of intent. And this business that he ended up buying, which is an H Vac company, he emailed the guy 12 times, as you pointed out in your column, and I don't think I've ever made it to the 12th email, but I don't think I've sent 12 emails to the same person pitching them, which is, I don't know. It was inspiring. It was inspiring on so many different levels. Matt.

[Katie Greifeld]

How persistence pays off by getting you an H Vac company.

[Matt Levine]

Exactly. If I just send a dozen Emails, maybe I can own an H Vac company.

[Katie Greifeld]

What I love about it is that this was a sort of novel idea at some point 20 years ago and it has now really pervaded the top business schools so that a lot of people are doing this. Which means that if you run an H Vac company, you are constantly, constantly getting cold emails from searchers. Of course you had to email the guy 12 times because the guy was like, ah, more search funds. It is such an amazing time to be in an unglamorous business because there are so many people with MBAs who want your unglamorous business. A lot of them are searchers, but some of them are private equity funds doing rollups of pest control or whatever. There are a lot of buyers to choose from if you happen to own an H Vac company. And I don't know, it's just so strange to me to think you're a plumber, you work in plumbing for 20 years, you start your own plumbing company, you go around doing plumbing and then you occasionally check your email and there's 400 emails from private equity firms and MBAs. It's just a strange dynamic.

[Matt Levine]

It's a seller's market. I wish I had a plumbing company to sell.

[Katie Greifeld]

Right. One thing I wondered about is if you are a search funder and you buy yourself a plumbing company in a year, do you flip it to another search funder because the demand keeps growing?

[Matt Levine]

I do want to talk about that, how you exited as a searcher, but you seemed charmed by particular from getting into the shoes of the man who owned this H Vac company. The article also got into the shoes of the employees who worked there. I think that's another interesting level. Like, okay, the founder and owner of the business is getting a bunch of emails. How do the employees react when you tell them this 32 year old now owns the business and you work for him and he's the CEO and you know, he's some Harvard mba.

[Katie Greifeld]

Okay, here's how I think about this. I think in the olden days people would start businesses and they would be like, you know, high school educated. Like, you know, they start a business because like they're just scrappy entrepreneurs. And then they would run the business for a while and they'd have employees and they would have like a kid and they'd be like, well of course the kid is going to take over the family business, but because they're rich now instead of like the kid, just like, you know, starting at the family business after high school, they send the kid to Harvard Business School and the kid gets all these like newfangled business ideas and he comes back at age 28 and he's like, I'm going to take over the family business and run it in a modern way. And like, you know that's good, right? Like you have like the scrappy founder and then you have the next generation is like professional and educated, but the chain has been broken. So now like the founder gets rich and the kids are like, well, I don't want to work at the family H Vac business. That sounds terrible, right? So the kids go off and like become documentary filmmaker and meanwhile it's really hard to get into Harvard Business School now. So you can't just get into Harvard Business School by being the shiftless child of an H Vac founder. But all the people in Harvard Business School, there's still a demand for Harvard MBAs to run H Vac companies. So now instead of it being the kid of the founder, it's just some random person who happened to get a Harvard MBA and now wants to run the H Vac business in Peoria. So it's disaggregated the family.

[Matt Levine]

The family business, the family heir.

[Katie Greifeld]

Yeah. Instead of the son taking over the family business with fancy Harvard degree, it's like some random person takes over the family business with his fancy Harvard degree. But it's still kind of the same. The employees still have to work. For a 32 year old who hasn't worked at H Vac, it all makes sense. It's just become more coldly logical and market driven.

[Matt Levine]

Something that I kept thinking about while reading this article. For some reason, a meme that keeps popping into my various algorithms is cartoon guy, hand in his face in the middle of the circle. And it's like I meet a girl, her dad owns like a $20 million a year like waste management company or pest control or something, but he doesn't want to like hand the keys to his ambitious future son in law and then we stop talking. Which it would be a lot funnier if I could show you the meme, but I promise it's funny, but it kind of reminded me of this.

[Katie Greifeld]

Sure.

[Matt Levine]

Anyway, I thought also it was interesting. You know, this article described it as a phenomenon happening around like late 20 year old and like graduates in their 30s. And I think it speaks to something about millennial culture that there is that desire to run into the woods or go to Peoria and run an H Vac company versus stay in a city and try to climb the corporate Ladder like this probably happens with every single generation, but it does feel like it speaks to some sort of disillusionment.

[Katie Greifeld]

Yeah, I mean, I don't know. You think about like what you can do with your mba, right? Like if you're a sort of corporate type, like you can go work in private equity and you can start by building models and doing kind of grunt work. And your hope is that in 10 or 15 years you'll be kind of leading big deals and sitting on boards of companies and kind of running portfolio companies. Or you can just do deals and run companies yourself immediately, with the trade off being that those companies are small pest control companies in Peoria. But maybe that's a good trade. Maybe you want that trade. I am sure that in 10 years you'll be reading about people who started as search funders and bought one H Vac company and then bought another H Vac company and then became billionaire private equity kingpins by doing roll ups of their industries. There's kind of two paths to that outcome. There's the outcome of being a private equity associate and there's the outcome of taking over an H Vac company. And I bet the second path is more likely to get you to the billionaire kingpin outcome at this point than like being a private equity associate.

[Matt Levine]

Well, I think you have to have some ridiculous amount of just self confidence or unearned ego to think like I am going to go in and I am going to CEO this small company. Like it hasn't been CEO'd before.

[Katie Greifeld]

Yeah, it's you like a little bit more confident, a little bit more risk taking. You're not like just following the expected prestigious path of going to a private equity firm. You're like, I'm going to strike out on my own and see what happens. Well, you know, it's interesting because like also in 10 years this will be such a like well, trodden path. You know, there'll be like incubators for search funds and like it'll be so standardized that it won't be like particularly entrepreneurial and risky anymore. But right now it's still a little entrepreneurial and risky.

[Matt Levine]

So you're saying I should get in now is what I'm hearing.

[Katie Greifeld]

I don't know. I was going to say you should have gotten in five years ago. I have no idea what the market is like. I think you shouldn't get in in 10 years. But yeah, get in five years ago. I think this is great. I feel like we've had a number of career ideas for each Other during the course of this podcast. But you like taking you raising money from friends and family to take over an H Vac company. I like it. I didn't know that you had such an intense interest in H Vac.

[Matt Levine]

Not specifically H Vac. I know that we're using that.

[Katie Greifeld]

I don't think they were a horse barn.

[Matt Levine]

But yes, that's the thing.

[Katie Greifeld]

I don't know if that works. I think the whole point of this is that you're taking over non glamorous family businesses from aging founders who don't want to do it anymore. Not people's delightful lifestyle businesses.

[Matt Levine]

But I don't know. There's plenty of people who would think that a barn is unglamorous.

[Katie Greifeld]

Do any of them own barns?

[Matt Levine]

No, you're right, they don't.

[Katie Greifeld]

That's your problem. You have to buy the barn from someone who owns the barn.

[Matt Levine]

I don't know. Reading this, I have like a renewed. I'm reinvigorated. And you know, I thought I wanted to be a podcaster. I did that. It's okay.

[Katie Greifeld]

Sure, right.

[Matt Levine]

I wanted to be a novelist. Still working on that. But I think that what I really want to be is a searcher. I've always wanted to buy a dressage barn, but now I have a fancy, not yet saturated sort of term to apply to it.

[Katie Greifeld]

Yeah, I mean, that is really the thing about the search funding is it's given people a set of concepts to sort of standardize and think about and justify this thing of like, I want to buy an existing small business and run it according to my own ideas. I think a while ago, if you were in business school and you're like, I want to run an H Vac company. People would be like, that's a strange thing to want to do with your Harvard mba. Whereas now it's totally standardized. I was like, oh, of course, A search fund. And similarly, I feel like this is going to be like season two of the podcast is going to be. You're going to go to investor meetings, we're going to record them. People are going to be like, of course, here's a million dollars. You're going to.

[Matt Levine]

People, I think send out cold emails.

[Katie Greifeld]

To every horse barn in America.

[Matt Levine]

At least 12. At least 12. If anyone listening right now, you won't cold email.

[Katie Greifeld]

You'll show up on a horse.

[Matt Levine]

That's true. They'll ride in and they'll know I'm the real deal. They won't turn me away. Yeah, that's like one thing in this.

[Katie Greifeld]

H Vac article is like, the guy who owned the H Vac company was like, all these search funders emailed me and I was like, all right, come out. And they're like, let me check my schedule. But this guy, the guy who bought the company from him was like, I'll be there tomorrow. Right? You're going to show your enthusiasm by showing up on a horse.

[Matt Levine]

That's the other thing I found charming is that it's just like old fashioned, sort of. I'm going to come up and meet you in person, I'm going to shake your hand and I'm going to look you in the eye. And that has a lot of currency with the people who are selling these unsexy businesses.

[Katie Greifeld]

Right. Because these are people who have built businesses over years and they are the owner, but they also work closely with the employees and they are not just maximizing shareholder value. And if they were to sell to a private equity firm that laid off all the employees, they'd be sad and they live in the community. They'd be looked down upon. So if they can sell to someone who gives them a firm handshake and looks them in the eye and says, I'll take care of your employees. It's a very family business oriented kind of deal making environment. And you're not just paying the highest price to maximize shareholder value. You're kind of taking over a business that has ties to a community.

[Matt Levine]

Yeah. I do want to talk about how Schweber is going to get this big payout that Business Insider says that he's in for. If all of this goes according to plan, he's in for a big payout. Of the search on entrepreneurs who eventually sell their business, just under a quarter of them get nothing. Another 27% get less than $4 million in equity. 28% get $4 million to $10 million. The luckiest 18% get more than $10 million. So, you know, after I buy the horse barn, I have to stay there and make it better and grow it. And then the idea is that I'm going to sell it in like a decade and make a big profit.

[Katie Greifeld]

I have to imagine some people go into it thinking, I'm going to make my life in Peoria running an H Vac company. But most of them are business school people and they're choosing between this and private equity. And yeah, they want to do a flip. They want to buy a sleepy family business that isn't optimizing everything. They want to spruce up the financials and maybe do a few tuck in acquisitions and then sell it to a sort of more scale buyer. Sell it to a private equity roll up or something for you, buy it at 1 times revenue and sell it at 5 times revenue, then make a lot of money.

[Matt Levine]

And so the investors who.

[Katie Greifeld]

And then you do a job or you retire or something, I don't know.

[Matt Levine]

Or you become an investor in surge funds.

[Katie Greifeld]

Sure.

[Matt Levine]

So if you invest in a search fund, you're in it for the long haul. You're in it until there's a flip.

[Katie Greifeld]

I don't really know the terms. You could imagine the investor just getting a share of the cash flow and being happy with never flipping it. But no, most of them want to cash out. And yeah, you're in it for a flip. You say the long term. I don't know what the holding periods are, but again, the alternative to this is private equity funds. You might think, I'm going to take over an H Vac company, I'm going to learn H Vac, I'm going to do some deals, I'm going to spruce things up. That won't take me more than five years until I can flip the company. It's not necessarily your family business for the rest of your life.

[Matt Levine]

I have to imagine a lot of these fail.

[Katie Greifeld]

I don't know, I don't know what fail means. I mean, right, probably some of them, they don't spruce them up and then they get bored and then they're like, all right, we're shutting this down and I'm going back to New York. But right, you're taking over a stable business with customers and you're not founding a business. Your downside is not as bad as if you were founding a business from scratch. You know that this company already has a business and customers and revenue and employees. And probably in many cases it could operate on its own without much from you. So you might not be able to do a flip. You might get bored and close it down rather than eke out a very small profit for yourself every year. But you're not going to lose all your money.

[Matt Levine]

Yeah, that's true. I mean, to your point that they're not founding a brand new business, I was thinking about this in terms of maybe these smart young people with these big degrees, maybe their brain power would better serve the economy by putting that towards new ideas.

[Katie Greifeld]

Why though?

[Matt Levine]

Well, that's right.

[Katie Greifeld]

Degrees are not in astrophysics. Right. Masters of Business administration, They've learned to administer businesses. I think it's a really good thing for the economy if the local mid sized Businesses get really good business administration. If the Harvard MBAs, instead of just going to work in finance, actually go and work for real companies that do H Vac.

[Matt Levine]

This reminded me I know these people who there was a bed and breakfast for sale in a small Pennsylvania town. Really charming. And it was an existing business with existing customer base who they had a lot of repeat customers and the owners were retiring and they bought the business and it's going really well.

[Katie Greifeld]

And those people are named Bob and Julia.

[Matt Levine]

And Friday is my dad's birthday. So. Happy birthday, dad.

[Katie Greifeld]

Happy birthday, Bob. I meant to tell you that I saw someone.

[Matt Levine]

My cat is.

[Katie Greifeld]

That's you.

[Matt Levine]

Okay, that is me cat.

[Katie Greifeld]

I mean it's your cat. It's your birth exam proof home studio. Jesus, that sounds terrible. Do you need to go to the vet? We're keeping all of this in.

[Matt Levine]

It's literally a hairball. He's fine. He's fine.

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[Karen Moscow]

Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow.

[Nathan Hager]

And I'm Nathan Hager. Each morning we're up early putting together the latest episode of Bloomberg Daybreak US Edition. It's your daily 15 minute podcast on the latest in global news, politics and international relations.

[Karen Moscow]

What's special about Bloomberg Daybreak is the immediate of the news we bring you each day in your podcast feed by 6am Eastern Time.

[Nathan Hager]

This isn't a deep dive on yesterday's news. Instead, you get the latest stories with.

[Karen Moscow]

Context and that's something you don't get from other news podcasts. So join us for the best from Bloomberg's 3,000 journalists and analysts around the world, with reporting backed by data and journalists at the center of the stories we cover.

[Nathan Hager]

Listen to the Bloomberg Daybreak US Edition podcast each morning for the stories that matter with the context you need.

[Karen Moscow]

Find us on Apple, Spotify or anywhere you listen.

[Matt Levine]

Windsurf Wind Surf Man Elsewhere in buying companies yeah, buying from, but not really. Not really buying the company. Well, kind of set the scene.

[Katie Greifeld]

Windsurf is like an AI coding assistant company. Of course it was in talks to be acquired by OpenAI for a while. The rumor was that OpenAI was going to pay $3 billion to acquire it, which I think means to acquire it in the normal way, like buy all the stock of the company. But they couldn't get to an agreement on some weird terms, including sharing the technology with Microsoft. And so OpenAI walked away. And then Google did this weird deal where it paid $2.4 billion to windsurf for basically some but not all of Windsurf's employees. Basically Google was trying to acquire the top talent from Windsurf to feed into the maw of having AI researchers do AI at Google and they got a non exclusive license to Windserve's product. But it seemed pretty clear that it was a talent acquisition. But they didn't buy the company. They got no stake in the company. But the shareholders of the company mostly got cashed out. Like the venture capitalists got paid off for their stock. So Google paid for the stock of the company but didn't acquire the stock of the company. They just got the talent and left the company on its own. And this is kind of a weird outcome in particular for the employees of Windsurf who didn't go over to Google because they were kind of left in this like company that had some cash and a business but no more of its founders. And it was kind of like at loose ends. And then a couple of days later Cognition, another AI company, bought the rest of Windsurf for an unspecified price. That might have been just like Here you can have a job. And so, yeah, that was the deal. It was quite controversial. There's been a lot of deals kind of like this in the AI space, where you have very big tech companies that want to pay a very large amount of money for AI talent. And the top AI talent often has their own startups. And the startups often have the effect of proving that their founders are good at AI stuff, but do not have products that the big tech companies want. And historically, the way that ended was the big tech companies would buy this startup, shut down the product that they didn't want, and give the employees jobs. But that has changed. That equi hire model has changed, and I don't quite know why. The leading theory for why it has changed is that in the Biden administration, there was a lot of antitrust scrutiny of big tech companies buying even small startups. And so they stopped doing acqui hires and started doing just the hires. Yeah, but the other thing that is happening is if you're Google or Meta or whoever, it's sort of dawning on you like, well, we don't really have to acquire the company. We just have to pay the founders to come work for us. And we have to pay them a lot because they have the startup equity in the startup. So, like, they have to give up the equity in the startups. You have to pay them a lot. But, like, do we need to acquire all of the employees? Do we need to pay the VCs the full value of the company? Or can we just acquire the founders and let the rest go? So there's a lot of talk about the social contract of startups and VCs being violated by these deals. And I feel like so far, actually the social contract holds up pretty well, where the VCs who funded windsurf, they got several times their money, they got rewarded for funding Windsurf, even though I think people would say, in a sense, the product isn't what's making the money, it's just like the founders are going somewhere else is what's making them the money. And the employees ultimately ended up at jobs, although not at Google. So the social contract sort of held, but it just feels like it's a little bit under pressure where the next deal, Google, could just be like, we're going to pay the founders a billion dollars each and we're not going to cash out the VCs.

[Matt Levine]

Yeah. Reading this and just thinking about similar circumstances, my thought was, why don't they just try to poach people the normal way? Why is Tech, this special weird place where there is aqua hiring. Why can't they just offer the founder $100 million or something like that, similar to what Mark Zuckerberg is doing? Why do we have to go through all the hoops of buying the company or doing whatever Google just did?

[Katie Greifeld]

I think that part of it is you can now pay AI researchers $100 million, but you can't pay them $500 million because all the other AI researchers would be mad. And if they have a startup that has raised money at a $4 billion valuation and they own whatever they own a billion dollars worth of it, you have to lure them away from that startup by giving them a lot of money. Maybe it's not a billion dollars, maybe they don't think it's worth what it raised at, but you have to give them something like a billion dollars. And the way to do that is to have some sort of M and A, like, transaction. Right. Like, if you're just saying I'm going to give you a salary of $1 billion, that's tough to sell to your other employees. But if you say I'm going to do an M and a transaction that technically doesn't involve buying any of the company, but like there's a licensing deal and it's like an agreement with Windsurf, then you can do a transaction that effectively gives the founders a billion dollars. Right. And so I think that's part of it where, like the going rate for poaching an employee from OpenAI to Meta is $100 million, but the going rate for poaching a founder of a startup that was valued at a lot of money by a vc, the going rate for that might be billions of dollars. And the only way to pay that is in something that looks like an M and A transaction.

[Matt Levine]

The other thought I had was that there is still some acqui hiring going on. If you think about the recent example of also Meta with scale AI.

[Katie Greifeld]

No, no. These are all the same thing. Like, these are not quite acquisitions. Sometimes they're like stake acquisitions, but not 100% acquisitions. And sometimes they're more like the Windsurf deal where it's like a commercial license and a big payment but not 100% acquisition.

[Matt Levine]

Yeah, I was just thinking about the employees who didn't get picked to go to Google and that's probably a pretty lousy feeling, but maybe they're happy at cognition.

[Katie Greifeld]

Yeah, but it's like there's this incredible gold rush for AI and there's incredible variance in people's perceived Market value. Right? Like there are people who are, there are people who are multi billionaires because they were in early AI and then there are people who are paid like, you know, $600,000 a year and they're like, oh my God, I'm so poor. Like there's a huge range and some of that is the sort of classic startup like were you there at the founding of a hot company? But some of it is like people's perceived value to the big tech companies where if you are really, really good, a big tech company will pay you much, much, much more than $100 million if they have to. And then if you're less good, it's like, yeah, you're on salary, it's fine.

[Matt Levine]

And where we are in the world right now, I mean, is this uniquely a tech industry phenomenon and specifically an AI industry phenomenon.

[Katie Greifeld]

Have normal jobs? This is very localized to AI. There are not these kinds of bidding wars for people who do non AI tech business.

[Matt Levine]

Man, if I had any practical skills, I'd be thinking I need to be an AI person somehow. But I think Search Fun Founder is probably more realistic.

[Katie Greifeld]

You're looking more horse porn.

[Matt Levine]

Yeah.

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[Karen Moscow]

Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow.

[Nathan Hager]

And I'm Nathan Hager. Each morning we're up early putting together the latest episode of Bloomberg Daybreak US Edition. It's your daily 15 minute podcast on the latest in global news, politics and international relations.

[Karen Moscow]

What's special about Bloomberg Daybreak is the immediacy of the news we bring you each day in your podcast feed by 6am Eastern Time.

[Nathan Hager]

This isn't a deep dive on yesterday's news. Instead, you get the latest stories with.

[Karen Moscow]

Context and that's something you don't get from other news podcasts. So join us for the best from Bloomberg's 3,000 journalists and analysts around the world, with reporting backed by data and journalists at the center of the stories we cover.

[Nathan Hager]

Listen to the Bloomberg Daybreak US Edition podcast each morning for the stories that matter with the context you need.

[Karen Moscow]

Find us on Apple, Spotify or anywhere you listen.

[Matt Levine]

You know who else is in the business of buying up a lot of companies?

[Katie Greifeld]

Is it the Vanguard Group?

[Matt Levine]

It's Vanguard. They are an index fund company. All the companies. As much as Vanguard likes to talk specifically to me and everyone else about their, you know, active management ambitions, they are huge. That means that they own a lot of the shares outstanding of a lot of companies, including companies that you might not expect.

[Katie Greifeld]

I would expect. Wait, can I ask you, are they the biggest total Stock market index fund?

[Matt Levine]

Oh my God.

[Katie Greifeld]

I think because Vanguard runs a BIG S&P 500 index fund and so does everyone else. But I definitely own some of the Vanguard Total Stock Market Index Fund, which is not the S&P 500. It's everything including small companies and including bitcoin treasury companies.

[Matt Levine]

I'm trying to find out because I don't want to misquote myself, but I think that the Vanguard Total Stock Market Index Fund is the largest.

[Katie Greifeld]

It's like the only one I know of.

[Matt Levine]

Yeah, it's in the trillions. So I would imagine that that's it.

[Katie Greifeld]

So when you say Vanguard is one of the biggest shareholders of companies, you wouldn't expect. I would expect them to be the biggest shareholder of every single public company.

[Matt Levine]

That's what I would expect. And they are. And they are including strategy.

[Katie Greifeld]

In particular, I'd expect them to be one of the biggest holders of every non S&P 500 company because there are a lot of S and P index funds. But Vanguard is really into total stock market index funds. But anyway, but yeah, they're the biggest holder of strategy Microstrategy now called Strategy the bitcoin.

[Matt Levine]

I guess I did not appreciate that strategy isn't in the S&P 500. But we're also talking about a non S&P 500 tracking fund because I don't know, it just feels like increasingly the whole world revolves around the S&P 500. But the Vanguard Total Stock Market Fund's biggest shareholder of strategy. I say that you might not expect it because the personality of Vanguard is an asset manager that is deeply, deeply skeptical, repulsed by cryptocurrencies.

[Katie Greifeld]

I know, but this is the thing about running an index fund. It doesn't matter what you think, you just buy it. It's a really good disciplining mechanism. You can sit around and be like, well, I think this company is overvalued, but it doesn't matter. You have to buy it because you're an index fund manager. That's what people are paying you for. And they're not paying you very much. If they're paying you a lot, then you might be like, well, I'm going to short this company because I think it's overvalued and I'm getting paid a lot from my wisdom. But they're paying you two basis points to buy every company. So you buy every company. It's a really good business. I love it.

[Matt Levine]

The thing that's slightly different here is that Vanguard obviously has control over what products that it launches.

[Katie Greifeld]

Yeah, but like it's products or index funds.

[Matt Levine]

I know, I know. But this is a relatively new phenomenon where you have equity companies that just hold Bitcoin and you think about like commodities, for example, Vanguard for a long time would not launch a commodities fund. They're never going to launch their own cryptocurrency fund. And okay, yes, they're going to buy every single stock out there. But it's a new phenomenon where that means you're also buying crypto indirectly.

[Katie Greifeld]

Yeah. One of the things I like about it is that this is a little inside baseball, but not really. Bloomberg has this view that you shouldn't own stock in companies that you write about. So I don't own stock in Goldman or Apollo or whatever, but I own index funds. They own stock in those companies. And so I have a right. And in some ways it would be weird if I didn't. To me, I should have my savings in the global financial portfolio. And if I owned all of the stocks except Goldman, then in theory that would create a financial bias against Goldman. I would Be like, well, I don't own any of their stock, but I own every other stock. So I want their stock to go down relative to the rest of the market. And then crypto is kind of the same. We have rules that you shouldn't own crypto if you're writing about it. But if I own zero crypto, then I'm sort of biased against crypto. I own all of these stocks and I want the stocks to go up, but I don't want crypto to go up because I don't own any crypto. But now because I own the Vanguard Total Stock Market Fund, I own some bitcoin indirectly, but I have some exposure to bitcoin through strategy. I think more generally it is good for ordinary investors to be able to get low cost access to market cap weighted ownership of the entire global financial portfolio. Just as it's probably good for you to not have to pick which stocks will go up, but just buy all the stocks. You shouldn't even have to pick which asset classes will go up. You should be able to be like, I'm going to buy the market. And you can't really do that. That's not really a thing. People try, but it's not really a thing because how do you decide how much real estate to have in that? But by smuggling a little bitcoin into your Total Stock Market fund, it means you have a little bit closer to exposure to the entire financial portfolio. If you don't like crypto, you'll be mad about that. But if you're buying the Total Stock Market Fund, your thesis has to be, I don't know what I want to buy. I have no strong views about which companies will go up. Have some bitcoin. Why not?

[Matt Levine]

Yeah. Occasionally Tom Keene invites me on radio and just kind of bullies me about crypto for a couple minutes and then I get off air and is he probably.

[Katie Greifeld]

He's.

[Matt Levine]

I don't. I would not describe him as pro crypto.

[Katie Greifeld]

I'm not surprised.

[Matt Levine]

Yeah, he famously calls it bit dog. But in trying to make him care, I have tried to make the case that you should care because it's probably in your retirement account through this sort of indirect exposure. Like your fortunes in a small way are tied to bitcoin now.

[Katie Greifeld]

Right. I would reverse that. I would say that if you don't have a strong reason to be short crypto, you should be long crypto in proportion to its weight in the market. And that weight has gone up a lot in the last 10 years. It's now trillions of dollars. If you are just completely on a blank slate, completely agnostic about everything, your weight should not be zero. And now it's in your retirement fund. Great, problem solved. I'm not saying you should buy crypto, by all means. This is not investing advice. But I'm just saying if you have no views, the default weight in your portfolio for every asset is not zero. The default weight is its market weight. If you're just setting it to defaults, you should have some crypto. And the way to have some crypto is either you go create an account on Coinbase or you just own a total stock market index fund that happens to have some crypto.

[Matt Levine]

So you're a market cap weighted guy.

[Katie Greifeld]

I'm not saying that's the best way to invest. I'm saying that's the neutral way to invest. I'm saying that anything that you do to deviate from the market cap weighted global financial portfolio should ideally have a reason. Ideally, ideally. Not that I follow that. I'm just. As a theoretical matter, you should own the market unless you have some reason to think that something else is better.

[Matt Levine]

And that is investment advice.

[Katie Greifeld]

No, I don't know how you could get sued over that. But no, it's not investment advice. The bitcoin treasury companies are interesting in part because they give you a way to own crypto if your only investment is the total stock market. But more broadly, they're interesting because they are a way for equity investors to own crypto without owning crypto. And I think that there's a lot of demand for that. Some of it is from Vanguard, Vanguard, which, let's hypothesize, does not want to own crypto, nonetheless owns a lot of microstrategy. That's a good arbitrage. You have Bitcoin, which Vanguard doesn't want to buy, and you have MicroStrategy, which Vanguard, against its will, does want to buy. And so you can transport Bitcoin into Vanguard and make some money on it. But more broadly, there's a lot of equity investors who for one reason or another, can or want to buy MicroStrategy for Bitcoin exposure, but can't buy just bitcoin for bitcoin exposure. I get an email from one guy saying, my hedge fund, our prime broker, will give us 16 to 1 leverage on MicroStrategy and they'll give us no leverage on IBIT, like the BlackRock Bitcoin ETF, right? So if you want to get exposure to Bitcoin, getting it in the form of a stock, like a real stock, not an etf, like a corporate stock. Getting it in the form of a corporate stock is in many ways preferable to other forms of owning it. And that's part of why the bitcoin treasury companies often trade at a premium to their underlying Bitcoin. Because there's a whole class of investors who can get crypto that way but can't get it as easily or as efficiently in other forms.

[Matt Levine]

That's really interesting because after the spot Bitcoin ETFs launched, I think a lot of people, perhaps myself, questioned what the use case for MicroStrategy was.

[Katie Greifeld]

Yeah. And the number one answer is index funds. Vanguard's Total Stock Market Fund does not own ETFs.

[Matt Levine]

Yeah.

[Katie Greifeld]

It owns companies. And MicroStrategy is still a company even though it's a pot of bitcoins. Like that's the number one answer. There are other answers because someone at some prime brokerage is like, we'll give more leverage on corporates than we will on ETFs even though the corporate is more volatile than the ETF. But the number one answer is index funds. And yeah, MicroStrategy is not in the S&P 500. It wants to be in the S&P 500. That's the next frontier.

[Matt Levine]

It did make it into the NASDAQ 100.

[Katie Greifeld]

Yeah. And that's a big deal.

[Matt Levine]

Which was. It was somewhat controversial.

[Katie Greifeld]

Yeah. Because like these indexes don't include ETFs, they don't include investment vehicles with like rare interesting exceptions. Right. There's an argument that Berkshire Hathaway is an investment vehicle. I don't know if you remember, but friend of the show Bill Ackman of.

[Matt Levine]

Perching Square Capital Management found his way into another episode.

[Katie Greifeld]

So not the bird, but the actual Bill Ackman when he was trying to.

[Matt Levine]

The tennis pro.

[Katie Greifeld]

Yeah, we haven't even talked about that. When he was launching his close end fund, he was like, it's going to be in the S&P 500. It was not going to be in the S&P 500 because the S&P 500 does not include close down funds, but it does include Berkshire Hathaway because it's not quite a closed end fund. It's a company. And MicroStrategy, same deal. Right. If you're like, I'm going to launch a fund that holds bitcoin that will not be in the S&P 500 or even the NASDAQ 100. But if you're like I'm a tech company. I'm going to almost exclusively hold bitcoin and talk about it a lot. You can be in the s and P500 or at least the NASDAQ 100. And that's different.

[Matt Levine]

Well, that was the controversy around its NASDAQ 100 inclusion. The NASDAQ 100 does not hold financial companies. And it feels like MicroStrategy. It was MicroStrategy at the time was sort of grandfathered in because it is nominally still a tech company.

[Katie Greifeld]

Very nominally, yeah. That's the arbitrage. Right. It's like we're not a financial company. We're not an investment company. We're just the tech company that happens to own $70 billion of Bitcoin. Yeah, it's a good trade. I'm sorry that Bill Ackman caught so many strays at the end of this episode.

[Matt Levine]

It's okay. I don't think he listened to the end if he was listening.

[Katie Greifeld]

I do want to say that when we mentioned last week that we were going to name your bird friend of the show Bill Ackman, we got approximately 20 emails saying of Perching Square Capital Management.

[Matt Levine]

Yeah.

[Katie Greifeld]

A lot of people came to that joke and we did not. And I'm sorry. God.

[Matt Levine]

But very clever.

[Katie Greifeld]

We'll do better next time. Perching's great.

[Matt Levine]

Yeah, he's learned to perch.

[Katie Greifeld]

And that was the Money Stuff podcast. I'm Matt Levine.

[Matt Levine]

And I'm Katie Greifeld.

[Katie Greifeld]

You can find my work by subscribing to the Money stuff newsletter on Bloomberg.com.

[Matt Levine]

And you can find me on Bloomberg TV every day on Open Interest between 9 to 11am Eastern.

[Katie Greifeld]

We'd love to hear from you. You can send an email to moneypodloomburg.net Ask us a question and we might answer it on air.

[Matt Levine]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Katie Greifeld]

The Money Stuff podcast is produced by Anna Mazarakis and Moses Andam.

[Matt Levine]

Our theme music was composed by Blake Maples and Sage Bauman is Bloomberg's head of podcasts.

[Katie Greifeld]

Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

[Karen Moscow]

Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow.

[Nathan Hager]

And I'm Nathan Hager. Each morning we're up early putting together the latest episode of Bloomberg Daybreak US Edition. It's your daily 15 minute podcast on the latest in global news, politics and international relationships.

[Karen Moscow]

What's special about Bloomberg Daybreak is the immediacy of the news we bring you each day in your podcast feed by 6am Eastern Time.

[Nathan Hager]

This isn't a deep dive on yesterday's news. Instead, you get the latest stories with.

[Karen Moscow]

Context, and that's something you don't get from other news podcasts. So join us for the best from Bloomberg's 3,000 journalists and analysts around the world, with reporting backed by data and journalists at the center of the stories we cover.

[Nathan Hager]

Listen to the Bloomberg Daybreak US Edition podcast each morning for the stories that matter with the context you need.

[Karen Moscow]

Find us on Apple, Spotify, or anywhere you listen to.