Joel Palathinkel (2:58)

So to clarify. So you were on the Flash Boys team.

Matt Cohen (3:00)

So you actually there was the electronic. Brad was head of the desk, but he was running electronic. I was on the cash equity side covering global hedge funds on the event driven side, but we both overlapped and he ran both of our desk at the time. So yeah, the photos, all from the 60 Minutes episodes and everything were all about our trading desk at the time.

Joel Palathinkel (3:17)

That's amazing. Yeah, I didn't know that. So tell us a little more about that. Tell us about that environment, the ecosystem back then. And obviously there's been some cracking down on algorithmic trading and electronic trading. So walk us through that. John Foxworthy on the call might have a couple two cents about that too because he's been in hedge fund trading and algorithmic data science and fintech. So he may chime in every once in a while. But yeah, let's hear about it. Let's hear about that ecosystem when you were surrounded with those people and the technology and tell us what happened when it got cracked, when there was a crackdown and the changes in regulation and how the ecosystem has evolved.

Matt Cohen (4:00)

Yeah, so when I started off in the industry like 2005, 2006, 2007, those were the heydays for hedge funds. Those were when you were still getting paid 5 cents a share commission and there was wide spreads and the arbitrage world on convertible arb and option trading and all that. It was good times. And it all came crashing down even before the crisis when electronic trading started coming to fruition and we were starting to see how there was a lot of, I'd say front running is what we called it, but it really was just more faster pipes getting into the action and clipping a lot of the supply or the demand in certain trading blocks. And so when we were considered the block trading desk, that's where large institutions, we're talking hedge funds like Steven Cohen's SAC Capital, Diamondback, Citadel de Shaw, all these Big large institutional funds were really running the show on all the fast moving stocks. This was even before all the craziness we have today with the tech names and the IPOs and things like that. We had the 3Par acquisition that got triple topped. Every single week there was a new bid for the company. Those were the things we were going through when I was working on the desk. And when Brad came around and started building out the Thor product which eventually spun off into the iex, we, we started to understand what was really going on. He unveiled everything that was happening behind the scenes in the pipes which for some of the audience, who doesn't know, high frequency trading was basically people that were building faster, shorter connections to the data exchanges where all the supply and demand was matching on the alternative trading systems, ATSs so that they could out speed us as traders. Plugging in through all the different routers coming from our trading desk. And it was quite eye opening I have to say. So we were the first ones to actually use the technology called Thor with the big hammer, trying to be people of the common folk. And what happened was basically Brad said look, this is a technology I want to take to build for everyone. And RBC said well you can't. And eventually said okay, I'm going to leave and go build it myself. And so he went out and started iex and that was a huge exodus from the electronic trading team. I was not a part of that team. I worked on the cash equity trading desk. But I was exposed to all the different things that hedge funds, long short funds and traditional fundamental long only funds were doing in the public markets. And that's what formalized a lot of my risk appetite, my ability to understand how capital was allocated, how stocks became more discussed and talked about. So I learned a lot about the public side for a long time and I had no clue how companies became public. And that's what led me into thinking about venture capital and private equity. I'll tell you about that afterwards.

Joel Palathinkel (6:37)

Yeah, no, that's really exciting. And you know, break down, you know, the, the hard line. Right. So where was the best connectivity? Was it like more? Because I heard there's different areas in Manhattan and even some areas in New Jersey. Right. But the ideal like fastest connection was somewhere in Fi Di or was it Jersey?

Matt Cohen (6:59)

It was, it was actually, yeah, it was in Jersey. So there was that. So there were some, you know, routers that were being put in downtown New York and then the ones on the other side of the river, closer to the Jersey service were the fastest. But Basically Brad was stumbling onto this problem because he was one of his contacts, the, the Irish fellow that works with him now, I forget his name right now. Maybe it was Ian. He was an old telecommunications guy and he was calling around asking people how much it costs to lay fiber optic cables in these sort of rural areas around the northeast corridor. You were talking about Pennsylvania, New Jersey, New York, upstate New York. And the numbers were pretty astronomical. To lay fiber optic cables. Right. You had to sometimes get easements onto the land and all this stuff. And it was made famous in a movie as well. And when we started adding up how much it costs to lay fiber optic cables into the servers, we're talking hundreds and hundreds of millions of dollars. Kind of X plus Y equals billions. And so what they figured out was, wait a second, they must be making 10x more on these front running trades than they were in terms of laying the fiber optic cables themselves. So this must be a really big problem, slash investment for these like quant trading firms and things like that. And so that's how sort of the problem bubbled up into like the media.

Joel Palathinkel (8:19)

Yeah. And then how has that evolved? And I guess, you know, how has that been, you know, regulated? I guess, you know, because obviously there was a lot of crackdowns and just there was different evolutions of what's happened. So, you know, can you walk us through just what happened since then and you know how that market has changed.

Matt Cohen (8:37)

I mean, look, Brad went out and did his own thing at iex. I don't speak for the company, I don't work for the company, so I'm not a spokesperson, but I would say that the speed bump that he created, where everybody comes into one central exchange that gets held up and nobody has an advantage, basically he calls it the speed bump, is what he did to sort of self regulate the industry. There still are ATS out there, but the way he did it was a bottoms up approach rather than a top down regulatory approach. And but what I mean by that is he went to the largest institutional investors, we're talking Capital Group, Fidelity, you know, the T. Rowe Price, all of those large institutions, and said, look, you are getting screwed here. It's easy. The data is explaining how you're getting screwed. Route your orders through us, we'll make money off that. But you're also not going to get screwed by people going around you into other ats. And so that's how he sort of figured out a way to self regulate the industry, by getting the people who were the institutional, the large sellers and Buyers of stocks to give their orders or force their orders to go to an IEX with a speed bump rather than to all the other ats that brokerage firms were just getting better rebates on and sending their orders to their there anyways.

Joel Palathinkel (9:48)

And what's the utility of the speed bump? And part of me, if it's as this is new to me, is that does that just help to just route the traffic better so things don't just get overly saturated when the trades are happening, basically.

Matt Cohen (10:01)

I mean, think about it in the real world, right? You know, if everyone can drive, if there's a speed limit of 40 km on a side street and everyone can go anywhere from 20 to 100, what's the speed? What's the reason for having a 40 kilometer speed limit? Right. If you're not going to enforce it. So the speed bump forces everyone to slow down as soon as an order comes in and then you come over the hump at the same speed everyone has to. And so that's what the speed bump is doing. And what he essentially is saying is when orders come in, we don't allow other orders to go around us or go around the speed bump in order to pick up if it's a buy order supply from somebody else. Because what would happen, just so you understand, from our perspective as traders, If I had 100,000 shares to buy and I see 10,000 shares on the offer as an aggregate on my depth display of orders, I would go out and buy 10,000, thinking I see it there. But I only get filled on 9200 shares. So 800 shares just disappeared like that. Well, where did they go? They didn't get pulled off the market. Somebody else went to the other exchanges that those were being listed on and grabbed them before my computers were fast enough to grab them.

Joel Palathinkel (11:08)

Got it. That's interesting. And then, you know, how did that get impacted or how did that change when crypto markets became more prominent? Were they using the same rails to trade cryptocurrencies or was that just a separate rail or. Okay, separate. Yeah, so talk to me about that because, because they could have also done the same type of electronic trading or, or you know, some of those strategies with crypto, especially if it's a different rail. Right.

Matt Cohen (11:35)

I mean, crypto is a whole other beast. You know, it's a whole other conversation. Self regulation is definitely not happening. I don't know even know how some of these exchanges, I think it's just trading off their own books, to be honest with you. I think they Aggregate a lot of the supply and demand, and then they are their own market makers. We're talking about like the coinbases and the Geminis and things like that. I mean, that's why decentralized exchanges, in my opinion, are probably the best things ever invented to kind of break apart from the centralized exchanges. But that's a whole other story and conversation.

Joel Palathinkel (12:03)

Yeah, no, totally fair. No, it's helpful. And, you know, so. So you're doing that. Looks like that was the heyday when you were in there. Tell us about just kind of your first steps into venture capital in your thought process. Like, what were you thinking about when you're thinking about the private markets? And how was that transition to kind of quickly step in?

Matt Cohen (12:24)

Look, I mean, 2009 hit everyone in the face and people were just sort of thinking about what was next. And, you know, I was living in New York, you know, Silicon Alley was just starting to poke its head out and people were talking about technology and startups. And I was reading Business Insider like everyone else was on the trading desk when it was quiet around lunchtime. And I just sort of had this like, epiphany of like, there's gotta be something that happens before a company goes public. They just don't wake up one day and become a public company. There's a whole history of a company's creation and development and struggles and triumphs for a decade or more before they became public. And I wanted to learn about that. So I moved back to Toronto, Canada in 201213 and I had been introduced to two friends who were interested as well in starting a tech company. And so I said, you know what? I'll start the company with you. The idea was pretty stupid at the time, but we ended up coming up with a pretty logical idea after a couple of pivots and iterations. And that company ended up becoming called Turnstile Solutions, which was a WI Fi marketing analytics tool to help brick and mortar retailers understand how to use their existing WI Fi networks better. And for a more advantageous use case than just giving away free WI fi with a free guest WI fi password to create a marketing loyalty and analytics platform. So, for example, if you were to go into Starbucks in New York City, sign into the free WI Fi. Starbucks really doesn't get any value out of that, right? It's just click, click your terms and agreement and that's it. We decided to take that free WI Fi and turn it into a marketing loyalty and analytics tool by signing in through your social authentication apps. Twitter, Facebook, sms, Google, whatever. And then once you were opted into our global network, we could also start to retarget ads and things like that. And that was in 2012. So that was my first forte into early stage technology. I wrote the first check, $50,000 and we ended up building that company up to a 50 person company, several million recurring revenue, basically almost a bootstrap company. We only raised a little bit of money from angels because the ecosystem in Toronto was nothing at the time. It was just angels and family offices. And eventually we sold the business to Yelp in 2017 and that was a great outcome for us, about 30 million Canadian. And I learned a lot through that experience. It was what I would say, my MBA into the early stage venture ecosystem. And it formalized a lot of the ideas I had towards building out Ripple Ventures later on.

Joel Palathinkel (14:41)

And those are the best type of businesses. I mean, one of my favorite blog posts, I share this with some of the people in my community is that one post by Jason Calacanis, the Pegasus startup. He talks about how com.com when he invested, they were at 10k a month and then he put in some money and then they raised no money after that and they just took that money, reinvested into the company, focused on growth and they skipped several rounds of dilution. So I think having that more bootstrapped means due to just not having the means, right? I mean the ecosystem doesn't have frothy capital. It just kind of forces you to be scrappy and bootstrapped. But in doing that, you skip several rounds of dilution, which I think is super important, right? Because you don't want to give up. You know, every time you take in, take in funding, you're. You're giving away a portion of the company. And I think that's brilliant, right? Because when you go to the airports, when you go to Starbucks, there's always that landing page. And I don't feel like it's really utilized, right. Like, I mean it's just kind of like some basic information. But if you could, and I think it was smart that you didn't even serve up ads, you just forced them to kind of authenticate. So you get that data for retargeting, which I think is much more that you can capitalize on. So I think that's brilliant. And talk us through. This is an interesting founder perspective, right? So finding somebody to buy you out. This is something that we don't ever really talk about, right? So as a founder, how do you source people to acquire you? Is it really just organically through the ecosystem, or is there a portal that you go to to say, look, these people are looking to buy something, or is it through VCs? I guess how. You know, if you're not allowed to say how it worked for you, just in general. Right. What are some of the best practices with the founders that you've spoken to as far as really thinking about getting bought out?

Matt Cohen (16:30)

Yeah. And just to go back to sort of this bootstrapping mentality that we had to go through, that was out of necessity. That's not how we wanted the business to go. We pitched over 320 investors. They all just said no. And they were probably right. You know what we tell a lot of our founders and a lot of the companies we work with, and I have my own podcast called Tank Talks that you can listen to. We talk about this is there's great businesses that are bad venture investments, and there are great venture investments that are terrible businesses. That's like the Uber model. Everyone would have looked at Uber and said, that is a terrible business, but a great venture investment, because the opportunity is so massive, it just requires a ton of capital to capture it, and you can lose at any moment. So I don't actually blame the venture funds for passing on our investment at Turnstile at the time. It turned out to be a great angel return, but from a venture perspective, it wasn't. And so that's totally understandable. But in terms of, like, what we think about when we tell our founders, hey, are you going to continue to raise money and dilution, or are you at the end of the rope where you got to go sell yourself? One thing to remember is you always want to be sold, or you always want to be bought, not sold.

Joel Palathinkel (17:34)

Yeah, absolutely.

Matt Cohen (17:35)

Everyone knows that in this world. And so what happened with Turnstile and what happens with a lot of our companies is they end up down this path of are you looking to be a partner, an investor, or an acquirer with all the people in your ecosystem that you're working with? So in Tercel's case, we were in the market working with Cisco at the time, one of the largest WI fi router manufacturers out there, obviously. And so we were working with them. Our VP of partnerships got invited to present at the Cisco Worldwide Conference in San Francisco. Up on stage. Great presentation. Afterwards, the Yelp team, who was also in the industry looking at sort of the WI fi marketing space, came up to the Cisco team and said, hey, we'd like to meet that company Turnstile as a potential partnership. So it started off naturally as a Partnership. And by the second meeting, once you had the VP of Corporate Development and a couple other people at the table, you knew this was going from partnership to M and a conversation quite quickly. So what we always tell our founders is never go in with the expectation you're going to sell the company. Always go in with, hey, we want to be a partner. We want you to, you know, buy into our mission, because mission alignment is very, very important, and then see where the conversation goes from there. And I talked about this with the CEO of Turnstile on the podcast, how the. The reason why the company was bought was because of how closely aligned the missions were for both our companies.

Joel Palathinkel (18:56)

Yeah. And I look, I think that messaging and just that approach to relationship building translates in so many different ways. Right. I mean, you got fundraising, you got meeting LPs, just that consultative selling just goes much more further. Right. Because it's really more of a collaborative approach. And you're also trying to really solve a problem and be their partner in the beginning to build that trust. And then I think also just getting out there and being part of the community. So I think just the fact that you were there and you guys have that presence there, I think that also just helped people even know about you. Right. And tell me what you think about this. I think there's. There's decent companies that have really great distribution and marketing that end up doing better than possibly a product that actually has a better product and a better technology and more higher sophistication, but they just don't really have the distribution or the presence. I feel like the fact that all those series of events that worked out for you also was because you were at the right place at the right time. But there could have been some really crazy company that takes the social media data and does some prediction or something. Right. But nobody knows about them. Oh, absolutely.

Matt Cohen (20:09)

There was companies that were, well, more funded than us. There was purple WiFi and Zenreach. Peter Thiel invested almost 100 million in one of them and they have not done very well. Facebook was also going after us in their Bluetooth targeting as well with their Bluetooth adapters. So there's a lot of that. I mean, there was a great Twitter thread. I can't remember who wrote it, but it was about how because of the PR and marketing the guy did around his early stage venture, even though they were not like the fastest growing or they had the highest number of subscribers, he sold the company for 100 million. It was all because of the story building, the PR and the marketing put behind it. So we always tell our founders like one, if you're scared of PR and marketing, don't be. Everyone is until you kind of cross the chasm and do a little bit more of it. And two, staying at the top of people's news feeds in life is really important. No matter if you have something like that you think is valuable enough to be at the top of the newsfeed, just staying up there consistently is really important. And so we try to tell our founders we have an in house PR and marketing specialist that works with our teams on that because we think it's very important.

Joel Palathinkel (21:12)

Yeah, no, I totally agree and I, you know, going back to some of the, the, the outcomes, right. Cause I still think turnstile that that was the company. Right, correct.

Matt Cohen (21:20)

Turnstile.

Joel Palathinkel (21:21)

I think the outcome was a great outcome for the founders. Right. So I think a lot of these companies that a bootstrap just the outcome was really amazing. So I think it was like plenty of fish. The founder, if you look into plenty of fish. But the plenty of fish. The founder, I think it was just him and he might have had some developers with him, but he just built the company and then he sold it for 500 million in one shot. And my other favorite one's another dating company, it's Grindr. Right. So I actually met his name's Joel too, but I think I met him at a conference several years ago. And I mean his app, I think it was like a dollar to download the app so you get revenue per purchase. And I think when he spoke, he said that he launched the app for like five grand. He got some developers overseas to build the app and he really just kind of bootstrapped. And then I think just several years later, I think he sold it to a Chinese investor for like close to 100 million. So those are just, I just love those stories where just the founder just really comes out and they didn't really have to give too much of their company out. And it's because that's a true business. Right. So. So I feel like that resonates kind of with the company that you, you launched and had a great exit.

Matt Cohen (22:32)

I would say like we all love those stories, but those stories are a diamond are very few to happen.

Joel Palathinkel (22:37)

Like, oh yeah.

Matt Cohen (22:38)

What I would tell people out there is going the bootstrap route is great if you're, if you're going to be willing to give up 7, 10 years of your life of willing to like never feed your family enough that you want to checking the bank account every single week to make sure you can meet cash flow. Like it's a real grind, no pun intended, to get to that Bootstrap exit, which is great when it happens. But there's also something to be said with coming in and bringing in investors who set the puck higher, your paid up capital higher, meaning they got to work harder to get the business to the next level. So there's this trade off, right? And so we talk about it with our founders as well, who go from Bootstrap to Ripple back and then to that next level, you know, how they have to change their mindset and how they have to work a little bit differently. But yeah, there's a lot more companies that don't make it through the valley of death that are bootstrapped than the ones that do.

Joel Palathinkel (23:27)

And there's also just situations with what's going on with your life too, right? Like, I mean, I, I don't have any regrets in my life, but it would have been cool if I launched something entrepreneurial when I was like 13, right? Because I'd have like 10 years of Runway to kind of fail several times and learn, you know, versus. I mean, look, some of the, some of my favorite, you know, some of my favorite entrepreneurs are entrepreneurs that started when they were 70 years old. So I went to Kentucky. I went to Kentucky like a few weeks ago and really just studied the story of like Colonel Sanders, right? He was like 70 years old and he had to start KFC. You know, I think he was in the military and he had to start KFC because his 4, I guess it's his 401k or his retirement account wasn't enough to live. So he built kfc and then I think he, dude, he exited in a few years later, I think to Yum Brands or something like that. So some large conglomerate bought him out. So it's just interesting looking at the old school legends starting those traditional businesses. But again, you need venture capital to scale and get to venture scale and get those outsized returns. And that's probably something that you realize now, being on the investor side, really modeling out how big can you go to return capital to your LPs. Right? So let's talk about that. So let's talk a little more about now, Ripple and how you started that and the story behind that and where you guys are now.

Matt Cohen (24:59)

Yeah, absolutely. So as I mentioned, we had sold Turnstile to Yelp. It was a great outcome. Prior to that though, when I officially left Capital Markets In 2015, I went to go work for a fintech company. Backed by Joe Lonsdale from Palantir and PayPal and Formation 8. And I worked in Boston for a couple of years selling enterprise software to the global banks like Goldman Sachs, JP Morgan, Morgan Stanley. That's where I learned about kind of enterprise sales and operating. And it was a great experience. But what I did is I spent a lot of my free time hanging around the MIT and Harvard incubators and angel groups and a lot of the family offices in Boston and Cambridge, starting to understand how these ecosystems were being developed and funded. And I ended up taking the capital I'd made from the sale of Turnstile Plus. I had been very fortunate to have a close friend who was very early in the founding of Ethereum, which was from Toronto. So I got exposed to the crypto space in 2014, had some really good success there. And I built out a pretty strong angel portfolio, which I called Ripple Ventures because I realized that matt cohenmail.com was not going to get through the firewalls at a lot of these MIT startups. And so I ended up launching Ripple Ventures. And so a bunch of family offices from Boston, New York and Toronto recognized what I was doing and they asked if they could sponsor me to launch the first fund in early 2018. So I put together the first Ripple ventures fund in 2018 with about $10 million. The focus was pretty simple because we were nobodies. We wanted to prove ourselves with hard work, hand to hand combat with a lot of the other venture funds out there to win deals and also work with our companies every single day. And so in order to do that, we took decent sized bets for early stage investments, either pre revenue or just post revenue with half a million to a million dollars buying 10 to 20%. And we invest in 10 companies all focused on B2B SaaS. And in order to execute on our operator first model, we ended up launching our own incubator space in downtown Toronto. So the virtual background you see behind me, the tank, was actually the name of our physical incubator space we created. It was about 5,000 square feet, 50 desk. I built every desk and chair by hand. We brought all of our companies in that were based in Toronto to work alongside us day to day so we can help them get through that valley of death that most startups fail in. So we put in a fractional CFO into every business to take over bookkeeping and payroll and budgeting and all that stuff. We put in proper board cadence and reporting metrics. We put in HR and PR support and sales support and all those Types of things so that our companies could really accelerate their growth to make it to that series A or beyond stage quicker. And so far it's been very well received. Our first fund is already at 2x top 5% vintage for 2018 funds. We've had co investors come in and lead after us like True ventures, Felicis, Crosslink Base 10, Amazon, Google, Craft Ventures. Some of the top firms out there in the Valley have come in and follow our seed rounds or pre seed round, which has been amazing. And so that's what we did in our first fund.

Joel Palathinkel (27:53)

Yeah, no, that's amazing. And you make a good point because I work with a lot of now emerging managers working on like Fun two. Right. And I would say it's really important to get some type of attribution in the beginning. Right. So I think whatever it is, right, Building an angel portfolio, doing some small investments, showing some type of track record, I think that's what you successfully did to kind of get to that fund one. But then even with fund two, you know, because you guys are on fund two now, right?

Matt Cohen (28:20)

We actually are done investing in fund two or sorry, we're done fundraising in fund two. We're still investing and we're raising fund three now.

Joel Palathinkel (28:27)

Oh, wow. Yeah, it's exciting. So, you know, it's just really great. And what are some of the biggest learnings that you've learned from, you know, fund one and then, you know, switching from fund one to fund two, you know, what kind of changes did you have to make to the storytelling? Obviously you do have a track record, you do have some high level stats to call out. I always like to ask, like, what are some of the key stats that are important to the LPs? Right. We got the DPI, TVPI. But let's talk through that, like kind of the lessons learned and then just kind of how you had to navigate your storytelling to get to the next fund.

Matt Cohen (29:01)

Yeah. So first off, we did not have any institutional capital on our first fund and that was on purpose. We didn't want to, you know, first we were a third of the capital is the GP commitment on fund one. So we put our money where our mouth was and we wanted to prove that we actually had the ability to compete in this very competitive early stage space and also get companies to trust us, to work with us throughout their life journey. And so we were over communicative with our LPs early on, like monthly updates, really, really detailed quarterly updates and I'm an LP and a bunch of other emerging manager funds and I have to say I'm shocked at some of the reporting that they get away with, like, not even like valuations on some of the companies, not even like ownership. It's crazy. So we're very, very detailed in our updates and we do that on purpose, maybe to our detriment one day, but I think it's really well worth the cause of what we're trying to explain to people when we do. The other thing is we focus on building that inner layer of trust with our founders. We think our founders are our clients in the short term and our LPs are our clients in the long term. Right, because your money's locked up for seven to 10 years, so it's not like you can kind of come and go as you please. But our founders are the ones we need to focus a lot of our time and success on. If they're successful, then our LPs are successful. And so we spent a lot of time working with our founders. We're 80% leaders in our Fund 1 deals. 100% of our deals are being led by us. In Fund 2, we averaged almost 10% ownership in Fund 1 with only a $10 million fund, which is pretty amazing.

Joel Palathinkel (30:25)

That's pretty amazing.

Matt Cohen (30:25)

And we've built an incredible community and platform around our fund as well. So we've got our Ripple X Fellowship program, which is our diversity inclusion initiative for university and college students across the US and Canada to teach them about venture capital, about startups, about investing, due diligence and all that. And we're proud to have over 250 students come through the program. And it's a great deal sourcing opportunity for us, but also recruiting. But some of the lessons that I've learned is, number one, you have to be a part of the company's journey early on and really be helpful to a point where like they're calling you on Saturday night at midnight because they're panicked about something and they trust you. So I say I'd rather you call me more with the bad news than the good news. Most of the good news I don't really actually believe is really good news. It's just a little bit of fluff. But it's the bad news stuff that you come to me with that we work through together, that I know you're going to be the right CEO for the long term. So that's a lot of the stuff we look for. I think from a storytelling aspect, the transition from Fund 1 to Fund 2 was interesting. We were not looking to raise Fund 2 until probably the summer of 2020, but Covid sort of accelerated everything for us. And so in March of 2020, when Covid was really picking up steam, some of our family office LPs came to us and they said, hey, look, we love what you're doing in Fund one. You're great at what you're doing. You're creating great opportunities for us to look at. We think you should go out and raise a Fund 2 earlier than planned and we'll kick off the fundraising process with these commitments. So we ended up gathering about 5 million relatively quickly, and then we closed off with the other 5 million over the next few months. But we decided to shift gears a little bit and say instead of going after really early stage companies, because those are very difficult, but then they take a lot of work, let's see if we can try to win deals in the sort of C to early Series A stage, which is very competitive, but based on our founder stories and our references, we'll see if we can win deals. If we are successful, then we'll be able to go back to the institutional community for Fund 3 and say, hey, look, we've gone everything from pre C to Series A and we're doing very well at it and we're winning deals and leading them. You should trust us with an institutional size fund for Fund three. And so what we did is we went out and found companies actually doing $5 million of ARR, way more than what we typically see at the early stage. And we were buying five to seven and a half percent of them at like four to five times revenue. So everyone was just like, whoa. And there was a lot of dislocation in the market. So we were coming in as like that bridge round investor. The founders were very happy for us to join their boards and work with us. And then all of a sudden the market kind of shifted gears again. And then we were getting Series A rounds and Series B rounds getting done three and six months later. So fund two is already at 1.35 times MOIC. It's doing very well in a year. And so that was our strategy in Fund two. We've done five companies so far. We're very concentrated. We believe in that approach. We don't really believe in the spray and pray approach. And yeah, we'll have a couple more bets in Fund two and then we're going to go after the Fund three model. The other thing I'll mention is we're not a huge fan of reserves. I don't think reserves are something that a Fund should, at our stage, should focus on that much. And the reason being is because, number one, pro rata is something that is earned, not written into a legal contract, in my opinion. Two, if you have the ability to write follow on checks, those should go to your LPs who want to write direct investments or SVVs, because that's what LPs in my opinion, should be focused on. Make a commitment to the fund and then you get the ability to build on positions in the winners as the, you know, as the performance of those companies starts to accelerate. And our family offices seem to love that.

Joel Palathinkel (34:00)

Yeah, I know, that's really helpful. And tell me a little bit about the performance reporting. So, you know, don't have to name any names, but what were some of the, you know, and I think that's a great practice too. I'm an LP in a couple of funds as well. And I think there's just a great perspective to see as an lp. Because at some point you never know, right? Like after Fund 5, you may just want to be an LP at some point. Right. To just, you know, have better diversification, who knows? But. But it is a good practice to kind of be an lp. And there's so many emerging managers now that can bring you in at a smaller minimum. But what are some of the things that you learned when being an lp and what was missing? And what should we think about, you know, when we're, when we're fundraising for Fund one? What, what stats and things should we call out? And then, you know, how does that evolve in your perspective on the institutional side, when you become more mature and you're looking at fund two and then fund three?

Matt Cohen (34:55)

Yeah, I mean, it all starts from the very beginning. When I was even in angel investing, I would write investment memos for myself when I made investments so I can look back on what I was doing. And I'm shocked to see some of the lack of investment memos written on investments made in companies. I mean, it's literally just, here's the TechCrunch article. We participate in the round, that's it. So when we write our investment memos, they are very lengthy. We model them off a bit of the Bessemer model, where it's like a story of how we met the founder, why we're focused on it, what we think the future holds, and then all the financial metrics and all that stuff as well. So we're really focused on that. We have a data room template that we've created along with our due diligence checklist. That we share with founders and go through them together as we're moving through the due diligence process, which is really good and transparent, which we love. So I think that's important. And then when we share the news with our LPs about the investment, we're very open and transparent about everything. So we understand like, you know, we share how much money we've invested, what our plans are for, follow ons and all these types of things. So I think that's important for emerging managers to think about. And then I also think, like, I've written about this on Twitter and a couple of blog posts, but it's really important to understand what, you know, IRR means and why it's created. It's not really relevant to venture in my opinion. It's more related to real estate. So don't try to like, you know, gamify the IRR number. It's really about your TVPI and MOIC and rvpi if you want, because that's where a lot of the, you know, kind of, as Chris dubois says, moolah and the cooler. Right? Like, that's where the money's made. And so getting to DPI1 is really important. So I've seen like some fund managers send us, you know, an update and like, yeah, we're up like 10x. I'm like, how do you get 10x 10x or what? 10x or what? Well, on the publicly reported valuation, I was like, but that doesn't take into account any dilution, doesn't take into account any esop. Like, what is the fully diluted number? So we have access to that because we're major investors and everything. And so we know our numbers are bang on. Like we know what the multiples are. And so when an LP of mine came to me and said, hey, it looks like I'm up about 5x on this, I'm like, well, you should go back and ask them what the price per share of this transaction was at versus what you came in at. On your safe note, at 25 pre. And he came back, he's like, yeah, I'm up one and a half times.

Joel Palathinkel (37:11)

Yeah.

Matt Cohen (37:11)

After he asked the question.

Joel Palathinkel (37:13)

So for the audience, do you mind calling out those stats and then just maybe unpacking what they mean? Right? So you got the moic, the tvp, I got the dpi. So I think it'd be really valuable for some of, you know, so some of the people in the audience here are aspiring VCs, and then some of them are actually emerging managers. That have formed their fund and they're just like getting ready for fund one. So I think this would be really valuable for them if you don't mind, you know, doing a little bit of an educational thing for them.

Matt Cohen (37:38)

Yeah, absolutely. And by the way, I actually decided early on to build an institutional style fund even when I was not ready for it by going out and getting a professional fund administrator. So like, you know, there's the angel list out there you can use. But I'm partners with Enduro Advisors, I think they're one of the best and they are really helpful, especially at educating me on a lot of this stuff. So I think that's really important. If you are interested in doing this for the next 25 years, set up the right institutional framework for your fund and it will come off and pay off a lot of dividends later on.

Joel Palathinkel (38:09)

Some of the funds also, one thing I'll add to some of the funds that I've spoken to, you know, fund one, they've already done like an audit, you know, to kind of just get into that practice.

Matt Cohen (38:16)

Totally.

Joel Palathinkel (38:17)

So, you know, Adoro can probably also do that as well. But I've seen that as just a great thing.

Matt Cohen (38:21)

Absolutely.

Joel Palathinkel (38:21)

You're going to have to do that later on the institutional level.

Matt Cohen (38:24)

Yeah, absolutely. So, yeah, MOIC multiple and invested capital. It's pretty standard. You take the money that you've invested and you see what the multiples are at based on the fair market value or the book value versus the fair market value, what the companies are worth today. That's a pretty standard one. Total value to paid in capital is TVPI and residual value to paid in capital, that's after you've paid out distributions or DPI distributions of paid in capital. So DPI is the one that everyone kind of focuses on. When you're in that kind of year, 4, 5, 6 of the life cycle of the fund, you're not really expected to have DPI early on. We actually do have DPI in fund one because we sold some of our losers to get some money back. So we technically have no zeros or donuts on the on the board, which is great. We try to make sure the companies that are not going to make their stride, we sell them off to strategics to get some of our money back. And because we're sitting on the top of the prep stack and the waterfall, we're getting our money up first, which is always great. But in terms of the metrics, I'd say, you know, MOIC is where we kind of focus early on TVPI as well. It depends if you include management fees or future management fees, and then RVPI is later on once you've gotten some DPI pushed out the door as well. Does that answer your question?

Joel Palathinkel (39:39)

Yeah, I think so. And guys, feel free to ping in the chat if you have any questions further about that and we'll just keep going. But yeah, I think that was, that was good for the audience. So really appreciate that, you know. So I think it was great, you know, I think it's good to have like a roadmap to think about, like where you're going to be, you know, past fund three. So really thinking about that now, you know, so along with the performance numbers, along with the audit, you know, back to the storytelling, right? Like, what are some of the big learnings that you've taken away kind of from fund one to fund two, and then now getting ready for fund three.

Matt Cohen (40:14)

I mean, look, I think whenever I'm talking with LPs, I try to give them a full story of like, how we started, why, why we're doing this, what we're trying to build, and talk about the long term commitment we have to this. I always say, like, if you ask for money, you get advice. If you ask for advice, you get money. So I never go into a pitch with an LP asking them for capital. It's not really about that. It's about telling the story, getting their opinions on it, telling them, you know, what we're building with Ripple Ventures and the broader Ripple Group, which I can talk about later, which is our real estate arm and our private equity and secondary market acquisition vehicles. So, you know, we talk about that. I think the other thing with, you know, fundraising in general is it is such a long journey and it's really important to stay up to date with, you know, your LPs, even if they're not interested on your first fund, your second fund. So I send out quarterly updates to all the people that are interested. I, you know, I start, you know, trying to send them updates on companies that we have invested in. I think our podcast is something that has really helped us create a broader voice and more of a human element to our fund as well. And we get a lot of our founders talking about their experiences working with us and that's helped a lot. I think founder references are really important and I think they're the most truthful towards what it is like to work with a fund like ours. Because there's nothing in it for them. Right? There's no upside for the founders to say Anything good besides maybe you get more money for you to invest in their businesses later on. But by that point they're already onto the next stage of investors. So I think politically it doesn't have any problems.

Joel Palathinkel (41:47)

Yeah. And I think it's interesting to have more portals where founders can be more open. Right. So I think there's a lot more platforms like VC guide that are holding now they're holding LPs accountable to be value add LPs. I think it was Blue Future Partners, they actually posted, I've been building a friendship with them. They posted this survey to just try to figure out how the LPs can be more value add. So we're starting to see that now more with I guess like GP friendly LPs. I see that as kind of a thing now. But there's a lot of platforms where people, if you are doing something wrong, at least you can, you know, be held accountable for that, which is interesting.

Matt Cohen (42:31)

Yeah. And the other thing I've realized, like in the US like the family offices, they've been around for like over a hundred years, some of them in Boston, New York, and they just have a really great institutional structure to the way they see opportunities and execute on opportunities. And I think, you know, in Canada we're, we're still catching up. And so I've been trying to build a platform for RLP's to also learn from our experiences. Right. My business, my job is to source opportunities, diligence them and then offer them to RLP's, whether it's through a blind pool of capital like Ripple Ventures funds or through SPV vehicles like we do with Ripple Capital. So we've set up SPVs to buy secondary shares in companies like Vero Bank, Udacity, Airbnb, SoFi, pre IPO from employees, you get the board approval, things like that. It's been great. We also do some management LED buyouts of private equity businesses and we raise capital for those businesses as well. And, and our family offices love that because they're in the business of deploying capital and getting access to opportunities and using us as their sort of like, you know, front facing opportunity gatherer is what it's all about. As a family office, in my opinion, I'm doing that with my own investments. I wouldn't say I have a family office, but I'm definitely doing that with my own portfolio. And then we also have a real estate development fund because hey, face it, most family offices are a private equity venture and real estate, so we have a commercial and industrial real estate Fund called Ripple developments that our LPs enjoy working with as well.

Joel Palathinkel (43:55)

That's really cool. And I think you make a good point earlier, which has resonated with a lot of the guests on my show. Really bringing in the family offices and the LPs, part of, part of bringing them into part of the investment committees as well. Right. So if you're looking at a founder sometimes just bouncing it off of an lp, almost as if they're not your client, but like part of your internal team, that really changes the dynamic and it really builds trust because it almost, you know, changes the dynamic to, to them, you know, as an advocate for you. And you know, we're all human beings. Right. Nobody, nobody is always right. So just getting somebody else's opinion and looping them into those discussions. And to your point, right, like having that data room be completely transparent, it goes back to kind of the founder friendly lp. Right. Like they, they probably want to hear bad news on the weekend the same way that you want to hear bad news from your founders. Right? That's what I would think.

Matt Cohen (44:51)

Yeah, absolutely.

Joel Palathinkel (44:52)

And I think that builds the trust.

Matt Cohen (44:53)

We also bring on strategic LPs in our funds that can help us more than just with our capital. So we have funds like Lee Fixels addition, which is the old Tiger Global guy, as an LP in our fund. David Sacks from Kraft Roham from Dapper Labs vast VC. We have a lot of strategic LPs come in and offer more than just capital, but their time and their networks as well, which is what's happening a lot now in venture capital.

Joel Palathinkel (45:19)

Yeah.

Matt Cohen (45:19)

But I'd say it's definitely something we're taking advantage of as well.

Joel Palathinkel (45:22)

That's, that's really amazing. Yeah, it's good to hear that. And so tell me a little more about the, you know, the larger roadmap. So it looks like, and I think that's a really strategic initiative because the, the LPs have optionality. Right. So I'm assuming even with the fund there's co investment options too. Right. So if they, they invest, they can directly invest into the deals. But then I think it's super strategic to have the real estate offerings too, because they may have their own real estate opportunities. And you know, I'm assuming, you know, a lot of your deals are probably better than the ones that they're, that they're, they have access to because you got that venture, you know, approach to kind of, you know, systematically sourcing and screening and evaluating those deals. Right. So I think, so I think that's Great that you cover all that because they can really have optionality and get access to everything.

Matt Cohen (46:12)

Yeah. So our LPs come in either through the venture arm or through the real estate arm and they get access to everything that we have under the Ripple Group umbrella. From an opportunity perspective, I will say if someone comes in to invest in a direct only opportunity through Ripple Capital, we do offer priority to those that invest in funds first because those are more committed LPs than ones who are just picking off direct investments. But look, at the end of the day, it's about creating more opportunities for people to have access to and using our Ripple brand and our due diligence processes, whether it's on real estate or capital or on venture, to know that we've put our sort of stamp of approval on it and putting our own capital up alongside it as well, which we always do.

Joel Palathinkel (46:54)

Yeah. Another question I have is maybe advice for emerging managers on building a pipeline of LPs. So, you know, big, big insight that I've seen is really just a lot of the early stage emerging managers, they're leveraging like the VP of product at Twitter or you know, the, the head of engineering at IBM. Right. And those are like initially the LPs. But any tips on just building that pipeline? You know, should, should people use a CRM? Should people go to. You know, I don't think this is the answer, but you know, should people go to conferences? You know, so what? So I don't, I don't really, I don't think the conferences always work. I think if you've kind of built a relationship a few times and then you can get some FaceTime with them and grab a drink of them, it's great. But we'd love to hear your tips on just fundraising as a whole and how that's changed from fund one to fund three.

Matt Cohen (47:44)

Absolutely. I mean, even before I started the fund, I was very adamant about creating my own personal CRM. So I was creating CRM and Streak because it was attached to my Gmail for all the people I met when I was.

Joel Palathinkel (47:54)

I remember Streak's a great. Streak was a great product.

Matt Cohen (47:57)

So Streak was like my first CRM and now people are using Airtable. But I truly believe that, like your life's network is going to be part of your network with your venture fund if you decide to launch one. So making sure you keep that up to date, you keep sending out information to those people. Like I said before, staying on the top of someone's newsfeed, whether it's something interesting that you saw or something that you talk about with your blog or substack page. Always important. You never know when people are going to be talking about you at the dinner table or at the bar with a friend to say, hey, I just heard about this guy Matt. I listened to his podcast. Really interesting. I know you just exited your family business. You might want to talk to him about some opportunities happening in the venture private equity world. Happens all the time. It's really important to make sure you're still out there for people to stay on top of their memories because unfortunately we all suffer from short term memory loss and so it's important you stay on top of people for that. That would be my advice. And keep it all organized and structured.

Joel Palathinkel (48:53)

Yeah, that's really good feedback. And which news feeds are the ones that you like using? I mean, I'm assuming Twitter and LinkedIn, but LinkedIn has been great.

Matt Cohen (49:01)

I mean I really enjoyed writing on my Medium blog over the last little while, just offering advice and thoughts. I mean look, the thing with Twitter is it's noisy and you got to take a side in order to stand out. So that's tough for some people are a bit more introverted. But I just say, look, also speaking with founders, reaching out, making yourself available, you know, using your free time to be a continuous learner and trying to help people who you may not even know you exist is something really valuable. Like I always say, when people are in the early stages of starting a company, they'll take advice from everyone. They're just sponges. So try to be a part of that and try to help them. And you'll never know where that ripple effect, no pun intended, will take you. And that's why I called it the Ripple ventures to start with. The ripple effect, that's amazing.

Joel Palathinkel (49:43)

And you know, real quick, just a high level snapshot, what are you guys looking for as far as your investment thesis? What. What are kind of the ideal sectors and stages? I know you're doing pre seed to Series A and there's a lot of other vehicles too, but is there a certain focus area you guys doing like B2B SaaS, Consumer Generalist Fund? I think that's one thing we didn't.

Matt Cohen (50:04)

Cover for our fund. We're definitely industry agnostic. We do want to make a preference towards stateside US Canada founders, but they can have remote teams globally. Our two main core investment trends, or thesis I would say is we're really big believers in data driven platforms that are creating analytics and recommendation tools for non developers, non engineers, so low code, no code sort of focus, as well as a workflow automation software, taking legacy systems and converting them into Web 2.0 kind of stuff. And then finally we are big Fans of Web 3.0, the content creator economy. What's happening in the blockchain space as well. Just given my prior experience and so we're focused on that. I'd say where we stay away from is like the deep tech, hard tech, life sciences. We're not an ESG focus fund. Our diversity focuses on the student population that we're working with as our main give back. But we do also have a pretty eclectic group of founders as well. So I'd say that's a summary of what we're up to.

Joel Palathinkel (51:05)

Double clicking on the creator economy. Can you double click on that a little more? So a couple of things that come to mind for me is obviously right, like the emergence of substack. And you know, there's been a couple interesting companies now that I've seen. They can take a podcast or like audio file and push it to a podcast, right? So that's been something that I've been seeing. So just empowering more creators to make money off of the things that they create and then NFTs. But I just want to make sure I'm double clicking in the right way that you're looking at it. Any other insights on the creator economy and just trends that you're seeing?

Matt Cohen (51:43)

Yeah, I think the word creator is a little bit too focused on terms of like media creation. I don't look at it as that much. I could say anyone's a creator. Like we're all creators of something. What I mean by the creator economy is how do you allow someone to diversify their income stream and make it as easy as possible for them to do multiple different tasks while earning an income from it? So you know, our parents Generation were working 25 plus years for the same company for their entire life. They had one form of income. Maybe they had some diversified income with real estate in their stocks and bond portfolio. Nowadays we have people that are literally working on six different laptops at once. And I'm being, you know, figuratively speaking, but they have six different jobs. They're a freelance content writer, they're a designer, they're a dog walker, they're, you know, babysitter, whatever. And that's what I mean by a creator economy. People who are democratizing their own income streams to be able to be more of a freelancer to themselves and to the people they're working for. And how do you build the infrastructure around that so that they can become a business of their own? And I love that type of investment. So you think about, you know, how QuickBooks Online allows you to have like almost a professional bookkeeping service, or you have a PR freelancing service to get your word out there you have a website booking service or a building company like Shopify, all of those infrastructure tools that support that person's desire and mission to be a freelance content creator earner is what I think about in terms of betting on the creator economy.

Joel Palathinkel (53:14)

Yeah, no, thanks for clarifying that. I think that's really helpful. And yeah, you're right. I mean, so many people are just doing so many other side gigs and they're able to kind of streamline and capitalize on that. So appreciate you adding some context. We got about a minute left. So what I always do at the end, and if there's a last minute question that squeezes in, we'll try to squeeze it in. If not, I'll just ask my final question, which is just a piece of advice from a mentor. If you think about your mentor, what's something that they've given you as a piece of wisdom that you want to share with the audience here?

Matt Cohen (53:47)

Yeah, I think what I always say is focus on the process, not the end result. It's always important to learn new skills, exercise new muscles, even if the outcome is not right, really what you hoped it would be. And so that's part of the learnings that I always found. Even like when friends told me, hey, you know, go start a venture fund, I was scared shitless. I had no idea what the hell I was doing. And I was just like, I didn't know where I would get started. But the fact that I got started and I started having this constant curiosity and, you know, work ethic to keep learning was really important. That's one lesson I've always learned, is focus on the process, not the end result. And the other thing is money will never replace you as the driver. It will just get you there faster. And don't look at money as a means to an end. It's just something to accelerate something that you've already figured out yourself. So when we had Turnstile, we didn't have money. We had to figure out other ways to recruit people, scale the business, you know, incentivize people to work harder. And so we didn't use money as the way to replace the way we did things. We just made things we did better. And money came later on, obviously.

Joel Palathinkel (54:46)

Yeah. And I bet. Look, I mean, the funny thing, the profound thing is, like, even when you don't have money, like, I mean, I was in high school and I mean, I wasn't rich, but I was, like, happy still. Right. So I feel like looking back at your childhood, some of the fun, you know, most, you know, exciting things were when you. When you didn't even have money. So kind of thinking about that now. It's, you know, I mean, I'm sure you had a blast building Turnstile, even though there was crazy scary times, which is all of that looking back, it was probably a lot of fun, right? So, absolutely.

Matt Cohen (55:15)

There's lettuce farmers out there that left their jobs as accountants that are probably happier than a lot of us right now. So.

Joel Palathinkel (55:20)

Yeah, no, I agree. I totally agree. And I think one parallel before we leave, and I know you got to run soon, but with trying to get into Venture, right? So some of the people here are aspiring to break into Venture. And some of the pieces of advice that I've given them is really go through the process of sourcing deals, write a memo. I think that as an artifact, along with a resume, could carry much more weight than your competing candidates that just have that resume and that pedigree that graduated from Harvard, right? So coming in, being like, look, Matt, I know you're busy. I know you work at Ripple. I know you guys are looking at the creator economy. Here's a really hot deal that I found. I don't know if you looked at this. I'm asking you for advice, right? And here's the memo that I wrote. What do you think about that? I feel like that would probably convert more than. Hey, Matt, are you hiring? Here's my resume.

Matt Cohen (56:09)

110%. Absolutely. When someone goes around the front door and shows their way of adding value before even asking what they want through the. The front door. I love that.

Joel Palathinkel (56:19)

So, yeah, one of my favorite other stories is Rahul Rana. So he wrote a book on, like, Moonshots, and that's essentially how he got the job at Lux Capital when he was in college. So just doing something out of the box, just as VCs, I guess we just get drawn to something that's different. So I think that's just a great, great approach. And one last thing, one last plug, I guess. How can people hear? Sign up for your fellowship program. They go to. Is it on the website? I guess you go to Ripple Capital.

Matt Cohen (56:49)

Okay, it's on our website, but I'll just put the link here. Just a caveat. They have to be a university or college student, so just trying to keep it fair and so fellowship.rippleventures.com check it out. Everything's on our website. Thanks again for having me, Joel. I really appreciate it. Great to meet all of you.

Joel Palathinkel (57:05)

Yeah. Matt, this is amazing. Thanks for all the storytelling and advice. And Sam.