← The Investor With Joel Palathinkal
Loading summary
Transcript142 lines
- [00:03]
A
Welcome to the Investor a podcast where I, Joel Palo Thinkle, your host, dives deep into the minds of the world's most influential institutional investors. In each episode we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. All right, so super excited to have my guest on today. We've got Paul Palmieri and he's just a really seasoned institutional investor. He's a co founder and managing partner of Grit Capital Partners. You can go to their website, it's Grit BC he's a specialist in seed and early stage investing, specifically in applied AI and he's also been a unicorn founder CEO. So he, he essentially is a three time founder, former public company CEO, best known for helping shape the mobile app economy. As a senior executive at Verizon Wireless, he led the team that launched the first mobile app store in the US six years before the iPhone, setting the foundational revenue sharing model that was adopted by Apple and Google. Essentially a veteran in the enterprise and mobile industry beyond just subscription models, he was a co founder and CEO of Millennium Media. Bringing mobile ad monetization to life. Built a team, a market leading company from founding through public unicorn status. So I think it'd be really good to talk about that process. One of my favorite books, I don't know if you've read it, Paul, is Exit, right. It's from a mentor of mine, Mark Ackler. So he essentially had an Exit himself and he wrote a book on how to think about exits right from the founder's perspective. And I don't think that bible has been around, but you're writing a lot of great literature that I think is also going to contribute to that. But look excited to have you on the call and just share your wisdom and share your story.
- [02:04]
B
That's great. Thanks for having me on. I've watched a whole bunch of your podcasts and I've really enjoyed them and I like the way you roll, so it's great.
- [02:14]
A
Thank you. Yeah, I appreciate it. Well, why don't we kick this off with who Paul is? You know, I mean you've got a pretty decorated background. But tell me the origin story. Where did you grow up? What did your parents do? What did you think you wanted to do? I don't think I'm assuming, and you're going to correct me, I don't think you wanted to be, you know, multi decade, you know, exited founder and now a venture capitalist at the age of 7 years old. I'm saying, I'm saying 8 because my son's 8. Right. So kind of what, what was going on in your mind in your early childhood? Kind of tell me about your influences in life and then how did that kind of evolve during high school and college?
- [02:52]
B
Sure. What I would say is, so I, I grew up in, I was born in the rural area of Connecticut, kind of in the middle of the state, in a town called Southington, sort of mix of rural and factories. Oddly enough, my, my family, you know, a couple generations above, and you know, my grandparents all, you know, sort of like working in factories for like General Motors, etc. Etc. When I was 8 years old, we actually moved to the Jersey Shore where my mom's side of the family was. And we grew up, we grew up there. It was, it was a solid, you know, sort of middle class upbringing and my parents really demonstrated the value of hard work. Both of my parents were teachers and they worked extremely hard. When college kind of came around for myself and my siblings, they worked multiple jobs to sort of help us, help us through that. And so, you know, they, what other.
- [04:02]
A
Types of jobs did they take on? Were they other teaching roles or were they in other industries?
- [04:07]
B
Well, certainly all kinds of tutoring and, and some real estate work as well. And you know, so it's just what I would say is whatever really needed to happen.
- [04:21]
A
So, sure.
- [04:21]
B
Highly resilient. You know, I kind of started, you know, working after school and, and over the summers at a, at a young age. And so again, the family really emphasized hard work and, you know, sort of like put your head down and work hard. And so that was, that was incredible and a great, and a great backing. And there was also an emphasis on just being grateful for what we had, grateful for the moments that we had. I would say we spent an enormous amount of time as a family and an extended family and, you know, you know, that, that really, you know, sort of set the base, I would say.
- [05:03]
A
Sure. And then what, you know, with that influence of, you know, obviously the education space and then obviously your parents being, I guess, almost, you know, pretty much entrepreneurial, you know, taking on other opportunities to kind of support the family, you know, generating income, you know, in addition to what they were already earning. What was going on in your mind at that time in terms of your career aspirations as you were kind of, you know, developing in your, in your formative years?
- [05:30]
B
Good, good question. I, I, I would say my formative years probably came more while I was in college.
- [05:36]
A
Okay.
- [05:37]
B
When I started to kind of put some thoughts Together. And I was always interested in all of the other activities that were going on other than the schoolwork. So took advantage of every sort of leadership opportunity I could on campus, and those things were incredibly helpful. So there was a student government group that really was a budgetary organization that directed funds to various clubs and groups and things along those lines. I studied political science and music and burst on the scene after graduation with a whole bunch of college loans and this big time work ethic. And the idea that motivating human and financial resources was an incredibly worthwhile endeavor. So got straight to work at trying to make that happen.
- [06:39]
A
Okay. And then, you know, with all of those, you know, additional aspects of the college experience, what were some. Who are some of your influences when you were. When you were kind of developing your skill sets in college? And what did you study in college?
- [06:56]
B
Yeah, so studied political science and music.
- [07:00]
A
Okay.
- [07:00]
B
And, you know, really what I would say is I was inspired by people that were ahead of me in school, maybe a few years ahead of me, that were. That were, you know, again, working hard, but also in leadership roles where they could inspire other people to be their best and to grow beyond what they thought that they could do. And it was just interesting to watch, to watch that as that happened. There was a guy named Colin Houston who was a couple of years ahead of me, was a big role model for me back then and several others as well. But it's really great to see other people unlocking other people's talent. And I just looked at that and thought, wow, that's. That's. That's incredible. Now, again, I still was young at the time, and I was trying to find myself a career.
- [07:59]
A
Yeah.
- [07:59]
B
And, you know, I think all of that sort of influencing others, betting on others, that led me to an early career in sales and marketing. So came out of school, went into sales. I sold copiers in the city of Philadelphia. And that was an incredible experience in itself. We had a CEO who had us memorize a motto, and anywhere, anytime he would come upon you, he would ask you to recite this motto. And it was incredibly powerful and motivational to me. That guy's name was Gil Exler. And I'm happy to share it with you if you would like.
- [08:43]
A
Yeah, let's hear it.
- [08:44]
B
The motto. You ready?
- [08:45]
A
Let's hear it.
- [08:47]
B
I will persist until I succeed. I was not delivered into this world in defeat, Nor does failure course in my veins. I am not a sheep waiting to be prodded by my shepherd. I'm a lion and I refuse to talk Walk or sleep with the sheep. The slaughterhouse of failure is not my destiny. I will persist until I succeed. And that actually came from a book called the Greatest Salesman in the World from OG Mendino. But that's what Gil Exler had us memorize and, and say, which was.
- [09:19]
A
Yeah.
- [09:19]
B
Which was incredibly interesting and motivational for sure.
- [09:24]
A
Well, I'm adding that book to my, to my audible list. But part of that does have some truth. I mean it's self managed manifestation. You know, I, I wanted to get into asset management for years and I knew I wanted to get into it and I wanted to make the career pivot, but, but you know, I had to really believe that I could. And part of it, part of the battle that you're facing is with yourself and it's mental. Right. So if you can. That's right. Kind of believe that you're already manifested into getting what you want to get in life and becoming who you want to become. I think that's half the battle and then everything else in terms of like the logistics and how you're going to get there, I think that'll formulate. Once that you've chosen. Right. Once that you've decided that you want to be a lion and you identify yourself as a lion, then it's the, the, the, the logistics of becoming a line. You can figure that out later. Right. But you, but the biggest, most important thing is that you're self aware and that you know that you want to become a lion. Yes. Or you already are one.
- [10:30]
B
Right. Well, again, I think it was, it was a lot of self talk is, is what it is. Because you know, even people who are motivated by such a saying start from a place of really, is that me? You know, really, can I, you know, can I sort of do that? And so it, but it was a really good early influence on me and it, you know, I think the, the number one thing it taught was fearlessness.
- [10:58]
A
Yeah. I mean there was a saying that just came into my feed or I think I picked it up somewhere a week ago and it was pretty. I mean it's very basic, but if you really think about it, it's very true and maybe semi inspirational, but it's just very literal. It's like, look, I mean the wealthy people, they lean into their vision and they ignore their fear. The, the, the less fortunate people, they lean into their fear and they ignore the vision. Right. They're just kind of so, you know, far away from where they want to be and they, they just don't really lean into it and they just kind of let the fear eat them away and that takes them away from, you know, who they could be. But, you know, it kind of, it kind of dovetails off of just kind of what you, you share the mantra which is just really believing in it yourself.
- [11:50]
B
Yeah, yeah, it was, it was, it was really motivational. You know, I then, I then kind of went into some marketing roles and then, you know, really started getting interested in mobile when. When it was clear there was going to be kind of a digitization of cellular and that that might mean things beyond voice. And so I got into. I went into an early startup at the time it was called Sprint Spectrum. It was the first sort of like digital cellular or PCs carrier in the US Saw interesting entrepreneurs at work. So that was fairly interesting. Went into a small company to lead a division. Then head of our operations left and went to a startup as a real startup super early. And that startup was called advertising.com. and he called me and said hey, one of our founders is kind of has an idea to send text messages with ads in them to cell phones. And unfortunately we've been shut down on the email protocol because we've been sending so many messages. Can you help us come figure this out? And So I joined advertising.com to build a mobile advertising business five years before there should have been such a thing. So joined there, built a small team, frankly was trying to put ads on pagers back in the day. But I saw great entrepreneurs at work really from the beginning, people who were determined against all odds, like a rocky sort of a thing to be have success. And advertising.com was extremely successful. At a point it was clear that the mobile portion wasn't ready. And at the time Verizon started a data division and I was introduced to the head of the data division who then hired me to come and lead mobile data from. From the product organization perspective. So owning the. The PNL for mobile data from a very early stage. So this is 2001. We had year 2000. We had finished with about 30 million in revenue. And I left there with about 4.3 billion in revenue sort of at the end. And what happened in the interim was we interoperated text messaging. We launched the first app store which was called get it now at the time. So if you remember color screen phones.
- [14:40]
A
And the bowling game was this on the. Which. Which operating system was this on?
- [14:46]
B
So this was on a. So there were no operating systems. So Brew was the. Was the product from Qualcomm that was like a vending machine for apps.
- [14:55]
A
Got it.
- [14:56]
B
And it had to be, had to be integrated the developers. It was tough to develop apps. You had to port them for every single device rather than having a common operating system. For us to get developers to develop apps, we really had to motivate them. And we set in place the 70, 30 business model. 70% to the developer lion's share that still exists today. And Apple still being sued over today. Sure is this 7030 share. But at the time, it was remarkable that a US operator carrier would put services on their bills and give 70% of the revenue to very, very tiny companies who are building these small mobile games and ringtones, et cetera, et cetera. So fast forward to towards the end of that. We're putting full track music on phones. Launched a service called VCast, which was short form video. We did deals to do 2024 for mobile. The show 24 instead of 24 hours, it was 24 one minute episodes.
- [16:08]
A
Okay.
- [16:08]
B
You know, really innovative stuff done back then, but, but again it really, it was a really interesting time and we built a very big business there.
- [16:19]
A
That's really interesting. And what are some of the biggest lessons that you learned? I'm going to go back one or two steps. What are some things that you learned selling copiers and then kind of getting into marketing and then essentially just taking this company. I think you guys went public, right?
- [16:37]
B
Yes. So Millennial Media came after Verizon Wireless and that was mobile advertising platform. Is really could tell from my vantage point at Verizon Wireless that this was not going to be an unmonetized form of media similar to today. How the LLMs, by the way, are not going to be unmonetized from an advertising perspective. Yeah, etc. So it was Millennial Media. But you're saying back to copiers. What was the threat, the reason why?
- [17:09]
A
You know, so I have a, you know, coincidentally enough, I have a friend that was in New York that would sell copiers and he straight up told me like he would sneak into some of these skyscrapers and like he would pitch everybody. He would all. Whenever he would go somewhere, he'd get somebody's business card. Because everyone needs copiers. Right? Any business needs a copier. Back then there was no Facebook ads, there was no bookings that are on your call. I mean, they call it the, the fat cat salesperson now. Right. There's sales reps that are just sitting on a computer and they're waiting for a qualified call to show up. And then I think of the olden days when My friends would just literally just like sneak into skyscrapers and pitch and close deals.
- [17:54]
B
Oh no, you are totally right. As a matter of fact, there was an underground passage similar to what you see in Rockefeller center in New York but in Philadelphia that goes from underneath City hall over by the old Wanamaker building, all the way kind of up Market Street. And so if you wanted to get to 17th and Market, which was five or six blocks from there, you could walk underneath in the tunnels. And they had coffee shops and bagel stores and you know, all of that stuff. But the secret to getting in those buildings was to go up through the basement.
- [18:30]
A
Interesting.
- [18:31]
B
And, and, and sort of, sort of enter an office suite and look at the labels on the magazines because the magazines were not being sent to the receptionist, they were being mailed to the decision maker.
- [18:45]
A
Interesting. So then you would just mail a custom letter, personalized letter or something to the, or I might even just go.
- [18:53]
B
Up to the receptionist and ask if Joe Smith happened to be there that day. So yes, this was sales, this was difficult. There were times, you know, there are times where you're, you know, sort of like a feast or famine sort of a thing.
- [19:10]
A
I mean, it's still difficult. Right. I mean the decision making process, you know, this, I mean, even when you think about sales, I mean there's a marketing process that is still required. The good thing is now marketing can do a good amount of the heavy lifting. Right. People, they see a new brand and they get touched at least seven to 10 times. Right. They get, they see a video, they see content and they built, they have to build that trust because there's, there's a lot of options, you know, and.
- [19:40]
B
I mean, I think interestingly in AI, you know, this sort of like there is a movement towards automated outreach.
- [19:48]
A
Yeah.
- [19:49]
B
You know, for the recent college grad, you know, this has been a compelling job opportunity is the BDR or the SDR path, especially in enterprise software.
- [20:03]
A
Yeah.
- [20:03]
B
But it's really a compelling use case for agentic AI where the AI is reaching out, but it's also reading the website and the LinkedIn of who they're reaching out to and completely customizing the outreach in a way that would take an enormous amount of effort for. And only the best BDRs or SDRs would do the diligence and do the kind of front end work that AI is capable of doing.
- [20:35]
A
Sure.
- [20:37]
B
My partner, Matthew Bellows wrote a great piece on marketing and sales and what AI can do for marketing and sales. But you're totally right, it's a Different world today for sure. And we think it's one of the places we invest is in martech, which includes sales automation technology.
- [20:57]
A
Sure.
- [20:58]
B
And what I'll say is we think there's an enormous potential for AI here.
- [21:05]
A
What are some of the biggest lessons that you've learned just in sales overall? Human beings building relationships, closing deals. What are your biggest takeaways?
- [21:19]
B
I mean, I think people want a mix of a window and a mirror. They want a window into what the future would look like, especially we're talking about enterprise software. They really want a window into the future, but they also want to see themselves reflected in that future and building something. Sales is building relationships, but it's also displaying the empathy to understand the interaction and what the impact of the product you're bringing to market is going to have on that person's job, but on that person's perhaps free time as well.
- [22:02]
A
Yeah, like their life overall.
- [22:04]
B
Yeah. Or the quality, you know, what's the quality of life for a marketing director when they're not spending two hours preparing for a meeting by pulling data, but rather can spend that two hours thinking about strategy.
- [22:22]
A
And I would say that the talented sales reps focus on that versus the features and the bells and whistles and the new automations and the dropdowns. Right. They focus on the outcome and meaning.
- [22:36]
B
Yeah, absolutely.
- [22:39]
A
Yeah, that's a good one.
- [22:43]
B
But I think career wise, I then sales kind of turned into marketing and like, you know, Millennial media, this is an advertising and marketing technology platform that relied on us building unique interactions that were uniquely mobile, but also doing things with targeting and ad optimization that had to do with what was unique in mobile, like location data coming across and understanding. Okay, this device is in a resort location every weekend. This device during the week is in a public park between 11am and 1pm Possibly that's an affluent because of the potential vacation home, a toddler. Or if there's a device that's been in a car dealership twice in the last, you know, two weeks and hasn't been for six months, that might be an in market auto intender, etc. Etc. So really some interesting things there as well.
- [23:54]
A
Sure, that's helpful. And you know you wrote a really interesting. Well, I guess tell me what happened after that. So what was the next chapter? You know, you took the couple of company public. What are some of the learnings that you had taking the company public and and then essentially just learnings as being a public CEO? I think that's a good segue.
- [24:14]
B
Well, certainly anytime, anytime I talk about Millennial Media, I have to talk about the team, because we just had an incredible team of people that, that built a, that built a market leader, but we took the company public. It was an interesting process. It actually is a sales process where you get pretty immediate feedback. So you're going, you know, you're, you're going and you're making a presentation and answering questions for 50 minutes and then your next one starts the next hour. But, you know, by the time you get back in the car, whether they placed an order or not, it's very interesting process, real time. It's an incredibly rewarding sales, selling process because you do get immediate feedback on how you're building the book, on the roadshow on your way to that. But becoming a public CEO, it was about growing the business, managing not only the team, but managing the expectations in a different way than exists when you're a private company with minority ownership of venture firms. So it's kind of a whole different thing. So, you know, almost whatever, whatever you're doing creates the next metric. You can say we hit our, we hit our revenue goal, but how did you do on profit? You can say we hit our revenue goal and our profit goal. And then what's, what's your guidance? Okay, we're going to give you guidance on revenue, but not on the profitability goal. Okay. Why didn't you give us, you know. Right. And so, okay, great. You gave us the revenue guidance. You hit slightly above, below the midpoint of your range. You gave us a range. Here's the midpoint. Ah, your next, your next guidance for next quarter. The midpoint of the range was above this quarter, but it showed a deceleration in the growth rate of the midpoint of the range of the, you know, whatever. So, you know, it's a whole different, whole different animal that is, you know, that was, that was really interesting. But I really wanted to learn venture and I really wanted to get back to the roots of building. But I was always fascinated on why there weren't as many founder CEOs in venture. Yeah.
- [26:45]
A
You know, why do you think there weren't so many? Do you, do you think that they wanted to start a new career in venture or was it just that, I mean, what I found wanted to be another founder again.
- [26:56]
B
So I left Millennial Media and I went in as on the team at NEA for a little while as a large venture capital firm.
- [27:05]
A
Yeah. So you took on like a full time role.
- [27:07]
B
Well, not a full time role. They called it Venture Partner.
- [27:10]
A
Venture Partner.
- [27:11]
B
Yep. And it was, you know, so I would go there on Mondays and, you know, I would sit in the partner meetings, I'd sit in on pitches, I'd help some of the partners with diligence, etc.
- [27:21]
A
Etc.
- [27:22]
B
And you basically could have whatever level of involvement that you really wanted to, you know, to sort of have. And I think I kind of arrived there thinking, okay, well, hey, I'm a founder CEO through public. And, you know, I'm gonna come in and maybe, maybe there's gonna be, I don't know, maybe like everybody will have party hats or something. And I'm thinking to myself, gosh, you know, we're out here taking risk. You know, this is what we're looking for in founders. This is such a thing to apply it, believe me, and it is. But I think, you know, people who came up just straight through the venture path, through the analyst to associate and principal, there was actually a lot to learn from them as well. So while the operator might look at it and say, hey, here's all these MBAs, right? We've been doing real things while these MBAs have been.
- [28:22]
A
Sure.
- [28:23]
B
At the country club.
- [28:25]
A
Yeah. I think, and I mean, the, the I would say is NEA is like one of the best brands that you can, you know. So I think just even being associated with that, that brand is a huge lift for anyone.
- [28:38]
B
The thing for me to learn, though, and anyone who's an operator and one of the reasons why I went in there to learn this.
- [28:45]
A
Yeah.
- [28:46]
B
Was that on the other hand, the MBAs are turning and they're saying, here, look at, look, here's another one of these founder CEOs, they get one idea, they spend eight years on it.
- [28:55]
A
Yeah.
- [28:56]
B
Meanwhile, we're applying an analytical framework to understanding how big this possibly can be. How should they know when to take their foot off the gas or to put it on the brake? And that isn't all feel, it is also an analytical exercise. And so for me, it was a really high value thing to do, was to get that perspective and to learn. I'm a lifelong learner, love to learn. And so, you know, did that for a little while. I worked with NEA and then Blue Run Ventures, which was a smaller venture firm, to really learn the big, learn the small, and then start our own. And in 2018, we started grit Capital Partners as a seed stage venture firm that specializes only in the sectors where we built companies. So a real specialization because we were already known as thought leaders there. We already were getting deal flow because people respected our opinion on what the next generation of various softwares were that addressed these areas. And, and so that kind of brings us to Grid Capital Partners and we're excited. We're investing out of our fund three and we are targeting founders and teams that are building applied AI, typically for martech, commerce, fintech and MediaTek. So these, these four areas are where our four investing partners were founder, CEOs and built companies.
- [30:44]
A
I love that. So what would you advise a new professional or maybe a seasoned professional to do? If they're looking to kind of pivot their career and possibly engage in like an NEA or a Sequoia as like a venture partner, what would be the advice that you would give to, you know, I'd say both like a, like an emerging professional that's coming right out of college or you know, maybe they already did an MBA or maybe even someone that's in their, you know, late 50s kind of thinking about their next chapter.
- [31:15]
B
Yeah, I mean, I think, I think typically you would see the early career professional that would like to choose venture come either through the investing bank, investment banking, two year Faustian bargain, you know, sort of sort of thing, or they'll start right away at a venture firm as an analyst, which with a little bit more of a junior role. And what I would say is either is a great way to come into venture. I think the road less traveled is the analyst role. And what I'll say is there's so many dynamics now to venture that didn't exist before.
- [31:55]
A
Sure.
- [31:55]
B
Venture is full of side deals, Venture is full of secondaries and deal scraps and yield optimization and all of that. And while the investment banking path gives you access to industries and specializations which I do think are incredibly compelling, you could also make a very strong argument to go straight to the analyst path because you'll get into the business of venture and understanding what that business of venture is. And if you're an operator, and I'm going to specifically cordon it off to like founder CEO, because there are a lot of venture firms where there's people who say, oh, I was an operator. And if you were the junior vice president of marketing, yeah, you were kind of an operator, but not really. You didn't have to make payroll. You didn't have to make very difficult decisions and hard decisions every single day. So for that founder CEO, what I would say is it takes an enormous amount of humility to go in and say I'm going to be an intern at a venture capital firm as a venture partner and just put your mind in the right frame, where you're a student, where you're, where you're really there to learn and to listen. And you know, what I would, what I would say is it's incredibly rewarding, but it takes a really good dose of humility.
- [33:28]
A
Sure. No, that's helpful. We met through a common friend and, you know, when you introduce yourself to me, you put together a really amazing white paper and, you know, there's some really good takeaways because I think, you know, this kind of underpins what we talked about earlier, you know, understanding your client, your Persona as an investor. Your clients could be limited partners. So I think you did a really good job putting together a really detailed overview on what family offices think about and how they should think about, you know, asset classes. And, you know, one of the first things that comes to mind is really, you know, AI. There's so many AI funds, as you know, we have our fund accelerator and there was, you know, there's themes that I see each time we have a graduating class. A couple of years ago, there was a whole climate wave. So many climate funds, many of them have pivoted. There was a whole wave of blockchain and web three. Many of those people just became AI funds. And then there's a traditional AI funds. Right. AI has been around since the 80s. Right. So what are some things that you should think about as a GP? Trying to position or trying to help LPs understand the facets of AI and how you can really help communicate the messaging around your subject matter expertise, especially in applied AI.
- [34:55]
B
Yeah. So the first thing I'll say is, like, I believe that anyone who is an investor or investing their own money or other people's money, and it doesn't matter which asset class, I believe that AI exposure will be the defining driver of above market returns for the next 20 years.
- [35:23]
A
Sure.
- [35:23]
B
And, you know, with that in mind, you have to know that whether it's family offices or institutions, they're being pitched AI in terms of Nvidia shares, they're being pitched AI in terms of energy, they're being pitched AI in so many, so, so many different ways. And so I think you really have to have a specialization or a perspective on what is the area of AI you're going to invest in and how you can really add value to the LPs that you're seeking to sort of invest on behalf of and partner with. And so for us, it's the applied layer of AI we've seen from, we talked about the story from Verizon on like we've seen the mobile, the cloud and the Internet transitions. Always a chip layer, there's always a general technology layer and then there's always an applied layer. And that applied layer includes applications, but it also includes verticalized tooling as well. So for instance, Stripe is not cloud infrastructure, it's verticalized tooling for financial services in the cloud era. This applied layer we believe is, you know, is, is the place where the value will be accrued. If you look at the public mobile companies today and you add up their market caps and think about Uber and Instacart and Zynga and Yelp, et cetera, et cetera, there's you know, 50 or 60 of those. And if you add up their market caps, it dwarfs the combined mobile portions of Apple and Google's market cap, which is about 33 and a half trillion. If you just took the mobile portions of those two, added them together, and the same thing we believe is going to happen here. And so you want to be of service there from our perspective as one, a specialist manager, a manager at Seed, a lover of small funds over large funds to drive performance, and a real believer in the sort of like operator mentality. We are drawn to what has changed in the family office universe over the last 20 years? In the year 2000, less than 20% of US family offices were ones where the wealth event happened in the current or the just prior generation. In 2025 that percentage is above 80%. And we love this. The reason why we love this.
- [38:09]
A
Can you go through that stat again? I'm just taking a few notes here. So less than 20% of family offices created the wealth in the last generation.
- [38:18]
B
So Gen 1, Gen 2 is what they call it.
- [38:20]
A
Yep.
- [38:21]
B
The current gen or the one prior. So it's somebody who did it or they saw their parents do it, right?
- [38:26]
A
Yep.
- [38:26]
B
So Gen 1, Gen 2, less than 20% of family offices in the United States in the year 2000.
- [38:32]
A
Got it.
- [38:33]
B
In 2025. Gen 1, Gen 2 is upwards of 80% of family offices in the United States. And this is significant because the venture capital industry has largely potentially raised money from high net worth individuals and then maybe family offices and then abandons that to get big pension funds to come in and make sure that they invest every single fund from now to kingdom come.
- [38:58]
A
Sure.
- [39:00]
B
When in reality we believe deeply in the family office. One of the reasons we named our firm grit is our own grit, the grit of the founders that we want to see. But we also believe that these family offices that are Gen1 Gen2 have an enormous amount of value to the ad. They've built a budget and motivated human and financial resources to achieve goals and they've created market leadership and they have something to say and they have something to add. And so we. The paper that I shared with you is called Specialist Direct. And for us, you know, it's a playbook. It's a strategy to really look critically at how a family office might invest in venture and combine fund investing and direct investing. Why do today's family offices want to invest in directs? Because they're entrepreneurs? Because upwards of 80% are Gen 1 and Gen 2.
- [40:05]
A
Yeah.
- [40:05]
B
And so the respect that we have for that is incredible. So we wrote this strategy and look, we're not intermediaries, we're not consultants, we're not productizing a fund of funds. We're operators turned investors. And we wrote it because we think that family offices deserve a better path to private market alpha. We see a market here that's increasingly flooded with new service providers, platforms, secondary aggregators that are all chasing this steel scraps, yield, etc. Too often the value that should accrue to families gets siphoned off by gatekeepers.
- [40:51]
A
Sure.
- [40:52]
B
We wrote this strategy as a different model and it's rooted in respect for what families have built and designed to create outsized returns that include some of the dynamics that exist for instance in the Yale model. But when you deploy the Yale model at subscale don't really exist.
- [41:15]
A
Sure.
- [41:15]
B
So it's things like being an anchor. It's already. If you look at Cambridge and you read what they're putting out on smaller funds versus larger funds and emerging managers versus managers and the performance and the outperformance that they're seeing. Actually the 5 to 10 million dollar check put into very large venture capital fund complex isn't the Yale model. The Yale. Yale's putting a lot more money in there and they're getting fee breaks and they're getting co invest rights and they're getting access to some of this deal scraps and yield and some of where the good juices in venture. And so what, what we argue is hey, your five to $10 million check, you can be the anchor in a $75 million fund and that's pretty amazing. And you can have a differentiated relationship with that specialist manager that specializes in an industry set or technology set or however you want to define it that your family has deep interest in, deep conviction in or perhaps a deep understanding of. I always use the example of a, a prominent furniture store family and you know, what category might they know, they know a lot about timber. Right. Because they build a lot of furniture, they use a lot of timber, etc.
- [42:54]
A
Etc.
- [42:56]
B
Between the strategies for private funds, you know, the idea is to back specialist managers and we think those specialist managers ought to have certain characteristics, the characteristics that are proven to be outperforming again these operator investors, small versus large emerging managers. And then the actual fund construction should be structured in such a way that there's no more than x percent of reserve for follow on.
- [43:32]
A
Sure.
- [43:33]
B
Such that that manager by doing it is indicating that they are not only going to offer some co invest opportunities but that, that's actually a part of the model.
- [43:46]
A
Yeah.
- [43:47]
B
And so anyhow, we wrote this. We, we had a bunch of collaborators that collaborated with us on this and we're so, so excited by it. And there are even again, we're not building a product, but we've had some multifamily offices and sophisticated RIAs who've looked at this and said actually we're going to build a specialist direct portfolio for our clients and for our families. And so again we, we wrote this four or five months ago as myself and Grant Nellick, who's a senior associate here at Grid Capital Partners, who also came out of Green Spring Associates slash Stepstone. So a lot of knowledge of, you know, of the interplay here to build the simulation.
- [44:43]
A
Sure.
- [44:44]
B
So anyway, it's, it's been great and the feedback we're getting is just fantastic. And interestingly the feedback, a lot of the feedback we hear is there's not a lot of people who are GP funds. We're talking this way about the value we could or should add as families. And so we just, we just love it and we're, we're excited to be again partnering with LPs that also have grit.
- [45:18]
A
Yeah, I'm reading, I'm almost done with a really good read. It's called, I was just trying to look back, I forgot the name of it, but it's called I don't know if my background is blurry, but it's Think Bigger by Michael Sonnefeld.
- [45:30]
B
Oh yeah.
- [45:31]
A
Sonnefeld started Tiger 21. So there's just a lot of wisdom from many of these entrepreneurs. As you know, to get into tiger 21, you got to be worth 10 million. I think you have to have 10 million liquid. So there's a huge filter and many of these people have their own family offices. So like one of the chapters I thought was really interesting and it kind of, kind of relates to your concept of just kind of the discovery that you found with the gentleman, the gen ones and gen two is making up 80% there's more younger generations probably getting involved in the family business and necessarily not always taking over the family business but evolving it or maybe expanding it into sectors that they're interested in. You know, obviously the next gens are going to be much more tech savvy. They may not want to manage 50 car washes that you know was the source of wealth of their families. You know, I mean I was talking to a family office recently that owns a massive conglomerate of essentially auto bodies and they, they built up a massive real estate portfolio. And the children necessarily, some of them don't necessarily talk to some of their children and some of the children have no interest in being involved in that business. Some have kind of taken on some of the real estate portfolio. But you know, just because someone is your child that doesn't mean that they're a good fit to run your operating business. So there was a whole chapter on that that I thought it was really interesting when it, when it comes to kids and kind of carrying on the legacy, it may not be your children and maybe there's another professional operating team that is kind of the person that carries that over. But you know that's. What do you think is the cause of the increase from 20 to 80%?
- [47:29]
B
I mean I think there's just been a lot of wealth generation that's happened.
- [47:33]
A
Yeah.
- [47:34]
B
Over time and.
- [47:35]
A
Sure.
- [47:36]
B
You know that's for sure. I'm my. So I've been a member of Tiger 21 since about 2020.
- [47:43]
A
Sure.
- [47:43]
B
And it's been, it's been wonderful for me it's been transformational as a kind of like a personal board of directors and, and Michael has been great.
- [47:55]
A
Yeah.
- [47:56]
B
Shout out to their Global Exchange conference that's happening at the end of this month. Pretty, pretty amazing. Brian Sullivan always comes and you know he, the first thing he says hey, where's my, where's my self storage families?
- [48:11]
A
Raise your hand.
- [48:11]
B
Right. And so to your, to your point it's actually working with these specialist managers I believe that are, that are dedicated to the family also having direct investments so that instead of picking their cherry picking.
- [48:27]
A
Yeah.
- [48:28]
B
That actually can help the next generation flow into the discipline of running a family office. And if you have managers that are hyper aware and also wanting to be helpful in terms of the development of the next generation, I think that's just an amazing, amazing thing as well. And by the way for all parties.
- [48:56]
A
Super rewarding yeah, no, I totally agree. And I think really just building long term relationships is a huge thing because I mean, you're sharing ideas, you're essentially achieving time travel, right? You can figure it out yourself, but if there's someone else that can help you skip maybe a, maybe a decade just from having knowledge much quicker, then you're essentially achieving time travel, right? And I think if you can do that and be with the, be the right people, build right friendships, I mean, I think we met through a common friend who's also a super connector. I think they also have a really great connection, community as well. But just being in those rooms is half the battle. And just getting that knowledge that's going to help you. And then I think, you know, what I've also seen just through all of the community building that we've been doing is just many of these families are also building their own investment practices. They'll anchor their own fund and then they'll raise a little bit of outside capital from some of their peers that they trust and friends and family because they have a common mandate, they have a common strategy, and it's just easier for them to do it on their own because they have the unique edge, right? If you've been building your family office and it's come from applied AI and you have a unique edge and you've been doing it for the last 10 years, there's not really anyone else that can do it better than you. One of the managers in our program that graduated runs a billion dollar AI company full time and he's like, look, I think I'm gonna, you know, look, I, I, I see so many deals and I'd love to do some angel investing, but I want to do this at a bigger scale. I might as well just launch a fund, you know, because I, I'm surrounded in these ecosystems. We, you know, I go to the same cocktail events where I meet these groundbreaking AI and you know, engineers and, and founders and I want to write a check, but I don't want to do an angel check. You know, I want to do like a, you know, a $2 million institutional check. And a lot of times it doesn't make sense to do it off the balance sheet, you know.
- [51:00]
B
Yeah, I mean, the, the thing there, I think is, you know, because every, everyone who's a founder, CEO, who's written some angel checks, you know, sort of will tell you is, you know, there is, there eventually becomes like a real discipline to setting expectations, finding a way to be shoulder to shoulder with that entrepreneur. There's some great videos on our website that talk about this through the founder's lens.
- [51:28]
A
Sure.
- [51:28]
B
But it's really, it's really about, you know, the mindset of the entrepreneur, the expectations not only of what success is and what failure is, but what meh is in the middle.
- [51:42]
A
Sure.
- [51:43]
B
Like, understanding that you're middling is a. Is an incredibly, you know, sort of difficult thing to do. But the other thing too, about this AI founder you're talking about is the ability to codify the playbooks that have worked, whether it's, you know, building a B2B brand in software, which is a very unique sort of playbook that we're bringing to bear, you know, from, from, from our experience. But it's. Things like that are so, so compelling with the, the founders and the entrepreneurs. And when, when they understand that they could take a check from a venture firm that doesn't have this sort of like CEO founder background versus one that does. It's not just about, well, we can introduce you to people, and we have young people who can. In a portfolio division that can sort of like, help with things. But rather when you turn around and you say, hey, look, you're building a, you're building XYZ kind of startup, we can actually get you connected to the training data that would normally take you a year to build a relationship, to get that connection to this training data. So, like, getting it to be incredibly tangible, I think is so, so powerful and wonderful and some of the most fun parts of what we do.
- [53:13]
A
I love that. Well, we got one minute left. I feel like I could talk to you for three more hours. We'll have to do that over cocktails.
- [53:20]
B
Absolutely.
- [53:21]
A
Totally. But look, I want you to leave me one piece of wisdom for the community. Could be a piece of wisdom from a mentor, you know, a family member, someone that you look up to. But just reflecting back on the last maybe 15, 20 years, what's one major piece of advice that you live by that you want us to take away?
- [53:41]
B
I mean, I think, I think the advice is probably from my mother, which is you have to react well. It's. Everything is about how you react. Things change, times change, deals change, you know, all kinds of things sort of happen. And the quality and the tone and.
- [54:05]
A
The.
- [54:08]
B
The speed all together of your reaction and how you react is really what builds a career, a reputation, a lifetime of, you know, feeling great about what you're adding to the world. So I want to thank my mom, Karen, for that.
- [54:35]
A
I love that. And I think that's so important with every facet of life, you know, personal bad news, markets changing and you have to deliver bad news to LPs. You know, how do you react? Do you not do you not, you know, share things transparently or do you actually just, you know, let people know and message it because people judge you based on how you react and in good times and bad times. So I totally agree with that. But Paul, hey, thank you so much. Really appreciate it. This was a lot of fun and learned a lot about the ecosystem and got some pleasant reminders from just hanging out my buddies back in the day that they used to they used to be in New York and they used to they used to do sales. So learn a lot and appreciate it and looking forward to catch up soon in person.
- [55:24]
B
All right, sounds good Joel. Thank you so much.
- [55:26]
A
Take care Paul. Have a good one.
- [55:27]
B
Man.