← Liftoff with Keith: Conversations with Super Founders and Growth Experts sharing useful insights
Liftoff with Keith: Conversations with Super Founders and Growth Experts sharing useful insights
Opening the Private Markets: Carine Schneider on Democratization, Regulation & Future of Investing
00:29:45
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A
You know, 98% of people do not qualify to invest in that particular area. Types of things we try to help our entrepreneurs and founders understand is you gotta plant the seeds and you can't expect a medium ROI on everything that you do. You know, marketing and branding takes time.
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B
Hey. This episode is brought to you by the outstanding team at Compass Strategic Advisors, your trusted partner in driving strategic growth. Whether it's expanding into new territories, launching products, rebranding, or hiring key staff and board members, they offer the expert guidance every step of the way. With a versatile approach and a proven track record, Compass is the go to resource for both startups and established companies looking to scale with confidence. Thanks and show your support for for this podcast by sharing some sponsor appreciation. Check these guys out at bww.compass-strategic-advisors.com let's get ready to lift off. So glad I get to welcome Karine Schneider, the founding partner of Compass Strategic Advisors, to the show. How are you, Karine?
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A
I am doing great.
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B
You just whispered to me that you're going to Hawaii, so I hate to tease that out, but of course you're doing great.
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A
Yeah.
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B
Not only is the anticipation fantastic, which the. And you deserve the great break. Whoever has a bad time in Hawaii.
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A
Yeah, I mean, I can tell you, I know, I know a few people have had a bad time, would have ended poorly for them, but for the most part I'm hoping that's not the situation. But first trip with my granddaughter, so I'll be doing some babysitting. And, and I was telling you, last time I was where we're going was 30 years ago. My son took his first steps and I haven't been to this part of Hawaii in 30 years. So I'm looking forward to kind of be a little more adventuresome, you know, going like, like I always go to the same place, I know the same restaurants and the same stores. And, and this time I realized that I'm like, whoa, I don't really know where I'm going to be getting coffee and you know, which beach I'm going to. So it'll be kind of exciting to, to be a little unexp.
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B
Oh, well, good. I think you, you tie off the summer very nicely. I'll look forward to hearing some more stories. In the meantime, let's start talking about some exciting things going on around you. One, you, you did an update on your book the Private to the. The. The democratization of Private Markets. And I, I read the first version and then you updated it recently. Share with us what was the, the catalyst to get you to, to write the update for that book.
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A
And I should mention you wrote the forward, so thank you very much, Keith Newman. Yeah, you know, I wrote it in 2001, coming right off of COVID And I think at that time it was a very unsure time about what was going to happen. We had a different president in the White House, we had a different SEC commissioner and things were still very wild, wild west. And kind of fast forward four years and we're out of COVID we're out of working, out of our bedrooms. We have new people running the show. And I started to look at some of the things that were in the book and I said, oh, you know, that's not true anymore. That's not how it works anymore. And I thought, I want to make sure if this book is out there that it's accurate. And so I thought I'll just kind of update it. But as I went through it line by line, I was shocked at how much has changed and new things I had to talk about. Like I'll give you an example. The UK has introduced something called pices P I C S E S And it's, it's a, it's the UK government looking at the private market and saying, hey, you know, we should be involved in this thing. We should provide structure. And by the way, if people do things the right way, we should make it tax advantage for the people who are involved. And we as the government can do that. So they've set up a whole infrastructure and, and like I said, there's certain things, if you do it right, you can really save on tax in the UK and there are, if you read their legislation, there are things that look very similar to the American style private market. But I think we have a lot to learn from what they're doing. And again, it's, I think the first time the government has really stepped, our government has really stepped in. And so things like that made me realize that globally things are changing. Nationally, in the US things are changing and legislation is changing. I mean, we just saw Trump sign the executive order in the last few days about allowing 401ks now to invest in private market, you know, investment opportunities. So all these things kind of led me to, okay, time to update the book.
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B
You know, it's really shocking too because, you know, it's almost like the, the frog in the hot water experiment. You don't really notice it until it's too late. But now you bring up a point. I know you've been a champion of this for a while. And it's important to mention you've been around this space for a very long time. Your days at PwC and global shares and then you ran the cap table company, Estrella, that was part of ast and then Equinity. I mean, that's a very formidable background. And I just covered a portion of what you've done. But you've been a evangelist promoter of the idea of opening up access to the private markets. And I think the opportunity of leveraging the private market and letting people invest more with 401ks and things like that is a real game changer.
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A
Yeah, yeah. And you know, I, when I came out with the book the first time, I went and spoke at a Woman in Women in Private Equity conference in London. And I'm thinking, you know, I'm amongst my people, this is great, impressive women investing in all these companies. And I'm talking about, you know, the democratization and we should make sure that other people can participate. And this woman in the back row starts literally heckling me as I'm talking about this and telling me how wrong I am and how dangerous the private market is and how only people who really know what they're doing should be in it. And I said, well, how many of you in this room know what an ETF is? And you know, like a third of the people raise their hand and I'm like, but do you know that every single person in this room is allowed to invest in an etf whether you know what it is or not? You don't have to take a test. You know, cryptocurrency, how many of you really know what that is? So if you look at the things that are available to people, we can invest in a lot of things, but mom and Pops, Main street, you know, sometimes they call them widows and orphans, which I hate to say, but the rank and file person who does not live in Silicon Valley like you and I do, generally can't participate in the private market. Which is where, if you look at it, tremendous growth, tremendous opportunity for innovation, lots of companies that are changing our world for the good, and yet, you know, 98% of people do not qualify to invest in that particular area. So seeing this go through the 401k, I mean, I'm a little bit. It's going to take a couple years for everybody to catch up. We're going to need funds that are going to be able to do this. But what it does say is, hey, we're going to see a lot more inventory and inventory Means we're going to see a lot more demand for companies that are good, that need capital, that need investment and that will stay private because they don't have to go public. So a lot more opportunity for Main street to participate.
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B
Okay, so just to put it out there, if I wanted to take my 401k dollars and invest in OpenAI or another startup, you know, down the street from, from me, the guy is starting a new AI business to manage service bays at car dealerships. I have, I have a certain amount of, of money that I can invest. I've, I've, I've dedicated it to high risk. What would, what would stop me from doing that?
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A
So a couple things. If you just wanted to go buy open AI stock, that's not what the executive order is saying. You still have to be an accredited investor in order to do that and you have to use a self directed IRA so that, and there's only a certain number of administrators out there who will let you do that, who will allow you to own that. So you can't take your 401k money at Fidelity and say, hey Fidelity, go buy some OpenAI. What you will be able to do is Fidelity or whoever's your 401k provider is going to start to have funds that are made up of OpenAI, SpaceX, you know, all these, these kind of darlings of the private market. And you'll be able to say, I want to put 10% of my 401k money in the private fund and I want to participate in what's happening there. And at this point it doesn't look like you'll be limited. You could put 98% of your 401k money in the private market if that's what you wanted to do. As long as there are funds that can take your money. And that's one of the questions is will these funds be able to find enough opportunities and will they be able to find managers who can evaluate these opportunities so that you'll feel comfortable putting your money in those funds? Funds over a traditional fund.
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B
Right. Because in context the person at Fidelity or Schwab or somewhere else, they don't necessarily do a lot of private company investing, early stage tech investing.
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A
Right. And what worries them, and remember there are fiduciary responsibilities of these fund managers and the companies is that the amount of disclosure in the private market is nowhere close to what you get in the public market. So you're now a fund manager and you go, hey, let's put money in SpaceX and you're like, you know, were you ever wrong picking IBM? Are you ever wrong, wrong picking SpaceX? But what if you pick Perplexity or what if you pick another company and that company goes down and they say, Keith, you, you were the manager of this fund. You know, what did you do? Why did you put some money in some random, you know, AI company?
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B
I buy some shot stock in Theranos.
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A
Still, I think that's over.
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B
Yeah, well, but the point you're making though is, is there the oversight and the, you know, the compliance requirements, et.
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A
Cetera, and the disclosure and the information and there are AI companies out there. There's a company called Charlie Capital that does a great job of going out and looking at, analyzing the available data from an AI perspective into these investments. But still, these companies are not held to the same level as a public company in terms of disclosure.
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B
Nice. Okay, well that creates too nice of a segue for the next book you're writing. I didn't know you were going to be an author all of a sudden, but you become a, you're becoming a famous author. Talk to me about this new book about the stock industry. Stock industry and, and changing, changing wealth accumulation.
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A
Yeah, well, when I graduated from kindergarten, I went straight into working at Oracle. And this is my 40th year of working in the stock plan business. And so looking at, I started in 1985 and I, I had so many conversations with people where they don't understand the history or they don't understand how things happened. And so the more I started talking to younger people, I went, oh, let me explain, let me correct you. I thought, you know, really need to write this book. And then I was talking to a colleague of mine at Morgan Stanley, someone I've known for a long time, Mark Curtis. And Mark's like, you know what, there's a bigger story here. This is not about 40 years in stock plans. This is about how stock plans change Silicon Valley and frankly the world. Because if you think about it, without stock plans, there's no Bezos, there's no Zuckerberg. They just be very well paid executives, right, Living in very big houses. But this life changing wealth that a stock plan can bring, not only the founder and the executives, but all the employees really is amazing what that has done to innovation and the world. And again, not just Silicon Valley, not just the United States, but beyond. And so I'm going back and I'm looking at the 40 years, the places that I work, the people that I interacted and really talking about starting at Oracle, before the ipo, what it was like before voicemail and email and the Internet and you know, all these other things and how, how it progressed, but at the same time telling that story about, about changing the world. And so I'm very excited. So Mark has agreed to write the forward and, and so I hope the book will be out next April in time. Industry conference that we have. And it's been a journey for sure. I mean, I've talked, I just talked to someone last week. I haven't talked to him since 1987. So I'm, I'm going back in time.
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B
But, but I, I like the fact that you sort of like to peel back the onion and go, okay, look, everyone knows about venture capital and we talk a ton about that. And you know, everyone knows about a cap table. Well, not everyone, but a lot of people know about cap tables and equity shares. But the detail behind it, how that gets managed and doled out and how, how that could be leveraged is, is amazing. And it's also game changing for the individual. More people have to be aware of it. So I'm glad you're, you're bringing that up. And it makes me feel like a lot of new companies are going to be born out of this next generation ecosystem for private, for private markets and all the services that'll be coming out of that.
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A
Yeah. And what's interesting is there'll be innovation and there'll be small companies that come out of it. And we've seen that already. What I'm seeing are the big companies coming in. So you kind of, you know, from the bottom. The small companies are coming from the top. You know, we're seeing the Apollos and the, the Blackstones and the blackrocks and DTCC and these firms saying we need to be part of this. Yeah, there's some plumbing that's needed here and there might be some regulation needed, there might be some structure needed that up until now we've all kind of been handling this on spreadsheets and email and maybe we need to get to the next level.
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B
Well, and I was going to say, you know, AI is going to have a pretty big part in all of this. Also you're talking about doing the research or doing the administrative. I mean, that leads right into its strength.
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A
Yeah, yeah. I was talking to the CEO of Charlie Capital the other day and he said, you know, people used to Google, you know, they, they put in what, what company should I invest in? And then you kind of get it. Well, now you can go to the AI and say, I want to invest in a space company. You know, we, what are the best companies to invest in? And the AI will have done the analysis. And I actually watched this. There were two AI companies that were from the outside, you'd say they look the same, same revenue, same number of employees. You know, they kind of. And the AI goes through the analysis and comes back and says, invest in this company, do not invest company. And it explained why. And the subtleties between the two companies I probably would not have ever picked up on. But as an investor you're like, now I get it now I'm much better educated, not good for the company that, you know, came back negative because you could die as a company much quicker than you used to be able to.
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B
Hopefully they get the down low on that and can take some reaction to that.
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A
Yeah, yeah.
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B
We're celebrating two years at Compass recently and you're the new company that you're managing. We talked about new services required in the, in the AI world, in, in this new world order in private markets. Tell me, how are things going at Compass? Where are you finding this niche? Because you don't, you don't come across as the traditional, you know, consulting or financial services type of company. Where do you fit into the, into the whole ecosystem?
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A
Yeah, well, I think when I left my last position, I thought, you know, I've run a lot of companies, I've raised capital, I built products, I was a partner at PwC, I did all the consulting and I've got all this experience and I'm not ready yet to go sit on the beach in Hawaii full time. And so my business partner and I, Paul Aarons, we hung out our shingle and said, look, we're here to help these companies that couldn't afford to probably hire someone like me. And I don't really want to work for your company full time, but you could get a piece of me. Know, you had this whole fractional idea. So in a way we're like a fractional strategy officer for a company. So we spend time working with very small companies and very large companies. Our largest client is a multi billion dollar company.
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B
Wow.
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A
And, and so we do a variety of things like, hey, I want to go into a new geography, but I don't know anybody there and I don't know the culture and I don't know who to talk to, what, you know, can you help me? Or I, I need to build a new product. I see something new that I want to do, but I don't really know how to go about and how do I launch it and how do I build my brand to companies who are brand new. We have our, one of our newest clients started about a month ago, two months ago. And so they're, they're like, okay, I'm building this thing, I'm going to launch it later this year. What conferences should I be at? Who should I be meeting with and talking to? And can you help me get an advisory board together of the right names? And, and so it's a variety of that, but a lot of what we touch is just helping people with our experience and saying, look, that you're, you're going to blow it if you do that. And you know, here's the person you need to talk to who will get you. Like a good example is we had a client who needed to talk to someone at the SEC about something. Well, we knew exactly, not only which commissioner, but we knew how to get to that commissioner. So we got him a meeting with the commissioner. And so that's the type of thing that he, as a new entrepreneur probably wouldn't have been able to do. But we are able to help in that way with our Rolodex.
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B
There's a kind of interesting, I was thinking of you as more the back office kind of support services. And I know you have a lot of that experience in your background, but I also see a lot of like chief of staff kind of of value that you provide. That's one of those hot new titles where the chief of staff is really like almost at the White House level where it's the right hand of the president trying to help them with their decision making and trying to take care of a lot of the things that are too, you know, operational, I guess.
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A
Yeah, yeah. And it could, it can be that we, we just finished a project or we're delivering a report this week for a founder and CEO in the lending space who wasn't sure he was paying his employees. Right. And so we really delved into not only the base salary and the bonus, but what's the commission program and the commission. He was losing so much money because he was paying it all out in commission. So we were really able to take a look at that, come back. And this is with equity and our compensation hats on. But also as someone running a business, I've run businesses, you can't pay your sales people all the profit. Yeah. Nothing left for the company. So it's that type of thing where you, as, as someone coming in from the outside, we can sit down and say this is what we're, we're seeing, and the CEO said, yeah, I know, I kind of figured that out when I lost all this money last year and I don't want to do that anymore. What do I do now? And come in as a, as a.
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B
Sounding board, that's game changing stuff. What other successes have you had in your two years that you're, that give you.
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A
Well, one of my favorite stories is we have a company who's a client who's outside the United States and they wanted to come into the United States and start, you know, everyone I talk to outside the US says the US is the market. You know, everyone wants to be here. So we're, we're talking to them and we said, you know, let's, let's have a dinner and invite a bunch of people to this dinner who are kind of movers and shakers in the Silicon Valley. And I remember thinking, this is early on, I don't really know why I'm inviting all these people, but they should be in the room and they should meet these guys. So somebody came to that dinner, sat next to one of the folks from our client and had a nice chat. And about a year later calls me up and says, look, I remember that dinner and I met those people and I'm doing an RFP and I think I'm going to put that company on the list. No one here knows who they are, but I, I, I was impressed.
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B
Yeah.
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A
But they get on a list of about 15 companies and you think, well, you know, it's nice to be on the list of 15 companies. They get to the finals, they make it to the final three, and we're thinking, I mean, they're pleased as punch. They're like, and this is with a major, major company here in the United States. And they're thinking, you know, well, we just get to be invited to the party. They ended up winning the rfp.
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B
Wow.
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A
And to me that was just proof of that dinner. And I remember them saying, well, what's the budget for the dinner? And I'm thinking, don't worry about that, you know, like it will pay off. I just can't guarantee when it will pay off. And now you know that, that $10,000 dinner that night, and I think you were at that dinner, if I remember correctly, I was sicker than a dog. I remember that, that, that dinner has paid off in a multi million dollar deal. So those are the types of things we try to help our entrepreneurs and founders understand is you gotta plant the seeds and you can't Expect immediate ROI on everything that you do. And you and I have talked about this for a long time. You know, marketing and branding takes time.
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B
I think relationships too. Karina. I think we talk about AI and the automating everything process and, you know, removing humans and all these different positions and stuff. And that makes sense to me. But what you just described, I couldn't have sent my agent, my AI agent to that dinner.
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A
Exactly.
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B
I couldn't have met those people at that dinner. I wouldn't have been able to recall that and get part of that rfp. So there's a, there's something there to manage and I think it does help as companies come to the U.S. i had a conversation myself with somebody this week. They're coming to the US and they started what should we do? And I just thought, what an opportunity for them to meet with somebody at Stanford, somebody from Sand Hill, somebody from a major AI company, somebody from a major SaaS tech company that's been on that growth roller coaster. Maybe public, maybe not public, but has, has faced a lot of these challenges and just sit with that person for 20 minutes or a cup of coffee, you know, and leave. After those five conversations, I think you have an entirely new perspective.
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A
Right. There is, there's something to be said between, about the subtle customs, not just the overt customs, but the subt customs that people have. We, we have a client, we were working on an M and a deal with them and it, it was, they were not. This has nothing to do with America. So they were outside the U.S. the, the buyer was outside the U.S. the seller was outside the U.S. we were watching this just be a train wreck because the way people expected responses were very different between these two cultures. Yeah, we're in the middle saying, okay, they expect a very quick response. And the other guys are like, yeah, but we're going to take a couple weeks. We got to think about it like, these people don't expect you to think. These people expect you to move. So a lot of it was just the coaching of if you want to be successful. And you and I know that Silicon Valley has a very specific vibe to it. And if you walk into Silicon Valley and you don't understand the vibe, you'll blow yourself up so quick and you'll never get another chance because memories are long here.
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B
Yeah. Well, I heard that that guy you mentioned earlier, Paul Aarons, is somebody to have a cup of coffee with, although I don't know what you, you can predict as the outcome of those of those such meetings.
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A
I think you have to have a beer with them because if you do coffee, he could have three double espressos while you're sitting there for the first 10 minutes. And yeah, Paul's, Paul's a special person. And, and I, I'm really lucky. We're, we work very well together. We're very yin and yang. I always tell people he does all the work and I do all the talking, but.
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B
And I think you're both great at both. I, I. Listen, I want to just get one last question in to you, and it has to do with the whole IPO market because you and I have spent a lot of time talking about this whole thing as well. My hypothesis is that we're going to continue to see a slow and steady increase of IPOs, but we're going to see an accelerated pace of M A activity and shutdowns. There was just a ton of AI companies being started, and everybody wants to be an entrepreneur and pitch to Mark Cuban on Shark Tank and all this other stuff. And listen, a lot of that stuff is good. I'm not being negative about that. It's just the course of, you know, it's kind of Darwinian. It's kind of just how it goes. But I'm wondering your thoughts on the M A side and IPO side if you agree with my hypothesis and how much we'll see in terms of growth. I think there's been an increase in IPOs this year to date. But are we going to see, you know, 20 increase, 50, 100 increase in IPOs, say the, say the second half of this year, first half of next year, versus the prior 12 months?
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A
Yeah. So here's my thoughts. And, you know, we both worked at nasdaq, so we both kind of keep in track, you know, watch with what's going on. So the IPO market has been healthy this year, I think. M and A's. I think everything is accelerating in time. So where you used to take a year to do an M and A, now companies are, you know, in three weeks, if I don't, if I don't get bought, I'm out of business type of thing. Here's a couple statistics that might be interesting for you. In the private market, 10% of the trading is in open AI right now. 10% of all the private market trading.
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B
Sure.
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A
Of the, the AI companies, there are 19 companies in the private market that are being really being traded on a regular basis. So we could talk about what those 19 companies do, but you kind of go anthropic, perplexity.
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B
You know.
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A
Yeah, exactly. You know, but it seems like a lot of companies. So I do think that IPOs still have a place in, in the whole ecosystem. I do think there are companies who really believe it's the right way to exit versus doing an M and A. And they're, they're structured for that. I still think we're going to have the SpaceX's and the open AIs for quite a long time. I saw a question the other day on a webinar where someone said, well, if I want to participate in the private market, why wouldn't I just go buy Microsoft? Because Microsoft owns so much of OpenAI. So in essence, aren't I really participating in OpenAI in a, in a public company way? And I think we're going to see more of that. These really large public companies are going to be investing more in the private market and that's going to be our way for those people who want to invest in public companies only to be there. But I think we've got an open window now between September of 2025 until about May or June of next year before we get to the midterms that I think is going to be robust, busy, healthy people are raring to go. And then I think that we'll have a little slowdown as we get closer to the midterms and people are going to say, you know, are we, where are we heading? I also think just watching the SEC and what, what the, the new commissioner is, you know, what's on his agenda, what's important to him, a lot about where we're going to go with capital markets and cre.
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B
We're going to be able to scout, I guess we could today, like what's happening with NASDAQ Private Markets or Forge or, you know, our friends over at Gondola and things like that. Can we start to watch, you know, the buying and selling activity in those shares where you see more of what's happening, what's getting hot in the private markets?
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A
Yeah, yeah. And they, they all have indexes and they all have, you know, ways of trying to show you how, how good it is. NAS private market puts out every six months at mid year and end year a report about what's happened. And Forge is now doing a similar type of report. And if this is your area, I encourage you to read those, get on the mailing list and get them delivered because it's really good to get an idea of what the activity is and where the focus is. But Forge is a publicly traded company, so it's a great way to kind of watch the private markets via the lens of a publicly traded company that has to report, that has a CEO who has to come out and do an earnings call every, every three. So for me, that's always really good to listen to Kelly Rodriguez and say what's he seeing, what's he hearing and what's the health? But I would say the private markets are very healthy right now. And, you know, short of, you know, where I always say we're one scandal away from new regulations. And that's kind of what I'm sitting, you know, willing to recently went bankrupt and I'm they were sitting on a lot of ripple stock. And I'm really curious kind of what the fallout will be of that. But so far not much fallout. So maybe people just want to ignore this stuff.
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B
It's more stuff for your next book.
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A
That's right. That's right.
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B
Well, and then you get to go to Hawaii, finish a couple chapters. But in the meantime, thanks for spending some time with me here. Congrats on your last book, your next book, your grandchild managing that guy Paul over at Compass Strategic. And it sounds like you're off to another great year of business. So onward and upward.
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A
Keith, thank you for the support you've always given us. We appreciate it and love listening to your show. I listened to it in the car a lot. So you've got some great guests and I appreciate you having me on.
- [29:41]
B
Oh, it's my pleasure.