In this episode of Acquired, hosts Ben Gilbert and David Rosenthal, along with guest Brad Gerstner, founder of Altimeter Capital, delve into the evolving landscape of venture capital and the rise of crossover investing. They discuss how hedge funds and venture firms are blurring lines, with early-stage VCs restructuring to retain stakes in public companies and hedge funds like Tiger Global entering seed investing. Gerstner shares insights from his career, highlighting his firm's dual approach to operating both a hedge fund and a venture capital firm. He also touches on his personal entrepreneurial background, the challenges faced by his father's business, and his commitment to using his platform for impactful initiatives like Invest America, which aims to democratize investment opportunities. The conversation underscores the importance of adaptability, the role of mentorship, and the potential for venture capital to drive significant societal advancements.
"I'm Ben Gilbert, and I am the co-founder and managing director of Seattle based Pioneer Square Labs and our venture fund, PSL Ventures." "And I'm David Rosenthal, and I am an angel investor based in San Francisco."
The quotes introduce the hosts of the podcast, providing context for their backgrounds and expertise in the technology and venture capital industries.
"We are watching hedge funds like Tiger Global and Kotu come all the way down to seed investing, and we're simultaneously seeing classically early stage venture capital firms like Sequoia completely reinvent their structure to hold on to their winners longer, even as they become public companies."
This quote summarizes the current trend in the venture capital industry where both hedge funds and traditional VC firms are diversifying their investment strategies to cover a broader range of company stages, from seed to public.
"There has been so much change in venture in the last few years, more change, I think, in the last few years than in the decade that I was doing venture, than watching it before."
David Rosenthal's quote emphasizes the rapid and substantial changes in the venture capital industry, highlighting the dynamic nature of the field.
"Brad has had an unbelievable career starting five companies. So he's got a very different mentality than your sort of classic hedge fund guy on the investing side."
The quote provides insight into Brad Gersner's entrepreneurial mindset and distinguished career, which sets him apart from typical investors in the hedge fund industry.
"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs, and in fact now is the largest startup focused accounting firm in the US."
This quote introduces Pilot as a leading accounting firm for startups, emphasizing its comprehensive services and significant growth in the industry.
"My dad had classic immigrant story. His parents had kind of given up everything in order to help put their only child through college."
The quote highlights the sacrifices made by Brad Gersner's family for education and the pursuit of the American dream, setting the stage for a narrative about entrepreneurship and personal risk.
"The risk is have a young family, mortgage your house, mortgage your car, double digit interest rates and inflation. The business goes under. My dad loses his health, he loses his house, he loses his marriage. Right? That's risk."
This quote poignantly captures the true nature of risk as experienced by Gersner's father, contrasting it with the relatively lower stakes for tech entrepreneurs who have more support and fewer personal liabilities.
"The idea of groveling for the rest of my career for money just didn't sit well with me."
The quote reveals Gersner's personal aversion to the constant need for political fundraising and his preference for a career path that allows for more autonomy and self-sufficiency.
"I can't say that I've ever interviewed somebody who didn't have time to complete the application."
This quote reflects the unique circumstances of Gersner's HBS application and his ability to seize opportunities despite unconventional approaches.
"We built the business to over a billion in gross bookings, think had over 1000 employees at the peak."
The quote summarizes the rapid success of NLG in the online travel space, demonstrating Gersner's ability to capitalize on emerging market opportunities.
"I am a steward, I am a fiduciary on your behalf, and I believe I'm going to make you a lot of money."
This quote encapsulates Gersner's perspective on fundraising for his investment firm, highlighting his commitment to his investors and the broader impact of their capital.
"Look at what's happened over the course of the last eight weeks, right? Growth multiples are down 50%. Risk premiums have changed dramatically."
This quote highlights the rapid change in market conditions, particularly the decrease in growth multiples and the shift in risk premiums, which are crucial factors for investors to consider.
"I thought there was going to be a lot of disruption occur in that business model."
The quote reflects the speaker's belief that the traditional separation between venture capital and hedge funds was ripe for disruption, leading to a new model of lifecycle investing.
"Investors think about distribution of probabilities, not possibilities."
This quote encapsulates the speaker's shift in mindset from an entrepreneurial focus on what could go right to an investor's focus on the range of possible outcomes and their probabilities.
"I had a roadmap and I had a mentor who believed, and I had a clear vision as to where I was going to go."
The quote underscores the importance of having a clear vision, guidance from a mentor, and a strategic plan when launching a new venture, especially during times of economic uncertainty.
"Crossover fund, commingled fund, public-private fund. Those were bad phrases in the fall of 2008."
This quote reflects the initial resistance to the crossover fund concept, which was associated with negative connotations during the financial crisis.
"I thought that the business building journey that started in that first institutional raise was different than what we intended to do."
This quote indicates the speaker's intent to build a venture capital firm with a unique approach, different from the existing players in the market.
"We did have a strong view that the entire database market was going to be remade. It was going to be remade in the cloud, purpose-built for the cloud."
This quote explains the speaker's conviction that the database market was undergoing a transformation towards cloud-based solutions, which guided their investment strategy.
"Unless you have an architecture, unless you deconstruct what's going on in the world and try to understand the theme, the human behavior that's driving these events, then you just have a bunch of data points that are disconnected."
The quote emphasizes the importance of having a structured approach to investment analysis, considering the broader themes and behaviors that influence market dynamics.
"So one of the things that was very clear to me in early 2000s is the Internet is the most fabulous thing in the history of the world. It connects all these people. It unleashes all this productivity, but it's chaotic. How the hell can you find anything, right?"
The quote emphasizes the transformative but overwhelming nature of the early internet and the crucial role of search engines in organizing online information.
"So, as the anthropologist, what did we do in 2010? I said, whoa, this whole search thing is going to get disrupted by this phone thing."
This quote captures the speaker's foresight in predicting the impact of mobile devices on the search industry and the need for adaptation.
"Software was similarly situated. And so we had been investing in software, in and around software for a long time, but it really started getting interesting about that period of time, because."
The quote suggests that software investments became particularly interesting and potentially lucrative around the time of the mobile shift.
"The problem is, being non consensus is most often."
The incomplete quote implies that non-consensus investment decisions are frequently incorrect, highlighting the risks involved in venture capital.
"Having companies running around with billions of dollars on their balance sheet and decacorn valuations and not the discipline of public markets to me is not a great thing for the company, for the employees, for the founders."
This quote criticizes the lack of market discipline in highly valued private companies, suggesting that earlier access to public markets could be beneficial.
"We collaborate as much as we compete, okay? And when we compete, we're going to go at it, we're going to lay out why we think we're the best partner for the company, but we're also going to collaborate."
The quote reflects the speaker's belief in a balance between competition and collaboration in the venture capital industry.
"And now we can offer what I think is the best insights to these founders. And we have no economic finger in the scale because I can partner with you if you want to do a traditional IPO, great."
This quote highlights the firm's role in advising founders on the best pathway to the public markets, regardless of the method chosen.
"It's the old mongerism, right? You show me the incentive and I'll show you the outcome. And in this case, you coming from the perspective of, hey, you realize when the banks are trying to sell an IPO, they come to me to buy the IPO. So having sat on that side of the table and not yet having an incentive, I can talk to you about how this would get marketed to me. So you at least have that transparency. And then I can tell you how I want to play in that process, and you can give me feedback and tell me where I belong in your process."
The quote explains the concept of incentives determining outcomes, particularly in the context of IPO marketing, where the speaker's position allows him to provide insight into how IPOs are marketed and how he prefers to engage in that process.
"Banks are getting more efficient. The direct list, the competition is leading to more choice and better outcomes."
The quote reflects the speaker's observation that banking efficiency is improving, leading to more options and favorable results for those involved in the market.
"Crusoe, as listeners know by now, is a clean compute cloud provider specifically built for AI workloads. Nvidia is one of their major partners, and literally Crusoe's data centers are nothing but racks and racks of a because Crusoe's cloud is purpose built for AI and run on wasted, stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."
The quote describes Crusoe Energy's focus on providing clean compute cloud services for AI workloads, highlighting their partnership with Nvidia and the use of alternative energy sources for better performance and cost-effectiveness.
"And for me, if you said, brad, you can only do public market investing, that wouldn't scratch my itch. If you said you can only do venture investing, that wouldn't scratch my edge. And so for me, it starts from the premise, like, what do I want to do? What can I be most passionate doing?"
This quote captures David Rosenthal's personal investment philosophy, emphasizing the importance of passion in choosing investment avenues and the desire to participate in both public and venture investing.
"The signaling effect is profoundly important and I think probably underestimated, which is amazing considering how high it's estimated."
This quote emphasizes the importance of the signaling effect in venture capital, suggesting that the value of having reputable partners may be even greater than commonly recognized.
"We are all part of one of the most fortunate systems at one of the most fortunate times in the history of modern capitalism. And I intend to use this platform to do things that matter, right?"
The quote reflects David Rosenthal's view on the responsibility of those who benefit from the current economic system to use their platforms to address significant societal issues and make a positive impact.
"So a very simple idea that I floated. Chamath and I were on CNBC. I'd been thinking about it for a long time. I've abhorred the accredited investor laws for as long as I can remember."
The quote introduces the Invest America initiative, which Brad has contemplated for a long time and sees as a solution to the limitations imposed by accredited investor laws.
"Our aspiration is not to be the biggest, but our aspiration is to have the scale, to have the level of impact that we can to drive the highest mps among founders and funders like we want to deliver for both of those folks in that network."
This quote outlines Brad's aspirations for Altimeter, focusing on impact and satisfaction among stakeholders rather than just size.
"But I am a staunch defender of this beautiful system. I tell you, it's a hell of a lot better than having to mortgage your house. You think about the velocity of money. If the risk you run, if you start that auto parts company is you lose your health and you lose your house, there's not going to be a lot of risk taking. And risk taking is the engine that moves humanity forward."
The quote highlights Brad's belief in the value of capitalism as a system that encourages risk-taking and innovation, which he views as essential for human progress.