Inside Marc Andreessen & Ben Horowitz’s Multi-Family Office

0:00 Is it true this is the multi-family office of Mark and Ben?

0:03 It's a multi-family office for [music]

0:05 the principals here and a number of founders,

0:08 the many in fact backed by the company.

0:09 SpaceX is rumored and reported to to have

0:12 nearly a two trillion dollar IPO incoming.

0:16 How do you prepare early employees

0:19 and founders for these large liquidity events?

0:22 It'll be an interesting test of the markets if they can sort of I

0:25 mean that would be the largest IPO ever for the markets to digest that.

0:29 It'd be really interesting to watch.

0:30 Most of the independent firms have spun out of the banks.

0:33 Banks themselves don't train people to be professional investors.

0:36 These people are trained to be service providers.

0:38 [music] They're trained to be responsive, helpful,

0:40 but actual investment acumen when you're

0:42 at a large bank sits in a separate group.

0:44 You're rewarded as a wealth manager by how much you grow your book of business.

0:49 You're never trained to be an investment person per se.

0:52 So I'll see someone with their very very first liquidity,

0:55 they take it and instead of doing something

0:57 a little bit safe in case there's a rainy day,

0:59 they turn around and they'll put it in a bunch of very early stage startups.

1:02 You just sort of sit there and you're like,

1:03 "Listen, if you're going to do venture,

1:04 [music] at least try to do it in a systematic way.

1:07 Do not take 80% of what you just got and hand

1:10 it to your three friends." Almost always this ends in tears.

1:18 [music] [music] Michelle, welcome to sorcery.

1:26 Thank you.

1:26 I think this is one of your first podcasts in a very long time.

1:31 Yep.

1:32 First modern podcast.

1:35 First modern podcast.

1:36 And so you're the CIO of a16z Perennial.

1:40 Is it true this is the family office or multi-family office of Mark and Ben?

1:45 It's the multi-family office for the principals here and a number of founders,

1:50 not necessarily being backed by the company

1:51 but many in fact backed by the company.

1:54 So what's the structure of Perennial?

1:56 Okay, so I I think the reason why

1:58 we built Perennial or why we're building Perennial,

2:00 it's about four years in now.

2:03 Uh was a reflection on what's happening in the wealth management industry.

2:06 I think for starters, the principals here, Mark and Ben included,

2:11 um had been served by more traditional wealth management firms

2:15 and they looked to the LPs of a16z and saw,

2:18 you know, the big sovereign wealth funds,

2:20 the the big pensions have very high-end professional investment teams

2:26 come and then they look at the wealth management side,

2:29 uh how they were being served personally and, you know,

2:32 frankly I think most folks would agree they they felt sort

2:35 of underwhelmed with the quality

2:38 of the investment advice and the investment acumen.

2:41 Not the whole service provision, everything,

2:44 but specifically on the investment front.

2:46 I mean that was one issue.

2:48 Another issue or another point obviously is to build a community around a16z.

2:52 a16z is all about uh its community and so this is another way

2:56 to help founders uh in a different dimension of their personal life, right?

3:01 So if you can take that burden off their off their hands,

3:06 you know, ostensibly they can focus even more on the business.

3:09 Uh and and so it's it becomes much more of a a lengthier um relationship

3:15 with the founders because obviously you start

3:17 when you invest with them in their startup, but even post liquidity,

3:23 uh instead of having sort of an artificial

3:24 end point of your relationship with them,

3:26 you can continue uh helping them think about life after liquidity event, right?

3:32 In terms of philanthropy, asset management, legacy, all those kinds of things.

3:37 I want to get more into the Perennial strategy and structure,

3:40 but I think before that it would be great to just

3:42 dive even deeper into the state of wealth management today.

3:46 What have been the biggest problems drilling

3:48 down further into the issues that you've seen, how wealth is managed,

3:53 maybe the different types of wealth over time,

3:55 but structurally like what are the biggest problems there?

3:58 It's really interesting.

3:59 So there are basically there two approaches you can

4:01 use to have your wealth managed if you're wealthy individual.

4:04 One is you can go to the traditional RIA or wealth management channel.

4:08 And I'll talk about that in a second.

4:09 The other one is you can go to traditional asset managers.

4:13 Think, you know, the large asset management firms you know of, hedge funds,

4:17 PE shops, things like that.

4:19 And both those approaches I think have

4:21 their own sort of problems when you're dealing

4:23 with an individual that has an institutional

4:27 amount of wealth or will and are taxable.

4:31 Right?

4:31 These two these two the confluence of these two effects uh means

4:37 that the sort of the two standard

4:38 approaches I just described aren't really great.

4:40 So wealth management, traditional wealth management, most of these firms,

4:45 the independent firms have spun out of the banks and the banks

4:48 themselves uh don't train people to be professional investors, right?

4:52 They these people are trained to be service providers.

4:56 They're trained to be responsive.

4:57 They're trained to be helpful, but actual investment acumen when you're

5:00 at a large bank sits in a separate group.

5:03 And you're rewarded as a wealth manager

5:05 by how much you grow your book of business.

5:09 So you're never trained to be an investment person per se.

5:13 And then when you spin out, therefore,

5:14 you create your own large independent firm, it's again not a focus, right?

5:19 And so if you are so the way I

5:21 would characterize a lot of that product or that offering,

5:24 I would call it mostly retail product but with a veneer

5:27 of very high-end service when it comes to investing side.

5:30 Of course there's all the ancillary services around, you know,

5:32 household staffing and finding dog walkers

5:35 and nannies and things like that, right?

5:37 But um but but by and large the investment side of the function I think is is

5:42 just not of the quality that someone uh

5:45 with an institutional balance sheet should expect or deserves.

5:49 Right?

5:49 So there's that that that side.

5:51 By the way, there are also fee structure misalignments.

5:54 So um and this is a tangent, but I think it's an important one,

5:58 which is most of these firms rely on a relationship fee,

6:03 which is a flat fee that you pay no matter what you do.

6:06 And let me ask you the question.

6:07 If I if you're paid the same to do something easy or something difficult,

6:11 I think human nature is such that you'll do the easy thing, right?

6:15 And so you look at a lot of these firms that have the the flat

6:18 fee structure and you look at the at the portfolios that come to us.

6:22 We we see a lot of them coming

6:23 in and I would characterize those portfolios as very simple,

6:27 not very sophisticated.

6:28 Um very very focused on just standard market betas,

6:32 stocks and bonds and things like that.

6:34 Not a lot of focus on on alternatives.

6:38 And the reason being is for you to build an alternative offering,

6:42 you're going to have to go hire professional investors.

6:46 And professional investors are paid well.

6:49 They have growth ambitions.

6:52 It's very difficult for them to fit

6:54 into an organization that's not focused around investment, too.

6:58 So I think there's a lot of challenges even if you

7:00 wanted to grow an asset management or investment function inside an RIA.

7:04 I think it'd be very difficult.

7:06 So so the the flat fee arrangement, you know,

7:11 means that people do not invest in building out these alternative teams.

7:15 It's a lot of work.

7:16 It's a lot of effort and it's a lot of expense.

7:18 And if you make the same 40, 50,

7:20 60 bips doing that or just buying stocks and bonds,

7:24 you're going to buy stocks and bonds, right?

7:25 So by and large, so that industry I think is not teed up for it, you know,

7:31 a sophisticated portfolio that is deserving of someone that's got 50,

7:36 100, 200 million, let alone a billion dollars, right?

7:39 So that's one route.

7:40 And then the other route is

7:41 the traditional institutional asset management route.

7:43 And those guys, their biggest clients are nonprofits, right?

7:47 So they're pensions, endowments, foundations, sovereign wealth funds.

7:50 All these people don't pay tax.

7:52 So they are not at all focused

7:54 on the taxable element and if you're an individual,

7:58 uh you're paying, especially in this state,

8:00 uh you're paying 50 plus percent tax.

8:02 So the easiest alpha, to use a, you know,

8:05 an investment term to get is a tax alpha, right?

8:09 And they are not, these institutional asset managers,

8:11 because most of their clients are not taxable,

8:13 they're not even attempting to to optimize after-tax return.

8:17 In fact, you could even argue that from a fiduciary perspective,

8:21 they're not allowed to optimize after-tax return because they're

8:24 the vast majority of their clients care about pre-tax return.

8:28 So they're structurally not able to serve you.

8:30 So there's this weird no man's land where you have you know,

8:34 taxable individuals that have and deserve

8:36 and sort of an institutional quality portfolio build

8:40 and an asset allocation and yet neither

8:44 of the two standard channels really really deliver that.

8:46 And I I would add in sort of subscale endowments and foundations also

8:50 in the mix because they they uh

8:53 while they uh can probably access the institutional,

8:56 they may be too small and they may be cut out of certain elements.

8:59 So having sort of a a different approach could also be useful for them.

9:03 Dave, who connected us and thank you to Dave for the connection,

9:07 he wanted to hear what you've

9:09 seen throughout the different generations of wealth.

9:13 I mean we've come a long way.

9:14 It was a lot of industrial, a lot of like big bank,

9:18 big kind of industry types of wealth built over long periods of time

9:23 to now what we're seeing and what is the bread and butter of a16z,

9:27 very fast wealth, billionaires, billion dollar exits very quickly.

9:31 And part of that is of course these different

9:35 cycles of innovation in AI and the proliferation around there,

9:38 but what have you seen throughout your career through

9:41 these different types and how has management changed alongside that?

9:44 No, it's super interesting and I think I can tell when I meet

9:48 a family what region they're from because

9:51 these waves affected different areas, right?

9:54 So the industrial wave was the Midwest.

9:57 If I meet a Chicago family and these are I'm gross generalizations,

10:02 but nonetheless, if I meet a Chicago family,

10:04 very often they've sold their business maybe one or two generations

10:08 ago and the family business has become managing the family's assets.

10:12 Mhm.

10:13 So, they're very well versed in all the terminology.

10:15 They understand the asset classes.

10:18 Uh and they ask pretty sophisticated questions around that and they're

10:21 very focused on the performance and so on and so forth, right?

10:25 So, I would put that as like one

10:26 of those earlier waves you're talking about, right?

10:28 And then you come to the West Coast and your point, it's more recent wealth.

10:32 Person who generated the wealth is the person you're interacting with.

10:35 And so, that person is going to have a lot of business savvy,

10:39 um intellectual insight into how things work.

10:41 So, they're going to be very curious about

10:43 this industry and about how to do things,

10:45 but they won't necessarily per se have an interest

10:48 in having studied it the way a multi-generational uh

10:52 family that had a industrial exit two generations ago

10:56 would have done because it's not their full-time job.

10:58 It's not their passion.

11:00 Right?

11:00 So, they're often facing the choice of either creating a single family office

11:04 which I think is very difficult and I can get into that or joining,

11:08 you know, a multi-family office.

11:10 And then when they join the multi-family

11:12 office uh they're facing a number of questions

11:16 that I think are are not obvious to answer which is what am I paying for?

11:20 What am I getting?

11:21 What do I want?

11:22 And because they're not necessarily knowledgeable about the industry,

11:25 they focus on they fall back on things they understand.

11:28 How quickly does someone answer my email?

11:31 Um how helpful are they when I'm in a pinch?

11:34 Which are important things, but not the only thing, right?

11:37 Assessing the investment performance is very

11:39 important because just a couple hundred

11:41 basis points of extra uh performance over the lifetime of someone could mean

11:45 hundreds of millions of of dollar more that they could then go

11:49 I don't create a charity to do something with or something like that.

11:52 So, that part I think is lost sometimes in the in the translation.

11:55 I want to get to the family offices point,

11:57 but I do remember when we were first talking,

12:00 there is a big difference between these other wealth

12:03 managers that do allure you with all the customer

12:06 service that kind of takes part and takes

12:09 you away from the actual performance of the portfolio.

12:11 So, what have you seen there?

12:12 Yeah, so this goes back to sort of that flat fee relationship

12:16 fee kind of arrangement which and that flat fee is an AUM-based fee.

12:21 Mhm.

12:21 So, if I'm selling you a bunch of services, why am I charging you an AUM fee?

12:25 Uh and you know, I sort of I like to make funny analogies.

12:29 One of One analogy is let's say you brought your car

12:31 to get your car fixed and the mechanic comes out and says,

12:34 "Well, to repair your car,

12:35 it's 10 basis points of your of your balance sheet." Like I mean,

12:38 I think we'd all react like what are you talking about, right?

12:40 There's an hourly wage.

12:41 You work 3 hours, multiply it by three, that's what you should pay me.

12:45 So, these services in my opinion should be fee for service, right?

12:48 But because that's of course less profitable than having an AUM-based

12:52 fee on someone's entire balance sheet um you you charge that fee.

12:56 You go through the motions of the investment management,

13:00 but you view that as a cost center.

13:02 And it like you do the services, right?

13:04 And so, that's why the portfolios often end up being sort of simpler uh and less

13:09 sophisticated because you you're not incentivized to invest

13:12 in building out the alternatives teams I mentioned.

13:15 Uh these are people who are hard to find.

13:17 You have to manage them in a different

13:19 way than you would a more junior resource.

13:22 Um and and you know, constructing these portfolios, the proof points take time.

13:27 You're building a VC portfolio.

13:29 You're not going to find out in two years whether it's done well, right?

13:32 You're going to find out in 10 years.

13:33 I don't know that um a lot of these firms have the patience for that, right?

13:36 So, uh for me what was very important and by the way,

13:40 if you don't build a professional investment team then you are

13:44 you by default have to invest in other people's investment firms, right?

13:49 So, it becomes a pure fund to fund approach.

13:52 And so, there's two dual layer of fees, so it's very expensive to do, right?

13:55 So, there are fallout implications

13:57 from not building an investment team in-house.

13:59 It forces you to become a fund of funds if you are going to do alternatives.

14:03 And so, that's a high fee uh kind of setup.

14:07 So, very important for me from the get-go here to sort of hire people that were

14:11 professional investors by trade first and and professional

14:15 investors have a very specific definition in my mind.

14:17 It's someone who at some point in their career was

14:20 paid purely based on the performance of their investments, right?

14:23 You Your investments are up 20% this year.

14:27 Here's your money.

14:27 Thank you very much, right?

14:29 Um if you have those kinds of people on your team you now

14:33 can underwrite your investments yourself or you

14:35 can go hire a third-party manager,

14:36 but you're not forced to just go down the third-party route.

14:39 And so, you can save a lot of embedded

14:41 fees for the things you decide to do yourself.

14:44 And I'm not suggesting you should do everything yourself cuz it's too hard.

14:48 There are too many things.

14:49 But there are certainly some things you can

14:51 do yourself and therefore really reduce the fee load.

14:54 So, you increase the alpha to the client because,

14:57 you know, you're you're not passing through these fees.

14:59 Like a standard sort of endowment style approach 50, 60,

15:04 70% alternatives on look-through basis, your fees will be 3 or 4% a year.

15:09 So, that's a huge headwind.

15:11 If you can get rid of some of that by having

15:13 a professional team in-house and not always just hiring third-party managers,

15:17 that can you know, maybe you cut that in half.

15:19 It's a couple hundred basis points of alpha right there.

15:21 So, the structuring is very important in my opinion how to do this right.

15:25 And then on the family offices point, family offices are taking off.

15:30 They're becoming a new hype wave.

15:31 They're They're all over the place,

15:32 but you're saying single family offices are very difficult.

15:35 Why is that and why should people avoid doing that as a first step?

15:39 Um I mean, the allure is cool.

15:42 I have my own family office.

15:44 But you know, what are you trying to accomplish?

15:46 So, if if what you're trying to accomplish is have someone help you a little bit

15:49 with your sort of financial reporting and all

15:52 that's you can call that a family office.

15:53 I guess the definition of a family office is very broad,

15:57 so it could include all sorts of things.

15:58 But if you're trying to build a multi-asset class portfolio,

16:01 global multi-asset class portfolio, you're going to need to hire a bunch

16:04 of these sort of professional investors I mentioned.

16:06 I don't know, you need five, six, seven of them.

16:08 Different asset classes.

16:09 You've got you know, you've got fixed income obviously,

16:13 stocks which are, you know,

16:15 more straightforward I say, but then you've got venture capital,

16:18 private equity, real estate, real assets, credit.

16:21 And all these things are specialties that require people.

16:23 So, how are you going to do that and pay

16:26 these people uh if your balance sheet isn't very big?

16:30 And I mean, billions, right?

16:31 Otherwise the compensation you're paying to this team is

16:34 eating up whatever benefit you might be getting, right?

16:37 The other challenge I found is that family

16:39 offices have real trouble retaining the talent.

16:42 Because, you know, you hire someone, they're ambitious, they have a career path.

16:46 The The principal of the family is signing up

16:49 really to be a manager of an asset management company.

16:52 That's really what they're they're signing up for.

16:54 I don't think many of them actually realize what they're signing

16:57 up for and I don't think they want to do that.

17:00 Right?

17:00 So, they don't want to manage me uh you know,

17:03 meet me daily or twice a week, let alone a broader team.

17:07 And so, it it's very difficult to attract the high-end professionals cuz they're

17:12 just going to be sort of in a vacuum often not meeting the principal.

17:16 So, it's a very um difficult thing to execute.

17:19 Some people do execute of course, but they have very large balance sheets.

17:22 Uh they have a long-term horizon and they're committed to building you know,

17:25 a properly a proper bench on their team, right?

17:29 Uh so, I think that's one issue.

17:30 The other issue is a lot of family single family offices you

17:33 hear that the motivation is they build it to keep the family together.

17:37 And and then you witness the statistics at least

17:40 show that when the patriarch or matriarch passes away,

17:43 very often the family office falls apart.

17:46 Either the investments are completely turned around

17:49 and the things are liquidated in a hurry that results in large losses by the way

17:54 where the beneficiaries that sometimes we buy those things.

17:58 Uh or or the the kids or the heirs take their money and go their own way, right?

18:01 So, the very sort of conceptual underpinning of why to create

18:06 a single family office seems to fall apart a lot, too.

18:08 So, there's multiple challenges with trying

18:11 to do a single family office, I think.

18:12 Again, it depends how you what you

18:14 want to execute with the single family office.

18:15 Sorcery is brought to you by Brex,

18:18 the financial stack trusted by more than 30,000 companies

18:21 including one in three venture-backed startups in the US.

18:24 [music] Nearly 40% of startups fail because they run out of cash.

18:30 [music] Brex is literally built to help founders avoid that.

18:32 Unlike traditional banks that let your money sit

18:34 idle chipping away at [music] it with fees,

18:36 Brex is designed to help you spend smarter and move faster.

18:40 Their all-in-one solution combines [music] checking, treasury,

18:43 and FDIC protection into one powerful account.

18:47 You can send and receive money globally at lightning speeds,

18:50 get 20 times the standard FDIC coverage through their partner banks,

18:54 and even high yield [music] from day one.

18:56 With same day and even same hour liquidity, access your funds anytime.

19:01 Companies like Scale AI, DoorDash, [music] ServiceTitan, Hims,

19:05 Anthropic, Flexport, Robinhood, and Plaid trust and use Brex.

19:10 Start today at brex.com/sorcery.

19:13 That's b r e x.com/sorcery.

19:16 [music] Turing is training the next generation of AI

19:17 with tasks that require real expertise and real-world judgment.

19:21 That's why companies [music] like Nvidia,

19:23 Anthropic, Salesforce, and Gemini partner with Turing.

19:28 Turing [music] builds realistic reinforcement learning

19:31 and data systems based on real operational traces.

19:34 [music] The kind of infrastructure

19:35 Frontier Labs need to train superintelligence.

19:41 Visit turing.com/sourcery.

19:46 At what level of wealth should people

19:48 start thinking about going the wealth management direction?

19:52 Wealth management as opposed to single family office.

19:54 Yeah.

19:54 Well, I mean for wealth management, of course there are firms that cater,

19:58 you know, from small amounts all the way to larger amounts.

20:00 But for a type of wealth management firm that I'm talking about,

20:04 the type we're building [clears throat] here

20:04 at Perennial that has a lot of investment expertise,

20:10 25, 50 million dollars would kind of be the minimum, really.

20:13 But but I would say it's really

20:15 more for the centimillionaires and billionaires who have,

20:17 again, you know, uh an institutional time multi-generational time horizon.

20:23 So, they're they're more like an endowment than they are like an individual.

20:27 [clears throat] How many families are you working with right now?

20:32 Uh well, we're purposely keeping it small.

20:35 Because another thing is we really want to be customized

20:38 uh and focused on the individual needs of the families.

20:41 What you'll find, again, in the industry is a lot of folks go by playbooks.

20:46 So, they'll categorize you as a certain type of family in terms

20:49 of your risk profile or your liquidity or your balance sheet.

20:52 And then there's a standard program that's put into place.

20:55 I'd say that's very common.

20:57 Right?

20:57 We don't want to do that.

20:58 We feel like the people we work

21:00 with are people who have multi-generational wealth anyway.

21:03 So, they're they should have a custom built asset allocation,

21:08 custom built investment program.

21:10 A lot of work around their concentrated stocks

21:12 often they come with a lot of concentrated stock.

21:14 And so, we built a team around that.

21:16 Uh and so, we only have a couple dozen families

21:18 that we work with in that sort of overarching quarterback of everything.

21:24 Right?

21:24 Is that the main difference between a16z Perennial and let's say an Iconic?

21:30 How does it fit within the broader theme of these Silicon Valley oriented firms?

21:35 Um I think the Silicon Valley oriented firms, for the most part,

21:39 again, are trying to be a full stack offering of all the services.

21:43 Um and so, you know, with a certain amount of revenue,

21:48 there's only so much you can build in-house, right?

21:51 So, a lot of these firms do not have professional investors.

21:54 So, I I often ask people as a quiz,

21:57 um how many professional investors do you think are in, you know, RIA XYZ?

22:03 And uh and people will answer I mean percent, right?

22:06 People answer me 20%, 50%, 30%.

22:10 But uh the number often is zero or one or two people.

22:15 Um and so, the that's the big difference

22:18 between us and then many of these other firms.

22:20 With so many large wealth creation events coming up,

22:24 SpaceX is rumored and reported to to have

22:27 nearly a two trillion dollar IPO incoming.

22:31 Yep.

22:32 One, what do you make of that?

22:34 And two, how do you prepare early

22:36 employees and founders for these large liquidity events?

22:40 Well, look, I think I think it'll be an interesting test

22:43 of the markets if they can sort of digest I mean,

22:45 that would be the largest IPO, you know, ever, right?

22:48 And so, for the markets to digest that would be really interesting to watch.

22:51 And I think there's a lot of other very large startups

22:54 waiting in the wings who will be watching this super carefully, right?

22:57 Because if it works for SpaceX, maybe it works for me.

23:01 Uh in terms of preparing, I think, you know,

23:03 again, if you're an individual with, you know, taxes, structuring your estate,

23:09 structuring your trusts is very important pre-IPO.

23:13 And then post-IPO, it's all about how do I diversify uh gradually?

23:17 And I would not purport or claim to know

23:20 more about SpaceX than someone that's worked there 20 years.

23:23 So, I would work with that person and ask them,

23:25 you know, what do you think the prospects of SpaceX are?

23:27 I would not go in suggest they dump SpaceX

23:31 100% immediately and go buy stocks and bonds, right?

23:35 Sure, part of their strategy should be to diversify,

23:37 but part of it should be to hold on to that stock

23:40 long-term and and think about how to maybe even monetize the volatility.

23:43 So, we've we've built some options programs and things like

23:46 that for people here to monetize these stocks that are volatile by nature.

23:50 And so, you can monetize that volatility without necessarily exiting the stock.

23:53 So, there's lots of interesting strategies you can do with someone

23:55 that has a concentrated stock solution a concentrated stock position.

23:59 It's just so interesting cuz I I think um I

24:04 I've talked to several people in LA pertaining to this IPO.

24:09 I've talked to Shawn Maguire of Sequoia who

24:11 they've invested billions into SpaceX and Elon companies.

24:15 And then I've also talked to engineers and I've

24:17 talked to people that have been at SpaceX.

24:19 One of the themes that I've seen throughout

24:22 this is that there are not enough wealth managers.

24:25 And there's not enough wealth managers

24:26 with this family office type of expertise, either.

24:30 And so, there's a little bit of like an incoming drought for a lot of demand.

24:35 And I know SpaceX is not only LA, but it's also Texas.

24:38 And there are definitely differences there.

24:41 But in terms of that, what do you make up of like where should they go?

24:46 Because a lot of these engineers and other

24:48 professionals there are not in this world,

24:51 they're ill-equipped to to assess the options.

24:54 And so, often they end up in places they shouldn't, in my opinion.

24:59 Um and so, the challenge for them is to even if this is not your passion,

25:03 please invest time enough to understand the space.

25:06 One of the things I always suggest to people is look at the pedigrees,

25:10 the education, uh the employment history of the people you're hiring.

25:14 Right?

25:15 If they've never really done, you know, been professional investors,

25:18 then don't look to that firm for professional investment advice.

25:21 Look to that firm for services.

25:23 Right?

25:23 So, I think just doing educating yourself enough about the industry is

25:28 a really important first step to even try to attempt to to, you know,

25:31 as often people say, they get a referral.

25:33 Oh, my buddy uses so-and-so and they're a nice person.

25:36 Okay, well, I'll go with that.

25:38 And and you know, I always like to make medical analogies

25:40 here because it sort of highlights how sort of, I guess,

25:43 ridiculous that decision-making process.

25:44 Let's say you needed a you have a horrible cancer and need a big surgery.

25:48 Are you simply going to ask your neighbor, "Hey,

25:52 uh you do you know some a good brain surgeon?" And they're like,

25:54 "Oh, yeah, you know, so-and-so down the road is a great brain" No, right?

25:57 You're going to go read the hospital reports and find out

26:01 which surgeons have done the surgery the most and, you know,

26:04 do the same thing here.

26:06 I mean, your your your wealth is the product of your life's work.

26:09 This is not some it's a very important thing.

26:12 So, invest the time, please,

26:13 to sort of understand what you're buying before buying cuz

26:15 I I'm at the receiving end of that a lot.

26:17 I see people they go somewhere and then they come to us.

26:20 Mhm.

26:20 And they say, "I don't like this." And you ask, "Well,

26:23 why did you pick that?" And the answer always is almost always is,

26:27 "Well, I I my neighbor or my friend or a colleague." Right?

26:31 So, so if if you have any influence

26:33 on this, tell people do just a little homework, right?

26:37 How easy is it or how hard is it to switch over to different firms?

26:42 Super hard.

26:43 Really?

26:43 And this is part of the the game.

26:47 So, um you're you're with a firm, you know, all your account numbers, you know,

26:52 all your wiring instructions,

26:54 they know all your different trusts, your trustees, your accountants.

26:57 So, when you are doing something, they'll report back to the accountant.

27:01 They'll you [clears throat] need to send money,

27:02 they'll do the wiring instructions for you.

27:05 The industry is set up to sort of trap you.

27:08 Right?

27:09 Even the large um uh the large custodian firms,

27:13 I don't know if you it's hard for people to realize

27:15 this, but if you're as an individual in these custodian firms,

27:19 uh you know, the brand names, I won't name any names, but you know who they are.

27:22 You can sort of do a lot of stuff yourself, self-initiate, self-service.

27:27 When you move under the RIA platform, those those features are disabled to sort

27:32 of keep you more um locked into that ecosystem.

27:34 So, it's very hard.

27:35 It's daunting.

27:36 And this is why there's such a race to be

27:38 the first uh um firm that someone that recently had liquidity.

27:44 The this is where the fight is.

27:45 Like, "I heard you had a liquidity you're about to have a liquidity event.

27:48 Me, me, me, pick me." Because once you've picked the person,

27:52 the odds of them moving again are extremely low.

27:56 Right?

27:56 And so, that's where the all the competition happens.

27:59 When they essentially onboard, I'm just so curious about this.

28:04 Like, what products do you show them?

28:07 And where are their Where are their barriers for like,

28:11 for instance, do you go into art?

28:13 Like, for like these typical portfolios, how do you set them up initially?

28:19 You said it's kind of like a gradual process,

28:21 but like what are all the offerings and how do you balance it?

28:24 It is a gradual process.

28:25 So, you know, I think we're a very open book and so,

28:29 we'll tell people frankly that they don't need

28:32 to necessarily put all of their assets with us, right?

28:35 Which again is not what most people in the industry will say.

28:38 Most people in the industry will say, "Hey,

28:39 you should put everything with me because otherwise

28:42 I won't have an insight on what you're

28:43 doing elsewhere and therefore I won't be able

28:46 to manage your things optimally." But that's not true.

28:48 You can have the firms communicate with each

28:51 other and I do this regularly, right?

28:53 But uh and and so, you you know, again, if you went to a traditional firm,

28:57 they would start with more of the stock and bond mix.

29:00 They might add a little bit of some sort of credit.

29:03 Um we sort of tend to work with people more in a linear

29:06 fashion acknowledging that their portfolio is going to change over time, right?

29:10 So, we're not focused simply on, you know,

29:13 exiting that position on day one, the the concentrated let's say it's SpaceX.

29:18 We're not just simply going to be like, you got to sell all of SpaceX.

29:21 It's okay, SpaceX, if you hold onto it for 20 years,

29:24 you know, here's what the outcome might look like.

29:26 By the way, we built a lot of tools to help forecast these kinds of things,

29:29 which is again empowered by the fact we

29:32 have professional investors who know how to do that.

29:34 Uh I mean, a lot of it I'm sorry to be repetitive,

29:36 a lot of it falls back to that.

29:38 And and then we we will do we will um customize based on their needs.

29:42 Like, so yeah, strange alternative strange,

29:45 unusual alternative asset classes are definitely part of the mix.

29:48 We have some clients who do a lot in the art space.

29:51 Um I'm not an art specialist,

29:53 but I know art specialists that can help you, right?

29:55 So, so we're very very flexible.

29:57 Um but the point is the whole mix of things has to make sense.

30:02 Mhm.

30:02 Right?

30:03 And so uh I'm not simply going to be

30:06 and this is where um giving advice is an important part.

30:09 A lot of again firms will present you alternatives.

30:11 They'll say you can do this or you could do that.

30:13 You tell me what you want.

30:15 And they're doing this for various reasons.

30:17 One, they may not actually have a strong opinion.

30:19 Two, uh it's liability.

30:21 If I tell you do this and you do it and then you're not happy,

30:24 well, I told you to do that.

30:25 If instead I gave you three options and you pick B,

30:30 I didn't pick B, you picked B, right?

30:32 So, so we're very much into giving advice.

30:34 We'll tell you, look, if you're going to put a lot of art,

30:37 you might want to counterbalance

30:39 that with this and that to make the whole portfolio work, right?

30:43 So, we sort of put ourselves out there,

30:45 but I think a lot of people have desire and hunger for that.

30:48 They really want they don't want to sort of have

30:50 to learn all these things and make the decision.

30:53 They want someone who tells them you should do this.

30:55 Again, let's use a medical analogy.

30:57 You know, I have cancer, you know, okay, you need to do a surgery, right?

31:02 Not well, you know, maybe you could do a surgery,

31:05 maybe you can drink some herbal teas.

31:07 You tell me.

31:08 Now, you wouldn't be satisfied with that with the physician.

31:12 Why is that okay here?

31:14 Right?

31:14 So, you want again a I think you want a a professional telling you no,

31:19 no herbal tea for you.

31:20 Like, the tumor's big.

31:22 Herbal tea is not going to work, right?

31:23 You need a surgery.

31:24 Right?

31:24 So, that's one of the things we pride ourselves in.

31:27 I'm so curious about your stance

31:30 on the current markets and the current market volatility.

31:34 So, one we have AI disrupting public markets,

31:37 but we also have wars and geopolitics and I don't know, oil.

31:42 And so, how do you manage through all this?

31:45 How do you provide assistance to the families, to your clients?

31:49 And one, are you actively managing their portfolios?

31:53 Two, are you helping them navigate through this because I'm sure

31:57 they're seeing their wealth go up and down in different directions.

32:00 Yeah, I mean, I always tell people one

32:01 of my favorite sayings is volatility is not the enemy, right?

32:05 A lot of people fret, volatility, I'm scared.

32:08 Um but if you have a deep balance sheet

32:10 and you've kept um your portfolio at least somewhat liquid,

32:14 volatility is a huge opportunity.

32:16 It's like a fat pitch, right?

32:17 And so, you get assets that go on sale.

32:21 You know, big equities, you know, stock markets every four,

32:25 five years, there's like a 40% drawdown, right?

32:28 Blue light sale.

32:29 You should have flexibility in your portfolio to take advantage of the blue

32:32 light sale and you should have your advisor call you up and go,

32:35 "Hey, these things are 40% off.

32:38 It's time to back up the truck." So, yes,

32:40 we do do very active um inner interaction with clients on that front.

32:45 How much do you like to put in cash

32:46 and real estate and all of these other kinds?

32:48 Real estate's actually for taxable individuals is a really

32:52 um very cool asset class because um it's uncor- So,

32:57 if you're let's again, you're SpaceX person, right?

33:01 You have a lot of stock market risk factor, right?

33:06 So, if you take real estate,

33:07 real estate's pretty uncorrelated to that, so it diversifies you.

33:11 And then a lot of wealth in this country,

33:14 a lot of wealthy families made their fortunes with real estate, right?

33:19 Including the president.

33:20 And why is that?

33:21 Because the the entire banking system

33:24 and taxation system was built around real assets.

33:27 When banks and and law and law all these laws were built in the '20s,

33:31 '30s, '40s, all there was was real assets, right?

33:34 People weren't there were no internet companies.

33:36 They were buying buildings, factories.

33:39 So, the tax code is very beneficial to real assets and you can therefore get

33:44 a solid teens return on a tax adjusted basis out of real assets and real estate.

33:51 So, from to me it's a very again, if you've got the ability to stomach

33:54 the illiquidity cuz buildings don't trade like stocks.

33:58 Um you should be holding a lot of those in your portfolio.

34:01 So, yes, it's a it's an important part.

34:03 And then cash or very liquid bonds,

34:06 um people don't like bonds for the return profile.

34:10 They say, "Well, why would I own this thing?

34:12 It returns 3 or 4%." And my answer to that is

34:16 you're not owning it for the 3 or 4%.

34:18 You're owning it because it gives you that flexibility.

34:20 It gives you that option value liquidate

34:23 that uh and go into something else very fast.

34:26 I remember during the the global financial crisis,

34:30 you know, I worked at a at a hedge fund.

34:31 The only thing we could sell was treasuries to raise money.

34:35 Noth- nothing else was trading.

34:36 So, having tre- a treasury kind of liquidity buffer, super important.

34:40 You can go sell those treasuries even when there's a horrible war or something,

34:44 someone will pay you cash for that.

34:45 In fact, they may pay you more than they

34:47 would have before because bonds is a safe haven asset.

34:50 You take that cash, you go buy the distressed asset, right?

34:54 We should talk about taxes.

34:55 Yes.

34:56 Taxes are probably one of the biggest talks around town,

35:01 especially in California.

35:03 Some people are like, "Oh, well, you made so much money,

35:05 like you get to choose where you live and if you want to live in California,

35:09 that's the purpose of making a lot of money." Some people will say,

35:12 "Oh, I made a lot of money.

35:13 I need to go somewhere else so I can save, you know,

35:15 a couple percentage points." And I don't know,

35:19 live somewhere for three, four years, something like that.

35:21 But what is your main stance on taxes and where

35:25 you live cuz we can also get into this afterwards,

35:28 but the billionaire tax bill, that definitely I mean,

35:31 I don't know if this was based on principle or like a little bit of a protest,

35:35 but I think it was over trill- a trillion dollars left the state of California.

35:40 So, how do you feel about taxes?

35:42 Well, I mean, no one loves paying taxes

35:44 unless they feel they're getting value for it, right?

35:46 And I think when you hear people complain about it,

35:49 it's I don't get value, right?

35:52 You know, my schools aren't great, the roads are in disrepair, whatever.

35:55 You hear these complaints, right?

35:56 So, I don't think anyone's necessarily averse to paying

35:58 tax if they feel they're getting value for it.

36:01 And a lot of people who leave feel they're not getting value for it, right?

36:03 So, that's one.

36:04 Um two, there's a sense that the the revenues are mismanaged and I'm you know,

36:09 I'm not going to get into all the waste and fraud that happens,

36:13 but we all know a lot of that happens, right?

36:17 But there's a lot of and moving is a very draconian move, right?

36:20 Because your family, your your friends and all that.

36:23 So, some people can do that and and want to do that.

36:26 And by the way, it's not easy.

36:27 You have to sort of really move.

36:29 So, leaving your house here,

36:30 your main house and moving to Texas or Florida for for a year

36:34 or two with the intent of coming back doesn't qualify, right?

36:38 If you do come back after a couple years,

36:40 the tax authorities here say, "Look, you never sold your house.

36:43 You never had the intent of leaving the state,

36:45 so you owe us tax." So, you really have to sever ties.

36:48 Like, you have to get your you have to of course buy your principal residence,

36:52 sell your principal residence here.

36:53 You've got to register to vote.

36:55 You've got to have all your physicians there,

36:57 all that stuff to really prove to the state that you've

37:00 left and that you have no intention of coming back.

37:02 So, the move isn't easy and it's a draconian change.

37:06 Some people though, if you have a really big balance sheet,

37:08 it's worth it, right?

37:10 Um but there's a lot of things you

37:11 can do with your portfolio to mitigate tax, too.

37:13 So, before jumping to, you know, I'm going to move to Puerto Rico or whatever,

37:19 uh first think about how you structure your your investments, your portfolio.

37:22 So, there's all sorts of uh very clever ways

37:24 to use the qualified business uh tax exemptions, the QSBS.

37:29 So, you can create several trusts.

37:30 Each of those trusts gets the now $15 million exemption.

37:34 Before it was 10.

37:35 So, you can you can do that.

37:37 Married couples now can get both uh exemption.

37:41 So, there's a lot of things that if you do on that remember

37:43 we were talking about the pre- IPO on the pre- IPO prep,

37:46 you can do things to really mitigate tax a lot.

37:49 Uh then then you can use the proceeds and invest them in tax

37:52 advantage things like real estate um if it's managed the right way, that is.

37:57 A lot of real estate unfortunately is managed in a way

38:00 where the buildings are sold a lot and that generates tax.

38:03 But if you hold the buildings for a long time,

38:05 uh you can use the depreciation credits

38:07 and never pay tax on the income you're getting.

38:09 So, so there's a lot of things you can do like that um before you move.

38:13 And we spend a lot of time obviously thinking about that.

38:17 Pre-liquid event and post-liquid post-liquid event,

38:19 there's also a number strategies you can use to generate

38:23 losses um whether the market is up or down.

38:26 There's some sophisticated strategies that use leverage.

38:29 Using leverage is not always easy because

38:32 leverage can be dangerous on a portfolio.

38:35 Luckily, we have a couple people in our in our team

38:37 that worked at hedge funds and are used to leverage.

38:39 So, there are things like that you can do before the pull the plug,

38:43 I'm moving somewhere else.

38:44 But I see a lot of people moving though, to your point.

38:46 Really?

38:48 A lot of people moving.

38:48 In fact, there's been a bit of a boomerang.

38:50 Some people have moved and then come back because they they in their minds

38:54 they thought that saving several percentage points of tax was worth the move.

38:58 And then when they moved,

38:59 they for personal reasons they're like, "Look, I saved money,

39:03 but it wasn't the savings weren't worth the cost to me personally." Mhm.

39:07 Right?

39:08 And these are you can't it's very hard to predict how you're going

39:11 to feel when you move somewhere else

39:12 cuz you don't you've never lived there, right?

39:14 So, it's I think it's very It's a valid point.

39:17 VCX by Fundrise, the public [music] ticker for private tech,

39:21 allowing investors of all sizes to invest in venture capital.

39:25 View the portfolio [music] at getvcx.com.

39:28 That's getvcx.com.

39:31 Some of you may not have heard this yet,

39:33 but our sponsor Public just launched something called Generated Assets and it

39:37 brings AI into investing in a way I've honestly never seen before.

39:40 Here's how it works.

39:41 You type in an idea like AI-powered

39:44 supply chain companies with [music] positive free

39:46 cash flow or defense tech companies growing

39:49 revenue over 25% year [music] over year.

39:51 Public's AI then dispatches a swarm of agents that scan every single US stock,

39:55 evaluates them, and instantly builds a custom index around your thesis.

39:59 What really stands [music] out is how

40:00 clearly it explains why each stock is included.

40:03 And before you invest, you can even backtest your idea against the S&P 500,

40:07 so you're making decisions with real context, not just guessing.

40:10 [music] And beyond generated assets, Public lets you invest in stocks,

40:14 bonds, options, crypto, all in one place.

40:16 [music] They'll even give you an uncapped 1% match

40:19 when you transfer your investments over from another platform.

40:22 If you want to build a portfolio that actually reflects your thesis,

40:25 visit public.com/sorcery.

40:26 [music] Paid for by Public Investing.

40:29 Full disclosures in the description.

40:31 Founders, ship faster on Deel.

40:33 Set up payroll for any country in minutes, hire anyone anywhere,

40:37 get visas handled fast, and get [music] back to building.

40:39 Visit deel.com/sorcery.

40:43 That's d e e l.com/s o u r c e r y.

40:48 Chamath recently went viral for a tweet about capital losses

40:52 because of the destruction his SPACs have incurred on people.

40:57 What is your viewpoint on capital losses and how

41:00 do you use them to your point of offsets?

41:05 So, we use them a lot, right?

41:07 Capital losses are the are the core behind all

41:10 those sort of liquid strategies I mentioned you before,

41:12 the the leverage strategies and whatnot.

41:15 Um there's some nuances in the tax code like you can't use a loss

41:21 that comes to you personally unless you

41:23 happen to be a professional in that industry.

41:26 So, you can only use a small part of them.

41:28 So, the way to use a loss is inside a fund vehicle

41:32 that generates its own gains that can be offset by its own losses.

41:36 Then you don't have to worry about extracting the losses and putting

41:40 them on your personal balance sheet and not being able to use them.

41:42 So, if you owned a SPAC or something like that and it went to zero,

41:47 you may not be able to write that off, right?

41:49 But if it's sitting in a portfolio, in a fund structure, usually a partnership,

41:53 you're going to have other things inside that fund that are going to be

41:56 offsets naturally so that you can shield the total result of that fund from tax.

42:02 And that's exactly uh I think the right strategy for real

42:05 real assets and real estates where you you're generating these capital losses,

42:08 you're generating depreciation losses,

42:10 um and you use those to offset the income inside that fund.

42:14 And then the total you get at the end has been tax mitigated.

42:19 Right?

42:19 SPACs were a huge trend.

42:21 Secondaries have taken storm.

42:25 And so, with secondaries,

42:27 we're seeing not only lots of volume in secondary transactions,

42:30 which is good, I guess,

42:31 for growth investors cuz that was really quiet for a while,

42:35 but we're also seeing these multi-layered

42:37 SPVs proliferate and cause sometimes scams.

42:41 But in terms of secondaries,

42:42 what are you seeing and what are you advising your clients on with these?

42:46 So, it's it's a fascinating space, to your point.

42:49 Um it's a little bit like the comment I made

42:51 before where if you don't have professional investors on your team,

42:55 uh you have to build a fund of funds to invest.

42:58 It's the same idea with these these uh secondary vehicles.

43:01 I'd say be very, very careful what you're doing.

43:04 Um attorneys love to use this term "perfect your ownership interest." So,

43:09 I'd say we're going to use SpaceX again since we've been on SpaceX.

43:12 Let's say you've been working at SpaceX years and you create

43:16 your own Molly Corp and you put your SpaceX stock in that.

43:20 SpaceX doesn't want you, or most companies,

43:22 I don't know the particulars of SpaceX,

43:24 don't want you to transfer your stock to an external person, right?

43:27 So, what you do is you transfer it to your own

43:29 entity and then you sell shares in that entity other people, right?

43:34 And it's not very clear and and you often charge fees, right?

43:37 So, a lot I mean I mean it's sometimes quite egregious, to your point.

43:40 You're being paid 2, 3, 5% for the right to buy something.

43:45 Um but the problem is the stocks are sitting

43:47 in that entity and you are the manager of the entity,

43:51 the employee is the manager of the entity.

43:53 Um and so, they're the ones who ultimately,

43:55 even though they've written a promise saying when there's a liquidity event,

43:58 we'll sell the shares and hand you the the money,

44:01 uh I've seen personally in cases where um the stocks are

44:05 in that entity are sold by the individual managing the entity.

44:08 And they don't need their seek approval

44:10 from the people who invested in it, right?

44:12 So, be really careful when you go into these private entities.

44:15 Any private company has its own set of rules.

44:18 You can't sort of use intuition well, that's fair or not.

44:22 Whatever's written in the contract is what matters when you go into private.

44:24 So, and and the vast majority of the volume

44:27 goes through these sort of questionable SPVs.

44:31 Directly going on the cap table is what you should be trying to do,

44:35 but that's extremely difficult, right?

44:38 Obviously.

44:39 Right?

44:40 And so, that's where I would caution people really be very careful.

44:42 So, we spend a lot of time when we

44:44 see these things doing legal diligence, which is expensive.

44:47 You know, you're going to pay an attorney $20,000

44:50 to review this thing and make sure it's bulletproof.

44:53 Do you really want to do that if you're going to be putting,

44:55 you know, 500,000 into this?

44:57 So, um beware.

45:00 Will your clients take these SPVs to you to manage for them

45:04 or do they just kind of do them on their own?

45:07 We've helped a couple clients try to build some,

45:09 um but most of the time we're actually trying to build

45:13 one for our clients to get into a particular company.

45:17 Mhm.

45:16 Yeah.

45:17 Right.

45:17 It's been interesting to see.

45:19 I did an interview series at Anduril and one

45:22 of the questions I asked Marc Andreessen and Brian Schimpf,

45:26 the CEO, is there is like a dark pool of fake SPVs going around for Anduril.

45:33 And so, with those, are you just going into deep legal matters

45:36 and paperwork to backtrack and see if that is a viable vehicle?

45:40 Have you seen any issues into a full-on fraud before, but, you know,

45:44 the first thing we do is we pay a background check company to see,

45:48 again, using you as an example, did she actually work at SpaceX?

45:52 What did you, you know, So, that's step one.

45:54 A lot of people don't even do that, right?

45:57 Ask your friends and clients, how many of them have done run a background check

46:01 on the on the person running the The answer's going to be no one, right?

46:05 So, just to get this is back to my just do some

46:08 basic homework if you're going to do these kinds of things, right?

46:11 Or or get someone to do it for you.

46:13 Venture capital has gotten some heat for not having the best returns,

46:20 not being the best asset class.

46:22 How do you manage that kind of alternative within these portfolios?

46:28 What's your view on venture capital as an industry?

46:30 No, that's a great great great question.

46:32 No bias, of course.

46:34 Zero bias.

46:35 Zero bias.

46:36 Um look, if you look at the different

46:39 asset classes and the dispersion of returns, Mhm.

46:42 right?

46:42 Like the worst manager to the best manager,

46:45 venture is the biggest dispersion of all the asset classes,

46:48 like compared to private equity, credit, or hedge funds, or whatever.

46:52 And so, to your point, that means that who you pick is super important, right?

46:57 If if the dispersion was this narrow, it kind of wouldn't matter, right?

47:01 You you kind of know what you're going to get out

47:03 of that asset class and doesn't When the dispersion is this wide,

47:06 um and and the stock market performs,

47:08 by the way, somewhere in the middle of that.

47:11 If you pick the bottom half, to your point, well, that's a problem.

47:14 You should have just avoided the illiquidity,

47:16 avoid the fees, and bought, you know, QQQ or something.

47:20 Right?

47:20 And so, I think picking the right managers and and being exposed to right

47:24 um people there is more critical than in any any other asset class.

47:29 Um There's a couple of other interesting observations.

47:33 I'd say by and large,

47:33 the industry um has not tried to create entity value, right?

47:39 What do I mean by that?

47:40 They're often focused around one individual,

47:43 and if that individual leaves, the firm is gone, right?

47:47 Or the firm the firm will have to reinvent itself, right?

47:50 So, and because the person has their name on it, they're the only one there,

47:54 and they've not built sort of an institution around it, right?

47:58 And so, the longevity of that entity is questionable, and therefore,

48:02 it doesn't have entity value in and of itself, right?

48:04 Of course, the funds have value, but the entity itself doesn't.

48:07 And what's really interesting about a16z, personally for me,

48:10 one of the things that attracted me here, this firm has entity value, right?

48:14 There's a lot of people who own this firm.

48:16 Uh it's building, uh you know, a comprehensive set of products and services

48:20 across different asset sub-asset classes, right?

48:24 Be it crypto, AI apps, AI infra, whatever.

48:27 Um and it also has expertise around fundraising, HR, systems, go-to-market.

48:34 And so, the whole thing is highly valuable.

48:36 It doesn't just revolve around It's not 10 or 15 people with one person, right?

48:42 So, I would say if you're going to, you know, invest for the long term,

48:45 try invest in firms that are trying to create

48:47 entity value because that's a sign of longevity, right?

48:50 The firm's not going to disappear when

48:52 someone decides to hang up the cleats, right?

48:54 Um I think the other interesting thing is as um

48:58 the check sizes to to participate have gotten bigger,

49:02 um scale has become more important, right?

49:05 All asset management industries have some scale benefits to them.

49:09 Um venture traditionally had less and now has a lot, right?

49:13 So, if you're going to back a new AI startup,

49:17 you can't show up with a million-dollar

49:18 check or two-million-dollar check, but it's useless.

49:21 Or or let alone, you're going to build a an AI

49:24 chip where the tape out for one chip is $100 million.

49:29 And how are you going to participate in that, right?

49:31 So, you need to have large funds.

49:33 So, that's another thing I think all of a sudden it's become very clear that you

49:36 need to have there's been this dispersion

49:39 and you need to have a bigger fund, right?

49:41 What's the biggest lesson that you've learned from Mark and Ben?

49:47 The biggest lesson I learned from Mark and Ben.

49:53 Actually have an interesting one.

49:54 So one of the biggest lessons I've learned from Mark and Ben,

49:57 it's really interesting.

49:57 It's about how to build a team and how to work with people.

50:01 And they said something when I first got here that was interesting.

50:04 They said we don't hire people for lack of flaws.

50:10 We hire people for their their sort of their skills.

50:13 And it was really interesting to me.

50:14 At first I I didn't know what to make of this, but for a long

50:17 time I worked you know in a large management consulting company.

50:21 And my reviews were all about addressing my flaws, right?

50:25 So it's like well, they would gloss over the things I did well.

50:28 It was not even worth mentioning.

50:30 And it's just a list of things I had to fix all the time.

50:33 And it's actually an incredibly demoralizing kind of thing

50:36 cuz you you the things you did well, no one seems to care to mention.

50:41 And then you're always being told every year after year these are the 18

50:44 things you got to fix to make it to the next level, right?

50:47 Here we've it's completely turned on its head.

50:50 Like if you are great at something, let's let's celebrate that.

50:53 And we're all people,

50:54 so there'll be things we might not like with that, but that's fine.

50:58 We'll learn to live with that and and hopefully the balance is is good.

51:01 So there's there's there's this real embrace of you know,

51:05 the talents of people have.

51:06 And so as a result, everyone here at the firm which stunned

51:09 me is every function I meet people are really excellent at their function.

51:14 The the the amount of talent in this firm is mind-blowing.

51:18 And so it makes you really proud to be part of this of this place.

51:20 So that's the lesson I learned from Mark and Ben.

51:22 That's a great answer.

51:24 Hopefully.

51:24 Yeah.

51:25 Okay.

51:26 What's the biggest mistake people make with their wealth?

51:29 So I'll I'll restrict my answer to the biggest mistake

51:32 people make with their wealth to sort of founders Mhm.

51:36 of startups.

51:37 Um I think because they grew up

51:40 in the venture industry and in the private asset industry,

51:44 they automatically gravitate to that.

51:46 And so I'll see someone with their very

51:48 first liquidity their very very first liquidity,

51:50 they take it and instead of doing something

51:52 a little bit safe in case there's a rainy day,

51:54 they turn around and they go put it in a bunch

51:56 of like very early stage startups often referred to by their friends.

52:01 Right?

52:01 And and you just sort of sit there and you're like listen,

52:03 if you're going to do venture,

52:04 at least try to do it in a systematic way and not take you know,

52:09 80% of what you just got and hand it to your three friends.

52:12 And and almost almost always this ends in tears.

52:17 I'm being exaggerating, but very rarely do those outcomes happen the same.

52:22 And of course because the that individual who

52:24 made it their experience was one of success.

52:28 It's hard for them to sort of visualize

52:31 the statistics of the industry as a whole, right?

52:33 So they're they're they're they're expecting that they

52:36 do two or three of these things,

52:37 at least one of them will work and often none of them.

52:40 Right?

52:40 So that's the biggest mistake I see is like you you finally got some liquidity,

52:44 your hard work paid off.

52:45 And what do you go and put it back in another sort of highly uncertain,

52:49 highly liquid thing, right?

52:51 For those founders that come to you, they're post exit, they're liquid.

52:57 Do some of them want to start on their second or their third

52:59 company and how do you manage their portfolios to do that?

53:04 Many do want to start a second and third company.

53:06 Um especially nowadays, you're young.

53:09 Are you going to retire when you're 35 or 40 and not do anything?

53:12 I mean, I don't think anyone wants to do that.

53:14 So a lot of people want to do and so if if that's the goal,

53:18 we try to keep the portfolio actually more liquid because

53:20 their hope is that they can finance more of it themselves, right?

53:24 The idea is well, I did my first company and by IPO I owned 15% of it.

53:29 The next time I want to own 30% of it, right?

53:31 And so I'm going to bootstrap it and use my own capital more.

53:35 So we try to yes, is is a short answer.

53:38 We change how we would suggest the portfolio based on those on those desires.

53:43 A lot of founders though,

53:44 I think want to stick with their company very very long term.

53:46 They're not necessarily thinking you know, two years out I'm done.

53:50 Uh they want to stay along I mean, this is their baby.

53:53 They know it.

53:54 They've grown it.

53:56 So it's not necessarily I'm going to completely detach.

53:58 It's maybe my level and intensity will decrease.

54:04 Maybe I won't be CEO anymore.

54:05 Maybe I'll be chair or something like that, but flat out leaving,

54:09 I'd say it's kind of the exception.

54:12 You do see it, but yeah.

54:14 I want to do a quick fire on some macro.

54:18 Okay.

54:18 Okay.

54:20 Is private credit in a bubble?

54:21 There's several flavors of private credit.

54:24 One is sort of direct lending.

54:26 So the idea is FICO scores and things

54:29 like that aren't the best indication of credit quality.

54:33 Maybe we can develop a different way to assess credit

54:35 quality and we'll lend directly to an individual often, okay?

54:40 That stuff has been fairly resilient and in part because it's tranches out.

54:45 So they they they they sort of take the equity tranche,

54:48 sometimes called the first loss piece and they keep that on the balance sheet,

54:52 the issuer does and then the other pieces are sold.

54:54 So there's like a buffer, right?

54:56 If there's a few defaults, you're okay.

54:59 Right?

54:59 But there's more to sort of the the private credit lending

55:03 to companies and mainly sponsor backed

55:05 companies and when people say sponsor backed, they mean PE backed companies.

55:08 Um and remember the PE companies,

55:12 how do you PE coming private equity, they're equity investments, right?

55:16 So how do you maximize the return on equity?

55:19 Well, you use as little equity as you can, right?

55:21 So you you buy a company and you lever it as much as you can so that your equity

55:25 piece is small so that if the company improves

55:28 the the the return on equity is magnified, right?

55:31 And so you're purposely leveraging these companies quite highly.

55:36 And you're putting that into a vehicle

55:37 and people are investing into that leverage.

55:39 So if there's an economic headwind and those companies start

55:43 not being able to manage their debt that's a problem.

55:47 Right?

55:47 So at the end of the day the question of whether

55:50 or not private credit is in a bubble is really a question

55:52 of are we facing some sort of long-term slowdown or recession

55:59 whereby these companies can't service their debt the way they were before.

56:04 And that right now there's no indication of a slowdown in the economy really.

56:08 There's a few you know, there was a bit of a surprise on the employment report.

56:12 But but by and large the economy's growing you know,

56:15 the long-term trend for growth is not even 2%

56:18 and the the economy grows above that pretty regularly.

56:21 So right now and the huge capex boom around AI is propelling the economy.

56:25 So I don't know that there's an immediate sort of macro event

56:29 that causes these companies to not be able to to support their debt.

56:32 But it's a leveraged high risk strategy, right?

56:36 Is the IPO window open?

56:39 We're going to find out with SpaceX.

56:41 What about Open AI?

56:42 Whoever goes first.

56:44 Okay.

56:44 Who's going first?

56:45 I think SpaceX.

56:48 But it depends if Anthropic and Open AI

56:50 are going to have a heated competition even more.

56:53 Cuz I feel like they're in a battle right now.

56:55 And so that's a race.

56:57 But look, I mean companies are still able to raise large amounts

56:59 of money in the private markets as we've seen with Open AI and others.

57:03 So the pressure to go public is not as high

57:07 as it would be if they weren't able to, right?

57:10 And then as I mentioned before, I think VC funds,

57:13 growth equity funds have raised large funds.

57:15 So there's capital available to do these things.

57:18 Um Yeah, I mean it's surprising how large fund raises,

57:22 10, 20, 50 billion dollar fund raises happen overnight, oversubscribed.

57:28 So until that stops happening, there's you know,

57:31 less urge to IPO unless you get to a size

57:34 where the private market can't accommodate you anymore.

57:36 So it's in some paradoxical way, right?

57:39 If there's like a slowdown in the economy

57:41 and less excitement about these companies,

57:43 that's when they're going to be maybe more forced

57:46 to IPO because the private capital then won't be available.

57:50 I feel like Open AI already pushed the limits on how

57:53 much private capital they can extract with a 110 billion dollar round.

57:57 I can't imagine how many more But that was it.

58:01 No one thought before that that it would be easy to raise that sum anyway.

58:04 It was easy to raise it.

58:07 Okay.

58:07 What is your information and research diet?

58:10 What do you watch out for?

58:12 I'm kind of old school.

58:13 I like to read source materials.

58:16 I know nowadays, you know, people watch podcasts and things like that.

58:21 I I I like to read Fed data.

58:24 I like to read Fred the Federal Reserve Economic Database that you can get free.

58:30 Um I like to read quarterly reports from companies,

58:36 transcripts of the the analyst calls and those kinds of things.

58:39 So that's what I spend a lot of time looking at and reading.

58:42 And then of course, listening to my clients who

58:44 are in the know on the private private market side.

58:47 You do have a very good advantage there.

58:49 a great [laughter] great advantage there, right?

58:51 Right.

58:52 So you know, I I think of private investing,

58:54 there's like this two by two matrix which

58:57 is like it's access and it's diligence, right?

59:00 And so you know, we're in a real sweet spot here, right?

59:04 Cuz I have access or we have access or clients therefore have access

59:08 to all sorts of things because of the incredible network we have here.

59:11 And then the diligence, it's a large firm.

59:12 I can always find someone here that's worked with someone or knows

59:16 someone that's worked with or been on a board or in a startup.

59:19 So it's it's the amount of diligence I can do it it's it's very

59:22 quickly I can sort of assert whether or not this is a quality investment.

59:26 So on that two by two matrix, I like to think you know,

59:29 I'm lucky enough to be up here which is I'm not going to complain.

59:32 Very lucky.

59:33 Yeah.

59:33 As we close out, what are you most looking forward to this year?

59:37 So, there's been a big effort at the firm to be more outgoing with media.

59:42 Mhm.

59:43 And uh and this is part of that.

59:46 Amazing.

59:47 So, I'm very excited to to be out there speaking a bit more.

59:51 I mean, traditionally a lot of wealth management firms tried to operate

59:55 uh in multi families under a little bit under the radar.

59:58 Um but I think for me personally at least,

1:00:00 I I find that the way we set things up is so compelling and differentiated

1:00:04 that I'm very excited to sort of present it to the world more broadly.

1:00:07 So, that's Also, from what you've mentioned,

1:00:10 it's clear that there needs to be more real information

1:00:13 on these industries out there because there's a lot of traps.

1:00:15 Yep.

1:00:16 A lot of traps.

1:00:16 So, I'm my goal is to educate.

1:00:18 I I long time ago I wanted to be an academic.

1:00:20 I spent way too many years at Stanford.

1:00:22 I still enjoy teaching and educating people.

1:00:26 So, to to to me that's the biggest excitement of this job.

1:00:30 Amazing.

1:00:30 Well, I'm looking forward to that as well.

1:00:32 Thank you so much, Rochelle.

1:00:33 Thank you.

1:00:34 Appreciate it.

1:00:35 Hey, it's Molly.

1:00:36 If you enjoy our interviews, check out our newsletter sourceery.vc,

1:00:40 where we deliver a once-a-week top deals and tech headlines email,

1:00:43 [music] and also go deeper on our podcast interviews.

1:00:47 Subscribe to Sourceery today,

1:00:48 and don't forget to subscribe to the podcast on YouTube,

1:00:51 Spotify, [music] Apple, or wherever you listen.

1:00:54 Link in description to sign up.