The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:25:37 · Harry Stebbings, Scott Wilson
[00:25:37] S1: Can I ask you, when you review the venture book that you've built in terms of managers, what do you know now that you wish you'd known back when you were at $8,000,000,000 when you were doing the fire sale? [00:25:47] S0: We've definitely learned some hard lessons. I I think maybe the biggest takeaway is, like, you know, we've done much better on this, like, offensive strategy than defensive strategy, so we do way fewer of co investment opportunities than we do outbound. That's probably the biggest takeaway. [00:26:03] S1: Are you concerned by where we are in the cycle? You're a very realist investor that, to me, really likes fundamentals. Today, a lot is detached from fundamentals, it would seem, especially from the private's world where you've got incredible exuberant pricing, real frothiness juxtaposed by this very real public markets reality. How do you think about that?
00:26:27 · Scott Wilson
[00:26:27] S0: I mean, I think, like, the markets have short memories. You know? If you look at the lessons from the original tech bubble in the two thousands and the GFC and 2021, like, from the crypto bubble, like, you know, we're seeing the same kind of stupidity that we saw in all those other cycles. And it's like every five years, particularly in private markets, you know, where I think the investors tend to be just less sophisticated. But it's clear to me that, like, there's a valuation premium in the private markets. You know, I, I don't know where anthra operating is gonna go public, but it's clear to me they could have raised capital in the private markets if they stayed, stayed in the private markets at north of 2,000,000,000,000, if they wanted to. I don't, I'm not convinced that the public market's gonna give them that same valuation maybe same with open AI, you know, Ora tried to go out. Cerebras tried to go or has traded really poorly since the IPO. SpaceX is basically back to really close to its IPO price. There's just too much capital chasing these kind of late stage champions in the private markets and the valuations are, I think that's why there's no DPI. It's not because the public markets aren't open. The public markets are pretty close to all time highs. It's just you can't go out public at the valuation that the private markets will get.
00:27:40 · Harry Stebbings, Scott Wilson
[00:27:40] S1: Why would you go public? Is this a permanent transition in the financing landscape? Where to your point that you could raise and stay private. The have proven that staying private and having a great business is very beneficial. You're still able to do amazing tender offers to your employees. You're able to do m and a and buy OpenRooter for $8,000,000,000. Hell, Scott, why are we gonna go public? [00:28:00] S0: There's a lot of rationale to stay to stay private. I think ultimately, like, the public markets are obviously much deeper capital markets. I think, you know, when SpaceX raised 85,000,000,000 or whatever in the IPO, that's pretty tough to do. You know, the sovereign wealth funds and the big pension funds and SoftBank, like, they can only write so many of those checks. And, you know, I think most of those capital sources have been exhausted, and the public markets are still multiple the size of the private markets. I think there's 14,000,000,000,000 or something globally in private markets. [00:28:28] S1: Do you think we're seeing a massive sell off now to make capacity for Anthropic? [00:28:33] S0: Could be. It would obviously be a lot of the same potential buyers. But, I mean, I think that... That's tough to kind of beta test. [00:28:40] S1: You you said about stupidity within private markets. What did you mean by stupidity? Like, what are you pointing to? Is it valuations? Is it deployment speeds?
00:28:40 · Harry Stebbings, Scott Wilson
[00:28:40] S1: You you said about stupidity within private markets. What did you mean by stupidity? Like, what are you pointing to? Is it valuations? Is it deployment speeds? [00:28:48] S0: Yeah. It's just valuations. I'm sure that half of these kind of, you know, I guess super intelligence is the correct term now, but these AI related companies, like probably half of these companies don't exist ten years from now. And it's not clear how many have like a defensible moat around their business. It's not clear to me what the ultimate profit pools look like for these companies. I I think it's a super strange dichotomy. If you take the top five kind of large language models and they all had the same user interface for 99% of problems or tasks, like, you probably couldn't tell the difference. Right? You wouldn't know which model you're using. I I can't describe another industry like that that has a big kinda deep profit pool. [00:29:27] S1: Do you have much exposure to OpenAI or Anthropic, the model providers? [00:29:31] S0: We have pretty decent exposures to Anthropic through a few of our partners. [00:29:35] S1: With the greatest of respect, as you said, that the ability and willingness to switch, the commoditization, do you ascribe little value then to that model providing layer?
00:29:35 · Harry Stebbings, Scott Wilson
[00:29:35] S1: With the greatest of respect, as you said, that the ability and willingness to switch, the commoditization, do you ascribe little value then to that model providing layer? [00:29:45] S0: The way the business models are currently constructed, yeah, when there's a free alternative customer willingness to pay drops very, very quickly. And I think everybody starts with the frontier model. And this is definitely true when I talk to our companies in our portfolio, you know, everybody starts with the frontier model because if you're trying to implement AI and like, you know, you're starting at spending at zero and you allocate some budget to it. So I think everybody starts with the most expensive models and they use it, they find it useful, they ramp up spend. And at some point they say like, you know what? For most of our tasks, and certainly this is true on on my team, like, we don't really need a frontier model. We're not solving millennial price problems. [00:30:25] S1: Why have you not sold then? We've had very liquid secondary markets. I completely hear and agree with you on everything. But then why why hold a position that could be sold? [00:30:34] S0: Yeah. For us, it's relationship driven. These aren't held in SPVs where we could easily sell. It's one exposure in a fund of 40 other investments, so we wouldn't be selling just one thing in isolation. Those particular partners, like, they're they're great partners for us, so we're happy to hold it. And, you know, if it goes public, we have the ability to hedge if if we think the price is right.
00:30:34 · Scott Wilson, Harry Stebbings
[00:30:34] S0: Yeah. For us, it's relationship driven. These aren't held in SPVs where we could easily sell. It's one exposure in a fund of 40 other investments, so we wouldn't be selling just one thing in isolation. Those particular partners, like, they're they're great partners for us, so we're happy to hold it. And, you know, if it goes public, we have the ability to hedge if if we think the price is right. [00:30:54] S1: How do you think about the stock distribution lens? We've seen several managers say, actually, we think we can manage your position once public, and so we're gonna create vehicles to do that. Others say we're gonna distribute straight to you in stock. How do you think about what is the right way? And then what do you do once distributed with the stock? [00:31:15] S0: Yeah. I mean, it depends on the the situation. We have stuff that we owned as private companies, and it went public five years ago, like Nubank, it's in our 13 f. We've owned that since it was a private company. It was distributed and we still own it in almost five years later. Other companies that goes public and we have the ability to hedge exposures, pre pre distribution, we'll do that if we think the valuation is frothing. So for us, it's it's kind of valuation. We we probably have some independent view on what we think the right value for the the stock is, and so we'll partially hedge or fully hedge the position.