How I Invest with David Weisburd
00:14:10 · David Weisburd, Jerry Ye
[00:14:10] S0: I love the disciplinary nature of the show because I I get to talk to public investors, private investors, and sometimes these things are so obvious to public investors. You said with hedge fund managers, it's so obvious that there's no alpha there. There's no more juice to squeeze in the public markets. Most venture capitals haven't even heard of this. [00:14:28] S1: When I first went to my first alternative data conference in New York, and I looked around, I was literally the only one representing a venture fund there. Right? And you saw everyone else on the hedge fund PE side. And it it is it is fascinating, but a lot of it is also in terms of what the profile of the teams look like. Right? If you look at venture, most people can, you know, handle looking at, you know, their data rooms in Excel, but being able to to figure out signal from a dataset with billions of data points is actually difficult. Right? [00:15:05] S0: Perhaps it's obvious, but these venture capital platforms, the large platforms, and the crossover investors, they're getting this data because it's essentially ground truth. Because if you know what the consumer and the enterprise is spending on on their credit cards, you know exactly what the next top company is.
00:15:05 · David Weisburd, Jerry Ye
[00:15:05] S0: Perhaps it's obvious, but these venture capital platforms, the large platforms, and the crossover investors, they're getting this data because it's essentially ground truth. Because if you know what the consumer and the enterprise is spending on on their credit cards, you know exactly what the next top company is. [00:15:22] S1: So it really depends on the type of company, but if it is a consumer facing company, let's say, like, an online DTC subscription company, you should have really good visibility into it. And actually, similar to polling what's going on right now, right, there's only a percentage of the population you actually need to poll, and we're talking about a three to 5% sample of US credit card, debit card spend. Right? So depending on the size of the company, actually have a really good idea of some companies once they hit a certain, you know, like, run rate or a certain stage. [00:15:59] S0: And who's selling the status? Are these debt... Data brokers buying from Visa and Mastercard? [00:16:04] S1: So these are generally interconnects between, like, your bank and your, like, brokerage. If you ever sign on and it says, like, connect your other account for, like, external transfers, etcetera. Plaid is definitely not. [00:16:16] S0: Shout out shout out to Plaid, non sponsored.
00:16:16 · David Weisburd, Jerry Ye
[00:16:16] S0: Shout out shout out to Plaid, non sponsored. [00:16:19] S1: Yeah. It's actually not Plaid. Okay. But there's... It it can't be Visa or Mastercard because their agreements are actually with the merchants. Right? And the merchants definitely do not want, you know, them selling the Who is that? There are panels like Yodlee or Consumer Edge. This is all, you know, public information that... [00:16:38] S0: And where do they get their data? [00:16:39] S1: Yeah. So they they form the interconnects for a lot of these companies. Right? Some of them actually buy smaller banks, smaller card issuers, etcetera. [00:16:47] S0: So using this card data, SignalFire invested in Grammarly. Tell me about that.
00:16:47 · David Weisburd, Jerry Ye
[00:16:47] S0: So using this card data, SignalFire invested in Grammarly. Tell me about that. [00:16:52] S1: So as part of the the panel, right, just keep in mind that you can figure out what retention rates look like as well. But we saw a company that was inflecting, and not only was inflecting, you saw really high retention rates, which were similar to what you would see in a SaaS company. And that led to investments there. But what was interesting there was actually, and this kind of ties into what I'm working on now too, is before, from the outside in, that led to the investment in the company early on based on cohort performance. And now, Grammarly actually, a couple years ago ended up receiving a billion dollar user acquisition financing facility from another firm, and they're essentially leveraging those same cohorts, but for user acquisition, that's non dilutive. Right? So it's not an equity investment. And for them, it's actually a short term problem, and this is a short term solution for it because the revenue comes back in twelve, eighteen months. Right? And they don't have to sell a chunk of their company for it. [00:18:02] S0: This touches on one of the most underrated and least talked about forms of funding for startups, user acquisition financing. Tell me about that. What is user acquisition funds?
00:18:14 · Jerry Ye
[00:18:14] S1: For companies with post product market fit, there's actually a solution now where it's non dilutive. It's not equity. It's not venture debt. And for these companies, they know that every dollar they spend on UA turns into $2.03, $4 down the road, but it takes six, twelve, eighteen months for that capital to come back. So even for the most well capitalized companies, they quickly become cash flow constrained. What this does in place of equity is because this is a short term problem, it's a short term solution where we fund a large portion of their monthly spend in exchange for a capped revenue share. And that's paid back as the cohorts generate revenue. And once the principal plus the fees are paid back, then all the residual revenue actually belongs to the company. So you have high ROI for the company. It actually makes a ton of sense because it's essentially just pulling growth forward. And I mean, there's obvious, you know, downsides as well, it's like if we mispredict the paybacks or whatnot, it... There's, you know, risk to this asset as well. But as long as the company is hitting performance thresholds, and thresholds are set when we make a monthly investment, like they have to have 40% ROI by the first month, 50% by the second, etcetera. If it ends up underperforming, then we actually pause funding for the next month. So instead of like a ten year time horizon, we're talking about investing each month separately, but on average, they pay back seven, twelve months.
00:19:52 · David Weisburd, Jerry Ye
[00:19:52] S0: One thing I've learned from talking to hundreds of investors is that great investment firms aren't built on investment returns alone. The firms under are great at the things most people don't see, their operations, their relationship with quality of information they use to make decisions. And here's what AI has changed. Every firm now has access to the very same models, so the intelligence isn't the edge anymore. The edge is what you could feed it. Firm with its fun operations and data in one connected record can actually put AI to work. A firm running on disconnected systems simply can't. That's why thousands of GPs run their funds on Juniper Square. Juniper Square puts your fund operations, data, and administration together in one connected record. That means less time managing disconnected systems and more time investing, working with LPs, and building your firm. This episode is brought to you by Juniper Square, the operations partner for private market GPs. Learn more at junipersquare.com/howiinvest. That's junipersquare.com/howiinvest. Give me a sense for how many startups are using user acquisition financing today. How big of a market is this? [00:20:59] S1: It's still very nascent. Right? So there's another large venture fund that has raised 4 to $5,000,000,000 just for this asset. [00:21:07] S0: So it's not Catalyst?