265. Maintaining a Disciplined Fund Size and Strategy, The Rise of NYC Tech, and Changes in the Exit Environment (Brian Hirsch)

Brian Hirsch of Tribeca Venture Partners joins Nick to discuss Maintaining a Disciplined Fund Size and Strategy, The Rise of NYC Tech, and Changes in the Exit Environment. In this episode, we cover:

  • Walk us through your background and path to VC
  • What’s the thesis at Tribeca Venture Partners (TVP)?
  • We’ve seen notable firms in the valley launch platform and service offerings to founders… have you considered this at Tribeca – why or why not?
  • Biggest differences between NYC tech vs Bay Area Tech
  • COVID is causing many people to move away from the city. Any concerns about losing tech talent?
  • How much does the exit environment for tech companies effects what you invest in?
  • what’s most undervalued in the public market or exit market at large that will be more appropriately valued in 3-5 years from now
  • What’s your take SPACs?
    • 10/9 Brain’s Tweet: “New 🦄 every 3 days this year vs. how many SPACs?  Unicorns and SPACs are like pizza. If the ratio of cheese to sauce is off the 🍕 tastes bad and goes down poorly.”
  • What’s your take on rolling funds?

Guest Links:

Key Takeaways:

  • Tribeca Venture Partners strategically invests in the New York region. In recent years many unicorns have been born in New York, further elevating New York as an innovation hub. 
  • Smaller fund size is a model that works and drives great returns for investors.
  • Having the right partner, married with the right entrepreneur or team; It’s really hard to beat that combination. 
  • Tribeca Venture Partners primarily invest locally in New York. As a result, they spend most of their time locally and have a pretty good sense of the talent market locally. This helps build teams faster with great people.. 
  • Tribeca is a firm believer that innovation happens, regardless of a market cycle.
  • You need that perfect equilibrium between SPACs, unicorns, strategic buyers, and the IPO market to keep things from going haywire in one direction or the other.
  •  We’ll continue to see innovation within the stock market, both in terms of structure and economics; higher class unicorns are less likely to go with a SPAC because of the dilutive effect. The economics would have to change because it’s just not in the shareholders’ interest to go through a SPAC process and take that dilution versus the alternatives out there. 
  • Rolling funds are good from the perspective that they provide access and equity to fast early-stage companies. But consumer protections should be there because liquidity takes a long time. And losses are real.
  • Startups are hard, and venture capital is hard. Very few VC firms do well. That’s the dirty secret that a lot of entrepreneurs might not understand. About 10 to 15% of the venture firms generate the lion’s share of returns in the industry. So that means that 50 to 70% of the venture industry makes no money or barely makes any money. Their funds underperform, and those LPs are better off investing in public equities from a risk-reward perspective—a small percentage of firms that can really generate those great numbers.
  • We’re seeing an influx of these products (rolling funds), allowing more inexperienced investors to get their feet wet in the business and learn, which can be a good thing. To some extent, but there’s also danger there because the people investing in rolling funds and others may not understand what they’re investing as the institutional investors.
  • The expectation is that many of these funds will underperform the average institutional venture fund. And so if the average institutional venture fund is unsuccessful, what does that say about these rolling funds? Yeah. This doesn’t mean that they shouldn’t exist because there’s a place for them. It just needs to be carefully considered. And people really need to respect the investor capital, individual investor capital, as much as they do the entrepreneur.

Transcribed with AI:

Brian Hirsch joins us today from New York. He is Founder and Managing Partner at Tribeca Venture Partners, a multi-stage venture fund investing in World Class entrepreneurs in the New York City area, leveraging emerging technologies and business models to disrupt and create huge markets. Prior to TVP. He was a founder at Green Hill SVP, the venture arm of Green Hill, and the company principal at Sterling Partners, and a vice president with ABN AMRO private equity. Brian, welcome to the show.

Thanks for having me.

Likewise. Yeah, tell us your story about you know, your path to tech and finance and ultimately, VC.

Sure, happy to do that. It’s a it’s an unusual path, I think I started pretty early on having an interest in both investing and technology. Separately at the beginning, as a, as a kid, really, as a, as a preteen got interested in, in, in really, companies generally and how they worked. I had a father who was in the investment business, nothing that touched technology or venture capital. But he had lots of business magazines around all the time, you know, Forbes and fortune back in the day. And then I was really inspired by late at night, I was supposed to be sleeping, I would read some of the stories of the entrepreneurs, I think about the mid 80s. Yeah, my computing days at Microsoft and hearing about these great entrepreneurs coming up with ideas and scaling very successful companies and changing the world. And that was really inspiring as a kid to hear that, or to read about that. And little did I know at the time, was it? Yeah, the stories we’re not, we’re not that glamorous, they weren’t that easy. You know, the articles made it seem like it was super easy to scale a company and and there were no trials and tribulations along the way. But that was probably my first interest. And I also played around at the time, given my my father’s background, just investing as well. And then. And then over time, after college, I went to Brandeis undergrad. After college, I decided that I really wanted to do something more in the technology space, I wasn’t sure yet if I want to marry the investing or not. And so I went and joined KPMG, really, for a short period after college for about a year, year and a half doing consulting work really, for technology companies, telecom companies, media companies. This was in early 96. And, and while I enjoyed the work, I didn’t like meeting with companies and sharing advice or, or working with them. And then and then leaving. And I kind of missed the scoreboard, so to speak in terms of putting my money where my mouth is. And around that time, yeah, you started to see the beginnings of the internet. And the possibilities that that that were going to come from it. And I started just put the word out that you know that I was interested in venture capital, this is, you know, I was 23 years old. This is sort of late 96, early 97, when I came to this realization that I can marry my interest in technology with investing and venture probably would suit me, actually, you know, I was born and raised in New York, I was I was in Chicago at the time working at KPMG. So I put word out in Chicago, which is at the time of the bear and still a pretty small venture ecosystem. Unfortunately, one of my clients introduced me to a guy that was starting a venture arm of ABN AMRO bank in Chicago wasn’t a strategic VC. It’s really just two large LPs, the bank and the Sears pension funds. And so you know, the ripe old age of it just turned 24, I got thrown into the deep end of the pool, and was an early stage venture capitalist, you know, based in Chicago. So that’s the, that’s the short version, and then then it goes on from there. But that’s, that’s how I made my path. You’re really only a year and a half out of college. And so that was, you know, great, great luck for me and a great time in 97 to be entering the venture market. You know, while things were somewhat normal, and right before, you know, the biggest bubble in history.

Well, it’s so random question for you. I run a breakfast for micro VC managers in Chicago, so 100 million. Hmm. Unless it’s probably more like 50 million. Hmm. And last for most of us take a guess as to how many founding partners and how many firms are in the Chicago area

right now, including micro VCs. I guess what if you include micro VCs maybe 40 or 50 these days, but back then there was maybe four or five or 10

that’s what I was getting at? Yeah, the group that is that that breakfast? Like 50 million. Hmm. Unless there’s 30 of us.

Yeah, that’s great. That’s great. But back in the day, I could I could share with you you know, the the firm’s that were there it was, you know, first analysis Apex Venture Partners, KB partners. So yeah, actually, yeah. OCA New World Ventures. Oh, yeah. Oscar became Pritzker. So JB Pritzker. We know the governor would be would be in our office, the meeting with companies with us back in the day. That was an interesting time. And he’s a big fan of JD super nice guy. Super well, but it was a it was an interesting time JK d capital, which did a lot in Telecom. We did a fair amount with them. David consol to who started that firms did quite well, you know, during the bubble, in particular, across a lot of Telecom. investments in internet investment. So yeah, it was an interesting, but small ecosystem back in the day. And Brian, what

was the timeframe that you launched Tribeca?

Yeah, so I won. So yes. So just taking pushing forward, I was at ABN AMRO in Chicago, I stayed there for two funds. And I left at the sort of tail end of the second fund to join Sterling partners, which started in Chicago, but also had an office in Baltimore, in the Baltimore area. And so I left to join them as a principal, they just raised $136 million early stage venture fund the year before, and I helped deploy that fund first started in Chicago, and then moving to the Baltimore DC area. And then when I was there, I started to see the tides changing and, and start starting to see the technology industry mature. And as that happens, you know, it became clear that the internet was not only real, it was going to be a major deal. Mobile, it was going to emerge at some point. And that really the application layer is going to be probably the most interesting part of the ecosystem for quite some time. And when I looked at that, I felt that New York was going to have some real advantages, where it became not only not less about sort of inventing technology, and more about applying technology, and then that circumstance, domain expertise becomes very important. And York has that in spades. And had that at the time as the headquarters for most of the major industries in the United States. And so my belief was that there would be a shift in innovation and venture capital to the New York market. And being having been born and raised in New York, I kind of wanted to be be there for that. And so, so I left Sterling to go back home to New York, teamed up with my former partner Steve brought me to at launch Silicon Alley venture partners in the mid 90s. You know, one of the early seed funds in town, he had actually a lot of success with that first fund. And I had known Steve for quite some time, from ABN AMRO days, and we decided to team up and raise $100 million dollar funds, which we ended up doing within greenhealth and launched that in 2006. And then in 2011, post financial crisis, Greenhill decided to split their investment business in their advisory business. They really want to double down the advisory business because that business was doing well during the financial crisis greenhills stock and an all time high. And so when they decided to make that move, I actually bought out the management company of that old fund, and then sat down and and with my current partnership meachum had also known since 2000, from my days in ABN AMRO, and we decided to launch a new firm, productive venture partners. And we did that at the end of q3 of 2011. So this month, actually was our nine year anniversary as a firm.

Wow, amazing. Amazing. Yeah. So you, you know, you worked in growth, capital, Greenhill, you you do some some growth investing

early stage, it was actually all early stage three wasn’t free. It was all early. Yep. Okay. All series. Actually, can

you give us the quick, broad strokes on Tribeca? That the thesis? Yeah. Stage sector, etc?

Sure. Yeah. I mean, we are, we think we’re pretty unique. We don’t, we’re not, we’re not that far out there in the market, in terms of everyone knowing what we do, we tend to be a little bit more private than most firms these days. So there’s probably some mystery, but for those that don’t know us, but but really, we do exactly what we did, when we started, and really, the thesis was to, you know, practice, you know, old school venture capital the right way where a partner leads or series a, you know, comes on the board works incredibly hard over a period of maybe five to 10 years plus, as a true partner to that entrepreneur, you know, trying to scale scale that business and, and that’s what we practice, probably the most similar model, and obviously, the long way to go before we can compare ourselves to them. But yeah, we look at benchmark capital on the west coast is a similar kind of philosophy of model where, you know, we’re partner heavy, and, you know, not not a lot of platforms and services around it. It’s really about that relationship between the partner, the experience partner, guiding that, that team and helping them you know, to to achieve their vision. And so we do that, but we do that Marilee in New York. So our card funds on tues $106.5 million fund, we’re a two partner firm, you know, we make on average four to six investments per year. But over 90% of our capital has been deployed in New York, since inception. And we’re actually the only 100 million plus fund based in New York, that almost exclusively we’d series a financing was in New York, we that was the case when we launched and, you know, back in the day, and it remains the case today, you know, all of our peers that we have a lot of respect for, and our friends, you know, they’ve all sort of built up large platforms, we broaden them out. And there’s nothing wrong with that, we’ve just decided to take a different approach. So you know, we’re hyper focused, we have incredibly high bar for investments. And so we really take our time. So in a world where it seems like VC funds used to raise every four years, and every three years, every two years now, every year, you know, we’ve stayed to a historical three to five year path between funds, because our belief is that there’s only a certain number of companies each year, that makes sense for our strategy in our backyard. And the way we define that, at the series A, our company is that if we were to back them, and they’re successful on their plan, we believe they could return our entire fund, by themselves, by themselves. And so that’s how we look at every investment opportunity, when we lead a series A knowing that me and my partner chip, we’re going to spend probably maybe up to a decade, you know, with with this company, you know, we have to firmly believe that we can help drive that to, you know, a very large outcome, something that can return our entire fund, otherwise, we tend to pass and that means that we we do pass on on some really good companies that just don’t, you know, fit that mark, you know, for us. And so that’s the, that’s the core strategy. Yeah, and along with that, to sort of fit that strategy, we really believe in smaller fund sizes. And so as a series A funds, you know, we’re probably one of the smaller series A funds in the country these days, you know, we’ll have our next one, we expect to be a little bit larger, but but in our world, we expect all of our funds series at early stage funds to be 200 million or less, you know, well into the future. Because we think that’s the model that works best and drives the best returns for our investors.

You mentioned that, you know, the platforms and the services on the West Coast that have been launched. And in some cases, these goes to, I guess, with with first first round having presence on both, but you know, why have you chosen not not to do that?

Yeah, I think it’s just our view of what the best product is, for the entrepreneur and the company. And, and, and at the end of the day, there can be different views on this. And I think there’s different approaches. And so I actually have a tremendous amount of respect for first round, with Josh, and Howard and Chris and Finn, and others, you know, Haley had built over the years. And, and I think that they provide a tremendous amount of valuable content for entrepreneurs. And I do think that that the platform, can it can add value for certain types of entrepreneurs, particularly, you know, the seed stage fund, like they are, you know, when you’re, you’re making that many more investments, and you have a limited size team, you’re trying to, you’re trying to leverage your time and your resources to help as many companies as possible. So I understand that and respect that. Having said that, you know, in our world, the way we think about it, you know, we just don’t think we think if you have the right partner, married with the right entrepreneur, or team to help them that, you know, it’s really hard to beat that combination. And the reason why is that, whether it’s me or my partnership, we have intimate knowledge. Look, we’re not running these companies, we rely on the teams to there are the men, you know, they have control, but we try to help in every way we can we really view this as a 24, seven business. And the founders, our founders run, they talk about the fact that that’s that’s true, we really are 24, seven. And by having those intimate details, and really understanding everything that’s going on at the company, we think it best prepares the investor to assist. So So let me give you an example. Right. An example would be one of our companies looking to, you know, recruit a senior executive on their team. Well, we tend to get very involved with that. Yeah, at the request of our companies, because we invest locally, primarily. As a result, we spend most of our time locally. And we have a pretty good sense of the talent market locally. So we can help build those teams faster with people within our network, or avoid bad hires to our ability to back channel. And so we’re doing those interviews. So when one of my companies is looking to hire a CFO for a SaaS company or as an example But I’m doing those interviews, I’m on the search committee. I’m doing the reference checks, I’m doing the back channel checks. And there’s no translation required because I have an intimate knowledge of the company. And because I’ve been interviewing, you know, CFOs of sass companies for, or software companies for over two decades now, I feel that puts me in a better position than having to translate everything I know, or what I can to someone on my team that’s on the platform, that might be a more generic recruiter that may not have the full context, or the deep understanding of the full management team to understand which type of CFO might be the best fit both from a skill perspective, but also a cultural perspective at that company. And so this is the thing that I think, yeah, I think these platforms are great, to some extent. But I also think a big part of them is marketing for the venture firms to be able to attract new entrepreneurs, and I think it’s very effective at that. But what I what I’m still waiting to see is some sort of evidence. Yeah, yeah. BC is supposed to be a data driven business. Yeah, a lot of times our industry doesn’t eat our own dog food. And so you know, who’s done the analysis to, to look at both venture firms, but also companies to see do they actually perform better when they’re backed by firms that have platforms or not? So I’m looking forward to that research. And if the research bears out something different than Yeah, then then we’ll reconsider. But at this point, yeah, I’m skeptical. But I do think for certain entrepreneurs, particularly first time entrepreneurs that need a lot of support, some of those firms, particularly the seed stage, that have platforms, you know, huge benefit, but for many entrepreneurs, you know, they don’t need it. And, in fact, I’ve had numerous entrepreneurs say to me, hey, so and so fun. I’m not going to be in a specific fund is having their CEO Summit in the valley. And, you know, there’s probably some value there. But yeah, I’m really effing busy and got a lot going on. I’ve got, you know, three customers, the customers, I’m trying to close, I’m trying to recruit two people, I’ve got to fundraise. And I feel really guilty, because this fund is expecting me to show up for their CEO Summit poorly on me, if I don’t show up. So then it becomes like a negative, right, where you have the entrepreneur, you know, feeling bad that they have to attend something that’s being sponsored by their VC firm, when in actuality they don’t really want to do it. And I’m not saying that’s the case all the time. But yeah, I’ve heard that more than once or twice.

Sure. What do you think are some of the distinguishing factors between New York City tech and Bay Area tech, I mean, we’ve heard the cliches about how, you know, the East Coast is more financially focused, and the Bay Area’s maybe bigger vision and bigger markets. But, you know, I think things have evolved quite a bit, you know, what would, what do you notice? And sort of the major differences in the text scenes?

Yeah, I think the differences have fallen away. You alluded to it, there were differences. I think the historical view was, you know, the East Coast VCs are more numbers oriented, the West Coast species, more vision, West Coast, VCs swinging bigger East Coast views, VCs are more conservative. That’s no longer the case. And I think I think that, that that’s, that’s gotten away, I think, also, there was a bias around the types of companies, New York’s great for FinTech and ad tech and a couple of other areas. But you know, MongoDB, and data dog and others would prove otherwise. Right, we have, you know, $10 billion plus market cap companies that are quarter for structure, you know, in the middle of Manhattan. And so, you know, it speaks to what I what I what I mentioned earlier, which is, you know, this, this movement in the venture ecosystem towards New York, and New York, really what drives New York is a lot of things that drive the valley, right, with just a very sophisticated and highly educated employee base, a, you know, a culture of risk and entrepreneurship and innovation, you know, people before there was technology, people would go to New York to kind of, quote unquote, make it right, and carve out their own life in their own way, that that that mindset, I think, is very consistent with what you see with entrepreneurs in the venture industry. And so it’s no surprise that you’ve seen the growth in New York, but I’ve never been one of the East Coast, West Coast. People. Yeah, I think there’s good companies everywhere. And, yeah, we’ve carved out our niche in New York. And, and our belief was that we can practice early stage sort of series, a focused venture capital, in a way as I mentioned earlier, that is go big, or go home to some extent, given the way we approach the business. It’s very much you know, the way a valley firm would do it. And and I think the New York firms over time, as they’ve had more experience and had more success, yeah, get more confidence, you get your sea legs and you’re willing to make bigger and bigger bets. And I think that that’s what’s happened. Also, the entrepreneurs in the New York ecosystem have more and more examples of large successes so that that was probably the number until three to five years ago in the New York ecosystem is like Yo, the old one, the old show my age here, the old one used commercials like, Where’s the beef? Probably one third of your audience will understand that joke. But but the you know, but the thing was like, Where’s the beef? Where’s the exits? Like? Where are the big exits in New York? That was always the knock. Yeah, I hear all that. But where’s the where’s the billion dollar exits? And so those exits have been increasing rapidly. Yeah. And now we have the $10 billion exits. And, and so it does take a while. But I think it’s a fantastic development for the ecosystem, because it brings more cash into the ecosystem as the exit tap and helps fund more companies. And then that next generation entrepreneur, you know, they can see that it’s possible, right? If you were a black child of America, before Barack Obama was president, you might think that, you know, having a black president was never possible. And then, you know, now, you know, that is possible. Right, once once Obama was President, I think it’s the same way psychologically, you know, within our market, right, until you see, until you see that success, and that it’s possible, you may doubt that it can happen. And so at this point, I think there is no doubt, I think you’re, you’re just as likely to have a successful startup in New York as you’re in the valley.

A great, a great, and you’ve mentioned exits a couple times now, you know, how much does the exit environment overall, sort of, for tech companies, you know, affects your approach to investing.

Um, it affects a lot. So I, I’ve had a very interesting, interesting career in that I started, as I mentioned in, in October of 97, in the venture business, so, you know, which is, yeah, I guess, 23 years ago, this month. And so I’ve seen a lot in that period, I’m 47 years old. So almost almost half of my, my, my, my life on this planet, has been as a venture capitalist. And so I saw what was, you know, a healthy normal market go into the largest bubble of all time, followed by the largest sort of collapse of all time or industry, a little bit of a recovery, a decent period, followed by a financial crisis, followed by a 10, year 10 plus year Bull Run for tech. And the markets, you know, followed by a pandemic. And now what we have now, which is, you know, I think, you know, something that is closest to the late 90s, that I’ve seen, since the late 90s, a little, like, not quite there. And so, you know, having that perspective, I feel like I’ve seen pretty much every market that you could see as a venture capitalist and my career. And, and so yeah, so, yeah, on the investment side, we’re a firm believer that innovation happens, regardless of market cycle. So we look at new investments the same way, all the time is that Yeah, innovations happening around us, you know, we’re plugging into innovation and helping it, we continue to back companies at a similar pace, or we try to back companies with a similar pace, regardless of what’s going on around us in the market, where the where the market sort of exit activity comes into play is how we think about liquidity within our portfolio. You know, there’s a natural sort of lifecycle, we think, to most venture backed companies, you can’t really force sales or force exits. But when you get into markets, where, you know, where there’s healthy m&a activity, or healthy IPO activity, and multiples are strong, we do definitely take a look at the more mature portfolio companies, and start having conversations with our fellow investors and board members in the team’s about the fact that, you know, the market windows are a real thing. And there are times in the market where, you know, strategics, or financial investors will pay up, you know, for for future work. Today, and you know, and you, you could be in a situation where you get the same price for your company today, that you will five years from now, even if it’s three times the size. And so, yeah, I think investors and board members in teams need to be cognizant of that and look inside at their business and make an assessment of the risk reward going forward versus the ability to monetize today, and, you know, make the right decision for for all shareholders, and that’s kind of how we think about it. And so as a result, you know, we are having a lot of these conversations today. And, you know, we we expect, you know, a fairly heavy amount of m&a and IPO activity within our portfolio over the coming. Yeah, six to 18 months. Yeah, assuming working conditions are, are still strong.

Brian, I’d be curious to get your take on what do you think may be most undervalued in the exit market, whether it’s public source strategics now, that will be more appropriately valued, you know, three to five years from now, and that could be anything from business characteristics or models. sectors or even types of technologies that, you know, you think are positioned to be valued at higher levels, you know, in a few years that may be undervalued at the moment.

Yeah, that’s a tough question. There’s not a lot that’s undervalued at the moment. To be honest, there’s a lot a lot that seems more overvalued or fully valued, let’s say at the moment. So So that’s, that’s tricky. I mean, I think the answer there, if I had, the first thing that popped into my head was hospitality, you know, sort of Prop tech or hospitality related companies that are getting hurt really, really badly. Right now, because of the pandemic. And Airbnb, obviously, have seen seen a good rebound. But, you know, they’re not the whole hospitality market. It’s a broad market. And, and there’s been a lot of momentum over the last five to 10 years in prop tech in various ways, and some of those companies are going to be in really tough shape. Some, some will be fine. But my sense is that the exit environment there is more challenged right now. I think valuations are depressed in a number of sectors in and around prop tech. And, and hospitality generally, because of what’s going on and the uncertainty. Having said that, yeah, I do think that we’re going to come out to this pandemic, at some point in the next year. And, and like the Spanish Flu in 1918, you know, that, that, that fall by the roaring 20s, to everyone that’s been, you know, locked up in their apartments and their houses, once they’re really able to feel comfortable, that they’re not risking their life, you know, to go to a show or go into vacation or whatever, I suspect that there’s a lot of pent up demand for that type of activity. So any of the leisure activities or leisure market, the hospitality markets, expect they’re going to have a massive surge on the other side of this virus? And yeah, and, and assets that seem cheap today, you know, will get expensive pretty quickly, once that happens.

Interesting. Well, you know, while we’re talking exits more broadly, you sent out this tweet, about a week ago, a couple weeks ago, week and a half ago, there’s a new unicorn every three days this year versus how many specs, you know, unicorns and specs are like pizza, the ratio of cheese to sauce is off the piece that tastes bad and goes down poorly. Whatever mean by the tweet,

yeah, I think it was kind of it was kind of a flip tweet, I thought was fun, I thought was a fun analogy. And that’s why it really played out there, and it just popped into my head is that you you’re seeing, you’re seeing this, this surge in the market in terms of activity, and unicorns being minted, because the valuations are high. But having said that, we’re seeing a lot of it’s real. And we’re seeing it our own portfolio, the digital compression that’s happening is a real thing. And, you know, we’ve seen companies seen see massive acceleration in their business businesses over the last six months, in our portfolio, across the board, you know, we have maybe 10% of our portfolio that have pandemic related issues. But, you know, it’s like five or six times that, you know, 50 to 60% of the portfolio, that seeing record results, you know, a lot of that’s been driven by, by the pandemic, and by the need, both in the enterprise and consumer side, you know, to, you know, to converge and adopt digital solutions faster, to either survive and thrive. And so that’s what’s missing all these unicorns at the same time, I think they’re, you know, while the valuations are going up, we’ve had, you know, a challenged IPO market for structural reasons for quite some time. And, you know, you have this inventory growing of very late stage companies, and, you know, at some point, you need to think about liquidity and exit. And so I think the, the growth and facts is basically there to meet that, and, you know, the specs, those boxes were raised, it’s been been accelerating, you know, dramatically over the last, you know, six months and seem to seems like there’s no slowdown, although in the last maybe since my tweet, it seems like a few faxes, maybe the lower the size of their offering somewhat. That’s not maybe as quite as hot as it was even two weeks ago, but it’s still quite hot. And so my, my tweet was more about the fact that at some point, you can go too far in one direction. And and if you have too many facts, looking for sponsors, and not enough companies to fill or vice versa, you have an imbalance, you will have a crack in the market either, either. If there’s if there’s too many facts, you’re gonna see that that the pricing is going to go even higher for some of these unicorns because the facts are gonna be worried about finding a target and time before the spec expires. And then that would be that’s not going to go down? Well, if you fit in the market, if you have, you know, inflated valuations because of an extreme supply demand dynamic, and And likewise, yeah, the flip of that is true, right? If you have not enough exit options for some of these companies and the IPO markets challenged, you know, you, you likewise, you end up in a situation where the valuations are likely to decline start declining, because people will feel like, Hey, you know, the time of hold on this vestments too long, or I’m not sure I can get the liquidity. And you know, the market may not be paying me in the public markets or exit the way I’m on pricing in the private markets. And so it can go badly both ways. And so you really need that perfect, perfect equilibrium. Yeah, between spax, unicorns, strategic buyers, and the IPO market that sort of keep things from going haywire in one direction or the other. And right now, I would say, Yeah, they’re more haywire in the company direction where, where the demand for investment in some of these companies is so great. And the amount of capital trying to get into some of these great companies is so high that you drive your valuations higher and higher, in the same way that it didn’t the late 90s. Just Just the companies are more real. I would assign around.

I wonder what tipped that is, you know, all of a sudden, this is such a huge deal. And so many people know about it. And there’s so many specs being created, right? Because they’ve been around I mean, there was, what 19 billion ish in gross proceeds on specs between 14 and 17. And I can only imagine what that number is for this year. But you know, it seems like every, every famous tech guy or, you know, successful CEO from from a past decade is sponsoring us back now. And yeah, I wonder I mean, of course, we do have a lot of late stage private tech companies. But I wonder what, I don’t know. Any thoughts on what it was that is creating this surge?

Yeah. And I think it’s, I think, I think it’s like a lot of things, you get a few people that that lead the way and have successful outcomes, and show the path and everyone? Yeah, the bankers make money. The sponsors make money sellers. Yeah. The investor, everyone’s making money. And the product itself. Yeah. And the herd follows. And, yeah, until it doesn’t, right. Until the music stops. And so that’s, that’s, that’s the big question. When will the music stop that, but it does make a ton of sense when you think about the product, because of the investors and stack? It’s like a free option. Yeah, that as a free option they can, they can, you know, decide to back the sponsors, Target or not, and do that deal. And so, you know, that takes a lot of friction away from, from the raising of a spax, which is why I think so many have been raised. It’s sort of like if you’re a VC, and you’re raising out raising money from LPs, like we do every few years, and you say, Hey, we’re raising 150 million for our next fund. But you know, give us the capital. And if you don’t like the investments, yeah, you can just pull it back. Yeah, that’s a much easier fun. And if you do like a mannequin put more in

right with the one. That’s right,

that’s, that’s right. And that’s a much better value prop for some set of investors, then, hey, give us a capital for this blind pool. And, you know, we hope to get your money back over the next 10 to 12 years at a multiple. But you know, here’s the kind of things that we’re thinking about investing in. But once you sign the dotted line before you even seen a single company, yeah, you know, you’re basically signing and blood that you’re in this fun, that’s more that’s a longer diligence process and a more difficult decision. And so I think that I think part of the appeal is facts is just the flexibility they provide. So yeah, I actually think they’re going to be around and not go anywhere, you know, I’m sure at some point, though, they’ll Evan flow, and they’ll become more or less popular, but it does feel like a lot of these options are starting to meld together. You know, you have traditional IPOs direct listings, and now you’re seeing, you know, you need software went went public and more of like a hybrid IPO format, with Goldman, and you’re gonna see other, you know, other other products. I think Bill Gurley has done tremendous work, you know, raising the profile of the issues around IPOs. And I suspect that, you know, we’re gonna see more and more movement to better, more realistic market pricing at lower cost by using technology, quite frankly. Because the, you know, the fees that are paid for IPOs are way too high. And likewise, I think the same will have to happen in the stock market. And I think you’re starting to see that where, you know, the problem is facts today is that the Promote for the sponsor is so high If you’re if you’re a unicorn, and you’re looking to, you know, get out through a setback. That’s a lot of dilution to take on. So either the valuation has to be adjusted upward by the SPAC sponsor to account for that dilution, you know, or they need to, you know, take take less economics, what’s the microphone? It’s like 20%. Just like the funder. Yeah, yeah. So

what is the downside for the sponsors on these?

Um, yeah, they do have to put up put reputation, but they also have to put up capital. So yeah, most sponsors, and these facts are, you know, putting up millions of dollars of their own money, just like Think of it like a GP commitment and a fund. And so, yeah, if that if that deal doesn’t happen, you get approved, you could you could lose capital, lose your own capital as a sponsor. So, you know, there is real risk around that. And so there’s downside. But I think all that all that is we’ll get we’ll get, I think we’ll see continued innovation within the stock market, both in terms of structure and economics. Because at a certain point, you know, the, the what’s called the higher class of unicorn is less likely to go this route, because of that dilutive effect. And so, you know, for sponsors that want the premium, you know, plays, right, yeah, like Airbnb for Airbnb to do this back, the economics would have to change dramatically, because it’s just not in the interest of the shareholders to go through a spec process and take that dilution versus the alternative alternatives out there. So if you have a spec sponsor that wants Airbnb, you know, the economics will have to change dramatically. And so I think that, that, that we will see that over time,

you know, all the way on the other side of the spectrum. You know, the earliest stage, financing rounds, pre seed, seed, whatever, we’re seeing lots of new instruments and vehicles, and some people are huge fans, some people kind of roll their eyes and say, you know, every few years, there’s, there’s something new. I’d like to get your take on on these rolling funds. They’re, they’re sort of a popular topic on Twitter these days. But, you know, what do you think about the rolling funds?

Yeah. Look, I’m in favor, I’m in favor of, of structures that are innovative, and enable more people to have access to, you know, fast growing early stage companies that, you know, really do drive most of the GDP in this country. You know, if you look at most, most of the, the, the size of the venture backed or tech industry, you know, that’s venture angel that compared to other asset classes is tiny, that the contribution to GDP is massive. So, so I do think that that, that the invention of these sorts of products, like rolling funds, and it’s just one example, are good from that perspective, you know, in terms of access and equity, you know, to these types of investments, so, so thumbs up, they’re all good. Yeah, well, to me, the thumb is either sideways or down, relates to the other side of the equation. So yeah, over the last, you know, 10 plus years, whenever I see innovation, you know, a lot of that coming out of angellist, or others. Yeah, a lot of it’s around access. And I think that’s important. But it shows to me the immaturity of a lot of those products, and the fact that that, you know, a lot more needs to happen to really have the right product. And really, it’s because of the exits and liquidity as someone that’s been in this business for 23 years. Yeah, startups are hard, right. venture capital is hard. Very few VC firms actually do? Well, I mean, that’s the dirty secret that, that a lot of entrepreneurs, I don’t think really understand is that about 10 to 15% of the venture firms that, that generate the lion’s share the returns in our industry. So that means that, you know, 70% 50 to 70% of the venture industry, makes no money or barely makes any money, their funds, you know, underperform, and those LPs are better off investing in, you know, in public equities, from a risk reward perspective. And it’s a small percentage of firms that can really generate those great numbers. And the reason is that this is really hard. And so, you know, what we’re seeing is an influx of these products, which is, you know, allowing more inexperienced investors to get their feet wet in the business and learn, which I think is a good thing. To some extent, but there’s also danger there. Because the people that are investing in growing funds and others, you may not understand as well, what they’re investing as the institutional investors. Yeah. They may be putting more capital in them is, then it’s prudent, you know, for for this type of risky asset class. And bad things can really happen, right. If you, you know, it’s just a matter of time before Yeah, some grandmother in the Midwest, who has or has a retirement money. Yeah. All set, gets into some rolling fund and someone convinces her to go in for 250 K or 500 K or 25 to 50% of her retirement money. And that money, you know, gets locked up and either doesn’t get returned or doesn’t get returned. And so, you know, grammar is no longer alive. And so and so. Yeah, that’s the that’s the part I worry about. Right? I want to make sure that the that the consumer protections are there in a real way, because liquidity takes a long time. And losses are real. And my expectation is that a lot of these funds will end up, you know, will be will underperform the average institutional venture fund. And so if the average institutional venture fund is unsuccessful, yeah, what does that say about about these funds? Yeah. And they’re likely success, which again, doesn’t mean that they shouldn’t exist, and there’s not a place for them. It just needs to be carefully considered. And people really need to respect the investor capital, individual investor capital, as much as they do. Yeah, the entrepreneur.

Yeah, I couldn’t agree more. I think that, you know, there it’s a it’s a double edged sword, right? Yeah, General solicitation, more people know about things more people have access, you know, emerging fund managers that otherwise couldn’t raise from institutions can can raise capital and deploy into maybe founders that otherwise couldn’t get capital. So there’s a lot of positives there. I think that the thing that jumps out to me that’s most concerning is that with a rolling funds, by being evergreen and rolling, there’s, there’s lack of clarity on portfolio construction. Yep. And that can be the biggest thing that trips up a lot of early fund managers is kind of you talked about, you know, staging capital and allocations. And, like, if you don’t build a balanced portfolio, and if you don’t have some discipline around valuations and whatnot, then you can be overexposed in your portfolio, and you can have some problems and not be able to return capital,

right, it’s you have certain rights, you have a new structure, you have the average, the average investor that’s going to launch a rolling fund or something like it, and I don’t want to pick just on rolling funds, because this isn’t a comment just about that product, or, you know, it’s more generic in nature. But But, but most of those managers are most of those new new managers are less experienced. And, and, you know, for better or worse in the world that we’re living in, right, if you were in the venture investor, you know, before the, you know, in the financial crisis, you’ve only seen one market, you only know up into the right, you only know, a market where a seed turns into an A turns into a B, and yeah, there are failures, but there’s just lots of capital around. So as long as your company is doing reasonably well, there’s probably a source of financing for you. That’s not that’s not the venture and innovation and tech market that that I know, I think it’s a market that has existed for some time. But you know, to think that we’re going to be in a permanent bull market for tech with no, no down swings at all, you know, into the foreseeable future, I think is a is a, is a foolish thing to believe. And so that’s the other piece here is right, you have a highly experienced group of investors that have never seen the market cycle. And yeah, that’s, that’s dangerous as well, right. And so, I would almost love to see some of these products be adopted by more experienced investors as well. So that, you know, sort of their options for, for people looking to get access to, you know, to interesting, innovative companies that they can do so behind, you know, experienced investors as well. I don’t know what that’s gonna look like and, and there’s reasons why experienced investors like me or others, tend not to take in so many LPs, so many, so many individuals, it’s a lot to manage. And, you know, I like to spend the time with the companies, if possible. And so I do think there just needs to be more more thought put into these products. But I think it’s good that there’s a lot of experimentation going on. And my hope is that, you know, we do end up with some great innovative products that both, you know, allow democratization and access. But while providing the right protections, yeah, on all sides. I just don’t think we’re there yet.

Brian, what do you know, you need to get better at

Ah, patience. It’s uh, yeah, it really is. That’s the that’s the number one thing for me is I kind of always wanted yesterday. Yeah, I like I like things moving quickly. And yeah, and it’s it’s funny to say that in the business where where she feels like you’re watching paint dry, sometimes there’s a lot going on every day. Yeah. But the amount of time it takes to get things done and to see success in this business is is one of the challenges for sure. And I just you I always want to move faster and go faster. And I encourage our companies to, you know, to move quickly, as much as they can. And so if I feel like we’re, you know, we’re losing cycles, either internally, or at the companies, that’s, that’s probably the thing I need to need to work the most on is understanding like, hey, there’s a lot of things I need to get done. Not everything gets done at once. But yeah, I tend to be really in so hard to try to advance these businesses that, you know, sometimes I may unnaturally try to push things to, to, to get them, you know, ready to be really in the in the interest of, of, you know, getting getting to the goal, you know, that much faster. Because we talk a lot, my partner chip talks a lot about this thing we call like the action gene. And we find that the companies that tend to perform the best are the ones where the team is like, have this action game, they just did. They just, they don’t sit there and deliberate for hours and days and weeks and months, you know, they act, and then they course correct, and they make decisions, you don’t get frozen. And so that’s, you know, that kind of probably aligns with my lack of patience. But having said that, there are times that I wish I could be a little bit more patient. And I’m sure I’ll be saying the same thing in 10 years and still working out.

And then finally, Brian, what’s the best way for listeners to connect with you?

Yeah, emails best, we’re pretty open, firm. So it’s Brian at Tribeca, VP calm. Having said that, as I mentioned earlier, we get so many business plans, and submissions that, you know, we always encourage people to try to network through. And we’re pretty easy network. If you go on LinkedIn, you can see I’m connecting to quite a number of people. And we just find that’s a better a better way to filter opportunities coming from, you know, from our trusted network, which is pretty broad. And in New York. And, you know, we’ve found that most most entrepreneurs that they, you know, it’s a little bit of elbow grease, they’ll find someone that knows us that that, you know, that. Yeah, they happy to make that introduction, and it’s not that they can’t come directly, it’s just, you know, we have to filter our time. And so in terms of prioritization, you know, we focus on on referred, you know, referred from trusted sources first. And oftentimes, those are entrepreneurs we’ve backed before, even ones that we passed before that send us opportunities that are within those sectors. And so we think the best approach for entrepreneurs, not only for us, but for every firm is to, you know, find those entrepreneurs that are in the portfolio that are in related sectors. Ideally, they’re, you know, good performing companies, because that’s, you know, that tends to be the first companies that, that VCs look to, you know, if you have a great FinTech portfolio company, and that FinTech founders, fantastic, and they’re, you know, referring an opportunity, and even beyond that are interested in writing a check alongside of you. Yeah, that’s, that’ll get a lot of attention, not only internally, but also from other firms as well. So that’s the advice we tend to give entrepreneurs around that. But we do try to be open not everyone is going to have a connection. And so, you know, we our eyes, look at every opportunity that comes in. But the way to get to the top of the top of the pile is through through some sort of referral.

Yep. Every time I get an email from one of our founders that has a recommendation it definitely perked my interest. Brian has been a real pleasure you know, whether whether it be spec or direct or IPO or strategic you know, I I wish many more acquisitions and and exits in the future. Hopefully, we’ll be sharing stories about those soon.

I look forward to it. Awesome. Thanks for having me. Appreciate it. All right. Take care. All right. Bye.