Special: Ho Nam from Altos Ventures — A Different Approach to VC

0:00 I feel like I know you guys'cause I listened to you guys on your podcasts and It's really fascinating because I think the the three part series on Berkshire is kind of like is your signature piece.'Cause I think you guys said it's like oh jeez, you know, you never thought you could go beyond two hours. And I know you guys have to cut a whole bunch of stuff out. just to fit it into six hours, right? No. But there's nobody who goes into the depth like you guys. And so it's it's great to talk to you guys here. Welcome to this special episode of Acquire. the podcast about great technology companies and the stories and playbooks behind them.

0:44 I'm Ben Gilbert, and I am the co founder and managing director of Seattle based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal and I am an angel investor based in San Francisco. And we are your hosts. On today's show, we have a guest that both David and I have looked up to for years. Ho Nam from Altos Ventures.

1:08 Without giving too much away in this early intro, I will say that this episode could be summed up as What if you tried to be a value investor with Berkshire Hathaway's principles But for early stage technology companies. This episode is the perfect cousin to everything that we talked about on the Berkshire trilogy. Now before we dive in

1:29 I wanna say first, if you are new here, join us in the acquired Slack. We'll be talking about this episode and everything going on in the tech and investing news of the day. That's acquired dot fm slash slack. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora.

1:50 The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chat bot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do. operate with obsessive customer focus. They embedded inside a massive law firm for months.

2:23 They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's Bet Here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work. and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting.

3:17 The early Lagora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million

3:39 Eighteen months. truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company,

3:58 You can learn more at Lagora.com slash acquired And just tell'em that Ben and David sent you. All right, now as you know, this is not investment advice. We may hold interests in some of the companies that we discuss on the show, and this is for informational and entertainment purposes only. We also have one more exciting announcement today.

4:20 As the world opens up, we are marking the occasion by having an acquired party as we wrap season eight. Yes, that is an in-person event. It is going to be here in Seattle at Gas Works Park on Thursday, June twenty fourth at five PM. It'll have picnic vibes, so bring anything you want to eat or drink. Rumors are circulating that David Rosenthal is even going to fly up for it.

4:44 We cannot wait to see you there. Now onto our conversation with Honom. from Altos Ventures. Ho, we are so excited to have you here. This is an episode we've been wanting to do for a long time and uh

5:00 Just speaking personally, The last V Cs we had here on the main show were Alfred Lynn and Doug Leone from Sequoia. And of course I have

5:08 So much respect for them. But even though Altos isn't as well known, I have learned just as much from following you. over the years and I am So excited to share that now with everyone. So

5:20 I thought maybe a good way to start. Is Altos has made so many incredible investments. But I thought we could start off with Probably your best known one, which is Roblox.

5:31 And I think it'll tell your whole story in a really nice way. Including the most amazing part. Which is how Altos ended up investing.

5:41 multiple hundreds of millions of dollars into one company, Roblox. out of What was originally just an eighty five million dollar fund. It was eighty six point five million dollar fund. And you became the largest shareholder at the time of IPO, is that right?

5:58 That's right. Well, we were also the largest shareholder from the beginning. But we increased our ownership percentage over time. We increased it and then we it went down and then went back up. So I'll tell you the whole story. So so we met Dave Bazuki late two thousand seven, in the fall of two thousand seven, and uh the deal was referred to us by

6:18 Mark Weinstr, who actually works for Roblox now full time as a general counsel, but at the time he was a partner At Wilson. And he was general counsel for one of our other portfolio companies. Number of years ago is a enterprise software storage company. And he said hey, I think you're gonna really like these guys.

6:36 And we said why? Because he actually you know, Wilson Cincini works with everybody, of course, and so we knew Benchmark was looking at it. We knew a number of other firms were looking at it. Craig Sherman actually who was an EIR at Benchmark at the time, that David, you know very well. So I think Benchmark asked him to look at it. We asked him to look at it because at the time he was CEO of Gaia.

6:59 And he knew something about social networks and Anyway, you know, he's a really smart guy. We ended up doing the deal and we let So he was actually Like right there from the beginning, before he even joined Meritec. And he came in much later, of course. So anyway, going back, Mark said, Oh, you're gonna r really like these guys and said, Why? He said, Well, they're really scrappy, very capital efficient You know, it's just like the Altos, you know, we like these s really bootstrap

7:24 Kind of scrappy. capital vision kind of entrepreneurs. We don't like burning a lot of money. And then he said, Well, and they really, you know, I don't think they really like VCs. I said, really? Okay. Great. They're gonna love you guys, though. Yeah, exactly. Our kind of entrepreneur. And literally though, I mean when me met and we got excited, uh, we decided to give a term sheet, I mean, they would not take our money until we had to be Interviewed by the founder's father and brother.

7:50 Who are both on the board. So like somehow we passed the test. I was not even at that meeting with my partner uh Anthony and Han who were there at the meeting and luckily they passed and they gave the blessing. Like passed the test. Yeah, they passed the test and our term sheet was for two million dollars. for a series C financing. A and B were all friends and family. And they said, Well, two million dollars, wow, that that's a lot of money. That that's just too much.

8:15 What what year is this? This is in two thousand seven. But the the deal closed in February of two thousand eight, but when we were negotiating was going through the holidays in two thousand seven to two thousand eight. Right before Bear Stearns blew up. Yeah. Oh yeah. So they said it's like yeah, two million's too much, but we'll take one and a half million from you guys.

8:35 Okay, we'll start with one and a half. So that's how I got started. And and anyway, but but backtrack though before that, you know, how why we decided to do the deal, it's really interesting because my partner Anthony really had a thesis And specifically he was looking for the next club penguin. I remember Club Penguin. Yeah, yeah. And my other partner, Han, his two daughters were totally hooked on Club Penguin. So they love club penguin.

9:00 And then Anthony got all excited about Club Penguin because it was another one of those great bootstrapped success stories. They never raised any venture funding. They're in uh British Columbia, right? Yeah, yeah. So a Canadian startup, which and Anthony's Canadian. So Canadian startup. I think four or five different dads got together and created this company and then sold to Disney for like four hundred million bucks. So back in those days, I was like, wow, that's a huge exit, you know? And you're investing out of an eighty five million dollar fund. You're like four hundred million dollar exit. Great. Fantastic, right? That's a fund returner. So so he had a thesis, which is really interesting. And then for me. I did not have a thesis around it and if if somebody had told me was like well, you know, you should fund this company that's like a Lego three D virtual online playground. I would have told you that's

9:49 kind of a dumb idea, right? I I would have said it's like why would I find that? I don't get that. So you know this is kind of an interesting dynamic because in a partnership you have different partners with different passions, different ideas. And you have this intermixing of different ideas, right? And so we debate it, we talk about it, but I might think it's something's a really dumb idea. Somebody else might have a thesis. Now you have this entrepreneur who walks in the door. And Why did I get converted from well, this is the dumbest idea I ever heard to wow, this is really interesting. Well, when you show up at my door and then you have this little graph that shows

10:25 Seven percent compounded growth on a weekly basis. For fifty two weeks in a row. Well, that's kind of interesting. If you graph that out in Excel, that is a classic exponential group that just grew thirty three X in a year. Okay, something's going on, and they're not burning much money.

10:42 They're just early in the monetization phase. They copied exactly copied club penguin. They had this club penguin, right? Well, we had a club too. We called it Builders Club. That that's what it was. Same exact pricing as Club Penguin, five ninety nine a month. And then when we first started talking to them, it was tiny. And then by the time we closed the deal, I think maybe they were doing fifty thousand dollars. A month. So five, six hundred thousand dollar annualized Run rate.

11:07 This is uh Roblox. Yeah, this is Roblox. Yeah. So that was kind of It's like okay, something's going on, you have exponential growth and engagement, you got early monetization. And then the uh the thing that was really interesting, two other things that kind of seal the deal. For us. One is you did a YouTube search for role blocks. It's a unique a name. And back in those days, this was several years before Minecraft ever launched. That was 2011.

11:31 And we found like two hundred something hits on rollblocks. It's like okay. So what are these videos? Right? We start going through all these different videos, and some of these were really shaky videos. Camcorder recordings of the computer screen. And kids were so proud of their creations, right? Back in those days, it was really difficult. There's so think about all the fiction points. You're recording off of an analog campcorder. Your computer screen.

11:56 And then you have to get that off the tape, digitize it, and then upload it on a slower bandwidth connections back in those days into YouTube, which was very early days of YouTube. And then They they were so proud of their creations, right? They want to show it off to their friends. So something is going on. There's so much engagement, so much passion around this community. You top it all off, you know, y you meet Dave Bazooka. I mean This guy.

12:20 Had this vision And this inspiration going back so many years. And he had four kids. And he really wanted to do something. Good for the kids.

12:31 For his kids that he would be proud of. And his prior company had done something to educate kids, uh, teach 3D physics. They had a s little simulator. Yeah, and then that was a successful company, but again, bootstrapped, no venture funding, had a nice exit. But even though they were uh it was designed to sell to elementary schools to teach kids Physics?

12:53 it was purchased by a CAD company, mechanical CAD company, so that bowing engineers could use the physic simulator. Right. So so he was working for that CAD company and it's like, okay, I think now I want to go back to my original passion, do something for good for the kids again. So you meet a guy like that in in our in original investment memo, we talked about Hey, I think this this guy is like the hedgehog. And the hedgehog concept was kind of new to us still. You know, we published this blog post in 2006 about the fox and the hedgehog in Silicon Valley. And we wrote that blog post. Inspired by Jim Collins, right? Yeah, Jim Collins, exactly. And wrote that blog post long before we met Dave Bazuki, but it's like this guy. is a total hedgehog, right. But of course it was a very, very early in the journey and you only know when you're five, ten years into it, whether or not

13:40 That person truly is a headshot. That's what we talked about in that blog post is hey, these people have headshot potential, but you won't know until you're 10 years into it. And ho, for folks who don't know, what is the fox and the hedgehog concept? Yeah. Well, Jim Collins wrote about this in the Good the Great, and his conclusion was hey, these great CEOs, great companies are run by by these hedgehogs that really have one big idea and they have one big mission in life. Versus the Fox

14:07 who is very smart, very clever There may be polymaths. They're the great serial entrepreneurs. And uh they're very popular, you know, with uh VCs, they could hang out at these cocktail parties. And they're very smooth and they're really, really good at fundraising.

14:25 And the hedgehog is really this boring creature, not very good at fundraising, does not networking, he doesn't even like VCs, doesn't wanna meet anybody. They're just too busy doing their own thing. Nose to the ground, right? That's kinda the hedgehog personality. So Collins just kind of perfectly nailed it. And when I wrote that blog post, I was thinking Oh yeah, I mean this is just like uh

14:46 Sam Walton. I had Sam Walton in my mind. He is one of the all time great hedgehogs. His book Made in America is like Oh my God, that told me what what the mind of an amazing entrepreneur looks like. And we're very, very fortunate. that he got sick at the end of his life because he never would have written that book.

15:04 But because He would have been out duck hunting and and visiting his stores and doing all those things he loved, right? But he was kind of bound at home. Everybody wanted him to write something and he finally wrote it. So we're very lucky that we got to Get a glimpse into his mind. And then and then Buffett, of course, is another amazing hedgehog, right? You have this guy who at the time he I don't know how old he was, but

15:25 in his eighties or seventies. You know, he hasn't needed to work for money for decades, right? But he's still working. He's now ninety or ninety one. You still need to work for money when he left uh Graham Newman. That's right, like at age twenty five. You're right. At age twenty five he had enough to retire. But but they keep going. They keep going on and on. It's like the energizer bunny. They never run out of energy. Why is that? What Is it about certain guys that become billionaires and they're still showing up to work? Not only showing up to work, but they say they tap dance to work, right? Bezos copied Buffett's lines like, Oh, I tap dance to work every day. Buffett's still there.

16:01 Right. And Sam Balton's still there to the end. To the very end. You have to carry them out with the stretcher. Right. Yeah. So there's some of the people who are just like that. Like we're like trying to study who are these people. And and then we're trying to incorporate some of that for ourselves as well. How do we structure the work? and surround ourselves with the types of people That give us joy.

16:24 That motivate us to come back. to keep coming back, to keep doing it, rather than to say, oh, I'm done. I'm punching out. So we're always thinking about that because our role model is The buffet.

16:37 kind of guy. We we didn't set out to start the venture firm for ourselves. so that we punch out at the age of fifty or sixty. It's like well, why why did I start something so I could give it to the next generation? It's like I think I'm gonna just kinda be around for a while, right? And the next generation could join us and they're fantastic people and these are people I wanna invest in. And we kinda think of the next generation as we are both LPs and GPs. We want to invest in that next generation. And I think that's one of the things that I think we we observed with some really enduring uh franchises

17:11 where they are no longer thinking about the the business as as a GPA. they're really thinking about it as an LP and they become both L P and G P. And there are certain folks like IG SP, right? That David knows about. They're they're legendary. Distinction. Yeah. They are the LP. They've never had LPs in fifty two years. And so those guys are fantastic. They'll be they'll be mad at us for bringing up their name on uh in in public. But uh uh for for folks who don't know, the investment group of Santa Barbara, uh which also came out of D S B. business school which Altos did as well, which we'll get to, uh, and specifically Jack McDonald's investments class.

17:47 It's all their own money. There's no outside capital. But believe they manage now probably approaching ten billion plus uh out of uh out of Santa Barbara and they have Beaten their own path over fifty plus years. It's amazing. Before we move on from Roblox. 'Cause I I think this is relevant to how Altos has evolved.

18:05 How did you end up Making the untraditional moves of putting so much capital in. Yeah, that's always a kind of a mystery for folks. So so this is what happened. So we only got a one and a half million dollar piece. And then uh about a year later, uh first round actually came in because they actually passed on the original round that we invested in, but Uh, you know, kudos to Chris. uh Failic for tracking it and they said, Hey look, uh can I really get in?

18:28 throw in an extra half a million dollars and and you're hey, yeah, you know, we could use a little extra capital. And so we got them to come in and we actually invested more in that round. So every chance we got, we kept investing more. And a lot of times Before we started doing these big SP Vs, we actually bought secondary shares, I think on six separate occasions. So every time we have a had a chance to pick up some shares, whether from it was from employees or founders or whoever, that people need a little bit of liquidity. It's like hey. We're happy to buy some more. And and every time, of course, the price changes, keep price keeps going up. You know, we value it based on what we thought were the the right comparables and we had we, you know, price it at a certain level and we kinda had a similar kind of comparable. Maybe we're valuing it at five times revenues or something like that. So the pr price kept going up. We kept buying more.

19:17 But at some point You know, we had this uh interesting turning point. We were very lucky in some ways. Uh we Thought about selling the company? And by that time, you know, we had had a pretty good gain. We had a tiny fund. Of course it would be be a very meaningful exit for that tiny fund.

19:35 And in the Luckily the offers came in at significantly below the price at which we were all willing to sell. And even at that higher price, it's like oh we were really reluctant, but it's like okay, I guess we gotta do this thing. It's the right thing to do for the fund management business. And we'll we'll talk on this topic later because I think a lot of fund managers make decisions to serve the fund.

20:00 But they may not be making the proper investment decision. And you gotta s learn how to separate that. Or perhaps serve the management company, like the institution that you are building with your investment firm that is not necessarily perfectly aligned with the actual investors in that particular fund. Exactly. And and we've again we felt th those conflicting interests, right? We've made those mistakes or we've made certain kinds of decisions. And then we just sort of finally

20:26 uh said, Hey look, let's just be very clear about why we're making such and such a decision. And it's okay to make a good business decision. It's okay to make a a decision that's very rational, that serves the fund or serves your business, whatever it is. Oh, and it's also okay to make an investment decision, but just don't get those those confused. Just understand why you're making certain decisions. So anyway, we had these this these bids, right? And we said, Well, jeez, at that price, we're not gonna sell. Actually we said at that price We should be buyers.

20:56 Right. And so some people did want to sell at that price, and other people wanted to buy. And so we said, Hey look, why don't we just buy some more shares? So that was a time w that But you know, we kinda stepped up and did significantly more than the the nib little nibbles uh secondary. So that was another secondary. But it was only like a two point two million secondary and n nowhere near the levels later. So by this point you've put five plus million into this company. So it's becoming a meaningful percentage of the whole fund.

21:26 Yes. So anyway, we bought more, and then what ended up happening right after that round. later. again, the company continued to really perform. That's when Craig, our our friend from Meritec, comes back in the picture.

21:42 And he's been he's known about this company like from day one. Right. And it says, Well, you know, this this is starting to look quite interesting. You know, maybe we'll delete the next round. And that next round was led at a significantly higher price than then the price that we were talking about that You know, at which everybody was thinking about selling, right? So it's like okay, we'll look at five hundred million pre Like maybe it's time to sell a little bit.

22:08 Right, make our help LPs happy, increase the DPI. Now so the this DPI thing is very interesting, right? Like management exists. Yeah. Chris Duvos, right? Who's a like a good fend of all of ours, right? I mean he what what does he say? He says it's all about the moolah in the cool. Yeah. I I love that. Like like like until the cash is in the bank, it's not for real. And and DPI just for folks, it's distributed capital to paid in capital. So it's actually Dollars. Don't give me my markup like give me dollars in my bank account. Exactly. Well, and look, we all live through the bubble, the dot com bubble and and you know

22:45 We we thought we were gonna be so successful. We had all this huge gains And it it just disintegrated on us, right? And so we were all kind of burned by that, and LPs are burned by that. And the thing is, you know, th look L P's really Don't know. If something is a fraud.

23:03 Or if something is for real. Right. They they're trusting us. They're trusting the fund managers. And so y you know, they see all all this gain after gain after gain, but it's all paper. At some point they have to convert that to cash, right? Other otherwise like uh you know, they never know. And if you've been around for a long time, you know it could go to zero. So uh so anyway, we had these pressures and so it's like, oh, maybe we should increase the DPI. It'll help us raise our next fund, right? That's kinda how a lot of fund managers think. And so we decided to sell fifteen percent of our role blocks position.

23:35 So we s we were still the largest shareholder at that point. Uh after that. And i you know, it it makes our LPs pleased. And uh anyway, we said but as if we were selling that little piece Oh it it it was such a tough decision to me saying I think that's gonna end up being a two hundred million dollar mistake.

23:54 Which, you know, a two hundred million dollar mistake in the context of a eighty six and a half million dollar fund is a is a pretty big mistake, right? But we still did it anyway. We still s did it even though it we thought it might be a two hundred million dollar mistake. Well, it turned out to be more than a billion dollar mistake, right, but just just remember that because Because it was the pain of that mistake that really led us down this whole different path. where we became an RIA. Right. So we sold a little bit at that point. And then fast forward a a year or two later

24:26 a much bigger round happens, two and a half billion dollar pre. And and before that two and a half billion dollar pre-round led by Tiger and Greylock also came in. In that round. We had a number of other people start to get really interested in this company, right? People were just begging to like can we have a chance to look at the company? And we weren't really looking to raise money because the company, you know, again, after the first ten and a half million dollars of equity,

24:52 We got to a k a point where we were cash flow positive. And we just didn't need to raise any more money, period. Right. So people could be knocking on our doors and we just kept saying no, no, no. But look at at two billion dollars, we thought it was like, Well, jeez, at two billion, maybe we should sell a little bit again. Like we thought it was like hey, that worked okay last time. At two billion we could sell maybe only ten percent of the of our position and still return a big chunk of the FUD right. So why not? So we actually talked to some folks at two billion and they came in

25:22 It's slightly below. Like they just our asking price was two. And they for some reason couldn't quite get there. They're offering like one seven, one eight, and we just said, Yeah. We're just gonna pass. This is like when Buffett bought Berkshire Hathaway and he where he wanted to sell. And uh it was the Chase family, right? It came in they they came in at uh I think an eighth of a dollar below the price that they'd agreed shook hands on a tender offer. Yeah.

25:50 And that's when Buffett said, All right, you I'm not gonna sell, I'm gonna buy. Yeah. Well, I have another one of those great stories for you. Uh later. Uh remind me, Woo Wa Brothers. Like, you know, you're just off by a little bit, and it's just so dumb to be off by a little bit. Just go for it, right? So anyway, those guys were off by a little bit and it's Lucky thing for us because we waited a little bit longer and we got to the two and a half billion dollar Valuation. If we were willing to sell at two, we should be willing to uh sell at two and a half, right? But that but it's all relative to how much progress is the company making. And then thing is that the other key difference was by the time we got to two and a half, we had registered become an RIA.

26:27 And so that was the key difference. Once we registered to be an RIA, we could do these SPVs and we could purchase secondary. And RIA being registered investment advisor or advisory. That's right. Registered investment advisor. And so VCs are exempt from SEC registration. uh because we help create jobs and all of that kind of stuff. Uh, and and there's a lot of truth to that. You know, V V Cs are really small and they they can't you know, it's really for the public investors, right? But from a SEC perspective, if you do too much secondary Well, they look at it and say, Well, hey, look, you're not creating any jobs here. You're putting dollars into somebody else's pocket. It's not going into the company, it's coffers. It's going to another shareholder's pocket. Well, to me that looks like uh

27:08 Public trade, right? shareholder to shareholder transaction. So if we got to too much uh secondary, that that's kind of what happens. By the way, before Ho continues, we should just anchor a price in people's minds. So you know when he's talking about we invested a million and a half, and then you mentioned something around a$500 million valuation round, now you mentioned a two and a half billion dollar valuation round. It's like man, how big can this company get? Well, the public markets currently believe it's worth about sixty billion dollars. So It does indeed keep running.

27:39 Yes. Yeah. It definitely keeps running. So that two and a half billion, because they didn't need money. The only took a little bit of money into the company, and then the rest of it was a tender offer to purchase secondary shares. So there was a whole process going on. Everybody got a chance to sell a little bit.

27:57 And remember, we sold a little bit in the last round at five hundred. At two and a half, we told the company, you know something? Thanks, but no thanks. We're not gonna be part of this tender process. But what we did was we ran our own little tender process. We said, you know something? We will do this SPV and we'll participate in the round. And then we will run a tender process amongst our LPs and say, Hey, look If anybody really wants

28:20 A chance at liquidity. Here it is. And if they want to roll over, you could also roll over. So we don't want to force anybody out. We wanted to give them a chance to roll over on a no fee, no carry basis. because the reason we were willing to provide no fee, no carry is well, first of all, no fee, because we're gonna work with this company regardless, because we still had a big position, right? So why should we charge any fees? And then no carry because we were crystallizing the carry as we did that distribution. So they already paid us a fee carry.

28:48 uh from that fund. So if they rolled over into this new vehicle, we shouldn't charge them anymore. So it was a free rollover if they want to roll, but a lot of people decide to cash out. So it was interesting. And we cashed out some too, right? As L you know, GPs, we you know, we've been toiling away for a long time. We didn't have a you know a whole lot of uh fund returners at that point. And so we cashed out half of our carry. And roll over the other half. Right. So it w it was a good thing for everybody. So we did that. And then fast forward later, there was another round. After when we did the two and a half billion, it was a hundred twenty-five million dollar SPV, right? after we did that, we didn't think we would do ever do another SPB on top of that.

29:26 But yet again, you know, at four billion when that deal happened, we did another hundred twenty five. So that's how it starts to get big, right? 125 plus 125. Now you got 250 plus we had another round after that, pre- the pre-IPO round at$45 a share. Now when you think about all of these rounds, though, it's kind of crazy to think even at the$45 a share, which people thought was crazy, right? That was the$30 billion market cap. And all the rumors about Roblox went public was at eight billion. And I have no idea where they pull that out, but I think they just uh the it was reporters saying, Well, if the last round was four billion, then the IPO must be at twice two times that. And so it must be at eight billion. So everybody said the second it's gonna go public at eight billion, maybe ten. And this is famously the IPO that got pulled because people were like, Oh, actually or the the company presumably thought, wow, looking around at where tech companies are being valued going out today, You know,

30:20 this wouldn't make sense. Like we actually should raise more in the private market and then decide if we want to go out next year. Yeah. That's that's right. Yeah, these those pops were just Kind of insane. And we kind of felt helpless.

30:34 to control it because if you do a traditional IPO, you have such a limited supply And you just you just can't and a lot of people wanted access to this deal. They didn't get a chance to invest. And so they were gonna buy But as soon as they did The price would be a good thing. spike up and then we w knew that it it would come back down. And we just didn't want people to get burned. It just didn't seem right. Al also also for the sellers, right? All these employees and early shareholders, they wanted some liquidity and why should they sell at this artificial

31:03 the low price. just because that's kind of what the bankers wanted. doesn't make sense. We wanted to try to f explore and find the right price and we thought the right price was going to be much higher than the IPO price. And we did find some investors, right, to validate that, hey, look, it should be at least$45 a share. w which is thirty billion market gap way higher than that ten, fifteen billion maybe people thought it should be priced at

31:26 And we bought more at that point. And so that's again a key lesson too in terms of h uh what how we think about the business uh and and holding on to our winners longer. Uh so

31:39 I th I think that kind of it tells the whole role block story. So I skipped a whole bunch of other things that happened in them in between because this whole role blocks journey would not have happened at all. uh in in terms of you know making these big investments. Without this other little company called Wuwa Brothers in Korea. And that was one of our early winners. And and we always said that we didn't think Who of Others was gonna was gonna be our biggest winner. But we always always said for a number of years that this is our most important company. And if we screw that up.

32:09 We screw up all of Altus. Right. And the reason is we use that company to test out so many different theories about the business and about what we wanted to do, what kind of VC we wanted to be. And Woolworth Brothers was the main reason that we registered to be an RIA to do the first SPV. So Woowa is this little food tech company In Korea. That uh did

32:33 think a billion in net revenue last year in GMB, I'm not sure what it is, seven, eight billion. you know, surprisingly big for a little little country of South Korea. But we we had been involved with that company again from very early stages as well. And

32:48 But that company Is is so fascinating because the founder is one of these non consensus founders. He did not go to one of the top colleges in Korea. In in Korea, you know, going to a top college is like a really big deal, right? Education is everything. There. And so he he was a designer, went to design school and started this little little company that failed. And so he was in debt and he had to go back uh and and try to pay off his debts. And he started this company, you know, as after he paid off the debts, uh or most of it.

33:22 And and the company was growing pretty fast. We decided to bet on it and we thought, Hey, this could be Uh it it was like the grub hub of Korea at the time, you know, before the f whole physical delivery. And we thought, hey, we we thought this company could be maybe thirty, forty million dollars in revenue. And and maybe we could exit. In Korea, you could take a tiny company like that public. And we didn't think it would be that big, right? But it got to a ten million run rate. And we thought hey, this is really starting to work. And this is maybe a bigger market than we thought.

33:52 And the CEO comes to us and says, Well, you look, I took it this far. And I think it's time to get a CEO. Like you see. And it's like, What do you mean? It's like well,'cause I I I don't know how to take it from ten million to A hundred million.

34:07 And and some of the other board members were saying, Oh, that we gotta take this company public. Like in Korea, you could take a tiny company like that public, but but you have to Be profitable. So from 10 million to 20 million, they wanted to get the company profitable and then take it public around the time it was 20 million. And we said, no, no, I don't think that's that's the right approach. I think this is really starting to work. It's time to step on the gas. And we told the founders like, you know, I think we could take it a little bit further. Like let's see what happens, but let's let's raise but you know, raise a little more money and just kind of go for it. You draft him back into service. Yeah, yeah. And it's sort of interesting because, you know, we're seen in Silicon Valley as these very stodgy, conservative, pragmatic guys, capital efficient, you know, we don't like burning a lot of money. In Korea, when we say

34:51 this tiny little$10 million company should step on the gas, right? Uh like they think, oh, these guys are really aggressive, right? And this is really very interesting. It's like same exact approach because by the time we got to 100 million, of course we were profitable. We were or a casual break even. We like companies to get to the self sustaining phase by the around the time you get to triple digit millions. Uh and so but around the time they got to a hundred million The CEO came back to us again and he said Wow, this is amazing. Now we're at a hundred million in revenues, and I think you have the wrong man for the job.

35:24 It's like. 'Cause I got it to a hundred million, but I don't think I'm the right guy to take it to a billion. It's like well, okay, let's see what happens. Now here's the fascinating thing. Uh you know, look. I think we're gonna take this thing to ten billion. Like it's like just watch me. Like now he's got the confidence.

35:46 Fum. A hundred to a billion, and now he knows. And and of course he's just become a fabulous, fabulous CEO. Amazing. The first Korean to sign the gifting pledge, right? Yeah, yeah. He recently signed the Buffett Gates um gifting pledge. Uh first first person ever to do that from Korea. Now another founder from Korea uh recently signed. So now they have two out of Korea, all on the last

36:08 a few months, which is fantastic. And and you know, he he's such a special guy. He he actually started selling some of his shares even very early before he became a billionaire, because he just felt like it was the right thing to give back and he made some promises and and we told him he's like You're crazy for selling the stock, you know, because we were buying, right? When as we were buying, it's like we told him it's like I don't think you should be selling that much, but he's like, No, no, I gotta sell it because I gotta give 10 million to these guys, whatever. He had made promises, and so he sold his stock. So he's such a such an amazing guy. So anyway, along this uh Woo Bar brother's journey, right? Talk about That m missing out on price. We had uh again

36:46 pressures, all the feeling the pressures to return some capital. Right to our our founders and Woo Brothers was was on a a much faster growth trajectory in the early days that compared to role blocks. And it maybe we thought we would sell twenty percent of our shares, right? That returns a in a nice little percentage of the fund. And we actually had shaks on a deal with a great, we found this great long term investor. Th they would be like the altos. They they we would leave the shares in really good hands'cause they would be

37:14 really with the company for a super long time, not looking to flip out of it. And we shook hands and then when we got the paperwork The price was different. It's like w it's like and it wasn't off by a lot, but it's like, but this is not what we agreed to. So we just said no.

37:32 We call off the deal. Right. And it's a lucky thing because what happened was we called off the deal, but we were still interested, and many of the other early investors were all interested in cashing out. A little bit. So by the time we found the next investor, which turned out to be Naver, and uh we we wanted a strategic as well because we thought Naver could become a competitor and why not, you know, get you know, make them our uh friends rather than our enemies. Uh, by the time we got to that deal, we actually got the price

37:58 that we had wanted from the beginning. But again, six months passes in a fa fast growing company, six months. Like Makes you pause. It's like wait a minute, at this price.

38:09 We should be buyers rather than sellers. Right. It's like the same decision we made with role blocks a little earlier. It's like, Yeah, we were thinking about selling at this price, but I think maybe we should be buyers. Very similar to what Nolan Bushnell had told us about the Atari deal with Don Valentine, where it took so long to to close the deal. Month and months and months went by that uh when when Don sort of showed up with the the final paperwork to sign, Nolan was like Hey, I think we're actually worth twice as much now. And they were. I mean you just objectively look at their growth. And like only Goliath Bushdown could have that conversation with Don Valentine. It's it's always a moving target, right? And you try your best, you know, the the valuing the companies is just uh it's an art. Yeah, not a science. You can't just like apply simple formulas and it's a moving target. It keeps it keeps changing on you. So

38:58 A anyway, so we decided okay, you know, we had been talking about potentially becoming an RIA. Like For years. like two, three years before this Woolwar Brothers decision, we thought about doing an SPV for coupon. uh which was you know growing even faster than some of these other companies.

39:16 was an early rocket ship. And we just could not get comfortable with the notion of becoming an RIA at the time. It was just, you know, for a small fund like ours. It was just a big, huge undertaking, a lot more overhead. You had to have a chief compliance officer, a lot more legal costs. And we'll get back to this, but at you know, at that time How many people are at Altos? What did the what did the firm look like? Uh, we were we were tiny. But this is before uh any of our next generation partners have joined us. So it was still the three of us, just three partners. Yeah. And you know, uh our our receptionist was our office manager, our admin. She's still with us. You know, we just had

39:51 Tiny little office. So we decided not to do the SPB for a coupon, but we had been thinking about this for a number of years and we talked to a whole bunch of people who were registered. And they told us it's like well, you know My my advice to you is just don't do it. It's like really? You but you're registered. It's like but yeah, it's a cost of doing this business for us, but for you guys, I I don't think it's worth it. So I mean, literally we got that good well meaning advice from a lot of people. So we just didn't do it for coupon, which

40:19 probably turned out to be a billion dollar mistake, right? But that's fine. That's one one billion dollar mistake. The role boxing was another billion dollar mistake. We keep making all these huge billion dollar mistakes. And it's like, you know, at some point we should stop making these big mistakes. So so so for woo, we finally again we went back to the same exact people that we had talked to before who said you shouldn't do it. We talked To some of those guys, and we got some advice. And we said, you know, something despite all these costs, we were kind of doing the math on it. And for this little$30 million SPV. like it I think we'll make enough money on this to kinda justify all the added expenses and overhead. Kind of forever. you know, or m at least for the ten years. I think it'll pay for all the ten years of expenses.

41:01 If if this turns out to be correct. And then we thought it's like, you know, there could be some other deals. Like like three years ago we had Coupons, now we have Google Brothers. There could be some other deals. You just never know. Right. So we thought, okay, why not? We so we we registered and we got it just in the nick of time. We had to register uh very, very quickly to be able to close And the thirty million dollar SPV was one hundred percent For secondary. uh it wasn't that not a penny of it went to the company. We we bought shares from other early investors like us that needed that liquidity.

41:36 And is that one of the things that you can't do if you're not an RIA is Lead a whole round that's just secondary. Yeah. The well the technical uh technicality is that it's twenty five percent of any fund. And so you could have a billion under management, but if you have a one fund that's a thirty million dollar fund, and if twenty five percent of that one fund happens to be secondary, then that triggers the registration requirement for the entire platform. So that's kind of the math. And so thirty million, a hundred percent.

42:05 of its secondary. So that triggered the registration. And so because we had done that for Woo brothers, Uh, that's what allowed us to do all those other Roblox SPVs. Now before this SPV, that was the sixth fund. that had invested in the Woolware Brothers. So I didn't tell that part of the story. So we were investing fund after fund after fund into Wu Brothers.

42:31 And canonical V C you know dogma uh from LPs, but I think VCs also believe this is crossfund investing is a no-no. It's a no-no. People really don't like it. And so when we first started doing this, L Ps were Well, first of all, when we first started doing it, that's because we were just not very good fund managers. Like like like a lot of times you do it because you're you're just not doing a good job of uh reserving.

42:56 And if you you run out of money, we ran out of money. It's like, well, geez, we can't support our companies anymore. So we had to beg our LPs like can we really like use our new fund to sub help support some of our older companies? So we we did that and LPs didn't like it, but you know, like they they gave us a little rope. Right. It's like, okay, you could do a little bit, but we're gonna we're watching you. Our eyes are on you. Right. We're gonna start reading those quarterly statements that you send us now. And and and and we're gonna make sure that you don't put good money after bad, right? To support your crappy companies that run out of money. Uh but look, we made some mistakes, but we also made some good deals. And our

43:35 LP started to get more and more comfortable. with us doing these crossovers. And uh what brothers, uh, when we raised our first Korea fund, We we raised that fund Primarily because of some of the lessons on the war brothers. We were starting to run out of money in our US funds for Korea. So when we f first start raising US funds f from institutional um uh LPs in two thousand five, they let us invest up to 10% of our fund anywhere outside

44:04 of the US. And the reason is we we asked for permission to do that because we started to see some interesting things in Korea. It was worded in the legal documents that we could invest anywhere outside the US, but we were just only focused on Korea. And in that first fund, we never reached that 10% limit. But in the next one, we increase that limit to fifteen percent because we continue to see more interesting deals. And so it was in that second fund where we absolutely hit the fifteen percent limit. And then we want to go beyond that fifteen percent. And why did we want to go beyond fifteen percent limit? to put more money into Woo Brothers, right? That was that was the company that we really wanted to start to lean in on. And and so our LPs kind of relented and they said was like, well

44:45 Uh, we won't let you go up to twenty percent. But we'll let you go up to seventeen percent. It's like okay. We'll we'll t you know, beggars can't be choosers, we'll take whatever we can get. So the seventeen percent, that incremental two percent all went into woowah, but we wanted more. Right. And so now we were stuck in that US fund limited at seventeen. So that's when we went out and said, Hey, we're gonna raise a Korea fund. Korea only fund because some LPs actually like that idea and wanted more exposure. There are other LPs did not want more exposure to Korea. You know, there's all kinds of North Korea risk and you know, they didn't even know like how to categorize Korea. It's like well, that's not really a emergen. It doesn't go into emerging market bucket.

45:25 And I like the you know, so they don't know how to How to categorize it. Core LPs actually passed on that first career fund, but luckily we were able to get enough, convince enough LPs to come along with us on that first. sixty million dollar Korea fund. And we when we raise that fund, we told our LPs the first investment we're gonna make out of this fund is a crossover.

45:47 Woo-bua butters. So L P I mean, you're literally doing everything that is gonna make L Ps nervous here. Yeah you're investing in a market they don't know and understand. Well, you're based out of the US and uh Your first investment's a crossover investment. Those must have been some fun conversations. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture.

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47:41 So you can get$1,000 off Vanta at vanta.com slash acquired. That's V-A-N-T-A.com slash acquired for a thousand dollars off. And just tell them. That Ben and David sent you. Oh, let me ask you a question. This will take us a little bit into sort of firm history. So we've thrown around Roblox, we've thrown around Kupang, we've thrown around Woo Brothers. At this point.

48:04 you know, these m multi billion dollar investments, like these things keep happening to you. So you sort of like you know what excellent feels like now. in terms of the results and then sort of back testing that against what did those entrepreneurs look like when we invested very early in them. Can you like take us back emotionally to what it was like the first time you started to see your first three X, five X, eight X, where you you knew you had something in the portfolio where you were looking at each other like, hey, we actually might be good at this.

48:36 Like one of these companies might go and what your psychology was a r around that point in time. Yeah. Yeah, it's such a Interesting question. It's kinda complicated. There there's the people equation and then there's also the business equation. So I'll talk about the people a little bit and then we're gonna talk about the business fundamentals. So the people we already talked about a little bit, we we we just have a bias towards certain kinds of entrepreneurs, what we call the hedgehog versus the fox.

49:03 And you know, there's nothing wrong with Foxes and nothing wrong with amazing serial entrepreneurs. They're incredibly competent people. They will make money over and over again. But I call the the great serial entrepreneurs just amazing people who just have not yet found their true life's calling. Mm. Right. So you could be a serial entrepreneur, have a bunch of fantastic hits, but then you will find something. That's it.

49:26 Oh my God, this is it. I've found what my life's purpose is. I'm I'm here for the rest of my life. Like we're looking for that. match betwe uh company founder fit.

49:38 And you know, Sam Walton was like that. Sam Walton was a very successful serial entrepreneur, very successful. Even as a teenager, he was uh he was making all kinds of money. He was making thousands of dollars, which is big money back in those days, just like Buffett was a very successful teenage entrepreneur, right? And so he's always been fairly wealthy, fairly successful, but he did not start Walmart until age forty six. He was already a wealthy, successful guy. But at forty sixty five Walmart.

50:04 And that that was it. That was it for the rest of his life. W the one thing. So we're looking for the people the one thing, right? And and it's their true life's mission at this point in our lives, you know, we're not looking for yet another deal. To make money.

50:18 Like why would we do that? Like Don't show me another deal that just makes money. Show me an opportunity to build something. Really special with

50:26 special group of people That have a mission. their life's mission. hopefully and how can we support him on that? And guess what? If you actually do that, The money will be there.

50:37 Right. So don't worry about making money. That cannot be the reason to do any deal. It's gotta be because you want to work with these people, and it's gotta be because we have a chance to build something. Right. So it's about the people that that's such a critical component. Uh y you've said a bunch to me and um

50:54 You know, I love sort of adapting a a buffet. Analogy, but Yeah, you want to find people. And I think You all think of yourselves this way in Altos, where you're

51:04 You're painting a a masterpiece. Versus your painting by numbers. And when you're painting a masterpiece, there is no formula. And it's never done. Yeah, every time it's just different. Right. And yeah, but Buffett calls Berkshire his painting. That's my painting. And when he buys a business, you know, from one of these great founders who've become a billionaire, you know, says, you know, he tells him like you have this masterpiece. I want to hang it in my museum.

51:29 Right. I'm not gonna touch it. I'm not gonna rip it apart, right? Uh sell it for off in pieces. Uh, and I'm gonna hold on to it forever. It's a beautiful masterpiece. And and you know, sometimes, you know, you paint, you you do the painting and it turns out to be not so good. Sometimes it's a masterpiece, but It's just unique. It's just different every time. We're looking for those artists. And there's a lot of people out there who you know, want to want volume. They want scale. Uh and and paint by numbers will do it. And you could build a much, much bigger business that way, much certainly much more predictable.

52:00 And much more repeatable. And there's a lot of people who want that, right? Or maybe a bigger business, faster. Yeah, it GPs is was LPs. I think it's LPs that are driving it. LPs really want predictability, repeatability. You know, they don't want to take too much risk, right? Uh, in I kinda joke that like look, I think everybody wants Birdie Madoff without the fraud. Like nobody wants fraud, of course, but I think everybody wants Bernie Madoff. They want nice, steady, they're not they don't want to be too greedy. They just want that steady returns. And there's a lot of big, big funds that they're just geared. They're set up for that.

52:33 You know, company after company, deal after deal. It's like a cookie cutter. Right? Crank them out out of a factory and it's a deal factory, a deal machine, and the LPs want it. It's okay, good for you. That's fine. We're just gonna do Something different over here. And and if you want that. You know, and it's it's a small piece of your portfolio because we're not gonna be able to, you know, crank it out in volume like that. We just have our own little thing going.

52:57 So that was that's the people side of the equation. And then you said there's the business side of the equation. Yeah, so so there's a business side. So You know, around the time a a company gets to about a ten to twenty million dollar scale, that's what we call first base. That's kinda when We start to get a lot more curious about the business. Around the time like let's say Woo War Brothers got to ten million. It was like, okay, I think we might have something here.

53:21 Right. And we start to dig in. And like sometimes Like, you know, I I might not even be paying attention. If it's a company, of course, that I'm working with, I'm very you know, involved with what's going on, but as a partnership Like we might not know about every single company, but if somebody else's deal, whatever You know, if if you

53:40 Get to first base. Now you got my attention. It's like, so wait a minute, so what do they do again? Like, what is it that they're doing? Like, oh I want to learn a little bit more about this little business. So around 10 to 20 million, you get our attention, we start to get curious, like we learn so much more about the people. the business, the market, because now we're a few years into it. Right.

54:02 And what we've learned is that, you know, so many companies Venture back companies especially are in a hurry to grow, grow, grow. And the faster you grow, the higher your valuation at the next round. And everybody's really happy, right? But I tell you, when you really step on the gas, and we've done it before, we've had companies go to a hundred million in revenues and then the wheels start falling apart. And it s takes so much time, so much work to get a company to a hundred. It's like the the the most heartbreaking thing in the world to have this this thing that you worked so hard on start to fall apart on you. And it's really hard to turn it around. It's much harder to do a turnaround than to build it right from the beginning.

54:40 And you know, I think almost every single company startup has a great culture in the beginning. People say, Well, you know, the culture gets set when it's like the first five people or whatever, and you gotta do it right. It's like, Yeah, don't tell me about that. Every little company has a great culture. You know why? Because Yeah.

54:59 mortality phase, if everybody's not pulling their weight. Like there's no place to hide. Everybody is contributing, everybody knows what the heck is going on. You have a great culture, every little company, but not every great culture at every little company turns out to be great as they grow. And so you have to pay a serious amount of attention. So around the ten time you get to first space, that's when you get to your first hundred people and you really have to do it right.

55:25 And uh basically in our best companies. They're accelerating in growth. In the multiple hundreds of millions. At a faster rate. a lot of times in percentage terms than when they were in the

55:38 Tens of millions. That's what we're looking for, right? We want this acceleration starting at a hundred million. rather than a deceleration and the wheels falling off. At a hundred million. And so when we see something special, and again, not every company that gets to ten to twenty million is gonna get to that hundreds of millions, right? So but that's what we we're paying attention to it to see which of these have

55:59 the opportunity to really scale up. And if we see the big potential. We get more careful And more patient. With those. 'Cause we want to do it right.

56:10 And we wanna b build the right kind of pieces'cause by the time you get to a hundred, again, if you don't have the fundamentals down. it's just almost too late. It's just really hard. I mean you could do it, but it's just it takes a lot of effort. But if you keep doing it right. Like if you're making the right kind of decisions at ten, twenty, thirty million. rather than at a hundred million, then by the time you get to a hundred million, you got some momentum building and you got you got some practice and you got you got the right fundamentals going. And so at a hundred, you have this ability to start to accelerate.

56:39 And so that's what we're trying to do. What are some examples of some of those? Key decisions in the, you know, ten to thirty million dollar revenue range that You gotta take the time to to get right. In your experience. Yeah. Well a a a big thing is people.

56:53 people and culture. You know, it's so easy to just get Yeah. people with fancy resumes and and uh in the they'll t take you there. uh super, super fast. And you just have to be careful. I mean I have no problems hiring Talent.

57:08 And as as companies grow, we have access to better and better talent. You know, when you're at a startup, you just can't get the kind of people you get at Twenty million. And when you're at twenty million, you cannot get the kind of people you could recruit at Two hundred million.

57:22 And at two hundred million, I will tell you, you cannot get the kind of people you can get at two billion. I mean you start to get tap into better and better talent. So all along the way We are just trying to upgrade the talent, but also all along the way, we're trying to develop the talent and we're really looking for signs of that of which are the people that we hired early days that are able to keep coming along with us. And you have to be patient with some of those folks. But if you could Like

57:47 it always makes me feel a little bit m more comfortable with a company if I see certain people coming along. And and and we have some history with them. Cause if it's uh if I wake up one day and we're a hundred million in revenues, but uh I look at the management team and I don't know anybody on the team. Makes me very nervous, actually. I'm I might know the business. It might have a long ten year history with the b business, but I just don't know these people. Now I got to start the cycle all over again. It makes me feel more comfortable when I've known these people for a while. And some of them might start as individual contributors and they become managers and then the directors and VPs. And usually we get to know because we work with these companies for such a long time, we get to know people at multiple layers. Right. We might know people at

58:29 four or five different layers within the company. um at all different stages of their uh career development. And Again, those are the companies where we tend to get much more conviction around. It reminds me of um I remember talking about uh of Zoom and I remember talking about this with Santi in our episode with him that

58:48 You know, it's such a it's almost it's a very auto s like company. I remember in the I pro IPO perspectus going through the management team. And they all were developed internally. And they're all incredible, but it looks very different than You know, often you'd see uh in sort of a typical venture path just like you're saying. You see you bring in the gold plated resumes at each stage and they're, you know, they've done this, they've done that, they've done XYZ

59:14 But they've been with the company six months before the IPO. Yeah. Yeah. And and we certainly had some of that at role blocks too. I mean, you can look at the IPO perspectives. There's some people we brought in and there's other people like behind the scenes that have been there for really long time. Some amazing people, right? And and there's some people at the IPO perspectives that might not be Like in the documents yet. But we know they're in the background and they're getting better and better. And maybe five, ten years from now, they're gonna take over. Who knows, right? But we see that.

59:44 kind of a machinery being developed. Uh, that's really interesting. But that's again going back to people. I mean, so much of this is really about people at the end of the day, right? That's what certainly makes it more fun for us. My you know, I mean yeah, it's interesting'cause in Korea, right, we we go to a lot of funerals. It's like it's so fascinating. It's like really? Well in Korea Like you don't have to go to all the weddings, but you do have to go to all the funerals. It's like a really big deal. So

1:00:10 I think every month These are not funerals of of employees of companies, these are of their like elder family members, right? Yes, yes, usually we have so many employees at our companies now. But uh I think we go to at least I don't know, four or five funerals a month. I mean a lot. It's it's a it's a big deal. And and we we take time to do that. But you know, we develop these relationships, right? I've seen people who who are single They get married. They have kids. And then and then at the other end, people who become empty nesters, right? Or or people who unfortunately who do pass away. So we've seen the entire life cycle having been in this for twenty five plus years. And it's kind of seeing the journey, the lifelong journeys of these people and being seeing these families. I mean, that's also one of the things that keeps us coming back. But anyway, I I keep going back to people. Going back to the the business though, the metrics. I think we do like to see this capital efficiency, but we have no problem stepping on the gas. It just depends on the business, right? Coupong is a good example where, you know, they got to profitability actually or cash flow break even, but then

1:01:09 really made a courageous decision to really step on the gas and build out the entire infrastructure. And that really cannot be done. Without. serious amount of money. And so that was a billion dollar first billion dollar check from Softbank and then they did another two billion. Uh we have another company called um Viva Republica, another Korean company, FinTech. Unicorn they're I think approaching a billion or so in revenues. And you know that took some

1:01:35 amount of capital. They took a a pretty good amount of capital because uh in the early days we were kind of losing money with every transaction. Right. Uh it was uh Venmo of Korea and every single time you did a transaction, it cost us fifty cents. Not great gross margins. Yeah. As as as our volumes went up, we negotiated those rates down much, much, much lower. And then also then as we uh got bigger

1:02:00 uh because the network effects some of the transactions we we had zero costs because you could just leave it in your toss account. That TOSS is the Venmo of Korea. So if you leave it in the account and you do a money transfer with within the network, it's zero cost. But if you transfer it back to a bank, then it costs us whatever we negotiate with the bank. But that is an example of of a deal that really did cost us a lot of money. But we were again this is a good example. In in places like US and China, you would just raise a ton of money and say, Hey, this is like great product market fit. Like go for it. But there, like we were trying to s slow down the growth because we were gonna like drive ourselves out of business, right? We're this little venture fund. We can't, you know, keep uh funding this So we actually did things like, Oh, you know, why don't we charge you a transaction fee. After the first three five or ten transactions, we will charge you.

1:02:48 So we it's like and by charging people, we will slow down the growth. Right. And so we did that, of course, and that you know helps subsidize the burn. Uh it didn't slow down the growth that much, actually. But At least we got some money. Right. So so we you have to do clever things. If if you're you know, if you're constrain like they there's a saying, right, creativity loves constraints.

1:03:11 We try to constrain our companies. Right, in a way that forces them to think creatively about the product and about the business model so that you don't burn crazy amounts of money. Again, I have no problem stepping on the gas when I see something obviously good. Uh, but again, we try to do it within the bounds of some reasonable constraints. The number one rule for us. is we have to be able to control our own destiny. And it's not just to protect the Altos ROI.

1:03:37 We're trying to protect the founders. Right,'cause the fo these founders They start their companies and this is their life's mission, let's say. Let's say we pick the right founder. This is their life's mission. The last thing I want to see happen is their life's mission blow up.

1:03:52 And it will blow up. If you keep running out of money. Right. I wanna see founders in control, not the investors. If the founder keeps running out of money, guess what? The founder's no longer in control. Some big investor comes in, they're calling all the shots. And before you know it, you know, the founder could be gone. And then again, now I'm staring at

1:04:11 a bunch of you know execs that I don't I don't know. I don't have a relationship with and I'm not sure what to do with that. Right. I like having relationships with the company. And I know I want to know who I'm working with. And so we're trying to protect the founders. We want them to be under control. And if they're burning too much money, they're gonna lose control over their own companies. So we wanna protect them and we wanna protect our capital efficiency.

1:04:32 We care about price per share appreciation. Yeah, you could have this valuations keep going up, but you're have so much dilution your price per share is not going up at the same rate. Right. Price per share appreciation matters. I ironically, yes, valuation is actually not the thing to watch. It's uh w which of course it it's you're never gonna see price per share in a Tech Crunch article, but it is funny how how people just anchor directly on that on that valuation. On this note, Ho, I wanna take us in a little bit of a

1:04:59 Investment fundamentals direction. So I think it's too easy to say, well, there's two types of investing, value investing and growth investing. It's obviously some spectrum. And I think you have, at least from the outside, mastered the art of identify where and when to be on which places in that that spectrum. And so earlier you mentioned something like, well, with Roblox, with our early investments, we paid something like five X revenues on a on a valuation basis. I assume and I haven't looked at the numbers that It's much higher than that now. And so I also assume that at some point when you were investing in those m you know multi billion dollar valuation rounds that

1:05:37 it was higher than five X then too. So when are you comfortable and how do you make decisions in fast growing tech companies around what investment multiples make sense. Yeah, that that's that's a great question. So We use these kind of rough metrics, whether it's five X or ten X, when we don't know the business. But once we know the business and we know what the potential is.

1:06:03 then we kinda know Hey, we could be monetizing more. But we chose not to. For a whole variety of reasons. And so we have to factor that into the valuation equation. And so Until you really get to know the business.

1:06:17 You really don't know how to value it, so we have to use these dumb metrics. But then once we really get to know the business Right. then we feel like we are in a better position to value it than anybody else. And so, you know, I I like to say like we're different than v every other early stage VC because we never run out of money and we never run out of time. Thanks to our LPs. We could just keep investing out of across multiple funds. But we're we're also very different than any other later stage investor, because that's where uh most of our dollars go these days, right? The later stage.

1:06:47 But we're different because we don't chase somebody else's unicorn. We are going very deep into these companies and I like to say I'm a very slow learner. So it takes give me many years to get to know you and your business. Before I could Like even

1:07:03 qualify myself to make that kind of a judgment call. You know, we kind of, you know, Buffett likes to talk about his circle of competence. We our circle of competence is quite narrow. It's our own companies. Like you know, we we we look at other people's companies to try to learn, of course. But we're we're going to town, going studying our own businesses and trying to figure out which of those businesses have potential and and trying to understand how how does it work. You know.

1:07:29 When a company starts to work That's a r rarer thing, as you know. You know, we're all in the venture business. It's hard to find something that actually works. So when it gets when it's something is working That should just tell you uh maybe you should be paying more attention.

1:07:44 Like something is going on. Try to understand what's what the heck is going on. There's many, many explanations behind something that's working. It could be the market. Uh could be a competitive dynamic. It could be the people are really special. It could be you have some s you know, secret sauce, maybe you got lucky, whatever it is, try to unpack it. And try to understand the components of it. And then try to understand how this machinery works. And then as you understand the machinery, you start to understand

1:08:10 what the potential is and how to value it. Uh so there's no easy formula, but that's kind of one way to think think about it. Now the the this interesting comment about value versus growth, right? Like I I give a lot of credit to Jack McDonald. who uh you know taught investing for 50 years and he's no no longer with us, but that's that's the same class that the IGSB guys uh teach at. We we go back every year to teach that class. Buffett used to come every year. uh he always told us hey value and growth

1:08:38 Is The same thing as far as he was concerned. It's like Two sides of the same coin. That's what Buffett says. Two sides of the same coin. You know, the way McDonald talked about it is well, like isn't growth just uh component of value. Like of course it is.

1:08:53 Right. Growth. If the higher the growth, the the higher the valuation, potentially. Right. So it's just one of the many elements that we have to factor in to try to put a proper value valuation on the business. Right. So that's kind of the way we've been thinking about it always for a long time. And of course, in uh these early stage venture deals, you There there are no metrics, right? It's still early. So early. So I I just no longer even think about the venture deals as investments.

1:09:20 Yeah, I think about venture my b the venture portfolio. as it's just the world's greatest Discovery mechanism. Right.

1:09:30 try to learn about businesses, try to learn about people, and once in a while we discover a very interesting opportunity and then we'll develop that opportunity. And it's not about you discovered it and you caught this lightning in a bottle and then now you're rich. It's like no no no no no no. It doesn't happen that way. You discovered the opportunity. Now you got the next ten to twenty years to figure out what to do with it. And if you don't show up for the next twenty years You're not gonna get paid big.

1:09:55 you know, maybe you'll get lucky and you could flip it to somebody'cause they're they're gonna pay you a big forward valuation. But You know, if you're not lucky and somebody's not gonna willing to pay you for all the future cash flows today, you have no choice but to just build it. You gotta do it yourself. Do it the old fashioned way. Do it the hard way. Just build a damn company instead of trying to flip it to somebody else.

1:10:15 And and get paid. Right. Get paid for not doing it. Like let's just do it. Well I remember when you told me this viewpoint. It was such a like I'd never thought of things this way before, but You know, for me so many light bulbs went off and um Really helped me.

1:10:34 Investing over the past year. It's it's tied to what we were talking about earlier that the out years of compounding Are where the huge lion's share of the value is. And so

1:10:47 If you take the sort of shall we say traditional or normal VC approach of, you know, I'm looking for the markups, I'm looking to get paid, et cetera. You know, uh I I I want growth and they wanna Oh you know, offload it. Yeah, that that's Uh pejorative way of saying it, but

1:11:02 That's how it's going to be. a lot of these things traditional venture companies go. You're missing out. on the potential to go from Roblox going from two and a half billion dollars to

1:11:14 Sixty eight billion dollars. I had That's ninety percent of the value. Yeah. And and you know, a a company like that again

1:11:22 We're not thinking about what's gonna happen to the price in the next one or two years. We're thinking about what can we do with this company in the next five to ten years. or twenty years. The best ones will keep going longer. You know, we always talk to like to talk about Geiko. I love the Geico story because that's a seventy year relationship between an investor and a company. It's like wow, that would be amazing to have a seventy year relationship. You know, I don't know. Some of these tech companies they have they might have a shorter life. Right. You know, you could have you could have a nice twenty, thirty year run and we hope to have some of those kinds of runs.

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1:13:41 The Geico story. Is the perfect transition to another topic I w I wanna Have you educate us on. Is You also said to me once.

1:13:51 Passing missing. That's all in your head. That's just a construct. You can always invest. And the the Buffett Geico story illustrates that so beautifully. Like He bought, he sold, he bought, he sold. He bought part. Then he bought the rest of it. You can always invest. Tell us more about that. Yeah. Well, th th this is the thing. If you've been around for as long as I have, right, you st you get to know these companies. Now, of course, we defined our circle of competence for all to just our own portfolio. But just as an investor, like we we've all been doing public investing now for decades.

1:14:24 Right, and I I've encouraged people to just do that. We have our four one Ks structured in a way that we could individually manage it and we want everybody to do that so that they could get to practice. Practice, practice, practice with this tiny little four one K, which is no longer that tiny, by the way. Right. And now we have the benefit of decades of experience when we have serious money to manage. Right, on the public side. And so It's a fascinating

1:14:48 Fascinating journey. And this concept of you get to know these companies over the period of many years and many decades. Right, and you get to see these teams. And and once in a while, like whether it's a two thousand eight crisis or the dot com crash. You have these kind of strange things happen in in the external environment that

1:15:08 Gave you this amazing gift. And if you have a database, mental database of various companies that you know about, different models, different you know, teams that you y y you could really get to know the some of these public companies quite intimately. I've been f quite impressed by meeting some folks on Twitter who really know their businesses. And they're public investors.

1:15:31 and they have no special access to those management teams. Like we do. And yet they really know their stuff. And like wow, I've been very impressed. And and you know, some of the CEOs like I you know, we didn't invest in some of these companies, but I know these people. And I realize these people

1:15:49 have net met never met the guy, but they know him. And it's like they really do. They study'em. I mean uh'cause you could study these CEOs, they're on videos. you know, on YouTube, they're on podcasts. You could read to the uh quarterly uh uh Earnings calls And they're going really deep.

1:16:08 And if you start to go really that deep and then you follow them for ten, twenty years, Hey, you really do know. There's a guy, Tom Russo, who's a you know class another GSP guy, speaks at the that uh same class. I think he's been investing for like thirty some years. ever since he saw Buffett speak at the class in the eighties. And and he follows some of these companies like Nestle for like decades.

1:16:29 And and I think I remember him talking about uh you know, meeting some factory manager in China like more than twenty years ago and he does a factory tour. He's just always looking into those companies. It's the same company. He still invested in it, but now that factory manager is become some big wig executive in Switzerland. Right. This is the Phil Fisher scuttle butt. Yeah, the scuttle butt. Just taken to an extreme. So just get to know a bunch of companies, you know, and and again stick to The stuff that you know.

1:16:59 Like why speculate on stuff you have no business speculating on? Like like get to know a bunch of businesses and you know just realize take some comfort in the fact that Only a very small number of companies are truly special. So you don't have to get to know everybody. Right?

1:17:16 You y maybe you do have to kiss some frogs to find a few princes, right? So you get to have to know Bunch of Businesses, good and bad. So that you could recognize A great one when when it's staring at you in the face.

1:17:27 And again, if it's not so obviously great. Then That's kind of easy. If it's not obviously great to you Then it's not great.

1:17:37 What a easy thing. Just pass. What does your flow chart look like in your brain on deciding if a business is truly special? Like what is the mental walk Is it first slice by sector and then look at a few key metrics? Is it more people oriented. How how do you even begin? If I were to tell you, hey, uh I company A is really interesting. You should check it out. How do you validate if I'm right or not? Yeah, it's a good question. So so sometimes it's really, really based on the how special the company is, but it's also based on how does the market view the company.

1:18:09 'Cause if I think that the market's misunderstanding The company. then there's an opportunity for alpha. Right. And so Can we talk about people that that has to be a

1:18:20 critical equation. You gotta look at the financials. You gotta look at the balance sheet. If it has too much debt If if some unforeseen event could kinda put the company over the edge. Yeah, I tend to be shy of it. But I'm not Totally afraid of debt if I think they have you know,'cause sometimes you have the best opportunities in public markets with companies that have a pretty good amount of debt.

1:18:44 because th they they could go to uh bankruptcy, right? But you have to use your judgement and say, okay, they have a good amount of debt, everybody thinks it's gonna go BK. But I think this company is not gonna go bankrupt. for the following reasons. And if you have a thesis that everybody thinks it's gonna go bankrupt, then you don't you don't you don't think it will.

1:19:01 then that's a pretty y you have an opportunity to make an interesting bet. Right, that has asymmetric upside. Class example of this I think of I'll always think of now is um Buffett's Coca-Cola investment where

1:19:14 The market then there was the New Coke disaster. And the market thought, Oh my gosh, c I don't know the Cocoa would go bankrupt, but like this is This is they've killed the golden goose. And I don't know if this is how Buffett looked at it, but you could go back and look at that in time and be like Okay, let's say Coca Cola.

1:19:31 Classic. It before it was classic, it's done. They still have Diet Coke, which is the biggest, you know, soda in the world. So there's a huge margin of safety there that people were not appreciating. Yeah. Absolutely. You know, one of my favorite examples was during the uh two thousand eight crisis. There's a uh little company called Select Comfort.

1:19:54 Uh now it's called the sleep sleep number. And I remember the Motley Fool Was kinda touting the stock as this great stock and it was like, you know Growing like crazy.

1:20:07 And then it completely cratered uh in the crisis. And a lot of people were saying that well, they're gonna go bankrupt. Or Maybe not bankrupt, but they they were saying things like, Well, no one's gonna buy a th three, four thousand dollar mattress in the middle of a crisis.

1:20:24 Like people say these kinds of things, which is just ludicrous. Second. Uh really? Seriously, nobody is gonna buy this? Like is it revenues gonna go from six hundred million to zero overnight?

1:20:37 Well, let's see what happens. They you could look at the financial statements. You could talk to listen to the quarterly earnings. Like, Well yeah, of course they're gonna struggle and then of course revenues are gonna go down. But uh they sold quite a a lot of mattresses actually during the crisis and nobody goes to the shopping malls and uh you know traffic is a lot lighter, but Wow, you know. Lo and behold, they I think sold like six hundred fifty million dollars worth of mattresses during in the right in the middle of the crisis. So like the world just doesn't end.

1:21:07 You know, when bad things happened, you very few things just go to zero overnight. So you just have to look at it. And then you know the management team made a bunch of mistakes. They were doing uh in the uh right in the middle of that. uh SAP implementation, switch over and the ERP, which is always Really painful. And it's in a fairly small company trying to do SAP. They probably overreached, you know, I knew like Intel was doing a

1:21:32 SAP implementation. back a number of years ago and oh my God, that was such a nightmare implementation and they spent Like uh hundreds of millions of dollars and it was just like one of those You know.

1:21:44 black holes. Right. So you could imagine a little company like Select Comfort trying to do it. And yeah, they they they kind of wasted up, you know, a few tens of millions of dollars and they got in over their heads and uh things were getting a little bit tight around them. You know, they had all these lease obligations And they they did have some debt again, but this is where we have to Like uh apply the judgment of Well, if they have that But Like what are the chances that the lenders are going to come in and

1:22:11 S control. Right. I had to think about that. Now you could imagine in the two thousand eight crisis. Now I have my you know, that's so so this is a little, you know, fun s detour on the uh public investing, right? But like look at the Altos portfolio. during the two thousand eight cr two thousand nine crisis. You know, we had some companies struggling, of course, and uh there was no prospects of raising new more equity, so we had to rely on some debt. And the bankers were getting awfully nervous, right? And I remember literally sitting across the conference room table with one of the bankers and they were giving us a really hard time about one of our companies, you know, and then we stopped making payments and we wanted to kind of renegotiate a few things that you gotta give us a little more time.

1:22:51 You know, of course, you know, the bankers hold all the cards. They could like, you know, seize uh seize control. And I literally I think I pulled out the keys. Like it's like a mythical key is out of my pocket. It's like here it is. Take the keys. Like good luck. And it's just like just take over. It's like look, if you don't want work with us, just take the keys.

1:23:11 It's yours. Nobody's actually pulled out keys before. Here are the keys. Nor do I want to operate this business. Exactly. Exactly. Uh well I really don't want those keys. It's like Like what can you do with this? It's like well, you know, if you want us to involve I think we might be able to do X Y Z, you know, let's you know but they have to work with us. And so we knew that

1:23:36 You know, companies of course, a lot of companies are going through trouble, but there are a lot of dead guys who don't necessarily want to take over the keys. Yeah, take the keys. There are some guys who do, by the way. I mean we uh we've had the unfortunate uh experience dealing with some folks who are, you know, the loan to own guys. Yeah. Right. That's the whole strategy. They want the keys. That's the strategy, right? They take the debt position, but but they're really control guys. They're more like private equity guys, but they happen to be on the debt side. And so they they're looking for the first

1:24:04 opportunity to take over. And so so that's a different kind of a debt provider that you have to be careful with because they will take snatch those keys. They will pry those keys out of your little uh clenched fingers, right? But but so you have to know who you're dealing with. But for the most part, most debt guys you could work with and they're you know good folks and they you know I as long as you pay them back, they're fine. Eventually we'll pay pay pay them back. We we've I think we've defaulted.

1:24:33 on very, very few loans in our entire history. I'm trying to think, like when's the last time we ever defaulted. I I can't I really To be honest, can't tell you when we default it. There's gonna be some that guy who's listening to this podcast gonna say, Oh, you stuck me with this thing once and I have no idea when it was. Maybe it was twenty some years ago. Who knows? But Uh we try we try not to. We we honor all our commitments. I do want to ask that question a little bit of a different way. And I think I asked you on a relative basis. So we talked a lot about like when could there be attractive investing or windows, like buying opportunities, but what about like on an absolute basis? I mean, what makes a company one of this

1:25:11 incredibly rare one percent or less that are truly special businesses. So I wrote an interesting blog post last year. Kind of Answering

1:25:23 this question'cause people a ask me this kind of a thing a lot. Like what gives you conviction? in a business at the end of the day to do these kind of crazy things where you're buying more sh instead of cashing out a little bit, you're buying more shares when you're up So like what gives you that crazy conviction? And so I wrote that blog post Called How do you know? And they're just like some really basic rules of thumb. First rule is like this is like kindergarten, right? This is business one on one.

1:25:48 First rule is well, does a business make money? Right, because if the company again, we talked about the founders, we're trying to protect the founders, make sure that they stay in control. If the company keeps running out of money and they have to keep raising more and more, and again, you know, maybe in a frothy environment they could keep raising more and more at higher prices and they're they're gonna be fine, but what if the music stops? What happens? Uh and so we we want to make sure that we are within shouting distance of break even. Even if we're not generating lots of cash, let's say.

1:26:18 that we know the path to survival. Right. We know What Belts we could tighten. To make sure that we don't just

1:26:26 go off the cliff. So we we want to make sure it's a business Generate cash. or we see the path to profitability or casual break even. So that's one. Now Second rule of'cause obviously that that's such a

1:26:39 Basic thing. It's like, well, that no duh, right? That's the whole purpose of starting a company to so you can make some money. Now a second rule is of course it's not good enough to just make a lot of money. If you make a lot of money, as Bezos says, your margin is my opportunity. Right. So you have to have something more. So the second thing is what Buffett calls a moat.

1:26:59 You have to have something that is protectable. And again, the deeper you get into a business, the more you realize Whether or not there's a moat and whether or not there's Not a moat.

1:27:12 Right. And again, sometimes it's not totally obvious. And the mo can come in many different ways. Obviously, network effects is one of those things. You could have patents, you could have Know how And I think of all the things that I think about, I mean, network effects certainly are very powerful, but I think it's really the know how. There's so much discovery that happens. Right. And as we figure things out along the way.

1:27:34 If we think that we have figured out some things that are not obvious to the outside world, those are the companies that are very interesting to me. Right. I think I think we uncovered some secrets. that other people don't know about. And this is the thing that always puzzles me when people say, Oh, we're killing it. We're doing so well, you know, pounding the chest. It's like you know something, I I that's not the way I've seen it. I think I think people who kind of uncovered some really interesting secrets.

1:28:00 They want to keep it a secret. They're not blessing to the rest of the world. the thing that they figured out. They're keeping it nice and hush. And they're kind of working at it and working at it and working at it. But it's really the moat.

1:28:13 And it comes in again many, many different ways, but if we feel like we figured some things out That is protectable. that is not replicable. Maybe it's so in some ways the best moat isn't maybe not a secret. Yeah, you could tell your competitor exactly what you're doing.

1:28:29 You know, you guys talk about counterpositioning, things like that, right? That's a classic example. You could tell the competitor exactly what you're doing and they're still not gonna uh replicate. Right? Because they can't or they don't want to. That's just not their model. Maybe that's even better. I I remember one of our companies um meeting

1:28:46 Uh Amazon And they got very curious and they wanted to come in. And And you know, uh with most companies you have to be super, super careful because they're gonna come in And maybe act you know.

1:28:59 act like they're gonna buy you, and then they come back and say, Well, you know, we decided to change our mind, and then they release their own product. This this this used to happen with Microsoft Amazon has done this now a number of times. I think some other larger companies may do it. And who knows? maybe they had already a project that underway anyway and they were curious about it and they really want it. thought you would be a part of it, but they decided, yeah, you don't have anything special. So they just decided to go down their their own path. But with with big players, sometimes you have to be careful about what you disclose. But there are other companies, I will tell you, that have met those kinds of companies like a big scary Amazon or whatever. And we said, Oh yeah.

1:29:40 have no problems you could tell them exactly what we're doing. You could tell him everything about what we're doing. We would have no worries. Whatsoever. So it depends on the secret, depends on what you're doing. Some things you could tell people, like like we tell like people what exactly what we do in terms of the crossover investing and the SPVs, the RIA, the you know, or the structure of our deals. I've been very open with it.

1:30:04 And if people want to do it, I think I think that's a good thing, because I think it supports more entrepreneurs. We don't worry about them competing against us because how many people are gonna manage the whatever the multiple billions of dollars under management with zero management fees? We have a lot of our all of our SPVs are zero management fees. Like if you wanna like charge zero management fees, I think that's good for the world. Go for it. No one seems to want to copy me. You know, I've had I've had so many conversations with good friends of mine who are in the hedge fund business, right? And and then they go off and they want to do their own hedge fund. And I I I've had so many of these conversations over the years. And it's like I it's just like I cannot believe people do not copy the Buffett. The BPL partnership structure. I think like that's I don't manage a public fund, right? But it's like, hey, I think I did I think that's a fantastic structure. You should do that. You know, Munish Prabhupada's doing it and Guy Spears doing it, you know, a couple of guys are doing it, but not that many. It's like I don't know why you don't do it. It's like such a great thing. It's a win-win. You charge 25% carry after a six percent hurdle. Like you should do that.

1:31:02 And no management fees. Yeah, and and they all know about Buffett and they know about that. They and then they look at me like like I'm I'm like in some idiot. Like What the heck are you talking about? Like why would I give up the fees? Right. If I have a five billion dollar fund and I have a guaranteed two percent fee every year, you know. Yeah. Yeah, it yeah, it it takes a certain amount of ideological conviction. Not even faith in your own abilities,'cause I think a lot of people say, I know I'm gonna outperform the market, and and many do, um, but it is you truly have to be ideological about it in order to turn down the easy standard default path to those fees.

1:31:39 Yeah. So so going back to your original question, Ben, first two. So make money, have a moat. Number three. Now this is where it starts to get into very idiosyncratic portfolio construction because the first two you want in every special top one percent kind of a business, right? But the third one is more narrowing your circle of competence and more nearing what you choose to do with your life as an investor.

1:32:05 Just to something that personally fits you. And that's the third is really about the relationship. the relationship is all about people. And again, we like to go big on companies where we feel like we have a great relationship. And if we don't have a relationship with the company in a very deep way, Then we're like any other investor.

1:32:25 We're like like we're like an outsider looking in. Now I I did say that some of these public investors are very impressive and that they are not like outsiders that I've ever known. They really go deep into those companies. But again we like to uh have a special relationship. And if we don't then we get very nervous holding onto a massive concentrated position in a company where we're just like any other investor and outsider looking in.

1:32:50 We have no proprietary uh knowledge. Yeah, at some point, you know, of course we had some proprietary knowledge in helping build some of these companies, but that knowledge decays over time. and then we become like any other investor. And so maybe we should just start to distribute our shares or sell our shares or whatever. We should get out at some point and we all part ways as friends. You know, the if the founder or the company found their new best friends because now it's Fidelity or T Row Price or somebody else, we're no longer getting the the updates. And again, it's tricky, like we're we're kinda new into this whole public investing.

1:33:24 Realm. The the relationship is very important. to me personally. And I think it does give us some advantages of insight. And and after a while

1:33:36 it just becomes a personal decision. I n I think of some of these businesses as really like A family business. You know, if you had a family business and it takes care of your family and generations, potentially, some of these family businesses go on for literally generations. If your family business happens to do well, you and generations of your family will do quite well.

1:33:58 And if it fails Then your family fails. And so you better make it work. And and there's nothing wrong with riding the on the coattails of a great family business. And you there's nothing to say that you deserve

1:34:13 something you don't deserve. Right. If the the business doesn't Do well, you don't deserve to do well. And so I kind of Start to have an

1:34:21 maybe irrational attachment to certain businesses will say, you know something? it's special to me and I'm not gonna part with it. Sort of like like what Buffett says, like no matter what, he's kinda irrational. He's just he just won't sell any business. He might he might ride certain businesses down to zero, like with the Berkshire textile mills and so on. So yeah, I'm okay doing that. So I'm kinda hope.

1:34:43 perfectly happy holding on to the shares. If I ever need capital. So here's one other thing that I used to I used to um have kind of a more difficult time selling certain shares just because I kinda s don't see the v dollar value coming in. I see dollar value times Ten. It's like You have the word Buffett curse. Right. Like I have a curse, right? So and I used to give my wife a hard time. It's like, do you realize that this house that we're building it's actually costing us this money instead of this other money? Because I see the real value. And it's like, and I hate we used to hate parting with it, but now I've come to a realization that you know something, that's what it's there for.

1:35:19 the capital, we work hard to build this capital. And then we want to return this capital to our LPs that are funding educational institutions, hospitals, you know, homeless shelters, all kinds of great causes. And then we use it for our personal needs to build a house. to take care of somebody's medical needs, educational needs, when you need the money. It doesn't matter if it's the stock's gonna go up another ten X or a hundred X or whatever, who cares?

1:35:43 You need the money. That's what it's there for. You sell the stock, you pay all your taxes, and then you should use that money and you should be very grateful. that you have access to this capital. But if you don't need it. Why are you dancing in and out of a stock?

1:35:57 and paying all these taxes. Just why don't you just leave it alone? Uh,'cause you know, that's one of the things that we've learned in investing these public stocks for over all these decades. And we've tried different strategies. And and you know I think we again we wanted to practice before we got better. As we practice, I tended to be the bigger trader. I think my partners

1:36:17 Like just leave it alone. The leave it alone strategy works pretty well. I've seen it. You know, we all kind of go up and down kind of together and there's a of course a lot of beta driving all the portfolios and then there's some alpha. Uh and we have different strategies. And so we're all kind of within dancing

1:36:36 uh shadowing distance of each other. But I've seen the numbers kind of go up and down over the years. And it's very fascinating to see the different personalities and different strategies manifest itself. Some are more concentrated, some are more uh in tech, some are You know, more in value. And I think the kind of the thing that works. fairly well is kinda stick to what you know, stick to good people, good businesses.

1:36:58 And it's not that hard. And it does not take up much of our mental bandwidth. We kinda do it in our sleep. Our primary job is to you know, invest in the Altos funds, but I'm glad we did that sidewalk. So that we kind of have the experience And the conviction.

1:37:12 Now that we have some serious amount of stocks to deal with. uh I feel perfectly comfortable. uh leaving a bunch of things alone. And when I need the money, I might

1:37:23 Sell it. Or we start to transfer it to various charitable causes and it's uh it's great because we get to put all of the pre-tax money to work. Rather than having to put it after taxes. It always surprises me that more PCs.

1:37:36 Aren't active. public market investors on the side, like you say. It feels like if you're not doing it, you're just missing out on opportunities to practice. Well th that's the thing. I and I realized that more than twenty years ago. I mean many, many years because I got my first mentor job in you know back in ninety. So this is thirty years ago. And I knew a lot of VCs and over the years following them and so many you know, VCs have made a lot of money and a lot of them it was very interesting. They would turn their money over. To some

1:38:04 wealth manager to some profess other professional investors. And I and this is again thirty some years ago, I was very young, I didn't know anything, right? But I always thought it's like well that seems kinda strange. Like I I thought I thought you were the professional. Aren't you a moneager? So if you're the money manager, why are you turning it over to some other money manager? Like that I didn't quite understand.

1:38:26 Dad. And of course they would have the barbell strategy. It's like, well, the venture is my risk part of the portfolio and you know, I'll have this other thing than tax free municipal bonds or whatever. And you know, there's some truth to that, of course, you know, you should always have some amount of liquidity and amount of cash that Again, you

1:38:45 uh are protected on the downside. And make sure that you never risk your family. uh capital. uh there's certain amount that you have to set aside but after that The idea that you should turn it over to some other professional when you are the professional and you should try to be the best professional possible.

1:39:03 And whether you're public or private, it doesn't matter. It's just fundamentals investing. And you should try to be the best investor possible. That's kind of what we want it to be. Right, from almost from day one. That's why the public part of it, even though it was tiny dollars. And so I'm glad we had a chance to practice. doing that for all those years because I you know, I what I wanted to test out

1:39:25 was okay, after like twenty seven years If I really suck as a public investor, then I'll be like every other VC. Hopefully I'll make some money and I'll turn it over to the real professionals to manage my public portfolio. And if I got a chance to practice for twenty years and I decided that, you know, actually I'm I'm actually okay with this. then it's like okay, now I've had a lot of practice, I'll just kinda do it continue to do it on my own. Right.

1:39:48 And you know it kinda worked out that way. It's like oh yeah, we feel perfectly comfortable doing it all on our own. That's so cool. All right listeners. Now is a great time to talk about one of our

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1:41:01 The whole Alto story. I don't know that we have enough time. I think we're gonna have to do another episode. Uh so maybe rather than uh and it is a basic, you know, coming out of G SP and the Jack McDonald Investments class. But maybe rather than that. We can't let you go without talking Twitter. Yeah, so I I pulled some stats here, Ho. As of February, you had tweeted fourteen hundred times ever.

1:41:26 And I don't think that's because you were like late to Twitter. I think you just like didn't didn't tweet a lot. But in the last three months you've tweeted three thousand times and you've seven X your following. So what's going on? What was there a intentional strategic shift? Did you just wake up and go, Oh, this is fun. What's going on?

1:41:44 Yeah, it's a good question. So Twitter, you know, I actually uninstalled the app. From all my devices for a number of years. And and I did that with Facebook too. And then I got back into Facebook and And I I think I never really quite understood Twitter. I never quite Got into it.

1:42:01 And I think I finding am understanding it better now. I'm still a kind of a novice'cause I got back into it recently. The reason I started to lurking on Twitter more recently. was purely because we had some of these IPOs coming up. And uh I wanted to see what the sentiment was and there were some analysis that was happening. People were posting

1:42:20 uh interesting interesting analysis and thoughts. on these IPOs. And so that's why I started to You know. re engage on Twitter just at least to follow. And then as of course of course as I was starting to read I got into some conversations with folks.

1:42:36 Right. And and I thought the the analysis on Twitter was way better than, you know, a lot of these reporters, you know, like those articles could be written by a machine. Right. The AI might have done a better job. In many cases, even than equity research analysts. Yeah, oh yeah, that's true. So

1:42:53 Yeah, they just misunderstood the uh the business. Right, but there's some people who did understand the business and I was kind of impressed. I was like, wow, these guys kinda did their homework and they're quite insightful and Like how did they even get these insights? I I uh you know, I want to just kind of engage like hey like how did you figure this out or that out? So anyway, I got into these conversations and then once you get into these conversations, I realized, well, the way I'm using it, I don't know if I'm still using Twitter properly or not, but the way I'm using it now. Yeah. Yeah.

1:43:22 It's just a it's a conversational platform. It's not a PR broadcast platform. I think I was kind of using it as broadcasts. put some news out there. If I put something on Facebook and LinkedIn, I also put used to post it on Twitter and then I just completely got off of it for a while. But now I I just don't post very much on Twitter. That's kind of anything related to news or altos or whatever. I just kinda engage in conversation and you know, when I have a chance to look at the feed, if there's some interesting comments, I'll just kinda chime in and then people respond. And when they respond and I kind of feel like I should respond, you get those notifications. And so that's kind of what happened. And and as I get again, as I started to engage in Twitter, Then

1:44:00 I think some various things triggered in my mind. And I started to write something. And I realized oh y you know This thread concept wasn't a big thing, I think early days of Twitter, but I saw all these people doing threads. It's like, Oh, how does that work? You know? And I remember like

1:44:15 uh Saturday morning I posted something about Arthur Walk. Something triggered my memory. It's like, you know, Arthur Rock is so amazing. And people, these young VCs, they don't even know who the heck he is. And and I remember this old Mike Moritz quote saying Uh, and I c I I think I put that in the uh thread. It was some amazing moreites is so eloquent with his wording and and he said like like V C's, you know

1:44:41 Uh when when you got a call from uh Arthur Brock, it was like the white smoke coming from the Vatican chimney. I think what it that's what it was. He'll say stuff that that are so eloquent I could never imagine. So anyway, it's like yeah, I remember like Morse saying like it was like that. It was like he was so legendary. And so I just had one little tweet about Arthur Walk saying that yeah, you should remember Arthur Walk. And then you know that one tweet then leads to another thought. And then another thought.

1:45:07 And I thought and then I then had this little tweet stream going. So I did a whole bunch of Tweets. Like replying to myself. And I thought some people who are like lurking, following me on Twitter, make sure I s don't say anything dumb. Um They're saying it's like wow, you know, Ho is really funny,'cause he just tweets and he's just replying to himself. He's thinking a conversation with himself. Cause that's what it is, right? It's like so I just kept So then that became a tweet storm.

1:45:34 Which then I think got a whole bunch of impressions, like over seven hundred thousand impressions or whatever. It's like Oh, okay, well and then that led to a whole bunch of followers. So so now I kinda I've done it where I have this stream of consciousness. Tweet storms. And then I have these conversations. And that's kind of what I've been using Twitter for. And I think some of the most valuable things, though, on Twitter is just meeting certain people for the first time that I thought were quite interesting or impressive and having these offline conversations. uh through either DMs or Zoom calls. In one particular case I actually met the person in in person.

1:46:09 As we are coming out of Covid. And so there's there's some very thoughtful people out there, and many of them are you know, individual they're not institutional guys. They're just individual investors. Right. And they're quite impressive, actually. And I think

1:46:25 I think as an individual investor, you have a lot of advantages over institutional investors. Right. You could be extremely concentrated. You could be extremely long term oriented. You could still make a lot of volatility if you could handle your own emotions, right? Uh you cannot handle that kind of volatility because that could put you out of business if you're an institutional manager. So the th there are in a lot of individuals who kind of approach it the way I would approach it, the way that I have been approaching it. And so it's been interesting to exchange some ideas and learnings. I would learn more from those guys. Then I would

1:46:58 learn from any VC Or any institutional fund manager. 'Cause if I talk to an institutional fund manager, again, they're you know, institutional imperative is to protect the fund management business.

1:47:12 not to get the best returns. Right. And if you're an individual just investing for yourself, trying uh uh provide for your family. All you care about is the returns. I'd like to talking to those people who care about only generating great returns.

1:47:26 Oh, that's probably a great Great place to leave it. Looking forward to following you a lot more on Twitter and and hopefully uh uh more great stuff for years to come. But it's it's been I think a gift to us all to get your your wisdom over the last several months. Yeah. Well, hey, great to have uh be on this podcast with you guys. I've been looking forward to it. I know we talked about it last year and

1:47:46 Finally got around to doing it, so it it's been fun. Such a blast. We we'll link in the show notes for Everybody. Literally everybody go follow her on Twitter. Is he's a gift to the internet.

1:47:58 Any any carve outs? Anything else you wanna you wanna shout out before we uh before we wrap here? Uh yeah, well, you know, we didn't really talk about the whole history of Altos, but Larry Morse, I should I should give him a s shout out because I think he's such a special guy. And he I don't know if we would be in business without him. I mean, he made a commitment to our fund in I think two thousand three. And we did not close that fund until two thousand five.

1:48:25 So he waited, he honored his commitment for two years. It took us that long. We actually started fundraising in 2001. So it took us two years to convince him, and then he had to wait another two years to raise our first institutional fund in 2005. That was exceedingly difficult because again, this is coming out of the fallout of the dot com. uh crash. you know, when we thought we were gonna make all this money and it just all blew up. And and so you had to have some people who just really bet on us as people. And and and this is the thing that I I've learned over time. Is that

1:48:58 You know, whatever. People decide, they kinda decide for their own personal reasons. That it's not it's not a purely irrational decision. There are a lot of people who backed us before we had a track record for whatever reason. Yeah. always grateful to them. They they backed us when we had no track record or I like to joke, maybe they backed us when we had a bad track record.

1:49:19 And then there are other people who will look at our track record and may say, Well, you got lucky with this or that, you know? And so they might still not invest in us. And so there are people who will pass on us We may have a great track record. And they will people there are people who will back that's when we have no track record or maybe a bad track record. So you just have to

1:49:39 Find your people. Find the people. Who believe in you. Who will back you no matter what. And you know, people, you know, take will take the data and make whatever the heck decision they want to make. And it it no longer bothers me at all.

1:49:55 If people are doubt doubting our approach or you know, rejecting us for whatever reason because there are plenty of people who think Warren Buffett Uh can't cut it. Or is a fraud or is lucky or whatever. And it doesn't matter if you have a fifty five year track record. There are gonna be always doubters.

1:50:14 So I the daughters just don't bother me at all anymore. I love it. Uh thank you, Ho. Thanks, Hel. All right.

1:50:22 Thanks, guys. Well, with that listeners. Thanks so much for listening. You should uh join us in the Slack. We're gonna probably be discussing this episode, acquire.fm slash slack. And uh with that, listeners.

1:50:37 We will see you next time. See you next time.

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