0:00
My guest today is Mitchell Green, the founder of Lead Edge Capital.
Search this video
0:01
[music] When I think about Lead Edge, I sort of think about this giant money machine that Mitchell and his two partners have designed over the last 15 plus years to make remarkably consistent investment returns for their clients.
0:13
They have all sorts of unique aspects to the machine that they built, whether that's their collection of LPs, their eight-point criteria for how they select companies, the way they do cold calls, the way they construct their portfolio.
0:25
This is just a totally different way of approaching markets.
0:29
They're trying to hit singles and doubles and deliver very consistent returns.
0:32
Mitchell says it's really important in life to be memorable.
0:36
That's just a great simple thing that you can do.
0:37
I think you'll find listening to Mitchell today and him talk about his entire machine and the firm that he's built that he himself is extremely memorable.
0:44
I hope you enjoy learning [music] about his business.
0:55
So, the first time that I heard about Lead Edge Capital was was the very famous list of what companies report, starting with cash profits, and then if they don't have cash profits, then you go down this very funny list.
1:05
Hierarchy of [ __ ] >> [laughter] >> And then the bottom one is the place that's voted the best place to work in New York City or something. Absolutely.
1:13
Where did that list come from?
1:13
Why did you put that together?
1:15
We've always found that the best way to communicate with, you know, our audiences, which is entrepreneurs, and also our invest our LPs, our clients effectively, is to like write a quarterly letter about a different topic.
1:27
And I started my career cold calling companies and that's the way we source deals, but when you start your career talking to I think Brian and I probably spoke to like 10,000 companies.
1:40
>> [laughter] >> And if if you want to know what's a good company, just, you know, go go speak to call 10,000 of them.
1:45
You'll figure out really quick.
1:46
It's pretty good pattern recognition.
1:47
Until like our head of PR comms came in a few years ago, we had actually never posted any of these things online.
1:52
We joked that we sent this letter to some people in the VC community, one of which was like our buddy at Andreessen Horowitz, and they posted it online for us.
2:03
Um we just thought I think it's like a very simple way like in a world where people spout off total [ __ ] all the time, and like you see everything in decks, this is just like a good way to distill it.
2:15
Talk to me about the 10,000 calls.
2:18
So, what did you learn calling that many companies?
2:19
You learn to be very disciplined actually, and you learn that most things are actually just noise, and to figure out like what makes a Lead Edge company, and then try to ignore everything else.
2:32
You learn a lot about like responsiveness of people and like more I think more responsive CEOs tend to be better CEOs.
2:37
I think another thing you learn that's really important for young people, if you tell an entrepreneur that you're going to actually do something, then actually do it.
2:46
And in a world and I think that's actually true of like in life.
2:50
Um there are so many people that say they'll do they do things that just like never do them.
2:53
And so if you're known as a as a firm and a or a person that actually does what you say you're going to do, it goes a long way.
2:59
So, if you tell an entrepreneur, "Hey, I know somebody at Adobe.
3:06
Do you want an intro cuz it looks like it'd help your business?"
3:08
And he says and then he or she says, "I'd love to." Well, then guess what?
3:11
Follow up with that like do what you say you're going to do.
3:14
Can you describe what seems to me like I would call it a machine that is Lead Edge much more than most investment firms where a lot of great investors will tell you there's a lot of art, there's a lot of um you know, everything's different.
3:28
Lead Edge feels to me like unbelievably well constructed as a machine to produce returns.
3:34
Um I'd love you to before we go into all the details of the ask component aspects of the machine, describe the machine itself at a high level before I you know, I I was going to go on a tangent.
3:45
We run this place like it's a software company.
3:47
Um my background was at Bessemer Uh, like I worked for somebody that was extremely disciplined.
3:52
and was building a cold climate program.
3:54
My other partner at Brian worked at Bessemer.
3:55
We were the first two cold callers.
3:56
And my other partner, Neema, worked at Insight.
3:57
And I think Insight, and I know you know, Jeff Hawn was on recently, it it was one of the best like software investment or invest technology investment machines on the planet.
4:06
So, we've like modeled ourselves on that, you know, to build a good investment firm that stands the test of time.
4:15
If you want to go build the next TA Associates or General Atlantic or, you know, Bessemer or Sequoia, you just have to be like extremely rigorous.
4:24
And so, our number one KPI that we run this place by is what is our gross dollar retention for LPs.
4:33
We want like 95% gross dollar retention.
4:36
Because the only way you can get that is one, have good investment returns and great client services.
4:42
So, how do you, through long periods of time, across people that will come and go, generate like world-class returns?
4:50
Is you need to have like a process.
4:52
And the process for us starts with, you know, 18, 22 to 24-year-olds that, you know, talk to about 9,000 companies a year.
5:04
You get those 9,000 companies, like, how do you figure out which ones to work on?
5:08
So, then you need this like framework to guide these 18 people to like, "Well, it's going to be an interesting company."
5:14
Because in the investment business, like we have one asset. It's time. And it's like precious.
5:21
And so, like how do you guide people to say no quick?
5:22
And so, we built this framework that we really took from coming out of Bessemer.
5:28
And so, like they helped build the Bessemer five.
5:30
We took the Bessemer five, turned it into Lead Edge eight, and it's like drives everything we do.
5:35
Now, when we find the company, we're then super creative.
5:40
We'll buy 10%, 80% LPs out of a 20-year-old fund, buy employee secondary, you know, fund somebody's CV. We don't care. We'll do anything.
5:47
If I think about the two sides being the LPs and the companies that you invest in, I'll come back to the eight criteria.
5:53
The LP story that you have is also quite distinct and different.
5:55
Can you describe that in a lot of detail? Sure.
5:59
Our LP base is all like world-class execs and entrepreneurs.
6:02
Um and then we do have some big institutions, but 95% of our capital is like all these world-class execs and entrepreneurs.
6:07
And we use these LPs throughout the entire investment life cycle.
6:13
It literally starts with sourcing.
6:15
If a company won't call us back, we'll we'll email our LPs to Let's say it's like an automotive software company.
6:21
We'll have Rick Wagoner, the former CEO of GM, who's a long-time investor.
6:27
We will be like, "Will you send them like the CEO a note?"
6:31
And if you're like an automotive software CEO and the former CEO of General Motors calls you, like, they're way more likely to take an email than like my any knucklehead email and I'm a a 22-year-old emailing them.
6:40
Then for due diligence, we'll say, "Hey, this is like a you're a healthcare software company, you're 25 million in revenue.
6:45
Maybe you say like biotech or pharmaceutical software.
6:47
It's like, "Oh, I see Pfizer's a customer. How big is it?" 2 million bucks. Could it be bigger?
6:52
Oh, it could be 10 million.
6:54
We'll meet the former CEO.
6:56
And then I'll call up Ian Read and be like, "Hey, Ian, can you like talk to this company?
7:00
They'd love to talk to you.
7:00
Oh, by the way, can you like tell us what you think?
7:03
And then if it's super interesting, could you like call could you call Pfizer and like back channel it?"
7:08
And then you might say to the entrepreneur, "Hey, I don't see Biogen as a customer.
7:10
Would you want to meet the former CEO?"
7:11
So then you call up George and you're like, "Hey, George, I found this company.
7:14
It meets seven of our eight criteria."
7:15
Then like post-investment, we literally send emails to our LPs.
7:18
Be like, "Hey, you know, Toast is looking for intros to these restaurants. Do you know anybody?"
7:24
And it turns out all these people invest in funds and never get asked for help.
7:28
That's how we do it and how we leverage them, but it's not actually why we did it.
7:31
It would be a lot easier to go have 20 giant institutions write you a 50 to 300 million dollar checks versus me spending a huge amount of my time running around the world all the time, spending time with these people.
7:45
Because if you want 95% retention, that's what you need to do because they're your clients.
7:48
The reason we did it is because I knew that the returns in this sector, in the tech investing sector, flow to the top 10% of funds. Like they they just do.
7:57
It is and probably it probably is the same in real estate.
8:00
It probably is the same in industrial buyouts, but like I knew in the venture world that it definitely flowed to that.
8:06
And I had the pleasure of working for one of these firms, Bessemer Venture Partners.
8:10
So when I was starting Lead Edge, I was like, why in God's name is anybody going to take my money?
8:14
I teach them how to ski, but that isn't going to be very helpful.
8:18
But I said, you know what?
8:18
Had I been the global head of HR at Procter & Gamble and my partner been the global head of HR Microsoft and the other one been the head of HR at Nike, when I called Workday 80 times at Bessemer and they would have definitely by the end was like, I'll hire you as a salesperson.
8:36
I'm not taking your guys' money. Yeah.
8:37
Um if I had been like a world-class HR exec, he would have engaged with me because he would have known that I could have introduced to those companies.
8:43
Like I have tons of other HR execs. I know these people.
8:47
In a world that's super crowded and undifferentiated and I think it's exponentially the case more today even than what it was 15 years ago, um it just like differentiates us and we do what we say we're going to do.
8:58
How many LPs do you have? Probably like 800.
9:01
95% by number are these executives. Yeah.
9:06
>> If you think about the level of returns versus the consistency of returns, how much does one matter versus the other for the for this 95% gross retention?
9:12
I think consistency is more important.
9:16
>> On a per deal basis, we're trying to make a two to five X in three to seven years.
9:23
That's like a 25 net IRR.
9:25
If you if you just actually map it on a curve.
9:29
Put it into a fund, we want to generate a two to two and a quarter X in nets with 20 net IRRs.
9:36
Some of those deals aren't going to 5 X's, some of them might be 0. 7 X's.
9:40
We try to our downsides have been very low.
9:42
We've I think we've only lost all of our money like in one deal ever and that's because of the like the the kind of criteria we look for in a company and what our average company looks like and the fact that very few of our companies have any debt on them.
9:53
Now, so I try I'm trying to make a two to two and a quarter X net which is more like a two and a half X gross.
10:02
However, if something is a really big investment in the fund.
10:07
And we do not run funds with like a hundred 150 companies in them.
10:09
We have we run funds with like 20 investments in them.
10:13
So if we've made something a 7, 10, 12, 15% position and that goes like 8, 10, 12 X, that's how you can 3 X net a fund. Yeah.
10:23
And so because you rarely lose money, does that mean you also almost never hit some like giant grand slam? >> Correct. Correct. We're like Cal Ripken.
10:31
Doubles doubles and triples.
10:33
Uh yeah, we're not uh we were not Sammy Sosa or like Mark McGwire.
10:37
It's all about um the hitting doubles and triples.
10:40
And and and if you do that with very little leverage in the portfolio, 90% of our companies or 85% of our companies are like recurring revenue.
10:48
So if you invest today and know what revenues are in July, that's a pretty good way to invest.
10:53
50, 60% of our companies are like profitable businesses.
10:57
Now you you may get it wrong.
10:57
Like you may back the wrong team, you may overestimate the size of the market, but I think like 70% of them are in the pref.
11:07
So you may get your downside to 1 X.
11:07
Now sometimes you need to like go cut the recut the deal with the entrepreneur or the management team so you're making slightly less than that, but if you can avoid zeros, like you in in turn those zeros into like 0. 8 X's or 0.
11:20
1 X's, it massively helps return. We'll sell.
11:24
Like what we will sell out of probably a third of our exits have been secondaries. We will buy secondaries. We will also sell.
11:29
We constantly underwrite.
11:30
We've been referred to as traders or like for like hedge fund guys and we're like, "No, no, we're just trying to actually make money."
11:35
Because this company's about to be a living dead and you're going to be in this thing for the next decade.
11:39
>> Maybe spend a minute before we go through the correct buy criteria talking about selling more. So, what is the process?
11:44
We have an investment committee.
11:45
There's three of us, myself, Brian, and Amy.
11:46
Then there's our sourcing fun one.
11:49
We have a disposition committee. Same thing.
11:50
We meet We think a lot of firms do a really, really good job on the buy.
11:56
Very, very few firms do a very good job on the sell.
11:59
Like knowing when to sell, pressured to sell.
12:01
And we would tell I would tell you that the private equity funds tend to do a much better job on the sell than most like venture growth guys.
12:12
Um and then like hedge funds, if you do invest public equities, they're long only funds, like you constantly can buy and sell.
12:16
The three of us meet, you know, once to twice a month and just like walk through the portfolio and just talk about it.
12:21
Like, "Hey, there's there's a round going down in this company. Should we sell?
12:28
Like, how can we try to position this company for a sale over the next 12 months?
12:31
The fastest way to get fired at Lead Edge is have a company and not tell us when there's a liquidity op- opportunity or just like something's about to happen before it happens.
12:38
What is the holding period end up being on average then?
12:41
I bet our average holds are 3 and 1/2 to 4 years probably.
12:44
We took advantage Everybody gets all excited by these tw- like our 2015, 2016, 2017, 2018 returns.
12:54
Like our '15 and '18 returns look very good.
12:55
But it's just multiple expansion and we sold. That's it.
12:57
Like if if you think you're going to make a 2x in 4 years and you make a 4x in 2 years, it's amazing what it does to to net IRR, right?
13:07
People forget the reverse happened in '20 and '21.
13:12
Nobody's '20 and '21 funds.
13:12
I think the venture growth uh ecosystem gets like a bad rap, but it's going to be every alternative asset.
13:22
Their '20 and '21 funds are going to be awful relative to earlier funds because you had, you know, people thought they were going to make, you know, a 4x in, you know, in in 2 years and are instead making a 1. 6x in 8 years.
13:37
And so, like, that's going to drive that's going to have huge impact on the industry.
13:39
Most software companies try to maximize your time on their app to juice engagement.
13:43
Ramp does the exact opposite.
13:44
Ramp understands that no one wants to spend [music] hours chasing receipts, reviewing expense reports, and checking for policy violations.
13:50
So, they built their tools to give that [music] time back.
13:53
Using AI to automate 85% of expense reviews with 99% [music] accuracy.
13:58
And since Ramp saves companies 5%, it's no wonder that Shopify runs on Ramp, Stripe runs [music] on Ramp, and my business does, too.
14:05
To see what happens when you eliminate the busy work, check out ramp. com/invest.
14:11
Every investor should know about Rogo because Rogo AI's platform is not just another generic chatbot.
14:15
Instead, it was designed to support how Wall Street bankers and investors actually work, from sourcing, diligence, and modeling to turning analysis into deliverables.
14:25
For me, three key things differentiate Rogo.
14:26
First, it connects directly to your system so it can work with your actual data.
14:30
Second, it understands your workflows, how work really happens across a deal or an investment.
14:34
And third, it runs end-to-end and produces real outputs the way the best people do.
14:39
[music] Auditable spreadsheets, investment memos, diligence materials, and slide decks that match your standards.
14:44
This all comes from the fact that Rogo is built by finance professionals for [music] finance professionals.
14:48
And it's already being adopted by some of the most demanding institutions in the world.
14:51
[music] To learn more, visit rogo. ai/invest.
14:57
OpenAI, Cursor, Anthropic, Perplexity, and Vercel all have something in common. They all use WorkOS. And here's why.
15:03
[music] To achieve enterprise adoption at scale, you have to deliver on core capabilities like SSO, SCIM, RBAC, and audit logs.
15:10
That's where WorkOS comes in.
15:12
Instead of spending months building these mission-critical capabilities yourself, you can just use WorkOS APIs to gain all of them on day zero.
15:18
That's why so many of the top AI teams you hear about already run on WorkOS.
15:22
WorkOS is the fastest way to become enterprise ready and stay focused on what matters most, your product. Visit workos. com to get started.
15:31
What is the most interesting thing about the skill of selling and making the transaction happen?
15:37
Like presumably it's easiest to sell in private markets when a lot of other people are really excited about buying.
15:44
Uh you can't just hit sell like in public markets. >> Correct.
15:46
Um yeah, maybe in like a a bad medium good.
15:50
Like there's different kinds of outcomes that you'd be selling into.
15:52
Are most of your sales into everyone else's excited and you're less excited?
15:56
It can be like everything in between.
15:58
Like if a company goes public, it's just hit a two to five X in three to seven years. And then sell.
16:05
>> And then [laughter] and then like so you're like the company goes public, you're at like a 3.
16:08
3 X in 18 months or 24 months.
16:13
You're like that annihilates a 12% a 20% net IRR. It's a great company.
16:20
But we can't stand our underwriting like what's the forward net return from here.
16:24
And we're like, well yeah, we made a we made like a three X in 18 months. That's like an IPO.
16:28
Um in a secondary sale, it's about underwriting the forward IRR in Toast, which is one of our biggest investments, which we put like 12% of our fund three into.
16:41
And we'd always get crap like our fund three was like a $290 million fund.
16:44
And we put like 36 million bucks into it.
16:46
And before the IPO we had sold 180 million bucks.
16:48
We think we'd make like 350 to 400 in it total.
16:50
People are like, why are you selling? You don't believe in us?
16:53
We're like, no, no, all these other knuckleheads like that invested alongside us, none of them put 12% of their fund in it.
16:57
And by the way, somebody is paying us a price in the secondary markets that we think, you know, is just like lunacy.
17:03
We sold like in the secondary markets like like 40 or 50 bucks in Toast.
17:08
The stock today is like 30 bucks.
17:10
We think it's cheap, but it's just like by the way, we sold like six years ago.
17:16
Um, and so it's like constantly underwriting forward IRR.
17:18
Okay, now I get to talk about the eight buying criteria.
17:22
Uh I don't know if you want to like tick tick them off or give us some highlights or >> Give us some highlights.
17:27
Uh, so there's eight criteria.
17:31
Are you 10 million plus in revenue? Why?
17:33
Do you have like product market fit? Are you growing?
17:36
Cuz we don't invest in startups.
17:38
Are you growing like 25% a year?
17:41
We generate returns through growth.
17:42
Um, we don't use leverage.
17:42
We have 70% plus gross margins. Why?
17:47
Cuz at the end of the day you trade on multiples for earnings.
17:51
Uh, revenue multiples are just like shorthand math for like what what will be EBITDA multiples or earnings multiples when you uh, you know, don't grow that fast.
17:59
There's a reason that Facebook, you know, gives away like, you know, electronics in the in the vending machines and Dell charges for Cokes.
18:09
It's just like one has 80% gross margins and one has like 15% gross margins.
18:10
And we think that just drives at the end of the day earnings. Um, are you recurring?
18:16
It's like a heck of a lot easier to invest knowing what revenues will be today.
18:20
So I know what they'll be in July than they are today.
18:23
Um Are you capital efficient?
18:24
This metric is probably kept us out of the most trouble.
18:29
It It's like our version of return on equity.
18:30
I mean, I think it's like Warren Buffett would think we're idiots, but um, are your revenues today greater than your historical cash burn?
18:40
So what do I mean by that?
18:41
Are you Are you 20 in revenue? Have you burned 80?
18:45
Like, you know, every other tech company cumulatively. Yeah.
18:47
Have you burned 80 since inception or have you burned 10 since inception?
18:51
We're looking for like this one-to-one ratio.
18:53
In a world where capital is a commodity, if you can build a business that's growing nicely while burning less than your while burning less than your revenues, you've got a pretty good business.
19:04
It Look, we don't invest in startups.
19:05
If you invest in startups or $2 million revenue companies, then obviously it's harder.
19:09
Are you profitable at the bottom line?
19:11
Do you have any customer concentration?
19:12
Like I just don't want to wake up and find out 40% of my revenues like disappeared cuz some customer didn't decide they didn't want to work with you.
19:20
I want to talk about the price you're willing to pay for companies and where this like how you would plot yourself on the so much so much of this sounds like a private equity strategy.
19:30
But you mentioned Toast and it's like But Toast was Toast was 25 million of revenue going 150% a year and it was like we paid like 500 million bucks.
19:38
It was like 10 times revenue.
19:41
People are like that's crazy.
19:41
It's like not when it went from like 10 to 25.
19:43
So we just try to build like a forward model and you're like look you could you could pay as high as price as you want.
19:50
You just got to be right on your exits.
19:52
You got to be right on your multiple.
19:54
You know how people got in a bunch of trouble in 20 in 2020 and 2021 and I think how they're going to get in trouble today and all this AI stuff is they just assume the exit multiple is 20 to 25 times. That's insanity.
20:05
Cuz when your maximum multiple collapses out so you can pay 20 to 25 times revenues and if you're right like some of our companies have been then it's fantastic.
20:16
But you can also be wrong like some of our companies have been and you look like an idiot.
20:20
And I think investing in OpenAI at 100 billion is a little insane personally but like I don't know if it goes on to do like a a trillion dollars of earnings yeah I was going to be very wrong.
20:29
I I should have invested.
20:31
There's almost like shorthand where if you're like if this company grows and doesn't de-sell much for like 18 months am I in the money and like can I make a good decent return for what I'm paying?
20:43
And if the answer is like oh am I even in the money at 18 months or 20 24 months?
20:46
Yeah you're paying way too high a price.
20:48
>> So so right now there's this seismic thing you can look at like the Constellation and the Constellation software's stock price or something is like the perfect visual indicator of what's been going on which is >> a ski slope.
20:57
this intense skepticism of the market that like boring traditional high gross margin software businesses are worth like much at all.
21:04
But I'm curious how you process this moment where I'm sure a lot of the companies you're looking at are software companies that uh have a lot of the components that make people fearful of the similar kinds of companies in public markets.
21:20
Our belief, for right or wrong, is that the competitive advantage of software company has never been about R&D.
21:28
We're not building semiconductor chips.
21:30
Like, we're not It's We're not building biotech and pharma companies.
21:31
This isn't that It's To build like Chamber of Commerce software, you too could build this.
21:36
Like, you know, my mother couldn't, but like my brother could, no problem. At least an engineer. Um look at Microsoft.
21:45
Any of our companies in our portfolio, if Microsoft took 500 people and gave them a month, each one of our companies could be out of business.
21:51
But, they just don't care about the Chamber of Commerce market.
21:54
They don't care about the price optimization market for manufacturing companies.
21:56
Um they don't care about like the tax the tax software market for a very specific niche product.
22:01
So, like the software companies like are really about like distribution, sales and marketing, customer success, client services.
22:10
So, we believe that it is the incumbent's game to lose in in software today.
22:16
Um There's a reason I'll give you a couple examples.
22:19
Workday has like 98 or 99% gross dollar retention.
22:24
It grows like 10 and 50 10 and 15% a year.
22:26
Like, oh, it only goes 10% a year.
22:29
I'm sorry, it's like 10 billion of revenue.
22:30
Um it only took like 20 years to get there and it does like 3 billion of free cash flow.
22:35
Exxon or a hospital system or um Warburg Pincus or KKR or Procter & Gamble probably spent 3 to 5 years like implementing the software.
22:47
If you think they're going to like start building their own HR software, you're out of your mind.
22:50
Now, the GUI and how you access it is going to be far different, but actually, they already have the customer relationships.
22:57
And the only reason they built it is because Dave Duffield and Aneel realized 20 years ago that Oracle and SAP had really crappy products.
23:05
But they have like thousands of engineers that are like trying to build the product much better and are going to use Workday versus like Mitchell Green's cousin like vibe coding his way to build Workday.
23:15
At the flip side, why did Coupa get built?
23:17
And the reason that was able to be built is SAP bought Ariba.
23:21
Like and they just like left it for dead.
23:22
So they built this like big business.
23:25
They took it public and now it's been sold to Toma Bravo.
23:27
So what I actually I worry about Toma Bravo or any of these big private equity funds if they're putting a bunch of debt on it.
23:32
It's not growing that fast anymore.
23:34
If they're putting a bunch of debt on it and then what they do is they like oh they like they brag.
23:40
They're like oh yeah, we can drive all our companies to like rule of 50 businesses.
23:44
Now do they end up cutting a bunch of people in R&D and sales and marketing and product that they should have that if you were being run by an entrepreneur with no leverage, you would have kept and and is now I I worry that a bunch of these private equity owned assets that are over levered are ripe for disruption versus like independent software companies that are that are focused on growth that are trying to innovate.
24:06
And I like to remind people that the um if you look at e-commerce everybody in '99 and 2000 everybody thought every big box retailer was going out of business.
24:17
But if you look at the top 50 largest e-commerce companies in the United States, you know, yes, Amazon is number one.
24:24
Do you know who like two through 10 are?
24:26
Walmart, Home Depot, Lowe's, Macy's, Target.
24:29
I mean, Saks is a crappy company.
24:31
Their online business is actually pretty good.
24:32
Neiman Marcus, same thing.
24:35
A lot of the incumbents will win.
24:35
Now again, you know, Montgomery Ward Kmart, Sears busted were bust for either like over levered, didn't innovate.
24:43
So like for us, that's what we're constantly thinking about.
24:46
Does that mean that right now feels like an especially opportune time for your style because entry multiples are low?
24:52
I think the best risk adjusted returns right now are in public software names.
25:01
By the way, when you buy you know Warren Buffett says buy when everybody you know is fearful and and sell when like everybody's super excited, people hate software.
25:08
You know, when we bought a bunch of our ByteDance stock 2 years ago when everybody hated China, I mean Alibaba's doubled off its lows and doesn't grow and trades at 15 times earnings.
25:17
If you think about the the the CV like the very specialist type buys that you'll do, can you explain an an example of one of those?
25:24
So, we like to use like the house analogy.
25:27
You walk down the street, go into apartment building and you're like, my apartment needs to have like these six things.
25:32
You can go in the front door and you can lead the primary round um and put money in the balance sheet.
25:39
Or you can buy the whole business.
25:41
You can go in the side door and buy like an early uh investor or early employee out.
25:46
But like maybe that's not available.
25:48
So, we'll go through the basement window with a pickaxe and buy like a derivative.
25:51
Cuz if you run a business and this can of Pepsi owns 30% of your business and I go to the glass that is an investor in the can of Pepsi's fund and that like is they're like half the LPs and I like literally buy that out and you own 30% and and I buy half the fund, I just bought 15% of your company.
26:04
It's the same thing I'm saying. It's just a derivative.
26:06
Um no, do you have as much control? No.
26:08
Do you have as much insight? No.
26:10
But like you trade off price for access.
26:12
We made a big investment in uh in Zoom.
26:15
Um so, we couldn't go into the front door.
26:21
The company didn't need money.
26:21
We sure as heck weren't buying the entire business.
26:25
Um there was you couldn't buy secondary.
26:28
There was secondary to buy, you couldn't buy it cuz Sequoia would roll for you. They're smart. They're not dumb.
26:31
They're like, why would we let these knuckleheads in?
26:33
So, like we'll take the stock and make two or three times our money.
26:36
And the company was one that took a long time to get funded and like wasn't backed by Sequoia.
26:40
Day one it was backed by a bunch of random Chinese people and Chinese funds.
26:42
So, there was sec- it was actually secondary to buy, but you couldn't cuz they're over. So, we're like, huh.
26:48
Why don't we go to this fund that like has stock and their LPs have been in this thing for 10 years.
26:52
Maybe their LPs want to sell and we can do it one of two ways.
26:56
Like we'll just buy your position in the fund and we'll know exactly how much we'll know exactly how much Zoom we have through it.
27:01
Or why don't we just create like a new vehicle?
27:03
Any LP that wants to sell, we'll step into their shoes.
27:08
Well, if you own 2% of Zoom and half the LPs want to sell and I then step in those shoes, I now own 1% of Zoom and if I say to you, "Listen, we get to vote them like we own them. Do you still hold it?"
27:19
So if you if you sell it, you know, if the company gets an M&A offer and you get to vote, you have to call us.
27:22
Day 181 of the IPO after lockup, you got to give us the stock.
27:26
We just we just bought the position.
27:28
In a world where LPs and GPs are desperate for liquidity, that part of our business is absolutely booming and that part of our business is headed by Tim Beamer, who's one of my operating who's one of my partners who was actually in Notre Dame with Mom as well.
27:43
If I think about the dollars deployed I don't know.
27:46
Last year over the next year, how much of it is direct capital on a balance sheet, secondaries, something creative like what you just described?
27:54
>> 70% is creative on our balance sheet.
27:56
70% is special sits or like secondary. Yeah.
27:59
And by the way, we will evaluate in an IC a public position, a control buyout, a minority deal, or a special sit.
28:09
Like it could be you could get four different things in one week and literally we just all have to we underwrite to the same return.
28:14
But today, the opportunity is in it's only going to we are a market draw down away from it exploding in in value or like exploding in stuff to do.
28:24
So, the hard part it seems like is finding a company that has six of the eight criteria that you can also buy at a multiple that you're excited about for the forward return.
28:36
What percent of companies meet like of the 9,000 or whatever meet like all eight criteria?
28:41
>> By the way, no correlation. Outperforms either.
28:43
If we do like an eight criteria deal versus like a five criteria deal, there's like actually no correlation to like it was a better deal.
28:47
What about you What about like four or three?
28:49
We've never looked at it cuz we um So, what we try to do is if you say it must meet eight criteria, 9,000 companies becomes 90. Okay.
28:56
To do five to seven deals a year, it just doesn't work.
29:00
Um and so, for us, what we say is it just like must meet five.
29:04
That's about a 10% yield.
29:06
We're trying to get to like 900 to a a set of companies that we can then like actually do work on.
29:11
So, you have 900 companies that meet five of our criteria.
29:16
You get to you do work on about a due diligence on about 150 to 175 to do five to seven deals a year.
29:24
And you're like, "Well, I want more."
29:25
I'd love to, but like we're cold calling entrepreneurs.
29:29
They're like, "Oh, I'm sorry.
29:29
I want to sell my business tomorrow."
29:30
Like, "Oh, you just happened to call me on this day."
29:32
No, the sales cycles can be a decade.
29:35
Um and it's about staying in touch with entrepreneurs cuz we're not the only ones calling them.
29:39
There's great firms like Summit or TA or Insight or you know, Bessemer or Battery. And they're great firms.
29:44
And so, it's like, "Well, ask the entrepreneur how do they need help?"
29:47
Try to like tease information out of them.
29:49
"Oh, you sell into like the consumer space.
29:51
You want to meet the former CEO of Colgate-Palmolive?"
29:52
Um and you're doing that to try to like build a relationship with somebody.
29:56
So, if five criteria companies don't outperform eight criteria companies, doesn't that imply the criteria aren't predictive?
30:03
So, then why have the criteria?
30:05
>> Because you need to set a framework for what to focus on and what not to focus on. That's it.
30:10
Like, it's just getting to a small >> predictive necessarily.
30:14
>> predictive, but it's getting us to a small enough pool to like it's like knowing your strike zone.
30:18
I is like my partner who's a big baseball fanatic, he uses a baseball analogy.
30:22
Like, Ted Williams knew in the hitting zone exactly where to swing and what his probabilities were swinging the ball.
30:29
Like, yes, you can hit a ball 2 in above home plate and it could be a grand slam and have hit the ball the farthest you've ever hit it.
30:35
But if you do that over an entire career, your entire career won't be very long.
30:41
Um and so, it just enables us to know like what pitches to swing at.
30:43
Our biggest mistakes have honestly been not swinging at the pitches when they were in our strike zone.
30:51
And I think that's like what we've learned over the last 15 years to get more comfortable and like when it's in our strike zone, swing at it.
30:58
How do you train these young people to be able to get all this information to know whether or not it's an eight-point score or whatever out of an entrepreneur?
31:06
Like, what is the art of getting someone on the phone and then actually getting them to tell you the information that you need?
31:12
>> incredible what people will tell you on the phone.
31:14
People are like, "Listen, you just like call people and they talk?" People love to talk.
31:17
Um, it's investigative journalism with sales.
31:21
We tend to hire people that are like former athletes.
31:29
But like, getting a C or a D on a test is not your like biggest failure.
31:33
Dropping the ball at like the Rose Bowl or like not making the Olympic team, you that's like failure.
31:39
And so, you're looking for people that are like insanely persistent, people that are really inquisitive, and and then it's just Hey, I'm Patrick at 10:00 a. m. your time.
31:55
We're doing work on the restaurant point of sale system space.
31:57
I read a bunch of articles that like sounds like you're kicking butt.
32:00
Oh, by the way, I just talked to like Square and Clover and, you know, set up a company.
32:05
We'd love to talk to you on the phone.
32:07
And oh, by the way, I'm sure you're getting bombarded by other people.
32:08
But by the way, we're we're different than a lot of firms.
32:12
A lot of our capital comes from world-class exacts.
32:14
Like, oh, by the way, one of our LPs is the former CEO of Wendy's.
32:17
We'd be happy to let talk to them if you want to meet these people. Huh. Sure, love to chat.
32:22
By the way, we used to get to cold call people.
32:24
Like, when when Brian and I and Nima were doing this, like literally cold call people and you'd be like, you feel like the person who calls you at 6:00 p. m.
32:29
, you know, and you know, 20 years ago.
32:30
And you you like slam the phone down on.
32:34
Today, it's like, "Oh, come on.
32:34
You guys get to send emails to people. Give me a break.
32:38
We actually tried to do it I've encouraged some of the analysts to start calling people.
32:41
The biggest issue is like it's hard to get people's cell phone numbers versus like you know work phones.
32:47
Um and it's just like once you get the person on the phone you just have to show knowledge.
32:51
That's where by the way AI is incredible.
32:53
It's like you give every analyst an associate, you give them like the power of knowledge and you can sound super smart.
33:01
And you won't get everything.
33:03
It's like hey, I saw on LinkedIn you have like 80 employees.
33:04
So what do you like 10 million revenue? 15 million revenue?
33:08
Oh and I see like your employee cost growing like 80% a year.
33:12
What are you growing like 150%? Yeah, I'm not that fast. More like yeah. Oh what like 100%? Yeah, around there.
33:16
So it's like it's like try like try to get numbers.
33:20
If you think about this machine, so we've got this very unique LP base.
33:23
We do you know 9,000 calls, five to seven investments per year.
33:25
We just raised our seventh fund.
33:27
It was three and a half billion. Okay.
33:29
So a three and a half billion dollar fund um two to two and a half percent, you know, net IRR or net net MOICs to your investors.
33:37
So that's kind of the machine.
33:40
Where do you feel the most tempted to go tinker on the machine for the next decade?
33:44
Like how do you hope the machine improves?
33:47
Continuing to as the firm gets bigger how do you build a culture of teaching people to still be creative and scrappy hustlers.
34:00
It's the most important thing.
34:02
Like how do we get creative and do CVs?
34:04
We were doing CVs when nobody wanted to do CVs.
34:07
We didn't know they were called CVs.
34:08
We just thought it was paying somebody a profit share.
34:11
Um it's like continuing to innovate on that.
34:14
What's really interesting is the secondary markets now for some of these names are so liquid.
34:19
So actually almost don't even have to underwrite to this thing going public.
34:23
It's like can it just get big enough with enough escape velocity where I can then sell out.
34:28
If you think about all the investments you you in the last five years or something, how often are you like personally excited about the company and its product?
34:34
Frankly, this is what drives me nuts about uh a lot of people in the venture capital ecosystem is like they think they're actually like like changing the world and everybody should which they are, but they they should tell everybody about it and they're like doing God's greatest gift to mankind.
34:48
Like we don't think that.
34:48
We love helping entrepreneurs.
34:50
Like that is actually what gets me excited and gets us up in the morning and I think it's everybody up at Lead Edge is like helping an entrepreneur try to bend the curve and like make that customer intro and like help find that great CFO uh or the audit chair or whatever.
35:02
We love making customer intros.
35:04
Like that's what gets us the most excited.
35:06
And I and I think we are still actually just scratching the surface at how we can leverage our LP's.
35:12
>> How often do you control the business?
35:15
We are in a control position about a third of the time.
35:18
And when when that's the case, how different is that?
35:20
It hopefully should be no different at all, but there's less knuckleheads around the table.
35:26
Um there's less people around the table and what's really interesting is when you have a lot of different people around the table, you can have a lot of different competing interests.
35:32
And so it's about building consensus.
35:36
Um and you get people that are in a one cost That's why they all there's all these 20 and 2021's companies haven't sold.
35:41
Like there's these late stage guys that are like, "Oh, just get me out. I own the profit.
35:44
I'll make a 1X today or I'll make a 1X in a decade."
35:46
But we don't go into companies and say "We're replacing the entire management." That's not what we do.
35:55
When we invest in a business and when we exit, it's something like 75% of the time the person who was running the business when we invest is still involved in the company.
36:08
They may not be running it, but it's like back people who just want to build awesome businesses and great companies and like it's like, "Listen, if I'm not the right CEO, well, then make me the chairman of the board or make me the chief customer officer or make me the chief product officer or whatever."
36:22
That um that's what's really important.
36:25
I want >> back to the culture thing.
36:26
The lead edge culture I mean.
36:28
>> What have you learned about culture in the many years now that you've been doing this and especially given this is the thing that you're you want to keep nurturing?
36:35
I didn't think I appreciated how much culture comes from the top.
36:37
Um and so like follow-ups send handwritten thank you notes.
36:43
I've sent handwritten thank you notes to everybody I meet, almost everybody.
36:46
I meet like every entrepreneur, every company.
36:48
Guess who Guess who also does now? The 22-year-old analyst.
36:51
And by the way, we track it and report on it.
36:53
And you know, if you just treat people the way you want to be treated, that just flows.
36:57
We've built a culture of like treat LPs like you yourself want to be treated.
37:05
People appreciate that and it comes from the top.
37:07
And like the intellectual honesty comes from my partner Nima.
37:10
A lot of the creativity comes from my partner Brian.
37:12
Now, of course, as you get to be an 85-90 people at a firm, we've built like a real training program which is a result of a lot of work Nima and Brian and like our our COO Suzy's done and that team and the recruiting team.
37:24
We didn't have like I used to weekly IC meetings before like three or four years ago. Why?
37:29
Because IC was every of us. Yeah. We talk every day.
37:34
Um and so it's just like building processes in place.
37:35
>> Can you talk about this crazy one-on-one thing you do with every employee?
37:37
I got the idea from Tom Barrack at Excel KKR.
37:41
He's built a true machine at Excel KKR.
37:46
I asked him like what's what's like something I should do?
37:51
Like what what do you think something you do that like really helps the firm?
37:53
He's like interview everybody once a year.
37:56
So we sit down we we start with like a survey.
37:59
And then you need and then you sit down with every employee. You personally do. I personally do.
38:02
Sit down with every other partner, every VP, every associate, the accounting person on the back end, every receptionist, and be like what do you like about your job?
38:12
And so first, give me everything you do, green, red, yellow.
38:17
Green you love, red you hate.
38:19
And by the way, let's figure out what you hate and why.
38:20
And if there's things you hate, well then let's figure out other people that may be able to do them or how can we make your job easier?
38:27
Okay, that's the first bucket.
38:27
Second bucket, if you were me running Lead Edge, what would you change? Three.
38:35
What's something we can do to make your job easier?
38:39
What you learn is incredible.
38:39
You get a bunch of really good ideas every year.
38:42
It actually drives my two partners nuts cuz sometimes I'm like, "That's amazing. Do it."
38:45
And then like they're like, "Come on, we need to build consensus."
38:48
I'm like, "No, we don't need to build consensus." some of these things.
38:49
Is there anything else that you do in the culture that you feel carries that much freight?
38:53
Being like the good person is like just not that hard, frankly.
38:56
And in a world that's insanely competitive, if like being the nice guy gets you the call back and being like the helpful person, um then then do it all day long.
39:07
And then it's another really important thing about running this place is that like I can't be the bottle. I can't know every LP.
39:16
And so like if you're a 25-year-old or 23-year-old associate here and you have to go to Seattle next weekend for a wedding, then I'll pay your trip if you stay on Monday and go meet a bunch of LPs. But you're 23 years old.
39:28
Like 99% of firms on this planet wouldn't put 23-year-olds in front of LPs.
39:33
I'm like, "If you're smart enough to work here, you're smart enough to meet this LP. Like I don't care." And people love that.
39:36
The 23-year-old associates love it, which helps us get great people, but then also the LP loves it, too.
39:44
Because they'll be like, "Oh, my son is your age.
39:45
Like Would you Would you I Would you mind like talking to him?"
39:47
Or "Hey, you went to Notre Dame.
39:49
Oh, my son's like la- plays lacrosse and he's like thinking of going there. Would you talk to him?"
39:53
And he'll be like, "Oh, well actually, no, talk to my partner Tim cuz he like played Notre Dame lacrosse."
39:57
You just build really real relationships with people.
39:59
If you think about the average month for you and the major slices of the pie are time with LPs, time with companies, I'm so curious.
40:08
It's actually kind of hard to guess what maybe there's different buckets than those three, LPs, companies, Internal. Well, that's right. Yeah, right.
40:16
What what does yours look like?
40:18
Um and mine's by the way very different than Brian anyway. And this is by design.
40:21
And it I mean it ebbs and flows a little bit with fundraising obviously.
40:27
I probably spend 60% of my time with LPs. Wow.
40:29
Now again, that could be getting somebody to help a company though too.
40:34
Or coordinating with the team um of people with us like, "Hey, let's figure out a way to get into Exxon."
40:40
And then I would say a third of my 25 30% of my time is investing related, which could be reading memos, helping people win deals.
40:50
That's frankly how I want to help.
40:52
Like I'm like if we lose a deal cuz I didn't meet the company, like I might say that I can help us win, but like we got to at least put our best forward.
40:57
And then probably 15 20% is operational.
40:59
The operational stuff's coming down um because uh we hired one of our partners, Suzy, who lives in Greenwich, um used to be an investment partner.
41:11
A few years ago she became our COO. So, that's like my time.
41:16
Nima probably spends 90% of his time investing, 10% of his time on everything else, which is what you should do.
41:21
Uh and kind of like running the IC.
41:23
Our partner Brian probably spends 60% of his time investing.
41:27
And probably 2020 on LPs and operations.
41:31
And it's And it's like each of the three of us, if you were to meet the three of us, it would be very It's very clear to people that spend time with Brian, Nima, and I that we like play to our strengths. >> and weaknesses.
41:44
You mentioned Tom Barrons as someone that you've learned from. >> Yeah.
41:47
If you had to like create a Rushmore of like other investment machines that you most respect, who is the Rushmore? Insight. TA. And probably Excel KKR.
41:57
I think Devin, Jeff, Triplet, the guy uh Lieberman at Insight have just built like a factory.
42:04
It's like It's You know how you know what a good software company is?
42:06
Just talk to like They probably talk to 30,000 companies a year.
42:09
It's just It's like an absolute factory.
42:12
And you're trying to like it's process.
42:14
And so I think they're like amazing at it.
42:16
TA is one that like pioneered cold calling.
42:20
Um and you know, Insight is obviously saved two to itself like, you know, in 2001 they I would guess Insight's growth rate in their portfolio would have been 2001 and like today is actually pretty similar.
42:31
TA's is definitely come down.
42:31
They're more private equity like.
42:33
It's just discipline and process.
42:35
Like I I think I get the sense that TA is very good at selling. >> do.
42:40
Um and then Excel Excel here has built like an incredible value creation team that I think actually adds a lot of I think there's a lot of like talk about value creation they don't do much, but I get the sense that these guys are like very good at actually helping companies and trying to bend the needle.
42:57
As your business scales up everything gets more complex, especially your compliance and security needs.
43:00
With so many tools offering band-aids and patches, it's unfortunately far too easy for something to slip through the cracks.
43:06
Fortunately, Vanta is a powerful tool designed to simplify and automate your security work and deliver a single source of truth for compliance and risk.
43:14
>> [music] >> There's a reason that Ramp, Cursor, and Snowflake all use Vanta.
43:16
It frees them to focus on building amazing, differentiated products knowing that compliance and security are under control. Learn more at vanta. com/invest.
43:28
I know firsthand how complex the tech stack is for asset management firms.
43:30
And seemingly every new tool and data source makes the problem even worse adding more complexity, more head count, and more risk.
43:38
Ridgeline offers a better way forward.
43:40
One unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance, and more all at scale.
43:48
Ridgeline is revolutionizing [music] investment management helping ambitious firms scale faster, operate smarter, and stay ahead of the curve.
43:54
See what Ridgeline can unlock for your firm.
43:57
Schedule a demo at ridgeline. ai.
44:00
What have we missed about what makes the machine tick that you think is really important?
44:07
I would have said that the three of us who run the machine are all very, very different and we play to our strengths.
44:14
And I don't and I don't think that should be like underestimated.
44:15
Um and I think that's what makes the machine like we literally negotiate carry economics for the three of us in like 10 minutes.
44:25
Like we and there's firms you hear about that like get into month-long fights like two-month-long fights over carry.
44:31
We all highly respect each other and like know what we're each really good at.
44:36
I think that's the most I think that's honest.
44:37
And like just a focus on intellectual honesty that I think a lot of firms just don't have.
44:42
Like if you go to our investment committee some of our investment committee meetings especially outside we our investment committee is the three of us.
44:49
But then we like everybody that's basically VP enough gets to come.
44:53
But if you sit in the room and and listen to Brian and Eemaan I talk about a deal, you would think the three of us hate each other.
44:59
Or you might think we're Israeli.
45:03
Because they it's like just like a joke and talk about it.
45:05
If you listen to like Israeli board from the outside you're like these people all hate each other. Like how do they work?
45:08
No, no, that's that's just how they talk.
45:09
Like and then like right after we have the IC we're like the buddies.
45:12
And it's like no, it's like let's debate the merits of this deal.
45:15
Can you riff a little bit more on just all the ways that you're excited and fearful about AI both in the investment process at Lead Edge, for running Lead Edge the business, and for the companies that you invest in? >> Yeah.
45:27
I'm the most fearful for what I don't know.
45:29
And just like AI is going to change the world and it's going to do it in ways that nobody can think about just like the internet did.
45:36
I mean in 2009, 1999, 2000 when we sat here, we wouldn't have mentioned social media.
45:39
I mean it's today it's $3 trillion of value.
45:40
I'm the most like fearful when it comes to companies and processes for that.
45:46
It's like what don't we know?
45:48
Like what is this like what are we missing?
45:51
Um What am I the most excited about for us?
45:55
Like AI in the long term will create the biggest productivity gain of the last, you know, 75-100 years.
45:59
Don't know if it'll be like electricity, but like it'll be pretty damn close. That's really exciting.
46:04
Like people like it's not going to be like like don't people get too excited about oh, we're going to go like build the next piece of workday or we're going to go build like better call center software.
46:11
Like this stuff is going to you're going to see industries that we're not even thinking about how to even thinking about what's going to like be possible is going to happen.
46:18
That's like really exciting.
46:20
It's going to be the age of entrepreneurism and like people are going to build a build awesome businesses.
46:25
What I worry about whether it's internally at Lead Edge or outside at our portfolio companies is do we have the right people in place so that we don't get disrupted?
46:34
And like cuz like it's you constantly want to you want to like I I joke you want to hire a bunch of young people.
46:40
And these young people people worry about young people aren't going to find jobs.
46:42
It's like no, young people are the ones going to figure out AI more than the 60-year-old or 55-year-old.
46:46
And so it's do we I actually rank all of we take all of our portfolio companies and we're saying like okay like what's your like AI readiness score?
46:55
And then it's okay, this company's like really high.
46:58
This company's pretty low.
47:01
Huh, we should like connect those entrepreneurs together to figure out what they're doing.
47:05
What goes into that score?
47:06
What's your data look like?
47:06
Is it structured in a way that you're going to be able to leverage AI? Are you iterating?
47:12
Like how many new AI products have you come out with?
47:13
What's your AI revenues on new products?
47:14
You know, have how much more product releases are you able to release?
47:20
It's not did your engineering comp stay flat or go down?
47:24
We have to I for one strongly believe that if you think in 2020, if your budget in 2024 for 2026 was to have 150 software engineers, you should still have 150 software engineers because those software engineers can be like exponentially more productive and they can then create more products that your sales team can then go sell. Who do you compete with?
47:44
>> We would bid against Insight, FTV, JMI, Battery, Bessemer's Lightspeed when they do Lightspeed when they do like bootstrapped-ish type stuff.
47:54
Okay, but sometimes we compete against Meritech and IVP and like but wait, you can buy like rocket ship companies in Silicon Valley are freaking awesome.
48:00
Like I was not going to pay 100 times revenue for them.
48:03
>> [laughter] >> Uh that's the that's the problem right now.
48:06
There's like too much money.
48:06
Matt Cohler said it best.
48:08
It's like they backed these giant internet companies when distribution was loose and capital was tight.
48:14
It's like the reverse happened.
48:15
So like capital's everywhere, but like four companies control distribution.
48:18
So like good luck going to build a giant internet company.
48:20
Um and right now there's just like too much money chasing, you know, at least in Silicon Valley two few two few great times. So expand on that.
48:28
Like like decompose and expand on that a little bit and so I guess the question is like your view on the state of markets and technology markets in general.
48:37
Overhyped, overfrothed, um and I believe this AI CapEx bubble will end badly.
48:45
Uh in a way I just think people are it's like the telecom bubble all over again.
48:49
And it will be it will be very interesting if Apple may have been maybe look like the really smart one at all this at the end of the day.
48:55
Uh we've seen them but they're I think people are just going to overspend.
48:57
I think I'm convinced that people investing in all these AI companies, all these VCs like have to portray the view that software is die is going to be dead because they have to justify how much money they're going to spend.
49:07
Like if you if you start to run these assumptions on like how much money is going into these companies and what that means for how much earnings you have to drive and what that means for like how much power you need to generate.
49:18
Like it just doesn't work.
49:19
Where are the nuclear power plants coming up and like this doesn't work.
49:21
Um but that presents the opportunity.
49:25
That's when you're going to buy it.
49:26
That's when you're going to buy these companies.
49:26
The counter argument would be in telecom, you know, it was all dark fiber and AI it's all burning GPUs.
49:34
And yes, the CapEx is crazy, but we it's still like we everything still feels mega under supplied.
49:40
And I'm just curious how you think about Yeah, when the opportunities will present itself for an investor like you.
49:48
>> think um Look, our fundamental my fundamental belief is that the models will commoditize.
49:55
And that companies like Google have a Facebook and Amazon and Apple have a competitive cost advantage.
50:01
Amazon companies like Amazon and Microsoft and Google have more data to train a model than than these new model companies will ever have.
50:08
If and then oh by the way, if you are all these like Chinese models or European models, a bunch of these things cost a fraction of the cost to run.
50:17
And so like and you can run them locally.
50:20
And especially if your country's companies outside the US.
50:21
Like why would you pay that amount for open AI tokens or Anthropic tokens when you can just run Deep Seek or one of these other 10 models.
50:28
And so like I I think we worry the most about model commoditization.
50:32
I have no clue when this will like stop.
50:35
It will probably go longer than people think.
50:37
In 99 and 2000 people also thought we were in a bubble.
50:41
They also think people think we're in a bubble now and it will just like stop.
50:45
Is it one of these monster IPOs happening that um you know, and then it just doesn't go like people think it does.
50:51
You know, I I think this Anthropic round was kind of like an IPO.
50:54
We're trying to hit doubles and triples.
50:56
A lot of these companies we struggle with like do they're going to be 200 X's or 100 X's or zeros.
50:59
Like it's just that that's a struggle that's a struggle for us.
51:03
What kind of company in the AI like center of the heat map, I know you're probably not investing in any of them but cuz of the multiples or whatever, what kinds of companies are the most interesting to you?
51:15
>> I think it's like fascinating some of the stuff that's being done in infrastructure software.
51:17
Like um and actually that like agents appear to consume more resources than actually people.
51:25
And so like the some of these consumption-based models like the growth of companies like by dumb luck we were very early investors in ClickHouse.
51:33
Um which is a database company.
51:33
We were early investors in Grafana Labs infrastructure company that competes with like Data Dog.
51:37
Data Dog's growing like 29 high 20s 30% a year at scale.
51:39
Um like it's still these types of companies that I think we find super interesting.
51:45
I I find them fascinating.
51:45
It's I really struggle with evaluations but like the the growth rates are like we've never seen with very good economics.
51:50
You see how much money a company like Click House has raised like what they've burned is like nothing like very little compared to what you might otherwise think.
52:02
What do you think is the most surprising thing about you?
52:06
Like like you have a good sense of you from how you operate persistence enthusiasm energy process.
52:14
What do you think if I spent 10 hours with you I would be most surprised about?
52:18
How like So probably how driven I am and how much I like truly love what I do and like I just put my like heart and soul into everything I do whether it's like racing cars which I race cars competitively.
52:27
I was a national ranked ski racer or how I run Lead Edge like I probably sleep like 5 hours a night 4 hours a night.
52:33
It's cuz I love what I do.
52:34
I absolutely like just I'm insanely competitive and and I think that if you spent 10 hours you'd be like oh my god this guy is the most persistent competitive person we've ever I've ever met. Were you born that way?
52:48
Yeah I think I was born that way.
52:48
Was it enhanced through formative early experience?
52:51
>> Ski racing ski racing skiing growing up as a kid ski racing 100%.
52:54
Can you make that tangible for us like what was it like?
52:58
Process like do these things and you'll get better do these things on video on a GS course and constantly analyze video and do these things the next run and change this and like you fell get up and go do it 10 more times.
53:08
I grew up on a ski hill that was 500 ft.
53:10
I mean Lindsey Vonn is one of the best skiers in the world she grew up skiing on 500 ft Buck Hill in Minnesota and doing laps like from 4:00 p. m. to 10:00 p. m.
53:17
at night like just repetitive.
53:19
Like Mikaela Shiffrin who's one of the best female skiers in the world like the use it as her time on snow is like limited.
53:27
So like when you get off the chairlift like constantly like everything is a drill like do just constantly be trying to improve.
53:34
I think that's Lead Edge and and like what you would find in me is like constantly trying to improve.
53:40
I what would surprise me the most actually if you had to say like, "Huh, you started the firm 15 20 years ago."
53:46
Like, I think I've been able to recruit and maintain and motivate and build a really good team.
53:55
I've been very good to pick really good partners and that treat other people really well and that like, you know, feeds on itself.
54:01
Is there anything else from skiing, I'm not a skier, that you find visceral and helpful as an analogy for how to do things elsewhere other than reps and practice?
54:13
When I asked the guy, Scott Booth, who ran Eastern, I asked him why he hired me.
54:19
He said to me, and this was early '08, he said to me, "Because when things get scary, you're going to want to buy."
54:25
And I didn't know what he meant.
54:29
Cuz he's like, you go down a hill at 80 miles an hour. Like, this isn't scary.
54:32
Like, this is like nothing.
54:32
You're like, you can make a decision of going down the hill at 80 miles an hour and like what to do and what not to do and how not to fall and fall whatever.
54:40
When the fall of '08 happened, I was like, "This isn't scary. What's buy?"
54:42
And like, it's eventually going to go up.
54:43
We ski racing helped me really understand like a very fine line and risk adjusted and like risk return behavior.
54:51
I just think like being an athlete, whether you play basketball, whether you play hockey, whether you play golf, like I think athletes just have a work ethic and can under and like if you're trying to find it in young people and like have a drive, like there are athletes that have incredible athleticism, but also have incredible work ethic like Michael Jordan.
55:16
Those are the best of the best.
55:19
Then you have people like Steve Kerr who are like not very good athletically, but had a work ethic of Michael Jordan. Like, they can be good.
55:28
But then you have wasted talent, which is like Dennis Rodman's of the world where like they were amazing athletes, but they like didn't have a drive.
55:35
And I think the same can apply to investing.
55:37
Why did you choose to start the firm because you were quite young when you did it?
55:43
And what how how could you translate that experience into advice for someone listening that is thinking about starting a fund to decide whether or not they should do it? >> Just go do it.
55:50
If you want to be an entrepreneur I I can't My partner Brian is like the reason you started a firm is because nobody was going to like hire your ass.
55:55
I've always wanted to be an entrepreneur and be like really really successful. It's always driven me.
55:58
And like I always wanted to be like, you know, just just solely focused on it.
56:05
And you know, like if you wanted to generate generational wealth or build something, like you need to be an entrepreneur.
56:12
Like yes, if we build Blackstone, everybody who's here will make an insane amount of money because it was 90 people.
56:17
One of my partners Zach is very young.
56:19
He I mean, he's like 30 years old. He's a partner.
56:21
Because he joined here and he took a bet when the firm was tiny.
56:26
I just encourage people, if you want to do it like your own way, there's no better time than now.
56:31
Like what are you waiting for?
56:33
Like I actually think it's easier to leave when you're 27, 25, 30, than when you're 45 and have three kids. I I had nothing to lose.
56:40
If it failed, like I was going to just go work I guess I guess I'd work for somebody.
56:45
What Once you made lots of money, do you still care? 100%. Why? >> Keep score every day. Because it's score?
56:50
It's a score because like I want to win.
56:52
Like Like I you know, some of like people like Ken Griffin and Steve Cohen are like mentors, LPs of ours.
56:59
Like those those guys have built like it's incredible how hard those people work.
57:02
Like now again, maybe these are NF2 people, but like or if you look at some of these like tech entrepreneurs, that are like an Elon Musk or Alex Karp from Palantir or Matt Prince from, you know, Cloudflare or like George Kurtz from CrowdStrike.
57:13
Like these people are incredibly driven, like hard working people that like live and breathe what they do.
57:18
And so yeah, I mean, people keep score.
57:21
But But you have But I have like it's not work for me. This is fun. I travel constantly.
57:26
And like to meet companies, to meet LPs, to meet entrepreneurs, to like meet bankers.
57:30
And like people are like, "Your schedule like Tell people my schedule and they like cry.
57:33
I'm like, "No, it's not It's not work. It's fun."
57:34
It's pretty amazing what you've built.
57:36
Uh very unique model, incredibly fun.
57:37
I love when you are to just walk us through it all.
57:41
I had so much fun doing this.
57:43
When I do these interviews, I ask everyone the same closing question.
57:46
What's the kindest thing that anyone's ever done for you? Pete Willmott. He's passed away.
57:51
Was the former um CEO of FedEx.
57:54
And he was a Williams alum.
57:57
I started a company in college, and he was like the first person that ever believed in me.
58:01
I was like 18, 19 years old.
58:02
And he became an investor with us.
58:04
And the company completely failed.
58:07
And he probably, when I was trying to get my first jobs, and when he got my job at Bessemer, he was my reference.
58:13
And he basically told the person they were insane if they didn't hire me, cuz I was the most persistent person he ever met.
58:17
I learned so much today about building something unique.
58:20
Thanks so much for your time. >> Cool. Thanks so much. Have me on.
58:26
Most software companies try to maximize your time on their app to juice engagement.
58:29
Ramp does the exact opposite.
58:31
Ramp understands that no one wants to spend hours chasing receipts, reviewing expense reports, and checking for policy violations.
58:37
So, they built their tools to give that time back, using AI to automate 85% of expense reviews with 99% accuracy.
58:43
And since Ramp saves companies 5%, it's no wonder that Shopify runs on Ramp, Stripe runs on Ramp, and my business does too.
58:50
To see what happens when you eliminate the busy work, check out ramp. com/invest.
58:57
As your business grows, Vanta scales with you, automating compliance and giving you a single source of truth for security and risk. Learn more at vanta. com/invest.
59:05
Ridgeline is redefining asset management technology as a true partner, not just a software vendor.
59:09
They've helped firms 5x in scale, enabling faster growth, smarter operations, and a competitive edge. Visit ridgelineapps.
59:15
com to see what they can unlock for your firm.
59:19
OpenAI, Cursor, Anthropic, Perplexity, and Vercel all have something in common. They all use WorkOS. And here's why.
59:24
To achieve enterprise adoption at scale, you have to deliver on core capabilities like SSO, SCIM, RBAC, and audit logs.
59:30
That's where WorkOS comes in.
59:34
Instead of spending months building these mission-critical capabilities yourself, you can just use WorkOS APIs to gain all of them on day zero.
59:41
That's why so many of the top AI teams you hear about already run on WorkOS.
59:44
WorkOS is the fastest way to become enterprise ready and stay focused on what matters most, your product. Visit workos. com to get started.
59:53
Every investor should know about Rogo, because Rogo AI's platform is not just another generic chatbot.
59:59
Instead, it was designed to support how Wall Street bankers and investors actually work, from sourcing, diligence, and modeling to turning analysis into deliverables.
1:00:06
For me, three key things differentiate Rogo.
1:00:08
First, it connects directly to your system, so it can work with your actual data.
1:00:12
Second, it understands your workflows, how work really happens across a deal or an investment.
1:00:17
And third, it runs end-to-end and produces real outputs the way the best people do, auditable spreadsheets, investment memos, diligence materials, and slide decks that match your standards.
1:00:26
This all comes from the fact that Rogo is built by finance professionals for finance professionals, and it's already being adopted by some of the most demanding institutions in the world.
1:00:34
To learn more, visit rogo. ai/invest.