00:23:28 · Larry Aschebrook
[00:23:28] S0: later. But I think that that... Look. As a as a GP, raising money's hard. Doesn't matter what your returns are. Raising money and raising capital from LPs is is difficult. Investing it is easy. Selling it is hard. And, typically, you know, your opportunities to sell are when everybody else wants to buy. Yeah. And the herd mentality of Silicon Valley can be difficult to abstain from. And I think one of the benefits we have with being headquartered in Chicago, most of our our our team members are Midwesterners and have a different kind of risk tolerance, is it's it's less about, you know, what is in your book, so to speak, and what dinner parties you go to, and and and how much money you're managing. And it's more about what what are you doing to create real value for your LPs, True alpha. And that is a difficult, difficult item to find. It's real true alpha generation, not beta. And so as the markets are up into the right in privates, just like publics, it's not alpha. People can pat themselves on the back all they want, and we've been guilty of it too. Oh, we're so smart. We're so good. Everything's working. Look at the MOIC. But the real true real true outcome is what is the value of it when you sell it. Yep. And in some of those losses, painful ones, and I wear them every day. And my my... Oh, I have a terrific co PM in Spencer McLeod who's, I think, besides my wife, one of the smartest people that I know. He does a fantastic job of helping us build our portfolios. I think my value add to our partnership is my willingness and desire to do the hard things, and I think that's from being a former athlete. Like, the grind is... I enjoy the grind. I enjoy the the the wins, but the losses haunt me. And when I look back at the failures at our firm, even with good process, you're gonna have bad outcome. I can handle those. It's the bad process that creates a bad or good outcome. You don't reassess on the good outcome with a bad process. It's the bad outcomes that you really look in and say, hey. What did we do wrong? And how... In our business, secondary focus, 70% of our funds are secondary, try to underwrite like a primary investor. So we can't use the excuse of we didn't have enough information or we didn't have the interaction with management. It's it's truly our mistake, and it's the price we paid. Because in in in...
00:26:39 · Larry Aschebrook, Guillaume Moubeche
Like, one example, QuickCommerce. We had a lot of success in Instacart and Postmates, Meituan, Diping, Alibaba. We had great success. Pandemic happens. We deploy over the course of eighteen months a lot of money into quick commerce, and we all know how that story ended. And we were not immune to it. And so as I look at the process, were there points in time that we could have exited our positions? And the reality of the answer is yes. And we didn't do the work that we should have done for our LPs on on that particular space. And those are the things that we have to make sure that we improve upon and put guardrails in place to not have happen again. And and [00:27:33] S1: So now do you have, like... Yeah. Sorry. Go ahead. [00:27:36] S0: No. Go ahead. Yeah. [00:27:37] S1: No. I was wondering now, do you have, like, a very specific rules? So for example, let's say you mentioned like companies like Anthropic, OpenAI. I mean, we've seen like the scale and how fast this valuation. I think now we're entering, you know, like an era where valuations are going through the roof, you know, like to to access Anthropic like the last round. I'm guessing they were not looking at investors below like 1,000,000,000, you know, in term of check size. So how do you... If you have a position, you know, in these companies, when do you decide to sell? What amount do you sell? Do you, like, reinvest? Like, how do you map out, like, the strategy?
00:28:19 · Larry Aschebrook
[00:28:19] S0: Yeah. I I well, so leaving... Well, first of all, in those two businesses, fantastic value creation for LPs every day and for their shareholders and their employees. You know, congratulations to both of those businesses, and and we're fortunate enough to to have exposure to both. I would say, you know, the the rules of the game are are really changing, but, you know, as we're playing the board game in valuation and growth and underwriting and cash needs of the, you know, AI native businesses. It's it's something as it LP... Or, excuse me, as GPs we... We've really not seen before, and it's very difficult to underwrite. What I would say about those two assets is is they're probably, you know, still in their their infancy. So the majority of of the people that got in at the right time are gonna have a a fantastic outcome. Just generally speaking for G Squared, what we're after is a north star of this two and a half to three x DPI in a five to seven year period. And as we start to achieve that per fund, you see us starting to to to derisk. Now in the high flying assets, they typically have an outcome that that happens on their own quickly. You know, there's there's no gravity holding some of them back. You know, Wiz showed it with their... With Google acquisition. That's a... Was a fantastic position for us. It closed recently and and really got to know the founders through trips to to Tel Aviv, and they trusted our process. And we built a very large position there, and we're fortunate to have an outcome that was generated for us by the company. But for the most part, we have to focus on selling at the right time in conjunction with the company's needs. And so I think one of the struggles of running a concentrated equity portfolio, primary or secondary, is when it comes time for you to meet the needs of your LPs, you have to do it in a way that's beneficial to the businesses. Making sure that if you are transacting, you do it with very high quality third parties that can provide value to the companies differently than you. Okay.
00:30:33 · Guillaume Moubeche
[00:30:33] S1: And Coursera So basically, you Yeah. You you go with... You go you go to the board saying like, hey, I've got, let's say, very well known, like, family office who has great connection in that specific region would like to acquire, like, let's say, a 100,000,000 of my position, I think it can be, like, a helpful partner. Like, can we make this happen? Or is
00:30:57 · Larry Aschebrook
[00:30:57] S0: it Yeah. So it's family offices to large global financial institutions. You know, Coursera is a great example. We were... I think we're the largest shareholder of Coursera at the time it went public, and we worked with the company in a very large sovereign wealth fund to come in and and transition our position to them. So we didn't, you know, sell it and drive the stock down over Yeah. You know, 180 days because I think that's one of the issues in the public markets today is there's just ultimately no liquidity for large scale positions. So, you know, you think about... And we're small. Right? And our... And still small. We're bigger than we were, but in reality, G Squared, you know, we're approaching 7,000,000,000 today in assets. It's still relatively small compared to some of the other players, but we do build very large positions, several $100,000,000 of cost basis. In in the case of some of them, it gets to be north of 1,000,000,000 in in net asset value in one position. When you go to sell that in the public market, it's almost impossible without moving the stock price. It takes forever. And if you are unlucky and have one of those great businesses go public in Frankfurt or the LSE, there is not enough liquidity. It's impossible. There is no liquidity. So this idea that the public markets create massive amounts of liquidity for GPs at large scale is is really false. It's a false narrative. And so what we've decided to do in our business focused on this DPI metric is when it's time, we work with the companies. We find shareholders that they wanna get involved with, and we help transition it to them in a win win, similarly to what they did for us building the positions. Now it takes time and energy and and and patience, but ultimately, we are stewards of of trust from the issuers. And
00:33:03 · Guillaume Moubeche, Larry Aschebrook
[00:33:03] S1: And and do you negotiate that from the start with the company? Because I'm assuming, you know, that obviously, you know, when when a company gets to a stage where it's like super sexy, everyone wants in, and they just want to raise, and they don't want, like, existing shareholders to to get liquidity. [00:33:21] S0: Easier on the way out than it is on the way in. When you're... Our business model is we run as... We refer to it as the land and expand. You kind of fire the rifle to calibrate the cannonball, so to speak. Okay. So we're dollar cost averaging in, very small positions up front. It's it's when we get to the top 10 or so per fund where we have, you know, a $2,300,000,000 of cost basis in a position, and we need to then start to trim it as it gets to massive and scale because we are... We have to have risk controls. Companies understand that at that point. In the beginning, if I were to show up and say, hey. You know, I'm like, I love your business. I wanna buy today. And eighteen months from now, I'm gonna sell the position to somebody you don't know. It's gonna be much more difficult, And then you just can't. You can't operate that way in our our industry today. It it is back to a club mentality, but it's more new line growth managers than I would say the old line traditional VC firms with a few exceptions. [00:34:31] S1: And when, you know, like, you reach that that two or three x in DPI, is it, like, per fund, or is it per position that you look at it from a liquidity perspective?