00:05:41 · Larry Aschebrook
[00:05:41] S0: Well, I wouldn't advise anyone on deploying capital the way I did on the early days because it was Mosaic theory. It wasn't full information. There was very little connectivity to the actual management team members. You know, today, it's it's it's very involved with the management team members. We partner with the issuers. We work with them directly. We support them staying private longer. We have a whole tool kit that we've developed over fifteen years to really help the company stay private longer. It's self fulfilling, of course, because we could do a lot of work on the secondary market then. But, yeah, the market's mature today. In the beginning, it it didn't exist. And so today, we underwrite like a primary investor. We wanna touch and feel the companies. We wanna talk to management. We wanna have full data. In the beginning, it was, you know, hiring some analysts out of, you know, India to write memos for me. And when I was working during the day, they were sleeping, and they were working at night when I was sleeping, and and it worked well. And there was a... It was really a business of of one in the beginning, and now we've got a... Very thankful to have such a tremendous team at G Squared, and the growth has been unprecedented for us over the past several years. And the returns have have been very good for our LPs, and and we're kind of at the sweet spot of the intersection of really awesome businesses and access. And that, to us and any manager in the space, primary or secondary, is is what you're searching for. And in some cases, that is the definition of success.
00:07:12 · Guillaume Moubeche, Larry Aschebrook
[00:07:12] S1: Nice. And can you walk us through maybe, like, the the whole, like, Spotify story? Because I know it was a a big bet of yours in the in the early days. [00:07:24] S0: You know, what an incredible business that Daniel and team have built at Spotify and continues to amaze me today, especially now with the kind of integration of of full agentic AI into their their business model. It continues to evolve and just inspire artists and and compensate artists around the world, So congratulations to them. In the beginning, you know, like the early... The other early investments, I loved consuming music. Got to know, Spotify through through that as a consumer, wanted to buy stock, found employees that had shares, sent a notice to the company, and they didn't respond. So, you know, I think for me, it was natural. Others say it was... Is probably not so natural as I just got on a plane with a young analyst that worked with me at the time and went to Stockholm and begged for a meeting. And finally, they gave me one. And that's how the journey started. And [00:08:36] S1: So you, like, you went to their office? Or
00:08:36 · Guillaume Moubeche, Larry Aschebrook
[00:08:36] S1: So you, like, you went to their office? Or [00:08:39] S0: Yeah. Went to their office. You know? Stayed. At no appointment. Just kept showing up day after day. And finally, a young legal officer, I think, took pity on me sitting in the lobby and and my colleague and invited us back and basically told us that, you know, there there wasn't an opportunity, and we just kept asking. And and, eventually, they started sending a bunch of sellers to us. It got to got to a point where we put up a sign in their break room that, you know, we will buy your shares. And I think Spotify and a few others were early in this movement to embrace the idea that you could stay private for much longer than most, help your employees, keep them from going to other public tech companies where there's value immediately in the paper they hold. And it was a a good marriage for a for a long time. You know, there was some stress along the way. They sent us some really large blocks of stock that we were so small. We didn't have the ability to to buy right away, and we went out and traveled the world and raised the money to to close it. And they were very fond memories for me, the Spotify journey. And when it went public, it was a massive celebration for the company, but also for our business. It really changed the trajectory of G Squared. [00:10:04] S1: So you... Did you, like, keep the shares of Spotify after, like, it goes public, or how how exactly does that work?
00:10:04 · Guillaume Moubeche, Larry Aschebrook
[00:10:04] S1: So you... Did you, like, keep the shares of Spotify after, like, it goes public, or how how exactly does that work? [00:10:12] S0: Yeah. So for us at G Squared, we're focused on a kinda cash in, cash out situation. So we we send cash to our to our LPs post public sometime. We develop a strategy on on slowly moving out of the position after the company doesn't need our support anymore. But building that position in Spotify was was one that I think really set the framework for how we were going to establish our business going forward. Now it came with a lot of stress. There was very large transaction they sent to us. We didn't have all the money. We had to find it. In fact, we... I actually had to personally borrow some of the money to close the transaction, but I didn't have anything to back up the loan. So I put a lot of risk in it, and it worked out. [00:11:08] S1: Yeah. Great rewards. [00:11:11] S0: Yeah. I mean, it was a very tense time in in G Squared's history, but, you know, the conviction [00:11:19] S1: Did you have, like, such a conviction at the time, like, that your loan would be reimbursed? Like, how do you build, like, such strong conviction on a company? Was it because you had access to all the data and you knew that it was going to be a hit or, like
00:11:34 · Larry Aschebrook
[00:11:34] S0: Well, there was a lot of stress in the in the market related to streaming services at the time. Obviously, Netflix had gone on to fantastic journey, and that kinda laid the groundwork for music streaming. And Spotify had a number of formidable competitors that still exist today with with, you know, Apple Music being the the primary one. And you remember there was a lot of noise about Taylor Swift and Adele leaving the platform? Yep. You know, one of the, I think, the benefits today that that we still enjoy, and we really figured it out with Spotify and a few others, including Coursera and Uber and Airbnb, was that if you can get the information like a primary investor, you can really use the secondary market to have an arbitrage that the market doesn't know about and buy at your option, not at the company's timing of preferred investment. And I think that's one of the major benefits of secondary direct investing. And in Spotify, there was a point in time where there was a lot of noise, but the record labels were also shareholders. Most people don't realize this. Early on, coming off of the whole Napster debacle, the record labels realized that there was something going to change in their business models. So when Spotify came along, Daniel Ek did a great job and team of of getting the record labels on board. Well, as this noise took place, we had data. We had the updates, and we could see that the record labels actually were trying to buy more stock in Spotify when all this noise and headlines... And and and not in small ways. You know? Free cash flow of those record label companies were in the, you know, several 100,000,100 million dollars a year, and they were spending a significant portion of their free cash flow on buying Spotify stock. And to me, that was the moment that, look. They're here to support it. They're not gonna kill it, and let's use the market turbulence to buy a bunch of stock. And we did. And history shows it was right, thankfully. And we became a top 10 shareholder at Spotify amongst giants, and and the the the the shares that I purchased through the loan ended up being worth significantly greater than than the value that Automatt, and it worked out. I would not advise that to young entrepreneurs trying to start a secondary business today, but that's my mentality, and and I went with it.
00:14:17 · Larry Aschebrook, Guillaume Moubeche
I think that's one of the benefits of coming from nothing is you're not afraid of what that's like. And so it was it was a great journey, and and Daniel and team working with us, developing a strategy to stay private longer, rewarding their employees, and really develop the playbook for us going forward. And that was the foundation that changed the trajectory of our business. [00:14:43] S1: And how did you get the info that the music companies were actually purchasing, like, more shares? Was it, like, publicly documented by the company? Or [00:14:54] S0: Yes. So they're... They had this hidden option really to exercise to own a certain percentage of the company. And I I I frankly didn't know it going into the investments. I don't think most shareholders knew it. And all of sudden, one day, we got this notice that we are being diluted by 3%, and the company was getting several $100,000,000 from record labels. And it was right at the same time of all this headline risk. And that just... For a minute, it was a head scratcher. Right? You're like, well, the record labels and their stars are leaving. Why would they give the company hundreds of millions of dollars? And then the light bulb kinda went off, and it was like, well, they kinda know what the future brings, and they're gonna support it. And let's go load up on stock here. [00:15:43] S1: Nice. Yeah. And who do you... Who did you, like, purchase from? Like, at the time, was it employees or other funds who were looking to Other