The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:57:49 · Harry Stebbings, David Morehead
[00:57:49] S1: And you don't want it. [00:57:50] S0: I do, because we're invested in it, right? But like, you're seeing this sort of nationally, you're seeing it actually internationally, is that the most valuable thing for a data center used to be power. If we go back like five, six years, it used to just be land, and then it was powered land, and now it's actually permitted powered land. And the reason is because people are like kind of fed up with it, and they're just like, not in my backyard. And so you are getting sort of this pushback on... [00:58:22] S1: I'm sorry, I don't understand this, like why? Like they're utilizing land, they're bringing jobs, they're bringing construction. [00:58:29] S0: And power prices go up and water prices, particularly in arid regions like Texas or Arizona, that's a big issue. So yeah, if the hyperscalers solve the water thing, that would go a long way towards the average person being more accepting of it, but then the power thing still exists. And so we know that power dispatch is still supply constrained, and so people's power prices are gonna go up until that gets solved over the next five, six, seven years. [00:58:59] S1: David, what do you think happens here? As you said, you're an investor in it, and it's a fascinating perspective you have. What happens here? I'm very naive. [00:59:05] S0: What happens with data centers? [00:59:07] S1: Yeah. Like, do we see a continued protestation pushback from, yeah
00:59:07 · Harry Stebbings, David Morehead
[00:59:07] S1: Yeah. Like, do we see a continued protestation pushback from, yeah [00:59:12] S0: Yeah. I think we do. I mean, we're seeing it in real time in our book. The data centers that have power and that have permits are becoming more valuable. So, like, literally, we have this situation in our book where our data center sites are up 50% from where they were like six months ago. [00:59:31] S1: Can I ask what percent of data centers do you think will fail to get up and running despite having been built? And this could be permitting, it could be power, it could be whatever you think. [00:59:41] S0: Yeah. I am not an expert in this in terms of like total number that have power, total number that have permits, etcetera. So I'm not gonna be able to give you an answer that is gonna sort of satisfy the question, but I will say that enough are not happening that the power companies are coming to those who do have permits and saying, we can get you power sooner than we thought. That's literally happening. [01:00:07] S1: And just so I understand the bottleneck on those that aren't is permitting. It pushed back from locals. What's the one thing? [01:00:15] S0: Yeah. It's permitting. [01:00:16] S1: Permitting. [01:00:17] S0: Yeah. It is now. And that's something that didn't exist six months ago. [01:00:20] S1: And just so I understand, again, I'm dumb as rocks. Why is it so difficult to get permits for these?
01:00:20 · Harry Stebbings, David Morehead
[01:00:20] S1: And just so I understand, again, I'm dumb as rocks. Why is it so difficult to get permits for these? [01:00:25] S0: Because the permitting boards are governed by the citizenry, and the citizenry is putting signs up in everybody's front lawn saying, we don't want this. Right? So if those people wanna get reelected, then they've gotta say no. [01:00:39] S1: Do you not worry that this doesn't happen in China? It's just a free for all. [01:00:42] S0: Well, I don't think that it does happen in China because they don't particularly care. They just build it where they need it. But, I mean, it's a bigger issue. Honestly, it's a huge, massive issue in The UK. It's like by far a much bigger issue in The UK than it is in The US on the permitting front. [01:01:00] S1: What are you talking about? We're not allowed to go outside or move a bin, let alone build a data center. [01:01:06] S0: That's my point. That's my point. So we have a permitted data center site in The UK, and it's worth a lot of money simply because we have a permit. [01:01:16] S1: Are you bullish on Europe, given what you just said there? [01:01:19] S0: No. Because [01:01:20] S1: of the permitting, because of... [01:01:22] S0: Yeah, Because of all of it, because the defense structure of it, because of Russia, because of behind on AI, because because because... Yeah. [01:01:32] S1: Would that prevent you allocating towards European managers?
01:01:32 · Harry Stebbings, David Morehead
[01:01:32] S1: Would that prevent you allocating towards European managers? [01:01:35] S0: No. We have allocated to long short managers in Europe precisely because I think there are gonna be some companies that win and some companies that lose. But I will also say that some of our bigger macro hedges are on European indices. [01:01:49] S1: So David, I could talk to you all day. I'd love to do a quick fire round. So I say a short statement. You give me your immediate thoughts. [01:01:55] S0: This could be, like, highly dangerous for me. [01:01:57] S1: Oh, don't worry. We've we've we've got... We've gone to Chinese permits. So trust me. The quick fire will be like a piece of cake. What have you changed your mind on in the last twelve months? [01:02:06] S0: Software was one. So software, we kinda leaned into pretty hard. We also took energy off at around the same time, sort of with the advent of the US Iran war, the Strait Of Hormuz bit. When crude kinda went north of a 100, we took a lot of our energy length off. We did add to private equity sponsors in sort of like March, April ish. So we don't really like private credit, but we do like the private equity sponsors. And so we've allocated more in that direction. [01:02:39] S1: What asset class do you think is overhyped today? [01:02:43] S0: Private credit because it's easy. [01:02:45] S1: Why do you not like private credit? I'm I'm not in it. I don't understand. [01:02:48] S0: I... I'm not in it, and I don't understand either.
01:02:48 · David Morehead, Harry Stebbings
[01:02:48] S0: I... I'm not in it, and I don't understand either. [01:02:50] S1: But is it just shit returns? I remember I had a girlfriend who did private credit, and she told me it was like crap returns. And I listened, and I was like, yeah. You're right. It's crap returns. [01:02:57] S0: Well, I think effectively what is happening is that you have credit exposure in companies that looks and acts a lot like equity to the downside, but you don't have upside equity returns. And so I think the risk reward profile is kind of off, right? So we prefer equity to that. [01:03:17] S1: What other endowment fund do you most respect and admire because of their build out? And why them? [01:03:23] S0: Brown, without I just have, like, a ton of respect for Jane and the team that they have built there. I mean, it's also the case that their returns are better than ours, at least over, you know, the last ten years. I think our returns might be better than theirs over the last five years, but we've got a lot of wood to chop to kind of catch up to where they're at. They are what I would describe as real investors. They'll do things that take a lot of courage. I'm not saying that they're riskier, but they're thinking through the risk return profile of things and like placing... But they've just done an extraordinary, extraordinary job. And not like I know Jane, we talk and chat and whatever. Just utmost respect for that team. [01:04:04] S1: Which fund are you not in that you would most like to be in? We mentioned some of the big names. [01:04:08] S0: Probably Benchmark.
01:04:08 · David Morehead, Harry Stebbings
[01:04:08] S0: Probably Benchmark. [01:04:10] S1: Be the same for me. [01:04:12] S0: Yeah. Ton of respect there. [01:04:14] S1: Final one for you. What are you most excited for in the next few years?