How I Invest with David Weisburd
00:54:43 · David Weisburd
[00:54:43] S1: I want to double click a little bit on Adams Street, the company, and your platform. So you don't only invest in funds, you also invest in companies. Maybe talk about the general strategy.
00:54:56 · Brijesh Jeevarathnam
[00:54:56] S0: We have one investment strategy, I. To invest in companies that are seeing rapid growth or will benefit from dislocation and change, and therefore to capture that alpha, that one investment strategy is executed through five different teams. And the five teams quickly, and I'll go to the specific question you asked. We invest in funds, we call it the primary business. That's the team I'm part of. We invest in venture companies directly, usually at kind of the early growth stage to later. We invest in buyout companies directly, usually as co investments alongside our GPs. We invest in private credit, which is the leverage for leverage buyouts. And the fifth is we invest in secondaries, both LP and GP secondaries. So specifically on these two, I talked about the information asymmetry before, and that is still an edge. That edge is, I would say on the margin declining compared to five, ten years ago, because there's just so much more data out there, even about private companies. But we have confidential information within our four walls that we only share with ourselves, the investment team, that we can leverage to get to the best companies one or two steps earlier. We always work with our venture investors in that manager. We never try to go around or bypass the existing venture syndicate. We leverage our relationships with these great managers. And this ties back to a prior question you asked, which is what does a great relationship with the GP get you? It gets us kind of, I'll call it privilege information in some cases and access in many cases as well. That is our secret sauce combined with our investment judgment to pick great venture companies to invest into directly. If I had to summarize the thesis for that direct investment program, I mentioned before 7% of venture backed companies now, and the sample set is like thousands of companies, 10,000 plus companies now in our database. 7% of those companies drive all the returns. Our job with the direct venture investments we're making into companies is to double down our exposure as much as possible to what'll end up potentially in that 7%. Because in the stage we're going into, there's a few more data points to say, well, this will be in the winner's circle or not.
00:57:32 · Brijesh Jeevarathnam, David Weisburd
And of course, nobody bats a thousand, we don't bat a thousand either, but we leverage the access and information we have to get more exposure to the outliers that are emerging. [00:57:46] S1: I talked to a USV benchmark, they're raising their growth funds for the first time. They believe that power loss still exists at the growth stage. You're investing directly into these companies. Do you think power loss could still really exist at that late stage of a company?
00:58:00 · Brijesh Jeevarathnam
[00:58:00] S0: Yes. It depends on how late stage we're talking about and depends on the category in the company. And I say that because the world and the venture industry didn't foresee the scale of exits now. If you take acquisitions, Wiz at $32,000,000,000 was a big number and the record is broken by Cursor at $60,000,000,000 as you know. And I have no doubt there'll be other bigger acquisitions in the coming years, right? So the bar keeps getting raised on what that exit value is. Not to mention IPOs. What's stunning to me is that we're even talking about a trillion dollar plus valuation for an IPO because it's easy to forget until what, five, six years ago, there were no companies in the world. I think Apple became the first one to cross a trillion dollars in value. And even today, are maybe 10 companies, 11 companies in the world with a trillion plus in market cap. So for a startup to come along, and it could be talking Anthropic or OpenAI or pick any company, and to be in that very short list of trillion dollar plus companies potentially right off the bat is just unthinkable. I say all that to say that we can still find venture, can find outliers at that scale of addressable market and therefore value creation, the power law will still apply and be true in the growth stage as well. There's a lot of ifs I put in there in terms of both the company TAM, the execution, the public markets, the buyer universe, etcetera. But I don't think they're wrong. I do think if one picks correctly, the outliers are so extreme now, one can still earn venture multiples at the growth stage.
00:59:56 · David Weisburd
[00:59:56] S1: I had this very conversation with Matt Harris, who's at Bain Capital Ventures. One of the benefits of the podcast is I get to get investment and tax planning advice. I invest in the series c and Anthropic, and I just asked him, like, what do you think about Anthropic at 2,000,000,000,000? Like, what should I do with my position? And he used a very simple heuristic, which is if you look at the revenue multiples and you just take away the last three zeros, so now you say 2,000,000,000 valuation. Instead of 100,000,000,000 in revenue, you say a 100,000,000 revenue. It seems pretty reasonable. So we just get such sticker shock on some of these numbers that sometimes you just think it just can't be more. That there's there's no more room. And maybe there is or not room at at 2,000,000,000,000, but, certainly, if there's companies going public at 2,000,000,000,000, at a billion dollars, there is still... Depending how you define power law, there is still this power law, some nonzero chance of a power law.
01:00:50 · Brijesh Jeevarathnam
[01:00:50] S0: Absolutely. And and there was a... Was it 70 or 80,000,000,000 round in Anthropic and a 180,000,000,000 round in Anthropic, right? If this company goes out next month, knock on wood, hopefully, right? And trades well, even though we're looking at like 10X plus returns for those early investors, right? Ballpark. That might've been unthinkable a few years ago considering the ingoing entry valuation. But I do want to separate the cyclical from the structural. I think there are elements of the market we're in today that are no doubt cyclical. We're going to see kind of not just up into the right, but maybe some kind of, I'll call it normalization in the coming quarters and years. But if I step back far enough, the structural element of the venture aperture growing in both dollars and in terms of what it funds and magnitude and so on, that is a structural change in our mind and that'll keep kind of over a long time, keep going up. As I said before, eating the universe of publicly listed companies, starting from a small base, still small. We might look back in ten years from now and look back at this moment in time and be very wrong about the upset of these companies in either direction, right? We might have been very conservative. If I think about twenty sixteen, ten years ago, there were some things that seemed kind of peaking in the twenty sixteen, seventeen, eighteen era. Some of that was true, as 2022 proved, and some of that has not been true. So, it's hard to really prognosticate and say we're at a structural maxima. I think we're at a local maxima potentially. I don't know. But I think there's still long term growth in the private capital markets for sure.