Investing in Venture Secondaries - [Business Breakdowns, EP.193]

22:32We've actually taken that challenge and made it into an opportunity in the following ways. First of all, you're right. I mean, data room, many of these deals don't even have a data room. I'm facilitating a secondary between this shareholder, whether it's an institution or an individual. We don't have a data room. Or the data room is so aged that it's irrelevant. But this, again, begins with this operational value add. But another part of our strategy is, I'd say 90 % plus what we do is highly thematic. Enterprise software and fintech, which is basically what I've done my whole career. and we have operators on the team that are partners that have been practitioners, go -to -market person, a finance person, a product person.

23:08So we go and we build a relationship. Sometimes it takes three, six, nine, 12 months. They see our value add that opens the kimono for them to share more. We're adding value. Adding value, not just an intro here and there, but helping to place people. Where founders would say, this is real value. Helping me build my team and building my go -to -market team, as an example, is really powerful for me. that relationship builds over time such that we figure out what's the best way into this company. And we have added value without even being on the cap table. Now that's a risk to us, obviously. We add value without even the cap table.

23:40And that is probably the biggest determinant that they realize, okay, they're not even in the cap table and they're trying to be helpful. It's also a function of just, we try to be a scrappy firm and really act more like a startup in our cadence and approach. But that's been one of the main reasons why that information asymmetry, we've been able to largely overcome. And with these transactions, I know there's been several businesses that have emerged over the past few years that specialize in this. And I think some of them tend to target more of the retail investor audience or high net worth, but not necessarily having much exposure to venture.

24:15Now it seems like the banks are also getting involved with some of the larger transactions. Do you yourself see most of these happening through these intermediaries? Are there many direct sales where there's a direct relationship with the business? How has that trended over time? And if you have a view on where that goes in the future, that'd be interesting to know as well. Yeah, for sure. I think you're right. The market has really taken off. So if you look at the secondary market in the last 10 years, it's grown from about $40 billion to about $150 billion, 3 .5x, call it a low to mid -teens, about 13 % CAGR.

24:46That's broadly secondaries. The venture piece has grown two ways. It has been a very small percentage, call it low to mid single digit 10 years ago to now, high single digit low teens. And that has grown from about three to about 20 billion. That has grown more like 20 to 25%. So you're seeing the CAGR over the last decade. So there's two growth levers. One, the broader secondary market is going to continue to grow as we talked about this liquidity issue. And second, the venture share of that pie is also going to expand. So that's going to be double whammy positively for this market. And with that, there's been an emergence of a lot of these brokers.

25:22I think that they play a role in the industry. There is a view by a lot of the CEOs that when you go through the broker channel, they lose control over who goes in their cap table. And so if we get back to earlier in the conversation that they really do want control because what they don't want, someone they don't know in the cap table that they may trade out. The analogy is, as you know, from the public markets, when a venture -backed company goes public, they really want longer -term holders of the stock because that's going to just help with the stability of the stock and the market value of the business.

25:50It's no different in venture. A lot of these for us are very much direct. Now, they could be company -driven. They could also be GP -driven. When we're buying from GPs, we've transacted with close to, I think, about 10 GPs in the last six years since inception. It's a GP that needs liquidity either for a fundraise or some other, maybe it's a bandwidth for a capacity issue. And we go through them and we identify a bunch of companies. And then invariably, because we're so thematic, we'll know a lot of those companies. So it becomes both. But that's been really important. But I do think, to your point, this market has a lot of legs for it to grow.

26:23We think that even the venture piece can be $100 billion opportunity. I mean, anything in the private markets, as you know, your timescale have to be 5, 10 years. But if you just look at the last 10 years, and it's actually accelerating, there's no reason to believe that it couldn't be a significant market down the road. It's an interesting timeframe that you provide because 10 years obviously extends well beyond COVID. And there would be a natural question of, well, how much of this is cyclical with where things were priced at peak? And if you're seeing this slowdown, maybe that's fueling a lot of the growth.

26:53It seems like this has been a secular or structural change that's led to the growth. And did you see any major spikes in the years? There are a lot of volatility in the number of deals or transactions, secondary transactions that are done, particularly in the venture market? Yeah, I actually think it hasn't been a structural issue for many years. The reason for that is it just hasn't been a problem that they've been focused on, they being us, the VC ecosystem. I think that the growth of the asset class and the fact that there were some IPOs and the fact that there was such a reliance on IPOs, not IPO and M &A.

27:26This has not been structural. And following the last two downturns in 01 and 08, 09, it's just there's been a point in time where there's been some interest. It's gotten structural because of all the things we talked about, the power law, the growth in the asset class, the generational change in venture, talent management. We haven't talked about that. But when you're private 12 to 14 years, you've got a lot of employees that would like to see some liquidity. So I think that there are all these factors that we think it's now become a real structural opportunity and a structural problem. And the volatility, you could see, if you look at the curve, certainly in the last 12 to 18 months has been a pretty significant spike.

28:00And that, I think, is just by nature of the fact that it correlates with how abrupt the downturn took shape. If you remember, 2021 was just this massive spike. And then if you just look at exits, liquidity, the last 10 quarters, if you look at the curve, and you know this curve better than I do, it's like falling off a cliff following 2021. That correlates with this explosion in interest in venture secondaries because of all the need for liquidity and also the planning that a lot of individuals and venture firms did in 2020, 2021, saying, you know what, we're going to go out in 22, 23, as we all know, and that obviously hasn't happened.

28:32So I'd say it's a point in time spike, and people could argue, well, this is still maybe cyclical because of the next two, three years until maybe the markets come back. We think that this is structural because if you look at the venture overhead, we're talking close to 4 trillion. If you look at how much goes out of the system every year, it's a few hundred billion. And if you look at the number of companies, 56 ,000, and the number that go out every year, less than 3 ,000. However you do it, that's a 15 to 20 year backlog. So our view is that down the road, it'll be IPO, it'll be M &A. M &A, you could decouple it into strategic M &A and financial sponsor M &A and secondary.

29:07And then barring another page out of the PE playbook is this whole sponsor to sponsor deal. So what we've done is we've done a lot of venture sponsor to venture sponsor, us being the buyers. And as you know, that's been happening in buyout land for decades. That has not really taken off in venture. And I think that is going to be a new, significant, rich vein of liquidity for a lot of these firms. Yeah, it was a question I had ready for the future. I think it's always interesting when you see these ecosystems mature and whether it is the sponsor relationships with private credit or the sponsor to sponsor PE transactions.

29:39There's a funny way of as these markets get bigger and bigger. There's little niches that are created and these transactions become more and more common. I want to get into the buyer mentality a bit more. I think you've referenced a few things. When you're thinking about entering one of these positions and you talked a little bit about the exit potentially being IPO, another secondary sale, something else, M &A activity, can you walk through is your time horizon, does that look much different than what you would say a traditional venture fund was, does it reset the clock and go back to the theoretical 10 -year timeframe or anything else that you would point to as it gets into as a buyer, what you're looking for?

30:19Yeah, I think our approach, really, we are venture growth investors that just do a lot in secondary. So if you think about traditional venture growth equity, it's been a four to six year time horizon. These are later stage businesses. Certainly, could they be more than that? Yes. Could they be less than that? Yes. It's certainly sooner than a traditional early stage VC. So our exit horizon probably approximates, I'd say, an old guard growth firm. I think a lot of the growth firms now, they've just gotten earlier and earlier because a lot of the valuation issues, we've overcome the valuation issues because of our secondary piece.

30:50But that's really how we think about time horizons for our business. And just in six years, we've obviously invested in a lot of companies and have been fortunate to have a bunch of distributions and realizations across all of those, IPO, strategic M &A, financial sponsor M &A. And when thinking about the variety of different options, the financial sponsor M &A, to hear that that's already been an exit example, so there's precedent for it. When you think through those three options, are there any that are massively preferable to the others as you think through them? Since the dawn of time in venture capital, the IPO has been the preferred approach.

31:26I think certainly taking companies public, that's always exciting. The one thing that people don't understand is you take it public and then you're probably another one to three years getting out of your position, lockups and concentration, those types of things. I think that it depends on the deal, but traditionally sponsors have paid a lower multiple for deals than strategics. And a lot of times it's also correlated with growth rates. That's why this intrinsic value piece is so critical for us when we think about it. So we're happy to look at businesses that grow 100%, happy to look at businesses that grow 30%, 40%.

31:58It's just that pricing is going to be different. And that also correlates with the IPO market and the M &A market. So I will say that I think for folks that expect the 2021 days of IPOs getting priced 20, 30x, I think those are likely not going to happen for the foreseeable future. And you just have to look at empirical data. You just look at a lot of the major tech IPOs in the last 18 months. Since this correction, you know it's better than I do. The public markets still love venture, still love growth. They're just not going to pay 20x. They'll pay 8x or 10x. And then, oh, by the way, it's up to the businesses once they're public, if they can beat and raise, beat and raise and continue that growth, they can really go up.

32:38So if you look at the top 10 SaaS multiples, which are correlated with growth criteria, you're getting into 15 to 20x revenue. So that is possible, but it's much more a prove it and show me, which long term, it's how it's been, except for some of these pockets. I think that's how it should be. But I think for us, it really depends on the business. We think about exits and what the right home is for these companies. Yeah. And you've referenced throughout the conversation, this idea of the power law and these major winners in the industry, which I think there's been so much focus there. And I think it's trickled down into how some people operate their businesses.

33:14And maybe that is on the back of guidance from venture funds. We want you to fuel growth. We saw a little bit of an adjustment where there was a bit more focus on cash flow through the recent downturn. When you're stepping in to these companies and starting to work with them, where do you sense the mentality is in terms of growth, cash flow, focus, some of those dynamics? Does there need to be this reset? And it's almost a question about the industry broadly. Do you think there's been an adjustment versus where we were several years ago when, again, zero interest rates? The capital was coming at attractive rates and things are a little bit different now.

33:50Where do we stand today there? No one loves a downturn, but there's a lot of positive aspects of a downturn. And it's happened in 01 and it happened in 09 and it happened in 2022, which is VCs telling their portfolio companies this growth at all costs just isn't going to work and really returning to profitability and then really looking at rule of 40, which is the growth rate plus the operating margin. And we've been that way since inception because we're much more efficiency -based growth proponents versus capital -based growth. Capital -based growth, as you know, it's great in a zero interest rate environment, but even then has its flaws because it can mask product market fit.

34:23It's just dumping cash for us. It's looking at not just growth, but the eight to 10 metrics below it that really look at every dollar that you invest, what are you getting back? So I think that's very, very healthy that people are getting back to it. Now, do we still meet a company once in a while? They still think it's 2021 for sure. But by and large, I think, by the way, this is on the boards as much it is on the management teams. Us, the VCs need to really make sure that we're not giving bad advice. And there's a lot of VCs that talk about other VCs not giving great advice, but it's really getting back to this rule of 40.

34:55But the nuance is growth and profitability are not created equal. If you look at, there's lots of reports that have gotten published. It's like a two and a half to one type. That's the best correlation. So a dollar of growth is worth more than a dollar profitability, meaning a rule of 40 business that's growing 30 % with 10 % margins is going to be far more valuable than a 2020. You can't extrapolate that infinitely. If you're growing 60 % and just burning cash, I think the market will punish you for that. So I actually think that's a very healthy trend. The cynics could say, okay, once you get back into the go -go days of robust IPOs, will that start to falter?

35:30Maybe. I think I'm hopeful that these lessons will burn in more into this crew. And I also think when that really happens is when there's free flow of LP capital. I just don't see that happening for a while. Yes. And when I think of something having a bit more efficiency, I think of that as being a natural selling opportunity to strategics. Does that also change the dynamics? Do you view companies in this market as, this still has a ton of growth runway, that's a potential IPO candidate. This is maybe a little bit more tapped out, the total market size that we thought they might have maybe is a little bit smaller.

36:07That makes it more of an attractive potential for M &A. I guess, how much are you thinking about the exit strategy upon entrance, if at all? Yeah, I think it's a great question. I think we for sure think about the exit strategy. I think that generally speaking, many of the businesses, if you are going to a company building it for a sale to a strategic or a sponsor, you are just limiting your aperture. And so for us, we just look at the fundamentals of the business. If it has really strong product market fit as empirically evidenced by the net dollar retention in churn and some of those that are good predictors of that, and it's growing well, and it's growing efficiently, those are just great businesses.

36:47And if you pay a reasonable price for them, we really don't even think about the exit. We just think about the point in time. Are these good businesses with all the prospects? And are we getting in? Now, what's happened last few years, great businesses have become mediocre investments because with the flood of capital, the pricing just hasn't made sense. We all know the 50 to 100x ARR club that were formed in, I'd say, 2018 to 2021. But if we think about the physics of a business, the durability, that's why we look at the metrics just below the revenue growth line as well. That gives us comfort that whatever happens, if they continue, they will have a very high quality outcome that we can be proud of to deliver back to our LPs.

37:26And I should have asked this earlier. Is there a valuation range? I think you mentioned there's the top 20 companies. You might have even mentioned top 10. And then it's that next batch, which is most intriguing to you. Does that tend to fall into a certain valuation range just to size it mentally? Yeah, I think that notional valuation, it's tough because the revenue and growth rates are so vastly different. We've done deals at double digit valuations to billion plus valuations, but the scale has been quite a bit different. I think that the unifying feature for us is just the multiple you're paying based on the growth rate.

37:59So this top 5%, the power law adherence, they really were the ones that got traded at 50 to 100x ARR. Now, some of them are such scale. They're not trading at that level, but they're trading at massive multiple premiums. And for us, that next 20, they're still growing massively. They're still significant businesses. But the ability to get them at a reasonable price, and what is that reasonable price? Is it depending on growth that it could be 8x, it could be 12 to 15x, whatever it is, that's how we think about it more. And then that will come into a range. Now, our secondaries piece, generally, they are later stage called 100 million and above.

38:35And so you can just do the math in terms of based on the growth rates and even 100 million businesses still want help to usually go to market acceleration or something. And so that's where we can find our sweet spot and help these companies and still get in and be a good partner to them. On the GP to GP relationship side of things, I found it very interesting to see how tight these relationships are in the private equity world. Again, it could be sponsor to sponsor sales or the equity credit relationships between the providers. Where do you think we are? Is that still very early innings? You suggested you have those relationships, but how big could that ecosystem be?

39:10Because to me, it is very interesting when you find businesses that work really well together, and they can not only benefit each other, but it's what creates the scale for a market. Yeah. Let me answer it in a certain way, and then I'll talk about a speed bump that happened. I think it's getting fixed. I think if PE is a relationship -based venture, I think far greater. I think just in 25 years in venture, and there's a lot of books written about it, but it was, is, and will be very much a relationship business. And I think that's really powerful. And I think that's going to be, for us, that's been the number one determinant.

39:45When we work with a GP to buy their companies, we have a relationship with them. It's not viewed as a trade or a transaction. It's viewed as a partnership. Every time we do something with a fund, they want to come back. The repeat buying element is really important. So I think that's really fundamental to venture. And that's why I think this could be massive. They start dissolving these artificial views that it has to be IPO or bust. And that's already happening. The stigma is starting to really evaporate. Then you can see an ecosystem where we actually are really great investors chasing power law, but also being great fund managers, right?

40:15The speed bump, I think what happened a few years ago is you used to have the food chain, the seed folks, what will tee up their companies to the Series A. And then you have the evolution of man type of analogy. What happened? Well, Series A folks started raising growth funds and the growth folks started raising early stage funds. The elbows started getting sharpened for a few years. There was the influx, massive influx of a lot of the crossover folks, as you know. So that was a speed bump. Now, it's a speed bump or a brick wall, depending on how you think about it. I'm still an optimist. I think that we're getting back into probably it's going to be more back to basics and the relationship piece is still going to be really, really important.

40:50That's why I think the venture sponsored, a venture sponsored market could just be massive going forward. Yeah. Some of those crossover folks might be good secondary sellers based on the timing that they had. And many of them are. I've tried to. Yeah. Yes. It's very interesting to think about that market. Do you have a preference? My assumption would be if they were selling a portion of their stake, but do you care much whether that venture fund is selling their entire stake versus only selling you a portion, therefore keeping some exposure to the business? How much does that play a role? I think that's directly correlated with the level of information asymmetry we perceive we have.

41:26Not being in the cap table, you don't have 100 % information symmetry. So you're always coming from outside in, but most of the time we really vet these companies and we try to get a sense for what their motivation is. Because it's a partnership with these GPs and sometimes it takes longer, which we're fine with, by the way, we get a sense for what they're solving for. And that helps us, it helps them. And so when it becomes a partnership, you really get a sense. And the early innings of NewView five, six years ago where their conversations were so clear within 15 minutes that the GP was just trying to offload their less pristine assets, and I say this mildly, at the highest price, sure, but those we can suss out within 15 minutes.

42:04Now there's different conversations, I will say, which is very healthy, and we're indifferent. Sometimes they need to unload a big chunk, not just for the DPI, but because of the board load. And so just trying to understand that, but by and large, it is a tug of war in terms of how much they want to sell and what price. And I think that's a very healthy dynamic. At any given moment, particularly from the secondary side of things, how many companies are in your pipeline, let's say, it could be just the opportunity has crossed your desk. And how does that look today versus, let's say, five years ago, or pick whatever arbitrary date back in time you want to go?

42:42I'm just wondering how many of these conversations are actively going on? Yeah, I mean, we use an arbitrary date, which is not arbitrary of six years, we just crossed or six year anniversary. By the way, it's also great because the market has evolved significantly. We've evolved significantly as well. So I'd say in the last year, the deals we've done, it's at least from buying from GPs, it's conversations with over 40 GPs. So it's pretty significant numbering into the thousands of companies. And what helps us is our thematic approach. And that's been a huge acceleration from six years ago to now, just how quickly we can down select to these are the companies and funds that we're interested in.

43:18And that just makes it a lot more productive conversations with these GPs. We also have a target list because of our thematic approach that we go after. And those, a lot of times, will be competing with, as I'd mentioned, the cap table participants, investors in the cap table. And we think that's a very healthy dynamic anyway. Those conversations are numbering significantly. The other big shift is six years ago, I would call it in software speak, an evangelical sale. A lot of it was us educating the other GPs about what we just did with the spin out. Now it's vastly different. The stigma has evaporated or is evaporating.

43:51And now we get a lot of inbound of folks saying, you know, we're thinking about doing something. I'd love to talk to you. And so those are very productive conversations. And a lot of times it's just educational and they go away. They don't want to do something. And then we've also had folks that have done that on numerous occasions. And six months later, 12 months later, they come back. We are all in on this market opportunity. Obviously we think it's massive. We're playing the long game. The long game will be a lot of relationship seeding and working with them and then seeing what comes out of it.

44:20One of the things I might not have appreciated, but you mentioned, talked to 40 GPs, looked at a thousand companies. Is this a situation where a GP conversation consists of, this is the specific fund that we're looking to generate some DPI on, and here is the list of companies? I know I'm probably simplifying it way too much, But is that really how the start of some of these conversations can go? Yeah, a lot of times they generally, we've actually had all the above because we've had so many conversations. But I'd say a typical one is they have a point of view on, it's usually their fund one or fund two.

44:54Raising fund five, six, seven, et cetera. Fund one or fund two has been great TVPI, but very little DPI. That's the starting point. And then our approach is heavy curation. And so that will evolve to, here's some companies we're interested, but there's some other companies. Would you be interested in lightening your load there as part of this? And that evolves one way or the other. And so that's why I think with this market, we actually think it'll be tougher to do it in a transactional, high velocity way. It's just so much a curation because at the end of the day, we're buying interest in individual companies.

45:24And the only way we know how to buy interest in individual companies is have a company first approach to due diligence. As we start to wind down, I want to get into some of the risk dynamics, which are fairly obvious with any individual transaction and a lot of the things that you referenced. But one of the earliest points was just on the evolving misalignment between fund time horizon and the venture businesses life to IPO and that extending time horizon. When you think about the risk to this opportunity closing up, are you seeing more venture funds extend that horizon? Obviously, you get very messy when you get fund three to fund four sales or any of that conflict arise.

46:03But it felt like there was this really as well as you could align capital that was meeting up with where that capital needed to go. And that's got thrown off track. Is that a risk that it gets put back on track in the future? I think there's always going to be, I would call them short term fixes. Again, playing the long game, we just believe that those are short -term fixes. In the long range, you just have to figure out how to exit these companies from your portfolio. They don't have to exit. That's another big change. They just have to exit your portfolio. They don't have to exit via the public markets.

46:31They don't have to sell wholesale. So I think that that is that short -term dollars we risk. And then risks in this business, because we're investing in companies, we bear the risk of any venture -backed business. These are high -risk businesses. The product market fit, sustainability, the ability to execute management issues, all of those things. Again, spending time with these teams, it's another really powerful force for us. And then we're doing diligence, right? It's this type of business, this type of entrepreneur, founder, CEO that we get behind. So we try to do our best in mitigating it.

47:01And I think another risk, you know, when you think about secondaries, a lot of times we'll be buying common. That is a risk that is not there generally on the primary side. And we just have to act accordingly, whether how to think about pricing it. And many of these are later stage. and we think that there isn't going to be an issue with the preference stack. But that is an additional risk that we bear as secondary players that we've had to deal with since inception as well. And when you think about who you might be competing against in this market, have you seen a lot of other funds pop up with dedicated efforts in a similar way to what you've done?

47:34And how much is out there when you think about it? And maybe you see it in your conversations when you're having them. Yeah, I think that what I would say is the macro view is if we really believe this is $100 billion plus opportunity, then it'd be foolish to think there won't be more entrants. And I think there's going to be more entrants to probably look and approximate more like we do, which is company first, venture capitalists that are trying to do this. In terms of the competition, as I'd mentioned, a lot of the competition for these deals is cap table specific. Some folks that are in the cap table that are like, oh, we agree with you that this is a great company and we want to own more.

48:05There's folks that have been doing secondaries for a long time that are also players. Some of them, they do things as strips. And the other thing we don't do is we don't do LP secondaries. Even the venture secondary players do a lot of that. That's just not a market we're playing, so we don't see them. But I do think if you're trying to get into very high quality companies at reasonable prices, it'd be foolish to not presume there's going to be competition. But what's different from us than say an early stage fund, benchmark competing with Sequoia and Index and Redpoint, et cetera. For us, it really does, it's context specific and company specific.

48:38And so we've had to make sure that we feel good about our differentiation and approach the CEO and the board that gets us an in there. Out of curiosity, why haven't you done LP secondaries? I think that part of this is, you know, we try to be a pretty focused firm and the runway we have in front of us is pretty massive. So we're bent on really proving outer model. And we've had six years in and really feel like in a great part of the market. So that's why we haven't like we have LPs that our LPs do a lot of that. for the foreseeable future. We're trying to practice all the stuff we preach to our companies, focus and execute.

49:13And so we've got so much in front of us that we can go after that we're just kind of focused on that for now. Yep. It's amazing. And it's a thoughtful process to make sure you're looking yourself in the mirror as you share the advice. I can fully appreciate that. I know you mentioned that there's some domain expertise to what you're doing. There are individual industries that you're focused on. Do you think the opportunity set really spans across the universe of industries? Obviously, I think your market, there's been a lot of funding, there's a lot of businesses there. So I think just from a size perspective, I'd imagine it's fairly right.

49:45But are there any things about other industries that don't translate to the same opportunity being there? Yeah, it's a great question. To answer your first question, for sure, I think that it'll translate to other industries. But let me take an extreme example, biotech. So in some of these deals where there's heavy capital risk, and then sometimes the outcomes can be binary based on drugs being approved or not. I mean, that could be a risk, but then I could have my biotech VC friend sit next to me and say, well, but that's our job to price that and risk manage that. So I would say significant capital, because then as a secondary player, you'd have to be responsible for a significant amount of capital going forward.

50:21And that could be a business model. But for us, we just find that these two areas, by the way, they're pretty massive areas to begin with. And that's intentional. But I do think you'll see as this market, just like venture has evolved, frankly, where you get more and more specialists, I think you're going to see the same thing in the secondary side. And I think in five to 10 years, you could see sector specific or whatever specific type firms after this opportunity, because when you have this big of an opportunity, even slices of it are big niche opportunities, if that makes sense. This has been a fascinating conversation and gotten into the detail that I was ultimately looking for.

50:56It's again, a thesis that I hear about, but to have somebody who's a practitioner and has some precedent to doing a lot of these transactions, it's very helpful. We usually close our conversations out with the key lesson that stands out that you could apply elsewhere. I think it's a little bit different here. And maybe we could just pinpoint what you would identify as the key thing in this thesis that you think is most important to focus on. We can call it a key lesson, but something that really just stands out to bookend the conversation. Yeah, I would say part of it is not only my career coming full circle, but also venture capital coming full circle and really graduating to this next phase where all the things that have made it great, the power law, resulting in the growth of the VC asset class.

51:36That has also resulted in the flip side of that coin, which is companies staying private longer, need for liquidity, and then taking lessons from the PE playbook is really building venture into that next phase where VC firms can have their cake and eat it too. They can go after the power law, but also evolve into great fund managers and use secondaries as a sustainable solution to these structural issues that are affecting the industry. But I actually think an issue is just an opportunity that hasn't been attacked. And that's how we think of it. This has been an excellent conversation, Ravi. Thank you very much for sharing the knowledge.

52:09Awesome. Thank you so much, Matt. Enjoyed it. To find more episodes of Breakdowns ranging from Costco to Visa to Moderna, or to sign up for our weekly summary, check out JoinColossus .com. That's J -O -I -N -C -O -L -O -S -S -U -S .com.

52:27We hope you enjoyed the episode. Next, stay tuned for our conversation with Katie Ellenberg, Head of Investment Operations and Portfolio Administration at Geneva Capital Management. Katie gets into detail about her experience with today's sponsor, Ridgeline, and how she benefits the most from their offering. To learn more about Ridgeline, make sure to click the link in the show notes. Katie, begin by just describing what it is that you are focused on at Geneva to make things work as well as they possibly can on the investment side? I am the head of investment operations and portfolio administration here at Geneva Capital, and my focus is on providing the best support for the firm, for the investment team.

53:09Can you just describe what Geneva does? We are an independent investment advisor, currently about over $6 billion in assets under management. We specialize in U .S. small and mid -cap growth stocks. So you've got some investors at the high end. They want to buy and sell stuff. And you've got all sorts of investors whose money you've collected in different ways, I'm sure. Everything in between, I'm interested in. What are the eras of how you solved this challenge of building the infrastructure for the investors? We are using our previous provider for over 30 years. They've done very well for us.

53:42We had the entire suite of products from the portfolio accounting to trade order management, reporting, the reconciliation features. With being on our current system for 30 years, I didn't think that we would ever be able to switch to anything else. So it wasn't even in my mind. Andy, our head trader, suggested that I meet with Ridgeline. He got a call from Nick Shea, who works with Ridgeline. And neither Andy or I heard of Ridgeline. And I really did it more as a favor to Andy, not because I was really interested in meeting them. We just moved into our office. We didn't have any furniture because we just moved locations.

54:19And so I agreed to meet with them in the downstairs cafeteria. And I thought, OK, this will be perfect for a short meeting. Honestly, Patrick, I didn't even dress up. I was in jeans. I had my hair thrown up. I completely was doing this as a favor. I go downstairs in the cafeteria and I think I'm meeting with Nick. And in walks two other people with him, Jack and Allie. And I'm like, now there's three of them. What am I getting myself into? Really, my intention was to make it quick. And they started off right away by introducing their company, but who they were hiring. And that caught my attention.

54:57They were pretty much putting in place a dream team of technical experts to develop this whole software system, bringing in people from Charles River and Faxit, Bloomberg. And I thought, how brilliant is that to bring in the best of the best? So then they started talking about this single source of data. And I was like, what in the world? I couldn't even conceptualize that because I'm so used to all of these different systems and these different modules that sit on top of each other. And so I wanted to hear more about that. As I was meeting with a lot of the other vendors, they always gave me this very high level sales pitch.

55:33Oh, transition to our company. It's going to be so easy, etc. Well, I knew 30 years of data was not going to be an easy transition. And so I like to give them challenging questions right away, which oftentimes in most cases, the other vendors couldn't even answer those details. So I thought, okay, I'm going to try the same approach with Ridgeline. And I asked them a question about our security master file. And it was Allie right away who answered my question with such expertise. and she knew right away that I was talking about these dot old securities and told me how they would solve for that.

56:09So for the first time, when I met Ridgeline, it was the first company that I walked back to my office and I made a note and I said, now this is a company to watch for. So we did go ahead and we renewed our contract for a couple of years with our vendor. When they had merged in with a larger company, we had noticed a decrease in our service. I knew that we wanted better service. At the same time, Nick was keeping in touch with me and telling me the updates with Ridgeline. So they invited me to base camp. And I'll tell you that that is where I really made up my mind with which direction I wanted to go.

56:44And it was then after I left that conference where I felt that comfort in knowing that, okay, I think that these guys really could solve for something for the future. They were solving for all of the critical tasks that I needed, completely intrigued and impressed by everything that they had to offer. My three favorite aspects, obviously, it is that single source data. I would have to mention the AI capabilities yet to come. Client portal, that's something that we haven't had before. That's going to just further make things efficient for our quarter -end processing. But on the other side of it, it's the fact that we've built these relationships with the Ridgeline team.

57:25I mean, their experts. We're no longer just a number. When we call service, they know who we are. They completely have our backs. I knew that they were not going to let us fail in this transition. We're able to now wish further than what we've ever been able to do before. Now we can really start thinking out of the box with where can we take this? Richline is the entire package. So when I was looking at other companies, they could only solve for part of what we had and part of what we needed. Ridgeline is the entire package. And it's more than that in that, again, it's built for the entire firm and not just operational.

58:06The Ridgeline team has become family to us.