E24: Building a Multi-Billion-Dollar Asset Management Firm with CoVenture's Ali Hamed

23:23And we've spent a lot of time trying to figure out the right way to solve that. I mean, there's a lot of big problems in the world. there's like healthcare problems there's like climate problems uh there's like whatever some long list probably the one that like we feel most passionate about and maybe qualified to have our little dent in the world will be the housing crisis and i wouldn't be surprised if sometime in the next 10 years we figure out how out of our asset-backed business we can develop a point of view on that and then build a strategy around it over time and i say that because like we literally have no opportunities right now to do so.

24:02Like we haven't found a single deal that's solving that. You know, we think that a lot of the prefab businesses just consume tons and tons of capital. By the way, I hope they work. They probably will work, but I don't think they're ready for credit yet. And actually it's interesting. So like these prefab, if you think about lending to these companies, it's sort of like a weird problem. So like on one hand, like if you lent money for a construction build, would you lend at a higher rate for a prefab, like, you know, one of these tech companies that just like prints these homes over and over again, or for like the old way of building things, like it's a traditional way.

24:33Your first instinct is probably, well, it's so much less risky if like a robot is like, or a machine is building these like prefab homes and like they're modular or whatever, and like there's no risk in developing it. And a general contractor, like who's ever heard that they're like development, like they're, they're, they're building, like their home got built on the timeline they thought it was going to get built. but actually the weird problem is your your losses are lower in prefab or in one of these modern ways of building but your severity loss is greater because if your general contractor screws up you can replace your general contractor but if you're like prefab home builder screws up you can't replace the prefab home builder because all the machinery and equipment is like their custom like their proprietary stuff and so like it's a weird credit problem you actually lend at a higher rate to a prefab business than to a traditional home builder even though the traditional home builder will have like a much worse experience client by client by client than the prefab.

25:21So there's all these weird, fun, interesting credit problems in home building. I can imagine we'll continue to think about it. I hope we find a solution. We're probably years away. By the way, the other thing that I think a lot about as we build our firm is, and I guess this is a knock on us a little bit, so hopefully it's not taken too negatively, but a lot of the best firms were built at the dawn of their asset class. Sequoia was founded at the dawn of venture capital and, you know, Oak Tree was at the dawn of like, you know, non-investment grade credit and, you know, whatever, you know, like Apollo and Guggenheim and stuff probably like won the insurance trade and they were kind of at the dawn of the insurance trade.

26:04And, um, yeah, we were in private credit, but we weren't founded at the dawn of it. You know, we're in venture capital and we weren't founded at the dawn of it. And, and one of the suspicions I have is in the course of the next, like I'm 32, I'd imagine I'll probably be working for at least the next 100 years or at least 30 to 40 more years. It's hard for me to imagine that during your career and my career, there won't be a new asset class that gets founded. I think some people thought it was going to be crypto at one point. And I hope we're at the dawn of it. I hope we realize it when that new asset class is getting formed.

26:35And I don't know if it's going to be a new type of investing that's never existed before, or we take a subsector of investing that we just rename it. I forgot who I was talking to, so it's not my quote. But they were like, they always laugh when they hear that venture capital has only been around for 60 years. They're like, obviously, venture capital has been around for longer than that. We just came up with a cool name for it finally and became an asset class. So maybe there's something right in front of us that none of us know about. But I hope we get to invest in that. I hope we get to be at the dawn of a new asset class as a firm and hang around the hoop and be credible and have a good track record.

27:09And people like us enough where they'll give us the opportunity to be a part of it. And that would be a good way to become a big investment firm. But I don't know what that is yet. It's almost like asking a venture capitalist, like, do you know what deal is going to make your career? Like, no, I haven't seen it yet. Yeah, it is interesting. I mean, talk about crypto, because you guys have done some stuff there. How have you thought about that asset class and whether to go big or not go big at it? Or how do you think about that? We thought it was interesting. We still think it's interesting. We see less deal flow in the space.

27:43And, you know, I think the most compelling thing for a long time is that, you know, having small talk about crypto is fun. You know, you're talking about like governance and economics and there's like no such thing as crypto and small talk, right? Like it's like, it's, so it's an interesting conversation. There's like, of course, like the components of it are still really fascinating. It's like, oh my gosh, like should every big thing in the world be governed by a few small people or should it be governed by like many, many people where no one's really in control? Hopefully the latter. There's negatives of the latter, which is like it's lower quality, you know, it's democracy versus dictatorships, although dictatorships fall in the end, you know, but they go faster.

28:23You know, so there's, so all those like interesting parts of like, should the world be more distributed totally? Are less of the smartest people in the world working on it? Yeah. A lot of them are working on AI now. It's like probably the reason and everyone's obsessed with AI. It's like everyone's smartest friend is working in an AI startup now. And so part of our job in venture capital is to follow talented people. I think our approach to it was pretty basic. In our funds, we basically said, well, we think it's really interesting. We want to own enough of it where if it works really well, we're not pissed.

28:53And if it doesn't really work very well, we're not pissed either. And I think we came up with a rule in turn. We'll get up to 5 % of the fund in things that are related to crypto. go. If it does really well, that'll be enough where we'll feel like it had a big dent in the fund in a positive way. If it doesn't go very well, it means that it won't tear a hole in the side of our fund. I think for a lot of people, it blew a hole in the side of their fund. That's the risk management thing. That's pretty basic. It turns out you shouldn't have half your fund in one sector. You wouldn't have half your fund unless you're a prop tech fund, just a prop tech, for example.

29:25So we risk managed it. There's a lot less deal flow in the last year or so. So And, you know, I think that the stuff that we did in the meantime, there's a couple of companies that will do well, it seems. And there's a couple of things that we got smoked on and like we sized them well. And I wish they hadn't lost money. They did. But it really won't move the needle for the fun in a big way. That's how you're supposed to size your venture bets. Actually, you want your failures to fail quickly because if they fail, like if they look like they're winners initially, then you put more money into them.

30:00And then they really become expensive losers. You want them to fail like as fast as possible. By the way, that's the hard conversation, easy conversation thing too. Yeah. Is it fair to say that there are some multi-stage firms or even individuals who've been able to raise colossal amount of capital, you know, many billions of dollars who have not done that well from a multiples basis, but that the LPs that they're working with can put a lot of capital to work and maybe didn't need such a high multiples. And so in some weird way, kind of everyone's happy, even though the multiples aren't that great because the firms made a ton of money.

30:39Yeah. The answer is yes. You know, I think different organizations have different ways of compensating their people and judging success. You know, some organizations, like in venture capital, there's like at least some alignment that like you get carry and allegedly supposed to make your wealth on carry and not management fees. Although I'm sure in some firms, that's not always the case. You know, a lot of, you know, endowments or certain pensions or sovereigns, like I'm not sure that there's some like bonus structure that's, ah, you got like the best VC funds. So we're like going to give you a big bonus.

31:11So that's probably a problem. It turns out like incentive-based pay is like pretty good. Like it's like a good concept and not all groups have that. I mean, I think one of the problems also is like, why do LPs pick funds? they don't want to get fired. So if you pick a brand and like if a big brand loses money, you're okay because you'd be like, well, it's not my fault. It's a big brand. And if it's a small brand that loses money, there's more risk. So as a small brand, you just definitely have to be able to explain to people that you're going to do better than average. That's the way to justify investing in a small brand because you're creating some career risk for the person allocating to you.

31:47in some cases you know you have like you know distribution groups that you know they'll select a manager and distribute that manager to their clients or whatever and you know you want to say i have allocation to a famous person's fund or you know a firm that like is oversubscribed and so like i you know i'm getting paid for giving you something you can't get access to yourself or whatever um so yeah you know there's some firms that like aren't selling returns they're selling a brand or they're selling allocation or they're selling interestiness or they're selling that they're saving the world.

32:20I think luckily there's a huge amount of LPs who do care only about returns. And that's the efficient part of the market. And there's lots of it. And so, yeah, it's better to have good returns than not good returns. But do some groups build a business based on having good enough returns to keep raising their next fund, but they're more focused on the brand than on the returns? Probably. Well, not just returns, but multiples specifically, and multiples on a certain level of cash. So if you could put billions of dollars to work as an LP, maybe you're more flexible having a 2X or something like that.

32:54Yeah. I mean, well, also, that's not, by the way, completely irrational. I think if it's a 2X versus a 10X, if somebody said, hey, Eric, you get to put$10 into something, you're going to get a 10x return or you can put a thousand dollars into something it'll give you a 4x you'll do the thousand because you want three thousand dollars of excess you know of the income as opposed to 90 90 of income and you don't really care about you know your goal is to make the most money possible you know and there's like different ways to get there exactly but yeah i mean like like you know i had this debate with somebody which was like should benchmark raise bigger funds.

33:31I'm like, well, if you were benchmark and your only dream was to like better the world, like that was the only thing you should, you wanted to do. And what you would do is you'd go to LPs who are nonprofits, the causes you care the most about. And you would basically raise as much as you could from them until you felt like you were no longer delivering alpha. So you could provide as much absolute income to the causes that you cared about knowing that like their second best option was probably worse than like your diminishing returns. So like maybe they weren't going to get like a 20x on their next fund or whatever they only got like an 8x but like you know if that was your goal to only make the world better in your eyes as a benchmark partner i'm going to keep sorry to the people at benchmark you know i think you guys are great um you know but like i they should raise a bigger fund you know and they're they but but i think that they're they're playing for a lot of things one i think they probably do that and so it's good i'm so glad that they exist they've taught everybody in the venture world so much and i'm you know i think they get to pick and choose who they work with and i'm sure many much of it goes to good causes but they're also playing like a you know they're competing with themselves in some way and they're like in it for the love of the game and they love investing and they they like there's something like about the heritage of venture being a cottage industry that like maybe one of the impacts that they're having on the world is leading by example and teaching people not to raise big funds i mean that would be a counter argument it's like i think what you're seeing is like i don't think there's any right or wrong answers to this stuff it's just all context do you think more venture is going to look more like benchmark or more venture is going to look more like Andreessen Horowitz, venture firms trying to become asset management firms and just consolidate?

35:03I bet less like benchmarking or Unisquared Ventures. I think it's great that they exist, but I think it goes back to the ambition thing. They are unique in that they have senior partners who recruit ambitious people by offering them something they don't need to offer, which is equal partnership, and then, by the way, leaving. And without retaining terminal value in the management company, will that happen sometimes? Yes. Is that unique and unlikely to be common? Also, yes. And so would I extrapolate what a handful of firms have done in the world and assume that that's likely to be the path of the rest of venture?

35:48No. That would be really dumb. It's probably going to be a profit-maximalizing, highly irrational pursuit. And from time to time, there'll be people who have decided they're in it for the love of the game, and they're probably leaving some money on the table. Or maybe they've decided they're not leaving money on the table because if they decided not to do that, they wouldn't have been there in the first place. I don't know. But I bet you that's unique and not norm. I think people talk about it as if that's the North Star. Again, I think it's great that those firms have been built that way. But you're relying on a pretty unique pattern.

36:21It's almost like looking at how Jeff Bezos built his business and being like, oh, we should all be like Jeff Bezos. No, Jeff Bezos is unique. We probably have very little to learn from him. You have a lot more to learn from an average founder who used their average skill set to be slightly above average by doing certain things right. Jeff Bezos is a genius. Yeah, that's really interesting. um talk more about the co-venture story in terms of what were the big inflection points right like i remember you started out by providing this sort of like technical co-founder for hire um or for equity service which is pretty pretty innovative at the time and then now you're you know uh you know billion dollar plus aum um across you know different asset classes talk about the different inflection points and then i want you to reflect on if you were uh ali hamed in 2024 today um and had to start over knowing everything you know now, but CoVenture didn't exist and where the market is right now, what would that path look like?

37:20God, starting over sounds horrible. I don't know that I, I, can I take a year off? Yes, you can take a year off. No, um, inflection points of the firm. So, so we had this kooky idea to build software for equity. We were like, well, there's all these non-technical founders and, um, they need technical co-founders and they give way too much equity to people who could code crappy apps. And we're like, well, we could code better than crappy apps. And that was the initial strategy. And it was good. We made a lot... I think we're really proud of what we did for our LPs. It wasn't a strategy that could scale because you had to hire a bunch of engineers and have this big overhead cost.

37:58And it turns out you start to build crappy apps if you try to scale too fast. And also, people didn't want to have an outsourced technical co-founder, like broke the mythology of startups. And like every VC is like, well, you need a technical co-founder. And so, so it went really well in that it got us like on the map. It taught us a lot. Everybody who was invested, we're proud of what we've done with them. And I think they would, if you called them, they would say that they like us a lot. But it also was like, by doing that, we ended up investing in a business called Produce Pay. And that was like a big inflection point.

38:34Produce pay was financing perishable produce farmers. No one had ever lent against perishable produce. They don't lend against produce, but they finance it by taking title to it while it's on consignment and terminal markets in Los Angeles or Texas or wherever. And they basically provide liquidity to the produce industry. And they needed debt capital. They didn't need venture debt. They needed asset-backed credit. They needed somebody to provide them the capital they were using to finance the produce that they were originating. and we thought it was a great credit because not exactly this but basically it felt like you were getting paid like you were financing a latin american farmer but taking the credit risk of a u.s based distributor so it's a pretty good credit we raised an spv why did we raise an spv is because we had no business doing credit um you know but our lp saw the deal they liked our diligence they thought we were honest and we we raised an spv around it and it like was a way for us to generate revenues and build a firm.

39:25And then because we did that deal, we started getting sent all kinds of deal flow from all these VCs that had never really wanted to meet with us, but suddenly wanted to meet with us because we were willing to finance their companies in a different way. And it was the coolest thing ever. It was all these people that I'd always wanted to meet, so they wanted to meet us. I was like, wow, this is amazing. Maybe there's product market fit here. And so we did this SPV business for a number of years. We raised some equity capital into the management company because it turns out investment professionals are expensive and I didn't have any real money myself at the time.

39:56And so I needed operating capital. So we raised money from a gentleman named Mark Spilker and a handful of other people. Mark had been the president of Apollo before that. He ran GSAM and he's just been this incredible mentor and partner of ours. He helped us figure out who we needed to hire, how to build an investment process. We hired people who really had done structured credit for a while. And we kept doing these SPVs until 2019, we went out to all of our SPV investors and we said, hey, guys, gosh, it'd be really great if we had a fund. We've been doing this for like five years and we think we're pretty good at it.

40:26And we'll give you maybe better economics if you give us discretionary capital as opposed to SPV capital because SPV is a stressful way to live. You commit to a company, then you go raise the money and you hope you get it in time. And it's horrible. And you got to communicate and be clear with the founder about it, but it's not fun. And so we had a fund. We raised our first vehicle that was discretionary in 2019. And since then, that's really the asset-backed business that we built. In 2020, we had a point of view that we were probably good at venture. I always loved venture. It was probably my first love.

41:04And because of all these people who had sent us deal flow and asset-backed credit, and because I mentioned at the beginning of the podcast, you can raise money either from people you know, a good track record, or a good story. We had no story. It was like we already had this credit business. I was going to run this other strategy. But we had people we knew. And everybody told us we should raise a fintech fund. Everyone was like, oh, you should do a fund that invests in lending companies. No, that would be a terrible idea. It's so hard to run such a specific fund because if you assume that the best talent wants to work at journalist funds and you also assume that the leading indicator of a good venture business is having the best talent, you can't do a very specifically narrow focus.

41:44So we decided, like, screw the story. We're going to just raise money from people we already knew and who liked us and thought we were intelligent. And we felt like we had good deal flow. And we raised a fund that was small enough where if we led deals great and if we couldn't lead deals, that would be okay too. You know, we think it went really well. It's like I'm talking publicly, so I can only say so much. But, you know, it gained us credibility and we're still in the business. So it went well enough where we're still in the business. and I think that was like a really cool moment for me personally because it was something I'd always wanted to do and I felt a little rejected by the venture industry for a long time of being like this credit guy and like the software for equity guy it's like the first time I finally got to do the thing that like you know all these like cool people in the valley were doing and then and then it was weird like I felt like everybody knew something that I didn't you know it's like there's like these hot deals and everyone's doing like sass deals at 50 times revenue like man man, they're so smart.

42:35They can figure out why these deals are good, but I just can't figure them out. And it turns out nobody, like they, they all didn't know anything. I couldn't believe it. I was like, oh, you know, the emperor has no clothes. And so that, that's been pretty good. So that was a big inflection point when we realized that nobody really knew anything. And, um, and, and, and then in the hybrid business, you know, that was the first time that we, we could go to our LPs and, and, and very quickly grow a business at scale because we had spent, you know, almost 10 years building trust and relationship with people.

43:09And that felt really good. And we thought, gosh, we're in business. Um, so those are some of the inflection points, but there's no like one moment every, every year, year feels like the hardest year of your life. And you look back and like, Oh my God, I can't believe we're here. Like, this is so much better than we thought it was going to be. I don't know. That's maybe a terrible answer. No, no. It's a great answer. Let's go back to if you were starting over. Like 2024, you took six months off and you have the expertise that you have now, but it's 24 markets. You have relationships too, but you kind of have to start again.

43:44How would you think about it? I would have a very hard time thinking that I personally would have edge if I was only exposed to one asset class. it's very hard to out venture venture people. It's very hard to out asset back credit, asset back credit people. So I'd want a strategy where I could see one market and use the insights from that market to invest in another. Maybe that's not the best way to win, but it's the way that I found that works. And I'm just rolling with it. I would want to work with the same people. You know, it took a really, really long time to, you know, it takes a long time to find the people that you want to work with forever.

44:20I honestly, when you asked the question, I was like, God, you may not have to rehire and find good people over again. So, like, I'm going to assume I wouldn't have to refine people. I'd bring all the same people back. And I would probably just, like, leave all the, like, you know, I think in the beginning of the firm, we wanted to make life really simple for the companies we invested in. And so we said, just come to us, and if you need capital, we'll figure out how to get it to you. and then like on the back end we're like with this machine you know like raising spvs and raising different strategies and doing all these different things and creating complexity on our side so that our companies never felt complexity on their side i think the main difference is like we don't have to do that anymore but i would go slow god i feel so confused about the market like do you read the news and feel clarity because i don't like nothing makes sense so i think that my answer would be, I just go slow.

45:13I mean, we're going slow right now. Cause we don't think the good, the world's too good and we're too bad. We just have no fricking clue. You know, like the hybrid thing we always tell people is like, it's great cause like short duration. So you get the money back in time from when the world becomes more obvious. We try not to pick valuation. So we get our returns to structure as opposed to picking price. You know, and we give a little bit of upside for that. We try to invest in companies that are already profitable. So you don't have to rely on the capital markets to raise their next round. So basically it's like the, I don't know strategy.

45:49Um, and it's good. It works. It actually turns out like when you don't know that you can still invest, but yeah, I'd go slow. I mean, um, I don't know. I think anybody who, I think most people who go on podcasts are like big promoters. Um, and I'm like, kind of like sick of it. Um, and so I don't know, I'm going to, whatever the anti-promoter answer is, I'd go really slow. Chop wood, carry water. Um, that, no, I appreciate the answer because I'm effectively living that question now, right? After eight years at village, I I'm starting over. Uh, and so I have, you mentioned great track record, you know, people want to back you come work out of our office, you know, we'll look at stuff.

46:27We see like all these crazy deals. We have like a bunch of people that were a little nerdy. So you might hate that, but we're, you know, we're, we're, we're fun. You know, we work our butts off where whatever hour you come into the office, there'll be somebody there. Cause we work like a hundred hours a day. So yeah, just come hang out with us. I'd love to. This is a recruiting meeting, not a podcast. Yes, exactly. I mean, I'm really reflecting, and I'm reflecting here in public with my audience on how exactly I want to play venture. Because if I would have just stayed, I would just continue doing what I was doing.

46:56But now I'm really reflecting first principles, like what makes sense in 2024. I have two of those three things you mentioned. I have a great track record. I have people who want to anchor back me, but I don't yet have internal conviction on the story of how to play venture. I've been obsessed the last decade of sort of the YC approach to venture, which is you go early, you go at meaningful scale, and you build a value prop with things like Product Hunter on deck that help with customers and talent that gets you into the best deals and sometimes even special economics. and today it just seems much more crowded yc itself has moved up market it seems like some of the alpha in early stage is um is is harder um and so it's not obvious to me what kind of firm i should build and so what i'm first focused on doing is is kind of building these assets that like product on and on deck solve for distribution you mentioned megaphone solve for talent.

47:53I'm very interested in expert marketplaces. If you own Tegas, for example, is the way to monetize selling to VC firms if you get special insights on trends, companies, people, products, or should you trade on that information? Or should you do both? You should definitely trade on that information. You should not sell proprietary information that gives you edge. That's the easiest answer. So how would you think about it if you were me, Given your knowledge of my skill sets, interest, given what I just said about the things I'm going to be working on for a bit, I've never thought about doing other asset classes.

48:32What advice might you have to me? I actually have been talking to a lot of my friends in venture because I feel like everyone's rethinking venture. And I actually think that they shouldn't at all. I think they should go back to where we were in 2014. So I'm stealing comments from Jesse, who I already alluded to. but I think he frames it so perfectly. I'm paraphrasing. So he'll take credit for the good parts and not for the bad parts of what I'm about to say. Seed investing 1.0 was a bunch of people who were kind of random, and they didn't all work at VC funds before they did it. They were just tech founders or former finance people or whatever.

49:11And they invested in seed companies, and nobody really thought they were good or bad necessarily. And by the way, they all just took a unique point of view. And some of those seed funds were really bad and they failed and they died. Some of them were really good and they became like super disciplined and oversubscribed and nobody can get into them anymore. Or they turned in like multi-stage like smart beta funds. And then like somehow what happened was everybody, like all these LPs wanted to stop taking career risk. And so they like would go to these like former people at like these like multi-stage smart beta funds and be like, oh, you should take like the multi-stage smart beta approach to seed investing.

49:49And the multi-stage smart beta approach was a lot of market maps. Oh, my God. VCs love market maps. So you build a market map. And you're like, oh, this is an interesting space. And I'm going to find the company in the space that I like the most because the founder is good. And there's a feature set in the space that's good or whatever. And I'm going to try to use my brand to win one of the rounds in the company that I like. Or if not that company, one of the other three companies I think has a pretty good shot. And then they left those smart beta multi-stage funds and started seed funds. And it doesn't work in seed.

50:21You only get one shot. You don't have a big brand. And so the way they try to compete is they still built market maps. And they still try to find the winning company or one of the three winning companies at a chance or whatever. And then they paid like 100 times revenue for it. And they were like, oh, man, venture is broken. No, venture is not broken at all. It's just everyone fucked it up. I would go back to normal venture. That's what I would do if I were you. You have really good deal flow. You have a unique point of view. You've seen so many companies get built. You're probably better at it than you've ever been in your life.

50:51You're entering the age where you're like peak career, especially for venture, because it's kind of a young person's game. And just like invest on a unique point of view. And then as soon as you invest, convince everybody why it's a good idea. And then that's your business model. So do what venture was supposed to do in the first place. Don't rethink it. Actually, unthink it. Unscrew it up. Back to basics. um you know and gearing towards closing here it's one thing i just want to say about you is which is really fascinating is you know i i feel like i know a lot about the sort of the event the players in venture like i can name a lot of firms and their strategies the way that like a big basketball fan can name like the best high school players or something you know like people really follow this it's like the best video game yes it's like the best video game ever but i don't know anything about baseball, for example, whereas I feel like you know basketball, baseball, football, like you know all sports.

51:45Like when you talk about credit and insurance and other asset classes that other venture capitalists know nothing about. They don't even know the firms that you mentioned earlier that are the top of the game. How do you do that? And for people listening in who say, hey, I kind of want to diversify my knowledge base a little bit, not just study all about venture, but also about other asset classes. What advice do you have? Where's a high leverage way to learn how to do that? It took 10 years. But talking to people? Yeah. First off, you do a thing and then you try to find something tangential to it.

52:24And there's things that I don't know anything about. If you asked me about which long short equity funds, hedge funds are good, I really couldn't tell you what makes it great. I'd listen to an analyst talk about a stock and try to figure out if I think they sound smart or not. That'd be my best idea of how to underwrite a long, short equity fund. So no, I know about a handful of asset classes and I try to go up and down the capital structure of companies. But I mean, it's looking at a lot of deals. I guess I'll answer it differently. I'll say when we're trying to do a new space that we haven't done before and the way we learn about it is we try to make sure the space is one step away from where we currently are.

52:59So we're not going from over here to over here. And then we try to look at 50 of them because it takes 50 Bs to recognize an A. Usually when we look at a company, it's the same as looking at a space. When we look at a company, we ask ourselves three things. What are the things that we need to believe for this company to work? Are we qualified to figure out those things? And would it be worth our time? And sometimes when we think it's not worth our time, but then we see 14 pitches in the same ecosystem or space or asset class, we're like, shoot, Maybe we should go learn about that asset class or ecosystem or space.

53:31So we spend a lot of time. We try to get a lot of pitches. And then we try to co-invest with somebody who's been in the space for a while. And then we learn from that deal and we size it appropriately. And, you know, we're not doing it because we think we're like just learning. We think we're going to make money on it. You know, we've already seen a bunch of things. We think that we're now at least kind of experts in it. And we do it over and over and over and over again until finally we feel confident to lead deals in that space. And then we end up knowing the space really well. You know, insurance is a great example.

54:00Like, I think insurance is interesting because everybody in private credit has to think insurance is interesting. You know, we had a great financial crisis. Banks had flighty liabilities, which SVB just found out. So, you know, after the crisis, a lot of private credit investors ended up raising, like, shadow bank funds, like just regular LP funds. Some had a really good idea that they should buy insurance companies instead or reinsurance businesses instead. You know, the nice thing about insurance companies is the same as depositors. You know, they're regulated liabilities that are cheaper than what LPs demand, but they're better because in life insurance and retirement annuities, you know, you know when you owe the money back, whereas bank deposit banks don't know when their depositors are going to pull money.

54:37It's OK. Better place to hold, you know, alternatives. And like all these, you know, private credit funds basically started doing their deals using insurance money instead of LP capital. OK, so fine. So like I'm in private credit. A lot of people in private credit know a lot about insurance. I should try to learn a lot about insurance. So I used to call all these private equity funds that bought insurance companies and made a lot of friends with people who work at insurance companies and talked to people like Drew, who runs an insure tech venture fund, Drew Aldrich, you probably know. And then I got to the point where I realized I know more about insurance than the average VC, but not a lot compared to the person who's buying insurance companies.

55:11And at one point, we thought, gosh, should we buy an insurance company to go along with our private credit business? And that would have been bad because that would have been the dumb money in the room. And so then we thought, well, maybe we should co-invest with somebody who could buy an insurance company. And we would even, like, put up most of the money and then, like, pay them economics or, like, an origination fee or something if they wanted to make sure they had skin in the game. But we couldn't find somebody who was willing to do it. You know, I just actually had lunch earlier today with somebody who's, like, the deputy CI of an insurance company.

55:40And so then we came to the conclusion that, like, it wasn't right for us, but we learned a lot along the way. And one day we'll have the opportunity to hire somebody who's bought a bunch of insurance companies before. And, you know, the trade is kind of mature. It's not like it's a new idea anymore. So, you know, if it's a new idea, it's easier to be an expert than when it's an old idea. When it's an old idea, people really are experts. So this is an old idea. We need to find someone who's done it a million times. And so I probably know enough to hire somebody who would be good at it, but probably not enough to do it myself.

56:05So that's like a way that we're exploring that space. You know, the new version of that is the RIA space. So everybody did the insurance trade already. And then they're like, well, where else can we find money? And somebody was like, well, did you know, like, well, you know, independent RIAs? don't have that many alts in them anymore because a lot of their clients are credited but not qualified purchasers. And QP investors are usually the only people who can invest in funds now. And everyone's like, oh, great. We'll go start interval funds and all these other products that you can sell alts into RIAs with.

56:31So now we're spending a lot of time in the RIA world. I don't know. And then we work like 100 hours a day. We don't have any hobbies. This is all we do. We're just like finance nerds. What I love about your story is it's not just, hey, you read venture deals for every space. It's no, you got to get your hands dirty and look at deals with the smartest people, earn your way to have the right to co-invest with them, to learn from them, and just keep getting in the weeds. I'll tell you this, it's not a market map. Exactly. By the time it's a market map, it's too late, perhaps. Ali, this has been an incredible conversation.

57:10We're overdue for me coming to visit you in New York. I'll make that happen. Thanks so much for coming and sharing your wisdom with us. Eric, thank you. I will talk to you soon. Awesome. And I'm going to convince you to have a podcast someday. It's going to happen. I'm too grumpy, man. I have no good opinions. I'm too grumpy. Well, if you listen to this and you want to hear more from him, DM him or DM me and I'll send it to him. You have something wrong with you. You should go read a book or something. All right. I'll see you guys. Thank you. Terpentine VC is a podcast from Terpentine, the network behind Moment of Zen and Econ 102.

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