Anthropic's $44B Revenue Run Rate, SpaceX's $75B IPO Problem, and the Retail VC Trap | Ep 34

Speaker A: By the way, Iman, are tariffs legal or not legal

Speaker B: when you're taking a company public? One of the things you think about as a CFO is like, who's going to buy the float that I'm putting out? Who are the shares and where are they going to go?

Speaker A: It seems like Anthropic is now hitting a $44 billion run. Welcome to another very bad episode of Trading Places, the world's worst VC secondary podcast. This week we're going to talk about the overall macro picture of the market. Uh, the markets are up, although prediction markets seem to be thinking that the Iran war is not ending anytime soon. SpaceX and Anthropic announced a big deal. Uh, pretty good for SpaceX, I think. Maybe pretty good for Anthropic too. We have a lot of FOMO on Anthropic at nine, uh, hundred billion to a trillion dollar valuation. Actually secondary trades happening higher than that. We'll cover Sam versus Elon, the trial. Getting some juicy, uh, gossip there. Um, the Cerebras IPO, uh, continues to get more attention. It's 20 times oversubscribed and they're raising the range. On the other hand, we still see saaspocalypse, uh, problems. And every time Anthropic releases a new connector or some kind of plugin, it kills a bunch of companies. Avan, I think we're going to cover public retail venture capital funds in our valuation corner, is that correct?

Speaker B: That's right. We're going to hit the publicly traded retail vc. So we'll talk about Robinhood Ventures and then Destiny Tech 100 and fundrise, and we'll go through a pros and cons of each one of those.

Speaker A: All right, let's jump into the macro picture. Uh, seems like everything's coming up roses. Aman, uh, despite the price of oil, everybody's setting record highs. What's causing all this?

Speaker B: Yeah, it was definitely a strong week for the public markets in the us. The NASDAQ and the S and P both had records on Thursday and on Friday. Intraday highs and closing highs. And then, yeah, even Japan joined in. Underfund. The Nikkei hit an all time high on Friday and the UK also hit one on, uh, Thursday. So look, I think broadly the market's focused on earnings. We are something like 89% of the way through earnings season for the S&P 500. The EPS expectation from analysts had been 13% year over year growth, which is pretty solid based on my Math. We're at 27% earnings growth from the S&P 500 right now. So the index is up something like 8% year to date, but with earnings, uh, up 27% year over year, it's actually gotten cheaper since the start of the year. So I think the market's focusing on that and, um, not as worried about the potential for higher oil prices.

Speaker A: How do you reconcile the fact that the public markets are up crazy, but the prediction markets are saying we're likely to have an oil crisis for at least a few more months?

Speaker B: I would offer that. You got to hold two things in your head at the same time. One is the conflict in the Middle east is going to go on for a lot longer than people think. I think I'm told reliably, Dave, that there is no war in the Middle east, that hostilities are over. I'm getting the speech from the President of the United States. I'm being told direct. Oh, wait a second. This just in. You're all gonna die tonight.

Speaker A: All right, never mind.

Speaker B: I'm not sure I can trust what is being said. I think it's fair to assume that Iran does not want to negotiate a deal anytime soon now, that they have leverage, and that they can probably hold out a lot longer than we can because they have a much higher pain threshold in terms of what they'll endure. And it just, they seem, I think they want to drag this out until the midterms. That's what I would do if I were them. But at the same time, the oil prices are, uh, between 95 and $105 a barrel. We were at 140 back in 2022. So oil prices are elevated, but not enough to tip us into a recession. And when you start to see companies like Meta at 17, 18 times earnings, Nvidia 20 times earnings, Microsoft at 20 times earnings, even Google at 24 times earnings. There's still a lot of optimism around earnings, earnings growth, reasonable valuation multiples. And I think that's probably where the market is more focused, and that's dragging global markets higher as well. So I think that's what's happening. It's just what's the market paying attention to and how do you value earnings growth and economic growth versus oil prices that may or may not stretch into the end of the year?

Speaker A: Well, I think I'd probably comment that oil prices probably have less impact on tech companies. Uh, and right now the market's, uh, being driven by these gains from the top tech companies. At the same time, you know, the straits of hormones is not just affecting oil prices. It's affecting fertilizer prices, it's affecting other commodities. Commodities, uh, that's generally affecting the rest of the economy. Certainly in Southeast Asia, there are substantial increases in the price of oil much higher than where we're seeing it traded. There's lots of crisis in those countries. I just think that we're seeing a disconnect between the overall market, which might be driven by tech, and the everyday market that consumers and normal businesses experience, uh, as a result of these shutdowns. And also potentially other things like tariffs. Uh, by the way, Iman, are tariffs legal or not legal?

Speaker B: It depends who you ask. Here's the good news. The International Court of trade in the US said the section 122, the new tariffs that came in place of the old illegal tariffs are also illegal. So several attempts to, you know, place tariffs. I would say this tariffs are legal if applied by Congress. The ones that have been applied to date, either through the IEPA before or through section 122 now, like repeatedly have now been ruled illegal by every court that's looked at it. And we're now off again on tariffs. And so that's actually probably a tailwind to the economy in that we've gotten a little bit of tariff relief on top of the, uh, fundamental underlying growth in the economy and in earnings. One other sector, by the way, is financials. Financials all reported in Q1 and their EPS was up 15%. So I think you're right. The tech and financials are leading the way in the U.S. consumer spending is okay. Jobs have sort of been flat or slightly up. We had a pretty good employment report this week, but overall it's definitely a, you know, tech and finance story in the US and uh, you're right, other, other sectors are going to struggle in other parts of the world would probably struggle.

Speaker C: How does a startup founder late stage get fired by a board on a Sunday? Mira, can you please officially invite me to the office for, for a meeting? Adam is trying to get the board to agree to a configuration.

Speaker A: Well, at least on the tech front, we're seeing some positive news. SpaceX announced a big deal with Anthropic about compute. Uh, I guess this was anthropic ripping and needing more compute. And SpaceX having some excess compute from XAI that wasn't being used previously. Although, um, Elon Musk had called Anthropic evil three months ago. Now he's quite willing to be their landlord for $4 billion of rent. How times change.

Speaker B: Isn't it amazing how that works? Yeah, this is a. I Think this is a really big deal and I think it's really good for both sides. Let's just go through what, what they said. Uh, it is interesting that Elon and Dario have been fighting and going at it on X and Elon even called them misanthropic at one point, which is uh, cute. But I guess when it comes down to money, we're all on the same side, which is great, right? So as we know we're shareholders, our viewers know we're shareholders, uh, or economically exposed to SpaceX. So not investment advice, this is just our opinion. But here's the nature of the deal. So, uh, it's a lease of Colossus 1, which is SpaceX's big supercomputer in Memphis, Tennessee. They're leasing it to Anthropic. Why does Anthropic need Compute? Well, they've been ripping, as you said, they've been growing their revenues at a phenomenal rate and just announced at the end of April that they're at a $44 billion ARR run rate. That means they added 14 billion in the month of April on top of adding 10 in the month of March. And they seem to be on track to go to 100 by the end of the year, which would put them in the league of the, the Mag 7. One of the issues they've run into though is just they're constrained on compute and so what does that mean? They need capacity from AI data centers that they just don't have. And so SpaceX has Colossus 1, Colossus 1 has the computing capacity that they need. And so that helps Anthropic to now essentially double the rate limits for cloud code and Cloud Max subs. They're raising their API limits for cloud opus. They've now secured over 12 gigawatts of combined capacity through this deal and a few others. So I think that sets them up for the rest of the year. It's actually great for SpaceX, as you said, because SpaceX has this compute they're not using in XAI. They have Grok that has underwhelmed user expectations and so the fact they can lease out some of this excess capacity for 3 to 4 billion dollars in revenue, uh, is fantastic. I'm leaving that estimate on revenue from Brad Gerstner who's an investor in the company. So that also helps with their ipo, which is um, much about a revenue story. They've also by the way, gotten an expression of interest on co development of data centers in Space, which is also an Important initiative and it's front and center in the roadshow. I can't hear the words data center in space without thinking of pigs in space. That old Muppet.

Speaker A: Pigs in space.

Speaker B: Yeah, uh, it's a part of the roadshow. And these co development efforts, they may be three to five years out but they're an important part of the IPO roadshow. So one last thing. If you think about the compute capacity, they're at 44 billion in ARR run rate right now they have something like 1.3 gigawatts stood up. That's about 1 through Google Now, 0.3 through Colossus. So that's supporting their current revenue of 44 billion in ARR. But if they want to go to 100 billion or 200 billion in ARR, they need to basically quintuple or even increase by 10x their capacity. That means 5 to 10 gigawatts of capacity. That is a tremendous amount if you don't really know what a gigawatt is. Just to get to put uh, this into context, like one nuclear reactor is a gigawatt. That's about um, a million households in the US require a gigawatt. 1.21 gigawatts would also power a DeLorean back in time, if you remember the back. That's my translation of what is a gigawatt. The Hoover Dam is 2 gigawatts. The entire US is suddenly 1,200 gigawatts. So when you think about a company, one company like OpenAI or one company like Anthropic needing 5 to 10 gigawatts, that is, that's a lot of power given you know, the um, available capacity in the us. So the fact they can get that with Colossus I think is a big win for Anthropic.

Speaker C: He is now saying they need till end of day satya. And I said that doesn't work and we need to start preparing for plan B. Plan B, Plan B, Plan B.

Speaker A: Something else that came out recently is new NASDAQ rules may allow SpaceX onto the fast entry 120. If so that would require a lot of passive investors to buy SpaceX immediately after IPO. Uh, does that help SpaceX a little bit? Aman.

Speaker B: Yeah, that is actually a major news item when you're taking a company public. One of the things you think about as a CFO is like who's going to, who's going to buy the float that I'm putting out? Who are the shares and where are they going to Go. And one of the things that what we know about the SpaceX roadshow right now, which I think will reveal their S1 publicly between around May 18th and 22nd. So we'll know for sure, for sure. But they seem to be targeting $75 billion in float, which would be the biggest IPO of all time by like a factor of three. So who's going to buy the $75 billion is the, that's been the question that a lot of investors have been thinking about. It seems like they're going to put about 33 billion in the hands of retail investors. So moms and pops, and that's largely price inelastic. But that still leaves about $40 billion that you have to sell to institutionals. Right, which would by itself 40 billion would be the biggest IPO of all time by more than Alibaba, more than Aramco. What they've now done is they've convinced the NASDAQ to change their inclusion rules on who goes into the NASDAQ 100 index. And there's a ton of money sitting in these index funds that are tied to the NASDAQ 100, something like 600 billion in AOM, um, tied to these indexes, tied to that specific index. So by being included in the index within the first few months, that means that about $25 billion of passive investors have to buy SpaceX because they're now included in the index and they need exposure to the index. Well, that solves a huge part of their IPO problem and leaves you with maybe 18 billion of discretionary institutional that they have to sell to to cover the 75. So I think that actually was the biggest news of the week for SpaceX investors now that they are going to be part of the nasdaq. And that's very unusual. Usually NASDAQ requires you to wait about six months to be included in the nasdaq. And then there are limit limits on flotation and there are limits on profitability and there's also some guidance on uh, float and liquidity, all of which they're going to waive in order to uh, get SpaceX into the index. I think the reason the NASDAQ did that is they wanted the listing they wanted to convince Elon to list on the NASDAQ and not the New York Stock Exchange. So they made this big exception and in so doing they've allowed, you know, SpaceX to fill maybe a third of their book with just passive price inelastic forced buyers, which is a huge plus for the ipo.

Speaker A: And I guess if that happens in the S&P 500, that might take a little bit more time. But that could also be a way for more passive institutional buyers. Right?

Speaker B: Yeah, that would be a huge game changer. So The S&P 500 is another. They've got all kinds of listing rules on the S&P 500. Usually you've got to wait 12 months. You have to be profitable. And by profitable I really mean profitable like net income gap positive, not, you know, fake EBITDA rules. That trips up tech companies all the time. Um, I guess you have to be 20 billion in market cap or more. Obviously, um, SpaceX will do that. The other limitation I ran into was you have to have half your company available for float. So if you are a $100 billion company, you have to have up to 50 billion floatable and buyable to the public. Um, SpaceX is only floating about 5% of their market cap. So they're going to violate a whole bunch of rules on day one. But if over the next 12 months they can solve some of those rules and get the S and P to include them, that would unlock, you know, now we're talking about a trillion dollars of forced buying to go into SpaceX stock, which for a $2 trillion company obviously is a huge built in demand and would mean they would have to float a lot more stock and issue a lot more follow on. But that would be, if the S and P does that, it's probably 12 months away. And I think that's, that's another, you know, another huge win and catalyst for that stock price to go up.

Speaker A: I think there are S&P 500 rule changes that are being considered and um, that might allow IPOs to index after only six months instead of 12 months.

Speaker B: There you go.

Speaker A: So it's possible it could fast track that before the end of the year maybe, I don't know.

Speaker D: Yes, I will. Do you have an update you can share?

Speaker C: Have an update. Let me know when you can talk

Speaker D: on with them yet.

Speaker C: Are you on with them?

Speaker D: Not yet, just in a quiet room because I didn't want all the outside theater.

Speaker C: Directionally, very bad. Directionally very bad. Sam, this is very bad.

Speaker D: Sam, this is very bad.

Speaker A: In some other news, as you mentioned, it seems like Anthropic is now hitting a $44 billion run rate. This post by Peter Walker at Carta shows a graph that looks pretty hyperbolic. I don't think we've ever seen a company doing this much revenue trend up and accelerate in revenue. And now we're even hearing word about anthropic secondaries being traded way higher than that $900 billion valuation. Some estimates at 1.6 trillion, implied by crypto derivatives, certainly north of a trillion dollars. That's a pretty huge spread from the primary round financing that's being discussed and where it's being traded in the secondary market. I, I don't think we've ever seen this amount of FOMO for any kind of company, at least not that I can remember in recent history. It's just insane how many people are trying to find anthropic shares at almost any price.

Speaker B: Well, if they're at $100 billion at the end of this year, indulge uh, me for a second and let's say they can double into next year. So 200 million in 2027. No, they could, they could do far more than that. Like that's a Mag 7 company. I mean Google is at a 400 billion revenue, Apple's at 400 billion revenue. Microsoft 300 billion. Metis 200 billion. So they're in the Mag 7. And I think you could ask, well, why are they raising at a 900 billion dollar valuation if they are about to be a MAG7? And some of these crypto side bets have them at 1.6 trillion. I guess the answer is they're holding a valuation at 900 in order to get a lead investor like a general catalyst has been rumored to lead that round. Lightspeed has been rumored to lead that round, and then Dragonair. So they want those guys to lead and price the round and give them a favorable deal. They don't want to, you know, they want to, they don't want to raise the valuation too far too fast. They want to step into it and give one of those key anchor investors, um, a pre IPO price that they can get into. I do wonder if you're anthropic. Do you just, do you just forget about the next round and go public? Like why raise the 50 billion now if you can just go public, uh, and raise the money in the public markets, why do one more round with a general catalyst or light speed? I don't know. I guess if, I guess if there's demand coming in and they can price the shares and get the, get the deal done, you know, take, take the money and, and move on. And if the IPO happens, but it gives you more space to, to on the ipo, whether you do it now or at the end of the year, early next year, gives you some more flexibility. But it certainly seems like demand is going to come in north of 900 billion, I would imagine. And if the round gets done there, it's. It's as. As a favor to investors.

Speaker A: Pretty crazy numbers.

Speaker C: Can I come in? What? Do you wanna make it better? I'm still willing to just walk away if that helps. If they are ramped up for crazy lawsuits against me, then I'm not sure. What. Not sure what? Not sure what.

Speaker D: They don't want you to. They're convinced about their decision.

Speaker C: For me to be fired or some new thing. Yes, for you to be gone.

Speaker D: For you to be gone.

Speaker C: Okay, then. Can I come in and talk about a path forward with them? More time for what? More time for what?

Speaker A: Another case that's attracting attention is the Elon Musk Sam, uh, Altman trial. Article by Max Chaffin talks about how everyone's appears to be losing. Uh, I guess probably not anthropic, probably benefiting from that story.

Speaker B: They're not a party to the case.

Speaker A: Hold on, Dave.

Speaker B: If we're going to talk about Elon and Sam now, I gotta get ready here. I got my popcorn. I got my popcorn here. Yeah. Uh, I got my soda.

Speaker A: This is.

Speaker B: This is too good.

Speaker A: Pull up a chair, my friend. This is going to take a little while. Uh, well, as. As we had reported last week, a, uh, lot of not so flattering, uh, profiles of both Elon Musk and Sam Altman. Uh, I guess a lot of quotes in the courtroom from Elon that were contradicted by his previous testimony. Uh, a lot of stories about Sam Altman, and, uh, particularly a piece by Ronan Farrow in the New Yorker, uh, a few weeks back about Sam Altman. Can he be trusted? And lots of different things that he said at different points in conversation with OpenAI execs, uh, him being fired by OpenAI and then brought back in.

Speaker B: Wow.

Speaker A: And then even some more recent stuff. The second week, uh, Siobhan Zillis, uh, had revealed that, uh, Musk had tried to poach Sam Altman. I guess that's not really surprising that, you know, he might have tried to grab Sam at some point. Shivan Sillis herself is quite, uh, an interesting figure. Um, she's the head of Neuralink, uh, had previously been a venture capitalist with Bloomberg Beta, uh, really early on. AI. And also, uh, involved with Elon Musk. Uh, she's the father of four of his children, so I guess you could say involved. She had previously been on OpenAI board. She's more recently on the Shield AI board. Kind of an amazing story about all the people that are involved in this whole timeline here. I don't really have to say about this other than like the headlines are as juicy as you could possibly get. Uh, what do you, what do you expect to see happen out of this trial? Aman?

Speaker B: I don't know. It's like watching tmz. So Siobhan Zealous is an interesting case, as you said. She's former OpenAI board member, but definitely team Elon. Right. So had some not nice things to say about Sam and his leadership style and what the board's concerns were about him. I think it kind of gets back to witness credibility and there's a lot of sparring going back and forth. I don't think either Elon or Sam are going to come off looking very well, but I guess that's in the spirit of ruining witness credibility. My expectation was at the start I thought this was a tough case for Elon to prove because of the merits of it. I think gave a breach of contract and uh, a charitable trust breach claim, but without really obvious contracts written down that were violated. It's more about implied promises and I think those are hard to prove. You've got a very tough, no nonsense judge, a couple of inside baseball things. Just, you know, I've litigated cases before and went to law school and a couple of things I would look for. One, there is a jury, but it's an advisory jury. This is a bench trial. So the judge will make the decision, not the jury. So you can bash the credibility of the witnesses and, uh, all kinds of juicy stuff come up. And the judge, if she's doing her job and she's a very tough judge, will look past a lot of that stuff to the merits of the case. So that's one point. I think there are a couple of issues where Elon's case could really still fall apart on the technicalities. It's a statute of limitations claim in California. He is way past the normal four year statute of limitations for these kinds of cases. There's also a standing case. You'd appreciate this, Dave. He put most of his money into OpenAI through a DAF, not personally. So the DAF has standing to sue, but I don't know if he has standing to sue. So the case could fall apart on either one of those. I thought week one kind of went towards Elon because there was some testimony in Greg Brockman's diary that wasn't very good for OpenAI and for Greg and what they were thinking at the time. I think this Last week was maybe a draw. So I feel like this is maybe a 50, 50 coin flip. I don't think the remedies which will go. The judge will determine the remedies. The really nasty part for OpenAI is if the remedy changes the governance of OpenAI or undoes the Microsoft deal, um, which I think is a very long shot. I think more likely the, the remedy would be like Elon gets some money for, you know, if he becomes a shareholder in OpenAI, which would be ironic but a passive shareholder and then maybe um, you know, Elon and Sam kiss and make up like after, like Mario kissed and made up apparently as a, ah, as hopefully as a member of the tech ecosystem. I hope that's where this lands. I hope it doesn't become everybody loses thing. But it's definitely all kinds of negative, nasty stuff coming out about both parties and that's, that's not good publicity when you're an IPO roadshow. Right.

Speaker D: They walked me through all the reasons and the issues with you and why you can't be CEO.

Speaker C: Can't be CEO. Can you ask why? All weekend they wanted me back. Can you say you will call back in 10 minutes. Do they know? Who can I tell? Satya, is this final?

Speaker D: They want a new CEO and place tonight.

Speaker C: Not me. Not me. Still don't want me I guess.

Speaker A: Moving on to more positive news, uh, we talked about the Cerebras IPO last week. Some news this week that it's 20 times oversubscribed. The company is raising the price range, uh, a little bit now from 125 to 135 per share. Um, I think we're definitely going to see this IPO before SpaceX. So whether we see anything after SpaceX, maybe it might be a while, but this seems like the most significant IPO that's going to happen before SpaceX.

Speaker B: I think I would concur with that. So they did their last priced round in the spring around 23 billion in valuation. They were at 115 to 125 per share. So that would have been around a $26 billion valuation. They're now upping the range to more like a. Was it 125 to 135? So 33, $34 billion valuation, that's healthy progress. They're setting themselves up, I think to be a real competitor to Nvidia. Um, higher performance but more expensive GPUs and, and in a very hot space and I think showing, I guess that demand is showing that they're as you said oversubscribed by a lot, so they may even reprice it a little bit higher and look for a first day pop. So that's um, that's really good news in, you know, in advance of uh, the big SpaceX offering which will probably suck up a lot of the time and attention out of the market. Although I think with these new NASDAQ rules that takes some of the pressure off the SpaceX IPO. So if cerebral gets done, um, they've got a window to do it before SpaceX hits the market and it looks like they are timing it perfectly.

Speaker D: Trying to add Satya now.

Speaker C: New guy. New guy. New guy is Randall Twitch Guy. New guy is Randall Twitch Guy. Directionally very bad. This is very bad. New guy is Randall Twitch Guy.

Speaker A: Well, in contrast to all the AI news, ah, the SaaS apocalypse continues and software stocks getting kind of creamed in a couple different sectors recently. Uh, I guess ServiceNow, IBM maybe bumped down. Uh, there's been a little bit of negative pressure on Canva, which is a position we hold. Uh, Figma's been like cratered. Um, I think there's been a few places where we've seen positive news stories where SaaS companies are being used by agents. But in general I think there's still quite a bit of concern that AI companies are going to cut the knees off of a lot of these SaaS companies or at least cut off the future earnings and cash flow of those companies.

Speaker B: Yeah, I think we are probably still at um, maximum fear about SaaS and where it goes, I would say. So the PDC SaaS index which we watch is down something like 16% year to date. The S&P is up 8% and the NASDAQ's up a bit more. So SAS has underperformed I would say though there are three examples of companies in the last week that creamed earnings. So Atlassian was one. Revenue growth of 32%. Their profit margins are over 30% and last I checked that means that they are north of the rule of 40. They popped by 30% after earnings and are now at a 14x multiple of sales. Um, one of your favorite companies, Dave Twilio, creamed earnings. They beat their EPS by 18%. They're growing top line at 20% year over year. They're profitable and they're about five times sales, which is a very reasonable sales multiple for a rule of 40 company and then even 5, 9 which is uh, in a terrible category. Customer service call center. They beat earnings and they re accelerated growth on the basis of AI implementation. So I think there'll be a lot of examples of SaaS, companies that turn the corner and use AI to accelerate their business. And we may just look back on this on 2026, the SaaS apocalypse. The way we look back on the 2016 SaaS crash as like, ah, that was cute. We thought that software was going away, but in reality, a lot of these companies will find a new, uh, a new leg. Those are three examples of companies that did great last week. So I think the overall category will be stretched, but there will be lots of companies that emerge the next year, I think with accelerating growth and improving profitability.

Speaker D: How does a startup founder late stage get fired by a board on a Sunday?

Speaker C: Okay, okay, okay, okay, okay.

Speaker D: All right.

Speaker A: Welcome back to Another Valuation Corner with Professor Aman Virji. Aman, it's Mother's Day. Happy Mother's Day. Are you getting any retail, uh, venture capital shares for your mom?

Speaker B: Yes, I'm going to get my mom one share of, uh, Robinhood Ventures, one share of, uh, fundrise, and maybe one share of the Destiny Tech Index. So see, uh, which one of those she likes the best. I guess we'll find out in, uh, in a few years which one she thanks me for. I might get her some roses and some chocolate as well.

Speaker A: Wait a second. What about usvc, uh, and Cathie Wood and anybody else?

Speaker B: Yeah, we're going to save those for next week. USVC is Naval. It's a closed end fund, so you can't actually publicly trade it. And, um, Cathie Wood does Ark Ventures, and that's another closed end fund. We'll talk about both of those. I think those are, think of those as, like, more long term Becks, where you invest in now at a certain price and then those will pay returns over the next couple years. Not, um, as liquid. These are the liquid ones that are traded on the New York Stock Exchange, so you can actually buy and, uh, sell shares. So we're going to go through strategy, who the managers are, what they're doing. I'll, uh, ask you, Dave, to rate them with me at the end. What do you like and what you don't like. And then we'll do the same exercise for Naval and Cathy next week. Terrific. So let's go into each of these. The first thing to look for in a venture fund is who's the manager. Do you trust the person who's making the decisions Robinhood Ventures has been around for. They just listed in March. They're kind of new. Same with, uh, Fundrise Robinhood is not a new company, though they've been around for quite a while. Sarah Pinto is the manager and face of Robinhood Ventures. Vlad Tenev is very involved, it seems like, but it's mostly Sarah's show. Ben Miller runs Fundrise Innovation Fund and then Sohail Prasad runs the DXYZ Destiny Fund. Um, you might know him as the founder of Forge, Founder and CEO of Forge. So a lot of experience with these late stage tech companies. Let's start with Robinhood Ventures and we'll go through just the strategies of each one. They have a market cap of around a billion dollars. They are trading at about a 35% premium to the net asset value of the companies that they hold. Their current portfolio holds positions In Databricks and OpenAI, a lot of fintech companies. So they lean in on companies like Revolut and Ramp and Airwallex. They're basically going after what I would call best in class and pre IPO companies with a uh, 24 month window to when they want to go public. A little bit of a different strategy from Ben Miller over at Fundrise. They're much bigger, they've been around for a little bit longer. They own about 28 companies. So it's a broader group of companies. Market cap's over $5 million and they are leaning in more on AI and now private aerospace companies. This one's a weird one. And we'll go back to why, why this matters, but they are trading at a between a 5 and 20x premium to the net asset value, the NAV.

Speaker A: 5 to 20x.

Speaker B: Yeah, they were at 19 price per share. That's the NAV of their fund. Meaning if I just add up all their companies and value them at the last price round, it's worth $19. They at one point after their IPO popped to $400 a share and now we're at $137 a share. So you really have to worry or wonder why a company that owns a dollar is trading at four or five or six dollars. And I guess the short answer is, well, the dollar is not really a dollar. It's you know, a dollar in OpenAI or a dollar in SpaceX or Andro maybe gets marked up. And so there's uh, maybe an undervaluation argument for what the assets are. But I would just advise all of our listeners and viewers if you're on YouTube, look at the schedule of investments that these companies have and make sure you understand why there's going to be a valuation premium. So let's compare what fundrise and Robinhood do. Let's just start there. Let's start with fundrise on the left. Their biggest position is Anthropic. They are typically doing quarterly evaluations on each of these companies. So Anthropic is a company where the last price round was between 350 and 380 billion a share. It is quite possible that Anthropic gets marked up by 3x in the next few months or maybe more. So maybe that's one reason why they trade at a, at a premium for that one position. Databricks is the number two position, OpenAI is the number three position, and then SpaceX is number four. They're obviously leaning in on some of the biggest and best names out there and some of those companies may get marked up and so maybe that justifies some of the reason why they traded a premium. You'll notice that there's a lot of companies in their long tail. Over a quarter of their fund is in smaller positions, like under 1% of the fund each. They own about 28 different company. So I wouldn't call it a diversified fund because a lot of it is in the big three or big four names, but definitely has a long tail. Robin Hood on the right, less of a long tail. Their biggest position is databricks and then a lot of fintech companies like Revolut and, and Merkor and Narrow, Wallix and Ramp. They have ara, they have OpenAI, they have Boom, Supersonic, A, uh, little bit of Stripe and then they're sitting on a little bit of cash, but it's not, not much. So that portfolio is more concentrated in 10 to 15 names that I think have maybe a, a, an IPO. Slightly different strategy. Right. So it depends a bit on, you know, how you think of these companies and which one you want to own. Another interesting One is Destiny Tech 100 or DXYZ. They are big in SpaceX right now. They have some of Shield, some Databricks and then some other AI. They just did a big fundraising, so they're sitting on actually a lot of cash right now. Their portfolio is interesting. It, it is. They are the OG of the sector. They launched in 2024, so they're at least two and a half years old. But you can think of their portfolio as a quarter of it is SpaceX and Space Aerotech, Defense, SpaceX, Axiom, XAI. 15% is AI. Most of that's anthropic and XAI, OpenAI skilled. And then maybe 10% is in fintech and then 50% of it now is in cash. And so, uh, that's a lot of cash sitting on their investment portfolio. A lot of dry powder. And so I guess the question is, where are they going to invest all that money? And then given the fact they are sitting on so much cash, do you really want to pay a 3x premium to nav for this company right now? Well, if you look at where the portfolio is, you can see SpaceX is the majority of their position. It's not majority. So the plurality, 16% of, uh, what they own is in SpaceX. They have positions in S.H.I.E.L.D. and they have positions in a few other databricks and a few other top companies. But if you look right at the very bottom of their portfolio, 47% is cash equivalents. Right now, a lot of that money has just not been deployed. And there's a concern. If you look at the gap between the historical market value and NAV, it has typically been between 2 and 3x. So they do tend to trade at a premium. But in the last couple of months that premium has really expanded the market cap. The gap between the blue line versus the market cap and the green line, which is the NAV, is now trading at a relatively high level of 3x for a lot of undeployed cash. That one, that one might be a bit of a, a bit of a red flag. Same, by the way, for Robinhood Ventures, the blue line is a market cap, the green line is the nav. You can see there's been a, a gap. They're now trading at a premium to NAV at different. At a point last year, you could have bottom at a discount, which would be great. Can't do that anymore. FundRise has a 6x gap right now between the blue line, but just the market cap and the green line, we just nav. You can see at one point a couple of months ago, this was a 20x gap between market value and NAV. And that just tends to compress over time. So if you are a retail investor, you got to be worried about the premium over now if you got to be worried about also the lockup period. Both fundrise and Robinhood went public in March. That means around September the lockup will end and a lot of investors who are in it will be able to sell freely. So that might put some selling pressure on it. So I think my advice would be wait until the lockup period ends for both fundrise and Robinhood, see where the multiple is and then figure out if that's a fund you want to jump in on just finally do a comparison now of each of these three. The Fundrise, I would call that a kind of indexing into the top companies in the space. Pretty heavy on AI, but that's also what the market is relatively diversified. Portfolio management fee is around 2.5%. The total expense ratio, which is management fee and then all the other expenses associated with the fund are around 2.9 to 3.1%. No carry, the manager said is Ben Miller and you can buy this and sell this on the New York Stock Exchange right now. Rvi Robin Adventures, more like Frontier Tech, very heavy mix of Fintech and AI. Similar expense ratio, that's Sarah and Vlad. And then on the right you've got a very cash heavy portfolio run by Sohail Prasad. Um, a little bit more expensive. Total expense ratio around 5% also no carry. It's also the most liquid and the biggest one, so it's easiest to buy and sell. So it depends a little I think on what you think of the manager, what you think on the strategy. But having seen this, Dave, do you have a feel for which one, how would you rate these? Or if you had a dollar, if you had to give your Mother's Day gift, one share in one of these companies, which one do you like and which one do you not like just based on the portfolio strategy and what they're buying into?

Speaker A: Well, I think a lot of this depends on where fundrise is holding. Anthropic. Um, my guess is that's probably still at the $350 billion valuation.

Speaker B: Yeah, probably, yeah, as of the last quarter. That would be right.

Speaker A: So if you go back to that pie, uh, chart view of things, let's just kind of guess that, you know, Anthropic, There's a built in 3 or 4x increase in the value of Anthropic right there.

Speaker B: Right.

Speaker A: Um, that would justify that portfolio maybe being worth, I don't know, I guess another one X perhaps. I don't know if it justifies it being worth another 5x.

Speaker B: Right.

Speaker A: Um, so you'd have to really believe that Anthropic is extremely undervalued and I don't know, maybe worth 3, 4 or 5 trillion dollars, not just 1 to 1.6 trillion to make that case. Or else there's something else under there that you think is tremendously undervalued. I'm not sure where they're holding the positions in Anduril or ramp or SpaceX, but those aren't large enough to really justify too much of an upside. Maybe in that group of other. There's some, some interesting stuff. Um, but right now I think you'd probably say that fundrise is a big bet on Anthropic, a medium sized bet on Databricks, and then a modest bet on the other companies in that category. I don't know if I could justify 6x on that, unless you really believe Anthropic is just going to 10 or 20x in the future. On the Robinhood side, this is a little bit more balanced portfolio. I don't know if I really want to lean into Revolut or Merkur that hard, but still, you know, you've got positions in a bunch of other companies. So even though the fundrise position is maybe more long tail, it's more concentrated in Anthropic and maybe a little bit in databricks. Uh, Robinhood is less concentrated in just those couple of names, but still maybe 10 names that make up most of it. If we think about the Destiny XYZ, uh, portfolio.

Speaker B: Yeah.

Speaker A: If we were looking at the SpaceX and XAI positions together, that's maybe about 20%.

Speaker B: Yeah.

Speaker A: You know, there might be some premium there if those go up in value. But I guess what you're really betting on is the cash. And you know, again, I'm not sure I understand a 3x premium to nav when half of the position is in cash. So all of these seem like, uh, you know, optimistic bets. Yeah, I guess you didn't give me this option, but can I short all three?

Speaker B: You can, yeah. You, you can. There was actually some very good short research on DXYZ from. I'll give him a shout out. Citron Research kind of broke down the math on the fair value of where is the DXYZ portfolio and why they, you know, why they should not be at a, uh, multiple, um, of where they're at. And you could, you could decide to go against all those. I guess if you really wanted to go, maybe the clever Dave McClure bet would be go buy Anthropic on your own.

Speaker A: Yeah.

Speaker B: And then short the, short the, the fundrise and that way you're buy.

Speaker A: I would either buy USVC or I would buy Anthropic, uh, which, you know, realistically is probably only available via somebody's SPV at excessive fees and carry. But I'd rather pay a 2x premium for anthropic at a 1 trillion to $1.5 trillion price. That's not maybe that crazy.

Speaker B: Yeah.

Speaker A: As opposed to maybe a 5x premium, you know, for where it's being held in Fundrise. Um, the others, I just, I can't justify a 3x premium for Destiny XYZ when half of it's in cash. Yeah, Robinhood's probably the most reasonably valued of the bunch. So I guess I'd probably say maybe I'd bet on Robinhood, short the other two and try buy a direct position in Anthropic or usvc. Uh, but none of these seem all that reasonably valued at the moment.

Speaker B: No, I think that's exactly where I came out, actually. I thought all these are probably benefiting from a lot of excitement around these companies. If you can't buy these companies directly, then I guess it's your only bet. But then the best move is to go into the companies you like. Um, I don't know that these premium valuations, for sure, there's a tendency for these valuations, there's a gap between market value and, um, nav to close. And even as that nav marks up, I think there's a really good, especially coming out of the lockup period for Robinhood and, um, for fundrise, which is September, I would probably wait until after those lockup periods are done and then see where those multiples are, but I probably wouldn't touch either of them until then. And if you can get into Anthropic directly, I think you should do that and probably short fundrise and that's maybe the arbitrage you want to do.

Speaker A: Thanks for that analysis, Aman.

Speaker B: Thank you, Dave.

Speaker A: This week we're going to do something different. We're going to walk through a, uh, presentation on VCE secondary 101. There's, uh, been a lot of conversations about secondary in the past few years. I think there's probably a lot of confusion about what that really means. It actually means a lot of different things to different people. We're going to talk through a couple of different definitions of secondary, why people buy and sell secondary, and then really how we approach the market, how we assess and value, uh, different portfolios, how we structure different deals. For those of you who want to follow along, this presentation is actually on our website. If you go to practicalvc.com and actually click over to the secondary 101 section here at the top and click on the overview. This list of VC secondary examples here is actually a clickable area that launches our VC secondary 101 deck. All right, let's get started with the presentation. So this graphic we show often to talk about the basic ideas behind secondary, usually secondary is involving buying later stage companies or funds Typically after the first five to seven years, usually when companies are getting to maybe 50 to 100 million in revenue, series C or D or later. Uh, if we're talking about funds, then usually those funds are at least 5, maybe even 7 to 10 years old when we're looking at buying positions in those funds. Um, so if you look at the growth of the secondary market over maybe the last 10 to 15 years, uh, it's really expanded quite a bit. Uh, this graph is from Industry Ventures, one of the premier investors in the secondary market. They've been in it for probably over 20 years at this point, probably 25 years. And you'll see back in 2012, the entire market was only 25 billion. Now it's easily over 100 billion. Uh, this is slightly broken up into direct secondaries and fund interests, or LP interests in funds. Even though that's over $100 billion in volume, that's still a relatively small percentage of the overall venture capital market. Depending on how people measure that, that might be between 4 to 7 trillion dollars. Obviously, if we include more in the PE market, it's a much bigger number. So what is secondary? Well, in general, when we talk about the primary market, we're raising capital for a company. These are financing rounds, uh, sometimes even IPOs. Secondary market is when we're buying shares from existing shareholders. Those might be shareholders in a company, either employees or founders, or it could be angel investors or early investors in the company. If we're talking about a fund, it's usually the LPs in that fund, but sometimes it could also be the general partners of that fund. When you're doing direct secondary, um, we're buying shares, either common or preferred in a company. When we're doing fund secondary or strip sale, we're buying pieces of a fund, and that probably is across, uh, several companies within that fund. So in Silicon Valley these days, usually people mean VC secondary when they're talking about secondary, and they usually mean direct secondary. Um, but sometimes it can also mean buying a piece of a fund. And you'll also hear the terms GP LED or LP led. Um, GP LED refers to a secondary deal that's driven by the partners of a fund. LP LED is, uh, driven by one of the limited partners in the fund. Why do people buy and sell secondary? Well, in general, it's for liquidity purposes, at least for the sellers. That can happen for a lot of reasons. For many employees or founders, they might be selling some of their shares to buy their first home. Could be because of other life events, death Divorce or retirement are often common reasons. But it could also be that they're looking for, you know, some liquidity in an asset that's been illiquid for a while or some kind of diversification or hedging. That's more commonly the case when we're talking about investors. They may have invested early, they may have waited five to 10 years for some increase in value and maybe now there's a larger value that they have on the table and they want to take some of that risk off or take some of that paper gains and turn them into liquidity if they can. On the buy side, uh, a lot of reasons people are looking to buy secondary is because there might be interest from the VCs who are buying into a company and they may not have as much available equity if they're buying a round where it's oversubscribed. It could also be later stage investors buying out some of the early stage investors or even fund to fund or institutional folks buying equity in uh, a company before it goes, uh, public. These days it's a lot of retail investors who want access to brand name companies that are on everybody's lips. Uh, a lot of people are Talking about anthropic, SpaceX, OpenAI, uh, however, you'll find out that in a lot of these high demand names it's uh, probably tough for smaller investors to get into those directly. Uh, they may end up buying in through one or even two or three layers of SPVs in order to get access and they may not even know if those SPVs really have access or not. In the last few years secondaries have become a really big part of the market, almost equivalent in size to IPOs or exits. Now I think this year if we do see the SpaceX, IPO and possibly some of the others that are in the the wings, we're going to have a really big year for IPOs. Um, but we're typically seeing now about $100 billion worth of secondary exits every year through a combination of direct secondaries and maybe also GP LED secondaries or continuity vehicles. However, although there's a lot of talk about secondaries, uh, most of that activity is in a very small number of companies. Probably the top five that people talk about a lot are SpaceX, OpenAI, Anthropic, maybe also Anduril and Stripe, uh, possibly Databricks and a few others. There, there's kind of this concentration of attention and capital into a very small number of companies. Some people call that kind of a private equivalent of the public mag seven that, ah, people talk about in public markets, a lot of those private Mag 7 and really even the top 30, 40, 50 companies, these are large companies valued at over $10 billion. These are companies doing maybe a billion or more in revenue. These are high demand names. Uh, they're probably being packaged into multiple layers of SPVs and sold to premiums. A lot of this secondary really isn't secondary. It's actually really the primary market that's been, you know, oversubscribed, marked up and then sold to the retail market in smaller chunks, uh, through multiple layers of people. The market that we tend to focus on a lot more is what we call secret stallions. These are companies that are maybe outside those top 30, 40, 50 names, still great companies doing maybe 50 to 200 million in revenue, maybe even more than that. These are companies we do think have a really good chance of an exit or an ipo, but just not as well known as maybe those top 50 companies. Certainly not as well known as those top 10, 7 to 10 companies. I would also caution that if you're looking for opportunity there, you might want to stay away from companies that were valued back in 20 or 21. Uh, might not be valued as highly now, although the number on paper might still be high. And also companies that are too small to ever get to an exit or maybe growing too slowly to get to an exit. So those other two circles, busted unicorns and slow horses generally not the things that we're looking for. Hopefully it's something kind of in the middle where it's not well known to everybody, but it's not, uh, an overvalued asset, not a slow growth asset. All right, we're going to talk about three different general strategies in secondary. Uh, the first, we'll talk about the direct secondary or company secondary, where you're buying equity in a single company. Then we'll talk about different structures that are buying pieces of fund interests, uh, sometimes called a strip sale. And then third, we'll talk about a little bit of structure. And these are different terms that might be in either of the first two deals. And they may favor either the buyer or the seller in certain scenarios. Okay, so direct secondary or company secondary. This is where, you know, we're generally looking to buy secondary at a single company. Uh, we're probably buying equity from an existing shareholder that might be a founder or employee. Uh, or it could be an early investor or even a fund that's invested in a company. For us, we're looking for companies doing a minimum of 50 to 100 million in revenue. This is really because we kind of have to see a company get to 500 million in revenue or more to feel confident it's going to get to an ipo. So we're looking for typically a fast growth company, you know, at least 30 to 50%, maybe more, at least 50 to 100 million in revenue. We're kind of aiming for at least a 3X, uh, exit in five years and it hopefully could be faster than that and it might even be more than 3x. Some questions that we asked when we're looking at these companies is, you know, who led the last round and when was that round? Uh, there's definitely a different perspective we have on rounds of financing that were led, uh, maybe prior to Q2 of 22. Uh, certainly a lot of really optimistic valuations from the ZIRP arrow 0 interest rate period that was in 2020 or 21. So we tend to be more skeptical about those rounds and valuations. If there hasn't been something more recently valued in a more rational market, we're still going to be looking for at least a 20% or a greater discount to the last round and, and trying to find a good deal there. If it's priced before Q2, 22, it might be a lot bigger than just 20 to 50%. One of the things that's really important to think about when you're buying secondary is not just the valuation of the company and what the discount is, but also the preference stack of capital that the company has raised. Uh, by preference stack we mean the amount of equity and debt that the company has raised to date. Uh, this is important, uh, especially if you're buying common shares, but also if you're buying preferred shares. It's really important to understand how much capital the company has already raised and what they're going to have to clear in order to, um, return capital back to earlier stage investors or particularly common shareholders. So let's say a company was valued at a billion dollars and has raised maybe $500 million in capital. Uh, that might not seem, ah, like too much of a hurdle to get over. Um, but let's say the company was valued at a billion dollars back in 21 and maybe today it's not valued at a billion dollars. Maybe now it's valued at 500 million or less. But that's actually the amount of capital that's required to clear for any common shareholders to make money and possibly even any early stage preferred shareholders to make money. So a question we get asked a lot is, hey, what's the discount that you guys are paying or buying for secondary. And my response to that is always discount to what? We could be talking about the last price round for a company or the last valuation for fund, but really we wanted to know what the discount is to the actual value of the company, uh, which might not be at all what the last price round was. And so typically we're uh, doing our own underwriting to figure out what the value of that company is. Hopefully buying at a discount to that, that value and then establishing what we think the company is going to do in terms of growth and a potential exit in the future. Okay, when we're buying interest in a fund, uh, typically we're buying from the LPs who are in a fund. Uh, we might also be buying from the GP of the fund. In this case, we're not buying equity in a single company. We're really buying a strip of portfolio across multiple companies. So a common scenario here is a liquidity partner might invest in a fundamental at the very beginning and sometime around year maybe seven, eight or even later, there's some markups on the fund. They might be sitting on 3x or even more in value and they might be looking for some liquidity. Um, now it's not usually that easy to find buyers for fund interests. Uh, because you don't have direct access to a single company has to be someone willing to take over the entire portfolio of value. Or maybe they're looking for a single name within that portfolio that's doing well because there's fewer buyers for fund interest. Typically these are sold at a greater discount than just a single asset. Again, we have the same concerns about valuation, but now we are looking at a basket of assets. We may not be having the diligence the entire portfolio, but we're certainly going to be looking at the top few companies in those portfolios. Uh, one of the things we use when we're looking at portfolios is something we call a three bucket method. This is kind of just classifying the assets within that fund into high, medium and low probability of exit. That's usually based on the size of the company or the amount of revenue that they have and their growth rate. Um, so typically we're looking for companies that are already unicorns or on their way to being a billion dollar or greater company. Uh, these are companies doing at least 50 to 100 million in revenue or more. Hopefully they have a chance of getting to an exit or an IPO within the next three years. If we're looking at public companies in the U.S. typically those companies are going public at 4 or $500 million in revenue or more. Uh, many companies actually a billion dollars in revenue or more. So when we're looking at these assets, what we're really trying to figure out is can they get to an exit or an IPO within a short period of time, ideally within the next three years. There's a second group that might be smaller in size or slower in growth, um, or some combination of that. And these might be at least companies doing 20 to 50 million in revenue. Again, calling these Centaurs, maybe not quite as big as unicorns, but still hopefully a good chance of an exit. And then lastly, companies that are not doing more than 10, 20 million in revenue. Not so magical creatures. Probably no certainty around an exit. No certainty around when they might get to an exit. When looking at underwriting or valuing portfolios, we're typically going to value these mostly based on the unicorns, uh, maybe a little bit on the Centaurs, but we're probably going to write most of the value of the horses down to zero. And we're probably going to discount the centaurs, uh, more significantly than the unicorns. Okay. Another thing that we might do when we're buying interest, uh, in a fund is we might buy a piece of the general partners carry. This is a more complex deal structure. Now we're not buying a piece of the fund, we're buying a piece of the profits of the fund. Uh, we'd have to be convinced that that fund is going to get, uh, into carry or at least return 1x before those partners start making money. When we talk about structure in a deal, there's a lot of reasons why we might use structure. One is there might be some valuation uncertainty about the company or the assets. Another reason is that we might be trying to avoid or defer taxable event for the seller or preserve, uh, what's called QSPs or qualified small Business Stock treatment for the seller. That's where they could save some money on federal taxes. If we're a little bit concerned maybe about how fast the company's growing, we might want to be looking for some way to avoid downside scenarios that are less than a 3x return. Um, and we might want to also create some kind of options to pay out more after a certain minimum target is hit. So things that we use here are sometimes, ah, a forward contract. This is where we're not actually buying the asset right away, but we're agreeing to an economic exchange in the future. Either of Cash when the company exits or the shares if they go public. This is typically a scenario that might be used when we expect there to be an exit, but for some reason the seller needs to remain the holder of record. Another thing we've just talked about previously is something called 3x pref. And this is kind of a shorthand for additional collateralization. So we might buy a dollar's worth of assets, but we might want to ask the seller to set aside another $2 worth of assets for us to hit that 3 target that we're looking for in case the dollar that we've bought of equity doesn't return organic 3x or better. And then lastly, there will be some kind of conditional payout. Uh, this might be where we pay for a certain amount of the assets upfront and then after a certain set of targets are hit, either maybe an absolute dollar amount where a multiple or perhaps an IRR target that there's some additional assets that are paid out. This might look like an escrow or an earned outflow. Okay, now we're getting into some more advanced structures that are used in secondary. Um, one thing that's becoming more common for the general partners of a fund to consider is, you know, as the fund gets older, maybe towards 10 or 12 years of life, the fund may be getting close to its contractual limits. But there may still be assets within the fund that haven't gotten to an IPO or an exit yet that are high value. And the fund manager is trying to figure out a way that they want to continue managing those assets until they get to an exit. In this scenario, we might see the use of an SPV or a continuity vehicle where the top quality assets are moved out of the initial fund structure into a new structure. Might be another five years worth of, um, fund life in this extended structure. And what the fund manager will then do is figure out how to set a price, uh, for the assets and then offer their existing investors the option to receive some liquidity for those assets or the ability to roll into that new vehicle and continue, uh, being an investor in the new vehicle or some combination of those two options. This is great to allow the fund manager to keep managing those assets and they'll continue to probably charge some amount of fee and carry on these top quality assets. But it's also an option for existing investors in the fund to either receive liquidity or to roll into the new vehicle or some combination of those two. Oftentimes this is done when funds are 10 to 12 years old. But sometimes, um, a lot of Fund managers are now seeing opportunities to move some assets that they have. Instead of selling to a second party, they might move them into an SPV structure out of the initial fund. So we've talked about a lot of scenarios on why, uh, people buy and sell secondary. I've, uh, talked a lot about different structures that we use. Um, I just want to take a step back for a second and look at some of the numbers. Numbers for venture capital funds maybe over the last five to 10 years. The term TVPI and DPI stands for total value to paid in capital and distributions to paid in capital. Those are metrics used to assess how well a fund is doing in terms of paper markup valuations. That's the uh, TDPI and actual cash return to investors, that's dpi. Uh, you'll notice here, looking some of these graphs from Carta, that a very large number of funds that were started after 2017, uh, still haven't really gotten to substantial levels of DPI, meaning not very many funds have been able to return the initial capital invested in those funds even after seven or eight years or longer. Only maybe the top 10, 20% have been able to do that. If, uh, we look at historical numbers for funds, again, it's really the top decile, top quartile funds that are returning measurable capital. And even top quartile funds haven't always returned 1x yet. So the challenge for a lot of fund managers is how do they get, uh, exits, IPOs, um, are taking longer than ever. Acquisitions may be not always predictable. Secondary sales are a way for fund managers to consider at least generating, uh, exits or partial, uh, returns in some of their winners. So as we kind of look at maybe some benchmarks for funds, this is kind of again, the on paper marks. You know, we'd kind of expect that good and great funds would be approaching 3 to 5x, hopefully, you know, sometime in the year 10, 12 and 15. But really those paper marks don't really count until you actually start distributing capital back to your investors. So, so it, uh, may be that several fund managers want to start thinking about secondary strategies as early as years 5 to 10 and how to plan which of their winners might be worth selling when they reach some significant marks. So kind of thinking through how general partners might be when planning some of their strategies for selling, not always the case that you have to sell as early as year five to seven. But you might want to be looking at opportunities that happen between years five to, to ten for you to transfer some of your TVPI into DPI um, it's probably not worth doing a lot until you can generate meaningful DPI at least ah, 0.5 to 1x. That might come from one big, you know, partial sale in a position that's a win or it might come from a collection of secondary sales. So you do have to sort of consider what trade offs you're making. Uh, you don't want to sell too much of your winners before they actually create upside down that you can later cash in on. At the same time you might take the opportunity to take some winnings off the table if companies are starting to slow their growth or, or perhaps if you've lost conviction in some year, um, some of your better positions. But in general you kind of want to be letting your winners ride and, and get to some larger positions before you consider selling secondary. But you know, typically you might see a few funds that have winners at series C or later, you know, in the year seven to ten. Well, that's uh, a lot of what I wanted to cover for VC secondary. I think again you might want to consider, depending on whether you're a buyer or seller, what type of scenarios you're in, what the reasons you would be thinking about for selling and what the reasons you're thinking about for buying. Right now there's a lot of attention on a very small number of high visibility companies, uh, with brand names and recognition. But there's definitely a lot of opportunities to benefit from companies that are doing well but not maybe known by a large number of buyers. And those are really where we think we can generate bargains and find opportunities as a buyer. Well, thanks for spending a little bit of time listening to our presentation on BC secondary 101. Again this slide deck is available on our website@practicalvc.com under the secondary 101 section. Hope you guys found this presentation useful and good luck out there.