Brad Gerstner: How I Pick Companies; Lessons from Warren Buffet; Chamath vs Gurley | E935

1. 0:00 – 1:02

   Intro

   1. HSHarry Stebbings0:00

      Brad, I don't think I've ever been quite so well prepared for a show as I am for this one.

   2. BGBrad Gerstner0:04

      (laughs)

   3. HSHarry Stebbings0:04

      You introduced me to some incredible people. Ravi Gupta, one of my favorites. I met Bob Pittman, wonderful. I actually have him coming on the show. You didn't know that. I, we hit it off and so he's coming on. Rich Barton, many more. But thank you so much for joining me today, Brad.

   4. BGBrad Gerstner0:18

      I mean, Harry, thanks for having me. You, as you know, I'm a huge fan and I have to say, it's an incredible honor to be pod guest number 3,300.

   5. HSHarry Stebbings0:27

      (laughs)

   6. BGBrad Gerstner0:28

      I mean, I didn't make the first 3,000, but you know, 3,300's not bad.

   7. HSHarry Stebbings0:33

      Well, you know, um, now you know how, uh, I-

   8. BGBrad Gerstner0:36

      (laughs) I left, I left Harry speechless to start off.

   9. HSHarry Stebbings0:38

      Yeah, yeah. Thank you for that. That, that really makes me feel brilliant. Um, the truth is, I wanted to build up to it. I didn't feel ready for you yet, Brad. That's the truth. Um-

   10. BGBrad Gerstner0:47

       Wow. Get on your feet.

   11. HSHarry Stebbings0:49

       The fact that I had Girley on three times already. (laughs) Don't worry about it.

   12. BGBrad Gerstner0:53

       Serious.

   13. HSHarry Stebbings0:53

       It's unbelievable. Uh, listen, I wanna start with some context. So talk to me. We see Altimata today, the incredible institution that you've built. But just in terms of some context,

2. 1:02 – 5:35

   Brad’s Backstory

   1. HSHarry Stebbings1:02

      what was the founding aha for you with Altimata and how did that come to be in the first place?

   2. BGBrad Gerstner1:07

      The question is, how far in the way back machine do we wanna go? Um, because I really think it, it, it, it, my, my thinking on this in terms of why I wanted to be an investor started in, in, in childhood. I mean, I grew up in Indiana. I was a poor kid. My, my dad was an engineer. Um, kind of got forced into ent- entrepreneurship. He worked, he was running a factory in Indiana and, um, an acquirer came along. He promised the men they wouldn't get laid off. Of course, the acquirer in 1978 lays everybody off, so my dad heroically tries to hire all these men and compete and, um, mortgages the house, ends up going, uh, bankrupt. Never declares bankruptcy. Um, refuses to. Works his whole life to pay all that money back to the banks who had loaned him the money and, you know, it, I, I was coming of age. I was, this was third grade through probably sixth or seventh grade. Um, and it was really, it was tragic. It was devastating in our family. You know, t- times were tough. Um, we had hostages in Iran. Um, we had double digit interest rates and inflation and so that was my childhood, like seeing kind of us lose the house and, and this guy who was a real hero to me, seeing him struggle. And so I think that-

   3. HSHarry Stebbings2:22

      Can I, can I, can I, can I just, can I dive in there? I'm so sorry to interrupt you, but-

   4. BGBrad Gerstner2:26

      Yeah.

   5. HSHarry Stebbings2:26

      ... um, I, I, you know, I, I actually saw that with my own family too, in terms of like losing the house, losing family money and it really instilled this like downside protection in me and risk aversion where I'm very scared even now of losing everything. And that still very much pervades my mind. How did seeing that-

   6. BGBrad Gerstner2:44

      Mm-hmm.

   7. HSHarry Stebbings2:44

      ... and seeing, you know, your father lose the majority of, you know, his money, how did that impact your mindset do you think?

   8. BGBrad Gerstner2:50

      Well, I mean, my dad didn't lose the majority of his money because that presupposes he had money to begin with. Um, you know, as my grandfather used to say, he said, "We don't have money problems. We have lack of money problems." Um, you know, that was, that was the environment in my family so he had borrowed everything from these banks and, um, I would, I would say for me, my grandfather made the grandkids promise that we would not be entrepreneurs.

   9. HSHarry Stebbings3:17

      Huh.

   10. BGBrad Gerstner3:17

       That we would be professionals. And the reason I went to law school is because I had to choose between law school and medical school and I, I, I wanted to be a doctor, but really couldn't stand the sight of blood, so I decided to, to go to law school as an insurance policy really to honor my grandfather and the commitment I made to him. And once I got the insurance policy, then I felt like I checked a box and then I could go be an entrepreneur, which is in some ways wanting to finish my dad's journey I guess. Um, but yeah, it profoundly impacts you as a kid. I think there are a lot of people in Silicon Valley, uh, you know, and elsewhere as entrepreneurs that grew up whether, you know, they're first generation, whether immigrant, whether they grew up poor. That chip on the shoulder, uh, puts chips in pockets as they say, you know?

   11. HSHarry Stebbings4:01

       I, I totally agree and get you. I think the other thing it does is it forces you to grow up faster. Um, can I ask, you know, when you look at that and then, you know, your father's passing also, did, did you, did you feel when, like, that you had to grow up much faster? My mother's got MS and since I was like 11 I've felt like I'm 25. (laughs) And now I'm 50 then. Um, did you feel the need to grow up faster and look after your family because of that acceleration?

   12. BGBrad Gerstner4:27

       Yeah, no doubt. Um, no doubt. Uh, I, you know, I had a very, um, uh, you know, a, a, a very trying, uh, you know, period in middle school, in high school. I lived with my sister, I lived by myself. Um, I had a loving family. My mother, 86, beautiful, still alive, incredible. You know, sadly she feels guilty about my childhood, but she was working two jobs trying to hold things together for four kids and so I have, I mean, she was extraordinary as a mother. And the one thing our family always had, my dad had this tradition, my grandfather had this tradition, uh, they would always say whenever they signed off, "Love you and like you." Right? There was this idea that I have to love you because we're family, but I also choose to like you. And we had, you know, I'm super close to my siblings today, couldn't be closer to my mother, and so there was never a question about love. Right? It was really just financial security. Um, and I think that held the ship together when the times were toughest.

   13. HSHarry Stebbings5:34

       Yeah.

3. 5:35 – 6:28

   How did your childhood impact your parenting?

   1. HSHarry Stebbings5:35

      Can I ask, how did your childhood impact your approach to fatherhood today? I know obviously your boys mean the world to you and how much of a role they play in your life. How much did your childhood impact your approach to fatherhood?

   2. BGBrad Gerstner5:47

      Um, well, you know, it, it, it... My kids mean everything. Um, my dad was on the road a lot. I didn't see him a lot during these periods of time. Um, and so I, you know, I really, I, I try to balance my life, uh, integrate my life in a way that I'm really there for my kids.Um, and so, um, you know, I would say that more than anything else, just try to, to be a, you know, a great dad, a great, uh, role model, a great leader for them. Um, but they keep you so humble. They keep you so humble.

   3. HSHarry Stebbings6:22

      So, we have this, um, uh, medic who's scared of blood, uh, turned lawyer. Um,

4. 6:28 – 10:00

   How did you found Altimeter?

   1. HSHarry Stebbings6:28

      uh, how does that lead to bossing the financial world and founding Altimeter, Brad (laughs) ?

   2. BGBrad Gerstner6:33

      Yeah, I, I, I, I know, I never connected the dots. Well, I mean, so I'm in rural Indiana, I'm growing up. My dad's growing broke, so I start reading a bunch of biographies, um, to try to understand the world, really. Um, I come across Buffett and Munger, this is probably, um, middle school, early high school. Um, now, I'm, um, I don't wanna give this impression that I didn't have fun. I mean, I was partying, I was playing sports, I was doing all these things, but I would show up at school early, um, and I started, you know, on graph paper, like charting stocks because I was absolutely in, uh, you know, enthralled with this idea that people who kinda looked like me, Buffett was in Omaha, right? And, and seemed to live a kinda normal life like the life I lived, I wo- really wanted to understand these markets and these things called stocks and, and, and how companies worked, perhaps in a way to help explain to me why it didn't work for my dad. Um, and so I, you know, like, fast forward, right, go to law school because I said to, uh, you know, I had to get that insurance policy. Um, I actually did a stint in politics, thought I was gonna run for office, that's a whole nother vector of, of, of trying to live a life of purpose and have impact on the world, but I realized I was poor, went back to business school. Um, in law school in 1995, right, I had gathered all of my friends around this computer, like one or two computers in the law school library. I had just seen the Netscape browser and, you know, I gathered these, my friends around and I said, "This is gonna change everything." And I was convinced that not o- you know, I understood markets a little bit, I understood, you know, stocks, and I was convinced that there was gonna be incredible value creation in technology. Um, and, you know, so I set about trying to get to Silicon Valley. In fact, I hopped on a plane when I was in law school and I flew out to Silicon Valley no- uh, having no idea what this place was about, and just started knocking on doors, including the old venture law group, trying to get a job here. Uh, but I went back to business school. In business school, um, 1999, 2000, internet is going crazy, I feel like I've missed it, I'm too late, um, but I was hellbent on getting to Silicon Valley. Uh, but my classmate, who became my wife, decided that, "We're gonna stay in Boston." And I had met these, these two crazy folks, uh, one crazier than the other, David Fialkow and Joel Cutler, uh, who were investing their own money at the time, entrepreneurial, interesting, thinking about starting a venture capital firm. Um, and that was really my launch into investing, was starting with David and Joel, um, helping them, you know, do their first deal, helping them think through general catalysts, and then ultimately, um, you know, I can finish this story, but, but that, but that got me into the investing universe. I became co-CEO, uh, of one of their, or of their first investment out of General Catalyst.

   3. HSHarry Stebbings9:38

      I mean, well, all great stories start with, "And then I met David Fialkow and we did things together."

   4. BGBrad Gerstner9:43

      (laughs)

   5. HSHarry Stebbings9:43

      I mean, this is the start of one great night out in Vegas, am I right? Um, but, uh, I do wanna (laughs) , I do wanna start on something you said before, 'cause it, leading into your investing career, an is- you mentioned the importance of the power law. And as I said, you said this was the single most important thing, and so, you know, we kinda have to start there.

5. 10:00 – 12:04

   What is the power law?

   1. HSHarry Stebbings10:00

      So, what is the power law and why is it the single most important thing, Brad?

   2. BGBrad Gerstner10:05

      Well, I mean, we all know that in investing, returns don't follow a normal distribution, right?

   3. HSHarry Stebbings10:11

      Sure.

   4. BGBrad Gerstner10:11

      We know it's 80/20, 90/10, um, e- you know, and so that's a tiny number of firms and a tiny number of deals that represent the vast majority of the gross profits that get generated in the industry.

   5. HSHarry Stebbings10:27

      Yeah.

   6. BGBrad Gerstner10:27

      And the fact of the matter is, I mean, if you look back 10, 20 years, average VC returns are, are not that compelling. In fact, they're worse than the indexes, okay? So, um, to me, while we all know this, um, very few people actually organize their day, their life, their firm around this concept. So, it's one of these things that lots of people know, but they don't necessarily know what to do about it. Um, and so for us, thinking about how we spend each minute of our time, thinking about where we're focused, who are the founders we're talking to? There's this idea in venture that, you know, two people and an idea walk in your front door, and you get lucky and you, you invest in that company and it hits it big. Nothing could be further from the truth in terms of, like, how we prosecute our strategy at Altimeter, and I started learning that, I would say my first decade of venture, I made a ton of mistakes, 2000 to 2010. I spent a tremendous amount of time on ideas that even if everything was true were going to be small outcomes.

   7. HSHarry Stebbings11:35

      Mm-hmm.

   8. BGBrad Gerstner11:36

      And the truth of the matter is, it probably takes as much effort, emotional and intellectual, to start a restaurant as it does to start Google. So you, y- you really need to focus on what is the, you know, what is the, the, the biggest trend in the world? What are the markets that you're trying to invest against? And then prosecuting a strategy that allows you to take advantage of the power law...... instead of being on the tail, um, where you spend an equal amount of time but don't see the returns.

6. 12:04 – 15:31

   The Three Supercycles

   1. BGBrad Gerstner12:04

   2. HSHarry Stebbings12:04

      So I'm totally with you here, but I'm- I- I'm o- on- in terms of the market sizing. What worries me though is that I will disregard new markets or small but growing markets because I'm focused on big. We can look at data storage, we can look at data in ads, we can look at, I don't know, enterprise compliance, again, massive fricking markets. But actually, completely category creation markets and massive expansionary markets, l- you know, so many of these examples from your Airbnbs and your Ubers to your Twilios of the world in enterprise, they weren't big markets at the time. How do you factor in market creation and massive market expansion into that it needs to be big enough?

   3. BGBrad Gerstner12:46

      I think you have to be careful of commingling markets and what I describe as super cycles. Okay, so in my investing career, there have been three what I would describe as super cycles. The first was the internet.

   4. HSHarry Stebbings13:01

      Mm-hmm.

   5. BGBrad Gerstner13:01

      Right? Everybody coming online. It was very clear even by 2000 that we were going to have hundreds of millions or billions of people online. So the question was, who were going to be the biggest beneficiaries of that? And so, I would describe that period of time for me investing, uh, or- or me founding companies. I concluded that search, making sense out of all this chaos, and e-commerce, which was really search for products-

   6. HSHarry Stebbings13:30

      Mm-hmm.

   7. BGBrad Gerstner13:31

      ... were gonna be the two biggest areas of category creation. So seeing through that lens, Airbnb, which was making sense out of all the world's long tail inventory, right, in the way that Craigslist had done, for all properties that were not on booking.com, like it actually fit, it's a- it wasn't a new market at all. That was a business prosecuting a strategy in a massive super cycle with massive tail winds, okay? I would say the second super cycle in my career was the move from search and e-commerce to mobile and, you know, and- and- and, um, applications that sit on top of mobile. And so what led us to Facebook in 2012 or what led us to ByteDance early was this idea that this device was going to be the principal and replacement mechanism for entertainment, for communication, for interaction, right? And that wasn't a market. It wasn't, you know, when I met with Yiming, I don't know, it was 2016 in our offices, it wasn't that I was looking to invest in a newsfeed called Toutiao in China, right? There was no TikTok. There was no, um, uh, there- there was no idea about is there a big market for news in China. The question was, are there big tail winds for a continuous feed in China where there was no feed? And then I would say finally, um, I think probably maybe the biggest super cycle yet for us, what led us to Twilio, what led us to Snowflake, it wasn't that- that we had a strong conviction on the data warehouse market. What we had conviction in i- that, was that all the world's storage and compute was going to move into the cloud, that it would be more performant, that it would be lower cost, uh, than every company doing it for themselves. And so I think there's a lot of talk about TAM or markets. We focus on super cycles

7. 15:31 – 21:01

   How do you pick companies?

   1. BGBrad Gerstner15:31

      and PowerLaw.

   2. HSHarry Stebbings15:32

      So I love that. Uh, but my next question is, okay, we identify the super cycle, which as you mentioned there kind of being the movement of data and everything that kind of comes with that into the enterprise. You then have to pick, and it, like, just 'cause you know the cycle it doesn't mean you get into the great companies. And someone said to me the other day, one of the best VCs actually, they said, "Harry, the outcomes are so much bigger than we could ever have anticipated in the winners. The only thing that matters is that you're in them, so spray away baby." Like be in everything 'cause you can't pick.

   3. BGBrad Gerstner16:03

      Hmm.

   4. HSHarry Stebbings16:04

      And I thought, "Huh, so I should be in 100 companies 'cause all that matters is I'm in Stripe or I'm in Notion or I'm in Figma, and just if I'm in it, fuck it. Amazing." How do you-

   5. BGBrad Gerstner16:14

      I mean, but it- it- it- you know, look, listen, I-

   6. HSHarry Stebbings16:16

      How do you feel when you hear that?

   7. BGBrad Gerstner16:16

      ... I couldn't disagree more. I honestly couldn't disagree more with th- with- with that strategy. First, there are not hundreds of- of big outcomes, okay? And so if you have a diversified portfolio across hundreds of, uh, hundreds of investments, you will have an index-like return, which as we started off by saying it's not very compelling in this category. Secondly what I would say is if you look at the difference between the Sequoia round in Figma or the Durabil round in Figma, right, it's the difference between, uh, you know, having a 100 plus X outcome and a 2X outcome. A 2X outcome is nice, it's nice, but, you know, that doesn't, you know, tho- those are not venture returns in the, uh, y- y- you know, in the scheme of things. And so for us, um, I look for pattern recognition around companies that become the market leaders in super cycles. It was clear to me that Yiming could build the largest entertainment and newsfeed in China, right? Like, that was a bet, and it was a l- deliberate bet against a super cycle, right? Uh, it was clear to us that booking.com, in fact I teach a class on this at Columbia Business School, the old Graham and Dodd-

   8. HSHarry Stebbings17:30

      Hmm.

   9. BGBrad Gerstner17:30

      ... securities analysis class, it was clear that they had less than 1% penetration of what w- what was going to be a massive market, which was buying hotel rooms online. Um, and that that would compound for a very long period of time. And so that's the other closely related item here, Harry, which is I think if you sit back, if you're leaning back and saying, or if you're c- talking to all your buddies and they're like, "This is the winner. This is the winner," to me that represents a lot of momentum trend following. And the history of that venture is not particularly great.... the history in venture, uh, has really inured to the benefit of first principle thinkers who, frankly, rather than waiting for the founder to show up in their office, they identify what they want to invest in and they go find them. Um, and frankly, for us, why was our mind fertile and prepared when I took a walk in a park with Mike Spieser and we talked for 70 minutes about a number of things, and I had known Mike since business school, and in fact, the main idea that we were talking about the entire walk was Pure Storage, right? And at the very end of the walk, I said, "Mike, what, wh- what's the new thing you're working on?" And he said, "Ah, something, but it's too early for you. I'm the CEO of it. Thinkin' about... You know, we're starting to recruit for a CEO, um, but, you know, Benoit and Thierry, these, these, you know, engineers out of Oracle have a whole new concept for a data architecture in the cloud. And it'll start with maybe a data warehouse, but eventually it's about rewi- rewriting the world's most important databases native for the cloud." And I said, "That's what we wanna do. That's what we wanna do." But I couldn't have said that had we not spent a thousand hours thinking about it as public market investors and venture investors as to why we thought all, all data was gonna move to the cloud.

   10. HSHarry Stebbings19:32

       Do you worry about confirmation bias? I think I've had this before where I develop theses in my mind about how I see markets playing out in certain ways or, you know, super cycles developing in different ways, and then I find the company that aligns to my thesis and I jump on it. And actually, my thesis just could be wrong. I worry that it just falls very much victim to confirmation bias. How do you think about that as a potential flaw?

   11. BGBrad Gerstner19:55

       I, I... You know, I think as, uh, you know, we, we often say around here we're anthropologists who just happen to be investors. So w- we, we really s- have a culture and we spend our days challenging each other, thinking, inviting people in to opine on the subject that we might have, um, you know, around, for example, the modern data stack, y- you know, that we've obviously written a lot about, uh, you know, on Twitter and Substack, et cetera, Discord. Um, but every day, we're pulling together the most interesting founders, engineers, and others, and study, right? Like, drinking the Kool-Aid is a recipe for disaster, but if you really have a culture of continuous learning, right? Because there are plenty of things that we invested in where the facts change or where we were just wrong, and throwing good money after bad when you were wrong is a really bad idea.

   12. HSHarry Stebbings20:52

       How do you-

   13. BGBrad Gerstner20:52

       Um, and so for us, it's, you know, it's, it's that constant study. Um, I think being a public market investor is really a value-add in terms of that type of

8. 21:01 – 23:55

   How do you communicate with founders?

   1. BGBrad Gerstner21:01

      culture when you're investing in venture.

   2. HSHarry Stebbings21:03

      How do you know when you're wrong versus a blip? And how do you communicate that to the founders? It's something that I'm still very weak on.

   3. BGBrad Gerstner21:12

      Can't necessarily use all the specific names, but I would say this, the reality is that... We made this pre-revenue investment in Snowflake, and I remember Mike called me maybe six months after we made the investment and he said, "Hey, we're not hitting the milestones we need to hit to get the next round of investing, okay?"

   4. HSHarry Stebbings21:31

      Mm-hmm.

   5. BGBrad Gerstner21:31

      "But we need... So, so let's just put in a little bit more money, kind of an interim round, and... You know, because we'll get there." And we talked through the reasons why, et cetera. And it was very clear to us that what was going on in the business, focused on recruiting, dealing with a bunch of customers, et cetera, had no outcome on the big bet, so that was a very easy decision. I mean, that, that conversation lasted a minute. "Yes, we'll put more money in the business. It, it... You know, let's go." I would say, you know, we're an investor right now. Listen, there's been a massive dislocation in the world and there's a bunch of really bad stuff that occurred last year, right? And a bunch of valuations that are totally not supportable. Uh, we have a software company, you know, where, where people... where they misplan by 70%, right? An incredible group of investors around the table. But this particular group, right of the lack of truth-telling about what's really going on, confronting the truth, right? I mean, I think that's so important, and having the courage. I'm not being a good friend to the founder if I'm blowing smoke up their ass in the boardroom, and then the second they walk out of the boardroom, all the investors have a different conversation.

   6. HSHarry Stebbings22:45

      Mm-hmm.

   7. BGBrad Gerstner22:46

      Right? So I think that being willing to tell the truth, as I would've wanted as a founder... Fialko, when he was on my board, trust me, in 2000 when the world was coming undone, he talked truth. Or on September 11th when planes ran into buil- buildings, right? Rich Barton and I and David Fialko, we talked truth. And so, you know, to me, I treated founders the way I'd wanna be treated. I tell them exactly the same thing in front of 'em that I would tell them, uh, when they're not in the room. That's the culture we have as a firm. Um, and so, um... But I think y- you know, to, uh... The, the, the question of knowing when it's just a blip and when it's different, the facts in this particular software company radically changed, right? The facts in the world radically changed. Their product's relevance in the world changed. Their performance changed. And so you have to accept that market feedback, that customer feedback, and then you have a different question, "Will you support me in the pivot of this business or not?" But that's a totally new underwriting. That's a different question.

9. 23:55 – 26:04

   Price Sensitivity on Reserves

   1. HSHarry Stebbings23:56

      There's also another underwriting, which is my biggest mistakes, which is, are you willing to pay the new price? Especially on reserves management. My biggest mistakes have not been not doing companies. And I don't mean that arrogantly, 'cause I've missed many great companies. (laughs) But it's been, they came to me with a new price for the new round, and I went, "Oh my God, no w- no way! I'm not, I'm not doubling down in this price." How do you think about price sensitivity on reserves management and capital concentration?

   2. BGBrad Gerstner24:22

      Let me a- let me ask you why. Why were the pr- why did you deem the prices not to be fair, or too high?

   3. HSHarry Stebbings24:28

      They, they would treble three months after the last round-

   4. BGBrad Gerstner24:32

      Okay.

   5. HSHarry Stebbings24:33

      ... was varied in, was varied in the company-

   6. BGBrad Gerstner24:33

      So, so I'm interrupting you, but okay, so they're 3X what they were three months prior. What were they relative to your target price at exit?

   7. HSHarry Stebbings24:41

      They were above, they were still, they were still high. High.

   8. BGBrad Gerstner24:44

      Okay so listen, if somebody comes to me and they want me to invest in a company that is at a price higher than I in my own underwriting and all my research, right, assuming that things go well, I can't get to that price, then I'm not investing. Okay? That is just momentum. You are a steward and fiduciary to your LPs. We invest in companies if we believe in subsequent rounds, that there is still a venture underwriting. That we can earn venture-like returns in the subsequent round. Right? Sometimes, um, you know, we'll have to pass on our pro rata in those rounds because we think that the price, like we did many times last year, the price has just gotten too far ahead of itself.

   9. HSHarry Stebbings25:29

      Yeah.

   10. BGBrad Gerstner25:29

       Right? And so you have to be optimistic. You have to, uh, have the imagination to believe that these companies can be big. But listen, what has happened over the last 24 months has been a great disservice to founders, right, and is the worst example, I think, of, uh, lack of discipline. And listen, we get caught up in it too. I'm not trying to say... Uh, there is a entire body of work in behavioral economics around the lemming effect, group think, et cetera. And boy was this industry caught up in it over the course of the last

10. 26:04 – 28:59

    Value reshuffling

    1. BGBrad Gerstner26:04

       12 to 18 months.

    2. HSHarry Stebbings26:05

       Well, listen, I spoke to Gurley before the show, obviously, you know, a- a mutual friend and a very close friend of yours. And he said, "I wanna hear Brad, I wanna hear Brad talk about value reshuffling." So obviously we've seen, you know, enterprise value of companies completely change. And this has largely been blown through public markets and kind of multiple expectations. "How does Brad think about value reshuffling with that in mind?" was Bill's question.

    3. BGBrad Gerstner26:29

       When you say value reshuffling, uh, I, I generally, whenever Bill asks me a question, I always have to ask a clarifying question because it's usually smarter than I'm able to gra- grok-

    4. HSHarry Stebbings26:38

       Yeah. (laughs)

    5. BGBrad Gerstner26:39

       ... in the kinda the first instance. But when you say value reshuffling, what do you mean by that?

    6. HSHarry Stebbings26:42

       I think he means what, essentially we were willing to pay 30X revenues and now we're looking at, you know, Twilio is a four and a half X revenue, I think it was when I last looked at it. Or five.

    7. BGBrad Gerstner26:52

       I mean, as B- as B- as Bill well knows, and, um, and as our, uh, as- as our chats, group chats often, uh, include in them, right, um, interest rates are to valuations, you know, what gravity is to the apple. Um, you know, like, we can all say we don't do macro, we ignore the backdrop, but we can only say that because most investors have only been investing during a period of really low rates. So when you have low and stable rates, right, you've never had to think about it. But trust me, if you were investing in 1978 or 1982, you thought a lot about it. Right? And in particular, the rate of change of rates is super impactful, particularly when we're talking about long duration, high growth assets. And so to me, um, you have to accept that. You should have had a margin of safety baked into the cake when you made the original investment. If you made the mistake and you didn't, you have to be sober today, what is the multiple that's going to get paid at exit? Everybody on my team, for example, knows that we're applying a 20% discount to the pre-COVID 10-year average, right? So that is the exit multiple that we use. So now we have to say, let's assume everything goes right. Let's give the entrepreneur the benefit of the doubt. This is a super cycle, a company we love. We want to be investors, so let's assume all of that. But apply a rational multiple to that. Do we get a target return, right, that's worth us writing the check? And oftentimes, listen, these 1 billion, 2 billion, 3 billion dollar software rounds that are done with very little revenue, you have to assume a tremendous amount goes right. And then you probably have to assume an absurd multiple. And everybody's counting on the greater fool, right? And you just, like there's gonna be a lot of money that gets lost in, in all of those rounds. And so I don't particularly care if, if- if- if it's full of all the great investors or anything else. Like we do our own work. I don't carry the bags for anybody. We do our own work, and we're gonna force ourselves through

11. 28:59 – 32:40

    How does rate of change with interest rates affect your decisions?

    1. BGBrad Gerstner28:59

       that screen around valuation.

    2. HSHarry Stebbings29:01

       There's a couple points I have to pick up on. You said about the rate of change there of interest rates being so important. Talk to me, how does the rate of change of interest rates impact our job so profoundly?

    3. BGBrad Gerstner29:13

       So if you think about it, in, in 2000, 2001, 2002, rates were at 6 or 7%, and there was a tremendous amount of value creation between 2000 and 2005, right? Because we had this massive secular tailwind in the internet. But the rate was sta- was fairly stable during this period of time, and was moving, the market believed, directionally lower. Okay?

    4. HSHarry Stebbings29:38

       Mm-hmm.

    5. BGBrad Gerstner29:38

       (clears throat) When you have a, a period where we just went through something that is a major standard deviation event, which is going from basically 50 basis points to 400 basis points on the 10-year-

    6. HSHarry Stebbings29:54

       Huh.

    7. BGBrad Gerstner29:54

       ... it leads to a state of paralysis.... because our job is to predict the future. We gotta forecast the future for the company, but we also have to forecast what is the multiple the world's gonna be willing to pay at a point in time in the future? And so I think when people see a huge rate of change, now we have Larry Summers saying, "We may go to 6 or 7%." Well, your cost of capital is going up. You need to have some predictability about that cost of capital. Let me take it to its logical extreme here. Let me tell you that you could earn 20% a year in a risk-free investment.

    8. HSHarry Stebbings30:33

       (sighs)

    9. BGBrad Gerstner30:33

       Okay? How many fewer investments would you make?

    10. HSHarry Stebbings30:37

        Many.

    11. BGBrad Gerstner30:38

        You would make 90% fewer investments. Okay? Because the hurdle rate to that capital now gets so profoundly different. This is why interest rates do have the impact they do. It really matters. Right? And so once you go to logical extreme, it becomes very obvious. We would all just go surf and ski and hang out and do the fun things we do because you would double your money every four years. You wouldn't do this at all. That's a higher rate of return than the 70th percentile in venture, and it's risk-free. So, you know, obviously that matters. We spend a lot of time thinking about it. But we don't try to out-forecast the best macro people in the world. What we effectively do is we look at the future strip and we say, "What is it, what is the market telling us that future rates are going to be?" So right now the market's saying Fed funds rate will peak out in March of next year, something like four, four and a half percent.

    12. HSHarry Stebbings31:32

        Mm-hmm.

    13. BGBrad Gerstner31:32

        You know, we don't try to outsmart the market. We just say, "Okay, let's use that as a, a, a, as, you know, kind of a rule of thumb." There was one period of time, October of last year, where I went on CNBC and I said, I, uh, you know, like, "I think that the market could very well be getting it wrong. And if, once COVID normalizes, I expect us to go back to January 2020 levels on interest rates. And if we do that, then multiples on the NASDAQ will be down 20 to 30%, which means the NASDAQ will be down 20 to 30%." Now, I wish I had followed that wisdom as well as I articulated it.

    14. HSHarry Stebbings32:09

        (laughs)

    15. BGBrad Gerstner32:09

        But the reality is nobody should be surprised. In, i- in fact, in some ways, we should be celebrating. You know what this mean, what, what rates mean today? It means that humanity beat a global pandemic that in March of 2020 we thought might wipe out 20% of the world's population. That's what this means. Right? So I suspect that the new normal is gonna look a lot like the old normal, but we have to get through this period of massive uncertain and volatility so that you and I

12. 32:40 – 34:50

    Gurley vs. Chamath

    1. BGBrad Gerstner32:40

       can underwrite to a predictable cost of capital.

    2. HSHarry Stebbings32:42

       I think it was Chamath on the panel that you and Gurley and Jay, Cal and Sax did together who said, "You would never be investing in this period of uncertainty with valuations being so transient and fluid because it's almost irresponsible to invest in a time when no one knows where valuations are gonna rest." And then I'm like, you know, listen to Gurley and Gurley says, "No, the best investors invest continuously and you are always investing and you're always in market." And I'm going, "I'm a student of Venture Brad. (laughs) Which one of these incredibly smart people do I believe?"

    3. BGBrad Gerstner33:16

       I mean, well, come on. If it's Gurley versus Chamath, you know which way you gotta go.

    4. HSHarry Stebbings33:20

       Well, that's bloody true.

    5. BGBrad Gerstner33:21

       I mean, I mean, just, j- j- j- j- just put it out there. Um, no, they're both, they're both, uh, brilliant. And, um, here's what I would say on that. Our strategy has always been we're not going to, w- we're not going to say all or none. As a firm, we say less or more. Okay? So your aperture should be expanding and contracting based upon what you see going on in the world. So if multiples are at an all-time high like they were last October, and when I went on All In and CNBC, we showed the charts, et cetera, we talked about the things we were concerned about. If, if multiples are at an all-time high, your aperture should be contracting. That doesn't mean you shouldn't do any deals, but you should be really clear that you're only doing the best deals because only the best deals will clear, uh, those valuation hurdles. At the same time, when the world's panicked, "When there's blood in the streets," as Buffett says, I agree with Gurley, your aperture should be expanding. But let's be clear about where we are today. Okay? This is not a blood in the streets moment. It feels catastrophic because we have growth names that are down 40, 50, 60, 70% in the public markets. But look at where they are compared to where we were in January of 2020. For most of these companies, it's just getting back to the normal or slightly below normal or average

13. 34:50 – 38:22

    When’s the right time to take cash off the table?

    1. BGBrad Gerstner34:50

       valuations. That's how far in left field we were in terms of valuations. Right? So don't anchor yourself to the stupidity of the last 18 months. Do a de novo underwriting based upon the facts as they exist today. (alarm going off) So for Altimeter, listen, we just, we just signed a series A deal. We have a series B term sheet out. I still think that valuations are full. I think valuations in venture, in CD and E are, are, are, are still overvalued. So we have a lot of work to do. But the secular curve around value creation and disruption, all data moving to the cloud, ML and a- iAI applications like that, there will be more value created over the next 10 years than over the last 10 years. But price of entry matters.

    2. HSHarry Stebbings35:37

       It, it totally does matter. I, I wanna ask you a couple of questions just on the back of that, which is, you know, I heard on, uh, I can't remember where it was, that you distributed six billion last year, which was, I think more than all of your venture funds combined. My biggest mistake when I look back over the last 18 months was not taking liquidity on a lot of positions that I had. Stupid. And I look back now and shoot myself. (laughs) Um, my question to you is, how do you think about when's the right time to take cash off the table and when to...... bluntly, exit? Versus, you know, the newer mindset that we often see which is like, "I know better than my LPs when to distribute."

    3. BGBrad Gerstner36:13

       I mean, this has been as long as I've been in ventures, so for over 20 years, this, this is the debate. And here's how it goes. When the world's really hot, everybody wants to have a permanent fund and never distribute, everything's going to grow to the moon. When the world sucks, everybody wants to sell. Like, literally, the impulse is the exact opposite, the exact opposite of what it should be. And so we just try to use a really quantitative framework. Um, as public fund investors as well, I think it forces us -- you know, Rich Barton once said to me, um, I, I showed up to a board meeting at Zillow and I, I opened up my model and I gave some feedback, and he said, "What the hell is that?" And I said, "It's my model." He's like, "Why do y- why are you building a model on the company?" It was kind of a joke in the boardroom. Which Gurley was in, and Jay Hoag was in, and Maffei was in. But, you know, like, even though we were early Series B, I was already thinking of forecasting ahead to say, "If we did this, well, how does it show up in the numbers?" So for us, when I think about distributing is, do we still have venture returns left in this over a re- reasonable period of time?

    4. HSHarry Stebbings37:16

       Mm-hmm.

    5. BGBrad Gerstner37:16

       And if the answer is we don't, we don't see a three to five x over the course of the next three to five years in that deal, then we're obliged to distribute to our LPs because that's the deal we've made with them. And so I think the most important thing is what is your deal with your LPs, making sure that you have LP alignment. You know, uh, I was talking the other night, you know, everybody wants to hold and compound things forever. You know the, like, the number of (laughs) companies you should've actually held onto, like, we're talking less than 20. Everybody references, "Well, if I only h- held onto Apple," or, "I'd only held onto Google." I mean, we are talking about such a small subset. So we distributed, you know, part of that was luck, we could've done more, but we were following a process. But I will tell you, most of that distribution, right, not all, but most of that distribution was Snowflake. And the truth of the matter is, I think Snowflake will be worth a lot more in the future than it is today, and even more in the future than it was then. So they're never easy decisions. But the way I feel like s- about Snowflake, I've felt about less than five companies over the entire course of my career. And so

14. 38:22 – 40:36

    Marking Down Books

    1. BGBrad Gerstner38:22

       that's what made that one as difficult as it was.

    2. HSHarry Stebbings38:24

       You spoke about the deal with your LPs there. I think the biggest problem that I see from speaking to LPs is managers aren't marking down their books either fast enough or aggressively enough, and it's causing this misalignment between publics and privates within LPs' books, which is meaning they're going, "Whoa, whoa, whoa, I'm not allocating anything to venture for a, a while, because it's so out of kilter." And it's because managers aren't either doing it at all, or doing it aggressively enough. How do you think about the right way for managers to think about marking down books? How would you advise me on it? I'd love your genuine thoughts.

    3. BGBrad Gerstner38:57

       Well, (clears throat) so we have a, uh, you know, I think our policy is pretty standard with, with most managers which is, we don't spend a lot of time marking up our books when the NASDAQ's going up, and we don't spend a lot of time marking down our books when the NASDAQ's going down. When the facts change, or new rounds intervene, or down rounds occur, obviously we will make changes to the portfolio. But again, what's so important is I have that very clear expectation with my LPs. So I was having a conversation with the CIO of Harvard and he asked me early this year, "What do you th- how do you think we ought to think about valuations?" And I said, "I would take everything in your portfolio that received a valuation over the last two years over $500 million, and I'd mark it down by 50%." "Uh, what do you mean?" And I said, "Well, if I look at the average growth stock in the NASDAQ, it's down 50%." So, like, I think every LP needs to assess for themselves how they carry it, right? So I don't think it's just a GP issue, right? Ultimately, I have different LPs. Some are longer duration, some are shorter duration. Some have the denominator problem that you describe because they're running an endowment model. Some don't because they're families and they wanna double down. And so I think it's just important to talk clearly with your LPs about what your approach is, and then if you get the question, like I got, like, I think a, a useful heuristic, if you wanna mark up and down with the NASDAQ, then just put all your exposure in a book, right? Hell, you can mark it every day. What's the NASDAQ up today? What's the NASDAQ down today? And mark your book accordingly. Have a score sheet, put it up on the wall. Um, you know, we don't need to do

15. 40:36 – 43:29

    Misalignment Between Fees & Alignment

    1. BGBrad Gerstner40:36

       that. We don't do it, but it's not hard to do.

    2. HSHarry Stebbings40:39

       Can I ask, on that deal with your LPs, you know, w- we've kind of touched on before, but in terms of LP alignment, you have this slight tension between fee gathering and AUM collecting, which we've seen a lot of people do over the last years. And Brad, me and you both know the dirty truth, which is, it is a fucking lucrative game (laughs) if you wanna do it and do it right. And some people have absolutely. But, you will, I think, obviously see a, again, damage to comp- our, like, multiples. So how do you think about this misalignment between fee collection and maximizing multiples on smaller pools of capital?

    3. BGBrad Gerstner41:12

       Again, it, y- you know, you're right, it's structural. Um, one of the ways, like, if I'm an LP and I'm allocating to somebody, I need to think about their economic alignment. Okay? So I think at Altimeter, I'm 20% of the capital in Altimeter.

    4. HSHarry Stebbings41:28

       Mm-hmm.

    5. BGBrad Gerstner41:28

       Okay? So the return to me of an incremental turn on the multiple is a lot more important and dramatically more important on an after tax basis than return to me from fee, from management fee. Okay? And so I'm very well aligned with my partners that I'm going to size our funds in a way that I think balances maximizing return and building the firm. Um, and so, like, for example, our funds started off at 100 million, our first VC fund. VC6 was closer to a billion and a half. We could've raised a lot more than a billion and a half. Why did we choose a billion and a half? I think where, the, the space we occupy at Altimeter...... which is sitting in between the best seed and A investors in the world, and the public markets, and really helping invest in those companies like Snowflake, like Modern Treasury, like DBT, pre-revenue and growing with them all the way to public markets. We need scale to do that, right? And so how much is enough scale, but not so much as it becomes hugely dilutive or even meaningfully dilutive to our returns? Deploying a $10 billion fond, or God forbid, a $50 billion or $100 billion fund, like Masa tried to do, right? You already know you will not generate alpha in that. You are getting the beta of the global tech industry when you're investing those dollars, at best. And most likely, there'll be adverse selection because the best founders in the world don't want to be part of that portfolio. The best founders in the world want to be with the best brands, and the best brands in the world aren't raising that size of fund. And so for us, you know, like, we're perfectly happy and content. If I get a call over the weekend and an investor in a company that we love needs a $100 million, we can write them that check. Um, at the same time, I can write a $10 million check like I'm doing, uh, uh, today in a series A investment that has enough impact

16. 43:29 – 46:13

    The Structural Problem with LPs

    1. BGBrad Gerstner43:29

       on that fund to really matter.

    2. HSHarry Stebbings43:32

       I totally get you. I think what worries me, honestly, Brad, is that I speak to many LPs and they say, "Why, why would you do that, you know, investment into this $3 billion fund when you could have done it into these great managers with a $250 million fund? The opportunity cost of your dollars and the multiples that are associated with each, uh, I, I mean, are starkly obvious." And they go, "Ah, yeah. I, I ag- I agree, Harry. But like, you know, I'm... This... I don't... I'm picking a brand name, Andreessen. Um, as Andreessen, like, you know, I'm, I- I've got no incentive. I get paid a salary and I get paid a bonus." Very few LPs obviously have upside. "And so fuck it. Like, why would I risk it on, you know, these two people when I could do Andreessen?" I think there's like this-

    3. BGBrad Gerstner44:16

       Well, you just... You just answered your own question. I mean, so-

    4. HSHarry Stebbings44:19

       Y- Do you see the structure and, like, problem with LPs yourself?

    5. BGBrad Gerstner44:24

       Of course. I mean, but I, I, I, I won't describe it as a problem. I'll describe it as just a reality in the world. So for example, when I got started in this business with David and Joel, sovereign wealth funds were not allocating to venture. Pension funds weren't allocating in any real way to venture, right? I mean, S- Swenson and Yale were in the vanguard of allocating to venture, right? So, it's important for GPs to understand, the world has structurally changed. I'm getting cold called from Middle East sovereigns who want to invest, okay? This is going to mean that we have a permanent increase in the amount of capital that exists in venture capital. A permanent increase. And pension funds want in. And by the way, their hurdle rate, what they need to make on that money, is much lower than what MIT expected to make. And so, you know, now if you're, if you're Yale or MIT, you might say, "These guys are ruining the party." And to some extent they are. The industry is going from highly fragmented to much more industrial scale. Returns are going to compress. But you wanna... The, the reason I still remain so optimistic, w- where we started. It's a power law industry. It doesn't matter that you're in 200 deals. Hell, you don't wanna be in 200 deals. The question is, is the best founder, right? Is Mike Spieser and, you know, and Bob Muglia going to do that deal with Altimeter? Or are they going to do it with $100 billion fund, um, or a $10 billion fund that can't have the impact, that doesn't stand in our shoes? I think the best founders in the world want to be with the best partners in the world who've proven themselves to be much

17. 46:13 – 52:30

    Portfolio Concentration

    1. BGBrad Gerstner46:13

       more than just a commodity when it comes to money.

    2. HSHarry Stebbings46:15

       I have to ask you about the, the portfolio construction side. We've talked about it and touched on it a little bit. You've spoken before about being sufficiently concentrated. What does that look like in your mind in terms of the optimal concentration? 'Cause I think I struggle more with it. I don't think people are that good pickers and I think diversification is more needed. And you, I think, think it, concentration is needed. So, help me understand why sufficiently concentrated is better.

    3. BGBrad Gerstner46:41

       Yeah. I mean, when I think about concentration, you gotta know, again, I, I, uh, you know, I come out of this Buffett school and I think, uh, you know, as, as Buffett has said, you know, "Diversification is a great way to preserve wealth, but a terrible way to create it." Right? And so, I think diversification in many ways is the greatest myth perpetrated on the investing public. The idea that risk mitigation is the equivalent of diversification. Anybody who lived through 2008 knows that all asset and all pricing was correlated. Hell, look at a chart on the, on any technology company over the course of the last nine months. How much did diversification help you, right? And so, what I want to do and what people should pay me for or choose not to pay me for, right? Like, they either believe or they don't believe, is can you, are you in a position, intellectually, network, conversion, et cetera, to generate alpha? And if you are, right? If I find a company where I have a level of conviction like I did in Booking.com and Priceline in 2004, Google in 2005, or Snowflake, uh, you know, in 2000 and, and, and, and, uh, 14. If we find those opportunities and we re-underwrite them at every phase, mentally flexible, stay open to the idea that you're wrong, but I want maximum dollars. Again, it's my money. I'm taking my partners along for the ride. I want maximum dollars behind our best ideas. Why the hell would I put an incremental dollar in my tenth best idea or my fifteenth best idea when I can put more money in my best idea? And so-If, you know, at the end of the day, you gotta live with the result, right? And the result is, there's batting average and there's slugging percentage, right? Altimeter needs to have a really high slugging percentage. When we swing hard at the ball, runners are in scoring position, how often do we hit the ball, right? So that, to me, is what makes the grade in this business. I see a lot of venture capitalists and others, they say, "Oh, yeah, I was in that deal, I was in Snowflake, I was in this, I was in that." And I say, "Well, how much do you have in it?" "Well, I, you know, I had one- one- $1 million in a late-stage round," right? It's like, who- who cares, right?

    4. HSHarry Stebbings48:59

       (laughs)

    5. BGBrad Gerstner48:59

       The gross profit dollars come from having conviction before the rest of the world do- does, and putting sufficient money behind it. I mean, our first fund, VC1, hell, I couldn't even raise it. I was 20 or 25% of the fund. And I put- we put over 30% of that fund in Snowflake at a point in time that the world thought we were crazy. The world didn't, you know, didn't think the cloud was y- y- you know, uh, I mean, at the time, it was pretty pessimistic about the cloud, to be honest.

    6. HSHarry Stebbings49:29

       Brad- Brad, that is a bet the fund decision. I just had this chat with Fialkow, he told me that in his second fund, he himself put 30% into one company. And I said to him, "That is a bet the fund decision." Like, you're not who you are now. If you were to do that and it went wrong, that could've been the end of Altimeter, if you'd lost the money, 30% to nothing. That's- that's a tough place to be.

    7. BGBrad Gerstner49:50

       I mean, it- it- it- it- it- I would- I would say a couple of things. Number one, I was- I was talking yesterday to a great friend of mine, um, the- the- the Olympic skier, Jonny Moseley.

    8. HSHarry Stebbings50:03

       Mm-hmm.

    9. BGBrad Gerstner50:03

       And he's giving a talk up at the YPO in San Francisco about, um, whether or not sports, like big mountain skiing, which my sons do with his sons, whether or- or not that's good training for investing. So this idea, because a lot of people will see a, you know, Jonny do a double back, or, you know, I don't know, quadruple backflip, and they'll say, "Oh my God, such a risk-taker, totally crazy." But when you actually go out there, you look at the 10,000 hours they put in it, the research. He's taught our kids, "You never go over a structure like a cliff without first inspecting the other side," right? It's massively calculated. And then you prepare your mind for those moments, right? You know what you're going to feel like when the amygdala starts firing, when that frontal cortex says, "What you're doing is a mistake," right? So unless you've done the work, unless you've built the model, unless you have the conviction, you won't be able to do it. So what the outside world oftentimes perceives as tremendous amount of risk, to the person who's done the work, prepared themselves, right? Of course you can't eliminate risk, but often for the protagonist who's actually doing it, it feels much less risky than everybody who's perceiving it from the outside in, right? If somebody was adding- if Sequoia was adding money to Airbnb, in the series B or series C, a bunch of people on the outside are gonna say, "Oh my God, that's so crazy, look at the valuation, I can't believe they're doing that deal, it's so risky." I'm certain they didn't feel that way. I'm certain we did not feel that way in every subsequent round we co-led in Snowflake, because we had done the work, prepared ourselves, had the information, had studied, we looked over the cliff, we understood what it meant for the fund. But yes, I will conclude by saying this: my goal is not to build a highly diverse firm and, you know, and raise $50 billion funds and never take any risk and ... You know, that- we get to have choices what we do with our days. I want to live a life that matters, I want to do shit that matters. And that means that when you believe something, you actually do something about it, you actually stand with a little conviction behind it. If we're not doing that, then we're not the firm I want us to be.

    10. HSHarry Stebbings52:16

        Can I be blunt, Brad? You spoke about kind of calculating risk there and, you know, uh, skiing and jumping and everything in between, ins- insurance and athletic sports. Um, my question to you is, I spoke to Sonali before the show, and she asked a brilliant question.

18. 52:30 – 54:08

    Altimeter’s Cultural Northstar

    1. HSHarry Stebbings52:30

       She said, "Ask Brad, with that element of, like, we all bluntly took on a more risk, uh, forward mind over the last 18 months, what are some of the biggest or most risky mistakes that you made over the last 18 months that you have learnt from, that maybe you haven't shared?"

    2. BGBrad Gerstner52:50

       Yeah, I- I mean, listen, I think, you know, so our cultural north star at Altimeter is essentialism, right? It's kind of an operating roadmap for me in life. You know, think o- what- what- what- what minimalism is to Jony Ive, right, essentialism is to life design and business design for us, so the art of doing less better. And everybody in our firm would tell you that that's what our cultural north star is. They'll tell you how we practice it, both in terms of how we schedule meetings, how we spend our days, um, the investments that we make. And so for a firm that prides itself on that, um, there's no doubt over the course of the last 24 months, where we're all working remotely, where there's a lot of FOMO, where the cost of capital is really low, we did more than we should have, right? And I think most folks would raise their hand, if they're being intellectually honest, and say that that's the case. To me, the practice of essentialism is kind of like my practice of yoga that I've been doing for over 20 years, right? It is- it is not just a statement you put on the top of your whiteboard, right? But it's something that you aspire to every single day, right? "Is this accretive to who we are as humans? Is this accretive to who we are as a firm? Is this accretive to my intellectual understanding?"

19. 54:08 – 58:18

    Advice to Young Investors

    1. BGBrad Gerstner54:08

       And if it's not, we shouldn't be doing it.

    2. HSHarry Stebbings54:10

       Brad, how do you advise young people, um, and young partners, like you have in your team, like you're friends with, like me, who are looking at our books today going, "Fuck..."... "Am I any good at this?" (laughs) Last year, I thought I was great. My LPs thought I was great. "Am I any good at this today? I don't know." This is how a generation of junior partners feel, and they cry to themselves and cry to each other on WhatsApp channels. How do you advise our generation who's never been through this, got high on their own supply last year, and now are going, "Shit, I don't know"?

    3. BGBrad Gerstner54:44

       I mean, listen, I came into the business at exactly this time. I mean, I graduated from business school in May of 2000. David and Joel were starting GC, and I was running our first investment. So, I, you know, this, this pattern recognition comes from a painful exercise. I saw my dad go through it. Right? And I started Altimeter. The day my first trade at Altimeter was November 1st, 2008-

    4. HSHarry Stebbings55:10

       (sighs)

    5. BGBrad Gerstner55:11

       ... literally into the teeth of that crisis. And remember, November and December were wipeouts. The market bottomed in March of 2009.

    6. HSHarry Stebbings55:19

       (sighs)

    7. BGBrad Gerstner55:20

       Um, and so the advice I give to them is, if you don't have a stomach for it, find a different thing to do. This was never meant to be a get-rich-quick scheme. The people who thrive in this business, Mike Moritz is great in this business because he has a incredible curiosity and passion for understanding the world around him, and he expresses that finding in his investments. Same with Bill Gurley, same with Brad Gerstner, same with Jamon Ball on my team, same with, you know, Frieder of, of Rebeck on our team. Like, you know, when I look for recruiting, right? Paul Reeder, who's my mentor and incredible investor, he said to me early in my career, he said, "It's harder to pick s- peep- it's harder to pick people than it is to pick stocks." And he's like, "I'm taking a chance on you because you have plausible alpha." He said, "The wor- the road is littered with, with, with guys and gals who went to Harvard Business School who never made a nickel in this business," right? "But you're a lawyer." "You've run three companies." "You've got this network." "You see, you're a contrarian." "You see the world a little different." "You were charting stocks when you were in high school." Like, there's a chance you have a little alpha. The truth of the matter is most of the people you know, Harry, they're not great. They don't have alpha, right? And, and, like, we're gonna flush that out real quick. I've lived through two, two of these downturns, and I've watched people get flushed out. I've told you, "I've watched you. You have alpha. You came up with this hack, 20VC." "I'm going to figure out how to get Brad Gerstner and Mike Moritz and Bill Gurley and all their friends to talk to me, and I'm gonna build the most potent top-of-funnel in the, i- i- in the world, and I'm gonna bolt on this great business model underneath it, called venture capital." That's a hack. That's alpha. Okay? So if you were recruiting somebody, I would ask them the question. I ask everybody that we're gonna hire, I ask them this question. "Tell me how you've made money." You know the number of people who went to Harvard Business School or worked at Goldman Sachs who can't answer that question? They've never had to make fucking money. I'll tell you, you ask me that question, the first answer I'll give you is, "In the sixth grade, I had my mom drop me off at the gas station, I bought candy, I took it to my locker, and I sold candy out of my locker at a 2X markup. That's how I first made money."

    8. HSHarry Stebbings57:47

       (laughs)

    9. BGBrad Gerstner57:47

       Right? So I've spent my life figuring out hacks on, on, on stuff like this, and if somebody doesn't have that grif, they can't answer that question, that's a disqualifier.

    10. HSHarry Stebbings57:57

        What's the best answer you've had to that question?

    11. BGBrad Gerstner58:00

        I don't even really care about the answer to the question. What I care about is they have an answer. Right? You and I were talking about... How did Carl Eschenbach going, go from being a wrestler in Pennsylvania to an incredible venture capitalist at Sequoia? That intrigues me. Having the curiosity,

20. 58:18 – 1:00:17

    Does hustle get in the way of loyalty and discipline?

    1. BGBrad Gerstner58:18

       understanding those biographies, I think, is important.

    2. HSHarry Stebbings58:21

       Do you worry that hustle can get in the way of loyalty and disci- and, uh, loyalty and discipline? Like, if you're so intent on, like you said, that money-making, that, that hustle, that drive, then do they maintain the discipline when times are crazy? Do they maintain their loyalty to you, Brad, and Altimeter when someone says, "Hey, there's a shiny new toy over here?"

    3. BGBrad Gerstner58:42

       I, I would say a couple of things. Number one, um, having figured out a way that you personally can build alpha is a condition required, though not sufficient, first. Right? Like, I know plenty of people who have a good hustle, but they're actually not great thinkers. I know plenty of people who have a good hustle who don't have great discernment. So all I'm saying is, when you're looking at recruiting somebody, is it plausible, right, that they have alpha that makes them different from everybody else in the world? Number two, what I would say is, listen, my philosophy about people who work at Altimeter is that, you know, this place is not indentured servitude. You're all free agents. I say to everybody who comes to work here, "You may work here a year or you may work here the rest of your career. The only thing I really care about is that it's an incredible experience for you and an incredible experience for us." Right? I've had three analysts, including my first analyst, Dennis Hong, who, you know, um, Dennis, the day he agreed to come work for me, he said, "Listen, I wanna work there three years. I want you to help me get into Harvard Business School, and I wanna learn everything I can so I can start my own fund." And I said, "Deal." And we kept that deal. Went to Harvard Business School, he dropped out, and he started his own fund, and I'm an LP, uh, from day one in his own fund. And so, you know, like, to me... And by the way, to have former employees who I feel that way about, you know, Ram, James, um, who've all gone on to start their own funds, I don't view that as a breach of loyalty. I view that as an example of the strength

21. 1:00:17 – 1:02:45

    Biggest Hiring Mistakes

    1. BGBrad Gerstner1:00:17

       of the type of people that we attract.

    2. HSHarry Stebbings1:00:20

       Can I ask...What have been the biggest hiring mistakes you've made? I've made mistakes around logos. They worked at X firm before, they must be brilliant. In terms of hiring mistakes over the years, is there any that stand out to you?

    3. BGBrad Gerstner1:00:33

       Well, rather than focus on individual people, what, w- what I'll talk about is structure. Um... There are a lot of ways to make money in this business, there are a lot of ways to lose money in this business. I think you have to be very clear about what is your North Star? What i- uh, w- who are you? What is your strategy? How do you differentiate? And then build an organization that reflects that strategy. Right? So for me, I wanna be an analyst. I wanna sit at the head of the table. I wanna be ch- chief thinker. Um, you know, I'm not some CEO who has MDs reporting to me, who have VPs reporting to them, who have associates, who have analysts reporting to them. That structure, to me, is hell. I would want nothing to do with it. I don't want to spend a day of my life working in that structure. We have an incredibly flat organization. We have, you know, 13 or 14 analysts. We all call ourselves analysts, right, where we study. That's what we do. We study, we think, we try to find things that are consistent with that thinking. Um, and so, I would say that during the period of COVID, we... Because we were all virtual, we had a little bit more layering because it was just harder organizationally, and that was a huge liability for us. I didn't like it. Um, and w- we've since said everybody has to be back in the office, um, and we, you know, got rid of the layers because the layers don't work. At the end of the day, the principal source of both maximum fun for us and maximum results for us is prosecuting a strategy that's very flat. And so I would say most organizations that are growing, whose fund size increases, they feel like, "I gotta have a certain number of partners 'cause they do two or three deals a year, and I wanna have this much money so I have this many partners." I would say the vast majority of organizations, okay, and I'm talking from Facebook and Twitter all the way down to, uh, GPs, they would be well-served, right, to be much smaller, to be essentialist in the people that they have, because it's very likely that your bottom 20 or 30 or 40% of your organization is dilutive,

22. 1:02:45 – 1:04:21

    How is Altimeter structured?

    1. BGBrad Gerstner1:02:45

       not accretive to your results.

    2. HSHarry Stebbings1:02:48

       But it justifies AUM 'Cause LPs go, "But your team is so small," and then they go, "Wow-"

    3. BGBrad Gerstner1:02:54

       Listen, I hear from LPs every day, the number one thing they worry about is how possibly can you guys do the stuff that you do with the size team that you have.

    4. HSHarry Stebbings1:03:03

       Mm-hmm.

    5. BGBrad Gerstner1:03:04

       Relative to all of our peers, we're way smaller. And I said, "Ultimately, you have to d- y- you have to decide what you want." Right? We prosecute our strategy as SEAL Team Six, right? And when a part- when- when- when an entrepreneur... Go talk to all the entrepreneurs we partnered with. They don't... It's not like I do a deal and then I throw you into a consulting group who may help you with your HR or may help you with your marketing, right? They get me. They get, they get Jamin, they get Pauline, they get Gwen, they get this team, right? We are one team. They get all of us, and we bust ass for them. That is a huge differentiator and, you know. So, I think that... I don't think you have to have a larger organization to justify increased AUM. I suppose if you wanted to go raise a hundred billion dollars, then fine. You know, do like SoftBank did and hire 50 people over a course of a year. We saw how that turned out. Um, you know, but, you know, for us, I have, uh, you know, no, no problem at all. We could, we could manage twice as much m- money as we're managing today with the exact same team, because this game is about picking the right ideas, making good decisions, thinking clearly, having conviction. It's not about your umpteenth analyst who's doing the umpteenth deal because their buddy over at XYZ Firm is doing said deal.

23. 1:04:21 – 1:05:48

    Biggest Challenge in Firm Building

    1. BGBrad Gerstner1:04:21

       That is a recipe to mediocrity.

    2. HSHarry Stebbings1:04:24

       I totally agree. What's the biggest challenge in firm building for you then?

    3. BGBrad Gerstner1:04:28

       I would say saying no. Saying no to all of the... You know, I- I mentioned SPACs last year. Um, saying no to a Middle East sovereign who calls me up and says, "Brad, you ought to set up a structured convert fund. We'll sponsor it with a billion dollars because CO2 is doing one and so-and-so's doing one, and, you know, we're gonna... All these deals are gonna be written down. We think you're really good at it." Like, the, the opportunity for product proliferation, people proliferation, deal proliferation, I mean, it is incessant, right? And so, for me, if I didn't have the conviction and the clarity that I do around essentialism, right, and practicing that every day, it would be a total distraction. But it's the same as Jony Ive or Steve Jobs when somebody walk in, "Hey, I got a new product feature. You ought to add this, add that, add this button on those, or add this." Like, they got shit every day. And you need to build a culture where people are afraid to suggest new things unless they've actually thought about it, right? If you are an analyst who walks into my office with an idea a day because, you know, Johnny Mac down the street did the deal, like, you will be fired, right? You better come in prepared, not with dribble,

24. 1:05:48 – 1:10:23

    What is your relationship to money today?

    1. BGBrad Gerstner1:05:48

       but you better have done your work, because we're gonna have a conversation.

    2. HSHarry Stebbings1:05:53

       Product- additional products provide additional revenue, more money. You have essentialism as a core strain of your mindset and life. You also have the, the childhood that you mentioned earlier. How do you think about all of these combining to your, your relationship to money today?

    3. BGBrad Gerstner1:06:09

       Um...

    4. HSHarry Stebbings1:06:09

       What is your relationship to money stage, do you think?

    5. BGBrad Gerstner1:06:11

       Wow. This is, this, this is deep, um, and I've done a lot of reflection on this. Um, if you would have told me I have- was going to have what I have, let's say when I was 20...And then you would have said, "Describe to me the house you're gonna live in, the car you're gonna drive, the life that you're gonna live." I would have described to you a life totally different than the life I'm living. Okay? From as early as I can remember, sixth grade, I was like, "I have to make a million dollars by the time I'm 30." I mean, it was a dragon in my life because it destroyed our lives. Right? It- it- it was like, when my dad went broke, it destroyed his health, his marriage. Like, it was... You know, so when you grow up in that, like, that is a real dragon. That's a beast you have to slay. Um, and, you know, fortunately because Fialko and Cutler gave me a shot, I- I- I was able with NLG to slay that beast right at 30. Right? And, um, shortly thereafter, Bejl Samai and I, Bejl's now running Lightspeed, we s- we co-founded, uh, my second company, or our second company together called OpenList, and we sold that, and, you know, another little base hit, Double, and, and I'll tell you, when I had a few million bucks, I was, like, good to go. Like, I had slayed the dragon, um, because I didn't come from a life of- of accoutrement. Remember, when I started Altimeter, I started with less than five million bucks. My- I couldn't even convince my friends from HBS to contemplate being my partner in this thing. Right? They're like, "Dude, you're embarrassing yourself. Go back to par." And, you know, so to me, I slayed the dragon around money. My life and priorities totally shifted. Right? Now, my priority is to raise two sons that have humility, understand the burden of- of having things, um, and to know what it feels like to climb up the mountain rather than being dropped out a helicopter on top of the mountain.

    6. HSHarry Stebbings1:08:10

       Is it difficult giving them the perspective? I- I mean this respectfully. Given, you know, you do have a lot of money, uh, and you've earned it and it's very well earned, but they are brought up in a different life than you had. Is it difficult providing that perspective to them as a parent?

    7. BGBrad Gerstner1:08:24

       It is the most difficult.

    8. HSHarry Stebbings1:08:26

       Yeah.

    9. BGBrad Gerstner1:08:27

       And I've discussed this with, you know, lots and lots of people on the topic. Um, and here's what I've concluded from wisdom from whether it's, you know, from Buffet to Reader is, it's not what you say to your kids. Like, you can say, "Oh, be humble," and then you go, you know, into your 18,000 square foot home. Right? It's not what you say, it's what you do. It's the life you live. It's how they see you treating others. It's the choices that they see you making. And so, you know, I ended up, you know, saying that my life is different. I live in a small house. In fact, I had a- a- a founder, um, of a decacorn, you know, who had visited other investors' homes, and he came over to my house, and he- he was so floored by it. He said, "Can I take a video of this?"

    10. HSHarry Stebbings1:09:17

        (laughs)

    11. BGBrad Gerstner1:09:18

        And I said, "Wow." We were sitting around the fire in the ba- uh, you know, fire pit in the backyard. He said, "I've gotta show this to my wife. She won't believe that you live here." And, um, you know, and so for me, my children know that we could afford a much different home, but they know that we choose to live there. And, you know, and now my son says to me, "Dad, I love that we live here," my 14-year-old son, Lincoln. He's like, "Because I'm not embarrassed to bring any of my friends here. Like, I love this house." Right? So, you know, I think there's something that we're doing right. Um, but yeah, I think it's about how you le- live your life every day. And listen, I have plenty of friends who live in big homes, and- and that's awesome too. Like, we all have agency. We all have choice. I'm not trying to say, you know, that I've denied myself all of life's privileges. I certainly have not. But I do think that, um, um, you know, there's a lot of wisdom in Buffet living in- in the home that he lives in, uh, and, you know, living the life he does. So I- I would say, um, you know, I don't have as many cashmere sweaters as Chamath,

25. 1:10:23 – 1:14:07

    How do you think about ego management?

    1. BGBrad Gerstner1:10:23

       um-

    2. HSHarry Stebbings1:10:24

       (laughs)

    3. BGBrad Gerstner1:10:24

       ... but I, but I, but I do enjoy having a good time.

    4. HSHarry Stebbings1:10:27

       Can I ask, I think ego often comes with money. How do you think about your own ego and ego management? It's so easy, you know. You're top of the industry. Everyone will praise you. Everyone will tell you how brilliant you are. You have Saudi LPs wanting to give you a billion dollars. You think you're fricking great, naturally. Like, it's a human response. How do you think about ego management and how would you advise me on that?

    5. BGBrad Gerstner1:10:50

       First, um, the number of people in life who surround themselves with sycophantic others, uh, who are their yes people, right, tell them what they wanna hear, afraid of speaking truth to them, um, like, it's almost everybody at a certain level, right?

    6. HSHarry Stebbings1:11:09

       Mm-hmm.

    7. BGBrad Gerstner1:11:09

       Because you can afford to do that. You can fire the people who say mean things to you and- or disagreeable things to you, and you surround yourself with people who all agree with you. Um, listen, I- I- it starts with, I have three siblings and an 86-year-old mother, and we have a culture in our family of speaking truth. So, you know, my sister, um, calls me fancy pants because I don't come back and visit her enough. Right?

    8. HSHarry Stebbings1:11:39

       (laughs)

    9. BGBrad Gerstner1:11:39

       Um, y- y- you know, so there's a lot of, you know, siblings, dear friendships, right? And, you know, you talk to, uh, some folks, you know, I- I- I know Lexi Reese, um-

    10. HSHarry Stebbings1:11:52

        Amazing.

    11. BGBrad Gerstner1:11:53

        ... wh- who's a dear friend. I mean, I get out of line on something or I, you know, I'm gonna hear from Lexi, right? Um, and she's gonna remind me of my priorities. And so having friends in your life who remind you of those priorities, um, and then children, right? My kids, the things that you think are important, your kids probably won't.

    12. HSHarry Stebbings1:12:12

        (laughs)

    13. BGBrad Gerstner1:12:13

        And, you know, and I have kids now. Um, I do- we do a service, a family service trip every year, uh, uh, with GivePower, an incredible organization that uses solar microgrids (notification chime) to light up schools and health clinics around the world. Um...And it was early and our kids, I don't know how old they were, probably four, our oldest was four. Michelle and I were in Hawaii at the Four Seasons, it was spring break. We paid an absurd amount for this-

    14. HSHarry Stebbings1:12:40

        (exhales) .

    15. BGBrad Gerstner1:12:40

        ... you know, this room or whatever we were staying in. And everything was perfectly curated, it was perfectly fun, and I said, "This can't be the end of our story. Like, this can't be, we didn't work this hard to have this be the life that our kids are going to live." Because it's like dropping 'em out of a helicopter on top of the mountain. And so I said, "We get three or four vacations a year, how about we, as a family, we take one of those vacations and we go do a service trip." And fortunately, I found some incredible people, um, you know, around GivePower. We partnered with them. We came up with this idea where we fund the capital projects on microgrids from Nepal to Tanzania to Colombia, and then our family goes and lives in the village for the final week or two weeks or three weeks of the project. And, um, and I've been able to take a lot of friends on these treks with us, um, you know, and again, now my kids say it's one of their favorite things they do all year long. And so again, if you do this once, it's c- maybe kind of a gimmick. If you do it twice, it may be a curiosity, but if you really thread this stuff into your life, it becomes your values. And, you know, we're doing another trip over Thanksgiving, and would I like to spend that with my family or friends or other things, or in some fancy... Yeah, there's part of me that wants to be on some fancy boat or doing something, but I know, um,

26. 1:14:07 – 1:18:36

    How has relationship with friends and family changed?

    1. BGBrad Gerstner1:14:07

       how important this will be in the final reflection.

    2. HSHarry Stebbings1:14:12

       C- can I ask final one? 'Cause I've, I've taken up a lot of your time, but, uh, I'm just too intrigued. Uh, um, money does change the relationships you have with family and with friends. The perception that they have of you changes, I find. They, I always find they want something from you now. There's always a reason why they want the dinner, and, and it changes so many of your relationships. Have you found that, and how do you think about retaining purity of relationship when you know that a lot of people actually now want something from you? We're really going into the therapist advice. (laughs)

    3. BGBrad Gerstner1:14:45

       I, I, I mean, what I would say is, um, you, you know, you mentioned a few people at the start of the show-

    4. HSHarry Stebbings1:14:52

       Yeah.

    5. BGBrad Gerstner1:14:52

       ... um, you know, Bob or Rich or others who've been, you know, Fialko, like brothers for 20 years. I mean, mm, I can't do anything for them, I can't give them anything, um, you know, that they don't already have or have for themselves. My buddies from high school will be the first to call me up and call me out on something, "Hey, I saw you on CNBC, you look like an idiot, fix your hair, do this, do that." So I think it's about the choice of the people that you surround yourself with. I don't have a lot of people in life who I feel like are hangers on, looking for something, perhaps because I just don't do that, right? I don't have the 400 foot yacht in Saint-Tropez, so maybe that, you know, like hanging out with me is eating a cheeseburger at Buck's and sitting in my backyard around a fire, and maybe the people who would be more inclined to hang out with, you know, uh, uh, you know, hangers on ar- aren't as intrigued by that. But maybe I'll leave you with this, because I do think y- y- it's related to it, but not s- not something you asked specifically. But a lot of my friends say, "Brad, you know, you kind of are living your life at warp speed, um, you know, you're trying to pack all this in. Like, what's, what's this all about?" Um, you know, and I mentioned I lost my dad when I was young, I lost my best friend when I was young, and h- honestly, if, if, if a young person comes to me f- for advice, or my own kids, like, I think this is the most important thing, right? That we are all just passing through. Like, this life is really, really short, and as humans, we're programmed not to think about mortality. It's actually a survival instinct not to think about your mortality. Um, but I think that that leads to really bad decision-making, because people tend to meander their way through life, they don't have the intentionality, and then, you know, lots of studies of people on their deathbed, is all the regrets they have. And so I would say that losing my dad early, losing my best friend early, like, I made a commitment at their funerals, like, "I'm not wasting it. I'm gonna love big, I'm gonna, you know, uh, I'm, I'm gonna be intentional about how I spend, you know, each day." And I was recently reminded about this, you know, Lorraine was talking on this panel with Jony Ive, and she said, you know, she goes, "I'm not sure why Steve always had this sense, but he always had the sense that he had to get it done now because life was short." Right? Uh, Lin Miranda talking about in, in Hamilton, you know, why did, why did Hamilton write like he was running out of time? The Federalist Papers. I mean, I think all younger people, particularly the ones you reference, would be well-served by thinking about what is the eulogy values they wanna live by. Right? Like, what, what do you want people to say about you when Harry Stebbings calls them, and I certainly don't want them to say, "Oh, he amassed the most money." Or, "He had the biggest firm." Or, "He has the most AUM." Right? I actually wanna live a life of purpose, that matters, of impact. I wanna show that to my kids. I want my kids to live that life. I think it's a recipe for happiness, and I actually think it's a recipe for having a much more interesting life, a much more authentic and enriched network, and I think it allows for great success in the business.

    6. HSHarry Stebbings1:18:14

       I'm so pleased you answered that. That was Jamin's question. I wanna move into a quick fire. I say a short statement, you give me your thoughts. Does that sound okay?

    7. BGBrad Gerstner1:18:21

       Whoa, is it... You're not gonna use the list I posted on Twitter, are you?

    8. HSHarry Stebbings1:18:25

       Oh, no, no, no. This is much better. Mine are better than quick fire than yours.

    9. BGBrad Gerstner1:18:28

       (laughs)

    10. HSHarry Stebbings1:18:29

        I, do you know, Brad, I've done 3,000 of these, so my quick fire-

    11. BGBrad Gerstner1:18:31

        I know, I, I, uh, yeah, yeah, you're rubbing it in. I'm, I'm guest 3,301.

27. 1:18:36 – 1:19:14

    Brad's Favourite Book

    1. NANarrator1:18:37

       But I love you the most, so.

    2. BGBrad Gerstner1:18:40

       (laughs)

    3. NANarrator1:18:40

       (laughs) What's your favorite book and why, Brad?

    4. BGBrad Gerstner1:18:43

       Yeah. No, it's a great question. I think, um, for me, one of the most impactful books was Snowball, uh, about Buffet. And, you know, just realizing that, you know, compounding is one of the greatest forces in the world. Start with a really snow- small snowball on a really long hill. And I'm talking about compounding in love, compounding in impact, compounding in invention, compounding in investing. Um, you know, figure that out in life and, and

28. 1:19:14 – 1:20:05

    How do you evaluate the next few years for SPACs?

    1. BGBrad Gerstner1:19:14

       just get started, and compound your way, uh, along the way.

    2. NANarrator1:19:18

       Are SPACs done? How do you evaluate the next few years for SPACs?

    3. BGBrad Gerstner1:19:24

       Um, listen, I don't think SPACs need to exist in the world. Um, they're a mechanism by which companies come public. Um, they have forced more innovat- innovation in the traditional bank IPO. They have forced more innovation in the direct list market. And what I really care about, what I'm trying to solve for, is making sure that entrepreneurs and founders of iconic businesses have a fair and easy step into the public markets. It shouldn't be so Byzantine. And we wanna be partners to them because remember, some of the greatest venture returns in the history of venture capital occurred in the public markets. Booking.com, Priceline from one billion to 100 billion. Go

29. 1:20:05 – 1:21:03

    Best investment advice and warning

    1. BGBrad Gerstner1:20:05

       through the list. Those are venture returns in plain sight.

Episode duration: 1:26:47