Roger Ehrenberg: Why VC Returns Will Get Worse & Why LP Incentive Structures are so Broken | E1117

1. 0:00 – 0:55

   Intro

   1. RERoger Ehrenberg0:00

      (instrumental music) I'm not in pure tech anymore. But if I was, I would literally be spending almost no time in pure AI. Venture is never gonna be commoditized. Maybe mid and late stage, we'll feel more like institutional asset management, but I think incubation, pre-seed, and seed will always occupy a different place.

   2. HSHarry Stebbings0:16

      How much longer does venture have on the two and 20 model before there becomes real pressure on fee structures?

   3. RERoger Ehrenberg0:22

      It's gonna be just like hedge funds. You know, look at Sequoia. And the best firms charge premium fees and will be able to get it because on an after-fee basis, they still outperform.

   4. HSHarry Stebbings0:31

      You have many absolute bangers. How did you think about whether to distribute versus whether to hold and sustain?

   5. RERoger Ehrenberg0:38

      That is one of the hardest questions I have dealt with.

   6. HSHarry Stebbings0:46

      Roger, I am so excited for this. You just said, you know, the magic happens in the conversation. It does. Thank you so much for joining me today.

   7. RERoger Ehrenberg0:53

      Thanks, Harry. As usual, I am thrilled to be here

2. 0:55 – 3:01

   Seismic Shift from Banking to Venture

   1. RERoger Ehrenberg0:55

      with you.

   2. HSHarry Stebbings0:55

      Now, I was listening to you on Eric's show the other day, and you've said before about essentially seeing these seismic shifts in landscapes every kind of 17 years, which I thought was kind of mysterious why it was every 17 years. But if we go back to the first seismic shift that you saw when you went from banking to venture, what was that seismic shift that you saw that others didn't?

   3. RERoger Ehrenberg1:16

      I felt like there was almost a, a euphoria on the street back in those days. You know, I had been running derivatives desks at Citi and Deutsche, and then my last tour of duty on the street was as the CEO of DB Advisors, which was this multi-billion dollar trading platform. Money was coming really easily, but also with that, knives were never sharper in terms of, you know, the politics, whether it's inside hedge funds or at the top of Wall Street, because the pie is big and people in those cultures want as much of the pie as they possibly can. And I just found that culture corrosive, and I also felt like this fell too easy in a way. The markets were up into the right, money was being minted really across the street, debt and equity markets in addition to trading, that, just sense that things feel a little too good, and I personally had felt like my learning curve had stopped and I couldn't really imagine another traditional job on the street that was exciting and would enable me to grow. That's really what precipitated my spending the next five years really digging into the seed stage technology world, and then it was really during that period that I crystallized my hypothesis that, uh, very early, very concentrated, that kind of big data infrastructure theme was something that ultimately was gonna be a background.

3. 3:01 – 4:38

   Easy Money in Venture

   1. RERoger Ehrenberg3:01

   2. HSHarry Stebbings3:01

      You said thereabout it seemed a little bit almost too easy to make money and that things seemed just a little bit easy. Venture in the last few years, I think for many, um, it seemed easy to make money. Again, not real money most often. Would you align the two timelines? Because for the last few years, it did feel too easy in venture.

   3. RERoger Ehrenberg3:21

      Again, and I'm, I'm saying this like with no, no humble brag or false humility, I don't know why it is or what it is, how I just subliminally put these pieces together, you know, but if you, if you look at when I left IA, that was pretty much the peak. And then, you know, the last couple years have obviously been very, very challenging. And again, I'm not gonna sit here and say, "Hmm, it seems that venture's really overheated. Maybe this is a good time to step out and monetize my stuff." But that's effectively what happened. Um, so I do think that there's something about this intersection of macro circumstances in the industries where I'm spending my time and this emotional pull that tells me it's time for a change that has aligned with these cycles. And then now, you know, being, being on the buy side as opposed to the sell side and liquidating stuff, it's a pretty good time to be on the buy side, I think, if you've got a long time horizon.

   4. HSHarry Stebbings4:25

      It absolutely is. Uh, Justin Ishbel actually from Shore said to me the other day, um, you know, "When it's hard to invest, uh, it's easy to fundraise. And when it's easy to fundraise, it's hard to invest." And I think there's this really interesting kind of correlation between the two.

4. 4:38 – 6:56

   VC as a Commodified Asset Class

   1. HSHarry Stebbings4:38

      Can I ask you, you know, you mentioned that, uh, kind of timing the peak, so to speak. Well, Doug Leone said on the show before, "Venture capitals transition from a boutique high margin business to a commoditized low margin business." Do you agree with that statement?

   2. RERoger Ehrenberg4:54

      I don't. I think what Doug is referring to is the asset class being awash in capital. So there's necessarily going to become, uh, there's gonna be a compression of returns when you look at the denominator effect because you're spreading aggregate returns over a much larger asset base, and unless you're creating proportionate exit outcomes that over, that are at least proportional to that asset growth, then of course you're gonna have return compression. But to me, it just further indicates, and this is something I talked about back when I was on Wall Street and wrote about when I was doing early blogging in 2006 and 2007, is this bar-belling of the industry where, yes, you're going to have more of the Andreessens and the Insights and these platforms that they're not really venture firms. They're corporations that are multi-stage investment firms that have some venture, that have some growth, that have some pre-IPO.... and in the case of inside, even P- pure PE. And then, on the complete opposite side, you will always have the boutique investors that are actually helping foreign companies and helping the best founders design the experiments to race to product market share, and then serve as the, (smacks lips) uh, the farm system for those larger asset gatherers who can deploy much larger amounts of capital in order to scale the best of those that come out of the farm system. So, I do not think you could really paint the industry with a broad bro- brush and say, "Venture is now commoditized." Venture is never gonna be commoditized. Maybe mid and late stage venture will s- stop looking and feeling like venture and feel more like institutional asset management, but I think incubation, pre-seed and seed will always occupy a different place

5. 6:56 – 8:28

   Future of VC Fees

   1. RERoger Ehrenberg6:56

      in the universe.

   2. HSHarry Stebbings6:56

      Can I take a counter to you, or a question to that, which is, well, how do we operate then as boutique players when you have these corporations who come in and now do 10 on 50? We've seen 20 on 100 several times in the last month in Europe for pre-seed, pre-product. As a boutique player, how can one compete when corporations destroy seed in this way?

   3. RERoger Ehrenberg7:21

      So, this has happened forever, and it tends to be very theme specific and highly cyclical. So, you could say the same thing about cloud computing or machine learning, and now it's AI, that there are these trends where large asset gatherers are going to want to have a lot of bets, and they're going to need to have that convexity in their portfolio because they need those grand slams in order to justify the huge asset base that they're deploying to generate institutionally acceptable returns. But if I'm... and again, I've got my focus over here. I'm not in pure tech anymore, but if I was, I would literally be spending almost no time in pure AI. Almost none. I would be looking for other things where there are still massive opportunities, but that are not getting the attention that the hype themes of the moment are.

   4. HSHarry Stebbings8:26

      I'm so glad we're aligned on that.

6. 8:28 – 11:00

   Rise of Sovereign Wealth Funds in VC

   1. HSHarry Stebbings8:28

      Uh, I- I do have to ask you, going back to that statement you said. You said we're awash with capital and the capital supply increasing so much, which obviously causes, you know, the worsening returns. Is there a going back from this? Like, can you retreat from that? Is it purely a cyclical motion, or actually are we just seeing now venture is another asset class like PE and it will continue to have such high levels of capital supply?

   2. RERoger Ehrenberg8:50

      I would say the latter, Harry. I- I think that things have fundamentally changed, and partly it's with new sources of liquidity becoming LPs in venture firms. You know, if you just look at sovereigns. I mean, sovereigns were not major players in the last cycle of VC and now sovereigns are everywhere. And then you've got the number of family offices that are multi-billionaires or deca-billionaires has skyrocketed. So, just in prudent asset allocation, where is this money gonna go? And this is where people like, you know, Mark and Ben were really very early in saying, "Hmm, we really need to build something that's scalable, that offers an array of products that can serve the largest and most sophisticated limited partners." And I think that's... that was a very keen insight and something that has served and likely will continue to serve them well. Now, it doesn't make them great very early stage investors. That's the thing, is very early artisanal VC is not scalable and it never will be. People have tried and they have failed. And because of the small asset size, and you know, I could say IA is certainly one of the best examples, uh, it's hard to access, and as a result there will be relatively few LPs that will have the opportunity to invest in the very best very early stage firms. But that's okay, because if... even if you can have a little bit of exposure to those best firms, those returns can be quite significant on an absolute basis as a blend to an overall portfolio. So, long story short, tectonic shift in liquidity. It... There's no going back because there are now these much larger firms that are institutionally investible, that can take sovereign money and, you

7. 11:00 – 14:11

   Role of Performance in VC Fees

   1. RERoger Ehrenberg11:00

      know, massive family office money, and that trend, that wave is just gonna continue. I think it will very much be a function of performance. It's gonna be just like hedge funds, right? The- the very, very best hedge funds charge exorbitant fees, but on- on an after-fee basis, they still outperform. Probably the canonical example there being RenTech, right? Five and 44.

   2. HSHarry Stebbings11:27

      (laughs)

   3. RERoger Ehrenberg11:29

      Yeah, five and 44. Yeah, yeah, yeah. And then, you know, you've got some of the biggest CTAs and-

   4. HSHarry Stebbings11:34

      Oh, I'm gonna- I'm gonna try that on the new funds, Roger. I'm gonna say, "Hey, (laughs) RenTech at five on 44. Listened to the podcast. Great voice. What do you think?"

   5. RERoger Ehrenberg11:44

      (laughs) Oh. Oh, Harry, you-

   6. HSHarry Stebbings11:46

      And I told them-

   7. RERoger Ehrenberg11:46

      Look, you're- you're at least a four and 22 guy. I mean, come on, man. Uh-

   8. HSHarry Stebbings11:50

      I mean, listen, my mate Roger told me that it was good enough, so... (laughs)

   9. RERoger Ehrenberg11:55

      (laughs)

   10. HSHarry Stebbings11:57

       Wow, okay.

   11. RERoger Ehrenberg11:57

       And, and, and... or, or look at... You know, look at Sequoia. Look at their fees. I mean, the- the best firms charge premium fees, and will be able to get it because on an after-fee basis, they still outperform.So I think you're gonna have that continuum. And then you've got a bunch of hedge funds that are big asset gatherers that are now one in 20. Sometimes they have share classes that are one in 15, one in 10 for longer lockup capital. Yeah, but on billions of dollars. 'Cause, so something that's different about hedge funds versus venture funds is because of strategy type, you have these massive differences in liquidity. So, there is a, uh, a cost curve for wanting to access long-dated liquidity in a hedge fund context, so when you see some of these hedge fund launches... I remember when Eric Mandesh launched, um, Eaton Park, yeah, there were, like, three different share classes. And it was, there was, like, a three-year lockup, a five-year lockup, and a seven-year lockup. And the fees went, you know, down the longer the lockup, which makes intuitive sense. I mean, that, that's logical. But in VC, everything is a long-dated lockup. There is no differential. You know, you could say, "Well, I'll invest in a, in a mid or late, late-stage strategy." Those necessarily should have lower fees because the time to hold and the amount of work is less, and the assets are generally larger. So, what I would expect is a normalization that would look a lot like the hedge fund industry, where smaller, longer dated, higher returns, differentiated managers will still command premium fees, and then, um, more mature strategies, late-stage growth, pre-IPO, massive AUM, that will become commoditized and you will see fee compression.

   12. HSHarry Stebbings13:51

       See, I might have got bigger and more famous, but, uh, I still write on my hand, my notes when I, uh, have things to ask. Uh, uh, the first thing that I have to say is you mentioned kind of, well, it's performance-based. A question for you. I speak to many LPs, and they're very open with me. I don't know why. (laughs) Um, and they say, "Honestly, I don't care about your performance.

8. 14:11 – 16:16

   Broken Incentive Structure in LPs

   1. HSHarry Stebbings14:11

      I care that I'm not getting fired. I'm probably gonna be gone in five years. I'll probably be retired in 10. Performance for you will be 15 away. Honestly, it's okay. I just want to tell my team that I got in alongside MIT and Harvard and Yale." So actually, is LP structures completely broken in that way? Let's put it that way.

   2. RERoger Ehrenberg14:34

      So, LP structures, traditional LP structures, are completely broken. And I, I've spoken a lot about this. You know, I feel a lot of the, um, dumbing down of venture and too many venture firms being created. LPs have been enablers. They've been enablers on that end, and they've also been enablers on the completely opposite end, which is name your venerable Silicon Valley venture firm Fund 12, 13, 14, 15. When they haven't even returned capital from Fund 4, and they've raised billions and billions and billions of dollars getting two and 20, managers that haven't actually had DPI in a generation are getting paid $10 million on their fees. So, the answer, Harry, is yes, but I would posit that as those traditional LPs, as a percentage of the overall pool, become diluted and much larger, much more return fo- after-fee-return-focused investors like sovereigns who don't give a shit, they wanna make money, their fo- and they're... The freshness of perspective, I would argue, is good. Like, that's healthy on the industry. But, uh, th- they are deploying enormous amounts of money, which is why I come back to the greatest disruption, in a way, is gonna be in the mid- and late-stage venture scene, where managers are going to want to and need to gather enormous amounts of assets. But the game in town is going to be this new LP class

9. 16:16 – 18:18

   Future of LP Structures

   1. RERoger Ehrenberg16:16

      who is much more focused on fair fees and returns.

   2. HSHarry Stebbings16:20

      Do you worry that there'll be fair weather LPs? You know, often in venture, it's, "Hey, choose the golden names because they are stable. They will stay with you for three funds." Do you worry that the new class of LP, whether it's new sovereigns, whether it's new corporates, family offices, whatever that may be, do you fear that they may be fair weather and cyclical?

   3. RERoger Ehrenberg16:41

      So, I think that corporates, I don't even need to make the argument, they are fair weather and they are cyclical. So-

   4. HSHarry Stebbings16:47

      Mm-hmm.

   5. RERoger Ehrenberg16:48

      ... as a generalization. There are obviously a few that are in it for the long haul, but it is very much a fruit of the day, oh, there's new management, and they're like, "We're gonna foster this innovation culture. We're going to put money to work alongside VCs," and then there's a downturn, they get fired, and then they don't, and then they exit the asset class for a period, and then they come back, and it's back and forth. I think that for the reason th- that we touched on earlier, that there is this just inextricable rise of wealth and liquidity that needs to be deployed, venture is here to stay, and I see these sovereigns developing durable, asset allocation strategies of which venture is a part. Uh, they can't leave. Like, they, they need to deploy capital. And for them, it's gonna be much more around, "Who should I deploy my capital with? And do I fire certain managers, or do I, have I really backed the best, the best ones? And I'm happy to just keep rolling it forward." So, I think, uh, there's always the fair weather LPs, but I think it's much more the corporates going like this. But I think sovereigns and the largest, uh, wealth accumulators, they're not going anywhere.

   6. HSHarry Stebbings18:04

      We mentioned the broken incentive structure there. Uh, y- endowments are a large part of kind of the LP landscape, especially in the US. If you were a CIO today looking at your team, how would you structure an incentive program that was aligned,

10. 18:18 – 21:08

    Incentive Programs for Endowments

    1. HSHarry Stebbings18:18

       that made sense, and that avoided some of the structural incentive problems that we discussed?

    2. RERoger Ehrenberg18:23

       Endowments are...... tough, just because... As opposed to, like, let's say a Horsley Bridge, right, who... I mean, they have their own equity culture that is a profit-making enterprise, who takes endowment money and deploys it, versus an endowment itself, who has this public good, especially if they're with, private instit- or public institutions. At the private institutions, yes, they can get paid more without the scrutiny. But it, there's still that pressure. What I've observed is, and this is, this is gonna sound like a cop-out answer, but I really do think it's true. If you choose to be in this field and you go work for an endowment, i- it's not profit-maximizing. That's not why you're doing it. You're doing it, in my opinion, for one of two reasons. One reason is working w- if it's a great team, working with great people, and learning and building relationships. And that's super valuable, even if you're not gonna get paid as well as you would if you worked for a private investor. Conversely, there's mission. And, uh, and I've just, I have a particular institution in mind that, to me, is the most extraordinary, uh, culture, and that's, uh, University of Notre Dame and their investment office. So that's obviously a very mission-driven institution. They've got a ve- a very clear set of goals and a very clear charter. Everybody that works at ND went to ND. They believe in the institution and its mission, and the students. So... And they're amazing, like, very smart, very long-term oriented, do unbelievable diligence, but then they really invest in relationship. But the people that work there could be at any number of places making way more money, and they choose to be at ND Investment Office because they love their colleagues and they love the mission of the institution. So, endowments are funny. I really think it's less about the structure and it's more about either providing a fertile learning environment for the best young people, or the sense of mission associated with the, uh, the ins- the institution itself.

    3. HSHarry Stebbings20:54

       You mentioned the liquidity element being kind of a lever that one could pull in terms of hedge funds and their fees. (sighs) If we're being blunt, venture sucks for liquidity. It's long-term lockups and you have little choice. My question

11. 21:08 – 23:36

    Lack of Liquidity in VC

    1. HSHarry Stebbings21:08

       being, would you invest in ventures today, given the fundamentally lack of liquidity for such long periods of time, and the challenge that ensues?

    2. RERoger Ehrenberg21:17

       I would, but I think when you think about how venture plays in a diversified portfolio, unless you are a perpetual institution, right? Un- and this, this was, uh, Dale Swenson's whole argument at Yale, right? Which was, "I'm investing money forever. I have some liquidity needs. But at the end of the day, my objective function is having the base of the endowment compound at attractive rates over extremely long periods of time." So he put, you know, I think it was f- north of 40% of Yale endowment in alternatives. And people thought that was batshit crazy. And then you look at Yale's performance over very long periods of time, and they've kicked ass. I mean, he started doing this, I guess, in the '80s. So 25 years of putting this, or 90 as they started putting this thing together, and it built a gorgeous portfolio. But you need that kind of a holding period in order to be the optimal investor in the asset class. However, however, if instead of allocating 20, 30, 40% of your endowment to venture, or alternatives that are illiquid, you did 5%, 7%. So it's as if you put it on the shelf, you focus all of your energy in manager selection, and then you just let it ride. Let it ride, let it ride. That 5 to 7% provides a lot of convexity in return when you have those liquidity cycles, 'cause these things happen in bunches, Harry. You know? It's like illiquid and then it's l- then it's massively liquid, and then illiquid, massively liquid. But again, if you look at the compounding with the best managers, you want those returns in your portfolio. You just need to be able to manage your liquidity profile during those illiquid times.

    3. HSHarry Stebbings23:20

       Do you know what I think the challenge is, though? I think a lot of endowments look at Swenson and the entry point there, and go, "Well, if we do the same proportion, we can get the same compounding over 25 years." And I think what they forget is, the non-consensus and ride element that he had in the '90s when there was less to choose from,

12. 23:36 – 26:23

    Knowing When to Get Out in VC

    1. HSHarry Stebbings23:36

       it was a more fertile asset class to invest in. And if one were to do the same proportion today, the element of picking is so much more challenging, and the asset class itself is so much worse as a performing asset class that it doesn't generate the same. Do you see what I mean?

    2. RERoger Ehrenberg23:50

       I know exactly what you mean, and I think th- and I think that's, that's true. I think the, the principle is the same, the absolute returns are different. It's... But I would also argue, depending on your portfolio construction, you could, you could construct a less higher-returning but less volatile portfolio than Swenson had. Because so many of these managers that you would be investing in today and deploying larger amounts of capital are more institutional. So, their returns might not be as high, both because of an industry washed in liquidity and where they sit on the...... stage strategy. Again, I think most, most of the capital is in mid, mid and late stage, just because that's where the dollars are so great. But if you could get risk-adjusted returns of 12 to 15%, that's pretty freaking good. If it's below 10%, then you're not getting paid for the risk, right? So there's, it's what is the premium that you're willing to accept above liquid strategies over long periods of time in order to have that illiquidity? That's really what it comes down to. And if you're doing mid and late stage, it's not the same degree of illiquidity as the stuff that you and I do, Harry, right?

    3. HSHarry Stebbings25:12

       Okay.

    4. RERoger Ehrenberg25:12

       'Cause these are real companies with, you know, hundreds of millions in ARR, and it's much more a function of, it's almost like PE. It's like early PE versus venture. It's, it's completely different asset class to what you and I do.

    5. HSHarry Stebbings25:26

       I totally agree with you. I think to your point, though, that the 10, 12% being good enough, I think that's exactly why Andreessen, respectfully, will continue to thrive and raise billions and billions of more dollars. Because compared to the 6 or 7% net that they're getting elsewhere, the 12% is perfectly fine. Like, that's good enough for the portfolio that, uh, the LP is building.

    6. RERoger Ehrenberg25:45

       If you're getting, uh, and I think, and we're starting to converge on what I believe is the right answer, which is yes. If, if you're getting paid 500 to 700 basis points for illiquidity and you're a, either a perpetual institution by charter or just so massive that you effectively act like that, then yes, that occupies a perfectly fine place in your portfolio.

    7. HSHarry Stebbings26:09

       I am optimistic about some things today. I, I'm just, I, I didn't bring my optimism to you because you are...

    8. RERoger Ehrenberg26:14

       (laughs)

    9. HSHarry Stebbings26:14

       ... the answer of my concerns. Um, I'm concerned about liquidity, Roger. Like, we see M&A markets pretty much close up entirely. I don't think

13. 26:23 – 29:50

    Creating Liquidity through Continuation Funds

    1. HSHarry Stebbings26:23

       IPO markets will open for 2024, bluntly. I don't think Stripe or Databricks will go out in '24. And I'm just going, "Where the fuck does liquidity come from this year?" How do you think about and answer that question?

    2. RERoger Ehrenberg26:36

       I think probably the greatest source of liquidity now is gonna be continuation funds. And it's going to be existing portfolios raising money from net new investors, yet they reflect today's valuations. And you basically get fresh capital to join the partnership, provide an off-ramp for those who have your facial expression right now, and are like, "I just need some fucking liquidity." And it ends up being a win-win, and I think that's a perfectly reasonable intermediate strategy for an environment where you lose so much liquidity that's looking for returns that to mark somebody's attractive portfolio to market and say, "Okay, we're going to price this at a 20% IRR from our projections. We will step into a portion of your LPs, and in some cases GP's shoes, in order to generate liquidity," great. Honestly, that's what Insight's done. That's what NEA's done. And I see this as being actually a very pragmatic technique, especially for managers that have stacked funds, where there are some real gems in there, that you've got some antsy LPs that are like, "Man, I need money to fund other parts of our mission," whatever it is. And net new investors can come in and provide that liquidity. I think that's a really great strategy.

    3. HSHarry Stebbings28:12

       Do, do they happen at scale, these continuation funds? I mean, I'm thinking of LightSpeed, you mentioned. You know, NEA there, you mentioned Insight. Do they happen at scale-

    4. RERoger Ehrenberg28:20

       Yeah.

    5. HSHarry Stebbings28:20

       ... or just for the big names?

    6. RERoger Ehrenberg28:21

       I honestly don't know. But I think if you were, if you were to do a continuation fund as small as 50 or 100, you probably could get it done. But then it's, you need some smaller firms that have really good private portfolios in order to generate that kind of investment. 'Cause you're obviously not gonna sell the whole portfolio. You're gonna sell... Be real, 'cause this, I'm talking about this in the context of going concerns, right? These are active firms that are investing new funds and they're operating as normal funds. But it's addressing the exact question you asked, which is, what about the liquidity? And if you're three, four funds deep and you've got some stuff in one and two that's illiquid but really, really good and profitable and growing quickly, but it's pre-IPO, or they're IPO scale but there's no IPO market, would you be willing to take a discount in order to generate some liquidity for your LPs? Some of these firms are saying yes. So, I think it's a viable strategy for a decent swath of the venture industry. It certainly caters best to the later just because you can price those assets easier.

    7. HSHarry Stebbings29:37

       I'm so sorry for asking probably a dumb question, but I specialize in asking basic questions. (laughs) Is there not a core conflict of interest being the pricing? You're the price setter and the price giver. And so-

    8. RERoger Ehrenberg29:48

       You're not the price set- You're not the price

14. 29:50 – 31:39

    Pricing Challenge in Continuation Funds

    1. RERoger Ehrenberg29:50

       setter and the price giver. Remember, so you have net new investor looking at a portfolio. They're the price setter-

    2. HSHarry Stebbings29:57

       Yeah.

    3. RERoger Ehrenberg29:57

       ... not the existing manager. And-

    4. HSHarry Stebbings29:58

       But they're, they're the LP in the continuation fund though. They're not doing select asset buy. They're an LP in the top continuation fund, and then you manage the continuation fund to buy assets underneath, no?

    5. RERoger Ehrenberg30:09

       Well, you're operating that portfolio that's already been deployed. You're now managing a static pool. Right, so there's no net new asset coming into that pool. It's continuation fund investor works with manager to hire firm to value portfolio. So there's a third party that's valuing the portfolio. Buyer and seller need to agree on a price.... around that third party valuation. If price is agreed to, remember, existing manager, non cont- existing manager is still managing these assets. They have LPs. They're GP. So for them, they wanna get the highest price possible for their LPs to be happy and for their crystallized GP interest to be worth as much as possible. Obviously, continuation fund manager wants that value to be as low as possible, so their basis in that portfolio is low. So it's that dynamic that creates what... if you can find a market clearing price for the portfolio that is both fair from the existing manager perspective and represents an attractive investment opportunity for the net new continuation fund investor.

    6. HSHarry Stebbings31:26

       Speaking of fairness of price, and, uh, we really haven't stuck to schedule here but I'm loving this, I think every LP in the universe will also be going, "Fuck, this is great." Um, there's a lot of chasm in how managers are valuing

15. 31:39 – 33:39

    Valuing Books in VC

    1. HSHarry Stebbings31:39

       their books today. Do you think that the way managers are valuing books today is fairly reflective, or do you think it still has a way to come down?

    2. RERoger Ehrenberg31:48

       That is a very manager-specific question. I, I can't mi- I can't give you a blanket answer, Harry. And honestly, I'm kinda outta the game, so I'm not really speaking to these firms. You're, you're much more in it than I am. I would sa- I would posit, from what I know, and I am an LP in a lot of funds, that, yes, they are... They have been very slow to adjust down, and it's been happening. But there is... It, it's like e- everything is always with a lag in venture, right? It's slow to adjust to down markets, down markets as being observed in the public arena, and very slow to reflect up markets. It's just everything is like this. Public markets are like this, and private markets are like this. So (laughs) which is why, honestly, I think this whole continuation fund discussion is so interesting and topical, because you've got these two very different liquidity, uh, utility functions. You've go-... Because there has been so little liquidity for so long, some managers are desperate because they're under tremendous heat from their LPs to, to get blood from a stone, right? And then you've got continuation fund managers that are deeply aware of the phenomenon I just mentioned, and they're like, "Oh, yeah. Public markets have recovered. Public markets are near highs, but private markets are still really low. Now is the time for me to get in and take advantage of that desperation on the liquidity front." That's-

    3. HSHarry Stebbings33:21

       So if you were-

    4. RERoger Ehrenberg33:21

       That's what makes the magic right now.

    5. HSHarry Stebbings33:23

       So... (laughs) I do love you.

    6. RERoger Ehrenberg33:25

       (laughs)

    7. HSHarry Stebbings33:25

       So if you were a large-scale LP, and I was like, "You know what, Roger? I've heard you. You are the man to lead our continuation fund's strategy. Congratulations. Day one." What do you do with that strategy? If you're head of

16. 33:39 – 36:20

    Strategy for Continuation Funds

    1. HSHarry Stebbings33:39

       strategy for the continuation fund program, what does that look like?

    2. RERoger Ehrenberg33:43

       It's a very interesting challenge because, on the one hand, the very best firms and funds won't do it, right? Because, well, there may not be liquidity today. They've got great portfolios. They've had tons of DPI in the past, and they're like, "I don't give a shit if we don't distribute anything for five years, and neither do our LPs, because they've already made so much money." So they're off the table. Then you've got a bunch of meh managers who don't have that much interest in the portfolios, haven't delivered DPI, and they're just kinda fucked, right? And I think there is a whole swath of the industry that is going... It's like a slow motion train wreck. They are not going to be able to raise new funds. They're going to struggle, but the firms have so many funds behind them and so many assets that they are eventually going to wither. But, eh, they're not my target either, Harry. So, you know, what I'm, what I'm looking for are honestly the, the most promising early and mid-stage firms that started at an, in an unfortunate time when, just as their companies were hitting their stride, the IPO market shut. And the M&A market became increasingly challenging with Lina Khan and the FTC getting much, much more aggressive. But they've got really great portfolios. But they haven't had a lot of DPI. That's where I would focus my energy, is on those, those funds that are... those firms that are new-ish, newish meaning past decade, have some great stuff, but started a little late to miss the IPO wave of the 2016 to 2020 era.

    3. HSHarry Stebbings35:41

       You mentioned missing the IPO, kind of, timing, um, and you mentioned the very small windows of liquidity in venture which you need to take advantage of. Horseybridge have got some amazing data on really why venture's a shit asset class unless you take advantage of these very finite windows, where then it can be an amazing asset class. Roger, I, I, I want your advice on how you think about when to get out. What have been some of your biggest lessons on when to get out, and what it takes to do that successfully?

    4. RERoger Ehrenberg36:11

       I think we need to distinguish between IPO liquidity versus secondary market liquidity, 'cause those are two very different things.

    5. HSHarry Stebbings36:19

       If we divide

17. 36:20 – 37:37

    Timing of IPOs in VC

    1. HSHarry Stebbings36:20

       the world between secondaries and privates and then IPOs, how do you think about that?

    2. RERoger Ehrenberg36:25

       You know, we at IA would work with our companies to plan probably two years before a planned IPO in terms of undergoing an IPO readiness process, and-... being in a position to be opportunistic when both the company was done with our preparation and liter- literally were public markets ready from an infrastructure, a legal and compliance, and a org structure and board structure perspective. And that takes time. So literally, it's like a two-year lead time.

    3. HSHarry Stebbings37:02

       Hm.

    4. RERoger Ehrenberg37:02

       Then, yes, once you're ready and let's say it takes nine to 12 months to get that- get that done, then it's okay, let's find the best time and then do it. But I find that framework of when a company is on that trajectory to be an IPO two to three years forward to undertake this IPO readiness show you can be opportunistic based upon the market environment.

    5. HSHarry Stebbings37:27

       Hm.

    6. RERoger Ehrenberg37:28

       So that's one. On the private side, the secondary side, that is much, much harder for the reason that clearly, in

18. 37:37 – 39:18

    Challenge of Secondary Liquidity

    1. RERoger Ehrenberg37:37

       this particular bubble, in the same way when we were in '99, '98, '99, you had companies that had these stratospheric valuations that made no sense on any objective basis. Clearly, with 20/20 hindsight, it would have been great to sell something, sell some part of a position, sell 10% or 20% of a position. It's hard. It's very, very, very hard to do that. But I think the mindset needs to be almost the same as the public company readiness framework which is... 'Cause it forces you to l- be objective. Is this company a public market candidate? And let's just pick on Clubhouse since you raised it. Um, if you had taken a deep breath, looked at an offer, said, "Huh, from an IPO readiness perspective, where is this company?" The an- the objective answer to that question is, "Now fucking where. Lightyears away." Then maybe that would've prompted you to say, "Huh, I really believe in them, but maybe I should take 20% of the position off the table," something. And you know who's done that really well is USV, Fred, very selectively, and they've obviously had big IPO winners, and they've had some IPO winners where they've sold some in advance.

    2. HSHarry Stebbings39:16

       Have you sold some in advance,

19. 39:18 – 43:00

    Decision to Distribute or Hold IPO Positions

    1. HSHarry Stebbings39:18

       Roger?

    2. RERoger Ehrenberg39:18

       Yes, we did.

    3. HSHarry Stebbings39:19

       Was that-

    4. RERoger Ehrenberg39:20

       That was the one time-

    5. HSHarry Stebbings39:20

       Was that the right-

    6. RERoger Ehrenberg39:20

       ... we did it.

    7. HSHarry Stebbings39:21

       Was that the right decision on reflection? And I guess why was that the one time?

    8. RERoger Ehrenberg39:26

       So that was... So it's been a long time. I'm not... I'm literally trying to recreate the- the context in my mind. You know, we had such an enormous position in the company, and we wanted to distribute something from Fund II and to generate some recycling dollars, and it was what we considered to be a fair price at the time, and it was part of this process. And Wise did this brilliantly actually, you know, they- they made money, right? Like, they generated actual money way in advance of going public. So they- they held these kind of annual employee tenders where we basically cleaned up the cap table. We brought in the super sophisticated, great pre-IPO investors to then buy out some early investors and to give employees a measure of liquidity, and so it just basically continued to concentrate the cap table and shrink the number of holders, which makes life easier, and so we sold into one of those for the reasons I said. We ended up being able d- return half of Fund II and generate recycling capital. I mean, for w- which 'cause remember Fund II was 105 billion, which obviously has done extremely well. That was great, and we actually... We had a similar result from a very different situation in Fund I when we sold Simple to BBVA because that generated the liquidity that we then invested in the Trade Desk Series B.

    9. HSHarry Stebbings41:13

       So this is what worries me though, which is you s- spoke about recycling there and the ability to reuse those dollars and make every dollar as optimally efficient as possible in that fund deployment. I don't think we're gonna see recycling possible due to the lack of M&A. You know, we used to have this... Do you remember the small M&A kind of eight, 10 years ago in like 50, 60, $70 million M&As that would- would generate the recycling quickly for you, and you could use dollars more effectively? We don't have any recycling now most often. Does that concern you, and do we see the end of kind of effective recycling really?

    10. RERoger Ehrenberg41:46

        Well, really the only way to get that recycling now is through sector is similar to what we did in Wise, like the- the BBVA Simple thing. You're right, that was like 117 million M&A. Yeah, we don't see very many of those these days, and honestly, I- I just chalk that up to dumb luck, like the timing ended up working out for us there. No, I mean, we were holding our breath, but recycling for a very early stage fund is a struggle, a real struggle just because (laughs) of how- how early you're investing, how long- how kind of, uh, how long it is before some of those companies have these opportunities where, "Oh, I want to invest in that, but where am I gonna get the capital from?" It's like you've deployed... You need to reserve for your fees. "Well, where do I get the money from?" And that- which is why a lot of firms try and solve the problem with SPVs. We never would do that, so we forced ourselves into finding solutions for recycling. We got bailed out with the-... simple acquisition in fund one. And in fund two, we addressed it proactively through the sale that, sale of a little bit of our Wise position.

    11. HSHarry Stebbings42:59

        Okay. So that's

20. 43:00 – 51:38

    Impact of IPOs on Fund Reputation

    1. HSHarry Stebbings43:00

       on the secondary side. Uh, going back to the public side, we've seen funds believe that they know more and have, you know, asymmetric information to public markets and to LPs, which they literally do having been investors before, but believing that then they should be able to hold and maintain management of that position. How do you feel about that? And I guess when you look at Datadog, when you look at the Trade Desk, you have many absolute bangers. How did you think about whether to distribute versus whether to hold and sustain?

    2. RERoger Ehrenberg43:33

       That is one of the hardest questions that Brad, Jessie, and I have dealt with. Um, and we talked to tons of friends and mentors about this to try and develop our own philosophy. And I would say our behavior shifted post-Trade Desk. Trade Desk was idiosyncratic in that that was our first grand slam, right? Like that was the franchise-making investment. Our first IPO in 2016, you know, enabled us to return many, many, many, many, many multiples of our first fund. But because of that, we got out of that position much faster than we would have otherwise because it was such a franchise-making deal. So if you look at our average distribution price on TTD, it's probably two and a half million. It went IPO at, uh, 700 million. That's, it was valued at 700 million at an, uh, on the day it went public. So we ended up doing two public secondaries within the first six months, and then we distributed shares over the next 18 months. That was one where because it was our first, we got out quick. So when you think, well, what could have been, you know, well, early seed stage fund, $50 million fund, first big win, return, whatever, five, six X net on that one position, okay. Like we'll, we'll, we'll chalk that up as a win, but a lot of money left on the table obviously. Now personally, you know, we distributed shares. I held shares for a very long time. So I personally and those LPs who didn't sell immediately made way more than that because the stock just rocketed, right? But as a firm, what I told you is what happened. Then when you think of our other IPOs, Datadog, Wise, and DOCN, those we've been much more measured in systematically distributing. Not doing public secondaries for cash, but actually just distributing shares over time.

    3. HSHarry Stebbings46:31

       When you look back at the Trade Desk, it's actually very rational. The, you know, as you said, 700 to two and a half, you're like, "Okay." Do you regret it? And do you look back and go, "That was silly?" Or do you actually go, "No, I still see it, but, like, I can understand all the rationale and thinking"?

    4. RERoger Ehrenberg46:48

       Uh, I- I'm not a re- a regretful person, Harry.

    5. HSHarry Stebbings46:52

       Hmm.

    6. RERoger Ehrenberg46:52

       That's just not, that's not the way I'm wired. So you can always look back with 20/20 hindsight and overfit a curve and say, "Well, this would've been the optimal thing to do," but that's not real life. Real life is we discussed in great detail what our strategy should be. We discussed the balance between, well, what happens if the market goes to shit, and we had this franchise-making position. Well, how would we feel then? What about our brand? You know, we're gonna be in this thing for the, for the long run. So I think we behaved incredibly rationally. And again, if it had been not IPO one but IPO two, three, four, we would have behaved differently, and we would have generated greater returns. By the same token, you could say the same thing for Wise, and we've done very well on that. So it's kind of like, you know, dude, as long as you're thoughtful and as long as you go through the process of analyzing the context and the trade-offs, it kinda is what it is. I lose no sleep over that.

    7. HSHarry Stebbings48:10

       How much of an impact does it have to have an IPO company, a fund maker in the earlier years of a fund life cycle? Like there, it was your first. That was, that was a real flagbearer for you in those days.

    8. RERoger Ehrenberg48:23

       Uh, I'm trying to think of which impact was bigger, the one on how we felt about ourselves or how we were perceived in the market.

    9. HSHarry Stebbings48:32

       Mm-hmm.

    10. RERoger Ehrenberg48:32

        I feel like we had a ton of respect in the market even back, back then, even before the IPOs that, uh, you know, 'cause by then, we had already, we were just starting to, uh, deploy fund three, right? Fund two had Wise and DigitalOcean. Fund one had Datadog, and we had a bunch of other stuff in there that was really-... great stuff. So I think that we had the respect in the industry, uh, both by peers and our LPs. But I'm sorry, there is nothing like taking a company public where we owned 17% on the day of IPO.

    11. HSHarry Stebbings49:15

        Uh, you don't need to answer this. How much money did The Trade Desk make for IA?

    12. RERoger Ehrenberg49:20

        I think that we ended up returning five to six X net on that one trade. It was a $250 million fund. So, 5 million... 5.2 million turned into net 250 to 300 million, DPI.

    13. HSHarry Stebbings49:40

        Was it a consensus agreement deal? Did everyone wanna do it?

    14. RERoger Ehrenberg49:44

        Oh, geez. Remember, we met Jeff Greene before I'd even set up the fund, fund one. We met in the fall of 2009. And I incorporated IA in December of '09. And, and Brad was a consultant for me. He hadn't even started. And there was... And Ben Siskovic was there, who was like... who had worked with me on our angel port-... on my angel portfolio. Yeah, I think we all fair-... felt very passionately about Jeff. He hadn't yet onboarded his co-founder, Dave Pickles, the CTO. Eh, eh, we literally committed on the basis of a PowerPoint. And we, we worked on that deal with Founder Collective. So, Eric Paley and I both sat on the board, and so we, we literally co-led the seed round together, and then IA bridged them three times before raising their series A.

    15. HSHarry Stebbings50:47

        I do love you guys. Uh, I think... I don't think it's said enough that like, a gen-... Well, I don't know about everyone else but, like, I looked up to you and founder Collective for so long as, like, the poster childs of the boutique artisan style of venture, which is so special to me. Um, it, it's, it's great to hear. Sorry. Fanboy moment there, but moving on.

    16. RERoger Ehrenberg51:09

        (laughs)

    17. HSHarry Stebbings51:09

        Uh, you can see my arm is just, like, getting worse and worse.

    18. RERoger Ehrenberg51:12

        (laughs)

    19. HSHarry Stebbings51:13

        Uh, (laughs) seriously, I end up with a sleeve.

    20. RERoger Ehrenberg51:14

        (laughs)

    21. HSHarry Stebbings51:14

        I rocked up to the CEO of the largest sovereign wealth fund the other day, and he's like, "Oh, you have tattoos." I'm like, "No, no, it's just notes." Um-

    22. RERoger Ehrenberg51:22

        (laughs)

    23. HSHarry Stebbings51:23

        Uh, (laughs) uh, you manage a 1.7%-

    24. RERoger Ehrenberg51:24

        You're one of a... You're one of a kind here.

    25. HSHarry Stebbings51:26

        Do you know... Do you know what? He said, "You're not normal." I said, "I, I think that's a compliment. Um, uh, will, will you give me $10 billion now? (laughs) Uh, that's the minimum check." (laughs) My, my question to you is, do rich investors

21. 51:38 – 53:59

    Rich Investors as Better Investors

    1. HSHarry Stebbings51:38

       make better investor decisions on liquidity? Because as you said there, on the other ones, you didn't need it as much, the money didn't mean as much. You know, you could look at Sequoia and say like, "Hey, they just see upside," which means they ride the winners, they absolutely capitalize on them and they, uh, capture as much value as possible 'cause they don't need it. Sometimes desperation causes less good re- returns. Do, do rich people make better investors?

    2. RERoger Ehrenberg52:06

       You could say it that way. I would say it a little bit differently. I think there's... I think about it more as, have you made the franchise? Now, Sequoia made the franchise 40 years ago. So, for them to set up this evergreen structure, absolutely. Makes all the sense in the world. For IA, that first one... And I'm even saying... Right, so I, I just... I wanna be precise. When you say, like, rich investors, it's, it's not so much that when, when TTD went public we were then rich. What it meant is we had actually done our job and returned significant capital to our LPs. They all had a thesis that we were great stock pickers, a great partnership, and had keen insight into which sectors would ultimately be fruitful. This was the first objective validation that they were right, and that we were right. It's less about the rich and more about we proved it. And once we proved it, then the level of confidence that we had in ourselves that, "Huh, maybe we're not this ragtag bunch of geeks, but we're actually really good fund managers and really good stock pickers, and really good partners to founders," that, I think, gave us the opportunity to take a deep breath and then say, "Okay, what is the optimal liquidity strategy for public markets positions once we have the freedom?" That's the way I would say it.

    3. HSHarry Stebbings53:58

       It's really interesting,

22. 53:59 – 57:38

    Challenges in VC

    1. HSHarry Stebbings53:59

       is that, um, it's that validation that, like, what you're doing is right and it's, it's really good. My question to you is, that can have a flip side which is one can become overly confident. Um, in, uh, investor psychology, I think is one of the most under-discussed aspects of our industry and I think it's really fucking hard. And I think there's a lot of young investors today who are going, "Christ, my portfolio that looked great on paper three or four years back, or that I built over the last three or four years, is actually taking a hammering. The companies are getting downer rounds." How do you manage investor psychology? What have been your biggest lessons, first?

    2. RERoger Ehrenberg54:34

       It's a super hard job, and that we're all human, and subject to frailty and bias all over the place. And I think one of the amazing things about my partners, aside from that they're so bright, is that we're able to talk about all this stuff, like, very openly. So, I think having a strong partnership...... and that deep respect, and intellectual rigor and honesty helps to deal with that. And I think if you're a solo GP, then you really need mentors that can kind of help serve in that function. Because th- we process this stuff a ton, and I think it was super helpful. Now, by our natures, none of us, not one of us have the cocky, uh, kind of, uh, attributing, over-attributing to our skill and not a measure of luck. We believe that very deeply. So I think we were always very grounded, Harry. But when it comes to the psychology of, A, missing something great, like, we could have invested in Platin and, like, our entire portfolio. We had the opportunity to take liquidity off the table when the company was high-flying and then it crashed. Well, how do you deal with that? And then there's the issue of, well, oh, we could have held onto TTD and returned another five to 10X in the fund. Are we stupid? Or, yeah, how did we screw up? Or whatever. Just processing these things very honestly and then learning from what happened, I think was one of our superpowers. Which didn't mean that we always made the best decisions. It certainly meant that we tried to make the best decisions, and that we had deep logic for our decisions. But that's separate from, did it work out? Because life is not in your control. So which is, I come back to that, the Clubhouse example of, well, even though you believe, even though it's crazy, what I'm seeing here in valuation is divorced from objective reality. Just sell something so I take that schmuck factor off the table if the thing goes to shit. Do you know what I mean? That kind of drove a lot of the thinking around TTD. There was the franchise-making aspect, and then there was the, if we don't do it and things go south, and we could have made the whole fucking franchise but we didn't do it, how would we feel then? Let me tell you. The downside regret versus the upside opportunity cost, like, we made the right trade. It's not even a question.

    3. HSHarry Stebbings57:36

       Does success

23. 57:38 – 59:54

    Success & Hard Work in VC

    1. HSHarry Stebbings57:38

       get easier to attain in venture the more you have? Like, is it cyclical? Because IA has amazing bangers, Wise, Datadog, um, ye- w- the Trade Desk. Great founders come to you, LPs come to you, and success is this cyclical snowball down a hill? Or bullshit, you still have to fight like a dog every day on the field?

    2. RERoger Ehrenberg58:00

       The answer is yes. It's yes to both. Because venture, in the best of circumstances, is hard as hell. And I am sure your pal Doug Leone would say the exact same thing. He is, he-

    3. HSHarry Stebbings58:13

       He does. He said exactly... He, he, he said it on the show. People think that, like, great entrepreneurs just rock up every day and be like, "Oh, y-, we, we're only coming to you." Bullshit.

    4. RERoger Ehrenberg58:24

       It's, as successful as he'd been, as he's been, he fights like hell. And, and this, and this comes back to conversation that we had before we even started recording about kind of wealth, and motivation, and what, you know, what do you need to make you happy? Doug, he's richer than Croesus. And my sense of him is, he wakes up every morning, puts his feet on the ground, and he's like, "Let's fucking go." I'm not as rich as Doug Leone, but I'm in a pretty good place. When I put my feet on the ground, I wake up in the morning and I say, "Let's fucking go." Do either us need to do this from an economic standpoint? Of course we don't. Do we need it for ego and validation? Uh, uh, that's not really it, at least, I can't speak for Doug, that's not really for me why I do it. I do it because I just fucking love to work. And I love working with founders, and I love building stuff. So, to answer your question, is it easier if you've actually done a bunch of really good stuff and you have a ton of respect and awareness of the market, for both investors and founders? Yes. Is it, do you still need to hustle like hell and work as hard, if not harder than everybody else to leverage that little advantage you have over net new manager? Yes, absa-fucking-lutely. It's both.

    5. HSHarry Stebbings59:53

       You, you mentioned, there, the

24. 59:54 – 1:04:16

    Needle-Moving Moments with Wealth

    1. HSHarry Stebbings59:54

       element of wealth. And I, I did want to talk about it 'cause it, it's something, again, I think we don't discuss enough. When you think about kind of, it sounds weird, but your kind of journey and relationship with wealth, what were the biggest needle-moving moments in terms of your relationship to money? The first million, the first 10, the fi- what were those needle-moving moments that changed your mindset on wealth?

    2. RERoger Ehrenberg1:00:14

       The time when I realized, wow, I can make a lot of money, is when I was, I think, 20, 28 on Wall Street, 29. And I got, and I got a $320,000 bonus in my $95,000 base, so I made $415,000. And that $320,000 bonus check, Harry, was, like, the most exciting amount of money I've ever received. And it was just such, such a, such a vast difference from what I ever thought I could make.

    3. HSHarry Stebbings1:00:48

       Was that happiness? Or was it short-term joy? Was it like, yes, amazing, you go out for a lovely dinner, but the next day it's like, ah? Or were you actually happier as a person? (laughs) And I don't think it's shallow to be happier. I think we wrongly assign that.

    4. RERoger Ehrenberg1:01:03

       It made me feel different, I think, i- in the way that I talked about, like...... the TTD IPO giving us this measure of confidence and validation, that bonus gave me something similar. And that was the first time I had felt something quite like that. Th- it felt durable. It felt like it validated my skill as a Wall Street transactor, as a partner to customers, and that I was really valued, and that did change something inside of me. That's like, "I'm good. I can do this." That was the first inflection point. Second inflection point was... And that was at Citi. At Deutsche, five years later, when I was on the equity management committee, I had rebuilt the equity-driven structuring and marketing business thereafter. They blew out all the BT people in the wake of that acquisition. And I built a great fucking business. Great people, super profitable, low-risk profits. And then my boss at the time who ran the equity division gave me... There were, like, he got this special pool to give to 20 people. And he gave it to me. It was this special equity program on top of what was then my largest bonus. And just so, just so, so order of magnitude, so like, you know, $320,000 at 29 or whatever, this was six million, plus this other thing, this special thing that only 20 people got. When he communicated that to me, like, I was in shock. It was like not something I was expecting. It was that next level of wow. You could draw a line from the day that I got that $320,000 bonus in my position at Citi at that point to where I was at Deutsche five years later. It was a whole other level of wow. Like, almost like the imposter syndrome, Harry. I, and I've said this a bunch, and it is true. There is still a sense of disbelief how I've gotten to where I am. Um, I couldn't have imagined it. Certainly wasn't forward to end. And as I, I told you when my wife and I got married at 27, we had less than zero. We had her student loans. I worked all the way through Columbia B-School to pay for it myself. We had nothing. We had our love, but we didn't have money. And three years later, we're here. And it's still, to this day, dizzying. Like, I don't quite understand it, um, and I'm incredibly grateful for it. And it... But it's, it's these moments, and I guess TTD was kind of the next one. If there have been like three in my life, those are probably the three, and I'm excited to see what the fourth will bring.

    5. HSHarry Stebbings1:04:15

       Do you think there will be

25. 1:04:16 – 1:09:46

    Raising Kids in a World of Wealth

    1. HSHarry Stebbings1:04:16

       a fourth? Respectfully, you've used the term before being post-economic. Like, once post-economic, is there like no more flags to put in the ground on it? Like, no offense, another 50 million-

    2. RERoger Ehrenberg1:04:27

       I've-

    3. HSHarry Stebbings1:04:27

       ... is like, okay.

    4. RERoger Ehrenberg1:04:28

       It's not money. I, I've never worked harder. Like, I'll know it when I feel it. Like, I'll give you an example. Like, so I've now invested in multiple sports teams, and that's exciting, and that's great. But that's simply because I have money and people value me around the table. That's not it. What's it is going to be one of my venture investments that I seeded or pre-seeded becoming a widely successful company. It's gonna be the same thing that I did, whatever, 13, 14 years ago at IA or eight years ago with TTD. It's gonna be something like that in the future. And it could be that. It could be some of my, um, economic development work that I'm doing in Detroit. It could be something there. Like, I don't know what it is. There'll be a fourth and there'll be a fifth.

    5. HSHarry Stebbings1:05:27

       What's been the most surprising thing about accruing such wealth you did not expect?

    6. RERoger Ehrenberg1:05:33

       Probably how little of an impact it's had on me. (laughs) Yeah, I mean-

    7. HSHarry Stebbings1:05:40

       In terms of life... In terms of what? The life you live? The way that you approach the world?

    8. RERoger Ehrenberg1:05:44

       I, I think the way that I approach the world, obviously. It's like we have nice things. I mean, you know, we have our... The place that we raised the boys in New York. We have this house I'm calling you from today in New Jersey, a little house in Ann Arbor. Okay, well, there's people with a lot less money than us that have those things. Married to the same woman, never been happier, knock on wood. Something I do know is, at this age and stage is all about health, you know, getting, getting to this age, and just friends and family and stuff like that. Honestly, Harry, I feel like the same person as when I met Karen at a bar in Ann Arbor in 1987. I don't feel that different. Yeah, there's the feeling of waking up in the morning and not worrying about money, right, like not worrying if somebody gets sick or if, God forbid some, you know, one of my kids needed something or what... And it's like we don't worry about that, so that, like, that whole thing is off the table. But in terms of like my drive and motivation and excitement and, and, and I think humility and desire to learn and do new things, that, that's really largely unchanged.

    9. HSHarry Stebbings1:07:00

       The universal truth that I speak to many immensely successful people about, um, I spoke to David Velez at Nubank about it, Justin Shaw at Shaw Capital, and it's that it's so challenging to bring children up in a world of financial abundance and make them feel ambitious and hungry.... and hustle. What have been some of your biggest lessons on how to create children with ambition and hunger in a world of financial abundance?

    10. RERoger Ehrenberg1:07:27

        I'll first say, it's- it's hard as hell. Really hard. Especially raising them in a place like New York City, where they went to school with kids whose parents might have different values than ours, and needing to remain true to ours, and for our kids to respect that. Our kids are young men, 26 and 23. And they're- it's still constant vigilance. This is an ongoing conversation. So thankfully, I think Karen and I, just because of who we are and how we live life, like there is not a disconnect between what we say and what we do. So like, we- we walk the talk. We work hard. We care about other people. We believe in investing in your community. We believe in humility and gratefulness. Like, this has been pounded into our kids' heads from day one, and they s- they've lived with it. Again, it hasn't been words. I've been present, no matter how high-powered a job I had. I coached their teams. I never missed a birthday. I was at every school performance. I optimized for my family. Thankfully, I was able to do that, given my career choices. Karen, clinical psychologist, has her own practice, could shape her- her schedule to be a full-time parent, active in the kids' schools, active in their activities, coached their baseball team, was commissioner of the baseball league. Like, we have done everything to align our actions and interests with what we want from our children. And I think if you were to talk to Ed or Ethan, they would say the exact same thing, that we have kept them grounded because we ourselves are grounded. And it's not just we're- we're jetting off doing this and that, and they're sitting back with a babysitter and 10 grand on the counter, "Oh, go have a good weekend." Like that's never been us. So-

    11. HSHarry Stebbings1:09:33

        (laughs)

    12. RERoger Ehrenberg1:09:33

        ... it's- it's a very long answer to a very short question, Harry. It's a very nuanced question. And again, it's- it's an ongoing conversation in our family, even as our boys are adults.

    13. HSHarry Stebbings1:09:42

        Have you ever felt like you failed as a parent? And how did that change your mindset?

26. 1:09:46 – 1:10:35

    Lessons in Parenthood

    1. HSHarry Stebbings1:09:46

    2. RERoger Ehrenberg1:09:46

       No. I- I- I-

    3. HSHarry Stebbings1:09:47

       But like, I don't have kids now, because I don't think that I could be there in a way that I would want to be, like you said, and that would be a failing of parenthood to me.

    4. RERoger Ehrenberg1:09:55

       Yeah. Well, no, I- I don't- I don't feel that way at all. I mean, again, my wife and I were together for a decade before we ever had kids. We had kids when we were ready, both in- in our personal relationships and our relationship with ourselves. And so, we embraced it and invested in it and engaged in it as the priority in our lives. So even with all of my business activities and achievements, I never didn't optimize for family.

    5. HSHarry Stebbings1:10:33

       I just want to finish on-

27. 1:10:35 – 1:13:47

    Sustaining a Successful Marriage

    1. HSHarry Stebbings1:10:35

       on actually, Karen. You- you mentioned her being such a ongoing and continuous incredible, you know, force in your life, being your partner. Um, what's the most non-obvious secret to having such a brilliantly successful sustaining marriage?

    2. RERoger Ehrenberg1:10:48

       Picking your battles.

    3. HSHarry Stebbings1:10:51

       (laughs)

    4. RERoger Ehrenberg1:10:52

       And what I mean by that, Harry, is as long as we've been together and as well as we know each other, there are ways in which we still bug the shit out of each other. That's just natural. We're humans. And there is stuff that used to irritate me that I would call out and she would get angry, and vice versa, earlier in our relationship. What has happened over time is a bunch of those things, like s- stupid things, but annoying things, are hard-wired that's very, very hard to change. And unless it's really important, like biblically important in terms of the way it makes you feel about th- your partner, just fucking let it go. Just let it go. So that would be one. And there's- there's- there's one other enormous one, and maybe even the biggest one, which is, it's not about winning. I used to feel that if we disagreed or had a fight, and I knew, I fucking knew I was right. You should never have the mindset of winning or losing versus your spouse, your partner. Never. That's just the wrong frame. You can have a disagreement, you can argue, you can fight. Personally, you should always fight fair. Words matter. And not, being very conscious of saying hurtful things because you're hurt and you want to lash out. Like, sometimes it's important to just take a breath and pause, and not say that thing that you want to say 'cause you're so red hot. Just don't say it. 'Cause I guarantee you, that next moment will be better than had you said that thing. And it's always better to have hard conversations later, after things have cooled down. If things get really hot, the best thing to do in that moment is just to say, "Let's- Let's stop. Le- let's pick this up when we're both calmer." And again, I'm saying these things, it's very, very hard to do. This is like level 10 ninja shit. But I'm also speaking to you as somebody that's been with this person for 37 years, and we've been working on this for a very long time. And we still fuck it up, believe me, but we largely get it right.

    5. HSHarry Stebbings1:13:27

       I- I- I love that. And, uh, I agree, I- I tend to just go for it. I always used to believe that, hey, when you got a problem, like, radical

    6. NANarrator1:13:35

       (snaps fingers)

    7. HSHarry Stebbings1:13:35

       ... candor, let's go now. And that was the worst piece of advice that I got. Like, never, never a good idea to go now. And Harry, it's not always right to be as honest as you want. Like, it's how it's heard, not

28. 1:13:47 – 1:21:27

    Quick-Fire Round

    1. HSHarry Stebbings1:13:47

       what you said, you know?

    2. RERoger Ehrenberg1:13:49

       Yeah, that's very true.

    3. HSHarry Stebbings1:13:51

       Uh, listen, I wanna do a quick fire. This has been fucking amazing.

    4. RERoger Ehrenberg1:13:54

       Yeah.

    5. HSHarry Stebbings1:13:54

       Um, so I say a short statement, you give me your immediate thoughts. That sound okay? Okay, so what have you changed your mind on most in the last 12 months?

    6. RERoger Ehrenberg1:14:04

       That I'm not insane for going back in the seed stage venture after having gotten out.

    7. HSHarry Stebbings1:14:08

       (laughs)

    8. RERoger Ehrenberg1:14:08

       I actually love it and it's my calling.

    9. HSHarry Stebbings1:14:12

       (laughs) I love it. Uh, what's the biggest surprise of owning a sports team?

    10. RERoger Ehrenberg1:14:17

        They are not managed as well as you would think. There's a lot of room for improvement.

    11. HSHarry Stebbings1:14:21

        Mm. Have we reached asymptote in terms of pricing of sports teams? Every PE firm is in sports now. It's crazy prices. Have we reached a cap?

    12. RERoger Ehrenberg1:14:32

        No, uh, because of something we talked about earlier, which is with this tremendous, uh, influx of institutional capital and with pro teams, pretty soon the NFL, I would guess, becoming PE investible, return expectations are gonna come down and prices are gonna go up.

    13. HSHarry Stebbings1:14:53

        (laughs) What's the best investment advice you've ever been given?

    14. RERoger Ehrenberg1:14:58

        The ability to withstand short-term pain for long-term gain is a superpower. So being able to manage your own internal stress and to let a thesis play out even if it's, uh, unpopular and unconventional can lead to amazing compound returns. You just need a long enough time horizon.

    15. HSHarry Stebbings1:15:19

        When do IPO markets open again?

    16. RERoger Ehrenberg1:15:22

        I think we'll see some green shoots in '25, but probably '26 is when it's really gonna come back.

    17. HSHarry Stebbings1:15:29

        Mm. Will Trump win?

    18. RERoger Ehrenberg1:15:32

        I hope not.

    19. HSHarry Stebbings1:15:33

        If he won, would he open up M&A environments?

    20. RERoger Ehrenberg1:15:36

        Yes. Certainly with a different head of the FTC, it's, I mean, the pendulum has swung all the way in the other direction. Think you could argue that antitrust was extremely weak for a generation and now it's swung all the way in the other direction. So I would expect it to come back the other way, yes.

    21. HSHarry Stebbings1:15:55

        You've got see, pick, and win, three core tenets pre-investing. Where are you weakest and where are you strongest?

    22. RERoger Ehrenberg1:16:04

        Weakest today on see and strongest on win. Um, see because my energy is much more focused on my current companies, tremendous energy on having them be their best. I'm just being honest. I am not out going to conferences and doing all the things that I did in my younger days 'cause I'm just fucking tired. But that's what I have my kids for, so they are going to scaffold the see.

    23. HSHarry Stebbings1:16:41

        Li- listen, the only reason you have kids is to blame your faults on them and to send them to conferences, okay? (laughs)

    24. RERoger Ehrenberg1:16:47

        (laughs) Exactly. It's-

    25. HSHarry Stebbings1:16:48

        It's-

    26. RERoger Ehrenberg1:16:48

        It's such an awful existence, Harry. So terrible for my boys. (laughs)

    27. HSHarry Stebbings1:16:52

        Honestly, I- I feel so bad. If you need a third adopted child, I'm right here, baby. (laughs) Um, uh-

    28. RERoger Ehrenberg1:16:58

        Laughter. You- you add some height to the family. Yeah. (laughs)

    29. HSHarry Stebbings1:17:02

        It's great. Most people meet me and they're like, "Wow, you're really quite big. We expected you to be like Harry Potter." I'm like, "Thank you. I- I grew up about 10 years ago, but that's wonderful."

    30. RERoger Ehrenberg1:17:11

        (laughs)

Episode duration: 1:21:27