Altimeter (with Brad Gerstner)

Ben Gilbert 0:00 All right, well, hopefully AirPods don't screw things up too bad. Can look like humans on air, and if we ever end up in a situation with microphones that are out of frame, it'll be game-changing. It'll be just like we're talking to each other. [laughing]

Speaker 0:12 [upbeat music] Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Hm. Is it you? Is it you? Is it you? Sit me down, say it straight, another story on the way. Who got the truth?

Ben Gilbert 0:29 Welcome to Season Ten, Episode Four of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.

David Rosenthal 0:43 And I'm David Rosenthal, and I am an angel investor based in San Francisco.

Ben Gilbert 0:49 And we are your hosts. We've done Sequoia, we've done Andreessen Horowitz, but we have not gone deep on one of the biggest stories in venture right now: crossover investing. We are watching hedge funds like Tiger Global and Coatue come all the way down to seed investing, and we're simultaneously seeing classically early-stage venture capital firms like Sequoia completely reinvent their structure to hold on to their winners longer, even as they become public companies. And today, we wanted to analyze one of the firms that pioneered this dual approach of operating a hedge fund and a venture capital firm simultaneously, Altimeter Capital.

David Rosenthal 1:32 There has been so much change in venture in the last few years. More change, I think, in the last few years than in the decade that I was doing venture, than watching it before. [chuckles]

Ben Gilbert 1:43 And listeners, to tell the story right, we are joined today by Brad Gerstner, the founder of the firm, and actually, to tell you the truth, he is joined by us. We actually recorded this episode in person, even with video, stands, microphones, everything, at the Altimeter office on Sand Hill Road. And for those of you who don't know, Brad has had an unbelievable career, starting five companies, so he's got a very different mentality than your sort of classic hedge fund guy. On the investing side, he led the Series C in Snowflake and still owns a massive stake of the company. He's led large investments and sat on the board of companies you know, like MongoDB, and Roblox, and Zillow, and Plaid. He led the SPAC that took Grab public in Southeast Asia, and he is widely known as one of the most knowledgeable people in the world on the business of online travel after his involvement in Expedia, Orbitz, Uber, and many others.

David Rosenthal 2:43 And you forgot maybe the most important part: I think he's the number one bestie guestie on our- [laughing] ... friends over at the All-In Pod.

Ben Gilbert 2:52 I think that's probably right. It's probably right. Well, listeners, before we dive in, we wanna thank the presenting sponsor for all of Season 10, Vanta, the leader in automated security and compliance. Vanta brings a fascinating approach, truly, to the whole compliance process, SOC 2, HIPAA, GDPR, and more. And back with us today to help analyze her own company, we have CEO and co-founder Christina Cacioppo. All right, so Christina, I know from our previous conversations that using Vanta to get SOC 2 certified can actually help startups grow faster than they otherwise would have been able to. What do you mean by that, and do you have an example?

Speaker 3:34 Yeah, so one example I really like are, it's kind of looking at smaller, generally fintech startups and, you know, canonical example here is, you know, a company like Modern Treasury, right? They're moving money. They need deep bank relationships to even launch their product. And so, again, part of even launching their MVP or building it is going and signing a partnership with a large bank. Today, a lot of large banks sort of won't, you know, take your email, take your call, unless you are SOC 2 compliant. And so we actually work with a lot of... I mean, Modern Treasury is much larger now, but started working with them when it was sort of three founders on a couch. And again, they needed a SOC 2 in order to even build their MVP, let alone get customers. So that's on the very early side of the spectrum, but actually, we have, we have a lot of, again, early fintech customers that just need one of these certifications in order to even build their product.

Ben Gilbert 4:30 So is it fair to say that this journey you're on right now of enabling earlier-stage companies to get a SOC 2 certification actually is one of the big forces behind the fintech wave?

Speaker 4:43 Yeah, I mean, I think there is just a, a leveling of the playing field here, right? And this is a, you know, compelling startup theme and investment theme, but I think Vanta is very much a part of taking something, in our case, compliance certifications, that had been onerous, and making it accessible for the, you know, two or three founders on a couch to go and do, and let them accelerate their business and also just honestly, like, compete with the, like, larger incumbents who are able to have the fifty-person compliance team that, you know, goes and looks at screenshots every week to make sure everything is in good shape.

Ben Gilbert 5:18 Thank you to Vanta, the leader in automated security and compliance software. If you are looking to join Vanta's two thousand-plus customers to get compliance certified in weeks instead of months, you can click the link in the show notes or go to vanta.com/acquired. Get that sweet ten percent discount.

David Rosenthal 5:35 Thank you, Vanta.

Ben Gilbert 5:37 Well, we will cut over to our interview with Brad now, but please do know ahead of time that, uh, you can discuss this episode and everything else in the tech world afterwards with us at acquired.fm/slack. Join eleven thousand smart, thoughtful people like yourself, and we have some awesome new LP Show content out there. You can search Acquired LP Show in the podcast player of your choice. And, uh, lastly-... This is not investment advice. Do your own research. And now over

Ben Gilbert 6:07 to Brad Gerstner from Altimeter Capital. Tell us about your family and your dad's experience with entrepreneurship.

Brad Gerstner 6:17 Well, I grew up in a, in a small rural town in northern Indiana, near Notre Dame, first-generation college. My dad had, you know, classic immigrant story. His parents had kind of given up everything in order to help put their only child through college. He started at Northwestern. They couldn't afford to finish there. You know, ended up at, at Bradley in, in Illinois, got an engineering degree. And long story short, 1977, I was born in '71, so 1977, he becomes a general manager of a auto parts manufacturer in, you know, this small town that employed most of the people in the town.

Ben Gilbert 6:57 Was it a, like a GM, uh-

Brad Gerstner 6:59 Yeah, it was, it was a supplier to GM, a supplier to Ford at the time. And remember, our auto industry was under assault by the Japanese auto manufacturers. You had double-digit interest rates and inflation, which, for the first time in 30 years, is all of a sudden a topic of conversation again.

Ben Gilbert 7:16 With the Fed under, under Volcker?

Brad Gerstner 7:18 Yeah, under Volcker. We had, you know, you remember stagflation at the end of the '70s, which was low growth, high inflation. And for some reason... You know, so there was an acquirer that came along to buy this plant. They needed to get my dad and then the workers to go along, you know, with the deal. My dad said he could deliver the workers so long as they agreed not to lay anybody off. Of course, they said they would do that. You know, three months later, they were gonna lay off all these people, and in this small town, you know, your word's your bond, and my dad just couldn't live with himself with that outcome. And so in a fit of, of lunacy, decided that he was going to start a competitor. Um, he knew nothing about starting a business. There was no such thing in that part of the world as venture capital. All he knew is that he knew how to make these parts, and he knew he could inspire these men and women to join his cause, and, and it was a crusade, and it was a, you know... I look at it, and I'm sure I look at it through rose-colored lenses, but it was a valiant crusade. Unfortunately, he had to borrow money from the town bank.

Ben Gilbert 8:26 In a typical Acquired episode or a typical tech story-

Brad Gerstner 8:28 Yeah

Ben Gilbert 8:28 ... it's like, "This is the hero's journey," and, like, he wins, right? [chuckles]

Brad Gerstner 8:31 Right. [chuckles]

Ben Gilbert 8:31 And, like, you go off on this, like, amazing, you know, entrepreneurial journey, and you're like, "This is awesome."

Brad Gerstner 8:37 Right.

Ben Gilbert 8:37 "I'm gonna go do the same for the..." That's not what happens, right?

Brad Gerstner 8:39 I, I, I wish, I wish the story ended that way, um, you know, for his sake. I mean, he borrowed money from the bank, mortgaged the house, mortgaged the car. And the punchline is, there are moments in time where the deck is so stacked against you, notwithstanding all your best effort, notwithstanding all the extraordinary sacrifice of the team, or maybe even the brilliance of the idea, it's not meant to be at that moment. And, um, in venture capital, if you fail, the risk is largely on the venture capitalist. I mean, in Silicon Valley, failure is, on the part of the founder, so long as you conduct yourself in a way that's honorable, it's a badge of courage that you gave it a go. And we have an institutional structure where the venture capitalists can withstand that loss because they have a portfolio that they can, you know, cushion that with. So I often, you know, young founders will come in and say, "Well, I just don't know if I can take the risk." You know, they just graduated from Stanford. They have no student debt.

Ben Gilbert 9:40 Yeah.

Brad Gerstner 9:40 You know, they're getting money from a venture capitalist. If they fail, they don't have to pay the money back. If they win, they get, [chuckles] you know, huge upside.

Ben Gilbert 9:48 If they're at the stage where they're actually taking money from a venture capitalist, and they have a term sheet, and that, you know, that's gonna happen for them-

9:55 You've already won

9:55 ... the personal risk there is extremely low.

Brad Gerstner 9:58 I say there's, there's no risk. What, what risk are you talking about? The risk is, have a young family, mortgage your house, mortgage your car, double-digit interest rates and inflation. The business goes under. My dad loses his health. He loses his house. He loses his marriage, right? That's risk.

Ben Gilbert 10:20 Yeah.

Brad Gerstner 10:20 Right? And the beautiful thing about this country is, you know, we have created a system where we encourage risk-takers. Unfortunately, in 19, you know, 80, in the middle part of the country, in a small town, my dad refused to declare bankruptcy. He would work the rest of his life trying to pay back that money because it was his word that he gave to the people who lent him the money. And so I think about that when I hear from entrepreneurs or when I even think about the risk associated with starting Altimeter-

Ben Gilbert 10:50 Yeah

Brad Gerstner 10:50 ... or starting the other companies I started. It's really not risk relative to the risk he undertook. So I grew up around an entrepreneur, but it was not a heroic entrepreneurial story. And my grandfather, my father's father, basically forbade us from becoming entrepreneurs. And he said to the four grandchildren, "You can become professionals, you know, doctors, lawyers, architects, but please don't become entrepreneurs." And so I, you know, I, I felt like I owed that to him, even though I felt I was always kind of starting little enterprises in high school and thinking that way, and my brother did in college. Um, but I went to law school.

Ben Gilbert 11:34 And you thought you were going to go into politics, be, you know, a leader in government. Uh, how far did you get on that path?

Brad Gerstner 11:43 That was programmed pretty early. I had studied, uh, in '91, '92 at Oxford. I came back and worked for the US senator from Indiana, Dick Lugar.

Ben Gilbert 11:53 Hmm.

Brad Gerstner 11:53 He was chairman of the Foreign Relations Committee at the time. We were denuclearizing Russia at the time. It was a pretty heady moment in time with a senior statesman, Rhodes Scholar, incredible human being. Honored to work with him, stayed close with him. And so when I graduated from law school, and I went to work for a big law firm, I got a call from Senator Lugar asking me, I don't know, I must have been 26 or 27, if I'd accept an appointment as deputy secretary of state in Indiana.... Evan Bayh, who went on to become governor and senator from Indiana, started there. So it's kind of a known launching pad into Indiana politics. So I, I became deputy secretary of state, and, you know, faced this fork in the road, that I was either gonna run for secretary of state or I was going to go try to make some money. And I concluded, having grown up around a family that struggled for money... In fact, my grandfather said, "We don't have money problems, we have lack of money problems." I've heard you talk about this before. Is it, is it fair to say that, um, you, you didn't wanna go raise money to run a political campaign? The idea of groveling for the rest of my career for money just didn't sit well with me. Kind of a loon, but somebody I admired was the 1991 campaign of Ross Perot. And he, you know, spent tens of millions of his own money to go on television in kind of a goofy way with poster boards and rail against the national debt, and I thought, "Nobody owns this guy." And Perot, [chuckles] people forget, he dropped out of the campaign three weeks before the election, and I think he still got 17 or 19% of the vote.

Ben Gilbert 13:34 He was an entrepreneur himself, right? He started-

David Rosenthal 13:37 EDS.

Ben Gilbert 13:38 EDS, yeah, Electronic Data Systems.

Brad Gerstner 13:41 And I wouldn't say I... You know, there, there's a lot about Ross Perot I don't know, and it's not an endorsement-

Ben Gilbert 13:46 Yeah, yeah, yeah

Brad Gerstner 13:46 ... of, of his politics, but it was-

David Rosenthal 13:49 But seeing that-

Brad Gerstner 13:50 Yeah

David Rosenthal 13:50 ... of like, "Nobody owns this guy."

Brad Gerstner 13:51 It was a reminder to me. It was like, "Okay, I can either shake a tin can for the rest of my life..." Um, but like others who came before me, I said, "Hey, I'll go back to business school. Maybe I can make, you know, a little bit of money." And so the plan was go back to HBS.

David Rosenthal 14:05 How did you decide on wanting to go to HBS? Did somebody inspire you or, or encourage you to do that?

Brad Gerstner 14:09 It's slightly embarrassing story. Like, I didn't really do much research. I remember taking the, you know, the entrance exam, like, the last day, scrambling to fill out the application. In fact, I didn't even finish the application because I, I ended up getting an interview, and I remember the person who interviewed me said, "This is a unique situation. I can't say that I've ever interviewed somebody who didn't have time to complete the application." And so he started with, "Why didn't you have time to [laughing] complete the application?"

David Rosenthal 14:38 [laughing] You're like, "Well, I'm deputy secretary of state right now."

Brad Gerstner 14:40 "Well, yeah, well, I, I went through, I went through it," and it wasn't... Y- you know, it's just I decided late, and I was, I was working my ass off, but I said, "Now's the time," and we went through it, and-

David Rosenthal 14:51 So you know that's a different outcome to the same story for Warren Buffett of he wanted to go to Harvard Business School, and he was so sure he was gonna get in, he didn't complete the application, was sure he was gonna get in. Of course, he didn't get in, and then he had to scramble, and that's how he ended up at Columbia, and of course, the rest is history.

Brad Gerstner 15:06 Uh, when I was in high school, one of my first... You know, I worked and was, was going to school at the same time, and this was after this episode with my father. And the part of Indiana that I'm from, they make all the RVs and conversion, like, vans in the, in the, in the country. So I ended up with a job as kind of the right-hand, little chief of staff, go do anything I ask, of a guy named Pete Legal. And Pete Legal was starting a RV company, and I worked for two years for Pete. He had me doing everything, you know, in the accounting department with the CFO, you know, out on the line, helping to run purchasing for the Sierra RV line in 1987. Here's the interesting thing: Pete went on to build the largest RV company in the world, that he sold to Warren Buffett. And Warren has written a lot in his annual letters about Pete, who's just a legend of a human being, was a great inspiration to me. And it was funny because ultimately, I became fond and friendly with Ted Weschler, who works alongside Warren, and we worked on some deals together, and, you know, the world really-

David Rosenthal 16:17 Oh, we're gonna talk about a deal that you worked on together in just a little bit here. [laughing]

Brad Gerstner 16:20 [laughing] It really came full circle.

Ben Gilbert 16:22 I have the same personality characteristic that you do around an aversion to asking people for money.

Brad Gerstner 16:27 Mm.

Ben Gilbert 16:27 And in fundraising for politics, I can see how that would be especially hard. I mean, you, you've raised, I think, literally billions of dollars over the years for Altimeter. What is it about the way that you fundraise now that hits differently in your psyche?

Brad Gerstner 16:42 You know, I had the feeling at the time, and maybe it's just because at that point in time, I didn't believe in myself perhaps the way I believe in myself now, but it felt like a very personal ask. Like, "Give me money for my campaign." You know, now I am a steward. I am a fiduciary on your behalf, and I believe I'm gonna make you a lot of money, and we have made a lot of money for our LPs. And if you could see the letters we've received from university endowments, from foundations, from family offices, and the transformative things they outlined that we allowed them to do: free education, you know, dramatically more scholarships. You know, whether it's the environmental causes, whether it's immigration causes, whether it's inner-city schools. So to me, I think there is, you know, the great causes, I think, as somebody else coined the phrase, that we can work on behalf of in a way that's great for, uh, entrepreneurs, in a way that's great for our economy, and in a way that helps to, you know, really transform some underlying causes. So it's, it, it's an easier ask for me because it doesn't sound... It doesn't feel quite so personal.

Ben Gilbert 17:51 And even though when you're running for office, you know, it's in public service, it kind of felt to you more like, "Hey, do this thing for me, and I can't totally see the ROI for you as a citizen, but-

David Rosenthal 18:03 Well, it's kind of a problem if you can see the ROI for you for giving me the money to [chuckles] invest, like...

Brad Gerstner 18:08 No, I think, I think that's right. Uh, listen, I've gone on to raise a lot of money for people in politics, to... for a lot of other great causes. It's really easy for me to ask for others. It's a more difficult ask when I'm a beneficiary of the ask.

David Rosenthal 18:25 And at 26, even with the support of your mentor, it's not like you had the broad network to-

Brad Gerstner 18:30 Right

David Rosenthal 18:30 ... have so many people go ask on your behalf. Okay, so you get to HBS.... you get hooked up with two guys at HBS, David and Joel, who would go on to start General Catalyst. They themselves weren't people that you were like, "Oh, it's obvious you're gonna start a venture capital firm," right? [laughing]

Brad Gerstner 18:45 Quite the opposite, but, um, I love them both dearly. E- let me rewind just a little bit before that. 1989, I really start, you know, getting enamored with email networks, working in Prodigy, and following AOL in, in the '90s, really interested in investing. 1996, I'm graduating from law school. Now, my grandfather, who I mentioned, left me $25,000 when he passed away, and I day-traded that $25,000 to put myself through law school and business school. And I took the Series 7 because I thought, "Man, maybe there's something these people know that I don't know. I wanna know the dark secrets-" [laughing]

David Rosenthal 19:24 [laughing]

Ben Gilbert 19:24 [laughing]

Brad Gerstner 19:24 "... of investing." And then I realized, wow, none of these people know anything. [chuckles]

Ben Gilbert 19:27 That's the dark secret. [laughing]

Brad Gerstner 19:28 Right? The dark secret is there is no secret. So 1996, when I'm graduating from law school, I also have this aha moment, like so many people did, with the Netscape browser, and I said, "This changes the game on this thing called the Internet," wh- which was just these computers talking, and email, and networks, and it felt wonky and inaccessible. And I remember gathering in the law school library, a group of my friends, including the guy sitting in there who's now my general counsel, and I said, "You gotta see this." So from 1996... Then I go back, work for this law firm. We started getting litigation claims of people who were doing domain squatting in 1996, while nobody in this 600-person law firm knew anything about the Internet, or domains, or anything else. So I raised my hand. I said, "I'll take all of that." You know, I helped them build the firm website, and I quickly became known as the internet guy. But I was thinking, "So if I go back to business school, like, I've gotta find my way to Silicon Valley." When I was graduating from law school, I actually came out here because there was an innovative law firm out here called VLG, the Venture Law Group-

Ben Gilbert 20:37 Oh, yeah.

David Rosenthal 20:37 Oh, yeah

Brad Gerstner 20:38 ... that was taking equity stakes at the time for doing work for companies. So I literally got on a plane. I flew out here. The office was right next to the Rosewood, across the street. I just walked into the- their offices and said, "Hey, I'm looking for a job." Now, they didn't have a job for me, but, you know, it started to demystify this place for me, and business school was going to be my pivot, my off-ramp, to coming out here. So I go to business school in 1999. I mean, this is-

David Rosenthal 21:06 Peak. Peak

Brad Gerstner 21:06 ... this is peak peak, right? And, you know, McKinsey and Goldman couldn't get anybody to show up at their interviews at HBS in 1999.

Ben Gilbert 21:15 'Cause all your classmates are just so gaga for internet.

Brad Gerstner 21:17 Every classmate is gonna start a company. Every classmate's gonna work for a startup. Consulting firms were, you know, being started that were Internet-only.

David Rosenthal 21:26 [chuckles]

Brad Gerstner 21:26 Um, it was, it was, it was really an interesting moment in time. Now, again, I'm day-trading CMGI out of the back of my finance classroom-

David Rosenthal 21:35 [laughing]

Ben Gilbert 21:35 [laughing]

Brad Gerstner 21:35 ... knowing that this thing's going to zero, but I'm gonna ride it while I can to put myself through business school.

Ben Gilbert 21:40 And is that, like, E-Trade, or how are you day trading at that point, in the back of the room?

Brad Gerstner 21:43 Yeah, we had Bloomberg Terminals right outside the classroom.

David Rosenthal 21:45 Uh-oh.

Brad Gerstner 21:46 I had a Fidelity account, actually, and I would do my research on the Bloomberg, and then we'd place trades. Listen, I was what's known as a poet. I mean, I'm a lawyer from Indiana.

David Rosenthal 21:57 [laughing]

Brad Gerstner 21:57 Show up, I had never run a spreadsheet in my life, and I show up, and I have all these guys who've worked for hedge funds, private equity firms, venture firms, Wall Street guys, investment bankers. And so all of a sudden, I'm huddled around, you know, these machines with folks who knew a lot more than me.

Ben Gilbert 22:13 Is poet in finance the same thing as, like, a fish in poker?

Brad Gerstner 22:17 [chuckles] Exactly. [laughing]

David Rosenthal 22:18 [laughing]

Brad Gerstner 22:19 I- let's put it this way: we were transitioning to taking exams on computers, and there were two of us who took our finance exam with a calculator and a pen, and the rest did it with a spreadsheet. I remember myself and a classmate of mine, uh, who was a doctor, Chris Gilligan.

David Rosenthal 22:35 And look at you now. [chuckles]

Brad Gerstner 22:36 Um... [chuckles]

Ben Gilbert 22:36 [laughing]

David Rosenthal 22:37 Look, look at all those chumps who used computers back then. [laughing]

Brad Gerstner 22:39 I- I mean, uh, but I was hell-bent on coming to Silicon Valley. 1999, I start coming out here. I was enamored with a small, little search company that I had started to, you know, run all my searches on, called Google. A hot startup called Tellme, run by Mike McCue-

David Rosenthal 22:56 Oh, yeah

Brad Gerstner 22:56 ... it was, uh-

David Rosenthal 22:57 And it was a voice recognition-

Ben Gilbert 22:58 How do you partovi?

Brad Gerstner 22:59 Yep, and sold to, ultimately sold to Microsoft. And so I was very focused on coming out here. One of my classmates, who would eventually become my wife, was very focused on staying in Boston, and I'd met David and Joel, and so I said, "Okay, maybe I can help start this venture firm, stay in Boston, and see where it goes." So in 1999, 2000, we had a launch idea for the venture firm, so a launch company, if you will, which was a online travel concept.

Brad Gerstner 23:30 It was called NLG, National Leisure Group, and basically, what we were trying to build was the infrastructure, think Shopify in some ways, the infrastructure, uh, that would power Expedia, Travelocity, Yahoo!, others who were selling travel. They were selling air tickets. They were plugged into these global distribution systems, but there was no GDS for selling vacation packages, cruises, and all these other things. So we said, "Let's go build the GDS effectively for that," and we partnered with SoftBank. We raised, must be 50 million bucks for that business. We bought a little business to give us kind of the kernel. Uh, we built a digital layer on top of it, and while the rest of the world was imploding, we found ourselves in a pretty enviable position. We built the business to over a billion in gross bookings. Think it had over 1,000 employees at the peak, and-

David Rosenthal 24:20 That was all, like, within a year, right?

Brad Gerstner 24:21 That was within 18 months because, again, it worked. Like, people were actually buying this stuff online, right? And we were plugging into existing pools of demand. We weren't going out and having to create demand. So Expedia launches, you know, a cruise or a vacation package booking engine, and the next day, a lot of people are actually buying it, and we're kind of the Shopify, if you will, inside.... And so Rich Barton, who ran Expedia, said, "Hey, we wanna buy the business." And then we ran into Dara Khosrowshahi, who was running M&A for Barry Diller at the time, and he said, "You know, I wanna buy the business."

Ben Gilbert 24:56 And to be clear, this is pre-IAC buying Expedia.

Brad Gerstner 25:00 Correct.

Ben Gilbert 25:00 So these are two completely different entities bidding against each other for your company.

Brad Gerstner 25:04 Correct, and I said to Dara, "Well, we already have an interested party that we're talking to." And so he goes, "Well, let me talk to Barry."

Ben Gilbert 25:12 [laughing]

Brad Gerstner 25:12 And so he talks to him, and they come back, and he said, "Well, who is it?" And I said, "Well, I can't tell you that, but it's one of the big online travel players." And he goes, "Well, I think Barry wants to buy them, too." [laughing] And that's ultimately what went down. Between, um, October of 2000 and May of 2001, uh, we put together a deal where USA Networks would be renamed IAC, bought both NLG, uh, and Expedia.

Ben Gilbert 25:39 Oh, those were concurrent?

Brad Gerstner 25:41 Concurrent deals, announced together. Uh, I remember being in the back of a limousine in Hollywood on my way to Barry Diller's house with Rich Barton, and we looked at each other and we were like, "Strange world. How'd we end up here?"

Ben Gilbert 25:53 [laughing]

David Rosenthal 25:54 This was the beginning of Barry transforming from a media guy-

Brad Gerstner 25:58 Mm

David Rosenthal 25:58 ... into a media and technology-

Brad Gerstner 26:01 Yeah

David Rosenthal 26:01 - guy and, and building IAC. You know, yeah, it was USA Networks, and it became IAC.

Brad Gerstner 26:06 Well, I would say two things about that real quickly. First, Barry was early to understand transactional commerce through a screen.

David Rosenthal 26:17 Mm.

Brad Gerstner 26:17 Okay?

David Rosenthal 26:17 Because of Home Shopping Network.

Brad Gerstner 26:18 Because of Home Shopping Network. He also acquired Ticketmaster, and he also acquired an, an asset called 1-800-HOTELS, and he also acquired some catalogs. And what they all had in common was transaction... You know, they were all e-commerce-based business models, and they were through various mediums, the biggest being Home Shopping Network, which is through television. So for him to squint a little bit and to see how all these transactions were gonna move to the internet was not that difficult, and the commerce engine, the commerce flywheel that was flying the fastest for him, was 1-800-HOTELS, that he would rename Hotels.com. So he was doing extraordinarily well in travel, understood that that would be a big category of online commerce, and I remember very distinctly him talking about, you know, commerce through all the screens, and that was in, you know, 1999, 2000, before most people saw it.

Ben Gilbert 27:14 I think this is such an important thing to realize about the dot-com bubble. 'Cause everyone looks back at it and makes jokes, but the consumer behavior was there. It was a objectively better way to transact in all these different mediums, and the bubble burst because it was a speculative asset bubble, and capital went away if you didn't have a business model. But for those who did and who could, you know, be free cash flow positive, this is where all the demand was going, and that never went away, right? Could you feel that in the moment, of like, "People still wanna do this as long as..."

Brad Gerstner 27:47 I can't say that I did. I, I, you know... Like, I was really worried about... You know, you gotta remember, the, the size of the bubble bursting, the change in risk premiums, right, and then the events of September 11th, 2001, they were all so compressed. It's the fog of war, right? I think about all we really knew for sure is this internet thing wasn't going away. There are gonna be real businesses built around it. But it was very unclear when you would have the capital required to build the businesses, where the capital was going to come from. You know, and in hindsight, it seems pretty simple, but I would say 2001, 2002, 2003 turned out to be a gift, but that's a slog, right, when you're going through it.

David Rosenthal 28:33 Yep.

Brad Gerstner 28:33 I look at business models today that have, you know, negative unit economics, negative gross margins, raising money at super high valuations. I have post-traumatic stress from that period. Because if you are a high-burn business with negative unit economics, and you fly into a world where risk premiums change, it doesn't matter how good you are, you cease to exist.

Ben Gilbert 28:56 Mm-hmm.

Brad Gerstner 28:57 Right? And so-

Ben Gilbert 28:57 And, and they will change eventually. I mean, that's the thing, that-

Brad Gerstner 29:00 Uh, just look at what's happened over the course of the last eight weeks, right? Um, growth multiples are down 50%. Risk premiums have changed dramatically. There are a lot of businesses that are in the category I just described that aren't gonna make it.

David Rosenthal 29:12 So the natural thing to decide after all this is that you're gonna go be a public markets investor-

Brad Gerstner 29:17 [laughing]

David Rosenthal 29:17 ... right? [chuckles] Like, uh, this is part of why we wanted to-

Brad Gerstner 29:19 Yeah.

David Rosenthal 29:20 Hey, it's a great story.

Brad Gerstner 29:21 Yeah.

David Rosenthal 29:21 But also, like, what Altimeter ultimately becomes, and this... You know, you guys, I think, are maybe the purest play example, certainly one of the first, if not the first, life cycle investor. You know, it was just not at all obvious that you should go-

Brad Gerstner 29:35 Mm

David Rosenthal 29:35 ... join a hedge fund at this point, right? [chuckles] Like, how did that happen?

Brad Gerstner 29:38 Well, yeah, I mean, so there's a little bit more in between. You know, so September 11th happens, which is, you know, a really catastrophic event, particularly for our company that was an online travel company, and so we negotiated kind of this soft landing with IAC. I won't take you through all the trials and tribulations, but it was a good outcome for General Catalyst. I thought I was gonna go back and join David and Joel. I knew they were two extraordinarily special human beings, and they were gonna build something really big. But I'd kind of been bitten by the startup bug. A friend named Beje Josemiah, who now runs Lightspeed in India, uh, and Southeast Asia, had an idea, and it effectively was... Think of Yelp, pre-Yelp. And so Beje and I started this business. Um, we bootstrapped it, had a bunch of venture capital term sheets. For a variety of reasons, didn't take them, and we sold that business, uh, a couple years later to a public company in Seattle. And again, in the first transaction, you know, I'd worked really hard at NLG, and I think I walked away, after being the CEO and helping put the deal together, with a million dollars, which, for a poor kid from Indiana, that was game-changing. But by Silicon Valley standards today, people would be like, "Well, well, well [chuckles] you know, are you-

David Rosenthal 30:49 Poor Brad. [chuckles]

Brad Gerstner 30:50 ... are you, are you clueless?" There was a lot of work that went into that. The second business I started with Beje, I think I owned 40% of the business when we sold it. That was four or five X the outcome. And then-... when I thought about what I wanted to do, I had two competing ideas. One, one was another operating business. Like, if you're an entrepreneur, you have these ideas, you have to get them out of your craw. But what I really thought that I was better suited for was investing. And a person who made this clear to me was Rich Barton. And, um, Rich one day sat me down, and he said, "I don't think you're a great entrepreneur." And I said, "Rich, that's so insulting. [laughing] Why?"

Ben Gilbert 31:29 [laughing]

Brad Gerstner 31:29 And he said-

Ben Gilbert 31:29 Especially from Rich, like, the consummate entrepreneur.

Brad Gerstner 31:32 Yeah, right, right, right. And, you know-

David Rosenthal 31:32 Well, he keeps it real. [laughing]

Brad Gerstner 31:33 And, um-

David Rosenthal 31:35 Apparently

Brad Gerstner 31:35 ... And he said, "You know, being an entrepreneur is the art of the possible," right? "You have to will things into existence." And he said, "You know, you constantly think about what can go wrong. When you're an entrepreneur, oftentimes you have to suspend disbelief and just think about what can go right." And he said, "But as an investor, investors think about distribution of probabilities, not possibilities." And he's like: I've always, you know, kind of observed you, like, your training as a lawyer, how you think as an investor, like, you're gonna make a great investor. And so I was like, "You know what? He's right." And the best investment business model, right, is kind of this venture capital hedge fund business model. I thought there was gonna be a lot of disruption occur in that business model. And so when you say-

Ben Gilbert 32:23 Also, when you say this, this business model, this venture capital hedge fund business model-

Brad Gerstner 32:26 [chuckles]

Ben Gilbert 32:26 ... un- until what you and now several others have done, that was not a business model.

Brad Gerstner 32:31 Those are not-

Ben Gilbert 32:31 These are two completely different types of businesses.

Brad Gerstner 32:33 Correct. I'll hit that in just a second, but I wanted to start a business, and I said, "I will start... You know, I think I can build a better version of this model." At the time, if you really rewind the clock, Warren Buffett, right? I, I don't know what year it was, 1955, when he started his hedge fund. He did both publics and privates, right? He didn't distinguish. He, he just sought out great investments. Paul Reider, who started PAR Capital, was doing private investments before Brad Gerstner showed up. Seth Klarman at Baupost was doing private investments, you know, before we coined the term crossover, right? David Abrams in Boston. So I had a lot of legendary investors I looked up to, that they never thought of the world in crossover, but they thought the world... You know, there wasn't this artificial constraint that I can only invest if you're pre-IPO or you're post-IPO.

David Rosenthal 33:25 What did private investments mean to them? Did it mean what we think of, or did it mean something else?

Brad Gerstner 33:29 Well, I would say for them, private investing was maybe buying auto dealerships, or newspapers, or textile companies, or whatever the case may be. And as you know, in value investing, which was really the rage of that couple of decades, was, "I'm gonna bu- find a company with a bunch of free cash flow. I'm gonna use that free cash flow to go invest in things that actually have higher returning characteristics." Paul invested in that first company, NLG. He was on the board. We got to know each other quite well. He saw me day trading in companies like Priceline, and he thought, "This is interesting, a CEO who actually is also an investor." So, you know, I remember him saying to me, "You ought to come work with me someday." And so after we sold that company, OpenList, I showed up and I said: "Hey, I wanna come work with you. I can run the technology part of the business. You don't have a technology business. I'll build a technology business, both public and VC, okay? Which is consistent with historically what you've done." And I said: "If I like the business, I'm gonna start my own, so you don't have to pay me. Make me an apprentice. All I ask is that we have lunch together every day, and you teach me the hedge fund business."

David Rosenthal 34:43 Yeah, you'd made a, you know, couple million dollars at this point, so let's see.

Brad Gerstner 34:46 Right. Right. So I mean, I didn't have a lot of money, but again, like-

Ben Gilbert 34:48 And did he take you on that deal? He said, "Oh, great, you can, you can, quote, unquote, 'work here' with... And I, and I won't pay you"?

Brad Gerstner 34:54 You know, the funny thing is, he did say, "Kind of come apprentice."

Ben Gilbert 34:58 Yeah.

Brad Gerstner 34:59 And I think I was two weeks in, and he said, "This is ridiculous." [laughing]

David Rosenthal 35:02 [laughing]

Ben Gilbert 35:02 [laughing]

Brad Gerstner 35:02 You know? Um, he said, "Okay, I'm gonna pay you. You're gonna do this." And I will say, it was one of the most extraordinary mentor-mentee, you know, journeys over the course of the next two and a half years. He's a legend. He doesn't get the credit he deserves. And he gave me the autonomy to, on the public side, you know, go invest in my entire book in Google, and Priceline, and, you know, a couple great companies, and then to go make some venture capital investments, like leading the series, you know, B in Zillow. And I remember at the time thinking, "This is so easy." You know, I had such deep conviction in Google, and I didn't have to have this highly diversified book, and if it, if it went down, Paul would come into the office and say, "What do you think?" I'd say, "Buy more. I'm heading to yoga." [laughing]

David Rosenthal 35:50 [laughing]

Ben Gilbert 35:50 [laughing]

Brad Gerstner 35:50 Right? It was just like... And, uh, and so but we had a, we, we had a really great run together.

Ben Gilbert 35:57 I didn't realize that you, that was with Paul when you led the Series B in Zillow, because you, you were a Zillow board member from that point on-

Brad Gerstner 36:04 Yeah

Ben Gilbert 36:04 ... for quite a long time. Did you stay on the board of Zillow, sort of as an independent, even after leaving Paul's firm and starting Altimeter?

Brad Gerstner 36:13 No, I, I, I, I left the board. I don't know if it was e- e- exactly contemporaneous, uh, to that, but about that time. You know, by the end of 2000... I mean, listen, I learned so much from Paul. And all kidding aside, the idea of portfolio management, risk management, uh, Paul didn't call it essentialism, but, you know, running a simplified, concentrated portfolio around your best ideas was something that I absolutely... I may have been constitutionally predisposed to believe that anyway, but we were just very symbiotic in our thinking about how to manage portfolios. He couldn't have been more supportive, and so I learned through some pretty heady times with him. And then by two- at the end of 2007, I, you know, kind of said to him, "I, I think I wanna do my own thing."

David Rosenthal 37:00 You led the Series B in Zillow as a crossover hedge fund.... the idea of crossover, you know, existed, as you said, in, in not necessarily in tech and other, you know, domains, but also in tech with TCV and, and others.

Brad Gerstner 37:14 Yeah.

David Rosenthal 37:14 They were not leading Series Bs [chuckles] in companies at that. Like, that was-

Ben Gilbert 37:17 'Cause a Series B at that point in time is what? 10, $15 million? I mean, it's not a 50 or 100.

Brad Gerstner 37:22 Yeah, that's right. I think... I'm trying to think the, the check size. We may have put in 20 to 30 million bucks, and if I recall, it was a couple hundred million dollar valuation. Listen, to his credit, and another OG, Jay Hoag, who started TCV, was already in Zillow by the time I came into Zillow, [laughing] right?

David Rosenthal 37:40 Wait, he came in in the A with Benchmark?

Brad Gerstner 37:42 He came- yeah. I m- maybe it's, uh, you know, the nomenclature. I don't know if one was a C and an A and a B, but those were the first three rounds of institutional capital. And, you know, Jay had a relationship with Rich from his days at Expedia.

David Rosenthal 37:54 Yep.

Brad Gerstner 37:55 I obviously had a relationship with Rich. We, uh, we knew he was a special entrepreneur. I knew Bill as well, and so it was a big idea. It was a special collection of people out of Expedia, led by Rich and Lloyd. Um, but I remember at the time talking to Jay about, you know, like, technology, crossover ventures. [laughing]

Ben Gilbert 38:16 [laughing]

Brad Gerstner 38:16 Like, you are the guy-

David Rosenthal 38:17 Yeah

Brad Gerstner 38:17 ... you know, to do, you know, crossover. And I remember sitting him down and saying, "This is what I... Like, that's the winning model. Like, that's really the winning model." Now, I was coming at it, you know, with a more, I think, clear idea of public pool of capital and venture pool of capital. TCV had evolved into almost more of a later stage, you know-

David Rosenthal 38:38 Venture

Brad Gerstner 38:39 ... venture firm.

David Rosenthal 38:39 Yeah.

Brad Gerstner 38:39 Right? That, that held some public positions but didn't have a hedge fund, per se. So I think I had a slightly different view, but credit where credit is due, their vision for where the world was going was, was ahead of their time.

David Rosenthal 38:52 Okay, so it's 2008. [chuckles] Two- end of 2007, beginning of 2008. You tell Paul you're gonna-

Brad Gerstner 38:57 Yeah

David Rosenthal 38:57 ... go out on your own, uh-

Ben Gilbert 38:58 You just keep nailing this timing.

David Rosenthal 38:59 Yeah, you're just, like, really [chuckles] --

Brad Gerstner 39:01 I know.

Ben Gilbert 39:01 Like, mm, the whole world's going go, go, and just in case it falls off the edge-

Brad Gerstner 39:04 No, I, I wish, I wish I was nailing it. I got married at the end of '07. We had our first child on June 3rd of 2008. I remember, y- y- you know, the world cracks were shown in August 2007. Like, uh, whenever you look at these stock graphs, they look at like they're generally stable, but man, the number of days of lost sleep. But I remember saying to Michelle... You know, we didn't have that much money. We were living in a few thousand square foot, kind of, subterranean apartment in Boston. We were having our first child, and it was clear the world was getting tougher by the summer of 2008, and I said, "I think I'm starting... You know, I'm, I'm gonna start my own firm. I'm gonna tell Paul." And let's just say that when you're nursing a baby- [chuckles]

David Rosenthal 39:46 [chuckles]

Brad Gerstner 39:47 ... in September of 2008, October 2008, I have CNBC on, it's like you just want to find the wastebasket to get sick in, and I'm launching with no money.

David Rosenthal 39:59 'Cause you had a bunch of commitments, and they dried up, right?

Brad Gerstner 40:01 Right. So at the end of '07, you know, the track record had been, had been good, and, you know, so I talked to some university endowments, foundations. Now, I didn't know this world at all. Like, I didn't know the world of LPs at all. Um, but I talked to a few people, and they're like, "Hey, we'll give you some money," and so I thought I was gonna launch with 100 to 200 million bucks. But it was clear by September, October 2008, people thought the financial world might be over forever. And it's hard now-

Ben Gilbert 40:29 It's been a good century or two, but-

Brad Gerstner 40:30 It's hard, it's hard now to, like, put ourselves back in those shoes, but when, when you think, like, people thought Lehman, Morgan Stanley, Goldman Sachs were all going to collapse, right? And nobody knew the contagion effects of that. Nobody knew the impact on the dollar. Nobody knew the impact... You know, the thought was it was going to be a very deeper depression, and so it's interesting just to put in the mind of the founder. People say to me, "Oh, you picked a really great time to launch." [chuckles] Okay, I can assure you-

Ben Gilbert 40:57 I was saying it, no, like, the, like, uh, sarcastically.

David Rosenthal 41:00 Yeah.

Ben Gilbert 41:00 Like, I was not-

Brad Gerstner 41:01 It's a... I mean, it was... In fact, one of my advisors, who runs a big hedge fund-

Ben Gilbert 41:06 What's a big hedge fund to you?

Brad Gerstner 41:07 Well, he ra- he, he ran a multibillion-dollar hedge fund at the time.

Ben Gilbert 41:10 Okay.

Brad Gerstner 41:10 A- and it... I just had an informal group of advisors, and he said, "You've made a huge mistake. Go back to Paul and see if he'll give you your job back-

Ben Gilbert 41:18 Whoa

Brad Gerstner 41:19 ... and don't do this," right? And because I had organized my life in a really humble way, I didn't need money, and I had started a few other companies, and when I started them, I started them basically from scratch. I knew what it felt like. I knew that feeling, that founder feeling on day one. It was, was exci- exciting and terrifying, and I was like, "I got this." Like, "The horse has left the barn. I'm doing this." And, and to Paul's credit, Paul was like, "You got this." You know, and he had started PAR with less than $3 million in the S&L crisis in 1991, and I had a roadmap, and I had a mentor who believed, and I had a clear vision as to where I was going to go, and I knew I was gonna do it for a really long time.

Ben Gilbert 42:06 And you also had about $3 million, if, if-

Brad Gerstner 42:08 Right

Ben Gilbert 42:08 ... our research is right.

Brad Gerstner 42:09 Yeah, I had... I think on my day-one investors, not to out them, but Paul was one of them. My brother was one of them. Now, my brother, so my brother, oldest brother, is about 15 years older than me. The side note is he's an architect. He had saved his entire life a million bucks, like, worked I don't know how many years, 15 years to save a million bucks or something, and he invested [chuckles] it all in a hedge fund. I don't know why I laugh. Put it in a hedge fund in LA, and the guy stole all 200 million of this money that he raised.

David Rosenthal 42:41 Oh, my God.

Brad Gerstner 42:42 So my brother literally worked 15 years-

Ben Gilbert 42:44 Oh, my God

Brad Gerstner 42:44 ... his life savings went down the drain. He scrambled together another half million bucks, and he said, "I'm giving it to you to invest."

David Rosenthal 42:52 Were you like, "I want this?" [chuckles]

Brad Gerstner 42:53 And I was like... I was like... I was like, "I don't know if I can take this." And I remember we were on a hike in LA, and he said, "I know you're gonna do great with it."... and I said, "Well, here's the thing I promise you: I may lose it all naturally, but I won't steal it." [laughing]

David Rosenthal 43:06 He's like, "I know where you live, if you steal it." [laughing]

Ben Gilbert 43:08 [laughing]

Brad Gerstner 43:08 And, and I can happily say less than a decade later, he was retired, and it had worked out fabulous for him.

David Rosenthal 43:16 What is it with your family and risk, right?

Brad Gerstner 43:18 [laughing]

David Rosenthal 43:18 Like, you've, like, gone- you know, essentially gone bankrupt, you know, a couple ti- not you-

Brad Gerstner 43:23 Yeah

David Rosenthal 43:23 ... but you know, your dad, your brother.

Brad Gerstner 43:24 The thing with our family is we're incredibly close. We support each other, even including my father. He was famous. He would've given you the shirt off his back. And, you know, to know that you have those folks... And so, like, you know, again, I don't wanna make it seem overly heroic. I, we launched with very little money. The first trade I placed was November 1st.

Ben Gilbert 43:43 And this is Altimeter, just for folks at home?

Brad Gerstner 43:45 This is Altimeter. We launched on November 1st, 2008. The first trade I made was into Priceline at $42 a share.

Ben Gilbert 43:51 Which, of course-

Brad Gerstner 43:52 Nice, um

Ben Gilbert 43:52 ... became Booking after it-

Brad Gerstner 43:54 Yeah

Ben Gilbert 43:54 ... later bought Booking and Booking.com.

Brad Gerstner 43:55 So I'd bought Booking in 2004, 2005, um, but you know, that $42-

David Rosenthal 44:00 People probably didn't recognize yet what a monster that was, like [chuckles]

Brad Gerstner 44:03 ... $42 a share, I still owned it when it hit $2,000 a share. And teach a class at Columbia Business School on it and, you know, securities analysis class on, the old Graham and Dodd class on, on-

David Rosenthal 44:14 Of course

Brad Gerstner 44:15 ... on kind of like, what did people miss and what, you know, what did we see? But at any rate, you know, that was the start. I will say that when we launched, I wanted to be in Silicon Valley, but I was in Boston because I had no, no dough. And at the time, people who had invested in commingled funds... Because remember, by the end of '07, everybody was starting to put privates in their public vehicles.

David Rosenthal 44:38 Hmm.

Brad Gerstner 44:39 Right? I remember in ex- uh, for example, that Bill Miller of Legg Mason famously invested in Zillow in 2006 or 2007, and then in 2008, sold all those shares back to the company because everybody was unwinding-

David Rosenthal 44:53 Hmm

Brad Gerstner 44:53 ... their private positions. And so when LPs found themselves-

David Rosenthal 44:57 Oof

Brad Gerstner 44:57 ... overly illiquid in 2008, they-

David Rosenthal 44:59 Side note: that is n- how not to do crossover investing. [laughing]

Ben Gilbert 45:03 [laughing]

Brad Gerstner 45:03 Right. By 2008, they were like, "We do not want privates in public funds."

Ben Gilbert 45:08 Huh.

Brad Gerstner 45:08 Right? So I had the vision, but it wasn't clear how that was going to be executed [chuckles] um, because people really, uh, you know, crossover fund, commingled fund, public-private fund, that was a bad... You know, those were bad phrases in, in the fall of 2008.

Ben Gilbert 45:24 Why was it by 2007 that people had started adding these private companies to hedge fund portfolios?

Brad Gerstner 45:31 So the observation I had, probably in 2004, 2005-

Ben Gilbert 45:36 Yeah

Brad Gerstner 45:36 ... was, and I was a securities lawyer by training. I had done a bun- worked around a bunch of IPOs. Um, maybe that helped, but i- you know, I was like, companies, the private markets are becoming way deeper, way more liquid.

Ben Gilbert 45:51 Hmm.

Brad Gerstner 45:52 Companies are gonna scale faster because the internet provides a network upon which they can scale, and they're gonna stay private longer because there are deeper pools of private capital, and we've made it more difficult for them to go public post-2000. Okay?

Ben Gilbert 46:07 And then certainly post-2008.

Brad Gerstner 46:09 Correct. And TCV was there. Chase had started Tiger. Philippe had started Coatue. So we started to see examples of hedge funds that were really smartly, I think, starting to do some private investing, and I thought, "I wanna build the best crossover fund in the world that's based in Silicon Valley, built by a founder." Right? And I thought that was my differentiator, right? That I had a network in Silicon Valley. You know, most of the other hedge funds were in New York or Boston. Most of them were stock pickers, not founders. And so I thought, "I can do this, you know, in a way that's really more empathetic and more closely aligned with founders, like true venture, but that could scale all the way into the public markets." And so i- it was delayed in 2008 because nobody wanted commingled funds, but by 2010, we had... We got off- We had a great start in 2008, 2009, 2010, and by 2010, people were like, "Okay, now we'll let you, you know, start to, uh, undertake your vision." And so 2011, we started putting together the first dedicated pool of capital. 2012, I moved to Silicon Valley, and that first dedicated pool of capital-

Ben Gilbert 47:25 Dedicated for venture investing versus the single pool?

Brad Gerstner 47:28 Right. So, so, so, so we had a public pool of capital, which was long-short technology, effectively. We also became pretty well known for doing a lot of travel-related investments. Um, but in that pool of capital, we could also do a certain amount of private investing.

Ben Gilbert 47:45 Hmm.

Brad Gerstner 47:45 But we realized that for the venture and growth opportunities that we saw, we needed a longer duration pool of capital.

David Rosenthal 47:52 The strategy makes sense, and history has obviously shown that. But how do... Yeah, how do you trade off, like, if you're running a public book, you probably wanna be pretty close to fully invested. For privates, you need dry powder. [chuckles]

Brad Gerstner 48:05 Mm-hmm. Mm.

David Rosenthal 48:06 Uh, how did you solve that? Is that by raising these dedicated pools?

Brad Gerstner 48:10 Like any entrepreneur founder, right, you have to see some market changes that give an opening for a new entrant.

Ben Gilbert 48:17 Mm-hmm.

Brad Gerstner 48:17 Right? Because the incumbents have advantages, right? And so I believed that the very nature, the three things that I mentioned, IPOs harder to do, companies scaling faster, deeper private pools of capital, but I also believed that that was going to lead to the industrialization of venture, right? That this thing w- the, like, the winners were gonna look different than the previous generation, and this was an industry that was only a generation or two old.

Ben Gilbert 48:41 Venture capital.

Brad Gerstner 48:42 Venture capital.

Ben Gilbert 48:43 Yeah.

Brad Gerstner 48:43 And so we needed a long-duration pool of capital. We needed a product that suited our public market investors, so we raised that first pool of capital. Now, when I raised it, there was the requisite level of skepticism, like, "How, uh, you know, how do you think you're gonna compete with Sequoia? How do you- how are you gonna compete with Kleiner? How are you gonna compete..." And we made very clear that, um-... I thought that the business building journey that started in that first institutional raise was different than what we intended to do, right?

David Rosenthal 49:15 Yeah.

Brad Gerstner 49:15 Like, I had raised a lot of money, three different companies, right, as a founder, and so-

Ben Gilbert 49:21 Which if, if it's two or three raises per company or more, and think 30 firms you talked to, to, to get one term sheet, like-

Brad Gerstner 49:28 Right

Ben Gilbert 49:29 ... you knew hundreds of venture firms at this point.

Brad Gerstner 49:31 Right. And, and had deep relationships with people who we had made money together.

David Rosenthal 49:36 So I assume your answer to that question of how you're gonna compete with Sequoia at that moment in time was, "We're not."

Brad Gerstner 49:41 We're not.

David Rosenthal 49:41 Yeah.

Brad Gerstner 49:41 Okay? So remember just these venerable early stage firms, you know, Mike Spicer and, and Jim White, and the team over at Sutter Hill, and my friends at Benchmark, and friends at Sequoia. Interestingly enough, Andreessen... I remember March of 2009, Allen & Company Conference, Arizona.

Ben Gilbert 50:02 They're getting ready for fund one, right?

Brad Gerstner 50:04 So the market bottomed not in 2008, on March 9th, 2009.

David Rosenthal 50:10 All right.

Brad Gerstner 50:11 And we were all at the Allen & Company [laughing] Conference. And-

David Rosenthal 50:13 Was this before or after they did Skype?

Brad Gerstner 50:16 Um, this was well before.

David Rosenthal 50:17 Oh, yeah.

Brad Gerstner 50:18 And I remember sitting at a table with my little pitch deck, and I looked at a table next to me, and it was Mark and Ben with their pitch deck. [laughing]

Ben Gilbert 50:27 [laughing]

David Rosenthal 50:27 [laughing]

Brad Gerstner 50:28 And let's just say they scaled much, much faster.

David Rosenthal 50:31 [chuckles]

Brad Gerstner 50:31 And, uh, but yeah, we were both there at the same time. You know, they had a, a, a vision, which was a brilliant vision for the industrialization of venture, for how they were gonna change venture, and, you know, they've done it extraordinarily well.

David Rosenthal 50:43 Well, and fast-forward to today, your, your two firms are about roughly the same, r- equal order of magnitude, I would think.

Brad Gerstner 50:49 They're, they're, they're... The AUM may be in a similar territory, but the firms are very different. We can get to that in a little bit.

Ben Gilbert 50:56 I-

Brad Gerstner 50:56 But they've done an extraordinary job.

Ben Gilbert 50:56 I'm looking around here, I see 30 people.

Brad Gerstner 50:59 Yeah.

Ben Gilbert 50:59 Uh, that, that is a very different, uh-

Brad Gerstner 51:01 Yeah, thir- 30 versus 350.

David Rosenthal 51:03 And today's a full company offsite, right? [laughing]

Brad Gerstner 51:05 [laughing]

Ben Gilbert 51:05 [laughing]

Brad Gerstner 51:06 But we raised that first pool in 2012. Um, it was basically passing the hat. We had made good money for our LPs. Passed the hat around the table. I was the biggest LP in that fund by a long shot, because I wanted to get it, you know, upwards of 100 million bucks. But that first fund, I think I had six investments. In that fund, I, I... I don't think we will possibly have a return profile. I- That fund, it definitely is, is up there in terms of, in terms of great returning funds.

Ben Gilbert 51:34 When you led the Snowflake round, do you remember what the share price was?

Brad Gerstner 51:38 I don't remember what the exact share price was. I think the enterprise value at the time was somewhere around $175 million.

David Rosenthal 51:46 Okay, so that was 2012.

Brad Gerstner 51:49 I... Well, the fund was 2000... vintage 2012, 2013, I think. I, I'm not sure when that first round of Snowflake was.

David Rosenthal 51:55 Yeah, that might have been-

Brad Gerstner 51:56 '13, '14.

David Rosenthal 51:57 14.

Brad Gerstner 51:57 Yeah.

David Rosenthal 51:57 But at that moment in time, did you have some insight that you felt nobody else had at that moment, or was it the right time? Like, how-

Brad Gerstner 52:05 Well, I, I... A, a few things. Number one, I did have confidence that, you know, I was a decent investor, right? So we worked really hard. We're blue-collar. There's different ways to prosecute the strategy. I think there's some people who work the cocktail circuit, and, you know, we really were, were students of... We're anthropologists about, like, where things were going and what was going to be big. And at the time, there was a lot of pessimism, frankly, about cloud computing. Salesforce, you know, had some quarters where they saw more deceleration than people thought, and there were really kind of these obstacles. One was the cost of compute in the cloud versus the cost in a data center, but the big one was this perception that, like, "I'll never put my customers' data in the cloud," right?

David Rosenthal 52:57 Mm.

Brad Gerstner 52:57 It was really a security issue.

Ben Gilbert 52:58 Which then, like, let's just review history. Like, everyone that decided, that was not a tech company, that they needed to maintain an on-prem data center got hacked and leaked customer data-

Brad Gerstner 53:07 Yeah

Ben Gilbert 53:07 ... or lots of them, and everyone who shifted to the cloud, you know, "Ooh, do we really trust Microsoft and Amazon?" They're pretty good at that.

Brad Gerstner 53:14 Right.

Ben Gilbert 53:14 That was a great decision.

Brad Gerstner 53:14 And they had thousands of people working on security versus your data center that had two consultants. And, um, but it was really the Sony hack, if you remember that.

David Rosenthal 53:24 Oh!

Ben Gilbert 53:24 Oh.

David Rosenthal 53:24 Oh, yes. Do we ever?

Brad Gerstner 53:25 The, the, the So- the Sony board hack, where I think it was Colin Powell, if memory serves me correct, his email was hacked, and in his email was the target list for Salesforce's M&A, uh, activity.

David Rosenthal 53:39 Ah.

Ben Gilbert 53:39 Whoa!

David Rosenthal 53:40 There was so much that came out in that hack.

Brad Gerstner 53:41 You know, and, and so like that-

David Rosenthal 53:43 All the Snapchat stuff.

Brad Gerstner 53:44 There was all the, all the, all the stuff that got leaked. And so if you were a board member or you were a CEO, you immediately said, "What if my email was hacked?" And that was, like, a game-changing moment. But I would say for us, we had-

Ben Gilbert 53:56 For, for all of cloud, to, like, ex-

Brad Gerstner 53:59 For all of cloud.

Ben Gilbert 53:59 Uh-

Brad Gerstner 53:59 For all of, for all of cloud. Our view was it was safer, and that it was only a matter of time before the cost and efficacy of, you know, kind of computing the things you could do in the cloud would be better. We were on the lookout... I, I would say one of the things that we were focused on at the time, and this has been a, I think, theme for us over the last decade: We have this view that not all software is created equal, right? Not all ARR is created equal.

Ben Gilbert 54:26 Mm-hmm.

Brad Gerstner 54:27 And if you rewind the clock to 2000, like, the largest sector of software was databases, right? In 2000, if you aggregate the total enterprise value of companies that were principally deriving their revenue from databases, it's about a trillion dollars in market cap in 2000. So then, if you fast-forward, and you say, "Well, every year we're producing more data than in all years of human history combined, it's gotta find a home."

David Rosenthal 54:54 Mm-hmm.

Brad Gerstner 54:54 "We're only gonna sensor more of it in the... You know, build sensors to gather more data in the future. Where is that home gonna be?" And then I remember Bill Gates saying... Somebody asked him a question. I think it was Meg Whitman asked him the question: "You know, isn't all the interesting stuff done?" [laughing]

David Rosenthal 55:11 [laughing]

Brad Gerstner 55:11 And he said, "Meg, like, I-... Do you realize how barbaric it is, the way we make decisions? [laughing] He said, "In the future, right, we will have all this data stored, and machines will analyze the data and help us make better decisions about how to diagnose an illness, about how to educate a dyslexic child, about how to maintain an aircraft's engine," right? It will all be decisions made by machines looking at data. And so that was a, you know, our v- we did have a strong view that the entire database market was going to be remade. It was gonna be remade in the cloud, uh, purpose-built for the cloud. And so for us, that infrastructure layer in the cloud, all the enablement that would be required in order to get enterprise in the cloud, was something we focused on, I would say, more than probably anybody else, and that proved to be a rich vein.

Ben Gilbert 56:04 This is an interesting thing to talk about here 'cause it's kind of a second pillar of Altimeter. Like, if I think about where you were first successful, it was really realizing that the Internet is an amazing place to transact. People wanna transact there, and they wanna buy stuff, and overwhelmingly, they're originating that journey on Google.

Brad Gerstner 56:24 Mm-hmm.

Ben Gilbert 56:25 And you sort of went down the list and said, "Okay, what interesting businesses could people buy stuff from when they click through from Google?"

Brad Gerstner 56:31 Yes.

Ben Gilbert 56:31 And so, you know, you've got Expedia, you've got Priceline, a lot of-

Brad Gerstner 56:35 Amazon

Ben Gilbert 56:36 ... Yeah, a lot of travel, Amazon. But then there's this, like, second, I don't know if it's still an emerging thesis since you did, uh, Snowflake in the sort of mid-2010s.

Brad Gerstner 56:45 Mm-hmm.

Ben Gilbert 56:46 When, when was this?

Brad Gerstner 56:46 Yep, 2013, 2014.

Ben Gilbert 56:49 It's totally separate. It's this sort of like B2B, you know, we're gonna need the rising tide to power all these businesses. Are there other sort of core pillars of areas where you look for, where you're like, "Oh, this is, you know, multi-trillion dollar opportunity, where we wanna have several bets in the portfolio on that?"

Brad Gerstner 57:05 Yeah, yeah. You know, one of the things you correctly identify, which is, I think that unless you have an architecture, unless you have, you know, u- unless you deconstruct what's going on in the world and try to understand the theme, the human behavior that's driving these events, then you just have a bunch of data points that are disconnected. And as an investor, our job is to look at these complex fact patterns and try to make sense out of them. So one of the things that was very clear to me in early 2000s is, you know, the Internet is the most fabulous thing in the history of the world. It connects all these people, it unleashes all this productivity, but it's chaotic.

Ben Gilbert 57:44 Mm-hmm.

Brad Gerstner 57:44 How the hell can you find anything? [chuckles]

Ben Gilbert 57:46 Mm-hmm.

Brad Gerstner 57:47 Right? And so those who could organize it... So if you think about that decade, that decade was the decade of search, horizontal and vertical search, right? Booking.com was a vertical search company. Kayak, vertical search company. Zillow, vertical search company. Google, horizontal search business. Baidu, horizontal search business. And then there were these e-commerce businesses that were the beneficiaries, right? They learned how to tuck into the underbelly of the discovery engines.

Ben Gilbert 58:16 Mm-hmm.

Brad Gerstner 58:16 Right? So that was an investable theme for a decade, right? Google's desktop search, I think, didn't go negative until 2012, maybe the fall of 2012. That's when there were fewer people searching on desktop, you know, on a year-over-year basis because people were switching to their mobile devices, okay? So-

Ben Gilbert 58:34 Which has a totally different entry point.

Brad Gerstner 58:36 100%. So what, as the anthropologist, what did we do in 2010? I said, "Whoa, this whole search thing is gonna get disrupted by this phone thing. Now, I don't know exactly how this is gonna go down, but, like, the way that we enter these phones is not through search as our principal metaphor," right? And so then it became, how do I become one of these icons, right, on the front of this iPhone? There was, if you re- as you recall, you know, Facebook famously, you know, building, you know, an HTML5-

Ben Gilbert 59:11 Oh, yeah

Brad Gerstner 59:12 ... not, not building their, you know, not building an app. I remember Facebook became our largest investment in 2012 when it went on the cover of Barron's at $17 a share post-IPO.

Ben Gilbert 59:21 Yeah, when it-

Brad Gerstner 59:21 Because-

Ben Gilbert 59:21 ... broke through its IPO price.

Brad Gerstner 59:22 Yeah, because everybody said they'll never be able to monetize this. And if you did the work, and I remember being at Google Zeitgeist in Arizona at the time, talking to all these CMOs, and they were like, "Oh, my God, the sandbox for Facebook, like, they're crushing it. Like, this is-

Ben Gilbert 59:37 Mm

Brad Gerstner 59:37 ... going to monetize better, not worse."

Ben Gilbert 59:39 Hmm.

Brad Gerstner 59:39 Right? Mobile device, the stream on the mobile device, targeting on mobile devices, you know. And so if you had a decade of search, you had to understand all search, all the companies that benefited from being in the underbelly of search, the Yelps and TripAdvisor, uh, by 2012, they had to be in your too-hard bucket.

Ben Gilbert 1:00:01 Hmm.

Brad Gerstner 1:00:01 Right?

Ben Gilbert 1:00:02 Right.

Brad Gerstner 1:00:02 Because their princip- they had it too easy. They acquired customers, millions of customers, effectively for free, and they monetized them out the back door. Well, the free game was over.

Ben Gilbert 1:00:13 Right.

Brad Gerstner 1:00:13 Right.

Ben Gilbert 1:00:13 It's famously hard to start an OTA these days because, what, you're gonna compete against Expedia, bidding on the traffic from Google? Good luck.

Brad Gerstner 1:00:19 Right. You know, then we started looking at who are gonna be the beneficiaries of the switch to mobile. So that was an architectural change, and I think if you connected the dots, you probably... You know, you had some things go your way. Who were the winners? Who were the losers? Software was similarly situated, and so, you know, we had been investing in software, in and around software for a long time, but it really started getting interesting about that period of time because if you believed-

Ben Gilbert 1:00:45 Do you mean, like, B2B SaaS when you say software? Like, what specifically is interesting to you?

Brad Gerstner 1:00:49 Today?

Ben Gilbert 1:00:50 Yeah, or as you were starting to develop this thesis.

Brad Gerstner 1:00:52 Well, I mean, if you just looked at it, you said there's a trillion-dollar enterprise market, trillion dollars of annual enterprise spend, spend, and it's all going to shift-

Ben Gilbert 1:00:59 Yeah

Brad Gerstner 1:00:59 ... right? So, like, in investing, A, you need these market dislocations. You need things changing, right, to create these opportunities for new entrants. Um, but then the second thing was, you know, s- you asked a question, was it obvious or whatever in 2012, thir- 2013? I mean, when Devit Charia took over, you know, Mongo, I mean, it was famously hard for him to get that last private round of financing done at a billion dollars. And, you know, it had taken longer. It was moving slower, but we looked at the product pipeline, and we understood what the company was doing, and it takes a long time for those companies to spin up. But when those developer communities get going, they're incredibly sticky. You know, as Buffett has said-... the best investments, you have to be non-consensus and right.

David Rosenthal 1:01:43 Mm-hmm.

Brad Gerstner 1:01:44 The problem is, being non-consensus is most often wrong. [chuckles]

David Rosenthal 1:01:49 Yeah. Right.

Brad Gerstner 1:01:50 Right? Consensus is consensus for a reason.

Ben Gilbert 1:01:52 And there's a zillion things in your life telling you you should be uncomfortable or in pain when you're doing something non-consensus, 'cause you got all these smart people telling you you're wrong.

Brad Gerstner 1:02:02 Correct. And if you're a founder of an investment firm, those are oftentimes career-ending decisions, right? And so, you know, think about this. This is kind of fund one, and we're doing something that's somewhat orthogonal, uh, to what the other folks are doing. You know, I won't mention the firm, but probably one of the best-known firms in Silicon Valley who passed on that round in Snowflake, you know, the partner said to me, like, "I wouldn't do it, and here's why." Um, and we ended up, we ended up doing it. And by the way, his argument was a good one. Like, it was pretty compelling at the time. One of the things we did in that story was, over Christmas that year, we actually... We were aggregating a lot of data for our own hedge fund, right?

David Rosenthal 1:02:44 Mm.

Brad Gerstner 1:02:45 So we were crawling web pages, we were buying data-

David Rosenthal 1:02:47 So you were, you were building-

Brad Gerstner 1:02:48 Like, we, we had a data warehouse, right? And we punted... You know, Kevin, who's my partner, and was, you know, kind of a young analyst at the time, computer scientist out of MIT, said, "How, how about if over Christmas, I'll replace our data warehouse with this Sn- you know, with Snowflake?" Which was non-GA at the time, right? It was in beta with a couple companies.

David Rosenthal 1:03:08 Wow.

Brad Gerstner 1:03:09 And so we did that, and he's like, "This is gonna win." Like, "This is the winning arc."

David Rosenthal 1:03:13 This is good stuff.

Brad Gerstner 1:03:14 This is good stuff.

David Rosenthal 1:03:15 Yeah.

Brad Gerstner 1:03:15 But he also wrote a bug report, right, of, like, the 10 bugs he found. And he sent this bug-bashing report to the founders, to Ben Lalonde and Tiri.

Ben Gilbert 1:03:24 This is in the dictionary under how to win a deal.

Brad Gerstner 1:03:26 Yeah. [chuckles] And let's just say they said, "No other investor has done that."

David Rosenthal 1:03:30 Certainly no hedge fund. [chuckles]

Brad Gerstner 1:03:31 Yeah, exactly.

Ben Gilbert 1:03:32 Just to contextualize this for listeners, because I know people think like, "Oh, Ben and David, they have, like, great investors on the show, and I'm sure they get into, like... You know, they, they have some great investments." Just to throw out some numbers, I think that round you mentioned was at $175 million valuation. They IPO'd somewhere around $4.4 billion, and it's trading in a window... Anybody know what their market cap is-ish today?

Brad Gerstner 1:03:55 100-ish billion, I think.

Ben Gilbert 1:03:57 100-ish billion. So the cool thing about what you're doing is you can hold for a long time-

Brad Gerstner 1:04:04 Yeah

Ben Gilbert 1:04:05 ... including [chuckles] when these things become public companies. I'll just say it, so it's coming from me, I think Snowflake is still over half, or as at the end of last quarter, was still over half of Altimeter's public position. It is unbelievable, both from a returns perspective, but from a conviction perspective-

Brad Gerstner 1:04:22 Mm

Ben Gilbert 1:04:22 ... to stick with founders, with that sort of founder mentality and this longevity this long. I mean, I think that's the unique-

Brad Gerstner 1:04:30 Mm

Ben Gilbert 1:04:30 ... thing about this kind of capital platform.

Brad Gerstner 1:04:32 Yeah, so I- I would say a couple of things. One is, you know, it was an extraordinary investment, but it's also just an extraordinary partnership, right? Um, its founding CEO, Mike Speiser, Bob Muglia, Frank Slootman, Mike Scarpelli, I mean, these are deep relationships that become really important friends. You work really hard through a lot of tough issues, and when it's all said and done, the incremental dollar doesn't- isn't gonna change the answer. But working side by side and building something that, like, you're extraordinarily proud of, it's what motivates me. What I would say about that investment is, for our venture investors, I don't know what it was at the peak, but, you know, I talked about two different pools of capital. On the venture side, those are ten-year funds, so last year we distributed a extraordinary return and a game-changing return for a lot of our partners. But at the same time, on the public side and personally, you know, we think this is going to be a multi-year compounder. I think this company can be worth over $500 billion over the course of the next five to seven years. I think it will be extraordinary, and we have one of the best management teams in the business going against one of the biggest TAMS in the business and delivering a really beloved service. And so it's kind of a tragedy if you can't continue to participate in that. But you have to match, right? Like, that's not the bet that my, uh... the folks who invested in my venture capital firm made, that, that I'm gonna hold this forever, right? And so you wanna make sure that you match and you align the interest of the LPs in the product that they're buying, with the duration and the nature of the investment that you're making. And so, you know, listen, Sequoia's innovated, you know, in a really interesting way around this permanent fund, uh, in this regard. We have a structure that allows us to continue to, you know, partner and compound and, and continue. I think you'll see more and more of this. Rewind the clock, you know what, I started investing in Priceline when it was less than a billion dollar enterprise value, right? Today, it's upwards of $130 billion, right? So they went public, or you could buy them in the public markets for less than a billion.

David Rosenthal 1:06:43 It would never happen today.

Brad Gerstner 1:06:44 Right.

David Rosenthal 1:06:44 Never.

Brad Gerstner 1:06:44 Salesforce went public at 850 million.

David Rosenthal 1:06:47 Amazon, I think, was sub 500 million.

Brad Gerstner 1:06:49 And so I wouldn't say never say never. In fact, I hope that we start to see a return of earlier IPOs.

Ben Gilbert 1:06:57 It's great for the public.

Brad Gerstner 1:06:58 I, I think it's great for retail investors. I think it's great for companies. They need the discipline. Having companies running around with billions of dollars on their balance sheet and, you know, decacorn valuations and not the discipline of public markets, to me, is not a great thing for the company, for the employees, for the founders. It's not to say that they're, that they're undisciplined, but this idea that you can't innovate in the public markets is nonsense, right? Jeff Bezos innovated-

David Rosenthal 1:07:27 Facebook

Brad Gerstner 1:07:27 ... plenty in the public markets. Facebook in the public markets. You know, look at what Marc Benioff has done in the public markets. And so I think that that-... the public markets not only is an important source of capital, but it provides a source of discipline. Scarcity leads to ingenuity. I hope that one of the things, you know, you, we'll talk maybe a little bit about our capital markets business, but I hope one of the things that we bring back to the IPO market is that companies don't feel like they have to wait until they get to 100 million or 200 million or 500 million of revenue in order to go public, right?

David Rosenthal 1:08:00 Mm-hmm.

Brad Gerstner 1:08:00 I mean, just look at the crypto market if you wanna know the appetite-

David Rosenthal 1:08:03 [laughing]

Brad Gerstner 1:08:03 ... of the investing public to invest in-

David Rosenthal 1:08:05 Yeah

Brad Gerstner 1:08:06 ... speculative assets, right? And we used to allow retail investors and others like myself to put myself through business school investing in CMGI, right before, you know, while it was still venture risk in terms of its orientation. But we've largely deprived the public markets of that today, and we may say that that makes it safer, but it also means that you're not going to see those hundred X investments. So if you're, if you have a pool of capital, if you're an LP or you're a GP, and you want to... Think about this, ByteDance, we invested in at $10 billion, okay? Today, it's marked, you know, somewhere between 350 billion and 500 billion, depending on which crossover fund, you know, you look at. Imagine that. Over $300 billion of value creation, right, that goes to the Sequoias, the Altimeters, the GAs, et cetera, of the world, and no retail investor has access to that. Like, it's just not fair. That's not a level playing field. We don't w- like, that's not a great outcome for folks. Um, and it's not to say that we should force companies to go public earlier, but we should reduce the friction, give them access to the capital markets, and give retail investors the opportunity to participate in the upside of these companies.

David Rosenthal 1:09:26 All right, for our second sponsor of the episode and all of season 10, big thank you to Vouch, the insurance of tech. Whether you're bootstrapped, seed stage, growth, public, or anywhere in between, with Vouch, you can go online and get next-day business insurance for your company in as little as 10 minutes. It's literally the same experience as buying car insurance through Geico, and that is totally freaking amazing- [chuckles]

Brad Gerstner 1:09:53 ... that you can get business insurance for your startup that easy. Vouch has great clients like Pipe, Neighbor, Midesk, and of course, Acquired, so you will be in good company. Fast-forward to the Insurance 101. Lay it on me. What are we learning about?

David Rosenthal 1:10:07 All right. Today's Insurance 101 from Vouch, we're gonna talk about the first core coverage that most tech companies are likely going to want in addition to general liability protection, which is errors and omissions insurance, or E&O. E&O is insurance that protects you from, you guessed it, errors or omissions caused by mistakes in your product or service that result in damage to your users. Now, a few years ago, you might have said something like: "That's impossible. We make free software. It can't cause any damage." And well, [chuckles] obviously, that is no longer the case these days. Just look at the Robinhood GameStop situation or Zoom bombing or anything on Twitter. [chuckles] Humans, it turns out, are pretty good at damaging one another on the internet. Uh, and that's just free platforms. The risk is even higher for paid software. Say you're a SaaS company, and you win a customer by sharing a big new feature on your product roadmap, and then you don't end up shipping it on time, and your great new customer hits you with a lawsuit for misrepresentation. This stuff really happens, and the average settlement for an E&O case is $140,000, not including legal costs. So yeah, you definitely want insurance for this. [chuckles]

Brad Gerstner 1:11:26 Yeah, David, is there a way I could, like, pay someone to sort of, like, take that risk off my books and sort of like, I don't know, just smooth that out for me?

David Rosenthal 1:11:34 Indeed, there is. [chuckles] And according to them, and they are right about this, the best time to get E&O coverage is right before launching your product. And of course, going with a high-quality provider like Vouch ensures not just that they'll pay the bill at the end of a case, but that they'll partner with you along the way to a successful resolution and take what otherwise would have been a huge amount of brain damage off your plate as a founder. Vouch is the best. We love them. You can learn more at vouch.us/acquired, and all Acquired listeners, if you use that link, you'll get an extra five percent off your coverages.

Brad Gerstner 1:12:11 Thanks, Vouch.

David Rosenthal 1:12:12 I wanna get your opinion on an interim moment. Back, back to that first fund in the 2013, 2014.

Brad Gerstner 1:12:19 Mm-hmm.

David Rosenthal 1:12:19 Feel free to argue with me on this.

Brad Gerstner 1:12:20 Sure.

David Rosenthal 1:12:20 But you said in fundraising: "I'm not competing with Sequoia."

Brad Gerstner 1:12:24 Mm-hmm.

David Rosenthal 1:12:24 "I'm not competing with Accel," and the like, and you weren't. They- that Snowflake round, that Mongo round, those firms weren't leading those rounds.

Brad Gerstner 1:12:32 Mm-hmm. Correct.

David Rosenthal 1:12:33 In the intervening years, now, of course, they are-

Brad Gerstner 1:12:36 Mm-hmm

David Rosenthal 1:12:37 ... and they're doing it in their own companies, and that part of it is contributing to stay private longer and all this. How did you think about those years? And, like, you're- you know, you- you know, that first fund, that's amazing, right? And then you saw... Of course, you knew you had the, the public guys, the go-tos, and the tigers-

Brad Gerstner 1:12:53 Mm-hmm

David Rosenthal 1:12:53 ... and the like.

Brad Gerstner 1:12:54 Sure.

David Rosenthal 1:12:54 But then you saw the venture guys also coming into this space. How did you view the market at that, as that happened?

Brad Gerstner 1:13:01 Well, I mean, I mean, listen, what's happening is this happens in all markets.

David Rosenthal 1:13:04 Mm.

Brad Gerstner 1:13:05 Right? The venture market is maturing. I might argue the venture market has overearned for many years, right? And so the market's gonna become more efficient. There's gonna be more competition. With more competition, that means founders are gonna have better access to capital. They're gonna have more efficient markets, so it means they're gonna be- you know, presumably get a better price, less dilution for the work that they do, which presumably is an incentive to invent more shit that's gonna make the world a better place. So, like, I'm down with being part of the competition that makes venture more efficient. Listen, I wasn't invited into the venture party.... right? There was a club out here on, on Sand Hill Road, and, you know, but this club respects meritocracy. We come out here, we work really hard, and we add value to the companies, and if you do that over a long period of time, right, then, then I think you're going to be, you know, have a shot at being part of this ecosystem. We collaborate as much as we compete, okay? And when we compete, we're gonna go at it. We're gonna lay out why we think we're the best partner for the company, but we're also going to collaborate. I know that what we're collectively doing makes America the best place on the planet to start a company, right?

David Rosenthal 1:14:21 It's amazing for founders.

Brad Gerstner 1:14:21 There is no vibrancy of-

David Rosenthal 1:14:22 I mean, we talked to a bunch of your founders in preparation-

Brad Gerstner 1:14:24 Yeah

David Rosenthal 1:14:24 ... and they were like, "Well, it's wonderful." Like, "This is, this is great.

Brad Gerstner 1:14:27 Right.

David Rosenthal 1:14:27 This is, like, the best thing."

Brad Gerstner 1:14:28 And so I got... You know, rewind to my dad's story. Like, what if, what if a venture capitalist had handed my dad 5 million bucks, right? He wouldn't have lost the house, right? We, like, that's who we should encourage, the risk-takers, the bold ones, the ones who get into the arena, and so I think it's an incredible honor to be able to do that. But at the same time, I don't think I'm entitled to be able to run the table on the crossover business model. Everybody is going to compete for these different rounds. My job, just like any other founder entrepreneur's job, is to build the best product.

David Rosenthal 1:15:02 Mm-hmm.

Brad Gerstner 1:15:03 Like, what, what is it that we do different for entrepreneurs than these other partners might do, right? Or how do we fit into the system-

Ben Gilbert 1:15:11 Actually, let's, let's not make that rhetorical

Brad Gerstner 1:15:12 ... that is complementary?

Ben Gilbert 1:15:12 What is it that you do different than other?

Brad Gerstner 1:15:14 Right, and so I would say with, uh, you know, with total respect to all those others, first, I don't wanna compete in that first round of institutional capital. You know why? Because Chaten at Benchmark and Mike Speiser at Sutter Hill or, you know, the folks at Sequoia or the, or the folks at in... They do an incredible job. I mean, I started at GC, right? Like, I, I, I've been a day-one founder.

David Rosenthal 1:15:39 Mm-hmm.

Brad Gerstner 1:15:39 I know what that first two to three years of gestation looks like, and those firms... Why does Andreessen have 300-plus people? Because they really have built the infrastructure to help those early, you know, entrepreneurs win. Same with Benchmark. They're extraordinary focused-

David Rosenthal 1:15:54 It's, I mean, and that's-

Brad Gerstner 1:15:55 Right?

David Rosenthal 1:15:55 It makes sense what you say, but the, that is a contrarian view [chuckles] today. [chuckles] Right.

Brad Gerstner 1:15:59 Well, I would say, like, listen, the jury's out. Uh, you know, Tiger did, I don't know, 70 or 80 Series As and, you know, and-

David Rosenthal 1:16:06 And Seeds and-

Brad Gerstner 1:16:07 And Seeds and Series A in the back half of last year. I have, again, ex- like Schleifer and, and Chase are great friends, lots of respect for those guys. Ultimately, entrepreneurs get to make the choice, right? And w- the story will be told down the line, right? Are the entrepreneurs that take money from Roloff or from Chaten or from Eric Vishria or from, you know, from Mike Speiser, ultimately do they have a higher hit rate in terms of building successful and big outcomes than companies that take money from folks who raise their hand and say, "We're probably not going to be as value add," right?

David Rosenthal 1:16:46 Mm-hmm.

Brad Gerstner 1:16:46 "This is, this is more a new or more just a source of capital."

Ben Gilbert 1:16:49 Yep.

Brad Gerstner 1:16:49 I think that Tiger's building an extraordinary business. I just am... M- maybe I'm of the minority belief that early-stage venture, those first two to three years, is craft building, and we like to partner with founders who are wise enough to put around that early board table people who have been through the trenches. And so that increases our probability of success and reduces, you know, we think, the risk inherent, and so we come in and partner then at that stage. So you ask, like, what is it that we do that's special?

David Rosenthal 1:17:18 Mm-hmm. Mm-hmm.

Brad Gerstner 1:17:19 I think that Altimeter has a founder's mentality. We have the empathy of an early-stage founder or, or venture capitalist, but we have the scalability of capital. So some people I've heard say, "Hey, they bring the best of, you know, Tiger, but also the best of, of Sequoia." If we ever get that compliment, and I think about our NPS among founders all the time, right? That's the highest compliment. That's what I wanna do. We wanna increase their probability of success, and when we start moving in that direction, we want them to know that we're side by side with them on the important issues they face, recruiting a CFO, building their board, getting the company public, helping them raise capital, and that we'll be first in line to write the check.

Ben Gilbert 1:18:02 You're a reasonably concentrated portfolio, so it's, it's kind of like the benchmark mantra but applied to later stage, and that discernment ends up accruing value to companies because you have such a deep pool of capital. So, like, take a Modern Treasury, for example. It does show up as value to them in the way that they can communicate to their customers, like, "Yeah, we're only a four-year-old startup, but look, we're with Altimeter," and-

Brad Gerstner 1:18:29 Right

Ben Gilbert 1:18:30 ... you know, it doesn't mean that the capital in your fund is on their balance sheet.

Brad Gerstner 1:18:34 Mm.

Ben Gilbert 1:18:34 But because you do have a ra- a reasonably concentrated portfolio, that brand power actually can accrue to the company in a way that shows up to their customers.

Brad Gerstner 1:18:43 A couple things. First, I would say that the, the level of concentration on portfolios, like, I think it's pretty consistent with the history of venture, right? Like, the reality is, if you don't have deals in your fund that on their own can return the fund, then you're probably overly diversified. If you're overly diversified, you're gonna provide vintage returns, which, you know, I'll just leave my money in the public markets, right? If all I'm gonna do is invest in... You know, the top 10, 15% of ventures are gonna take 80 to 90% of the returns, okay? So yes, I am in the business of finding the best companies in the world and helping them succeed. I'm not in the business of taking the average of vintages-

David Rosenthal 1:19:20 Yep

Brad Gerstner 1:19:20 ... and building a big fund around that. That's a different game. That's an asset-gathering game, and it's not a game I find particularly fun.

Ben Gilbert 1:19:26 Not to mention, it's never been a great idea for m- uh, more than one vintage to just be the median of all venture investing. That's not something you want to index.

Brad Gerstner 1:19:36 Right.... you know, listen, I think it depends what you're, what you're promising your LPs, right? I'm the largest LP in our hedge fund. I'm the largest LP in our venture funds, right? I'm only going to put my money into venture if I think I'm gonna earn a superior return to having my money in, in, in, in a liquid security, right? If I didn't think I could beat the return on Snowflake over the course of the next decade, put all my money in Snowflake and go surf with my kids, right? [laughing]

David Rosenthal 1:20:00 [laughing]

Brad Gerstner 1:20:00 Um, but I actually think there's, like, a noble service being provided. I think we can deliver, like, radically superior returns. And so I would say it's not the concentration, right, that leads to that value add for those investors. It's because at Modern Treasury, we help Dmitry, you know, bring other investors to the table. We help him bring the CEOs of big banks to the table. We help them with recruiting. We're there during the high-leverage moments in a company's history that can really help, uh, you know, add fuel to the fire.

David Rosenthal 1:20:30 So you had mentioned earlier, but talk to us about the capital markets business, 'cause that feels like something that, like, again, if I'm a... If I'm a Dmitry at Modern Treasury, like, that's something that, you know, even as the early-stage guys are adding later-stage operations, like, that you can really bring in a way and have for Roblox, for Plaid, for-

Brad Gerstner 1:20:50 Yeah

David Rosenthal 1:20:50 ... so many, you know, others. How did that start, and what is that-

Brad Gerstner 1:20:53 Yeah

David Rosenthal 1:20:53 ... business?

Brad Gerstner 1:20:54 Well, I think it's, uh, you know... So I'm, I'm talking to a, you know, well-known venture capital firm's LP meeting tonight about capital markets, what's going on in the public markets, what does it mean for, you know, their venture portfolio, et cetera. Uh, that's just fundamentally different, right? And I'm an IPO lawyer, spent 20 years in the public markets. We've worked on, uh, you know, participated in over 100 IPOs, right? When the equity syndicate desk at Goldman Sachs and Morgan Stanley need to sell an IPO, they call us, right? They call Long Onlys. And so we've been in and around that market for a long time. Bill Gurley and Rich Barton and I, going back 20 years, um, were fascinated with how inefficient that market was, with mispricings in that market, with, you know, uh-

David Rosenthal 1:21:40 It's crazy

Brad Gerstner 1:21:40 ... you know, Combrick.

David Rosenthal 1:21:40 It's just like when you step back and look at it, it's nuts.

Brad Gerstner 1:21:43 Right. Combrick and Quest were innovating with, you know, the modified Dutch auction around the Google IPO. I mean, lots of fascinating stuff. So if you're just, like... If you're a student of this game and you're an IPO lawyer like I was, like, you pay attention to it. I helped Bill put on the Direct List conference a couple years ago, which, you know, we've seen a lot of, of, of progress on. Again, just giving choice to entrepreneurs. At the end of the day, right, if there's competition for the bank IPO, the bank IPO will be better, and now there is, right? The direct list is an alternative for some companies, a better fit for some companies. And the reason SPACs were interesting to me is, if you really just close your eyes, it's just a third door into the public market, and we go help you build a book. We help you price the security. We help you sell it to Capital Group and Fidelity and T. Rowe. All three of these things are the exact same exercise. You're selling 10% of your company, you hope to sell it to great public market investors, and you hope, with the least amount of pain and distraction, to step into the public markets, right? And so I think this innovation in the public markets is a, you know, a terrific thing for founders. Um, it's fun to be a part of. But last year, we participated, we anchored direct lists like Roblox, we anchored IPOs like Confluent, we anchored our own IPO, like Grab-

David Rosenthal 1:23:00 Mm-hmm

Brad Gerstner 1:23:00 ... uh, by way of SPAC.

Ben Gilbert 1:23:01 I saw on your website, yeah, you don't call it a SPAC. You call it the Altimeter...

Brad Gerstner 1:23:04 Yeah, Altimeter IPO. I mean, part of what we're trying to do is we're trying to demystify the transition to the public markets for CEOs and boards. Because frankly, I've done it over 100 times, but most founders will do it one time in their life.

Ben Gilbert 1:23:19 Right.

Brad Gerstner 1:23:19 Right?

Ben Gilbert 1:23:19 And they just don't want to mess it up.

Brad Gerstner 1:23:20 Right, they-

Ben Gilbert 1:23:20 Like, at that point, it's their baby.

Brad Gerstner 1:23:22 Exactly.

Ben Gilbert 1:23:22 Why on earth are you ever doing anything but the standard?

Brad Gerstner 1:23:24 Right. And, and, and again, you know, I think [chuckles] Goldman and Morgan Stanley is maybe where my friend Bill Gurley and I have slightly different religions on this. At the end of the day, this is really about pricing, and if we price these things efficiently in any three of these doors, then they can be great outcomes for the company. And if you have a bad sponsor, if you have a bad bank in a, in an IPO, and it goes poorly, then, like, that's a busted process.

Ben Gilbert 1:23:50 Yeah.

Brad Gerstner 1:23:50 Right? If you have a bad sponsor in a SPAC, you know, and you shouldn't be public, that's just a busted process. If you try to take a company... You know, try to direct list a company, and you, you have a reference pricing round that's too high for where the business is at, it's gonna be a busted process. So we spend a lot of time. I hired Chris Conforti out of Goldman. He ran the equity syndicate desk at Goldman, so he was the one selling all the IPOs for Goldman for a really long time. What we said we wanna do is, just as a value add for all the private companies that we talk to, that we look at, is to really be able to give them the inside scoop.

David Rosenthal 1:24:24 Mm-hmm.

Brad Gerstner 1:24:24 Right? Like, we're not a bank, but we'll tell you all the dirty secrets, right, about a traditional IPO, a direct list, or a SPAC. You can't have credibility telling those secrets unless you've lived them, which we have in each of those doors, and now we can offer what I think is the best insights to these founders. And we have no economic finger in the scale because I can partner with you. If you wanna do a traditional IPO, great, we can anchor it or just participate. Direct list, we can anchor it or participate. You know, you wanna go... You wanna partner with us, and, and we'll build the book for you, great, we'll do a SPAC. And there are different prototypes-

David Rosenthal 1:25:01 Mm, mm-hmm

Brad Gerstner 1:25:02 ... right, different archetypes for which each of those fit. Um, and I think among the folks who are doing this, we're probably, you know, um, might be first among equals in terms of our insights into how to get public.

Ben Gilbert 1:25:13 It's the old Mungerism, right? You show me the incentive, and I'll show you the outcome. And in this case, you coming from the perspective of, "Hey, you realize when the banks are trying to sell an IPO, they come to me to buy the IPO." So having sat on that side of the table and not yet having an incentive, I can talk to you about how this would get marketed to me, so you at least have that transparency. And then I can tell you how I want to play in that process, and you can give me feedback and tell me where I belong in your process.

David Rosenthal 1:25:41 Yeah. Yeah, I, I, I think... Listen,

Brad Gerstner 1:25:44 ... I see it. Banks are getting more efficient, the direct list pro- like, the, the competition is leading to more choice and better outcomes.

Ben Gilbert 1:25:52 Free market's a great thing. [laughing]

Brad Gerstner 1:25:55 [laughing]

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David Rosenthal 1:27:33 That's awesome. We've got to get Gympass for Acquired employees. [chuckles]

Ben Gilbert 1:27:36 You bet. [laughing]

David Rosenthal 1:27:37 Can we take this up with our bosses?

Ben Gilbert 1:27:40 Let's get to work on that.

David Rosenthal 1:27:42 Okay, so as we move into the kind of the analysis section here, there are two... We, of course, want to do grading, and ask you-

Brad Gerstner 1:27:49 Yeah

David Rosenthal 1:27:49 ... to paint, you know, the what, what is your... You know, when you go to bed at night and you dream your, your best dreams of an A-plus scenario for Altimeter in three to five years, versus, you know, a C-minus of, like, "We survived, but-

Brad Gerstner 1:28:01 Yeah

David Rosenthal 1:28:01 ... we missed some stuff." We'll get to that. Maybe first, if you have thoughts on kind of like a bull versus bear case on the lifecycle investor model-

Brad Gerstner 1:28:11 Yeah

David Rosenthal 1:28:12 ... And, and that probably leads into grading. What are the risks to, like, what you have pioneered and are, and are doing?

Brad Gerstner 1:28:19 Yeah.

David Rosenthal 1:28:19 Like-

Brad Gerstner 1:28:19 Yeah, well, it... Listen, I think that I certainly, I, I appreciate the credit as a pioneer. I don't think of myself as a pioneer. Like I said, in many ways, it's back to the future, right? Warren Buffett was my hero. He- if you asked him, "Why do you do private investments?" He'd just say, "I do great investments." Right? He d- like, it's not private versus public. In many ways, it's the LP community who want to put people in buckets, right? And so I think in order to generate alpha and above a- average returns in probably the most competitive market in the world, okay, you have to be extremely passionate, right? There, there are big sacrifices and trade-offs to be great in this business. And for me, if you said, "Brad, you can only do public market investing," that wouldn't scratch my itch. If you said, "You can only do venture investing," that wouldn't scratch my itch. And so, for me, it starts from the premise of like, what do I want to do? What can I be most passionate doing? And the reason I think we attract some of the best analysts in the world is because most analysts don't want to leave their, you know-

David Rosenthal 1:29:15 Mm

Brad Gerstner 1:29:15 ... thinking cap at the IPO door, right? They're like, "I spent all this time on this company, and now you're telling me I can't make any more money on it? I can't bet on it? I can't invest in it? Like, what, what's that about?" I think that the maturation of the venture growth business model is here to stay. We saw it in LBO, we saw it in private equity. That was a highly fragmented industry. You now have a handful of global platforms-

David Rosenthal 1:29:40 Mm-hmm

Brad Gerstner 1:29:40 ... right, that are prosecuting that strategy. In venture, highly fragmented industry, we're still in the, the middle of a lot of creative destruction. You got solo GPs attacking, you know, venerable early-stage firms. You got a lot of firms that are vertically integrating upwards. You got hedge funds who all say, "This venture capital stuff is easy, I'm gonna go do it." You know, at the end of the day, what I love about this business is there's a scoreboard.

David Rosenthal 1:30:08 Mm-hmm.

Brad Gerstner 1:30:09 Right? In the hedge fund, it's a painful scoreboard, right? It's like every day. Uh, and in the venture business, there's a lag. But at the end of the day, your reputation among founders... I, I say a two-sided marketplace, right? What's my NPS score among founders, and what's my NPS score among funders, the people who entrust me with their capital?

David Rosenthal 1:30:29 Mm-hmm.

Brad Gerstner 1:30:29 And I get up every day thinking about, "How do we build the best product for both of those folks?" Because if we do, and we deliver the returns, then we have a great business that I actually think is serving, you know, a really important part of the, uh, of the capital process.

David Rosenthal 1:30:43 It's really interesting, the analogy to... A, totally agree. Uh, but the analogy to the LBO business-

Brad Gerstner 1:30:52 Mm

David Rosenthal 1:30:52 ... and market, you're absolutely right. I mean, I remember coming up being an investment banking analyst [chuckles] as you were starting Altimeter in those same days.

Brad Gerstner 1:31:00 Yeah.

David Rosenthal 1:31:00 And, uh, the LBO market was vastly more fragmented than it is now, and it has consolidated around, like, some, some major... But and there are niche players, and there's lots of strategies-

Brad Gerstner 1:31:09 Right

David Rosenthal 1:31:09 ... that can work, but yet we are-

Brad Gerstner 1:31:10 Right.

David Rosenthal 1:31:10 I hadn't quite thought about it. We are, I think-

Brad Gerstner 1:31:12 And the thing-

David Rosenthal 1:31:12 ... seeing the same thing in venture.

Brad Gerstner 1:31:13 Right, and y- y- if you think about what's happened in, in the private equity LBO world, right, you have some global, now public, platforms. Their cost of capital goes down, and we've seen a compression in terms of returns, right? Because the market got more efficient. And as the market got more efficient, returns went down, right? What do I expect that, y- you know, will happen over the full arc of time in venture, right? We're going to compete away returns.

David Rosenthal 1:31:37 Mm-hmm.

Brad Gerstner 1:31:38 We've already witnessed it over the course of the last couple of years, right? But-... that just means the returns that go to the premium players, the players who truly see the best stuff, that truly convert the best stuff, are gonna be even more unique-

David Rosenthal 1:31:53 Yeah. Yeah.

Brad Gerstner 1:31:53 -and the average return is gonna be a, a, a much worse-

David Rosenthal 1:31:56 Worse

Brad Gerstner 1:31:56 ... place to be for both LPs, uh, as well for the people prosecuting those strategies. So, uh, to me, what-

David Rosenthal 1:32:02 And, and for the founders who are backed by those-

Brad Gerstner 1:32:04 That's right

David Rosenthal 1:32:04 ... firms, right, too. I mean, because there is a, as we've been saying, talk often on this show, there is a, a brand transfer and halo effect-

Brad Gerstner 1:32:11 For sure

David Rosenthal 1:32:11 ... that happens in the venture markets.

Brad Gerstner 1:32:13 For sure. The signaling effect is, is profoundly important, and I think, I think probably underestimated.

Ben Gilbert 1:32:20 Which is amazing, considering how high it's estimated. [chuckles] I'm with you, but-

Brad Gerstner 1:32:23 Right, right, and, and, and I think when you have the best partners, not even, even the best funds, it's the best partners at the best funds who do things together repeatedly.

David Rosenthal 1:32:34 Mm-hmm.

Brad Gerstner 1:32:34 It's because there's a shorthand around trust. There's a shorthand around business building, right? That increases the probability of successful outcomes, and the signaling of impact of that, like, I underestimated as a founder.

David Rosenthal 1:32:48 Mm.

Brad Gerstner 1:32:48 I don't underestimate it now. And so it's not to say that folks who take, you know, who bootstrap, take solo GP, you know, take passive capital, it's not to say they can't build big businesses, right? But I don't think that that makes it easier for them, right? At the end of the day, like, I think, y- y- you know, I said go public earlier because having that discipline and that scarcity, right, having some great early business builders that see those different patterns, they create the conditions that I also think drive success.

David Rosenthal 1:33:19 Well, and what's different now is you can go public early, and you still have Altimeter or Benchmark or Sequoia or whoever as your shareholders. It's like, it's not like you have to check your hat at the door.

Brad Gerstner 1:33:30 Sure. I think we're in the early phases of industrialization, you know, five years... And so w- how do I score myself? Our returns for our partners, right? Like, we gotta deliver excellent returns for our partners. I say to my team, "Is our NPS score with founders higher or lower at the end of the year?" Right. That is really important to me, right?

David Rosenthal 1:33:51 Mm-hmm.

Brad Gerstner 1:33:51 That's the durability of the brand. That's the love for the brand. You know, lots of software companies can increase revenue selling a shitty product with a aggressive sales force, but ultimately that will not be a really valuable software company.

David Rosenthal 1:34:04 Mm-hmm.

Brad Gerstner 1:34:04 Right? You show me a software company where the product is flying off the shelves because the people on the other end really need and want the product and love the product, right, that company, even it has lower revenue, deserves a much higher multiple. I think the same is true, um, when I think about our business and what we intend to deliver, and, you know, I, I guess this is a segue as well to a bigger issue, you know, which is, what is this all about? We are all part of one of the most fortunate systems at one of the most fortunate times, right, in the history of modern capitalism, and I intend to use this platform to do things that matter, right? And I think founders care about that, and I think funders care about that. Because at the end of the day, you know, helping some, you know, hedge fund guy make a little bit more money or some venture capitalist make a little bit more money, it's not what gets me up in the morning. So I do think that the very essence of what we do, right, which is increasing the velocity of innovation, right? Allowing Moderna to build an mRNA technology that can, you know, help solve a pandemic, right, to transform the way software works so that, you know, that is the infrastructure that powers all discovery.

David Rosenthal 1:35:16 Mm-hmm.

Brad Gerstner 1:35:17 Right? Like, those things I think are intrinsically good, um, but increasingly what I see is people who are using these platforms to drive diversity, right? To use these platforms to, to tackle things like the wealth divide, which you know I care about with, with the Invest America initiative that I've talked about. So the people who work here, right, I think if you went... I- if you did a survey, they would say, "You know, I work there because, you know, great brand, fun, love doing venture, love doing public, but we also care about, like, the impact of what we do," and I'm lucky to be able to lead that.

Ben Gilbert 1:35:50 I really wanna talk to you about Invest America, 'cause I think it's a fascinating concept, and you, you mentioned... We, we chatted about it when we were sort of preparing for this. What is the idea there?

Brad Gerstner 1:35:59 So rewind the clock. I was definitely on the outside looking in, right? I was not part of the ownership society. You know, I didn't know what stocks were, and, uh, but, you know, all else being equal, you know, I never really felt deprived. The Industrial Revolution in many ways was a great equalizer, right? My grandfather was a welder. He worked on the Manhattan Project. He was a brilliant guy, self-educated, read textbooks, but he could earn a, a wage and save that allowed him to leave 25,000 bucks for a grandkid who would go on to put himself through law school and business school. The technology revolution will have even more positive impact on humanity, but it naturally tends toward concentration.

David Rosenthal 1:36:42 Mm-hmm.

Brad Gerstner 1:36:43 Right? It is not an equalizer in terms of, you know, wealth, so far as I can see, and the data, I think, you know, works against that.

Ben Gilbert 1:36:49 It doesn't seem to have played out that way, certainly.

Brad Gerstner 1:36:51 Right, and because if think about it, it's logical, right? Mark Zuckerberg can have three or four billion customers for his product. Even Carnegie and Rockefeller couldn't have billions of-

Ben Gilbert 1:36:59 Software and then the internet on top of that kind of compounds that-

Brad Gerstner 1:37:02 Right

Ben Gilbert 1:37:02 ... advantage.

Brad Gerstner 1:37:03 And so, you know, to me, you know, the social contract that we're going to have to have is gonna have to evolve, right? And I think this country is better positioned to evolve that social contract than just about anyone, but part of it is first just making people feel, right, that they're part of the game. And, you know, the start of COVID really drove this home for me because we had massive government intervention. I went on CNBC on March 26th, the bottom, um, 2020-

David Rosenthal 1:37:31 I remember watching you.

Ben Gilbert 1:37:32 I read that this was gonna be the bottom.

Brad Gerstner 1:37:34 Yeah, it was, it was, uh, like an extraordinary day, but at the end of that day, I had, I literally had grandmothers, fathers, doctors, lawyers, just email our website-... generic email saying, "Will you protect me? Will you take my money? Will you do this?"

Ben Gilbert 1:37:51 Oh, wow!

David Rosenthal 1:37:51 Wow.

Brad Gerstner 1:37:51 Right? There's just extraordinary fear in the world. And I'm from Indiana. Most of my friends didn't go to college, you know, in the, in this small town, and what happened when the government intervened is the stock markets ripped, okay? Because the Fed went all in, Congress went all in. But a lot of those, my friends working in those RV ma- manufacturing plants were unemployed, right? Lost their jobs. And so we can't have a system where the owners win, right? Because of the government intervening, but we only have 30% of people who belong to the ownership society.

Ben Gilbert 1:38:23 And that's the public stock market.

Brad Gerstner 1:38:25 Right.

Ben Gilbert 1:38:25 That's not even, like, accredited investors, which is this tiny slice-

Brad Gerstner 1:38:28 Tiny, tiny

Ben Gilbert 1:38:28 ... you talked about earlier.

Brad Gerstner 1:38:29 Yeah.

Ben Gilbert 1:38:29 A small percentage of America that owns any equities.

Brad Gerstner 1:38:33 Right. So I, I- a very simple idea that I floated, Chamath and I were on CNBC. I'd been thinking about it for a long time. I, I've abhorred the accredited investor laws, uh, for as long as I can remember, because as a securities lawyer, you know, I remember studying securities law in law school and saying to myself, "Hold on. You mean to tell me that we've rigged the game so only rich people can invest in the best companies?"

Ben Gilbert 1:38:59 Well, they have to be protected, Brad.

Brad Gerstner 1:39:01 Right. And so, like, what, what, what's this all about?

David Rosenthal 1:39:04 Investments.

Brad Gerstner 1:39:04 Because the proxy for intelligence was money, right? Jason Calacanis has talked about having an investor test, but I knew- [laughing] I knew-

David Rosenthal 1:39:15 Jay Cal loves that investor test idea. [laughing]

Brad Gerstner 1:39:17 And by the way, like, I've seen dumber ideas.

David Rosenthal 1:39:19 [laughing]

Brad Gerstner 1:39:19 I think he's onto something. I appreciate that, on principle, he has the same, you know, allergic reaction, and maybe it's because he also grew up poor, on the outside looking in. And for those of us who did, right, i- i- you know, now that we're on the other side, we say, "We've gotta fix that," right? And so set aside accredited investor, there's some ways we, we can attack that, but one way, we get everybody into the game, okay? We have, I think, seven million children born a year in the United States.

Ben Gilbert 1:39:50 Mm-hmm.

Brad Gerstner 1:39:51 If you c- gave every single one of them an Invest America account... So think of that as a Robinhood account on their parents' phone that would eventually be on their phone. And-

Ben Gilbert 1:39:59 It just shows up from the government when you're born.

Brad Gerstner 1:40:00 Shows up from the government. You get your Social Security number, you get an Invest America account. We fund the account based on means. If your parents make over $200,000 a year, maybe we put 100 bucks into the account. Your parents can fund it up to $5,000.

Ben Gilbert 1:40:12 So it's like a FAFSA type thing.

Brad Gerstner 1:40:13 Right. If you're under a certain threshold, we put 5,000 bucks in it, okay? Can't take the money out. Compounds at six, seven percent for, you know, s- 50 years, it's worth a million bucks, okay? But much more importantly, the behavioral psychology, the behavioral economist knows the propensity of somebody who actually has a savings account, an investment account, to save goes up dramatically, okay? So because you actually have a little snowball-

David Rosenthal 1:40:43 Mm-hmm

Brad Gerstner 1:40:43 ... you understand the law of compounding, right? So if we wanna educate, and include, and make everybody feel like the system isn't rigged against them, then they actually have to be part of the game, right? We have a way to do this. It doesn't cost a lot of money, right? In the, i- in the scheme of things, like, this is less than $20 billion a year for the federal government. This is a drop in the bucket relative to trillion-dollar stimulus plans, you know, trillion dollars of defense spending, and this is a game-changer, psychologically and otherwise, for everybody in the system. Because now, over a period of 20 years, you've effectively gone from 30% of the people being owners to 100% of the people being owners, and I think that that's... You know, again, I'm sure there are other great ideas, um-

David Rosenthal 1:41:29 Do you think-

Brad Gerstner 1:41:29 But that's one that-

David Rosenthal 1:41:30 Do you-

Brad Gerstner 1:41:30 ... I really believe in.

David Rosenthal 1:41:31 Do you think it should be a discretionary account, and people should be able to... Uh, like a, like an IRA or, or-

Brad Gerstner 1:41:37 So my-

David Rosenthal 1:41:37 ... a basket of-

Brad Gerstner 1:41:38 Again, again, like, you know, what I intend to do is-

Ben Gilbert 1:41:41 When you're running for governor of Indiana [laughing]

David Rosenthal 1:41:44 Yeah. [laughing]

Brad Gerstner 1:41:44 What I intend to do is to fund people, right, to push this idea forward, okay?

Ben Gilbert 1:41:50 Hmm.

Brad Gerstner 1:41:51 There will be a lot of debate. We've debated baby bonds for 30 years, and we've never done anything. A bond is, r- so far as I can tell, right, is spiritually connected, but it's stuck in the old legacy of, like, the war bond. Like, it's safer, therefore, we'll give you a bond. But it doesn't appreciate-

David Rosenthal 1:42:09 Yep

Brad Gerstner 1:42:09 ... and the recipient doesn't learn much.

David Rosenthal 1:42:11 Mm.

Brad Gerstner 1:42:11 Right? [chuckles] And so hopefully, we can harness the energy, the power, the lessons of that, and make sure that every child in this country owns their tiny little slice of Apple, of Walmart, of Tesla, of the future SpaceX, right? And I think if they do, think of how elegant that Robinhood app is or the, your Schwab or your Fidelity app. You open it up, and they see all of these names, their tiny little ownership of all of these names, and they see that grow over time. We know how often they'll be looking at those phones. We know how their parents will feel. What I would say is they can't take the money out, right, until a long way down the line, okay? That ensures a retirement program for basically everybody. But you can add, we could build adjacent accounts, right? You could stick a 529 side by side with that, that they could pull out at college. I don't like the idea of a government program where we'll give you a little of this every year, right? Give me title and ownership, right, to something. This is mine.

Ben Gilbert 1:43:14 And then let me benefit-

Brad Gerstner 1:43:15 Right

Ben Gilbert 1:43:15 ... from American innovation.

Brad Gerstner 1:43:16 And let me compound, and benefit, and be part of the system so that when... You know, I have a, I have two sons in fifth and seventh grade, right? They're both interested in investing. They both want Robinhood accounts. They both want all this. Now, I-

David Rosenthal 1:43:30 I love... Asking for the Robinhood account is the new, "I want my driver's license." [laughing]

Brad Gerstner 1:43:34 Right! Right. But, but think about how privileged, right, that position is, right? We should have a standard curriculum in this country for sixth graders, where it starts, they walk into their math class or whatever the class is, and they say, "Open your Invest America account."... everybody's on the same page. You teach sixth graders in an inner-city c- school today about stocks? You may as well be teaching them Mandarin. They're not participants in the game, right? And so to me, you know, I talked to Seth Klarman from Baupost. He said, "I'll write the curriculum," right? I, I-

David Rosenthal 1:44:10 Yes, I'll take that curriculum. [chuckles]

Brad Gerstner 1:44:11 You know, I talked to David Solomon at Goldman, the folks at Schwab, Fidelity. Everybody sees this as a challenge. This is a simple, simple idea that we could get behind, and literally in a single term, could change over a period of a decade, the trajectory of every child born in this country.

David Rosenthal 1:44:31 Well, what's kinda cool is, like, you've... I, I think you've basically already seen evidence that this works with Robinhood. You know, Robinhood is not a-- people still had to have the means to put [chuckles] money into Robinhood and then decide to do it, but it activated so many people to become investors in America and around the world over the last couple of years, that otherwise... You know, and, and some of those people will prove to not be good investors. Some of them will prove to be amazing investors. [chuckles]

Brad Gerstner 1:44:59 Right. And some of this... Listen, I mean, part of the challenge here is everybody says: "Oh, you're letting people invest in the stock market. What if it goes down?" Well, so here's the deal. We have 100 years of history, right? Owning your slice of America is a good bet, as Warren Buffett likes to say, okay? So I don't know if it's gonna go down in the first year or up in the first year, and it doesn't particularly matter to me. I know if you give these kids a slice of America over a period of 40 or 50 years, it's gonna be worth a hell of a lot more in the future than it is when they get it. But way more important is every day of their lives, they will feel like they belong to the system. They're not on the outside looking in, and the power of that psychologically to that child will dwarf the amount of money that's in that account.

Ben Gilbert 1:45:42 Brad, before we wrap here, anything that you wanna point listeners towards? Or where could they find out more about you or Altimeter on the internet?

Brad Gerstner 1:45:52 Yeah, I would say follow me at altcap on Twitter. I encourage all of our analysts to be on Twitter. I think they're incredible brains and thought leaders and, you know, being online and sharing content... Like, I don't like to be a cheerleader on Twitter, um, but I do like and encourage our analysts to pressure test their ideas, right? Whether it's, you know, Jamen talking about what's going on in, you know, in software, or whether it's Vivek talking about what's going on in, you know, internet marketplaces or crypto, or Frida talking about what's going on in China. And so I think I always say to people, if they're interested in learning more about Altimeter, just follow, uh, this incredible group of analysts on Twitter. But all of this said, we're truly lucky, you know, to be doing what we do. You guys are doing this incredible podcast about founders and entrepreneurs. This is a rather new experiment in the history of the world, and I think it's yielded... You read the Bill Gates annual letter at the end of every year, and, uh, you know, we live in the most peaceful, notwithstanding Ukraine, we live in the most prosperous, we live in the healthiest period of time in the history of humanity. And, you know, one of the things that scares me is, you know, that people, during periods like this, they'll turn against capitalism, or they'll turn against, you know, technology, or they'll turn against whatever. But it's very clear to me, like, I'm gonna fight for that and fight for those founders. And I think when we look back at this system in 10 years, it's gonna be more vibrant, more capital, more access, more ideas, and I think the secular curve around creative destruction and innovation has never been steeper, and the ideas over the course of the next 10 years are gonna dwarf the size of the ideas that emerged over the last 10. So super optimistic and-

David Rosenthal 1:47:33 In a, in a way, Ukraine, I think, has, uh, for me at least, helped, uh, remind me of that. Ben and I were talking at dinner last night that, like, you know, the old saying that I think, uh, has become forgotten a little bit in recent years is that capitalism is terrible. It's the most terrible system, except for every other system [chuckles] that has been tried in the history of humankind.

Ben Gilbert 1:47:51 Right, it's, uh, uh, about democracy, but it, it definitely applies to capitalism, too. [chuckles]

David Rosenthal 1:47:55 Yeah. [chuckles]

Brad Gerstner 1:47:55 Right. Well, I don't think it's the only thing, right? I don't think it's the only thing in life, but I think it's an enabler for everything. You know, somebody reminded me the other day, Julian Robertson, after, you know, an incredible track record in 1999, obviously got hit hard, money redeemed, and they said, "You know, are, are you bummed to, to no longer be in the public markets?" Uh, and-

Ben Gilbert 1:48:16 He was the founder of Tiger Management.

Brad Gerstner 1:48:17 Founder of Tiger. And apparently, he, he's reported to have said, "You know, I didn't wanna die looking at a quote on my Bloomberg for the yen anyway." [laughing]

Ben Gilbert 1:48:25 [laughing]

Brad Gerstner 1:48:26 Um, so, uh, you know, yes, in this firm and in my life, my friends, my family, my kids, there are a lot of things, you know, that resonate, you know, as, as more important, but I am a staunch defender of, you know, this beautiful system. I tell you, it's a hell of a lot better than having to mortgage your house. You think about the velocity of money. If the risk you run, if you start that, you know, auto parts company, is you lose your... Y- you know, y- y- you lose your health, and you lose your house, there's not gonna be a lot of risk-taking, and risk-taking is the engine that moves humanity forward.

Ben Gilbert 1:48:58 Business creation and experiments without personal guarantees are an incredible thing, and it's amazing that we have a system that actually allocates a, a big slice of capital to go toward that.

Brad Gerstner 1:49:10 But think about that. That's a modern experiment. I don't know, modern capitalism's been around for five, six hundred years. Like, that's a 30-year-old experiment, but you think about the impact that global sovereigns who are trying to effectively take fossil fuel dollars and turn them into technology dollars. We have more dollars moving into this. Uh, you know, you mentioned we have very few people who have access, okay, to the private markets. I, I heard this statistic the other day, uh, you know, endowments and others have reaped the benefit, which makes me happy, but retail investors and the average investing public has not. A 1% increase in penetration of the retail investing public to alternatives, I heard, is a trillion dollars. Like, I haven't run the math myself, but it's an extraordinary number.

Ben Gilbert 1:49:57 Yeah.

Brad Gerstner 1:49:57 And if you look at the retail channel-... the accredited investor retail channel through Goldman, through Morgan Stanley, through these other aggregators, as a percentage of the fundraise for Tiger, for Coatue, for Altimeter, it's going up dramatically relative to traditional-

Ben Gilbert 1:50:14 Mm-hmm

Brad Gerstner 1:50:14 ... LPs. And so we'll do another episode, and we'll talk about how we're gonna unshackle ourselves from the accredited investor rules.

Ben Gilbert 1:50:21 I love it. Would you ever consider a future for Altimeter where your LP capital is more directly from people?

Brad Gerstner 1:50:29 For sure. For sure. I mean, like, it, it... You know, our aspiration is not to be the biggest, but our aspiration is to, uh, have the scale, to have the level of impact that we can to drive the highest NPS among founders and funders. Like, we wanna deliver for both of those, uh, folks in that network, and I think it's inevitable that an increasing percentage of these dollars can, and will, and should come from willing retail investors who want exposure to this incredible asset class.

Ben Gilbert 1:51:02 All right, listeners, hope you enjoyed our interview with Brad. He is, uh, he's unbelievable. I mean, what a journey the last 20 years have been for him, building Altimeter and, and really helping to shape this industry.

1:51:15 Totally.

1:51:16 And personally, I'm pretty excited about his sort of idea with Invest America, and we'll definitely be watching to see where that goes.

1:51:25 Totally, totally.

1:51:26 Well, listeners, to round us out, you know the drill. Join us in the Slack, acquired.fm/slack. We're gonna be talking about this episode and everything else. We've got the Limited Partner Show, where, uh, recently we've had awesome episodes with the folks from NCS Capital coming back to talk about the state of the markets. David Christina Melas Kyriazi joined us to talk about fintech. Uh, we've recorded two more episodes that we haven't dropped yet to the general public that are rolling out to paid Acquired limited subscribers, and, uh, those folks can join at acquired.fm/lp to get two weeks early access. We've got a job board and some really great stuff on there. I just added a couple the other day from Vanta after we got to spend time with them, uh, at their office, met their head of engineering, uh, spent some time with the team, so really cool companies. Go check those out. And, uh, lastly, if you enjoyed this episode, share it with a friend. You don't need to shout super loud from social media hilltops. We like that high-affinity, one-to-one stuff, so, uh, share it with a friend. Think of someone that has kind of talked about some of these concepts with you, and see if they'll, uh, take a listen, and, and they might enjoy it just as much.

1:52:39 Indeed.

1:52:39 With that, thank you so much to Vanta, Vouch, and our friends at SoftBank Latin America Fund. And listeners, we will see you next time.

1:52:49 We'll see you next time.

Speaker 1:52:51 [singing] Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Huh! [upbeat music]