Altimeter (with Brad Gerstner)

1. BGBen Gilbert0:00

   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]

2. SPSpeaker0:12

   [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?

3. BGBen Gilbert0:29

   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.

4. DRDavid Rosenthal0:43

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

5. BGBen Gilbert0:49

   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.

6. DRDavid Rosenthal1:32

   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]

7. BGBen Gilbert1:43

   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.

8. DRDavid Rosenthal2:43

   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.

9. BGBen Gilbert2:52

   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?

10. SPSpeaker3:34

    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.

11. BGBen Gilbert4:30

    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?

12. SPSpeaker4:43

    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.

13. BGBen Gilbert5:18

    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.

14. DRDavid Rosenthal5:35

    Thank you, Vanta.

15. BGBen Gilbert5:37

    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 to Brad Gerstner from Altimeter Capital. Tell us about your family and your dad's experience with entrepreneurship.

16. BGBrad Gerstner6:17

    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.

17. BGBen Gilbert6:57

    Was it a, like a GM, uh-

18. BGBrad Gerstner6:59

    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.

19. BGBen Gilbert7:16

    With the Fed under, under Volcker?

20. BGBrad Gerstner7:18

    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.

21. BGBen Gilbert8:26

    In a typical Acquired episode or a typical tech story-

22. BGBrad Gerstner8:28

    Yeah

23. BGBen Gilbert8:28

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

24. BGBrad Gerstner8:31

    Right. [chuckles]

25. BGBen Gilbert8:31

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

26. BGBrad Gerstner8:37

    Right.

27. BGBen Gilbert8:37

    "I'm gonna go do the same for the..." That's not what happens, right?

28. BGBrad Gerstner8:39

    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.

29. BGBen Gilbert9:40

    Yeah.

30. BGBrad Gerstner9:40

    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.

Episode duration: 1:53:10