Episode #454: Rex Salisbury, Cambrian – a16z Companion Turned Solo GP on Why He Believes Now could be the Time for Fintech
Visitor: Rex Salisbury is the Founder and Normal Companion of Cambrian Ventures. He was beforehand a founding associate on the A16Z fintech group.
Date Recorded: 10/12/2022 | Run-Time: 1:01:18
Abstract: In right now’s episode, Rex shares an summary of Cambrian and the good thing about the fintech group he’s constructed over time. We contact on the three-body downside and the way it pertains to enterprise capital, the aggressive benefits of various VC’s, and why he believes you may be consensus and win in enterprise capital.
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Hyperlinks from the Episode:
1:34 – Intro
2:20 – Welcome to our visitor, Rex Salisbury
7:43 – Launching a fund as a solo GP
14:48 – ETF Architect episode
15:36 – How the three physique downside pertains to the way forward for enterprise capital
26:58 – Defining what FinTech means to him
32:16 – How the chance set appears to be like right now
34:22 – The methods through which Y Combinator has raised the standard of what founders know when beginning a brand new firm
37:09 – Why is Rex solely investing within the US?
39:01 – Rex’s request for startups
43:41 – How onerous it’s to run and nurture the group he’s constructed?
50:38 – How a lot of the result of his investments has been correlated to his conviction in them on the time he invested?
55:45 – Rex’s most memorable funding
57:54 – Study extra about Rex; LinkedIn; Twitter; cambrianhq.com
Transcript:
Welcome Message: Welcome to “The Meb Faber Present,” the place the main focus is on serving to you develop and protect your wealth. Be a part of us as we focus on the craft of investing and uncover new and worthwhile concepts, all that can assist you develop wealthier and wiser. Higher investing begins right here.
Disclaimer: Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. On account of business laws, he won’t focus on any of Cambria’s funds on this podcast. All opinions expressed by podcast members are solely their very own opinions and don’t mirror the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.
Meb: Welcome, podcast associates. We’re again with one other enjoyable present right now. Our visitor is Rex Salisbury, a founding associate of the a16z FinTech group and is now a solo GP with Cambrian Ventures. In right now’s episode, Rex shares an summary of Cambrian and the good thing about the FinTech group he’s constructed over time. We contact on “The Three-Physique Drawback” and the way it pertains to enterprise capital, the aggressive benefits of various VC fashions, and why he believes you may be consensus and when in enterprise capital.
Yet one more factor earlier than we get to right now’s episode, whether or not you hear on Apple Podcasts, Spotify, or one other platform, go forward and depart us a evaluation. We like to learn them, and it helps folks discover the present. Please get pleasure from this episode with Rex Salisbury.
Meb: Rex, welcome to the present.
Rex: Hey, Meb. Nice to be right here. Thanks for having me.
Meb: The place’s right here? The place do we discover you right now?
Rex: I’m calling in from the Presidio in San Francisco, the place you’ll find me most day by day. So I each dwell and work right here, spend a number of time operating. Nice yard to have however nonetheless be within the metropolis.
Meb: Give us a fast Rex background, as a result of, you recognize, you left the nice and cozy, fuzzy confines of one of the crucial storied and profitable enterprise capital corporations to exit by yourself, which, I think about, is slightly thrilling however nerve-racking on the similar time. Give us slightly origin story on you, the way you got here to the place you might be.
Rex: Yeah. So I sort of unintentionally ended up in enterprise capital and serving to begin the FinTech apply at a16z, Andreessen Horowitz. That was my preliminary foray into enterprise. However how I ended up with this one, so that is Cambrian Ventures, early-stage FinTech fund, which I’m deploying out of now and began January of 2022, truly takes me sort of manner again in that, at one cut-off date, I used to be an funding banker, discovered quite a bit, completely hated it, give up my job, moved throughout the nation. I used to be simply excited in regards to the alternatives for, like, constructing new issues in monetary companies, particularly round utilizing expertise. So I used to be like, “I wish to work in Fintech,” proper? However I’m an funding banker, so I’m getting gives, but it surely’s like, “Come work in finance for this, you recognize, monetary expertise firm.” It’s like, “I don’t wish to work in finance. Like, I wish to do one thing else.”
So I taught myself to code, even executed a coding boot camp. So I got here out right here, gotten just a few gives in these sort of nebulas, like finance ops roles at early-stage corporations, and I used to be like, “I don’t wish to do this.” So as an alternative, I truly went full in on the engineering facet of issues, and I joined an organization referred to as Sindeo, working as sort of lead again and engineer a billion of totally automated on-line mortgage pre-approval with one of many co-founders of SoFi, Andy Carra, who’s my CTO there. That firm was a failure, actually nice studying expertise, nice group, had an incredible time. One of many issues I constructed there was this, like I mentioned, totally automated on-line mortgage pre-approval factor, like Rocket Mortgage, push button, get mortgage. I constructed out sort of the APIs to energy an analogous expertise like that. And I used to be like, “Oh, that is actually…” this was circa 2014, “That is actually cool.” Like, mortgage, one of the crucial necessary monetary merchandise in a client’s life, it’s extremely painful to get a mortgage, proper? It takes, like, three months. It’s extremely expensive. There’s all of this documentation concerned. Like, “Let’s try to work out how we are able to simplify that course of.” And so I believed we’d construct some fairly attention-grabbing expertise about that.
However in the meantime, throughout, like, all of economic companies, you’ve gotten these software program engineers and founders engaged on different issues. And I’m in San Francisco now, I used to be like, “I wish to discuss to these different people who find themselves working within the different corners of economic markets to sort of construct new issues which might be cool and thrilling.” And so I began convening folks on constructing group for founders, you recognize, product managers, software program engineers to speak about issues they’ve constructed and launched in FinTech.
So 2015, I believe it was, we had our very first meet up in downtown San Francisco for Cambrian, the group. And we had, presenting there, my group demoing the applying we’d constructed at Sindeo, we had the Plaid group demoing their API, after which we had a 3rd group demoing an software they’d constructed largely on prime of Plaid. And so, from that sort of core kernel of simply, like, attention-grabbing folks speaking about issues they inbuilt FinTech, Cambrian, the group, actually took off and, principally, by 2019, had, you recognize, 15,000 e-newsletter subscribers, 5,000 meet up remembers, I used to be operating month-to-month occasions in San Francisco and in New York, had 2 annual summits, quarterly jobs gala’s, only a entire lot of stuff happening, and I used to be getting much more power from doing the ecosystem-level work. And I’ve been pulled into investing and advising corporations over time. And so I truly give up my job, went full time on Cambrian the group to run it as an occasions enterprise. So the plan was to boost a small fund.
However then a16z reached out to me, Andreessen Horowitz, mentioned like, “Hey, we’re beginning a FinTech apply. We love what you’ve executed. Like, you perceive monetary markets out of your time in banking. You clearly perceive, like, how to consider an ecosystem and sort of marshal folks and sources via your time constructing group at Cambrian. We’re going to start out a FinTech apply at a16z. Why don’t you be part of us and assist construct that out?” And so I used to be the primary associate who was introduced on externally there, with the understanding that I might keep for 2 years, assist construct out that apply, after which, if I needed to, exit and nonetheless go and do my very own factor. And so, spent two years there, targeted totally on the investing facet of issues, had an incredible expertise, nice group, superb alternatives to see, you recognize, one of many massive names in enterprise capital, go from, after I joined, name it 100 folks, they’re going to finish 2022 at about 500 folks, comparable sort of scale by way of AUM as properly.
However actually, what it got here all the way down to is, like, I’ve constructed this group, I had this sort of actually deep connection to, like, early-stage FinTech ecosystem, and by being unbiased, I get to leverage a number of these relationships and networks that I’ve constructed which might be particularly, you recognize, well-designed for supporting corporations at sort of their earliest stage. And so I focus solely on investing in sort of first cash and checks for corporations with U.S. go-to-markets, often, like, a 500k preliminary examine. After which the fund itself has sort of a group taste to it. After which now we have, as LPs within the fund, a number of the highest founders within the ecosystem, from locations like SoFi, Plaid, Betterment, sort of the record goes on. We’ve received 20+ of us throughout all kinds of verticals in WealthTech, to InsurTech, to actual property, you recognize, monetary software program, the record goes on.
Meb: So there’s a few jumping-off factors, I believe, are fairly attention-grabbing earlier than we sort of get in deep into FinTech and what you guys are on the lookout for. The primary being, you recognize, clearly, you’ve gotten an superior pedigree at a16z, however constructing the group forward of time, I think about, is a fairly distinctive, invaluable asset when deciding to launch a fund. Would love to listen to slightly little bit of that as a result of the best way you’ve determined to do that is, primarily, as a solo GP, proper, and you’ll affirm that. I don’t know the way massive your group is now, however I’m assuming it’s not 500. So, you recognize, Rex, Integrated. Is that one thing additionally that seems like could not have been potential 10, 20, 30 years in the past? I don’t know. Like, it looks like a extra fashionable invention that is a bit more latest. So inform us slightly bit in regards to the resolution to be solo, in addition to sort of the group facet, if that was a giant assist in launching this effort.
Rex: Yeah. So the primary reply, the one query, I’m a solo GP, and that’s the plan for the foreseeable future. I do have a number of actually nice of us supporting me, although, in numerous capacities. After which, specifically, although I’m a solo GP, I draw quite a bit from the sources of the group I’ve constructed. So I already sort of talked about the 20 founders, our LPs within the fund, even have a number of connectivity which might be of us within the enterprise ecosystem. And one of many different sort of massive group equipment I’ve constructed up not too long ago in the course of the pandemic is now we have a Slack group of 1,500+ FinTech founders, and so I believe, so far as I do know, the biggest sort of on-line group of FinTech founders on the market. And that, so I’m always involved and communication with a number of of us within the ecosystem, whether or not it’s our portfolio corporations, these 1,500 founders within the Slack, the founders who’re LPs within the fund.
So, like, sure, I’m solo GP, however to your level, like, having a group equipment is extremely useful for me and the work that I do and extremely useful for me to sort of marshal the sources of that group to assist our portfolio corporations. However, you recognize, the group can also be one thing that I’ve constructed to create worth for the ecosystem simply because I used to be passionate in regards to the ecosystem, like interacting with folks. And I began it six years in the past, and so now I get to sort of use some elements of that to what I do in my day job as an investor, however I’m nonetheless targeted on attempting to simply create common worth for the ecosystem by facilitating a number of connectivity between all of the completely different gamers inside FinTech.
I believe FinTech is a very attention-grabbing class, you recognize, say, versus enterprise SaaS or client software program, the place it’s, by nature, extra extremely networked, partly as a result of it’s so extremely regulated, proper? When you’re constructing a monetary product, you’re going to want sure sorts of licenses, authorized counsel. You’re going to want numerous infrastructure suppliers. You’re most likely going to want different companions and channel companions. And so there are all of those explanation why founders throughout the FinTech ecosystem have arguably extra must sort of join with one another than you do in case you’re constructing a client social app, proper? Like, in case you’re constructing a client social app, you don’t essentially want to speak to all the different client social app folks, as a result of there’s not essentially a complete lot you are able to do collectively. However in FinTech, it’s, like, extremely collaborative by way of, you recognize, why you would possibly must be working with folks within the ecosystem, and so I believe why a group strategy actually issues.
And then you definately additionally had…so I imply, like, might you do one thing like this, you recognize, 30 years in the past? No could be the very brief reply. However even for me, personally, I don’t suppose that is one thing I might have executed even 4 or 5 years in the past. I believe one is LP urge for food and curiosity in backing solo GPs. That’s sort of a brand new class of factor. In order that wasn’t there. Two, even in case you did have the urge for food and the curiosity, the concept in case you needed to fundraise for a fund, you can do a number of that remotely, which I did, that simply wasn’t within the water. I’ve received two youngsters. I’ve received a five-year-old and a two-year-old, and so, like, the concept of spending, you recognize, months on a airplane simply going to speak to folks is…I most likely would have simply mentioned like, “Thanks, however no thanks.” So LP urge for food for solo GPs. The concept that group issues, I believe, is sort of a brand new thought. It’s one thing that I’ve been doing for a very long time however I really feel has grow to be extra scorching or topical simply within the final two years, partly as a result of one of many massive issues folks speak about in Web3 is how Web3 is a community-oriented motion, proper?
So LP curiosity, the flexibility to boost remotely, after which, additionally, you recognize, and that is the place sort of the FinTech facet of issues is, simply a few of the infrastructure that lets you function corporations. There are a number of completely different platforms you’ll be able to launch a fund on prime of now, proper? There’s AngelList, there’s Sidecar, there’s Carta, and people are sort of extra holistic platforms, to some extent, though you continue to want a number of different assist. There are additionally issues you need to use for, like, doc administration, rights administration. Like, there’s all of these items that makes it extra possible as a solo GP to have, like, nice tooling that makes it slightly bit simpler and sooner to rise up and operating than it will have been, you recognize, a number of years in the past.
And I believe that’s actually thrilling, and also you’re seeing lots of people experiment with completely different fashions in enterprise. I believe one of the crucial notable ones being that of the solo GP since you break down a enterprise agency, like, essentially the most atomic unit is a person associate. And if you concentrate on you’re going to have a Nobel laureate in your present, I believe, later right now, however one other nice economist, Ronald Coase, you recognize, the Coase Theorem, the idea of the agency is {that a} agency is one thing the place the inner transaction prices are lower than the exterior transaction prices. And so, in case you truly make it simpler to create enterprise corporations due to sort of the substrata of each the infrastructure that exists in addition to the sort of, like, LP urge for food and sources of capital that exist, it’s best to anticipate to see new methods of being inside the entire sort of enterprise ecosystem. And that’s why it’s going to be fascinating for the following decade to see how enterprise capital, as an ecosystem, evolves, given all of those sort of shifting elements by way of how one can take into consideration constructing a agency.
Meb: So did you find yourself constructing the fund on one in all these web sites you talked about or companions, or did you do it slightly conventional manner? How did you go about it?
Rex: Yep, I run a standard fund on prime of the AngelList platform. And they also assist me out with a number of the back-office-oriented stuff. After which I even have folks that I introduced in who should not essentially technology-oriented companions however partly as a result of there are extra solo GPs and extra rising managers now which might be of us who’re well-designed from a service perspective to assist that. So I’ve an outsourced COO, CFO group that’s sort of well-tailored to working with these platforms and focuses on doing and supporting rising managers. So each are, like, technological elements, but additionally, even the service and people-oriented elements have gotten extra developed for that sort of factor.
Meb: Yeah. One of many cool elements is, in a lot the identical manner that a number of the phrases of startup funding has been templated, you recognize, the fund facet now’s too. So it’s, in some ways, like, fairly turnkey, which is nice to see. We joke about this quite a bit in our enterprise with launching an ETF is, in most of the similar methods now, a number of the frictions and trigger. We’ve executed reveals with associates from ETF Architect, in addition to Tidal and others, that sort of enables you to white label or launch a fund fairly merely. As a result of in case you look again on it, 90-some% of the phrases are fairly customary. I imply, so then, it’s simply getting the plumbing…
Rex: It’s loopy how a lot everybody at each degree of economic companies pays legal professionals to do principally the identical factor. Like, it’s simply insane.
Meb: Yeah. There’s nonetheless a number of fad on the market, as a result of that’s my, most likely, primary line merchandise as properly, that very, very private remark, with all the pieces that’s SEC-registered tends to get costly with the authorized group. We love our group. We truly use a San Fran…old-school San Fran enterprise. So shout out to Shartsis Friese, in addition to Morgan Lewis. Nice groups. All proper. So let’s discuss slightly bit in regards to the enterprise house, basically, after which we’ll dig into FinTech and sort of what you might be doing particularly. We’ve talked about a few traits, you recognize, happening in VC over the previous decade or two. What else is in your thoughts, as you look across the VC panorama, that appears to be shifting? There’s some huge cash floating across the previous 15 years, which I believe is nice. Enterprise is at its core nonetheless, sort of a tiny asset space relative to different areas of sort of conventional asset administration. Once we say some huge cash, you bought to place it in context. What are some views on enterprise, basically? Some other ideas on the house? I do know you have been speaking slightly bit in regards to the three-body downside idea, which, for individuals who haven’t been acquainted, is a science fiction work that I’ve learn. Or no less than I learn the primary one. I haven’t learn all of them. I hand you the mic, what’s some common ideas? What’s happening on the earth of VC?
Rex: Yeah. And have you ever learn that Frank Rotman’s Three-Physique Drawback, which is his sort of tackle equilibrium factors in enterprise capital? I don’t know in case you’ve come throughout that or not.
Meb: Let’s hear it. I’ve seen it, however clarify it for the viewers.
Rex: Yeah. So first, I’ll simply say…we’ll dive into that one slightly bit, however I believe, to your level, 100%, enterprise has gone from being this very, very small, very, very cottage factor. Like, I believe one of many very first funds raised was, like, Kleiner within the ’70s, and it’s them driving round…you most likely know the story higher than I do, you recognize. It’s a $6-million fund, possibly, in 1970 that they’ve satisfied everybody of what this factor is and sort of will get going from there. You may go even additional again, speaking about, you recognize, like, whaling and people sort of fashions. However right now, even 10 years in the past, like, I’ve received a chart up in entrance of me for capital raised by enterprise funds within the U.S. in 2012, $23 billion, which is, like, a rounding error once you take a look at different sectors of capital markets, even personal markets.
After which, in 2021, it was an all-time document, 150 billion, which is fairly significant, however they’re nonetheless, you recognize, in comparison with different markets, it’s not enormous. However we’re attending to the purpose the place it’s…you recognize, a16z, Andreessen Horowitz, my previous employer, within the, like, a few years that I used to be there, went from about 10 billion in belongings to now, I believe it’s north of fifty billion. So that you’re beginning to get up to now the place you’re getting institutionalization of what was a cottage business. Effectively, the sort of panorama for how one can, you recognize, launch a fund, construct a fund, what that may appear to be, is altering. And so all that’s to say we’re on this actually attention-grabbing interval the place it’s turning into an actual asset class, and it’s sort of up for debate as to, like, what precisely will it contain into asset institutionalized. And what it’ll appear to be might be very, very completely different, and it’ll most likely be completely different gamers who specialise in completely different sorts of issues.
So I believe it’s a great level to speak about sort of “The Three-Physique Drawback,” which is a bit written by Frank Rotman, who’s one of many founders of QED, which is a FinTech particular agency, and he argues that there are sort of 4 steady equilibrium factors that he sees because the doubtless locations the place enterprise corporations can sort of specialize and be enduring, no less than for this sort of subsequent section, possibly 10 years. And a type of are, like, scale partnerships, the, like, a16zs, the Insights of the world. Two are sort of the extra early-stage specialists and extra of the sort of boutique kind approaches or early-stage generalists, specialists, I believe, is what he calls them. And that will be like, you recognize, the Benchmarks or the First Rounds. After which one other could be sort of non-consensus alpha of us, individuals who actually simply exit and discover new issues which might be fairly a bit completely different. After which the fourth could be sort of solo capitalists, solo GPs who’ve very distinct model worth, very distinct worth proposition for the founders.
And so these are sort of the theories he sees. And the explanation and the way he will get to that conclusion, and you recognize, I truly interviewed him not too long ago, talked via a few of this, is you’ll be able to sort of search for historic antecedents for different areas which have gone via intervals of change. I believe one of many attention-grabbing areas to speak about, and love to listen to your ideas on this too, Meb, are, like, the massive asset managers that we all know right now, Blackstone, BlackRock, Vanguard. Three very completely different corporations, however all of them have been born across the similar time within the Eighties as asset administration, particularly for public market fairness, granted Blackstone is extra of a personal fairness platform. All of them received began on the similar time as a result of there’s that very same interval of institutionalization, And I believe we’re at that interval for enterprise capital right now the place, because it goes from being a cottage business to an institutionalized asset class, you’re going to see these bursts of those sort of massive mega-firms. In sure methods, I believe Andreessen Horowitz has an excellent chance of being a type of sort of defining that class. And historical past doesn’t repeat, but it surely does rhyme, and so there will likely be some similarities by way of how the remainder of it shakes out.
And so that is the place Frank talks via different sort of historic antecedents, issues just like the consulting business, used to have a ton of sort of boutique consulting corporations, and now now we have, like, the massive ones, like Bain, McKinsey, BCG, and so on. You take a look at accounting corporations, used to have a ton of boutiques, now you’ve received the Large 4 and an extended tail of different ones. And so one thing comparable might be going to shake out in enterprise capital the place you’ve gotten some actually massive names that construct out enormous presences, however then you definately even have this sort of different units of gamers who can exist throughout the ecosystem. In order that’s sort of slightly little bit of the overall taxonomy of the three-body downside however I believe slightly little bit of what’s going on in enterprise proper now. I, in fact, am biased, however I’m excited in regards to the capability of solo GPs to exit and ship worth, and the sort of pitch there’s that, greenback for greenback, these needs to be essentially the most useful folks in your cap desk as a result of they’re often extremely community specialists who ship very particular worth to you and your organization for a factor you want.
So my pitch, at Cambrian, for instance, is, look, I’m extremely networked into the house, however not simply myself, my connectivity into the group and the ecosystem that I’ve constructed permits me to marshal…I’m sort of accessed to a community of networks, you recognize, the 20+ founders, our LPs in fund, the 1,500+ founders who’re members of the group, and simply the truth that I’m a non-lead additionally signifies that I’m in a position to collaborate with multi-stage enterprise funds and plenty of different folks within the ecosystem in a manner that’s sort of distinctive relative to different gamers. In order that’s slightly bit, I believe, a breaking down of a few of the taxonomy of enterprise, I’d say. However I like to listen to your ideas too, Meb. I’m positive you’ve thought of it slightly bit.
Meb: I largely agree with you, and we’ve been speaking about this for a very long time within the conventional public house, mentioned, “Look, the bottom case now within the public areas is zero,” that means zero charges. You may get a world ETF portfolio.
Rex: It’s barely unfavourable. Isn’t there one that you just receives a commission now, or is it…? I assume Constancy has the zero, proper? So Constancy has some zeroes.
Meb: It’s a few foundation factors, however when you embody brief lending income, you’re primarily getting paid on a portfolio, which is superb. Greatest time ever to be an investor. It’s tremendous cool. It’s additionally the best time ever to mild all of your cash on hearth and blow it up with dynamite, you recognize, with entry to buying and selling actually something. So, to me, that’s, like, the competitors, and there’s nonetheless tens of hundreds of funds on the market that cost much more than zero, proper? And so, once more, it comes again to what’s your worth proposition. And so you’ve gotten a number of these legacy belongings the place individuals are paying much more than zero, however they, primarily, are simply getting beta. In order that they’re getting the S&P 500, for instance, for shares.
Rex: It’s insane. And I do know you’ve talked about this, however what number of S&P 500 ETFs there are that cost, like, 1%? Like, they simply take a very long time to die. In order that’s most likely going to be true in enterprise too that there will likely be these legacy platforms which might be clearly dying, but it surely’s going to take some time as a result of these are 10-year funds, they’ve deep relationships with LPs. Like, you recognize, it may possibly take some time, even when it’s very clear they’re on their manner out
Meb: Yeah. I imply, look, and among the best issues you are able to do as a newly minted GP is have a great first fund or get slightly lock. However that sort of christens you…there’s been a bunch of educational analysis, additionally within the VC house, on this that it christens you as somebody who actually is aware of what they’re doing and will get a for much longer leash on future funding and fundraiser. However, like, let’s say even in case you’re a storied agency that’s executed properly, and also you hit a few tough patches, like, you continue to get a good period of time earlier than that goes away. And so, enterprise and personal fairness have such lengthy lock-up intervals or simply sort of time to fruition, a few of these being properly over 10 years, 15 years typically. However, yeah, so the asset on the general public facet, I believe, the standard gamers, you recognize, there’s folks…cash tends to get cozy the place it’s till disturbed. And so the folks which might be solely promoting these when somebody dies, when there’s, like, a taxable occasion, divorce, or one thing actually dangerous occurs, like a giant, fats, nasty bear market, but it surely doesn’t return, you recognize, to a number of the standard no-value-add incumbents.
So I believe you’re spot on and that you just’re going to have…I imply, this has at all times been true, but it surely’s turning into extra true, it’s a must to have a really clear worth proposition going ahead. Within the public house, in case you can cost greater than zero, I haven’t seen as a lot of the pricing stress in you all’s world but, or in any respect, possibly there’s, but it surely looks like a number of the argument in VC is that, “Hey, you’re capturing for this prime quartile. And if you may get it, you recognize, you’re going to have an enormous unfold on the efficiency.” So anyway, I agree with you. So we attempt to be…our tagline after we discuss to folks we see, “We wish to be bizarre, concentrated, and completely different,” you recognize, which some folks like and a few folks actually don’t like. However you sort of must, for my part, in case you’re going to cost greater than zero.
So you’ve gotten this example the place you bought these big gamers, like a16z. You’ve this new rise of solo GPs. You talked about just a few of your sort of calling playing cards and worth provides. So let’s sort of, like, stroll via the method, you recognize. So that you raised a fund, 28 million, I believe, and what number of names are you guys concentrating on per fund? Is it 10, 20, 100?
Rex: Yeah, I’m concentrating on about 30 and deploying over about 2 years, and that comes all the way down to being a perform of each what number of nice entrepreneurs do I believe are on the market within the ecosystem that I wish to be backing and what number of entrepreneurs do I believe I can truly assist properly. And my dedication to entrepreneur is to be very concerned for the primary sort of yr to 2 years, possibly even slightly bit extra of that firm’s lifecycle when entry to these networks and relationships actually matter and will assist them discover alternatives they won’t uncover on their very own. When you get via your…I’m often first examine in, your subsequent spherical of funding or your subsequent two rounds of funding, often, I’ve a bigger group, you’ve gotten a way of product market match, you recognize the place to look, you’ve gotten a group that would construct out these relationships, and at that time…and you’ve got a board. And at that time, having somebody like me is much less useful, since you’ve sort of…you haven’t figured all the pieces out, however you figured a number of the unknowns out, proper? And you recognize sort of the place you’re trying, whereas the place I will help is, like, determine the alternatives you may not even have thought to search for early on, in addition to, like, one of many massive issues I will help out with is, you recognize, serving to with subsequent fundraises, so.
Meb: Once you say FinTech, it means a number of various things to a number of completely different folks. So for you, once you’re sort of underneath this umbrella, like, what does it imply? What are you guys on the lookout for on this FinTech ecosystem? Are there sure areas of it that you just suppose are extra relevant to sort of your wheelhouse and fund investments?
Rex: Yeah, completely. I believe one of many issues criticisms of FinTech initially was, like, “Is it even a class?” Like, this was, like, 4 or 5 years in the past. There actually hadn’t been any exits. And then you definately had Credit score Karma and Plaid. In fact, Plaid and Deel find yourself going via. So it’s, like, okay, now, it’s sort of a class. I believe now, the issue is, like, it’s so broad of a class, it’s like, “What does that even probably imply?” And I believe what I’m enthusiastic about is simply sort of the following layer down of economic companies, in addition to sort of intersectional areas. So in case you take a look at FinTech because it intersects with, like, HR tech, FinTech because it intersects with well being care, I’ve executed one funding that’s doing sort of a vertical software program play in well being care. When you take a look at InsurTech, there’s sort of a bunch of stuff that hasn’t essentially been executed there but.
When you go all the way down to the following degree of simply software program and information orchestration throughout all of the platforms, there’s a bunch of attention-grabbing work to be executed there. Digitization of banking software program I believe was sort of poo-poo’d by a number of FinTech buyers, like, “Oh, you’re promoting software program to, like, the incumbents. You’re going to die.” And that’s, like, sort of studying that, “Oh, they most likely aren’t going to die, and they’ll have, like, a very massive function to play in sure areas of finance for a really, very very long time.” So, like, that’s a complete one other class. Business actual property lending is one other one the place in case you…I spent a number of time with client, residential, mortgage, actual property, very complicated, troublesome ecosystem. Business actual property lending and sure segments, simply as massive, even much less expertise.
It’s an space the place most individuals haven’t spent a complete lot of time who’re technologists, however just a few groups, truly, as a result of the FinTech ecosystem has gone so massive, have spent actually significant time constructing information platforms in that house or different sort of issues, so that they now perceive that downside each as…you recognize, there are many folks within the monetary and actual property markets who do perceive it, however there aren’t that a lot of them who’re additionally technologists. Now, you’ve gotten people who find themselves each.
Meb: And so you’ll contemplate these to be, like, for the standard vernacular, pre-seed?
Rex: Yeah, pre-seed might be one of the simplest ways to name it. We name it pre-seed or seed.
Meb: And so what’s the vary on kind of the market caps and checks you’re writing for these, only for perspective?
Rex: Yeah, they vary from sort of 5 to fifteen caps, typically, on a post-money foundation. And simply commentary by way of how the market has developed after I first began out very early in 2022, I might say the window, once more, skewed, however the entire window of valuation ranges was from 10 caps to 50. And now, it shifted all the way down to what I simply talked about to you. Pricing is lastly beginning to right on the pre-seed.
Meb: Good to see, as a result of I’ve been ready. I really feel like, and I don’t see it like the best way you do, clearly, as a lot, however I attempt to hold tabs on it. And positively, it was sort of going bananas the previous few years. After which I noticed it begin to sort of right earlier this yr, but it surely’s good…I imply, it’s good and it’s dangerous.
Rex: Seed is the longest. It’s, like, essentially the most insulated folks. If it’s your first spherical of funding, your alternative is at all times simply to attend. Whereas if it’s your second, like, it’s a must to increase, and similar for later-stage corporations which might be burning via money, and so that is the a part of the market that takes the longest to regulate. And we’re in slightly little bit of a bizarre state of affairs proper now the place offers are taking longer to get executed, partly as a result of that’s historically simply how offers have often taken three months for folks to undergo diligence, and so on., however partly as a result of there’s rather less readability available in the market as to what the sort of common market clearing value needs to be.
If you concentrate on promoting a home in a scorching market, you simply take a look at, like, the couple of homes down the road that bought within the final month, and also you’re like, “Okay, that is how a lot this home ought to promote for. Now, in case you’re going out and also you’re elevating, properly, lots of people didn’t increase, like, new cash, there are a number of extensions over the summer time, not as many individuals raised new rounds over the summer time. After which your final comps are sort of from Q2, so that you’re like, kina, “What’s the market clearing value?” So, like, A, I’m going to take longer in diligence, B, there’s much less certainty about what precisely the worth needs to be. And so issues are slightly bit bizarre proper now as they reset.
So it might be, you recognize, issues proceed to go even decrease or it might be they sort of begin to stabilize and even go up due to one thing else, I’m positive, you’ve talked about. Like, there are document quantities of dry powder within the ecosystem proper now and a number of these giant multi-stage funds. Enterprise capital fundraising for 2022 was nonetheless at an all-time document, although the markets have slowed down, proper? There’s slightly little bit of a lag impact there. And a number of these multi-stage funds do wish to deploy into seed or pre-seed, they usually nearly don’t know tips on how to write small checks. And so what which may imply is there would possibly simply be this sort of everlasting sort of stability for the earliest rounds that corporations increase, however we’ll see. We’ll have extra readability on that within the subsequent couple of months.
Meb: Yeah. Historically, that is kind of, like, a half millioncheck, a millioncheck, or what’s sort of the ballpark for you guys?
Rex: Yeah. I often write a 500k initialcheck.
Meb: Nice. So inform us slightly bit about…how’s the chance standing on the lookout for you? You already know, your course of often simply kind of, as a solo GP, you’ve gotten a singular asset, which is that this community. Are a lot of the offers coming simply via associates, via folks you recognize? Like, what’s your course of like, and the place will we stand now so far as alternative standing at overwhelmingly tons of nice founders? Is it fairly focused? What’s the world appear to be for you?
Rex: Yeah, I’m actually excited as a result of I’ve been…within the final two months, I might simply say, the variety of actually extremely certified founders I’ve seen has truly been greater than it’s been previously, and I believe a part of that cause is in case you are beginning an organization from scratch proper now, you’re not doing it as a result of it’s, like, this cool, attractive, straightforward factor to do the place you’ll be able to, like, stroll out of your, like, model title FinTech firm and get a $5 million time period sheet in per week from an organization or type a enterprise agency that hasn’t executed a complete lot of diligence. It’s, like, it’s extra work, and that is one thing you’re actually compelled to do, and also you most likely have a singular cause why you’re doing it. And so I simply really feel like, typically, each sort of a quantitative view or qualitative view that these founders I’ve seen now are actually nice after which quantitative, simply the variety of them that I’m seeing and I’m sort of actively engaged with is greater now than it has been previously.
By way of how I come throughout, there’s a number of stuff, proper? So I run the Slack group, so I see a number of of us who’re becoming a member of there on the very earliest levels. I truly do co-founder matching about twice a yr, which is usually only a manner for folks early on to have a number of conversations, assist ideate, after which typically, additionally, you recognize, discover their co-founders. That’s one other space. The 20+ founders who’re LPs within the fund, you recognize, they ship of us to me who’re, early on, even when they’re not elevating as a result of I may be very useful in serving to them discover co-founders, serving to them refine their concepts, serving to them do buyer validation and discovery, in order that’s one other supply. After which I’ve lots of people attain out, name, on LinkedIn, and on Twitter, and thru the web site. So there are sort of all these completely different sources that come collectively. And so typically it’ll be somebody I’ve by no means met earlier than who reached out, referred to as, or different occasions, it’ll be a group that I’ve recognized for a very very long time via the group and simply via the ecosystem.
Meb: Yeah. And it appears, as an outsider, and you’ll most likely touch upon this, however simply the arrival of a number of the Y Combinator, Techstars, accelerators over the previous, I don’t know, decade-plus, has raised the standard of no less than what a number of the founders find out about sort of beginning an organization. Is that correct or inaccurate assertion? And you recognize, they don’t appear as inexperienced as to simply understanding how this entire recreation works.
Rex: Yeah, completely. So, yeah, going from zero to at least one shouldn’t be as a lot of a darkish artwork anymore, proper? Like, a lot ink has been spilt about, like, how to do that. A whole lot of that ink has been spilt by Y Combinator, proper? Like, you’ll be able to go to their startup college, like their curriculum. It’s primarily open-source at this level. They’ve additionally executed an important job of chopping out some standardized paperwork that can help you rapidly increase preliminary rounds of funding, the YC Protected, and so on. So, yeah, I believe the zero to at least one simply from, like, understanding what that appears like, even in case you’re a first-time founder, you may get far more in control. However then, take into consideration the truth that there at the moment are, you recognize, name it, 1,000 unicorns. Like, there are simply additionally so many repeat founders within the enterprise ecosystem that the variety of folks you’ll be able to discuss to to be taught from is bigger than ever earlier than.
Oh, and by the best way, you could be a type of repeat founders. Like, in case you take a look at the Cambrian portfolio right now, a number of of us even have helped begin corporations earlier than, so. However I believe that is truly sort of an attention-grabbing query for what function does YC play within the ecosystem, or accelerators. I believe, earlier than, it made sense for many founders, particularly nearly each first-time founder, to undergo YC, or via YC itself, as a result of there’s the curriculum, there’s the community, there’s the sign related to it. Whereas now, what I see for many refined FinTech founders, whether or not they’re first-time founders or repeat founders, is that they’re like, “I don’t actually wish to undergo YC, nor do I must, as a result of one, their phrases aren’t as engaging as I can discover elsewhere, two, I sort of already know the curricular stuff. I’ve my very own particular networks which might be related to FinTech, and their networks are nice, however, like, it’s sort of a distinct kind of expertise. And so I’d actually moderately increase from folks on higher phrases who’ve very particular area experience and connectivity.”
And so, for me, like, typically, the varieties of corporations I’m backing haven’t even thought-about going via Y Combinator as a result of they’re sort of like, “I don’t want that,” proper? However that’s additionally as a result of their ecosystem is bigger than ever earlier than. So there nonetheless are a number of folks for whom YC is a very good match, but it surely additionally means, now that the ecosystem is bigger, there are some individuals who simply don’t want that, which is why you’ve gotten different kinds of corporations who’re doing different sort of specialization, and so on.
Meb: You additionally…Cambrian is such an important phrase for this, however you begin to see this, I really feel like, in different geographies. You already know, you’ve gotten a profitable firm, and it mints a bunch of millionaires, And rapidly, these millionaires can now angel make investments or begin new corporations, and it simply sort of populates this entire new ecosystem of founders and angels which sort of propagates, which this entire kind of snowball development appears to strengthen itself, which is sort of just like the Silicon Valley being exported to your entire world, which looks like a fairly superb development. Like, it’s actually thrilling to look at it occur in Africa and all kinds of Pakistan and different locations now. Are you guys U.S.-only for now?
Rex: I’m U.S.-only for now, and the plan is to try this eternally. So I believe there are superb issues taking place around the globe. Simply concentrating and doing one factor properly is necessary. The U.S. is the biggest unified market, with good rule of legislation on the earth. And a number of what I do is determined by networks. So if I put money into a number of the good FinTech corporations within the U.S., there’s a number of alternatives for cross-pollination throughout the portfolio. If I begin flying to completely different continents, there’s quite a bit much less inter-portfolio connectivity. And, oh, by the best way, like, my time solely scales so properly, and worldwide flights price a number of time, so.
Meb: Yeah. And plus, you bought two underneath 5. My spouse mentioned, you recognize, “I ought to make you a deal. You may nonetheless journey as soon as now we have a child, however we get to select and select on which journeys we go along with you on.” So oddly sufficient, they might comply with go on journeys to Dublin or Eire as an alternative of, you recognize, and I’m not throwing shades, Cincinnati or someplace within the U.S., Chicago even. And I say, “Actually, we’re going to take a two-year-old to Dublin? Nice.” It’s a good deal. So, okay, let’s discuss slightly bit about…you’ll be able to take this one in all two methods, it’s as much as you. Since a number of the portfolios are in stealth, you can both discuss broadly talking about a few of the stuff you’re seeing which might be fairly cool or concepts or sub-industries of FinTech, or you’ll be able to take, you recognize, what are you on the lookout for that you just haven’t seen, you recognize, some areas or some issues that you’ve got mentioned, “Man, I’d love somebody to be doing XYZ,” or you’ll be able to reply each.
Rex: Our very first funding we did was in OatFi. OatFi, like I discussed, is doing embedded lending for B2B platforms that do invoicing, and so on., so like a enterprise model of BNPL or factoring could be one other mind-set about it. Nevertheless it’s this embedded lending part. If you concentrate on being a small enterprise, everybody is aware of money movement is king, however particularly in case you’re attempting to get a sub-$100,000 line of credit score, it’s simply very onerous so that you can go to a financial institution and get underwritten for that, as a result of they’re going to take a very long time, it’s going to be a really expensive course of, it’s not going to be very highly effective for them. So a number of small companies lengthen their extra capital due via very sort of costly sources, like factoring, however even that’s usually, like, a separate space and might be fairly costly. If as an alternative the lending is embedded into your on a regular basis sort of movement, like, the provider who you’re working with, after they bill you, there’s only a button you’ll be able to click on to get extension of debt. And that provider themselves has a button on their finish the place they’ll speed up account. That’s a really attention-grabbing manner of simply seeing enterprise lending embedded into the common movement of enterprise versus pulled out and obstructed away right into a financial institution department, proper?
In order that’s, like, A, only a very massive and attention-grabbing development, and there are additionally so many extra vertical software program platforms. Like, let’s say you’re a vertical software program for somebody to run a hair salon, or a dental provider, or a trucking firm, you’re going to want to make use of, like, you recognize, Stripe to simply accept funds, however you’re additionally most likely going to want to make use of some sort of software program to do the invoicing, after which, as a part of that, you most likely wish to monetize to some extent via lending, properly, you’ll be able to simply combine with OatFi, and OatFi, on the again finish, has numerous capital supplier that they construct out debt services with who can then present the credit score in your provider. And also you truly get slightly little bit of a rep right here. So now, you’ll be able to monetize via monetary companies via, like, you recognize, you may get a take charge out of your, like, integration with Stripe. It’s also possible to get a take charge out of your integration with OatFi and the credit score you’re extending. However you, your self, don’t must be a fee course of or a stability sheet, a lender. And so that concept of embedded finance, particularly because it pertains to the concept of individuals constructing vertical software program companies that monetize your monetary companies, is, like, a very, actually massive thought, I believe, typically.
After which, just a bit bit…I believe that is attention-grabbing in understanding how, like, the Cambrian group works. So I initially met Mike, the founding father of OatFi, when…truly, I initially didn’t meet him. He joined my Slack group, and I didn’t discuss to him for, like, months. I’d inform him to hitch. I, like, ship a common welcome notice, which is one thing I at all times do. After which, like, just a few months later, somebody talked about to me that they have been elevating, and I used to be like, “Oh, that sounds attention-grabbing. Like, let’s go on the cellphone.” And the primary time we get on the cellphone, Mike’s like, “Rex, it’s, like, nice to attach with you.” Like, “Oh, by the best way, our very prospects, and we met via, like, the Slack group.” And I’m like, “That’s nice.” I’ve executed no work, and the primary individual you’re going to go dwell with is somebody you met organically via the group. He’s like, “And one in all our first infrastructure suppliers,” so somebody they used to do one thing, like, mortgage administration stuff, they’re like, “That’s additionally somebody we met.”
So right here’s somebody I haven’t even talked via who’s interacting with the Cambrian group who has now gotten first prospects, infrastructure assist, and so on. After which I ended up investing, like I mentioned, within the pre-seed, and as a part of that, introduced in, truly, one of many founders from our 20-founder LPs to co-invest in that spherical, as a result of they’re, like, good, sort of overlap there. Additionally discovered another of us who get entangled. After which, subsequent to that spherical, did a number of work by way of, anytime somebody joined the Slack group or I simply interacted with another person of their early-stage ecosystem who might conceivably wish to embed lending into their platform, simply ship them over to Mike. They’ll have a collaborative dialog…are additionally very early-stage founders who’re attempting to determine tips on how to construct their enterprise, they usually wish to monetize via lending, however they’re like, “That’s a number of a carry.” And I believe that’s on my roadmap.” And Mike’s like, “Look, we will help you deliver that ahead in your roadmap by making it quite a bit simpler due to how our platform works.”
And so, like, simply sort of the casual connectivity over time. And they also even have just a few prospects which might be going dwell that they’ve sort of met via the Cambrian community. After which, like I mentioned, QED ended up preempting their subsequent spherical of funding. They simply did their announcement.
Meb: How onerous is it to run that community? And what I’m considering of is conventional, a number of communities. You get folks misbehaving, whether or not it’s, you recognize, simply being common social media turds but additionally spamming and advertising. And, like, how onerous is the group you’ve gotten? Are you, like, a strict father or mother, one strike and also you’re out, or, like, how do you monitor and simply run that entire present?
Rex: Yeah. Communities evolve over time, proper? The Cambrian group I’ve run has developed over time. Began initially as simply sort of month-to-month in-person occasions in San Francisco. We truly haven’t executed an in-person occasion of that kind for fairly some time now. Now, a number of my group work is extra digital and thru, like, the Slack group. The Slack group right now is about 1,500 members. They’re all founders. They’re all individuals who know what it’s prefer to be in an analogous state of affairs. And so I’ve had very, only a few situations of what I might classify as poor conduct. I do fear that because it begins to scale once more, like, possibly that’s one thing we’ll have to consider. However thus far, I’ve been attempting to maintain it sort of typically constrained. So I do take into consideration that, however I’ve been lucky that I really feel like people who find themselves founders and builders, typically, like, know and respect what different individuals are going via, and due to this fact, attempt to behave accordingly. And that’s typically been my expertise.
Meb: Yeah. Effectively, once you’re able to host an L.A. pleased home, we’ll sponsor it. So you’ll be able to come on down once you want some sunshine in San Francisco, and we are able to do a meet up.
Rex: Subsequent yr, I plan to try this just a few occasions, in 2023. So I believe L.A. is on the map. In all probability, we’ll additionally do some in New York and possibly in locations like Salt Lake Metropolis and different sort of FinTech hubs that I do know a number of nice entrepreneurs in.
Meb: You have been going to say one other startup that has come out of stealth.
Rex: Yeah. The opposite one is Hold Monetary, and so that is sort of FinTech on the intersection of HR tech. If you concentrate on being an HR group, particularly in a post-COVID world the place issues are extremely distant, and now, staff live in all 50 states, there’s simply, like, a number of issues so that you can handle. And a number of stuff you handle as an HR division are round coordinating compensation and different kinds of, like, monetary closing compliance for these staff. So there’s simply a number of stuff on the intersection of FinTech and HR. It’s an space I’ve been fairly enthusiastic about for some time. My spouse, as one instance, leads, like, go-to-market ed, Guild Training, training as a profit bought into Fortune 100 employers. They usually’ve executed fantastically properly. So into that common space, which I’ve been taking a look at for a very long time, met Rob and Kathryn, or re-met Rob and Kathryn, who’re the founders of Kabbage, the small enterprise lender. Their new firm known as Hold Monetary. They’re a bonus administration platform for employers.
So that is an illustrative instance. Burger King shouldn’t be a buyer of theirs, however let’s say you’re Burger King. And also you wish to rent 10,000 frontline staff, and also you wish to challenge them a $5,000 signing bonus. Effectively, you can do this, after which, like, the folks join, they get the cash, after which they, like, don’t present up after the primary day of labor or one thing. And also you’re like, “Effectively, that didn’t work very properly.” However we’re truly within the tightest labor market, nonetheless, for sure service sector industries, at the same time as, you recognize, kind of the macroeconomic indicator shift, the tightest labor market in, like, the final 70 years. Employers are determined to recruit and retain expertise.
I like the worth proposition that Hold says, as a result of they’re like, “How do you recruit and retain expertise?” It’s, like, you pay them. And also you pay them via bonuses. And underneath the hood, these bonuses, that is sort of the monetary product, however they’re structured as forgivable loans that vest over a sure time period. So now, after I offer you this $5,000 signing bonus, it vests over a sure time period. When you depart early, it may be forgiven. Like, a portion will likely be forgiven, after which the remaining may be sort of repaid at zero curiosity over some time period.
So now, you, as an HR chief, have a brand new device in your toolkit to consider, “How do I recruit staff?” By the best way, the identical platform you need to use to retain them. You may challenge spot bonuses or retention bonuses. And so, if you find yourself being a really giant employer, like, it truly will get fairly difficult to consider how you’ll wish to construct out this program at scale. You’re like, “Effectively, how a lot ought to it’s? Like, what about in case you’re this degree versus that degree? What needs to be the vesting interval? Like, how do I truly disperse the funds? How do I truly handle, like, the state-level registration as a result of this can be a mortgage product?” Like, all of these are literally fairly difficult questions. Like, how onerous is it for an organization to pay bonuses? And also you’re like…properly, you begin to consider it, you’re like, “Oh, it’s truly sort of onerous not solely to do it simply from a purposeful perspective however to do it from a manner that really drives the result that you really want.”
And in order that’s why I believe they’re a very attention-grabbing firm, as a result of one, it’s an important group. Like, Rob and Kathryn have constructed a number of companies collectively earlier than. Kabbage they bought to Amex, I believe it was round, like, a $500 million exit. However they’re a group that’s labored collectively extremely properly earlier than. They’ll materialize a group. Additionally they have deep connectivity into the sorts of management groups on the varieties of employers they might wish to promote to as their preliminary prospects, in addition to their sort of, you recognize, tremendous enterprise purchasers sooner or later. And so this can be a nice instance, I believe, of…this isn’t a FinTech firm in a way that it’s actually an HR answer that occurs to have a monetary product that’s underpinning it, and also you by no means would have had somebody, a group, that was in a position to consider the way you construct this product however then use it for a really explicit answer.
That’s one thing that’s due to all the pieces that’s taking place and simply the notice and the standard of the entrepreneurs, however then, additionally, they’ve a banking associate underneath the hood who’s serving to them, you recognize, energy a number of this, which, 10 years in the past, there are 0 banking companions, proper? Quick ahead right now, there’s, like, 30 to 40 to 50 banking companions, plus 20 banking as a service platforms. So that is the place the title Cambrian sort of is available in, proper? There’s been this explosion of the fundamental constructing blocks of economic companies which might be sort of reconstituted via expertise that folks can mix to new and novel methods to sort out issues. So I believe Hold is a good instance of, like, a very nice group, FinTech on the intersection of one thing else, not directly that few individuals are truly fascinated about. Like, that is sort of a brand new…there actually isn’t anybody else doing this proper now. However when you hear it, you’re like, “Oh, that’s fairly attention-grabbing and thrilling,” proper? So these are our factor, two corporations and two nice tales by way of fascinated about what the following technology of actually nice FinTech corporations can appear to be.
Meb: Yeah. I imply, it’s loopy. I tweeted earlier this yr. I mentioned, you recognize, I went via a technique of getting a mortgage, and it was absolutely the stupidest course of I’ve been via in, like a decade. And I’m an in conventional asset administration. I imply, we used to must fax in our commerce. So I’m properly conscious of silly processes, and I’m like, “I can not imagine this in 2022.” You had a tweet some time again. Listeners, you’ll be able to comply with Rex on Twitter. He’s nice at posting charts and different stats.
Rex: A lot of charts. A lot of charts.
Meb: You have been complaining about…you’re like, “I needed to pay 20 bucks to ship a wire,” or one thing, “And I referred to as in, they usually waived it.” And also you’re like, “Can we simply waive this sooner or later in order that I don’t must name in?” They’re like, “No, it’s a must to name in each time. We felt we’ll waive it in case you’re calling it.” Like, are you getting me? Like, what’s incorrect with this? As you look again at your time at a16z, it’s most likely much less right now as a result of it’s so new, you recognize. I’ve heard you speak about sort of fascinated about consensus, anti-consensus when taking a look at sort of concepts and founders. But additionally, I ponder, in your expertise, how a lot of the outperformance, in case you take a look at sort of conventional offers you’ve seen and been concerned in, have been on the time you made the funding? So that you checked the field for sure. So the portfolio that you just’ve seen. How a lot of the eventual consequence was associated to preliminary conviction, you recognize? So excluding those you didn’t put money into, however simply those that, like, you mentioned, “Okay, these have been in our orbit.” Is there any correlation as soon as it hits the sure button, or is it a number of randomness within the consequence as properly?
Rex: You may be very extremely convicted of some companies, however yeah, I believe, like, for absolutely the excessive outcomes, it’s very onerous to know a previous. So in case you take a look at, like, Slack, one in all a16z’s massive early wins, they actually have been a distinct enterprise that pivoted into one other enterprise earlier than doing extremely properly. I believe you’ll be able to usually underwrite sure investments to, like, a fairly excessive ground, however that’s truly utterly ineffective. You get a very skilled entrepreneur who’s constructed and bought a enterprise previously, saying, “Okay, the ground for this enterprise is $200 million,” however that’s truly utterly ineffective by way of driving what you want from a enterprise return perspective.
I believe there’s an attention-grabbing factor round, like, what sort of investments do corporations are likely to do over time, and if we return to the, like, free physique taxonomy of, like, scale corporations, I believe, if I take into consideration…enterprise is a humorous class as a result of, often, it’s a must to be non-consensus and write to win. Whereas enterprise, arguably, you’ll be able to sort of be consensus, and since just one individual will get to do the deal, you’ll be able to nonetheless truly ship outperformance if consensus-oriented offers nonetheless delivered adequate returns.
And so, after I take a look at a16z and different giant corporations and you concentrate on what sort of offers are best to get partnership buy-in, you’ve gotten this sort of unactionable power the place scorching offers, offers that get a number of time period sheets, are the one the partnership will get most enthusiastic about. As a result of in case you do, like, actually good considering and give you, like, a intelligent thesis, it’s a must to talk complicated nuanced concepts throughout quite a lot of folks. When you usher in a take care of 5 different time period sheets out of your three greatest opponents, together with your three greatest opponents, you simply instantly have, like, activation and curiosity.
And so I believe there’s this attention-grabbing factor the place, over time, giant outlets grow to be extra consensus-oriented, as a result of that’s simply the best technique to get offers executed. However paradoxically, in enterprise, that’s the one place the place that technique can nonetheless ship affordable returns, arguably, versus each different market the place it’s simply you had the purchase button and there’s a little bit of unfold in, like, you’re competing towards everybody else within the ecosystem. In order that’s going to be slightly bit attention-grabbing to see how precisely that performs out over time.
Meb: Yeah. I want I might return a decade in the past and begin advertising all of the offers that I’ve invested in, which I believe is over about 350 now, and say, “Right here’s Meb’s…you recognize.” It made the sure standards, however scale of 1 to 10, right here’s how assured I’m. As a result of I take a look at the outcomes, and I don’t suppose there could be any correlation. And oddly sufficient, like, I like studying all these…I get the behavioral facet that individuals are attempting to try this are sometimes like, “It is a scorching deal. It’s closing. It’s 10 occasions oversubscribed.” And infrequently, I’m like, “That is truly…” I’m a rarity, I assume, however, like, this sort of repulses me in lots of instances. Like, I don’t discover, like, a number of those the place I take a look at, I’m like, “Wow, nobody’s on this.” After which trying on the consequence over time…anyway, I want I might time journey, however.
Rex: Yeah, no, completely. However this is the reason you can too have a number of methods that went in enterprise markets. You could be a consensus store that at all times wins and does scorching offers and possibly delivers adequate returns. In all probability the very best returns are by non-consensus of us who discover these offers nobody else believes in. These needs to be onerous to underwrite although as a result of these are often concentrated portfolios with a excessive diploma of zeroes and a few actual bangers. And so, then, for you, because the restricted associate investing in funds, for instance, you’re like, “Was that genius or luck?” And like, to what extent is that? It’s nearly simpler to again the consensus outlets, which most likely simply delivered adequate returns, than it’s the non-consensus of us.
So it’s a must to…it’s an attention-grabbing query to consider, like, you recognize, the place LPs needs to be fascinated about allocating capital and how much LP ought to decide what sort of agency, as a result of it’s a must to be fairly refined to try to again the non-consensus stuff. I’m fortunate, I get to perform a little little bit of each, proper? I’m not tremendous unconcentrated, however I’m not tremendous concentrated. I can, as a non-lead examine, make investments alongside tier one corporations who’re main offers and have executed that on many events but additionally put money into offers that aren’t alongside tier lead corporations, or typically I commit, after which it seems, like, they’re , and they also are available. However you are able to do slightly little bit of each by way of my contract, which is slightly bit completely different, so.
Meb: Rex, what’s been your most memorable funding that you just’ve been concerned with that might be both as your profession as a VC or one thing completely unrelated, good, dangerous, in between? What you bought?
Rex: Most memorable funding, I received a full experience to varsity, and so I used to be a part of that, had some cash post-graduation and used that to purchase a home that I lived in.
Meb: Was this a drone league sponsorship? Have been you a soccer lineman? What was the story?
Rex: I used to be not. This was only a common educational and management factor. So I used to be a Belk scholar at Davidson Faculty, which is, like, the Davidson model of the Moorhead or the Jefferson however a lot much less well-known than these two different packages.
Meb: Is that this the Charlotte Davidson?
Rex: That is the Charlotte Davidson. Steph Curry, sure, was a classmate of mine, if that was the following query.
Meb: I did a baseball camp there as soon as upon a time, a few years in the past. Lovely, lovely campus.
Rex: Nice campus. Nice college. Nice group. So in any case, yeah, I purchased my first home proper after graduating, and it was, A, a great funding however primarily only a actually good studying expertise. You’re a university graduate, so that you’re like, “Oh, I studied economics. Like, let’s construct a mannequin to know what the returns for this home appear to be for me as a university senior. Oh, let’s go and truly get a mortgage, proper? Let’s exit after which truly see what it appears to be like prefer to personal and function an asset over a interval.” I used to be truly dwelling in it for some time too, which…that’s sort of an attention-grabbing arbitrage alternative for quite a lot of different causes. And I nonetheless personal it right now, and so I get to trace it.
After which, as you get this attention-grabbing educational train, was it a great funding? And also you, like, benchmark it to the S&P, and also you’re like, “It’s fairly good.” However then you definately benchmark it to, like, REITs, and then you definately benchmark it to single-family REITs, and then you definately’re like, “Effectively, what about my time? What in regards to the truth …?” Like, it’s simply an attention-grabbing lens, and I’ve refinanced it just a few occasions, and it’s been in the course of the interval the place the rise of single-family rental REITs has been a factor. So it’s simply been an important studying expertise by way of understanding how all of those markets work. After which it’s additionally a reminder of simply how complicated finance is, as a result of, like, simply to reply the very primary query of “Was this a great funding?” simply attempting to determine what the suitable benchmark needs to be is, like, a really onerous query. After which, to not point out, like, all of the stuff round time, and so on., so.
Meb: You have been adulting, could be the 2022 phrase you hear extra usually, lengthy earlier than it was cool, as a younger faculty grad. You don’t see that an excessive amount of. Rex, greatest place folks will discover you on all the assorted locations. The place do they go in the event that they wish to take a look at what you’re doing, enthusiastic about your fund, all that great things? The place ought to they go?
Rex: My title is comparatively distinctive. So in case you simply Google Rex Salisbury, you’ll most likely discover me on each LinkedIn and Twitter, or you’ll be able to go to these platforms particularly. After which the web site is cambrianhq.com, and there, you’ll be able to subscribe to our e-newsletter, discover a few of our different social profiles. And in case you’re a founder, you can too discover the hyperlink to hitch the Slack group.
Meb: It was a blast, man. Thanks a lot for becoming a member of us right now.
Rex: Yeah, thanks a lot for having me, Meb. Actually admire it.
Meb: Podcast listeners, we’ll put up present notes to right now’s dialog at mebfaber.com/podcast. When you love the present, in case you hate it, shoot us suggestions at [email protected]. We like to learn the evaluations. Please evaluation us on iTunes and subscribe to the present wherever good podcasts are discovered. Thanks for listening, associates, and good investing.