Episode #454: Rex Salisbury, Cambrian – a16z Companion Turned Solo GP on Why He Believes Now’s the Time for Fintech
Visitor: Rex Salisbury is the Founder and Common Companion of Cambrian Ventures. He was beforehand a founding associate on the A16Z fintech staff.
Date Recorded: 10/12/2022 | Run-Time: 1:01:18
Abstract: In at present’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 seems at present
- 34:22 – The methods wherein 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 exhausting 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:
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Disclaimer: Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Resulting from business laws, he won’t talk about any of Cambria’s funds on this podcast. All opinions expressed by podcast contributors are solely their very own opinions and don’t replicate the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.
Meb: Welcome, podcast buddies. We’re again with one other enjoyable present at present. Our visitor is Rex Salisbury, a founding associate of the a16z FinTech staff and is now a solo GP with Cambrian Ventures. In at present’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 Downside” 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 another factor earlier than we get to at present’s episode, whether or not you pay attention on Apple Podcasts, Spotify, or one other platform, go forward and depart us a assessment. 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 at present?
Rex: I’m calling in from the Presidio in San Francisco, the place you will discover me most each day. So I each stay and work right here, spend lots 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 understand, you left the nice and cozy, fuzzy confines of one of the storied and profitable enterprise capital corporations to exit by yourself, which, I think about, is a little bit thrilling however nerve-racking on the similar time. Give us a little bit origin story on you, the way you got here to the place you might be.
Rex: Yeah. So I type 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 type of approach again in that, at one cut-off date, I used to be an funding banker, realized lots, completely hated it, stop my job, moved throughout the nation. I used to be simply excited concerning the alternatives for, like, constructing new issues in monetary companies, particularly round utilizing expertise. So I used to be like, “I need to work in Fintech,” proper? However I’m an funding banker, so I’m getting presents, but it surely’s like, “Come work in finance for this, you understand, monetary expertise firm.” It’s like, “I don’t need to work in finance. Like, I need to do one thing else.”
So I taught myself to code, even completed a coding boot camp. So I got here out right here, gotten a number of presents in these type of nebulas, like finance ops roles at early-stage firms, and I used to be like, “I don’t need to try this.” So as an alternative, I truly went full in on the engineering facet of issues, and I joined an organization known as Sindeo, working as type 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 staff, had an incredible time. One of many issues I constructed there was this, like I stated, totally automated on-line mortgage pre-approval factor, like Rocket Mortgage, push button, get mortgage. I constructed out type 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 vital monetary merchandise in a shopper’s life, it’s extremely painful to get a mortgage, proper? It takes, like, three months. It’s extremely pricey. There’s all of this documentation concerned. Like, “Let’s try to determine how we will 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 need to speak to these different people who find themselves working within the different corners of economic markets to type of construct new issues which can be cool and thrilling.” And so I began convening folks on constructing group for founders, you understand, 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 staff demoing the applying we’d constructed at Sindeo, we had the Plaid staff demoing their API, after which we had a 3rd staff demoing an utility they’d constructed largely on high of Plaid. And so, from that type of core kernel of simply, like, attention-grabbing folks speaking about issues they in-built FinTech, Cambrian, the group, actually took off and, mainly, by 2019, had, you understand, 15,000 publication 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 festivals, only a complete lot of stuff happening, and I used to be getting much more vitality from doing the ecosystem-level work. And I’ve been pulled into investing and advising firms through the years. And so I truly stop my job, went full time on Cambrian the group to run it as an occasions enterprise. So the plan was to lift a small fund.
However then a16z reached out to me, Andreessen Horowitz, stated like, “Hey, we’re beginning a FinTech apply. We love what you’ve completed. Like, you perceive monetary markets out of your time in banking. You clearly perceive, like, how to consider an ecosystem and type of marshal folks and assets by way of your time constructing group at Cambrian. We’re going to begin 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, centered totally on the investing facet of issues, had an incredible expertise, nice staff, superb alternatives to see, you understand, one of many huge names in enterprise capital, go from, once I joined, name it 100 folks, they’re going to finish 2022 at about 500 folks, comparable type of scale by way of AUM as effectively.
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 lots of these relationships and networks that I’ve constructed which can be particularly, you understand, well-designed for supporting firms at type of their earliest stage. And so I focus solely on investing in type of first cash and checks for firms with U.S. go-to-markets, often, like, a 500k preliminary test. After which the fund itself has type of a group taste to it. After which we’ve got, as LPs within the fund, lots of the highest founders within the ecosystem, from locations like SoFi, Plaid, Betterment, type of the checklist goes on. We’ve bought 20+ of us throughout all kinds of verticals in WealthTech, to InsurTech, to actual property, you understand, monetary software program, the checklist goes on.
Meb: So there’s a few jumping-off factors, I believe, are fairly attention-grabbing earlier than we type of get in deep into FinTech and what you guys are in search of. The primary being, you understand, clearly, you’ve gotten an superior pedigree at a16z, however constructing the group forward of time, I think about, is a reasonably distinctive, invaluable asset when deciding to launch a fund. Would love to listen to a little bit little bit of that as a result of the way in which you’ve determined to do that is, primarily, as a solo GP, proper, and you’ll affirm that. I don’t understand how huge your staff is now, however I’m assuming it’s not 500. So, you understand, 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 as if a extra trendy invention that is a bit more latest. So inform us a little bit bit concerning the choice to be solo, in addition to type 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 lots of actually nice of us supporting me, although, in numerous capacities. After which, particularly, although I’m a solo GP, I draw lots from the assets of the group I’ve constructed. So I already type of talked about the 20 founders, our LPs within the fund, even have lots of connectivity which can be of us within the enterprise ecosystem. And one of many different type of huge group equipment I’ve constructed up not too long ago in the course of the pandemic is we’ve got a Slack group of 1,500+ FinTech founders, and so I believe, so far as I do know, the biggest type of on-line group of FinTech founders on the market. And that, so I’m continuously involved and communication with numerous of us within the ecosystem, whether or not it’s our portfolio firms, 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 type of marshal the assets of that group to help our portfolio firms. However, you understand, the group can be one thing that I’ve constructed to create worth for the ecosystem simply because I used to be passionate concerning the ecosystem, like interacting with people. And I began it six years in the past, and so now I get to type of use some elements of that to what I do in my day job as an investor, however I’m nonetheless centered on attempting to only create basic worth for the ecosystem by facilitating lots of connectivity between all of the totally different gamers inside FinTech.
I believe FinTech is a very attention-grabbing class, you understand, say, versus enterprise SaaS or shopper software program, the place it’s, by nature, extra extremely networked, partly as a result of it’s so extremely regulated, proper? If you happen to’re constructing a monetary product, you’re going to wish sure sorts of licenses, authorized counsel. You’re going to wish numerous infrastructure suppliers. You’re most likely going to wish different companions and channel companions. And so there are all of those the explanation why founders inside the FinTech ecosystem have arguably extra have to type of join with one another than you do in case you’re constructing a shopper social app, proper? Like, in case you’re constructing a shopper social app, you don’t essentially want to speak to all the different shopper 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 understand, why you may have to be working with people within the ecosystem, and so I believe why a group strategy actually issues.
And then you definitely additionally had…so I imply, like, might you do one thing like this, you understand, 30 years in the past? No could be the very quick reply. However even for me, personally, I don’t assume that is one thing I might have completed even 4 or 5 years in the past. I believe one is LP urge for food and curiosity in backing solo GPs. That’s type 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 that in case you needed to fundraise for a fund, you may do lots of that remotely, which I did, that simply wasn’t within the water. I’ve bought two youngsters. I’ve bought a five-year-old and a two-year-old, and so, like, the concept of spending, you understand, months on a airplane simply going to speak to folks is…I most likely would have simply stated like, “Thanks, however no thanks.” So LP urge for food for solo GPs. The concept group issues, I believe, is type of a brand new thought. It’s one thing that I’ve been doing for a very long time however I really feel has change into extra sizzling or topical simply within the final two years, partly as a result of one of many huge issues folks discuss in Web3 is how Web3 is a community-oriented motion, proper?
So LP curiosity, the flexibility to lift remotely, after which, additionally, you understand, and that is the place type of the FinTech facet of issues is, simply a number of the infrastructure that lets you function corporations. There are lots of totally different platforms you may launch a fund on high of now, proper? There’s AngelList, there’s Sidecar, there’s Carta, and people are type of extra holistic platforms, to some extent, though you continue to want lots of different help. There are additionally issues you should utilize 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 a little bit bit simpler and sooner to stand up and operating than it will have been, you understand, a number of years in the past.
And I believe that’s actually thrilling, and also you’re seeing lots of people experiment with totally different fashions in enterprise. I believe one of the notable ones being that of the solo GP since you break down a enterprise agency, like, probably the most atomic unit is a person associate. And if you consider you’re going to have a Nobel laureate in your present, I believe, later at present, however one other nice economist, Ronald Coase, you understand, the Coase Theorem, the speculation of the agency is {that a} agency is one thing the place the interior transaction prices are lower than the exterior transaction prices. And so, in case you truly make it simpler to create enterprise corporations due to type of the substrata of each the infrastructure that exists in addition to the type of, like, LP urge for food and sources of capital that exist, you need to count on to see new methods of being inside the entire type 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 type 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 a little bit conventional approach? How did you go about it?
Rex: Yep, I run a conventional fund on high of the AngelList platform. And they also assist me out with lots of the back-office-oriented stuff. After which I even have people that I introduced in who are usually not essentially technology-oriented companions however partly as a result of there are extra solo GPs and extra rising managers now which can be of us who’re well-designed from a service perspective to help that. So I’ve an outsourced COO, CFO group that’s type of well-tailored to working with these platforms and makes a speciality of doing and supporting rising managers. So each are, like, technological elements, but in addition, even the service and people-oriented elements have gotten extra developed for that type of factor.
Meb: Yeah. One of many cool components is, in a lot the identical approach that lots of the phrases of startup funding has been templated, you understand, the fund facet now could be too. So it’s, in some ways, like, fairly turnkey, which is nice to see. We joke about this lots in our enterprise with launching an ETF is, in most of the similar methods now, lots of the frictions and trigger. We’ve completed exhibits with buddies from ETF Architect, in addition to Tidal and others, that type of allows 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 mainly the identical factor. Like, it’s simply insane.
Meb: Yeah. There’s nonetheless lots of fad on the market, as a result of that’s my, most likely, primary line merchandise as effectively, that very, very private remark, with all the things that’s SEC-registered tends to get costly with the authorized staff. 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 speak a little bit bit concerning the enterprise house, basically, after which we’ll dig into FinTech and type of what you might be doing particularly. We’ve talked about a few tendencies, you understand, 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, type of a tiny asset space relative to different areas of type of conventional asset administration. After we say some huge cash, you bought to place it in context. What are some views on enterprise, basically? Another ideas on the house? I do know you had been speaking a little bit bit concerning 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 basic ideas? What’s happening on this planet of VC?
Rex: Yeah. And have you ever learn that Frank Rotman’s Three-Physique Downside, which is his type 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 a little bit 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 understand. It’s a $6-million fund, perhaps, in 1970 that they’ve satisfied everybody of what this factor is and type of will get going from there. You may go even additional again, speaking about, you understand, like, whaling and people type of fashions. However at present, even 10 years in the past, like, I’ve bought 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 if you take a look at different sectors of capital markets, even non-public markets.
After which, in 2021, it was an all-time file, 150 billion, which is fairly significant, however they’re nonetheless, you understand, in comparison with different markets, it’s not big. However we’re attending to the purpose the place it’s…you understand, 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 so far the place you’re getting institutionalization of what was a cottage business. Effectively, the type of panorama for how one can, you understand, launch a fund, construct a fund, what that may appear like, is altering. And so all that’s to say we’re on this actually attention-grabbing interval the place it’s changing into an actual asset class, and it’s type of up for debate as to, like, what precisely will it contain into asset institutionalized. And what it’ll appear like might be very, very totally different, and it’ll most likely be totally different gamers who focus on totally different sorts of issues.
So I believe it’s an excellent level to speak about type of “The Three-Physique Downside,” which is a chunk written by Frank Rotman, who’s one of many founders of QED, which is a FinTech particular agency, and he argues that there are type of 4 steady equilibrium factors that he sees because the probably locations the place enterprise corporations can type of specialize and be enduring, no less than for this sort of subsequent part, perhaps 10 years. And a type of are, like, scale partnerships, the, like, a16zs, the Insights of the world. Two are type of the extra early-stage specialists and extra of the type of boutique kind approaches or early-stage generalists, specialists, I believe, is what he calls them. And that may be like, you understand, the Benchmarks or the First Rounds. After which one other could be type of non-consensus alpha of us, individuals who actually simply exit and discover new issues which can be fairly a bit totally different. After which the fourth could be type of solo capitalists, solo GPs who’ve very distinct model worth, very distinct worth proposition for the founders.
And so these are type of the theories he sees. And the explanation and the way he will get to that conclusion, and you understand, I truly interviewed him not too long ago, talked by way of a few of this, is you may type of search for historic antecedents for different areas which have gone by way of 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 large asset managers that we all know at present, Blackstone, BlackRock, Vanguard. Three very totally different corporations, however all of them had been born across the similar time within the Nineteen Eighties as asset administration, particularly for public market fairness, granted Blackstone is extra of a personal fairness platform. All of them bought 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 at present the place, because it goes from being a cottage business to an institutionalized asset class, you’re going to see these bursts of those type of huge mega-firms. In sure methods, I believe Andreessen Horowitz has an excellent probability of being a type of type of defining that class. And historical past doesn’t repeat, but it surely does rhyme, and so there might be some similarities by way of how the remainder of it shakes out.
And so that is the place Frank talks by way of different type of historic antecedents, issues just like the consulting business, used to have a ton of type of boutique consulting corporations, and now we’ve got, like, the large 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 bought the Massive 4 and a protracted 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 huge names that construct out big presences, however then you definitely even have this sort of different units of gamers who can exist inside the ecosystem. In order that’s type of a little bit little bit of the overall taxonomy of the three-body downside however I believe a little bit little bit of what’s going on in enterprise proper now. I, after all, am biased, however I’m excited concerning the skill of solo GPs to exit and ship worth, and the type of pitch there’s that, greenback for greenback, these must be probably 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 type of accessed to a community of networks, you understand, 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 implies that I’m capable of collaborate with multi-stage enterprise funds and many different folks within the ecosystem in a approach that’s type of distinctive relative to different gamers. In order that’s a little bit bit, I believe, a breaking down of a number of the taxonomy of enterprise, I’d say. However I like to listen to your ideas too, Meb. I’m certain you’ve considered it a little bit bit.
Meb: I largely agree with you, and we’ve been speaking about this for a very long time within the conventional public house, stated, “Look, the bottom case now within the public areas is zero,” that means zero charges. You will get a worldwide ETF portfolio.
Rex: It’s barely adverse. Isn’t there one that you just receives a commission now, or is it…? I suppose Constancy has the zero, proper? So Constancy has some zeroes.
Meb: It’s a few foundation factors, however when you embody quick 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 gentle all of your cash on fireplace and blow it up with dynamite, you understand, 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 lots 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 example, 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 might be these legacy platforms which can 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 understand, it might take some time, even when it’s very clear they’re on their approach out
Meb: Yeah. I imply, look, and among the best issues you are able to do as a newly minted GP is have an excellent first fund or get a little bit lock. However that type 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 completed effectively, 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 type of time to fruition, a few of these being effectively over 10 years, 15 years typically. However, yeah, so the asset on the general public facet, I believe, the normal gamers, you understand, there’s folks…cash tends to get cozy the place it’s till disturbed. And so the folks which can be solely promoting these when somebody dies, when there’s, like, a taxable occasion, divorce, or one thing actually unhealthy occurs, like a giant, fats, nasty bear market, but it surely doesn’t return, you understand, to lots of the normal 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 changing into extra true, you need 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, perhaps there’s, but it surely looks as if lots of the argument in VC is that, “Hey, you’re capturing for this high quartile. And if you may get it, you understand, you’re going to have an enormous unfold on the efficiency.” So anyway, I agree with you. So we attempt to be…our tagline once we speak to folks we see, “We need to be bizarre, concentrated, and totally different,” you understand, which some folks like and a few folks actually don’t like. However you type of need to, in my view, in case you’re going to cost greater than zero.
So you’ve gotten this case the place you bought these large gamers, like a16z. You may have this new rise of solo GPs. You talked about a number of of your type of calling playing cards and worth provides. So let’s type of, like, stroll by way of the method, you understand. So that you raised a fund, 28 million, I believe, and what number of names are you guys focusing on per fund? Is it 10, 20, 100?
Rex: Yeah, I’m focusing 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 need to be backing and what number of entrepreneurs do I believe I can truly help effectively. And my dedication to entrepreneur is to be very concerned for the primary type of yr to 2 years, perhaps even a little bit bit extra of that firm’s lifecycle when entry to these networks and relationships actually matter and will assist them discover alternatives they may not uncover on their very own. When you get by way of your…I’m often first test in, your subsequent spherical of funding or your subsequent two rounds of funding, often, I’ve a bigger staff, you’ve gotten a way of product market match, you understand the place to look, you’ve gotten a staff 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 type of…you haven’t figured all the things out, however you figured lots of the unknowns out, proper? And you understand type of the place you’re wanting, 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 huge issues I will help out with is, you understand, serving to with subsequent fundraises, so.
Meb: Once you say FinTech, it means lots of various things to lots of totally different folks. So for you, if you’re type of underneath this umbrella, like, what does it imply? What are you guys in search of on this FinTech ecosystem? Are there sure areas of it that you just assume are extra relevant to type 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 definitely had Credit score Karma and Plaid. In fact, Plaid and Deel find yourself going by way of. So it’s, like, okay, now, it’s type of a class. I believe now, the issue is, like, it’s so broad of a class, it’s like, “What does that even doubtlessly imply?” And I believe what I’m enthusiastic about is simply type of the following layer down of economic companies, in addition to type 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 completed one funding that’s doing type of a vertical software program play in well being care. If you happen to take a look at InsurTech, there’s type of a bunch of stuff that hasn’t essentially been completed there but.
If you happen to 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 completed there. Digitization of banking software program I believe was once type of poo-poo’d by lots of FinTech traders, like, “Oh, you’re promoting software program to, like, the incumbents. You’re going to die.” And that’s, like, type of studying that, “Oh, they most likely aren’t going to die, and they’re going to have, like, a very huge position 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 lots of time with shopper, residential, mortgage, actual property, very advanced, troublesome ecosystem. Business actual property lending and sure segments, simply as huge, even much less expertise.
It’s an space the place most individuals haven’t spent a complete lot of time who’re technologists, however a number of groups, truly, as a result of the FinTech ecosystem has gone so huge, have spent actually significant time constructing information platforms in that house or different type of issues, so that they now perceive that downside each as…you understand, 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 take into account these to be, like, for the normal vernacular, pre-seed?
Rex: Yeah, pre-seed might be one of the best ways to name it. We name it pre-seed or seed.
Meb: And so what’s the vary on type of the market caps and checks you’re writing for these, only for perspective?
Rex: Yeah, they vary from type of 5 to fifteen caps, typically, on a post-money foundation. And simply commentary by way of how the market has advanced once 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 way in which you do, clearly, as a lot, however I attempt to preserve tabs on it. And definitely, it was type of going bananas the previous couple of years. After which I noticed it begin to type of right earlier this yr, but it surely’s good…I imply, it’s good and it’s unhealthy.
Rex: Seed is the longest. It’s, like, probably the most insulated folks. If it’s your first spherical of funding, your selection is at all times simply to attend. Whereas if it’s your second, like, you need to elevate, and similar for later-stage firms which can be burning by way of money, and so that is the a part of the market that takes the longest to regulate. And we’re in a little bit little bit of a bizarre scenario proper now the place offers are taking longer to get completed, 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 type of basic market clearing value must be.
If you consider promoting a home in a sizzling 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, effectively, lots of people didn’t elevate, like, new cash, there are lots of extensions over the summer time, not as many individuals raised new rounds over the summer time. After which your final comps are type 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 must be. And so issues are a little bit bit bizarre proper now as they reset.
So it could possibly be, you understand, issues proceed to go even decrease or it could possibly be they type of begin to stabilize and even go up due to one thing else, I’m certain, you’ve talked about. Like, there are file quantities of dry powder within the ecosystem proper now and lots of these massive multi-stage funds. Enterprise capital fundraising for 2022 was nonetheless at an all-time file, although the markets have slowed down, proper? There’s a little bit little bit of a lag impact there. And lots of these multi-stage funds do need to deploy into seed or pre-seed, and so they nearly don’t know how one can write small checks. And so what that may imply is there may simply be this sort of everlasting type of stability for the earliest rounds that firms elevate, however we’ll see. We’ll have extra readability on that within the subsequent couple of months.
Meb: Yeah. Historically, that is type of, like, a half millioncheck, a millioncheck, or what’s type of the ballpark for you guys?
Rex: Yeah. I often write a 500k initialcheck.
Meb: Nice. So inform us a little bit bit about…how’s the chance standing in search of you? You understand, your course of often simply type of, as a solo GP, you’ve gotten a singular asset, which is that this community. Are a lot of the offers coming simply by way of buddies, by way of folks you understand? 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 like 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 up to now, and I believe a part of that purpose 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, horny, simple factor to do the place you may, 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 kind a enterprise agency that hasn’t completed 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 purpose why you’re doing it. And so I simply really feel like, typically, each type 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 type of actively engaged with is greater now than it has been up to now.
By way of how I come throughout, there’s lots of stuff, proper? So I run the Slack group, so I see lots of of us who’re becoming a member of there on the very earliest phases. I truly do co-founder matching about twice a yr, which is usually only a approach for folks early on to have numerous conversations, assist ideate, after which typically, additionally, you understand, discover their co-founders. That’s one other space. The 20+ founders who’re LPs within the fund, you understand, 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 type of all these totally different sources that come collectively. And so typically it’ll be somebody I’ve by no means met earlier than who reached out, known as, or different occasions, it’ll be a staff that I’ve identified for a very very long time by way of the group and simply by way of the ecosystem.
Meb: Yeah. And it appears, as an outsider, and you’ll most likely touch upon this, however simply the arrival of lots of the Y Combinator, Techstars, accelerators over the previous, I don’t know, decade-plus, has raised the standard of no less than what lots of the founders find out about type of beginning an organization. Is that correct or inaccurate assertion? And you understand, they don’t appear as inexperienced as to only understanding how this complete 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. Plenty of that ink has been spilt by Y Combinator, proper? Like, you may go to their startup college, like their curriculum. It’s primarily open-source at this level. They’ve additionally completed a terrific job of chopping out some standardized paperwork that help you rapidly elevate 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 are actually, you understand, name it, 1,000 unicorns. Like, there are simply additionally so many repeat founders within the enterprise ecosystem that the variety of folks you may speak to to study from is larger than ever earlier than.
Oh, and by the way in which, you is likely to be a type of repeat founders. Like, in case you take a look at the Cambrian portfolio at present, lots of of us even have helped begin firms earlier than, so. However I believe that is truly type of an attention-grabbing query for what position 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 by way of 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 subtle FinTech founders, whether or not they’re first-time founders or repeat founders, is that they’re like, “I don’t actually need to undergo YC, nor do I have to, as a result of one, their phrases aren’t as enticing as I can discover elsewhere, two, I type of already know the curricular stuff. I’ve my very own particular networks which can be related to FinTech, and their networks are nice, however, like, it’s type of a distinct kind of expertise. And so I’d actually moderately elevate from folks on higher phrases who’ve very particular area experience and connectivity.”
And so, for me, like, typically, the sorts of firms I’m backing haven’t even thought-about going by way of Y Combinator as a result of they’re type 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 numerous 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 type of specialization, and so on.
Meb: You additionally…Cambrian is such a terrific phrase for this, however you begin to see this, I really feel like, in different geographies. You understand, you’ve gotten a profitable firm, and it mints a bunch of millionaires, And abruptly, these millionaires can now angel make investments or begin new firms, and it simply type of populates this complete new ecosystem of founders and angels which type of propagates, which this complete type of snowball development appears to bolster itself, which is type of just like the Silicon Valley being exported to the whole world, which looks as if a reasonably superb development. Like, it’s actually thrilling to observe 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 do this ceaselessly. So I believe there are superb issues taking place all over the world. Simply concentrating and doing one factor effectively is vital. The U.S. is the biggest unified market, with good rule of regulation on this planet. And lots of what I do will depend on networks. So if I spend money on lots of the good FinTech firms within the U.S., there’s numerous alternatives for cross-pollination throughout the portfolio. If I begin flying to totally different continents, there’s lots much less inter-portfolio connectivity. And, oh, by the way in which, like, my time solely scales so effectively, and worldwide flights value lots of time, so.
Meb: Yeah. And plus, you bought two underneath 5. My spouse stated, you understand, “I ought to make you a deal. You may nonetheless journey as soon as we’ve got a child, however we get to choose and select on which journeys we go together with you on.” So oddly sufficient, they’d conform to go on journeys to Dublin or Eire as an alternative of, you understand, 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? High-quality.” It’s a good deal. So, okay, let’s speak a little bit bit about…you may take this one in all two methods, it’s as much as you. Since lots of the portfolios are in stealth, you may both speak broadly talking about a number of the belongings you’re seeing which can be fairly cool or concepts or sub-industries of FinTech, or you may take, you understand, what are you in search of that you just haven’t seen, you understand, some areas or some issues that you’ve stated, “Man, I’d love somebody to be doing XYZ,” or you may 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. But it surely’s this embedded lending element. If you consider 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 exhausting 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 pricey course of, it’s not going to be very highly effective for them. So lots of small companies lengthen their extra capital due by way of very type of costly sources, like factoring, however even that’s usually, like, a separate space and could possibly be fairly costly. If as an alternative the lending is embedded into your on a regular basis type of movement, like, the provider who you’re working with, after they bill you, there’s only a button you may click on to get extension of debt. And that provider themselves has a button on their finish the place they will speed up account. That’s a really attention-grabbing approach 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 huge 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 wish to make use of, like, you understand, Stripe to just accept funds, however you’re additionally most likely going to wish to make use of some type of software program to do the invoicing, after which, as a part of that, you most likely need to monetize to some extent by way of lending, effectively, you may 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 a little bit little bit of a rep right here. So now, you may monetize by way of monetary companies by way of, like, you understand, you may get a take charge out of your, like, integration with Stripe. You may also get a take charge out of your integration with OatFi and the credit score you’re extending. However you, your self, don’t need to be a cost course of or a steadiness 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 huge 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 speak to him for, like, months. I’d inform him to affix. I, like, ship a basic welcome notice, which is one thing I at all times do. After which, like, a number of months later, somebody talked about to me that they had 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 way in which, our very prospects, and we met by way of, like, the Slack group.” And I’m like, “That’s nice.” I’ve completed no work, and the primary particular person you’re going to go stay with is somebody you met organically by way of 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 by way of who’s interacting with the Cambrian group who has now gotten first prospects, infrastructure help, and so on. After which I ended up investing, like I stated, 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, type of overlap there. Additionally discovered another of us who become involved. After which, subsequent to that spherical, did lots 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 need 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 how one can construct their enterprise, and so they need to monetize by way of lending, however they’re like, “That’s lots of a elevate.” 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 lots simpler due to how our platform works.”
And so, like, simply type of the casual connectivity over time. And they also even have a number of prospects which can be going stay that they’ve type of met by way of the Cambrian community. After which, like I stated, QED ended up preempting their subsequent spherical of funding. They simply did their announcement.
Meb: How exhausting is it to run that community? And what I’m pondering of is conventional, lots of communities. You get folks misbehaving, whether or not it’s, you understand, simply being basic social media turds but in addition spamming and advertising. And, like, how exhausting 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 complete present?
Rex: Yeah. Communities evolve over time, proper? The Cambrian group I’ve run has advanced over time. Began initially as simply type of month-to-month in-person occasions in San Francisco. We truly haven’t completed an in-person occasion of that kind for fairly some time now. Now, lots of my group work is extra digital and thru, like, the Slack group. The Slack group at present is about 1,500 members. They’re all founders. They’re all individuals who know what it’s wish to be in an analogous scenario. And so I’ve had very, only a few cases of what I might classify as poor conduct. I do fear that because it begins to scale once more, like, perhaps that’s one thing we’ll have to consider. However to this point, I’ve been attempting to maintain it type 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 by way of, and due to this fact, attempt to behave accordingly. And that’s typically been my expertise.
Meb: Yeah. Effectively, if you’re able to host an L.A. comfortable home, we’ll sponsor it. So you may come on down if you want some sunshine in San Francisco, and we will do a meet up.
Rex: Subsequent yr, I plan to do this a number of occasions, in 2023. So I believe L.A. is on the map. Most likely, we’ll additionally do some in New York and perhaps in locations like Salt Lake Metropolis and different type of FinTech hubs that I do know numerous nice entrepreneurs in.
Meb: You had been going to say one other startup that has come out of stealth.
Rex: Yeah. The opposite one is Maintain Monetary, and so that is type of FinTech on the intersection of HR tech. If you consider 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, lots of issues so that you can handle. And lots of belongings 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 lots 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 Schooling, training as a profit bought into Fortune 100 employers. And so they’ve completed fantastically effectively. So into that basic 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 is known as Maintain 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 need to rent 10,000 frontline staff, and also you need to challenge them a $5,000 signing bonus. Effectively, you may try this, after which, like, the folks enroll, 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 effectively.” However we’re truly within the tightest labor market, nonetheless, for sure service sector industries, whilst, you understand, type 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 Maintain 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 by way of bonuses. And underneath the hood, these bonuses, that is type of the monetary product, however they’re structured as forgivable loans that vest over a sure time frame. So now, once I offer you this $5,000 signing bonus, it vests over a sure time frame. If you happen to depart early, it may be forgiven. Like, a portion might be forgiven, after which the remaining may be type of repaid at zero curiosity over some time frame.
So now, you, as an HR chief, have a brand new instrument in your toolkit to consider, “How do I recruit staff?” By the way in which, the identical platform you should utilize to retain them. You may challenge spot bonuses or retention bonuses. And so, if you find yourself being a really massive employer, like, it truly will get fairly sophisticated to consider how you’ll need to construct out this program at scale. You’re like, “Effectively, how a lot ought to or not it’s? Like, what about in case you’re this degree versus that degree? What must 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 it is a mortgage product?” Like, all of these are literally fairly sophisticated questions. Like, how exhausting is it for an organization to pay bonuses? And also you’re like…effectively, you begin to consider it, you’re like, “Oh, it’s truly type of exhausting not solely to do it simply from a practical perspective however to do it from a approach that truly 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 a terrific staff. 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 staff that’s labored collectively extremely effectively earlier than. They’ll materialize a staff. In addition they have deep connectivity into the sorts of management groups on the sorts of employers they’d need to promote to as their preliminary prospects, in addition to their type of, you understand, tremendous enterprise shoppers sooner or later. And so it is a nice instance, I believe, of…this isn’t a FinTech firm in a way that it’s actually an HR resolution that occurs to have a monetary product that’s underpinning it, and also you by no means would have had somebody, a staff, that was in a position to consider the way you construct this product however then use it for a really specific resolution.
That’s one thing that’s due to all the things 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 understand, energy lots of this, which, 10 years in the past, there are 0 banking companions, proper? Quick ahead at present, 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 type of is available in, proper? There’s been this explosion of the fundamental constructing blocks of economic companies which can be type of reconstituted by way of expertise that folks can mix to new and novel methods to deal with issues. So I believe Maintain is a good instance of, like, a very nice staff, FinTech on the intersection of one thing else, in a roundabout way that few individuals are truly occupied with. Like, that is type 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 firms and two nice tales by way of occupied with what the following technology of actually nice FinTech firms can appear like.
Meb: Yeah. I imply, it’s loopy. I tweeted earlier this yr. I stated, you understand, I went by way of a strategy of getting a mortgage, and it was absolutely the stupidest course of I’ve been by way of in, like a decade. And I’m an in conventional asset administration. I imply, we used to need to fax in our commerce. So I’m effectively conscious of silly processes, and I’m like, “I can’t imagine this in 2022.” You had a tweet some time again. Listeners, you may observe Rex on Twitter. He’s nice at posting charts and different stats.
Rex: Numerous charts. Numerous charts.
Meb: You had been complaining about…you’re like, “I needed to pay 20 bucks to ship a wire,” or one thing, “And I known as in, and so they waived it.” And also you’re like, “Can we simply waive this sooner or later in order that I don’t need to name in?” They’re like, “No, you need 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 fallacious with this? As you look again at your time at a16z, it’s most likely much less at present as a result of it’s so new, you understand. I’ve heard you discuss type of occupied with consensus, anti-consensus when taking a look at type of concepts and founders. But in addition, I ponder, in your expertise, how a lot of the outperformance, in case you take a look at type of conventional offers you’ve seen and been concerned in, had 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 end result was associated to preliminary conviction, you understand? So excluding those you didn’t spend money on, however simply those that, like, you stated, “Okay, these had been in our orbit.” Is there any correlation as soon as it hits the sure button, or is it lots of randomness within the end result as effectively?
Rex: You may be very extremely convicted of some companies, however yeah, I believe, like, for absolutely the excessive outcomes, it’s very exhausting to know a previous. So in case you take a look at, like, Slack, one in all a16z’s huge early wins, they actually had been a distinct enterprise that pivoted into one other enterprise earlier than doing extremely effectively. I believe you may usually underwrite sure investments to, like, a reasonably excessive ground, however that’s truly fully ineffective. You get a very skilled entrepreneur who’s constructed and bought a enterprise up to now, saying, “Okay, the ground for this enterprise is $200 million,” however that’s truly fully 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, you need to be non-consensus and write to win. Whereas enterprise, arguably, you may type of be consensus, and since just one particular person will get to do the deal, you may nonetheless truly ship outperformance if consensus-oriented offers nonetheless delivered adequate returns.
And so, once I take a look at a16z and different massive corporations and you consider what sort of offers are best to get partnership buy-in, you’ve gotten this sort of unactionable pressure the place sizzling offers, offers that get lots of time period sheets, are the one the partnership will get most enthusiastic about. As a result of in case you do, like, actually sensible pondering and give you, like, a intelligent thesis, you need to talk advanced nuanced concepts throughout quite a lot of folks. If you happen to usher in a take care of 5 different time period sheets out of your three largest rivals, together with your three largest rivals, you simply instantly have, like, activation and curiosity.
And so I believe there’s this attention-grabbing factor the place, over time, massive outlets change into extra consensus-oriented, as a result of that’s simply the best technique to get offers completed. However mockingly, in enterprise, that’s the one place the place that technique can nonetheless ship cheap 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 in opposition to everybody else within the ecosystem. In order that’s going to be a little bit 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 understand.” 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 assume there could be any correlation. And oddly sufficient, like, I like studying all these…I get the behavioral facet that individuals are attempting to do this are sometimes like, “It is a sizzling deal. It’s closing. It’s 10 occasions oversubscribed.” And sometimes, 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, lots of those the place I take a look at, I’m like, “Wow, nobody’s on this.” After which wanting on the end result through the years…anyway, I want I might time journey, however.
Rex: Yeah, no, completely. However this is the reason you can even have a number of methods that went in enterprise markets. You could be a consensus store that at all times wins and does sizzling offers and doubtless delivers adequate returns. Most likely the most effective returns are by non-consensus of us who discover these offers nobody else believes in. These must be exhausting 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 you need to…it’s an attention-grabbing query to consider, like, you understand, the place LPs must be occupied with allocating capital and how much LP ought to choose what sort of agency, as a result of you need to be fairly subtle to try to again the non-consensus stuff. I’m fortunate, I get to do some little bit of each, proper? I’m not tremendous unconcentrated, however I’m not tremendous concentrated. I can, as a non-lead test, make investments alongside tier one corporations who’re main offers and have completed that on many events but in addition spend money on 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 a little bit little bit of each by way of my contract, which is a little bit bit totally different, so.
Meb: Rex, what’s been your most memorable funding that you just’ve been concerned with that could possibly be both as your profession as a VC or one thing completely unrelated, good, unhealthy, in between? What you bought?
Rex: Most memorable funding, I bought a full trip 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 basic 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 applications.
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, stunning 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, an excellent funding however primarily only a actually good studying expertise. You’re a school 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 like for me as a school senior. Oh, let’s go and really get a mortgage, proper? Let’s exit after which truly see what it seems wish to personal and function an asset over a interval.” I used to be truly dwelling in it for some time too, which…that’s type of an attention-grabbing arbitrage alternative for quite a lot of different causes. And I nonetheless personal it at present, and so I get to trace it.
After which, as you get this attention-grabbing educational train, was it an excellent funding? And also you, like, benchmark it to the S&P, and also you’re like, “It’s fairly good.” However then you definitely benchmark it to, like, REITs, and then you definitely benchmark it to single-family REITs, and then you definitely’re like, “Effectively, what about my time? What concerning the truth …?” Like, it’s simply an attention-grabbing lens, and I’ve refinanced it a number of 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 a terrific studying expertise by way of understanding how all of those markets work. After which it’s additionally a reminder of simply how advanced finance is, as a result of, like, simply to reply the very primary query of “Was this an excellent funding?” simply attempting to determine what the precise benchmark must be is, like, a really exhausting query. After which, to not point out, like, all of the stuff round time, and so on., so.
Meb: You had 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, finest place folks will discover you on all the assorted locations. The place do they go in the event that they need to take a look at what you’re doing, fascinated about your fund, all that good 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 may go to these platforms particularly. After which the web site is cambrianhq.com, and there, you may subscribe to our publication, discover a few of our different social profiles. And in case you’re a founder, you can even discover the hyperlink to affix the Slack group.
Meb: It was a blast, man. Thanks a lot for becoming a member of us at present.
Rex: Yeah, thanks a lot for having me, Meb. Actually respect it.
Meb: Podcast listeners, we’ll put up present notes to at present’s dialog at mebfaber.com/podcast. If you happen to love the present, in case you hate it, shoot us suggestions at suggestions@themebfabershow.com. We like to learn the opinions. Please assessment us on iTunes and subscribe to the present wherever good podcasts are discovered. Thanks for listening, buddies, and good investing.