Animal Spirits Podcast - Talk Your Book: Investing in Start-Up Equity

Episode Date: October 18, 2025

On this episode of Animal Spirits: Talk Your Book, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ben Carlson⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Dave Thornton from Vested to discuss: abandoned start-up shares, diversification in venture capital, helping start-up employees and the complications involved with exercising options. For more information on Vested, email them at [e-mail] Find complete show notes on our blogs... Ben Carlson’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠A Wealth of Common Sense⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Michael Batnick’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Irrelevant Investor⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Feel free to shoot us an email at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ with any feedback, questions, recommendations, or ideas for future topics of conversation. Check out the latest in financial blogger fashion at The Compound shop: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://idontshop.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Riddholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Riddholt's wealth management may maintain positions in the securities discuss, in this podcast. Today's Animal Spirits Talkerbook is brought to you by Vested. On today's show, we are talking with Dave Thornton.

Dave is the co-founder, CEO, and chief investment officer of Vested, which is a company that is helping venture-back startup companies, their employees, exercise their options when they leave the company. And he is raising money through investment funds to get access to venture. capital. Isn't it interesting how these new ideas or these new services or funds kind of come about just because of the need, like this is a solution that didn't exist 10, 20 years ago or whatever and maybe didn't have a market for it. Now it's just a thing that people need. Yeah, one of the things that we didn't ask him on the show was when did they, when did they start

doing this? And this is not, I think, what did Dave said they are? Is this their fifth fund? I mean, this is not brand. Yeah, they've been doing it for a while. And it's interesting. The idea is, yeah, there's some people who have shares in a. startup and because in it typically in a startup you don't get a big cash salary right the whole idea is the whole company is a call option and so your options are that's like your payout someday hopefully if it works so a lot of people can't afford the options if they leave the company or if they're investing in a certain amount of time and vested steps in with their investors and helps them essentially buy those options for a price so they provide capital to the employees that

are leaving so that they can not have their options expire completely worthless. And they do so by raising money from investors to do that. And then the idea is that the investors will get access to, let's just say, the beta component of venture. So it's not going to be the fund that is, you know, in Fortune or on the cover of the Walsh Journal for having that 30X upside. But it's also hopefully not going to be one of those companies that's in the cover of one of these magazines for lighting all the money on fire. You mentioned on this show, the range of returns from high to low and venture is huge. Right? So kind of narrowing that down, there's probably not a lot of options for that, which is interesting.

And by the way, we think, people think AI is going to take all the jobs. This is the kind of thing that is popped up out of nowhere, a new service that didn't exist in the past. This is the stuff that happens. Well, I'm glad, correct. And I'm glad to see that this is still, listen, it's imperfect. The private placement process, it is what it is. But this is not an ETF. Right.

Yeah, this is still an illiquid venture capital fund. structure with uncertain payoffs and timing and the year that you invest in it is going to matter a lot because of the environment and how the exit stuff is going. Yeah, the investing side of things is, but it's interesting because it's essentially two companies, right? It's one company that's helping the employees exercise their options. And the other side of the company is picking the right places to do this with, right? The right firms and people to invest in, essentially. Interesting stuff. So here is our talk with Dave Thornton from vested. Dave, welcome to the show. Thanks. Glad to be here. All right, Arnold Schwarzenegger voice.

Who is vested and what do you do? Vested, we help employees get out of the chopper. It's not bad, right? Not bad. We help startup employees exercise their typically expiring stock options. And we do that by raising capital from investors who want access to the VC asset class, and we kind of discretionarily put their capital against the employee stock option deals that we serve. So the idea is that there are certain employees who can't or don't want to use their cap, don't have enough capital to invest their shares and you help them out. Is that the idea? Yeah, that's the general idea. I'll give you a little bit more background because this is a, it's kind of an interesting market and we fell backwards into it. And so the background might be

helpful on that question. So we were once upon a time running a very different business, which was a startup equity education business. We just, a lot of the people that work invested were aware of how badly startup employees make decisions around their equity. And so like the first version of Vested was a website with free content and free tools. And the theme was let's help startup employees not make disastrous decisions around their equity. And one day we'll have three million startup employees that are all running around our website and we will figure out what we can sell them then. So that was the original version of Vested. And in like early 2020, mid-2020, we started to get a bunch of inbound demand from our own user base coming

back to us asking us like poorly formulated questions around capital and equity. And when we started talking to them, we thought we would see a ton of different capital use. cases. So like down payments on homes or unexpected medical bills or I want to buy a car or whatever. And we ended up seeing almost exclusively one use case, which was I just left my startup. It doesn't matter why. Google poaches me. Microsoft poaches me. I'm going to business school. I got fired like the entire set of reasons is on the table. And because I never read my docs in the first place, maybe because I wasn't an original vested user using your website the right way. I just found out that I have 90 days within which I have to exercise my vested stock

options or else I lose them. And we were like, oh, well, we're familiar with that as a, like, we're all startup people. We're familiar with that problem generally. But like, why on earth are you coming to us? This is a 20-year-old problem. There's got to be a market serving this need. And when we did our research, we were like, oh, there is a market serving this need. It's basically Silicon Valley Bank, First Republic Bank, some of the bigger New York-based banks that have gotten into the private markets, and a handful of kind of independent players

like SecFi and Quid and Liquid Stock and ESO Fund. But when we really dug into what their business models were, they were primarily serving senior employees leaving really late-stage private companies. It's like the canonical, I just left Stripe and I need $20 million. like everybody falls all over that deal. And the people that need 50 grand

cannot find anybody to pick up the phone because what investment house or bank is going to pick up the phone and write a ticket that small. So basically that was the set of users that kind of came inbound back to us. It was the rank and file startup employees. So to answer your question, 100%, it is the case that if you need 50 grand

after having spent three years being under cash comp at a startup, you almost, definitionally do not have it. And even if you do have it, you should not be putting 50 grand of, you know, you should not be putting a material amount of your available capital into a single private company that would be a very risky thing for you to do, especially if you don't work there anymore. So that is the use case that we're solving. There's just like this very, very, very big long tail of people that need 50, 60, 100 grand to exercise their stock options. And we provide them the capital to do so. So what are they trading off then? What's the tradeoff for the person who's

getting the capital from you? So the specific thing that we do, the transaction, is in the public markets, it would be called to sell the cover, but we're buying the minimum number of their future shares necessary to help them come up with all the money to do the entirety of their exercise. So like an easy example is you've got 100,000 options at like a $1 strike price. Pretend tax doesn't exist because that makes it complicated. So you need $100,000. and let's say the current independently produced board-approved fair market value of your company's

common stock is three bucks. We will buy at three bucks until you have 100 grand. So we'll buy 33,000 of your shares. We'll give you the money today. So 100 grand goes out to you today. You use it immediately to exercise all 100,000 of your options. Now your title to 100,000 shares and you owe us delivery of the 33,000 that we bought whenever the transfer restrictions on those shares.

lax or annullified by some sort of an event. So that's the basic transaction. And to get back to like what the upside is for us, it actually changes deal to deal. If the, if the board approved fair market value is $10, we have to buy many fewer shares to help you come up with $100,000. If it's $2, we have to buy a lot of your shares to help you come up with $100,000. So it totally depends. All right. This sounds complicated. There's a lot of moving parts here. So you give somebody the money to exercise their shares, the shares are held in their name or do they get transferred to you? No, the shares are held in their name. I'll come back to that in a sec, but keep going. Okay. So the shares are held in their name and then when there is an exit, X number of years into

the future, whether it's an IPO or they get bought or whatever, what does the process look like of them transferring their shares to you? And how do you stay on top of all of those? of that. Yeah, it's actually not particularly hard, especially since we've got tech company DNA to start. It was actually a good thing that we didn't start off as an asset management firm because we would have had a very different viewpoint on how to do all these things. So the least common case is there's some sort of a public exit. Like, you know, 5% of companies actually go public. A lot of the private companies get bought at some point along the way. So in a public exit, after the lockup period, which is typically six months,

our counterparty will just transfer the shares that we bought from their brokerage account to ours, and that's that. We will then typically liquidate them and distribute to our investors immediately. In the most common types of exits, which are M&A, like cash mergers and acquisitions, instead of getting shares because they won't exist anymore after like a full acquisition is done, we'll just get the cash equivalent of the shares that we were owed at whatever the per share price was in the acquisition. So we'll just take a wire afterwards. But what does it, but like how?

How does that get enforced? Because it goes to the person. And I assume that they have to take, like, they have a share of the upside and then you have whatever share you have. They basically have the entirety of the upside and they just owe us the portion related to the shares that we bought. So like if we ended up in that example that I gave Ben buying like a third of their shares, they would owe us a third of their proceeds when the dust had settled on the acquisition.

But do they have to do anything? or there's some sort of technology on the back end, whatever services you guys are using to make sure that that contract is executed on. They do need to wire, but that's not the hardest thing to do in this stage in age. Dave sends them a Venmo. Yeah, they've been to us.

I imagine that you mentioned that a lot of people came to you and said, this is a problem. For some people, it's probably like either I get this and give you a share or I get nothing, right? Or I have to sell another asset, sell some stocks, cash up my 401K, borrow money from someone else or from a bank or something. So the sale for people is probably relatively easy, right? Yes, I'm giving up some of my upside, but the alternative is potentially

nothing. Yeah, yeah, that's exactly right. This very large group that we're serving is otherwise underserved, which means they're making a zero or something decision typically. Michael, I'll give you a little bit of background on the question on the transferability thing. So this is kind of one of the most interesting early learnings in the business. When we first started doing this, someone would show up with like 10 days left on their clock and it's super clear that you can't bring in a, for example, a series B company

to do a proper right of first refusal process and board consents and like share retitling or whatever in 10 days. So we would typically do this forward contract that I just described to you directly with the employee just to make sure that the clock got beat and then afterwards we would go back to the companies

and be like, hey, we just helped out Michael for $54,000, do you mind retitling just the shares that we bought so that we can manage our delivery risk? And the companies were basically like, so you want me to explain to my board the new $54,000 line item on our cap table called Vested, and you want us to pay external counsel that teach us how to do a right of first refusal process. Like, we don't have any problems with ex-employees exercising their stock options that they've earned. Just like, please don't make this an issue for us. It's such a pain in the butt. So the company is actually put us in this lane where they encouraged us for this one specific use case to use

forward contracts. So we've gotten super comfortable with monitoring and delivery risk. It's actually never manifested for us. So, all right, last question on that side before we talk about the investor side and maybe Ben has more questions. So you say, okay, I get to exercise the shares at $1, fair market value is $3. What sort of diligence do you guys do to make sure that fair market value isn't completely nonsense because there was a lot of fair market value marks in 2021 that are now looking like not so fair, maybe unfair market value. So how do you make sure that the transaction actually makes sense from your point of view? So it's a long answer, but the short version is we realized a couple years into doing this that we actually collect an incredible amount of

private company data exhaust and signal just by serving a really broad startup employee base. And a lot of the folks on the team, myself included, have quant backgrounds. And so what we did was we built a machine learning-based private company selection model that governs the companies that we choose to help their employees from. So the real answer to your question is basically what are the data sets that are underneath the model that helps us do our selection, like how do we stay out of trouble. There is table stakes stuff like companies financing trajectory and their financing terms and the quality of the investors behind them

and the behavior of those investors over time, like are they re-uping from round to round? There is fairly differentiated stuff, which is out there in the world, but I haven't seen it in a lot of private company models. So employee flows, super predictive of how well a company is doing, whether they're like net hiring or net firing, whether they just hired a bunch of non-founding salespeople,

whether they just hired their first CFO, or whether they're, you know, they just fired 50% of their people, people quietly and nobody knows about it. We also have some financial performance estimates that are built from state and local tax and labor filings, which are not particularly accurate, but they're also always the same level of inaccurate for a given company. So when they move up or they move down, it's meaningful. And then, kind of most importantly, we've got the proprietary data that we collect in the normal course of business. And this basically comes from our

interactions with the employees. When we reach out to people, it'll typically. be on LinkedIn with a connection request and we'll tell them who we are and they'll say the randomest things back to us. For example, like, I'd been early exercising my options with my own money at every available opportunity, so I'm good. Like, thanks for reaching out, but I don't need you, which is an incredible signal. Alternatively, we sometimes hear people totally trash their company unsolicited. Don't waste your time with this bullshit. No, no, we've heard people say to us, like, I wouldn't exercise, like, we're giving them money to exercise the options. They don't need to come out of pocket. I've heard and seen we wouldn't

exercise options in this company even if you paid us to, as in not just like prevent us from coming out of pocket, but if you gave me money, I still wouldn't do it. So like we get a bunch of interesting signal from the employee base that we serve and we put all the stuff underneath a selection model that basically predicts the exit price of a private company's common stock as a, as a ratio to the last round at which I've raised preferred. So, like, the way to think about it is how much growth is left in the company. And that's what we do to stay out of trouble. We reprice 15,000 companies every morning with yesterday's data.

We sorted by how much growth is left. We cut it off at the top 20 percent. And we say, that's the set of companies whose employees were happy to help. And it's a large set of companies. So, like, if we can reprice, you know, 15,000 companies a day, then 20% of that is 3,000. It's a fairly large cashman area, a relative. to the hundred names that might trade on the secondary markets today.

So obviously there's a ton of startups and there's so much more private, so many more private companies, there's private capital. But what is the actual opportunity for you here? Like how much activity is there? What's the addressable market, I guess? Like how big of an opportunity is this? It is a monster opportunity. It's hard to address because of how diffuse and fragmented the small ticket, you know, employee base is. But it is a very, very, very large market. There's no way you could chop it where even staying in the lanes that the company set us, which is like, you know, if you're going to help out a few of the ex-employees per company per year, like, you know, please do it with forward contracts. Even staying within that

lane, it is a minimum single-digit billion a year market. And it's fairly structural. Like, it just follows the labor flows of the startup market. It's not like the overall macro environment has a lot to do with it. And that is the smallest version of it. The biggest version of it, the biggest version of it is just employees on like 10 to 15 points of the cap stack of most private companies. And private companies, you know, even the U.S. based ones that are venture backed are worth like a couple trillion dollars. So this is like hundreds of billions of dollars that will end up going in smoke over the course of the market cycle. So big. Big is the answer. So talk about the money raising process. How many are these funds that you're raising?

These are private placements. Who are you raising money from? What is the education process? like. Talk about it. We've been raising funds and fairly accidentally we've raised about one fund a year. So it turns out that we run vintage funds. But the funds are private funds. We raise the money. We call it all up front. And then we discretionarily put it to work over the course of typically about a year. The putting the money to work part is not all that hard because of the size of the market. The raising the money is the part that I would say we spend more time figuring out how to do. We've realized that probably our best base of investors, our best LP base in these private funds, live in the independent part of the wealth management channel. It's just a bunch of

high net worths that have never had access to venture, and this is like a genuinely good access product for them. And then we've got kind of a synergy with the wealth management channel, which is the fund itself that we run produces private company shareholders, and when they have their liquidity events, we're basically their last stop on the way to wealth management. That's kind of like a nice circular feedback loop. So we're focusing most of our attention for the next fund that we're running on the independent part of the wealth management channel,

and it is a lot of education because on the one hand, it's very easy to say, like, diversified venture, discounts. That part's not a problem. But getting into the details of like stock option funding requires tons of education. Are people coming to you for tax advice as well? Can you can you offer that? Like what other advice they're looking for? They just saying no, I need help buying these shares. Every so often people do come for tax advice related to stock option exercise, but mostly that's in the context of a stock option exercise, not at like an independent question. So yes, they come to us for that, but that's our normal business. Separately,

though, a lot of the people that we're helping are people who don't need the stock option funding now, but may have come for the educational content and the tools. And to me, we should be trying to facilitate their education in general, you know, on the way to their future liquidity event. And so we're hoping to partner with wealth management firms on that front, because it's not something that we're ever going to do. But it would make for a better experience for our end client like, you know, startup employee users. Okay, so I have questions about what the portfolio ends up looking like. We talk a lot about how the S&P 500 is so concentrated.

The top X are 40% of the market, whatever it is. It's pretty bananas. I would imagine that the problem is problem. I know why it's a problem. I would imagine that the same dynamics exist in private markets, venture-backed companies, but maybe even more so, I would imagine that OpenAI and SpaceX and Stripe and the other giants bite dance are like 80% of the market. So how different does the portfolio that you give to investors look from the market

cap weighted version of private markets? And is that, is it good? Is it bad? Talk about some of those dynamics. Wow. It's probably one of the most interesting topics on the investor front. So you're totally right. The biggest, latest stage names that have reasonably active secondary markets are the ones that are hogging all the attention and a lot of the private capital.

If you look at the Forge Private Markets Index, it's fairly dominated by a handful of names. It actually does feel like the Mag 7 to me. The only deals that we end up winning from those companies that make it into our portfolios are the very, very small ticket, like executive assistant just left rippling and needs help type of deals. So most of our portfolio lives in the early and mid-stage part of the asset class where there's a significantly lower amount of total competition. And I mean, that's the point. That's the underserved people that we identified in the first place five years ago that need the most help. so on portfolio construction there's a lot to say

the first thing is venture is a power law asset class like worst thing you could do in a venture portfolio is not be in Facebook or miss Facebook to the extent that you had the opportunity to be in it right but as distinct from the later stage like pre-IPO names

where you know who the winners are and the question is just like can you get into them in the earlier stage of the asset class it's way, way, way harder to pick winners and do it confidently. Like, there's been a ton of writing on this. So just to give examples about why, it's often the case that a founding team that can get from zero to one and, like, bring a new thing into existence is not the team that is the right team to scale a business and operate it.

Like, they get bored. Founders get bored of attempting to scale and running, running like full-scale businesses. It's also frequently the case that the macro and the macro, environment changes and a whole bunch of companies that are all awesome just getting newt. Like wind and solar is out these days, I hear, right? Kind of sucks. There's a bunch of great companies that are doing wind and solar stuff, and now they're just going to live in zombie land for the next two years until the macro wind shift.

So picking winners is super hard, but you have to not miss the winners. And between those two things, I actually think it requires a diversified portfolio. I think that the vested portfolio is not being cap-weighted, maybe not having any exposure to these giant companies is actually a good thing. Because to me, that's not venture investing. If you're investing in Open AI at a $500 billion evaluation, you're investing in that's mega-cap growth. That's mega-cap growth. It's Oracle, right? It's, it's, that's, that's mega-cap growth. That is not venture. I guess the, the question that I would have is, I wonder if in today's venture markets that are fundamentally different than the past. There's more liquidity,

there's more visibility, there's more capital wanting to get into these names. I wonder what sort of opportunity you'll have to be in the next Open AI because a lot of these companies are being funded by the large venture investors with deep pockets. They know every employee. And should any employee leave, there's a line 100 investors deep. that would love to not get in a discount, but would overpay for their shares. I'm sure you've thought a lot about this more than I have. So what do you say to something like that?

Yeah, you're totally right. The only thing is the set of investors that are interested in the greatest names, even the earlier stage names that they happen to know are greatest, are not getting out of bed for $50,000 dollar tickets. There's a lot of plumbing that you need to put together to serve individual employees at a very small scale. And so to the extent that founders have not yet realized that there are massive recruiting and retention benefits to doing basic employee liquidity programs, they mostly don't exist. And even though the demand could be there if they existed in a programmatic way, like, it's just not there in most companies. So we're still here helping the individual employees as they kind of leave job A to go to thing B. And I don't anticipate that the folks that you're thinking of are like,

to be our biggest competition until a lot of the plumbing problems get solved about making these programs easier to run. We're going to try to preempt that, by the way. We've realized that there's been a change in the last year and maybe two, which is the founders of the more forward-thinking early-stage companies are starting to think about doing like a little bit for their employees rather than nothing. And we're going to be reaching out to a lot of them in our next fund and just saying like, hey, we're going to bring the plumbing to you. This is going to be be an easy thing. If you want to do a 5% tender every year for your employees, it's not enough to disincentivize them, but also, like, they will love you forever. And I actually think that

we may end up being the capital for a lot of the earlier stage companies that start to do stuff like that. So for the investors in your fund, obviously, the big unknown is when are you going to have an exit, right? You get into these options that you don't know when. So what does the duration end up looking like. And obviously that might depend on the cycle and the environment. How do you market this to your investors and your funds for how long it'll take them to get their money back? So it's not to cause brain damage. We make it a 10-year fund, which is a typical life term for a venture fund. But the reality is that our liquidity profile looks very different than a typical venture fund. Number one, we're deploying fast because it's a big market. So

Like, there's no world in which we're going to have a four-year investment period. Like, our investment period will be a year max. Two, we're investing in companies at many different stages, and you end up seeing, like, a really interesting distribution of liquidity events. You get a bunch of random liquidity. I don't know which one's for sure right now, but you get, like, the benefit of the law of large numbers on this stuff. And just to contextualize this, my last company was a healthcare analytics company that sold

to one of our data vendors, like 16 months. after our seed round. It was a totally random, totally unexpected exit, and it was great for everybody. And that kind of thing happens kind of all the time. It's just that the billion-dollar exits get press releases and the ones like that, you know,

fly under the radar to the investing public. So the general profile of the liquidity is basically like most of the mass. Think of like a normal distribution type curve, like a bell curve. Most of the mass of the liquidity is going to be in the like year four to five range. but it's going to have super fat tails where there's a lot of early random liquidity and then

there's a handful of like hold your breath for IPO type companies making up the right tail and we don't reinvest and we don't recycle so as soon as the liquidity comes to us we're distributing it back and then when you're talking to investors are you get for setting expectations are you saying hey this is kind of like a typical venture fund return profile or is it different because of the way that you're investing it's definitely different because of the diversification Like the good thing about the diversification is we're way less likely to miss the next Facebook and it'll be in the portfolio. The bad thing about the diversification is like so will a lot of other stuff. And so there is no chance that this fund is going to be like a 20x fund that everybody writes about.

So our return profile, interestingly, because of the diversification probably looks a lot more like a PE fund return profile than a venture fund return profile as far as the variance goes. The dispersion in venture returns by manager is enormous. And if you're not in the top quartile, you might as well not even play the game. But what you're doing is different. You're basically trying to capture, I think, the beta of the market. Is the average venture profile attractive for investors? No, it's not. Being in the middle of the venture asset class is essentially being flat, which you don't want to be.

So how is that different than what you're doing? Yeah, there's two big, big differences. One is that fancy machine learning-based selection model that I described earlier that's fed by all the kind of differentiated data that we pick up in the normal course of this business. We use it to point us to the top 20% of VC-back startups, which on a look-through basis, you can think of that as top quartile venture. What does that mean? How do you point to that?

Oh, we're pricing 15,000 companies. And actually, it's not so much pricing as predicting how much growth is remaining in them. we sort those 15,000 companies by how much growth is remaining, and then we cut that list off at the top 20%. So the companies that we're interested in helping are the 3,000 that our model thinks have the most growth remaining in them. It's one version of the concept of the best companies. Do you look into like, all right, the best investors or venture have persistently higher returns? It's more likely that a company backed by, I'm making this up, founders fund, whatever, benchmark, whoever, is going to have higher returns.

returns than companies backed by investors we've never heard of. That is a part of the model. So we don't actually name investors inside of our model, mostly because every large brand name venture firm has many different funds and many different like individual GPs that are doing the deals. And some funds are better than others and some GPs are better than others. And it's kind of, it's hard to tease that all apart with the data that's accessible as an outsider. But we do incorporate firm's prior returns, and we make sure that the model is

paying attention to investor quality as like one of the, based on prior returns, that's one of the major predictors. That said, there's kind of an interesting subthread on the persistence of venture returns, and I've got a take on it that is not a consensus take. You guys know Mike Madison? Yeah, sure. I've seen his stuff, and I've seen that the venture asset class in particular has the highest amount of stickiness. Like if you were a top quartile fund manager in your prior fund, you have the highest chance of being a top quartile fund fund manager in your next fund. But the number itself is only 49%. That does not strike me as that good. Like if you're less than a coin flip to be a top venture manager again, like, I don't know. Like that doesn't,

that doesn't feel like, you know, the proof of skill and venture management to me. It just happens to be better than, like, you know, the 30 and change. Well, that's the thing. So, like, venture is the 49% number. P.E. is, like, 30 and change. Like, real estate, it's even lower. So, like, venture is the best of a bunch. I just don't think it's that good. Um, interestingly, on that 49% number. So, although we don't have the brand name in our model, we do have the prior returns in our model. And in our actual portfolio, the last time that we looked at this, 51% of our portfolio positions are backed by what you would consider to be the brand name VCs, which is kind of like nice next to that 49% number. So we do like a decent job proxying

for investor quality. We just don't make it to be all and all. You have the ability to lop off that bottom 80% and be selective enough in that top 20%, and there's still a big enough opportunity there where you can essentially kind of turn people away because you don't meet our criteria, whatever that is. That's true. Although, ever since we instantiated our selection model, we've mostly been proactively sourcing. So we're sitting on top of a number of different jobs. I think of LinkedIn. And anytime somebody who's currently employed at one of the companies in our fairly large cashman area, that top 20% set, changes their profile by putting an end date on that last job. If that's within the last

90 days, we'll typically reach out to them proactively. And so there's a lot less turning away, since we're already selecting for the people that we think we're going to say yes to, it is the case that if an individual comes through and then talks a crazy amount of mess about their company in a way that's credible, we might not do the deal because we might have learned something. It's also possible that if an individual, instead of selling just the minimum number of shares necessary to affect their full exercise, they look like they're just, you know, they try to sell everything and they're running screaming from a company that might be something that we pay attention to,

but for the most part, when we tap people on the shoulder and they come in, those are the deals that we will do. We have a bunch of word of mouth that happens kind of naturally, so there is still organic random inbound, and for those we'll be saying no at 80% rates,

but because we're proactively sourcing or mostly saying yes to the folks that we're bringing in. What do you guys charge for this? The fund is a, we just stuck our finger in the air and said it's a VC fund, so we're going to make it two and 20

and put a preferred return hurdle, which has been the, that has been the cost structure for the last like five funds. And the preferred hurdle is what? In the first close, it's an 8% return hurdle. Okay. So for advisors that are listening that want to learn more, let's just assume that they're like, this sounds great, I want to do it, but I have questions about the operational aspects

of this. How annoying is this? What does the reporting look like? Does this play nights with the custodians? It does. we because we've had some reps kind of serving the wealth management channel writ large, we've figured out the importance of the

custodians and all of our prior funds have been on Schwab and like when we have people that are on fidelity that are inbound, we will put the fund on fidelity, but most everybody that's been in the LP base thus far has been Schwab and TD Ameritrade folks. So that part's easy. K-1s are a pain they're always going to be a pain, but we

try our best to like get them out on time and not make them the types of things that anybody needs to talk about, the reporting in general is quarterly. So we'll kind of characterize the portfolio on its way as we're deploying and then on, you know, once we're in the harvesting period and we'll send out management letters along with statements every quarter. Last question for me. How often are you raising money? Kind of constantly because it's it's, we can't ever not be providing capital to startup employees that need the money or else our brand will kind of slowly be tarnished for periods of time.

So we almost always have an open fund. And most of our, like, it's once a year on the fund side, and then there are multiple closes within a given fund. So we're kind of always there. All right, Dave, for advisors that, oh, I'm saying advisors, I assume you don't work directly with the public. Like, I assume there needs to be an intermediary here. It's not so much that, so the next fund is going to be a 506B or 506C

where we can do general marketing, but we haven't attempted to do anything that is pure public facing. It's kind of a pain for retail, like true retail investors to go through like KYC-A-M-L processes at the end of subdux. Yeah. So it's mostly advisors or folks that are advised. All right. Makes sense to me. For those advisors who want to learn more about your product and maybe even have a chat, where do we send them? Yeah, send them the generic email where someone on my team we'll be able to pick up things pretty quickly is investors at vested.co. Okay. Investors at vested.com.

Is there a website that they can poke around that? Well, there's the vested.com website, but the vested.com website is our employee facing brand. Got it. Okay. We'll quickly put together the investor-facing collateral via email and get to know our investors a little bit too. Got it. All right, Dave. Very interesting.

Look forward to tracking your guys' progress. Thank you for coming on today. Yeah, thanks for having me, guys. All right, thank you to Dave. Remember, email us, Animal Spears at the compound news.com.