How I Invest with David Weisburd - E57: Eric Poirier CEO of Addepar on Lessons from $6 Trillion in Assets

Episode Date: April 9, 2024

Eric Poirier sits down with David Weisburd to discuss insights from the platform’s investment data on nearly $6 trillion in assets. They also talk about the top performing asset classes, the future of asset management and how to manage talent to scale a business.

If we're belaboring that or we're like over-indexing, obsessing over the problems versus flipping into what are we solving and how can we do it iteratively and how can we do it much, much faster? This whole notion of like cycle speed of an organization, we're big believers in that. Like how can we just every single day make every day count, make every day matter and really just have that

high velocity way of executing. You came in three years into the company's history. You're clearly the right CEO to take it from one to a hundred. Do you believe those to be different skill sets in terms of founder versus taking somebody one to a hundred. Do you believe those to be different skill sets in terms of founder versus taking somebody one to a hundred? I guess. For more ideas on how to raise venture capital in this market, make sure to subscribe below.

CEO of Adapar, welcome to 10X Capital Podcast. Thank you, David. Thanks for having me. Important notice, this is not a paid promotion. Unfortunately, I'm not making any money here, but I'm very excited to talk about Adapar. So excited to dive right in. Yeah, me too. Great. You've been a CEO of Adapar since 2013. Tell me about how you became involved in Adapar to now being CEO. Yeah, absolutely. I actually got connected to Joe back in 2006

and Peter Thiel connected us. I got to know Peter when I was an undergrad at Columbia. And after working at Lehman 03 to 06, I decided it was time to do something more entrepreneurial. So Peter connected me with Joe. I joined Palantir in the middle of 2006 when it was fewer than 20 people as a software engineer, and then spent about six and a half years there building out Palantir's finance platform and the business around it. And then joined Adapar just over 11 years ago in early 2013. Today, you have $5 trillion in assets on Adapart. That's trillion with a T. Tell me about your customer base today. We have more than 1,000 firms using Adapart today. As you mentioned, we announced in December, we had $5 trillion. It's actually nearly $6 trillion

already. We've been adding more than $1 trillion every 12 months for the last couple of years now. But early on, when we were starting in 2009, 2010, 2011, was more well-known for the work we do with single-family offices. But over time, we continue to serve single-family offices, but we've expanded to multifamily offices and RIAs. We've also been doing a lot more over the years with larger banks. So our clients today stretch across more than 45 countries. And as of recently, we're also getting very substantial interest from larger institutions, whether that's endowments, foundations,

pension funds, sovereigns, superannuations, et cetera. Once we get into the details of what the platform does. What does Adapart do and why do customers love Adapart so much? Adapart, it's enterprise scale technology that brings together all the data about our clients' investment portfolios. And what's unique about it is why we started the company or Joe started the company back in 09 in the wake of the financial crisis was we recognized that clients, especially those who are accountable for larger portfolios, need a single place to go to see the entire portfolio both broadly and deeply. So that means for the marketable securities, stocks, bonds, things like that, that they hold in custody banks,

we built direct integrations now to hundreds of different custody banks. So we can draw that data on a daily basis in a very timely and secure way. But to go along with that, clients also need to keep track of their investments in private equity and hedge funds and venture and real assets, collectibles, all sorts of really everything the client considers to be part of their investment portfolio. We're capturing on Adapar in a very granular way. The initial use case we've solved for is around consolidated performance reporting and having all the data aggregation capabilities to, again, bring in the right breadth and depth of data. Clients can, in a very intuitive way, answer questions like, what are all the things I own? Where do I own them? How do I own them? What am I exposed to?

So that we're then enabling clients to make better decisions on what to do about it. Like, how do you navigate volatile markets? It allows anyone from family offices to pension funds understand what it is that they're holding. Can you double click a little bit on why that's necessary? A couple of examples. If you go back to 2007, 2008, during the, again, the global financial crisis, when markets, public markets started to experience drawdowns, the same allocators who had also invested in private equity and so forth, weren't managing their total portfolio in one system, in one place. So all of a sudden there's a credit crunch, they're getting cap calls from funds,

they're unclear when distributions are going to start going out. And so there were dislocations within these very large portfolios because they weren't really able to manage the whole portfolio in a cogent and consistent way. And so by building technology that's robust to the entire portfolio, we're kind of bringing the industry beyond where it's been, frankly, for the last several decades, where people have been reliant on point solutions, like one system that's great at public equities, different system that's great at different debt products, a third system that maybe can help people keep track of their investments in private equity.

But when you have a bunch of different point solutions, you need a bunch of people effectively gluing the data and those systems together every day. And that creates a lot of operational risk. So by building much more modern data management infrastructure and all the applications on top of that to easily analyze portfolios. They just have everything they need in one place so they can make the right decisions. But from our client's perspective, we become the de facto source of truth and system of record for all things about their investment portfolio. You currently track 250,000 LP interests,

which is a crazy number across a thousand organizations. You have one of the most impressive data sets on the planet. Tell me about what you've learned. So because Adapar is led with consolidated reporting and data aggregation, but also because our clients tend to tilt more on the larger, more complex side of things, our clients, without exception, have fairly high allocation to alternatives, whether that's private equity or venture hedge funds or what have you. And so the data that we're receiving from those clients, we have what we call the global security master.

So we're able to take all of that data across the 250,000 different LP interests and map that to families of funds, individual funds, and then have a bunch of descriptive metadata, bucketing those funds by vintage, by strategy, by geography, et cetera. All of this is in service to enabling, again, our clients to better understand what they own right now and ultimately make better investment decisions on what should they own, what do they want to own, how does that best align with their goals and objectives. Give me some examples of what have you found. Adapar has some sophisticated capabilities for projecting liquidity and cash flows on a fund

by fund basis and then being able to roll that up across whatever set of funds each one of our clients has. And we're able to use the broad aggregate anonymized data we have across the client base to further inform the likelihood that each fund is going to be calling capital period by period, distributing capital period by period. So before those capabilities were rolled out, what we saw is our clients had a tendency to hold on to more cash than they needed to. They were being overly conservative and therefore they're suffering from cash drag, where once we can get the Paysom models more dialed in and they can, in a more, again, specific way, project out liquidity, project out cash flows. The byproduct of that is they're able to allocate more capital to risk assets.

Thanks for listening to the audio version of this podcast. Come on over to 10xCabot Podcast on YouTube by typing in 10xCabot Podcast into youtube.com and clicking the subscribe button. On the YouTube version of this podcast, you could see the graphs, visuals, and key takeaways that accompany every episode. You guys have now approaching $6 trillion in assets that you have information on. At the most basic level, how much of that is public? How much of it is privates? And so for that 40%, we do have kind of across the board, high allocations to private equity, to venture, to hedge funds. We also have clients really, again, managing real assets,

real estate, collectibles, just a bunch of other more esoteric assets, crypto, et cetera. And within that 40%, what's the breakdown? Private equity, kind of inclusive of venture, is the bigger of the buckets. Higher allocation of private equity proportional to hedge funds over the course of the last call it 10 years. These are consistent with many research reports that we've all read, but we see that reflected. In some analysis we've done internally is really just looking at the overall asset allocation portfolio by portfolio and bucketing that by size of portfolio so as you'd expect the larger the individual portfolio gets the higher allocation of alts in general is that because that capital is not needed in the short

term that's one of the reasons why you tend to have clients who are able to allocate over longer time Horizons and really getting compensated for that illiquidity you have access to close to six trillion in data. Is venture capital at its best the best performing asset class? I'd actually say for the smaller portion of people who own sports teams, sports teams tends to be a really high performing asset class, but it's not broadly available, of course. But yeah, venture, if you look at top performing venture funds versus top performing other funds, venture does tend to outperform.

And what are those return thresholds that you see both on venture, private equity, or other asset classes? We can share some research that we can flash up on the screen here to complement this. Yeah, let's flash it up. Tell me about Adapar as a business. You guys have this rich data set. First off, what is your business model today? And is that going to change over time? So Adapar as a business, you guys have this rich data set. First off, what is your business model today? And is that going to change over time? So Adapar is core platform. Think of it as an

enterprise software as a service business. Our clients are paying us on an annual recurring basis for license to the software. Generally, it's an enterprise software company versus a consumer company. So for each one of the firms we're serving, we want to encourage the full set of users to use Adapart and access Adapart. So we're not charging, for example, per seat fees or anything like that. We're generally charging two or fewer basis points. So there's a very significant spread there to allow RIAs to continue to grow, but we're able to participate in that growth as well. What's the smallest family office you have on the platform? I think our median is probably more than a billion dollars at this point. We have many

family offices in the hundreds of millions of dollars. And we also have plenty in the north of five or 10 billion. You alluded to the migration from hedge funds to private equity. Let's talk about the future of asset management. Today, you mentioned that they're 60% public, 40% private. Do you expect that number to change in the next 10, 20 years? Yeah, it's a great question, David. We've actually seen that proportionality be pretty constant over time, the 60-40. But within the 40, as I mentioned, investors have tended to favor more private equity and venture versus hedge funds. We're in a weird set of circumstances right now in markets. 10 to 20 years out, look, I think that having alternative investment managers continue to

outperform as a group, and especially in those top deciles, I think naturally makes larger allocators allocate more into alts versus public assets. So I'd say on the margin, yeah, I'd expect that trend to continue. And also if you consider institutional investors versus retail investors, where with the broad definition of that, I'd include RIAs and family offices more on the retail bucket versus the institutional bucket. There's lots of studies that I think are very valid about the underexposure to alternatives. So I think over time, yeah, I think the tendency will be for that to continue going up over time, so long as the

managers continue performing. Let's talk crypto. Again, you have $6 trillion data set. What percentage of that is in crypto? And what's the future of Adapar? Tell me about where you see Adapar in 5, 10, 20 years. The company turns 15 later on this year. And one of the, I think, interesting characteristics of this business, and Joe and I talk about this fairly often, is the first decade is building this low-level infrastructure and data model and being able to represent, again, in a broad and deep way, every single investment that each and every one of these clients have. That's basically taking a problem that had been intractable in the industry for a very long time and really cracking the code on it. But the way that internally I joke a little bit is, okay, we spent 10 plus years building effectively a great rear view mirror.

So once you have a rear view mirror and you can see exactly with a great high level of accuracy where you are now and where you've been in the past, that's super helpful. But I think the way more powerful and the way more valuable proposition over time is how do you complement that with the windshield, the headlights, and kind of map out the road ahead and the various decision points along the way from an investment perspective. So the investments we're making, the investments we continue to make are really kind of connecting that entire investment process for clients in a more end-to-end way. And really importantly, maybe by analogy, if you're trying to fly an airplane through a storm and you don't have the right instrumentation or you don't have a line of sight on where you're taking off from

and where you're landing, you need great instrumentation, you need great data. With the richness of data we have and we continue to accumulate, conceptually, we can help just map out the same way like GPS and Google Maps and so forth can really help investors just think about and really carefully consider different patterns and trends and what's changing, what's dynamic, and really kind of navigate their portfolio. What are some of the actions that Adapar is recommending to people? Navigator is really the tool that our clients use with their pacing models to understand how much capital they have to allocate

period by period looking forward. And that's also what allows clients to type the cash that they're holding in reserve. And so some of the actions are, you have 1% or 2% of your portfolio in cash more than you need. You can allocate that to risk capital. So that's more kind of top-down strategic asset allocation.

To complement that, we can start digging into more tactical asset allocation on each one of those sleeves or sections of the asset allocation. Just saying, look, you're in your alts bucket. You're allocated in this way today. You've been with Adapart since 2011. You've seen it essentially through 13 of its 15 years. Tell me about how you go about building a franchise that compounds over time. And what are the biggest challenges that you face? And B, how could other organizations build themselves similar to how Adapar has?

So I joined beginning of 2013. So I've been here 11 out of the almost 15 years. But regardless, when I joined, we had an already very talented team of software engineers, but generally software engineers who were very early on in their career. And probably kind of the ethos of the company was saying, look, how do we use first principles to go to some of the most demanding family offices, go to the most demanding wealth managers and dramatically improve the quality of results? One of the more timeless and universal aspects is how do you build a business like this in a hyper, hyper client centric way where every single employee of the company understands the importance

of everything we do is in service to our clients in terms of how you build out the team. Not settling for anything less than a talent bringing their A game every day, I think is super critical just for setting the culture, setting the environment. Ultimately, A's want to work with A's and B's recruit C's. And that becomes really corrosive. Do you find a scalability to A talent? Do you believe that A's could produce three, five times of B's? Absolutely. Yeah, without question.

The problems we're solving are very multidisciplinary. So as I'd mentioned, really early days at a par, it actually felt very similar to early days Palance here. It was like nearly 100% software engineers. But the thing we've learned and gotten really dialed in over time is in order to solve these complex client problems, we need not only the best software engineers, we need the best support staff, we need the best designers, we need the best sales team, et cetera, to really get all the details and to end right. So what that also means is internally the way that our culture works, where our environment works,

they have this concept of like generative energy. Like how do you have people able to contribute to the conversation in a very active way? And if anyone's kind of removing energy from the conversation or from the room, like that's, that's not permissible. Especially when you're launching something new. That's exactly right. And so like, that's, you know, encouraging this mindset that like best idea wins. It doesn't matter where the best idea comes from. It can be the intern. It can be a client. It doesn't matter. But just having the intellectual honesty and having the humility as a team where people are actually just constantly just trying to seek the best answer. Are you a believer in the hire slow, fire fast mentality? I'm certainly a believer in the fire fast mentality.

So let's say you mishired somebody and then within pretty quickly, within three weeks, realized that was a mishire. What do you do? If someone spends a day at Adapar or they spend 10 years at Adapar, I want to honor the investment and the decision that they've made to come join Adapar. So I want to treat people respectfully and treat them like adults at every turn. That said, if it's clear to us, or it's clear to one of the leaders or a hiring manager or what have you, that this person isn't the right, either from a skills and competencies perspective, we didn't get it right. Or from we're not shy about our no asshole rule. If it turns out someone is a toxic element to our culture, that's way more often than not the reason. The thing we

missed in the interview process that results in firing fast. It's not a competency issue, it's a culture issue. Yes. Nine times out of 10, if not more. You're also in Palantir, obviously one of the most successful Silicon Valley companies really in history. Did they also subscribe to a higher, slow, fire, fast strategy? I'd say so. The specific part of Palantir I worked, I was on the Palantir finance platform and team and so forth.

Even from the early days, that was largely segmented off or fragmented from Palantir's intelligence and defense business. Given my interactions and exposure early days. And we did make some mishires early days. I can think of a couple of them off the top of my mind. And we did deal with those quickly. You came in three years into the company's history. You're clearly the right CEO to take it from one to a hundred.

Would you have failed as a co-founder? Or do you believe those to be different skill sets in terms of founder versus taking somebody one to a hundred? So I don't have a counterfactual, David. I actually joined Palantir at an earlier stage than when I joined Adapart. And we had a team of 40 some odd people, even though we were effectively pre-revenue. And so one of the things that Joe and I reflected on over time is like some of the work we were doing in year four, year five, had we just sort of started fresh from a tech stack build

out and a team build out, like maybe actually we would have made some advances even faster, even sooner. What learnings did you take from Palantir to Adapar? From 2009 to when I joined at the beginning of 13, some of the tech choices that Adapar had made were things we reconsidered around the time when I joined. So for example, like the UI was built in Java Swing. Just as web technologies were getting to a point of robustness, you could actually have a fully baked, fully web-based app. One of the harder decisions I had to make really early days is we have to completely end of life the Java Swing UI and rewrite everything on the web, which retrospect is an obvious decision, but that was a massive undertaking for the company. We'll continue our interview in a moment after a word from our sponsor. Most businesses use up to 16 tools to hire, manage, and pay their workforce,

but there's one platform that's replaced them all. That's Deal. D-E-E-L. Deal is the all-in-one HR and payroll platform built for global work. Smartest startups in my portfolio use Deal to integrate HR, payroll, compliance, and everything else in a single product. Focus on what you do best, scale your business, and let Deal do the rest. Deal allows you to hire, onboard, and pay talent in over 150 countries from background checks to built-in contracts. You can manage an entire worker lifecycle from a single and easy-to-use interface. Click the link in the show notes below to book a free no-strings-attached demo with Deal today. Did you have to let go of some people because of that change in infrastructure? Click the link in the show notes below to book a free no-strings-attached demo with Deal Today. very ambitious company. But yes, to answer your question, like my first year at Atapar, we had extraordinarily high attrition. Some of that was voluntary, some of that was involuntary.

But I think recentering the company on like, ultimately, everything we're doing is in service to our client. That wasn't for everybody. And some people selected out. And also we recognized that some folks like would rather, you know, spend their hours just like prototyping whatever it is that happened to be of interest to them versus what happened to be like really deeply aligned with what our clients needed. What advice would you have to your younger self when you were starting out at? Oh man, how long do we have? Like I care very deeply about people. And so that might sound like a trite thing to say, but I very sincerely want to see super talented people like do the best work of their careers. And I feel accountable for setting the environment, setting the culture, setting the core values to really create the conditions for that to happen more and more often for more and more people.

You know, I get advice. I get feedback from an employee, like not a particularly senior employee, when I was probably five years into being CEO, where he said, look, you show up in a way where you feel like the product manager or the engineer. And furthermore, you show up in a way where you feel like everyone's friend. And sometimes you need to show up as CEO and just say, look, there's a lot of debate on whether we should zig here, we should zag here, or this person's opinion or that person's opinion. Here's the direction we're going in. Here's why we need to go faster. Here's the next target. This individual might not even remember sharing the advice to me, but I spent a lot of time just thinking through that and just kind of self-reflecting. And at that point, it actually proved to be a pretty critical and vital moment for me. Taking that advice and applying it right

away just helped get the company through some pretty challenging times. Once the beta is done, you execute what the CEO says. And I think that's something that you see in a lot of great organizations. In retrospect, like I probably had more tolerance and patience or like let that linger on, on the margin longer than it could have, you know, I still want to allow a lot of, you know, again, ideation and debate where, you know, again, having the conditions where best they can win and having that generative energy. But at the same time, like if we're belaboring that, or we're like obsessing over the problems versus flipping into like, what are we solving? And how can we do it iteratively? And how can we do it much, much faster? Like this whole notion

of like cycle speed of an organization. We're big believers in that. Like, how can we just every single day, make every day count, make every day matter and really just have that high velocity way of executing. You really care about people. I have the same trait. In what ways is that, has that served you well? In what ways has that hurt you as a CEO? I guess serves the company well in a lot of different ways. Like I think it has, it inherently gets reflected in loyalty of employees. Any company like this, it's never a straight line up and to the right. There's sometimes, you know, smash your face straight into a wall that you weren't expecting. Genuinely demonstrating a care and compassion and empathy for employees gets reflected in

kind of getting through those harder times. One example is, you know, spin back to March, 2020, like COVID hit, it caught the whole world by surprise. And I think if you study kind of company by company and what they did day by day, week by week in March of 20, April of 20, May of 20, the company banded together. Internally, the people who needed the most help, who needed the most support, I mean, provided air cover. Even Q2 of 2020, like that soon, and increasingly so in Q3 and then Q4 of 2020, we just saw this dramatic acceleration in the business. And that story is just like the way you treat individuals as adults, the way you're empathetic, the way that that gets kind of

manifest in the culture and the environment, but also like the way that that gets manifest in service to our clients. This is where we showed up for them in a way that was very unusual, very outlier in that moment. And that's just catalyzed our growth. It just keeps compounding quarter by quarter. We have quite a listenership. We don't have 6 trillion, but we're making progress. What would you like our listenership to know about you, Eric, about Adapar and anything else you'd like to shine a light on? Given that many of your listeners are LPs, the ways that LPs have managed their investment portfolios, they're so accustomed to it. It's very manual. It's very human intensive. And therefore, things that are conceptually easy and straightforward are operationally very difficult and error prone. And there's a better way now. Actually using

advances in modern technology, you can more responsibly and more accountably manage investments and do so in a high quality data-driven way. I joke that we're sort of like T-Rex as a company. We have long, strong legs from an R&D perspective, and we're very disproportionate. We've had these little sales and marketing arms relative to what we've built. And over time, we're becoming more proportional and that's good. We're really not well known still. Well, Eric, this has been really enjoyable. Thank you for jumping on the podcast. Thank you so much for having me, David. I had a lot of fun. Thanks, Eric, this has been really enjoyable. Thank you for jumping on the podcast. Thank you so much for having me, David. I had a lot of fun. Thanks, Eric. By popular demand, the 10X Capital Podcast has officially launched our newsletter

powered by Carrier Labs, a full-service content marketing firm that's partnering with us on the newsletter. In our weekly newsletter, we will keep you updated on all things emerging managers and limited partners, including industry trends that are critical to know as an LP, VC, or founder. To subscribe to our totally free newsletter, please visit 10xcapitalpodcast.com. Again, that's 10xcapitalpodcast.com. We thank you for your support. I hope you enjoyed this week's episode with Eric from Adapar. This week's episode had many important graphs that Eric shared on Adapar's insights on the platform's assets. To see the full episode, please visit 10xcapitalpodcast.com and click on the YouTube icon.