On The Brink with Castle Island - Bob Davis (Highland Capital Partners) on Investing in Disruptive Technologies (EP.67)

Episode Date: April 15, 2020

Bob Davis, the founder of Lycos and General Partner at Highland Capital Partners joins the show. In this episode we discuss: Bob's entrepreneurial journey, from taking Lycos from founding to IPO in 9 months, to an eventual $5.5 billion exit Perspectives on the venture industry and the impact of COVID-19 on the capital formation environment Comparisons of the blockchain industry to the early internet era General thoughts on Bitcoin's macro narrative and the evolution of the market infrastructure to support this asset   Learn more about Highland Capital Partners at www.hcp.com

Today in the podcast, we had Bob Davis. Bob was the founder of Lycos and he is a general partner at Highland Capital Partners, a venture capital firm based in Cambridge, Massachusetts. Bob is someone that I've been wanting to have on the podcast for quite some time because I think he has a unique perspective on a range of topics. In this episode, we discussed Bob's entrepreneurial journey with Lycos, which was a company that he took from founding to IPO in nine months and later sold to Terra Networks for $5.5 billion in the year 2000. We also talked about Bob's transition to venture. capital and how he's approached early stage investments during his time at Highland Capital Partners. As part of this discussion, we talked about the COVID-19 pandemic and the impact that it's having on venture-backed companies. And lastly, we spent a good bit of time talking about blockchain. Bob and his colleague, Sean Judge, recently led a Series A investment in coin metrics. So we talked about Bob's thesis on the industry, his views on the similarities to the early days of the internet, and his overall point of view on Bitcoin as a macro asset. I had a lot of fun with this one. I think you'll enjoy it too.

So without further ado, here's our interview with Bob Davis. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of quantitative easing.

You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called a Bitcoin. Bob, thanks so much for joining the podcast. I'm not going to take offense that it took a pandemic to get you on here, but I'm really excited for the chat. Hey, Matt, it's always good to sit with you. So I guess it would be strange to start any conversation, any podcast this day and age without just getting your impressions on what the hell is going on in the world.

So what's your take on this pandemic? Have you seen anything like this in your lifetime? No, it's clearly a frightening. time and I think that's interesting. I haven't seen anything at my lifetime and I'm not sure we have a living person on the planet that's seen anything like this when you look at so many things that it strikes at. It's a fearful period. I'd be lying to say otherwise. We look at fundamentally our health and our families and that's the first thing that we all are concerned about and a lot of people dying and that's tragic. We move on and we worry about the financial, not necessarily the infrastructure of the

country, but we worry about financially how the people around us can work and survive in this environment. We just saw the new jobless claims today at 6.6 million more unemployed. This is the steepest job decline in U.S. history in terms of a number of jobs we've lost in such a short period of time. So that's frightening. I guess we look at it and say, what does recovery look like? And God willing, that even if we find a resolution of a pandemic with a therapeutic or a vaccine at some point, that's going to take time to get people back to work. It's going to take time for business to restore. And that's not a great thing. So I think I look at this with a good bit of, I'd say a combination of trepidation for sure, hope for the long term. I mean, I feel

confident if you start to look out, it's where we position as an economy or as a globe. Three years from now, I feel positive there. It's that interim period that leaves me nervous. Yeah, that uncertainty is certainly pronounced. across really any company at this point. You know, with startups, these CEOs and these founding teams, these early employees are dealing with so much uncertainty even outside of a pandemic just by the very nature of what they're trying to do. And so it must be especially challenging to run a company in this day and age.

So what type of advice and what type of conversations are you having with your portfolio company CEOs right now? Yeah, of course, it's not just startups. It's public companies and it's very small businesses that would never rise to the low venture who are especially troubled. these very small businesses I talk about. What's the advice to our portfolio is a bunch of things. The advice had been to have a strong balance seat. Of course, at this point, that's not as relevant because raising capital isn't an easy thing to do in today's environment. Not that it say that it

can't be done, but it doesn't come easily. It had been to raise capital. It would be continued to raise capital for a strong balance state. And then hand in hand with that, it's to preserve capital. It means look what we have and avoid unnecessary spend. In some cases, in that period, across the board in terms of what we're seeing what we're doing. And these are all very difficult decisions. We have some companies that are seeing payroll reductions. I don't mean laying people off. I'm talking about reduction in compensation. We've had some management teams that have volunteered to take meaningful compensation reductions as a way to maintain jobs. In other cases, we've had surely a significant reduction in any non-essential expense that we find. Then a lot of

software contracts that have been canceled. So for our companies that are software companies selling software, that's not good. For our companies that are buying software, that's maybe a new age. It's saying that we can do without what we thought we needed. So it varies in terms of where it is. In some cases, unfortunately, it's reduction in force, which means really good people are losing their jobs. And there's a combination we're saying of layoffs and furloughs. Furlough is generally, I'll stop paying you, but I'm going to continue with some type of benefit program for you while you're on this period. Layoff says you're out of the workforce and you're not eligible for benefits any longer.

And neither of those things are something that our companies wanted to do. And they all hired with the expectation and the belief that they had great people that would help them build great futures. But I guess no matter who you are, big, small, tiny, and I'm not talking just venture back company. I'm talking to some extent in this battle for survival. It's not like it's not existential from many of them in the sense that will I be here tomorrow. but it's doing the right things to ensure you have the cash, should the economy suffer for a long period of time, that you can adore.

So a lot of things happening across the portfolio, it varies by company. And by the way, we've had some companies in the portfolio, but it's never a reason you want it, for sure. But some companies are prospered as a result of this. Some companies are seeing demand increase through the pandemic.

And again, you don't want horrible conditions in the world to be a reason your business does well. So you don't say that with any pride or glee. It's just a statement of fact. We have a company in the food businesses, you know, Matt, Freshly, that sells ready-made meals delivered to your home. They're doing extremely well during this period of time. Because why?

Because people aren't going out. People aren't eating at restaurants. And Freshly always had a product that was about convenience, great taste, and health. And now people are just buying it more. And guess what? They're buying it more in an environment where Freshly has to spend less on advertising. because people are searching it out. At the same time, we have some other companies that are really struggling in this environment because consumers just can't find a way to get to them.

And I would say if I had to take a guess, some small percentage of the portfolio is doing well because of the crisis. Some small percentage of portfolio is really critically threatened and then that everybody else is in between trying to figure it out. I guess one of the big questions coming out of this is just what will the new normal look like? And you mentioned freshly, I could see that being something where people get used to at home food delivery and maybe start to enjoy those type of services more. Same thing with some of these subscription services. So I think it'll be interesting to see what the second and third order effects coming out of this pandemic look like. The first question is, how long does the new normal loss?

And I don't begin to suggest that I have any idea. I mean, could we be in an environment? We're two years from now. We're all walking around with face masks, and that's part of who we are. Could social distancing be a long-term part of our life? I surely hope not, but there are a lot of very smart and reasonable people that think that's a probable outcome that we're in this. I guess a vaccine brings it to an end, but the vaccine by the best that I've seen for medical experts is 18 months away. So I don't know what the new normal looks like, but let's assume we are. out of this. I think you're right. People's habits and patents have changed. And, you know, for a company like Freshly, again, I hesitant to even say this because I don't want to seem glib aglifle because one company benefits from this, but because would surely give up any of the gains Freshly could have in a heartbeat for us not having to be dealing with this. But sure, people are being accustomed to the brand, accustomed to a new way of eating, accustomed to the convenience of this, the idea of having a ready-made meal in your refrigerator.

ready to go. So all of that is going to be different. I think restaurants, the small restaurants, unfortunately, we'll see a high casualty rate with those. Will some of the larger chain, big brands, survive? Surely they will. So the folks that have the staying power on the financial balance sheets, they'll do quite well out of this. And my guess is some of them will do much better out of this because if you look at the number of closures that we're going to say the availability of long-term permanent closures, the ability to walk the competition is going to be less, I think, in the industry, which means if I'm a large established restaurant chain that can endure through this, I probably come out the other side stronger rather than weaker.

That's probably right. That's probably right. So for your business, I'd imagine that a lot of the first couple of weeks of this were getting a handle of the existing portfolio companies, spending a lot of the time there. But obviously, the other side of the business is looking for new deals and doing new transactions. How do you think that works over the next few weeks and months if this drags on? Is it likely that you'll be doing new deals in this environment? Well, you mentioned two things. One, in terms of the existing portfolio and where we are, I don't think I've ever been as busy

in my lifetime as a venture capitalist and really been less productive. And what I mean by that, I've been extremely extraordinarily busy. But the call And the discussions we're having are the what if scenarios that we work away through. And how do we manage through the crisis? And how do we speak to our customers? And how do we deliver product to our customers? And how do we develop contingency plans around supply chain? And how do we take a complex software selling environment and manage that over the phone or through Zoom,

as opposed to a face-to-face that historically in the lifetime of the customer and of the seller is required a face-to-face sale? How do we manage installations for our, again, for our complex software companies where it would typically require our support engineers to be on site working the installations? So all of what we're doing is it's a lot of work to maintain that status quo. It's not about where we are and how we grow the business. We have some of our businesses that are doing extraordinary things and trying to help on a public service front. So we're spending a lot of time on that. We talked about freshly along with Nestle, donated a half a million dollars to meals on wheels and then is raising cash.

capital around that. Another one of our companies, I guess I shouldn't pre-announce it, but another one of our companies in retail, we'll be doing something pretty amazing around PPE equipment very shortly. I won't get ahead of that, but they'll be doing some great work there. I talk about the manufacturer of PPE equipment, or the delivery of it, that's productive, but not productive in the core of what the business is. Back to the second part of your question, and we're still doing deals, the answer is for sure we're still doing deals, but it's much different.

And we don't know what that looks like just yet. So our partner meeting on Monday still takes place. We had last week, for instance, we had, I don't know, I think three new companies present to us that were interesting ideas that we saw. The companies presented via Zoom. But our business is so much of a people business. We talk about our order of investment of things we think about, a people market product. And if I haven't met you and I don't know you, when I can't sit over a dinner table with you and shake your hand, it's hard. to get an assessment of who you are as an individual.

And it's hard for you to get an assessment of me as a venture capitalist because it's a two-way street. And we always say we're in the fox all together for a long time after we make an investment. And that's as important to the entrepreneur as it is to the investor. It's just very different. So will we be doing deals? Inevitably, we'll be doing deals. I think doing fewer deals, I think the answer to that is inevitably yes too. My guess is what we're looking at.

We're still trying to get our arms around it. The companies we're looking for right now are ones that are showing themselves to be particularly strong that are able to manage. That doesn't mean benefit, but are able to manage through this crisis. And we'll be able to show that they can endure through this crisis and come out the other side of it as a strong or stronger company. And that's the criteria that we're looking at. So a lot to be figured out. And we don't have the playbook really determined in terms of it was. I talked to a colleague, I guess, in the latest stage investment space, somebody that is closer to private equity than the out-of-venture capital.

They described their businesses, well-known, reputable, great firm, great person, described it as their bar being very, very, very high. Would they do a deal? The answer is yes. But they also added any deal that they did would require some structure, which is never something that the entrepreneur wants to hear, which means some level of senior-level return beyond. what is the pre-money? And in the world we've lived in, it's, hey, what's the pre-money? How big a check are you going to write? This particular firm says that's really the only way they'd come to the table on something today. So that changes. So we'll see how it plays out. That's an interesting point about the structure, and that's something I want to get your view on. So it's often said that private market valuations

maybe lag the public markets in some ways that you might see a six-month delay before repricing of the valuation environment takes place. But we've actually already seen some high profile deals happen at downrown. So Airbnb comes to mind. I'm sure there have been plenty of others. Do you think that we are entering this period of valuation contraction? Not really yet. If you have to raise money today, you probably are. So you're seeing value being challenged if you're raising money right now. And you're right about that. Private markets do lag publics. I don't know what the window of time is. It's a year, year and a half, two years sometimes. I think the unknown is coming out the back end. What do things look at?

If the markets have recovered and things are fine, the privates never catch up with it, which means they don't miss the beat. Unless you're really raising money or in some type of M&A or liquidity environment, the valuation doesn't really matter, right? It's fictitious. It's on paper. It doesn't really speak to anything. If you're raising money, that's a very different story. So I don't think, broadly speaking, we've seen contractions of value. I think, however, for those that are in a position of having to raise capital now,

It's not a great time to go out and do that. We'll figure this out as an industry because there's just no way we run, let's assume this lockdown on some variation lasts for another year and a half. And by some variation, I mean, we're not fully back to work environment. We're not completely without restrictions. We're not completely without social distancing. We're functioning. We're doing a lot better than we are today, but it's a little bit more relaxed than it is today.

We're still going to have issues of companies needing capital. And as an industry, meaning as venture, we're going to have to figure. out how to put that money to work. Our limited partners expect us to do that. Our portfolio companies expect us to do that. So it will be active. And on public markets, I don't know really what's going on. We've seen a bull market after this abrupt bear. I'm not a public security investor, and I'm far from it. So don't look at me, but frankly, I don't understand it right now. I think that we're going to, we find corporate earnings are going to be disastrous in what we're going to say. in Q2. My guess is they're going to be equally disastrous in Q3 and probably in Q4 because they're not in the back-to-work environment.

So I think we're really having this bit of false hope. It seems to me that people are motivated by feeling that the seeing some leveling of the curb, so to speak, at least we're hoping there's some leveling of the curve. And we're looking at that as being the answer, meaning the public markets are going to be okay now because the infection rate is flattening out a little bit. I can't speak to whether it's flattening out. I can speak to the fact that businesses are going to be hurt for a long time. What you're saying about being a public markets investor really resonates with me. I can't tell you how many times I've gone to bed and said something to my wife about the market's just going to get crushed tomorrow and all of a sudden it's up 5%. So I can't make heads or tail of it either. It's really a fascinating time period. History would tell you that if you look at any of these, so if you look at the Great Recession back in 0809, if you look at back to 2001,

One, history will tell you that we're full of these false bounces in the crude term, the dead cat bounce, but history says you're full of, there's abundance and examples of that where hope gets in the way of reality. And we see these really quick rebounds that are testified, unsupportive, only to be followed by larger and more sustainable drops and bears. So I think, again, I don't know. If I had a deliver tomorrow's newspaper, that's what I'd be calling for. But again, don't buy a self-stock paste on what I say.

One of the reasons I really wanted to have you on this podcast was because I think there's a lot of similarities between the early days of the internet and some of the things that you were going through as the founder of Lycos that might be applicable to some of the entrepreneurs that are in the blockchain industry right now. Over the past probably a couple of years, I've been reading as much as I can about the emergence of new technologies and the companies that were formed around the Industrial Revolution and the internet era. and really around these paradigm shifts. And one of the passages that I'd come across was in this book called The Internet Entrepreneurs. And it was a really interesting story where one day Dan Nova called you up in 1995 and asked you what you knew about the internet. And I think as the story is told, you said absolutely nothing or not much or something like that. And fast forward a few months later and you're the founding CEO of Lycos and you're off to the races.

Back in 1995, I guess the question is a lot of people in the United States, States, let alone the world, really didn't understand what the internet was about to be. So what was it that inspired you to quit your job and actually dedicate your career to jumping on board this technology that not a lot of people understood? Well, for your listeners that aren't familiar with Likos, which I would guess many of them, because that's been a long time. It was one of the Internet's very first search engines. So it was the equivalent of Google before Google existed is what we're doing.

And really, I looked at the Internet as this great new frontier. It was the world's information at your fingertips. The story you told about Dan was true, but not quite to that extent. I mean, I was an active technologist for all of my life and in technology for all of my career. So I saw this and realized, I believed that the Internet was not analogable without some of the search or directory. And there was an opportunity here, and there was really no platform that existed to allow for that. So we got together and put the company together. But it was really, at that point in my life, I think I was ready to take a big, bold,

risk and thought that something we created where there was nothing. But that's not a lot different than the entrepreneur's dream today and any business you look at. Pick whatever company you have, whether it's succeeded or failed. I mean, it's an entrepreneur's vision that says, I see something that others haven't. I might see a vision in terms of product. I might see vision in terms of execution. I might see vision in terms of market. And I can do something that others haven't done before me and create great value. And that's what was for me. I was at the stage of my life or I was ready to do this. It was the stage of my life when I wanted to run something. I had been working for larger companies at that point in time and really wanted to launch a

business and saw this as a right opportunity. And with Lycos, of course, we went through plenty of roller coasters there. We were a public company very, very rapidly. In fact, we're still to this day, hold the record as the fastest IPO in NASDAQ history from inception to public offering. We were a public company, I mean, nine months after incorporation, which was just unheard of today. You couldn't do it today with Saban's Oxley. It just couldn't be done. But we were public very fast. And there were a lot of, a lot is a relative term. There are a good handful of companies that also became public pretty quickly around that area. So Netscape and Yahoo and a handful of other brands. And then came upon us the nuclear winter, which means we had these

public securities that all plummeted in value. They were really not worth all that much public investor interest was small. Companies were trading under their IPO price and operated in that mode for a year, maybe less. It wasn't a horribly long period of time, but people were skeptical. And of course, we persevered and we grew the company. And then the value of the Internet became clear and apparent. And more and more people came online. And the advent of browsers, so things like Netscape, made it easy for to use it.

Prior to that, it was all online services, so things like CompuServe, Prodigy, America Online. It's how you got on the internet. A browser made it easy and accessible to every one of us. And then it took off. And then the market at large started to buy into the vision and the dream of what it could be. And of course, the rest of history, there's been many trillions of dollars and value created around the internet in that subsequent period. It's crazy to look back on it because if you just read the history, you know, You know, you see the browser get created, and it's fairly obvious that all sorts of things will be built on it, but it might not have been in the time. So when you saw this start to develop and you made the jump to start Likos, did you have the feeling that you just needed to run as fast as you could because you saw it just a little bit earlier?

What was the mood like? Yeah, it's kind of funny. I wrote a book that you could only find in an antiquities store right now. It's 20 plus years ago that the book was out just after the sale of Likos called Speed is Life. And that was one of the central themes of the company that we had to act quickly, swiftly. There really weren't a lot of rules to the game. There wasn't a lot of precedent. A lot of businesses can look back at history and say, what do I learn from that?

The internet, there wasn't a lot of history to learn from. We tried to take our lessons from traditional media because our business ultimately was we were a media company. What's the core of a media company? Build a large audience and then sell that audience to advertisers. And that's what we're about. So we tried to learn from what media had done and worked very rapidly. But we went from, you know, me as the first employee to, I don't know, I think when I finally left the company, we were about 6,000 or so employees a handful of years later after we sold it. We grew very, very rapidly.

Did a lot of things very, very right, made plenty of mistakes. But I think for the most part, we did some really good things. I guess most entrepreneurs have never experienced that opportunity to have hypergrowth. So what is that like growing a company to that level in terms of revenue and people? what's the day-to-day look like? Well, it's hard in the sense that your company is always in distress, not to be compared with what we're dealing with today. And I almost hesitate to talk too much about hypergrowth in an environment

when the economy is contracting, the people are losing their jobs. But it's hard in the sense that there is more work that can be done in any given day of the week by the number of people you have. And you generally have the budget to bring the team on, but you can't find the great people fast enough to build the organization. So you're always under pressure, and you always have something breaking

as a result of the growth, which means pick any system you had. Your human resource organization that worked for 100 employees doesn't work with 1,000. I don't mean the staff. I'm just talking about structurally how you do business.

The software that you had doesn't work. Data center that you work with doesn't work as your company expands and the number of users you had expand. So something is always breaking. I mean, there was not a month that goes by where some piece of the infrastructure isn't breaking because of the hypergrowth. And you need to stay ahead of that. You need to run on that treadmill and treadmill goes a little faster, but you can't get off because if you

get off, you fall and hit your head because it's going so fast. So you have to keep running a little faster and faster and faster. And you hope your business or your body can keep up with that. To me, the blockchain world is something very similar to that right now. We're in, I don't know, where we are with blockchain. I don't know if we're embryonic or infancy or toddler, but it's really young. And we have a set of technologies that can change the way the world does business. And I look at that and say trying to predict what that looks like in 2025 is a little bit of like trying to predict what the internet would look like in 2000 and 1995. It's down near impossible. Other than there's deep-rooted belief that we have a revolutionary opportunity in front of us and then finding the

great entrepreneurs that will take advantage of that. That's a great segue. I think there are a lot of similarities to blockchain, not only in the sense that these are internet protocols for value transfer that are being created and fundamentally solving some of the structural problems with the web, just from a computer science standpoint. But also, I believe that there is just a tremendous amount of talent coming into the blockchain industry that probably looks very similar to what the talent that was flowing into the internet era. At the time that you were building Lycos, did you have that feeling that there were just

so many smart people entering the industry writ large that it would, it's hard to imagine being wrong about something that's so many people that are so talented or moving into. Yeah, I think so. I mean, there was a period of time where in the early days of the internet, some of the skeptics thought it was hype and overstated and wasn't real and couldn't endure. I remember on the road show for the IPO, common theme amongst investors is that really this concept of the internet has no chance because Microsoft will own anything that's the internet and nobody else can survive.

Then the other common concern, it was, I heard probably in 100% of the cases when I was on the road show, was that, well, we can't support all this bandwidth. I don't think we even used the term bandwidth at the time. But this can't get all these people online at the same time. It will never work. It just can't keep up about this. This is fantasy to think that we can do this.

And of course, neither of those turned out to be true. And, you know, you look at blockchain today. There is surely a share of skeptics that look at it because people equate some people, I don't think the ones that get it to, say blockchain equal crypto. And to me, those are two very separate and distinct bets, that are both good bets, by the way, but two separate and distinct bets that don't rely on each other to say there's a great market here. That's a bit of what we say. And early days of the internet, you found the pioneers, the brave, a lot of forward-thinking is jumping into it. And I think you're

seeing the same thing with blockchain now. There are blockchain businesses today around, by no means around everything, but increasingly by the week, there's a blockchain company starting to solve another everyday critical business challenge. The same way there was back in, you 95 through 05 with the internet. It's hard today with the internet to show up with a great new idea. I mean, there'll be one. For sure, there'll be something that will exist in 2020 that none of us have heard of that several years from now will be a company worth tens of billions.

I wish I know what that was because I'd go off and invest in it tomorrow, but I don't. But it's hard to find that greenfield opportunity. Blockchain, I think, is infinitely easier because we haven't scratched the surface despite all the people jumping into this market. We haven't scratched the surface of the opportunity just yet in terms of how it can and will change the way business does business. That's a great point. So blockchain has had its fair share of hype. Back in 2017, there was this massive speculative bubble around initial coin offerings.

And we've talked about this, but I think a lot of these looked like unregistered securities offerings. At Highland, you didn't get involved in any of that. So how have you more broadly approached investing in the blockchain space? And maybe we could use that as a dovetail into you recently led your first, I believe it was your first investment in a blockchain company, Coin Metrics, which is a company we know pretty well, obviously. So curious to your perspective generally on how you've approached the industry and then maybe talk a little bit about Coin Metrics. Yeah. Coin Metrics, of course, was the first deal that I led, but I'll also caution I didn't lead. I co-led where my college, Sean Judge, who's, who's, a very brilliant investor, but it wasn't Highlands first blockchain investment. We've had deals prior to that. But I just want to go back a little bit as well and just look at these different periods of time that we saw. You talked about the hype of crypto and blockchain that existed before and ICOs. And as we all know, many of those ICOs are just fraud. And that's proven to be the case. You know, we had similar

things in the internet when the bubble broke in 2001 around the web. And many businesses that just didn't have core fundamental models and sustainable models came and they went away. But what's important is the market itself. If I dare call the internet a market, and I don't think I can. I think I can say things are internet enabled today, but internet isn't a market. It's a medium in terms of what it is. It's a way of accessing and sharing information, right? But we look what happened post-2001. If I could have put all of my money into, I guess I could have, I didn't, if I could have put my money into internet stocks in 2003 and watched it run from there, good Lord. I mean, it would have been amazing because Google was not a very valuable company then and Facebook didn't exist and LinkedIn didn't exist and all these businesses and Airbnb and Uber and all the others didn't exist. and so there are great ideas to be had

and I think the same thing has been in blockchain. What we've done, the company we've invested in that you're referring to that I joined the board along with Sean is coin metrics, which is in the data space around blockchain with a belief that there's never been a financial infrastructure platform that could have survived or thrived

without providing those that trade and are active in it and learn about it with fundamental underlying data to be smart. I could extend that and say there's never been an industry that has existed without a data provider. Take your pick automotive, consumer package goods, foods, whatever it might be. There are core data providers that are created for themselves, meaning for these core

businesses, billions of dollars in value. And right now, and there's a lot of information out there and a lot of exchanges in terms of even trading in crypto in terms of what that looks like. And the source of that data, I shouldn't say the source, but that raw data varies pretty greatly around the world. And we have leaving them nameless, but we have some organizations that publishing prices to their own benefit. And we have others that are not trying to benefit from it, but just aren't informed. And we found in the coin metrics deal a founder, a couple of founders, but one in particular, Nick, Nick Carter, who is, I don't know that there's a spokesperson for the industry, but is one of the leading

spokesperson for the industry. That is incredibly smart, knows the industry really well, and said there's a better way of doing this. So we tried to take the world's data sources, try to put those together, and try to give our customers a way of analyzing, predicting, and understanding the way crypto markets trade. And that's what we're doing with coin metrics. And we wake up today and we think we have the leading information source that exists. And I can't talk about our customers.

I mean, the ones that I can are on the website, but I don't remember which ones I'm allowed to discuss and which ones I can't. So I'd refer someone to the website. But we have some of the biggest financial institutions in the world as our customers that are using our data sources to enable their business. It's a great example of a company that has to, it's a category really that has to exist if this industry is going to take off the way that we all hope it will. To that point, I don't think you can believe in crypto if you don't believe in Coin Metrics.

Now, you can make the argument that Coin Metrics doesn't execute the best. Who knows? That's a function of any given company and how will we do? I think Coin Metrics executes really well, because I mentioned earlier, what do we invest in? people market product in that order. And we have unbelievable people in big market and great products. I think it will do quite well. I think it's illogical to believe in crypto if you don't believe in coin metrics or a company like it. I agree. One of the interesting things about the evolution of the blockchain industry has been the various phases. And maybe the most interesting thing to me is that you can find two people that are in the industry that have wildly divergent viewpoints.

There are people that really hate the crypto part of it that don't believe that there's anything there with Bitcoin or Ethereum or any of these assets. They like the quote unquote underlying technology. We saw that a lot in the 2015 time period around private blockchains. So I'm curious just your personal views on how you think about Bitcoin and its role in this industry. I think there will be a lot of attention on Bitcoin over the weeks and months. years to come in the sense that it is traded off as if it's a risk asset. People talk about it as an

option on the emergence of a non-sovereign store of value, this form of digital gold. You can, of course, build things on top of it. So it's not quite the perfect analogy with gold. But how do you think about Bitcoin from your perspective? You raise a good analogy with gold because since the beginning of the crisis, gold has traded off as well. What do I think gold will do a year from now? I think gold is of invaluable asset to own. And again, I'm not a commodity commodities investor either, but I own some gold. And I think it's more than just a great hedge. I think it's a great asset that provides for any number of eventualities that may take place, but beyond fiat currencies. And I think we look at

Bitcoin and they feel very much the same. I think if you play out right now, markets are confused right now in terms of they're not sure what to make of a lot of people aren't sure if they should be investing in munis or selling the munis because they don't know where to go. We talked earlier that I'm one man. that thinks that the public markets are grossly overvalued today, given the downturn that's out of us. But there's some very smart investors that think now is a great time to be buying. But if you believe in the fundamental, if you look at the raw rules of investing that have taken place from time immoral, if you believe in a core asset, which means you think the asset is real and not a phony asset,

it says that you're buying at times of weakness, building your position at times of weakness. And, you know, it's hard to even call Bitcoin at wherever it is today, 7300 or something. And it's time to say that's a time of weakness. It's performed over the course of the last a handful of months quite well. But what's it worth a year from now? I know you're not asking that question, but I think it's a lot more than it's to know. From your lips to God's ears. I mean, I don't think that we're in a world that works with many in this world, work with financial advisors of many types, regardless of your assets. If you're a middle market, high-end market, ultra-net worth, wherever you want, there's people are advising you across the board.

I think one thing that you're going to find consistently, and probably universally across your advisors, is diversification. So I don't think you'd find any quality advisor that would say at any point in time, put all your money in equity, put all your money in bonds, put all your money in gold, it's just not going to happen. Talking about diversification is the source of building value over time. Well, in my opinion, crypto is surely very much in that category today. Is there some degree of speculation?

I don't know. Maybe, maybe not. But I don't think you can look at it today. at least I can't and say it's an asset that you can't own some of. You can argue about how much, but it feels like it's a lost opportunity not to own some amount of crypto today. And I think it's increasingly going to be more. I agree. As this infrastructure gets built out. I mean, we forget because we know how to buy this stuff, but it's very difficult to even get exposure to this right now. There are not good data sources. They're not good custodians. You can't buy it on fidelity.com yet.

you need to be an institution on their Fidelity Digital Assets platform. But all this will change over time. And when it does, I think the case becomes even stronger. Yeah, and I think if I could trade crypto or Bitcoin as easy as I can trade gold or equities, it's a different market. There are folks up and down every Main Street USA heard of Bitcoin or we're a Bitcoin, say I'd like to look at it and they get stymied at the buying and get frightened by the selling. I mean, how do I get rid of it? How secure is it? And it gets sensationalized by a handful of

bad actors that are out there. But as the trading becomes easier, and it will surely become easier. I've said a few times in this discussion, there aren't many things I'm certain of. I'm certain that trading cryptocurrencies will become easier. As that happens, I think you have an explosion of entrance into the market. And if you have an explosion of entrance in any market, I think that results in a corresponding explosion of value. No doubt about it. What areas outside of blockchain are the most exciting to you right now in terms of companies and sectors that you're looking at?

Well, we're pretty widely diversified at Highland. We spend a good bit of a time around consumer software autonomy, future of work, the future of education, all are central themes to what we're doing. The last investment that I made was in a robotics company that is looking to, automate the warehouse. I think it's a spectacular company called V-E-C-N-A-V-M-Robotics. And, you know, there's a lot of discussion about driverless cars and people think that's what autonomy is all about. And it is. That's a big part of what it's all about. I invested quite successfully in a company that built software to power unattended vehicles called

Newtony that we sold to at the time Delphi that since renamed Abtiv. And it put, this is a company with a, I don't know exactly where the market cap is today, but tens of billions of dollars, it put the significant amount of the company's future into this idea around autonomy. Well, if we think that cars driving by themselves on the road or the future, I would say the automated warehouse is today. And one of the challenges that we have across the board with the large supply chain players is how do we move product, especially as, and we're seeing in COVID, more and more product is being

moved than ever before through these warehouses and 3PLs and main players. And Vecna brings forklists, tuggers, ticker packers that will drive through the warehouse and deliver goods, load trucks, unload trucks, and a time where we just can't get enough people to do the job. And they have installations and some today in the A-plus list of transportation companies, carriers, commerce companies are operating today with Vecna Robotics products. So I believe very much in that. I think that's a enormous market that is here today that's just about at the edge of being served. And there's still some technology bill that's taking place. But these are real deployments. Everything I did with driverless cars was test. We didn't

have cars really transporting people. Everything we're doing with Vecna is a real deployment, solving a real problem in a warehouse. It's moving physical goods around the warehouse. So again, a lot that we're doing there. It's so cool to be able to hear stories about how you're investing in different industries. And I guess from one perspective, they're all businesses. So you have a generalized toolkit for appraising where value would accrue based on the industry, based on the entrepreneur. But there is so much in the venture industry that you just can't learn by reading online. So I'm curious how you came up to speed just on the industry in general when you left Likos and who really taught you tradecraft.

Well, when you say the industry, I assume you mean in the venture industry? I do, yeah. Yeah. Well, I had some great partners. I wasn't doing venture in the traditional sense at Likos, but we were a very acquisitive company. And we invested in acquired, invested in or acquired 30 to 40 companies. I don't remember the exact number. So we were acquisition or agent. That's very different than investment. We also invested in the number of companies, very different than venture investing. When I invested

at LICO's required, I acquired to consume what existed before. The identity of what was there was no longer important. It became LICO's and it served the LICO's purpose. When I invest today, I'm investing in the future of this separate entity and the dream of these entrepreneurs. I would say early on in my career, and still in my career now, I often have to pull myself back and sometimes I don't do a good enough job of that, but to recognize that my job is investing in somebody else's vision and somebody else's dream, not investing in my dream and my vision. How did I learn it? I had some great partners early on that taught me how to invest, it taught me what a term sheet looks like, that taught me what a corporate charter looks like.

It taught me a lot of things that I didn't understand. how it might vary from one versus another. And it takes a long time. I'm still learning every day. There are still pieces of the business that all of us, not just me, will call upon our partners and say, hey, I have a particular opportunity or a particular problem that I'm thinking about. And how do we tackle that?

We believe very much at Highland and the collective wisdom, which means not one of us has the answer, but together all of us talking through something might have a better framework. And that's a big part of what we do. Well, it seems to be working really well and has for a long, time. So I guess my closing question would be a lot of people are at home right now. It sounds like you're really busy with phone calls with portfolio companies. But what else are you doing with your time? Any good recommendations for how people could spend their time, books, TV shows? What else are you doing?

Well, I wish. I had a lot of good ideas for you. Yeah, I'm watching a little TV, not as much as I ever thought I would have been. I guess I just finished Ozark last night. So I blew through that series. It's a good one. I watched a wonderful show on Apple TV Plus, which I would highly recommend. I thought one of the best I've seen in a long time, which was the morning show. I love that, yeah. Yeah, I thought it was spectacular. I just received the body, Bryson's book, and haven't really dug into it yet, but we'll be doing that, which really tries to simplify human anatomy and let's just put in perspective

in terms of how it all operates, maybe particularly relevant in this world that we're operating in. And then I try to get some exercise in because God knows with the stress that we're all feeling in today's environment, we need it. It's maybe the best cure to the anxiety that many are feeling is to try to go out and do that. And even our exercise is limited than what we can do because I can't go to the gym anymore because it's public place. So I try to ride a bike or do some other things that will hopefully keep me going.

Well, those are some great tips. So, Bob, where can people stay in touch with you and follow what Highland Capital is up to? Well, of course, at any time it's our website, which is at hCP.com, all of our email addresses are on the website. and you can reach us there at any time. I can be reached really simply. My email is about as easy as it gets, so feel free to reach out to me directly. I'm Bob at HCP.com.

So Bob at HCP as in Highland Capital Partners.com. And I'm always anxious to hear from anyone, regardless of the topic. It's not just an investment. If someone wants to brainstorm or share some notes or share around some ideas, feel free to reach out to me on any topic, whether it be blockchain crypto everyday investing or life in general. I'm always getting to listen. Well, thanks for being so generous with your time today, Bob.

Real pleasure. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.vc. To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com or just click on the tab in our website. Thanks for listening.