This Week in Startups - Destiny (D/XYZ) and the Buzz Around Public Access to Private Companies | E1933

Starting point is 00:00:00 So I guess that would make one wonder, why do this when you could create a private fund with these private individuals and take 20% carry? If you had the 20% gain or even a 10% gain on $100 million, if that does turn into a billion dollars in shares, you would get 10% of the 900 million gain. That'd be $90 million. So why go through all this to not get carry? And going through the process to actually bring this to market, I was reminded of that fact many times because it hasn't been an easy journey with, you know, the regulatory process with all the nuance of running a registered fund and now a publicly traded fund, we take on a lot more overhead than your average private fund or private VC. I would think so. For less reward. In terms of why

Starting point is 00:00:45 we did this, I'm a little stubborn, but I really wanted to see this exist in the world. This week in startups is brought to you by Squarespace. Turn your idea into a new website. Go to Squarespace.com slash twist for a free trial. When you're ready to launch, use offer code twist to save 10% off your first purchase of a website or domain. Vanta. Compliance and security shouldn't be a deal breaker for startups to win new business. Vanta makes it easy for companies to get a stock to report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash

Starting point is 00:01:28 twist. And the Equinix Startup Program offers a hybrid infrastructure solution for startups, including up to $100,000 in credits and personalized consultations and guidance from the Equinix team. Go to Equinix Startups.com to apply today. All right, welcome back to this weekend. Startups today. We're going to talk about pre-IPO tech companies. Everybody is interested in owning tech companies before they go public, don't I know? it. I'm an angel investor in hundreds of companies, and I frequently have people say, hey, how do I get in on SpaceX? How do I get in on an Uber or Airbnb before they went public? Well, the answer is, it's very difficult. Only about 6% of people in the United States are accredited investors.

Starting point is 00:02:15 So it's been incredibly hard for the other 94% to get access to private companies. Why? Because the SEC, the Securities and Exchange Commission, wants you to be an accredited investor, which means you have a lot of money. $200,000 a year in revenue income or a million dollars in net worth. There's a little bit of a higher standard as well called a qualified purchaser. That's $5 million in liquid net worth. Putting all that aside, if you were a professor at NYU teaching economics and venture capital or the economics of venture capital and you made $150,000 a year, you would be unqualified to buy SpaceX shares, let's say, or another private company, Stripe. That's very popular. But if you had a trust fund and your parents gave you a million bucks or you inherited an apartment

Starting point is 00:03:03 in Manhattan across from this professor and you were a complete degenerate idiot, you could buy shares in companies. Why does this exist? Well, we'll talk about it today with our guest who has a publicly traded stock that you may have heard of in the news. It's called Destiny. And you can look at the ticker symbol. It's a DXYZ. And his name is So Hal. Prasad, welcome to the program. So hell. Thank you for having me, Jason. Okay, I saw you on CNBC earlier this week. The stock has caught a little bit of attention, but I want to talk not about the sensationalistic stuff,

Starting point is 00:03:37 and it's been up and down, and maybe it's caught a little bit of that meme heat that stock sometimes do on the Reddit, Wall Street Bet Board or social media. Let's start from basics. What have you created with Destiny 100? I think I've heard you refer to it as Destiny, Destiny 100, DX, DX, Z.

Starting point is 00:03:55 So tell us about the name of the file. And the structure and why you created it? So the fund is called Destiny Tech 100. And we created it because I really wanted this to exist for my dad, my friends, everyone else in the world. Stepping back, I moved to Silicon Valley when I was 18 and I got to participate in building companies and investing in companies like you. And along the way, I realized when my dad asked me, he said, what should I invest it? And this was about five years ago. And, you know, it was this moment where he realized I wasn't full of it.

Starting point is 00:04:29 And I had no good answer for him. I told him, you know, SPY or QQQ because I didn't know how to recommend an angel investment or late stage secondary stock. And the idea that kind of came to mind is why isn't there an SPY or QQQ for private tech? And what would it take to make that exist? And so that's really what we set out to create is a vehicle by which anyone with a brokerage account from the convenience of their brokerage account can invest in the companies they know and love, the companies that are shaping the future across industries. And that are not yet public.

Starting point is 00:05:05 Just to be clear. And that are not yet public. These are private companies. And so you're going to put 100 names in there. You've, I think I understand, put maybe about 25 or so. Yeah, 23 right now. And we'll be growing that over time to 100. Okay. So what is this type of vehicle called? I've heard closed end fund. I've heard a couple of different names for it. What is this structure called? And then how does it work to set one of these up and go public? We've heard of SPACs. We've heard of direct listings. We've heard of the traditional IPO. Somehow you've IPOed and you're able to trade these shares on the market through your Robin Hood account or your E-Trade account. So tell us about this structure and how you found out about it and is it common because this is

Starting point is 00:05:52 the first I've ever heard of it. Yeah. So the technical name for the structure is a listed closed-end fund. But effectively, it's an exchange traded fund. So it's listed on the New York Stock Exchange, like another equity, security, maybe common stock in Uber, and anyone can buy or sell it from their brokerage account. In terms of kind of where it fits into this ecosystem, a lot of what people traditionally know as ETFs are open-ended funds, and there's a slight nuance. And there's a slight nuance in terms of ours being closed ended, as we brought it to market and we looked at what are the different structures

Starting point is 00:06:28 people can create if we want to enable this. There have been folks in the past, like Kathy Woods, Ark Ventures, that have created what's known as an interval fund. And that was pitched to us by many lawyers. And it's also a form of registered fund. The challenge is it doesn't have real liquidity. It has what I call fake liquidity.

Starting point is 00:06:51 So you can, they price, a net asset value every day. You can invest, you know, every single day. But if you wanted to sell that stock, you can actually only sell once a quarter when they generally do a repurchase offer for about 5%. And so, you know, when I was thinking about it. And that's called an interval fund.

Starting point is 00:07:10 That's called an interval funds. Yeah, I remember Kathy Wood raised one. And so you've raised a closed end fund. So you went out and you went to private individuals, to endowments, who gave you the money. And then how does it become a public stock is the step I'm curious about here? Yeah. So we went out a few years ago to a number of individuals, actually solely individuals, over 200 of them.

Starting point is 00:07:36 And they were primarily founders of unicorn companies, founders of successful companies. There were a number of VCs personally, rather than on behalf of their funds, figures in sports, in media, and entertainment. And they were all, as you described earlier, qualified purchasers. and they have made money in tech, they've made money investing. And when we were talking to them, we asked like, this is the world we see, a world where everyone can participate in these companies. Do you want to see that exist?

Starting point is 00:08:05 And they all voted with their dollars. So we raised just under $100 million and set out to actually go and list this publicly. That second part. Yeah, that's the piece I'm sort of interested in. Okay, you get 200 people to put on average 500K in. you get about $100 million. Now, they owned 100% of the shares in the company. So if there were, let's just rounded up to $100 million.

Starting point is 00:08:29 If there was $100 million and there were 100 million shares, they'd be trading at a dollar each or something to that effect. Am I ballpark correct? Roughly. Yes. Yeah. Then take us to the next part, yeah, and how this works. Yeah.

Starting point is 00:08:40 So to actually then list that, we did something really interesting, you know. In our listing, we actually had zero banks or financial institutions involved as underwriters or financial advisors. And we almost took a DIY approach. And we went and we figured out, okay, this is what we need to do to get our registration paperwork out there. This is the process with the SEC. We spent over a year, almost a year and a half in that process with the SEC going

Starting point is 00:09:10 through registration. We worked with the NYSC who's been a great partner. And then, you know, one day after we got approval, it started trading. And kind of went out with no fanfare. It went out. A few people heard about it. And over the last three weeks that it's been trading, as people discovered that this is possible for the first time for most people,

Starting point is 00:09:31 it's kind of taken on a life of its own. One thing that drives me crazy is when I want to buy something on a website, but there's too much friction when I go to checkout, right? I want to make the impulse purchase. I'll be totally honest. I see something I like. I got these new reader glasses. You know what?

Starting point is 00:09:45 It was so easy because there was no friction. That's what I want. I want to be able to have a smooth and easy payment experience, but it's got to be safe and secure, right? I don't want people hacking my credit card. And I like to have many different ways to pay. I want to use my digital wallet, obviously. And then, you know, other people might be in the buy now, pay later period of their life. No judgment's there.

Starting point is 00:10:02 If you want to be on a payment plan, that might be a good idea for you. If you're a merchant, you've got to be able to offer alternative payment methods, APMs. This is critical. And you know who's the best of this? That's right. Our friends at Squarespace. Squarespace payments makes it easy for customers to make purchases, which equates to more revenue for your business. It's super easy to set up, and it's going to keep your revenue growth going up and to the right.

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Starting point is 00:10:57 Those people own shares in it. Now it goes public. Those individuals who put up on average, let's say, 500K each, they can then sell their shares in this entity, correct? Exactly. So it looks like a direct listing that you mentioned earlier. And so that was the means. Effectively, we had these shares in this closed-down fund.

Starting point is 00:11:17 they start trading on the NYSC. You have early investors who are subject to a staggered lockup who can sell some of their shares. You have members of the public. My dad actually finally closing the loop on the story, he got to buy in in the open market. And so that's kind of our journey there. And so it's been trading at a pretty high market cap when compared to the actual holdings. So you raised just under $100 million.

Starting point is 00:11:46 So let's say it's 95. million. You bought how much in private company stock? These 23 companies equal 50 million, 25 million, something like that? Between 70 and 80 million, I believe. And then you still have cash reserves left, I understand. Yeah. We have some cash. Yep. So it becomes public. Now it's become how many shares are outstanding ballpark and it's trading at, so the ballpark valuation? There are about 10.87 million shares outstanding. Got it. And, you know, I haven't looked at the closing price today, but it's been trading. So if it's at 40 bucks, that's 400 million in value.

Starting point is 00:12:23 So it's trading at about four times. And it was trading at more, I think, when people start finding out of it. So it's trading at about four times the book value of those private companies. And you would attribute that towards enthusiasm and the pent up demand to own SpaceX and whatever else is in there? Yeah. So one of the important things to note there is that we actually mark the net asset value on a quarterly basis.

Starting point is 00:12:43 So given how private tech has, you know, suffered of repricing over the last few years. Sure. We were investing through 2022, 2022, 23, and so a number of our positions have been marked down. And so the net asset value is actually, as of December 31st, $4.84. A share. Got it. So it's trading at 10 times.

Starting point is 00:13:04 Almost 10 times or ballpark. And again, this is not invested advice? We're doing some back of the envelope here. Math. So that means there's a lot of pent up demand here for those. and then people who put the original money in, they must be selling, yeah? So they must be taking some chips off the table, having made such a great investment. I'm sure.

Starting point is 00:13:27 We don't have direct visibility, but that is the kind of free market at work. So what happens now with, you know, this asset trading? Can you, it's a closed end fund, so that sounds like it's kind of done. But could you sell secondary, do another offering and say, hey, this thing's worth whatever it is, 400 million in terms of the market cap of it. And we're going to just raise another 100 million and issue another, I don't know, 25% of shares. So we're going to go to 12,500 shares or 13 million shares, whatever it is. And then we'll have some more capital to go then deploy in the next set of companies. Is that the plan here or is that a possibility?

Starting point is 00:14:10 Exactly. It's actually very timely earlier on Tuesday, April 16th. I posted a tweet. about us filing a registration statement with the SEC for a shelf offering that once approved and, if effective, would allow us to raise up to a billion dollars through a series of transactions. Got it. So you could raise by issuing more shares to the public and then, or you could do it, I guess, through private institutions. And then you go look for companies to purchase that are private and add to this. Exactly. Now, you make money, my understanding, is you don't get a, like I do as a venture capital,

Starting point is 00:14:50 so other venture capitalists get 20% carry. You just get 2.5% every year of the value of the holdings. Am I correct? Something to that effect? That's correct. We have a management fee. You know, ours is 2.5% annual management fee, no carry versus traditional venture, like you pointed out, is traditionally a 2% management fee and 20% carry.

Starting point is 00:15:11 So where does that 2.5% come from? I'm curious, do you issue more shares or do you have the cash raised ahead of time? Because if you raised $100 million, if you had enough cash for two and a half percent, that would be $25 million. It would be 25 percent in the principle that you deployed. So where does that two and a half come from? Because you're obviously not charging shareholders, right? Yeah, it's similar to other exchange traded funds in that the fees are coming from the net assets of the fund every quarter. So every quarter, you get some amount of the shares. You either sell them or...

Starting point is 00:15:47 Not shares. It's paid in cash. So it's just a management fee from the available cash. Got it. Helped by the fund. So you have to, in order to get that two and a half, sell some shares every year. We generally aren't necessarily selling shares for that purpose. We have, you know, cash.

Starting point is 00:16:03 And so based on whether it's exits, based on the available cash, just like paying for audit costs, things like that, that's one of the expenses of the fund. So I guess that would make one wonder, why do this when you could create a private fund with these private individuals and take 20% carry, or maybe they in a secondary fund would only pay 10%, let's say, one in 10. So you could get 1%, which isn't that different than the 2.5, a million or 2 million a year, whatever it happens to be. Probably not going to change your life or your team's life. But if you had the 20% gain or even a 10% gain on 100 million, if that does turn into a billion dollars in shares, you would get 10% of the 900 million gain,

Starting point is 00:16:45 there'd be $90 million. So why go through all this to not get carried? I guess it's the question. I actually started Destiny almost four and a half years ago. And in going through the process to actually bring this to market, I was reminded of that fact many times because it hasn't been an easy journey with, you know, the regulatory process with all the nuance of running a registered fund and now a publicly traded fund, we take on a lot more overhead than your average private fund or private VC for less reward.

Starting point is 00:17:16 And in terms of why we did this, I'm a little stubborn, but I really wanted to see this exist in the world. And I actually do believe that regardless of us existing, this would have been how the world goes towards. It might have taken another five or seven years and we kind of drove that and brought it forward. But I believe, you know, over the last decade, people have. have thought of different ways to let people invest in privates. You've seen crowdfunding and equity crowdfunding style approaches, syndicates, as you're well familiar with. You've seen, you know, ICOs. You've even seen SPACs. When you think about a SPAC, it's not necessarily a dream product in my personal perspective. You know, you find someone influential, give them a bucket of money.

Starting point is 00:18:05 And then you say, hey, I hope you go find a good deal. And take. a good chunk of fees while doing it. You know, we saw the huge boom 2019, 20, 21. And my view is a lot of people were investing in those because they recognize that by the time you're waiting until a company goes public, as an individual investor, you're last in line. And so the notion of a SPAC is, okay, there's an attractive deal potentially that the SPAC sponsor can go and find. And by investing in the SPAC, I'm getting to move forward one step. And so that drove a lot of demand. But, you know, as we've seen Shakeout, there are a lot of challenges with the model, and I'm totally biased, but I think if Destiny Tech 100 had existed, that is actually the product

Starting point is 00:18:49 I think a lot of people have been looking for. Listen, a strong sales team can make all the difference for a B2 startup. But if you're going to hire sharks, you need to let them hunt, and you can't slow them down with compliance hurdles like SOC2. What is SOC2? Well, any company that stores customer data in the cloud needs to be SOC2 compliant. If you don't have your sock too tight, your sales team can't close major deals. It's that simple. But thankfully, Vanta makes it really easy to get and renew your SOC2 compliance. On average, Vanta customers are compliant in just two to four weeks. Without Vanta, it takes three to five months. Vanta can save you hundreds of hours of work and up to 85% on compliance costs. And Vanta does more than just

Starting point is 00:19:29 SOC2. They also automate up to 90% compliance for GDPR, HIPAA, and more. So here's your call to action. and stop slowing your sales team down and use Vanta. Get $1,000 off at vanta.com slash twist. That's vanta.com slash twist for $1,000 off your sock, too. Well, you would get diversification built into it because you're doing 100, or even if you just did 10, you would get diversification, and you are not just buying one company. I mean, if you look, and obviously my friend Schmoth did a bunch of these SPACs,

Starting point is 00:19:57 some of them turned out great, some of them didn't. And some of the companies, we had, I think, two companies of ours go by SPAC. one of them desktop metal, we love the company, but maybe it was a little too early for it to be publicly traded. And my fear became realized, which was, hey, private companies, you've got to really take a five-ten year view of them. If you're a seed stage investor, you're taking a 10-15-year review. If you're a late-stage investor, you're probably taking a five-year view. And if you're somewhere in between, you might be taking a 10-year review. People started buying the SPACs looking to flip them and trade them, you know, far too frequently, you know, day by day. And it became more like

Starting point is 00:20:33 gambling like Joby, vertical takeoff and landing, desktop metal, 3D printed metal, these are great ideas. These are really amazing venture investments. If you can sit on them and you've got 10 years of patience, man, if 3D printing of metal and, you know, other materials and vertical takeoff and landing vehicles, these are great, but I agree, maybe people would like to have a little bit of diversification, yeah? That's the main reason to do it in your format. Exactly.

Starting point is 00:21:00 And so you get to have a broader exposure. And also, you know, 25 years ago, technology meant internet, primarily. Today, some of the companies you just mentioned, it is across vertical. So it doesn't matter if it's AI or aerospace, enterprise, SaaS, or healthcare, or finance. They're all impacted by and shaped by technology. And so now venture-back tech very much is driving a lot of growth across all industries. And so part of destiny existing is, okay, with people who are, whether it's ride sharing or delivery or many of these companies that people use every single day.

Starting point is 00:21:39 You know, you might use Figma every single day or you might use another tool. How do you actually, you believe in the company, you know it, you love it, how do you actually own a piece of these companies that are shaping the future? That's really what it comes down to. Yeah, and it's been pretty hard. I think there should be just a sophisticated investor test. then you could let people prove that they understand the risks associated with these things. Let's talk a little bit about what it's like to have the stock not follow maybe logic or,

Starting point is 00:22:13 you know, the valuation and what that's doing to your day to day, because I don't think anybody who's doing something like you're doing here wants to see it appreciate that quickly and then come down and have 20, 30 percent swings. That's what's happened the last couple of weeks. So let's talk about the swinging nature of this and what's happening with it. And then, you know, what your plan is to kind of get to normalcy here. And is that kind of a goal to have it be appropriately valued? Or do you just think, hey, if people want to overvalue it a bit or they get super aggressive, that's just the market.

Starting point is 00:22:45 Or are you concerned about, hey, maybe people are getting ahead of themselves here? Yeah, it's a good question. You know, people have been telling me over the last few weeks that, oh, this is very timely, what you're doing. Or they look at it, oh, it's a sign of the time. It's a sign of excess or froth in the market. And, you know, I always smile when I hear that because in my perspective, I've been working on this for a decade.

Starting point is 00:23:08 You know, I founded a company called Forge, which is the largest secondary market for private tech shares. You know, destiny, we started four and almost four and a half years ago. And so this wasn't about, oh, today is a very opportune time to list. This is about kind of seeing a longer term view on how I want the world to look. what kinds of products should be out there and working hard to create it. So when I zoom into the last three weeks, I still think it's just a market discovery. You know, two years ago, most people hadn't heard of destiny today.

Starting point is 00:23:42 Many more people have two years from now, even more people will have. And so we take a very long-term view on, you know, what does the world look like, whether it's for the Tech 100 and what we need to do to achieve the goals there or more broadly and how do we go and shape and create them? Yeah, I mean, this is one of the aspects of having a democratized financial system is that people can make bets without doing any research. They can make bets with doing tons of research. They can miss things.

Starting point is 00:24:14 They can catch things. They can figure out their own stories. And we've seen this happen many times with, you know, GameStop and AMC. And here, you know, the majority of the fund is in SpaceX. I think that's the big winner, yeah? So I think maybe people who want access to SpaceX, this is just a convenient way to get in there, correct? So when we brought this to market, we had a really important decision, which is, okay, we have this idea of Destiny Tech 100 existing. I believe it can be done from everything I've seen in the market and help drive in terms of private market liquidity.

Starting point is 00:24:48 Now we've raised the capital. But as we go through that process, are we going to go and list this publicly? with an idea and zero companies in the portfolio, then you might, you know, we might be having this conversation. You would say, hey, it looks kind of like a SPAC, but for 100 companies, not one. On the flip side, if we'd waited until we had all 100, then by the time individual investors and the public were able to participate, they would, in effect, be last in line again. And so we had, you know, this tough decision to make. And what we'd decided to do is, okay, let's get 20 to 25 companies in the portfolio to start, in our case, 23. Let's go bring this to market and list it,

Starting point is 00:25:27 and let's build the rest in public while we're public. And so that does mean that even our portfolio composition, you reference SpaceX as one of the portfolio companies, but that's going to shift and change over time as we keep building out the portfolio. So it's not meant to be anything more than a point in time representation of portfolio. And it also means, you know, as investors are learning more about private markets and late stage venture capital as they're learning more about destiny and the Destiny Tech 100. They're going to kind of watch how we build it in public. And, you know, for some people, it might be the right investment for them today. Again, not investment advice. For others, it might be something to watch and follow and learn about and track over a year or two or

Starting point is 00:26:11 five because we have a long way to go to deliver on the ultimate vision. Yeah, it does seem to me, you know, if it's trading at 10 times, whatever the book value is, it's probably not a great idea. But if it was trading at two times or three times, you didn't have access to it, hey, maybe you make the case for it. But you have to do your own math, as Chimoff always says, do your own underwriting. And the price and the entry price is super important. There were people, you know, who didn't want to invest in Uber when it was a $300 million company that thought that was a ridiculous valuation. It turned out it was an okay valuation to get in at the Series B. Shout out to Shervin, who did that. Okay, one complicated issue here. And you, I guess, when you were doing four, face this and second market face it a bunch of people. Private companies sometimes don't like

Starting point is 00:26:51 people buying their shares and doing stuff with them. Now Elon and SpaceX, according to my understanding of it, which is public knowledge, they have like an orderly process every six months people buy and sell shares. But I do think they approve them. I did read that there were some people maybe who weren't happy with you buying some of their shares and putting them into the Destiny 100. Maybe you could speak to the laws around and the, you know, the, what manners around, manners might be around. I wouldn't say ethics, but manners.

Starting point is 00:27:24 Like, hey, I want to buy your shares and then put them into this. And essentially, you become a proxy to a certain extent on some percentage for their shares trading publicly. So maybe you can talk a little bit about how you acquire the shares. And then when people get upset, how you manage that and then any legal issues around it. Sure. A number of questions there. So to start with in terms of how we invest, how we acquire the shares, what we did is we set up a pretty flexible mandate.

Starting point is 00:27:49 And we view our mandate as for the fund and the end investors best execution. That means we're not tied to any one way to acquire the shares. And so we participate in primary rounds of companies. So imagine the later stage series, whether it's CD, EFG and so on. We've participated and can participate in bridge financing, convertible notes or other things that the company needs as part of their journey and growth. We've done secondaries from founders or management early employees. We work directly with VCs or other early investors who might be looking to drive liquidity in some of their portfolio, realize some of their markups.

Starting point is 00:28:31 We also buy through secondary marketplaces or brokers like Forge and its competitors. And so our goal is taking a look at the entire market and saying, okay, for the companies that we wish to have in our portfolio, what are the best methods to access this? What's the best prices? What's the most effective, efficient way to do this? And then going and executing there. And so that's super important because we're not just focused on primaries or secondaries. And I think, you know, it's one of the trends we're going to see over time in the next 10 years across venture as a whole. It used to be either you're a VC or you're a secondary fund. And now, you know, it's one of the trends we're going to see over time in the next 10 years across venture as a whole. And now, you're a what you've seen already behind the scenes at many VCs, and I think you'll see more of is, no, you're just an investor and you might buy some secondary, whether it's a tender offer, whether it's from an employee, you might buy primary. And those kind of lines are getting blurred just in terms of people thinking about this as exposure into the underlying company. I totally understand that. There are shares available in a company like Stripe. One of the founders might want to sell their shares. Doubt you're going to get them to do that. They probably have

Starting point is 00:29:35 their VCs on the board, you know, handling those transactions. But there could be early employees or seed investors who maybe want a clear part of their position. And then, yeah, you might have some company that's doing their series C or D, and you could participate in it just like any other VC. And I guess you just have to make them aware that you're going to do this. That could be a priced round, or it could be not a price round. It could be convertible, which means you don't actually own the shares just yet. You have basically given a loan. I don't think that has much of a A legal issue, does it? Owning convertibles, convertible notes versus owning actual equity?

Starting point is 00:30:08 No, as long as from our side, we have to disclose publicly and we have audited financials and everything else. So the disclosure is super important. But that's one of the benefits of us being, you know, registered and listed is we do have these obligations to be transparent in our disclosures. Are reporting people can go and look, you know, what are the underlying holdings that we have. Okay, cloud computing has revolutionized startups over the past decade. You know that. But the reality is, hey, a fully cloud-based solution is not right for every startup. Sometimes a hybrid solution is your answer.

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Starting point is 00:31:40 Yeah, the story there, it's an interesting one because it's never, again, just a point in time. When you zoom out at the secondary markets as a whole, right? You had, like you mentioned, second market and this first era of secondary markets that were transacting in Facebook and Twitter and a number of the companies of that time. Then you had this low post Facebook where secondaries were almost a bad word in venture. And the deals that were done were done in back rooms, kind of privately lawyered and negotiated agreements. When I founded Forge in January 2014, it still wasn't considered kosher to be talking about secondaries. Yeah, that's a very good point. I mean, Mark Pinkis with Zinga and I remember some other companies, we had invested and we weren't investors in Zing.

Starting point is 00:32:28 they had actively started writing into their documents and into stock agreements that there couldn't be a secondary sale. But your position is, hey, people should be able to buy and sell shares no matter what they do, yeah? I think our goal is to enable the companies, but there's also reality when you think about companies that have been private now, whether it's 8, 10, 12, 14, 22 years without naming any names. That is a very long time. They're have obviously, you know, controlled their capital stack and their investor base, but they now have at least hundreds, if not more employees, thousands of employees who are shareholders. You have, you know, dozens, if not hundreds of funds that are shareholders. You've also seen SPVs and other

Starting point is 00:33:16 vehicles by which people get access. And so what happens is these companies end up being pretty widely held. So to go to your original question, the sentiment has always been on a company by company basis. Some founders view it as something that they want the ultimate say over. Some are much more open to a liquid and kind of price discovery happening in the market. There's not one right answer, but I do believe that the world is going towards a place where there's just more and more of this. Again, you've seen it, whether with SPVs, whether with secondary market transactions, whether any other type of transaction. And so part of our job is educating companies and founders and VCs.

Starting point is 00:33:59 Hey, what does it mean if you're a part of the Destiny Tech 100? What kind of obligations do you have? Does it mean that your financials are being disclosed publicly? And I actually see it as a pretty exciting opportunity for us. Do they have to put their, do you have access to their financials? And do you have to pass those through if you own SpaceX or Stripe? I, we definitely don't pass along any company confidential information. And so from our perspective, one of the places we see ourselves is being able to bridge

Starting point is 00:34:28 the private and the public capital markets. And so in working with founders and CEOs and boards, now there will be tens of thousands, hundreds of thousands, millions of individual investors who can be small beneficial owners in their company. And that is an incredible audience to start engaging one, two, three, four years before a company goes public, start sharing their story, not in the form of quarterly reports or earnings calls, but in the form of here is our company, this is our vision, these are the KPIs we feel are important. One of the interesting things you saw in the late 2010s is you saw companies like Spotify,

Starting point is 00:35:06 companies like Uber, actually voluntarily start to disclose financials in the lead-up to going public. And that was completely voluntary. And that's part of the maturation of a company. And so, again, over time, I just see this as being hugely beneficial to the companies. And part of our job along the way is helping educate the companies on what that looks like for them. Looking at it, I mean, you have superhuman. We're investors in superhuman. And for me, thinking, hey, you're trading some shares in superhuman. You're explaining to people what superhuman is. Every time people talk about Destiny, if one of the hundred you picked was superhuman, Hey, that's good for us as investors in Superhuman.

Starting point is 00:35:45 And I'm sure, you know, maybe some people will try the software. And if it works for them, you know, pay $30 a month for it. How do you deal with like selling positions? Have you sold any of the positions yet? Because I know some of this, and I won't say with your names, but I know some of them had a rough road. And you mentioned that earlier. How do you decide to exit a position?

Starting point is 00:36:04 Yeah. It's a good question. So we have, right now, one of the first companies to list publicly was Instacart from our portfolio. And so that is now publicly traded. And generally, once a company goes public, we will look to hold it for a while. And then, you know, after a certain amount of its public existence, start to systematically divest the position and then dividend the resulting capital to shareholders. And then some can choose to automatically reinvest it through a dividend reinvestment program.

Starting point is 00:36:37 Others can keep the dividends. But that's the kind of general idea with exits in the portfolio. Yeah. Over time, one of the things... You get killed on that one because that was a bit rough. Like they had a $30, $40 billion valuation. They went out at whatever, $7, $8 billion. That one didn't work out.

Starting point is 00:36:53 I take it. Yeah. In the portfolio, it's definitely one of the positions that currently is below where we bought it. But that's, you know, part of the cycle from the last two years. And it looks like it's only 2% of the portfolio. So back to diversification here, even if you lost two thirds on it, you know, it's overall, if you lost 90% of it, you'd, you'd say, it's... still have, you'd have lost 1.8% of the portfolios deployed capital. Hopefully you make it up

Starting point is 00:37:17 with some of the other investments. And then top of the list, almost 35% in SpaceX, yeah? Is that because it's appreciated in value so much? Or was that the initial investment was a third of the fund? No, it definitely has appreciated in value, especially over the last few years. And so that's definitely part of how it became such a large part today in the portfolio. Well, listen, I think this is a really clever idea. I wish you great success with it. I'm fascinated by it. Have you thought about buying, there's a thing called Strips, buying strips, or buying secondary in venture funds? And so there's always been this tension, like should a venture firm, Sequoia, be a publicly traded company? Obviously,

Starting point is 00:37:57 that is not kind of how it works, but it's kind of what you're doing. So how do you think about the fact that you're going to be competing in some ways with late stage venture capitalists? And then there are venture capitalists who might have some seed fund, $100 million fund, and it's worth $500 million on paper. They've got a bunch of equities in there. They don't want to sell you the individual equities, but you could buy a portion of a venture fund. Not asking for myself,

Starting point is 00:38:20 but that's our decision to do that. But I could see a market for that as well where you said, hey, you know, we put, if you do raise the billion, hey, you know, we put $100 million into these 10 venture funds just to get, you know, or even earlier access to the next cycle. Have you thought about that?

Starting point is 00:38:38 Yeah, we've definitely considered that there are regulatory restrictions around that in terms of what registered funds can do and how they can access it. So I'd be remiss if I didn't point those out. But over time, with our mission and vision of bringing public access to private tech, doing so in as broad a way as possible, we've thought about what are the different tools we can use in terms of the regulations that exist today to be able to provide this kind of access and exposure across the board.

Starting point is 00:39:10 All right. I have to ask you, as we wrap here, you did a public tweet storm. I mean, it was a little bit spicy. You did this back in January. Two months ago, I fired my co-founder, best friend. His shares, along with those of all minority shareholders of our startups were cashed out at fair value as determined by an independent third party through a process known as reverse forward stock split. We built a $2 billion company together, made over 150 angel investments together and lived together for six years. For most in tech, this is the part you don't say out loud. That's precisely why I want to share. And you went on to detail.

Starting point is 00:39:42 you know, this breakup. What did you learn and from this process? And is there a way to protect yourself against your founder, basically phoning it in? If that's, you know, how you felt about it, I'm sure you might feel differently. Yeah, it's really tough. I think, you know, it's one of those things that I'm sure you as an investor in a number of companies and anyone who's been around the ecosystem has seen, not just one or two, but many examples of this because at the end of the day, you're dealing with individuals and humans. And for me, it's been one of the most challenging personal and professional experiences I've ever been through. And likewise, I'm sure it has been for my former co-founder as well. And all of that said, these things most people don't talk about. Usually somebody hears one

Starting point is 00:40:29 side of a story. And so I felt it was an opportunity to actually, you know, make sure that it wasn't just a one-sided story that we could actually, you know, transparent. share, you know, what happened and how to protect against it. I think it's really tough. I think it's not any different than any other relationship personal or professional that we all enter into where you go in with the best of intentions and you have to, you know, always make sure that you're trying to make the right decision, do right by the other person. But it's something I still think about and grapple with. If you have any solutions, I'm all ears. but in a way, when you start a company together,

Starting point is 00:41:11 you start a family together, you do anything with somebody, you're taking a risk, you're taking a bet on that person, and that comes with, you know, everything around that. And this is, you know, one of the challenges,

Starting point is 00:41:23 you have to incent a team with equity. If somebody's got a large portion of equity and they're not working hard, you know, it's kind of demotivating for the rest of the team. They're all working for this person. I'm not saying in this case, you know, taking either side,

Starting point is 00:41:36 but in the hypothetical situation, which I've seen many times, yeah, somebody is just, you know, they're not there. They're not even showing up for work or they're phoning it in. They're just an employee punching a clock. You do have to figure out a way to incent the rest of the team to stay and keep growing. Typically, people do that by maybe issuing more shares. In this case, you bought them off the cap table. They were forced. Or did they participate and just say, yeah, I'm willing to sell my shares. Let's just get an evaluation done here. Were they forced to do it or did they opt into doing it? So in the details, probably can't go in more than what I wrote there.

Starting point is 00:42:10 But it is definitely something that, you know, it's just been a learning process. A lot of people have accomplished, you know, a lot of people have dealt with it in different ways. And so part of it was learning about, you know, how do we do what's best for the company, drive it forward? Because, you know, as we're seeing now, there is a ton of opportunity. I have since day one believed in this mission and vision, day one of destiny, day one of forge. I don't know how my entire adult life has been spent kind of building the private markets. And so I feel like there's a lot left to be done and had to keep driving forward. All right.

Starting point is 00:42:47 Well, listen, I appreciate your candor on all these issues. Congratulations on getting this thing public, buying some stock. It looks like it's going to be quite innovative. And we'll be watching the stock ticker D, X, Y, Z. good luck. I'm sure I'm going to see you on a cap table soon when one of our companies breaks out. I'm sure you'll be buying some shares. Continued success and thanks for coming on the program. Thank you for having me, Jason, and hopefully many cap tables. One thing I forgot to ask you, how many people does it take to run this? Are you just like a solo GP?

Starting point is 00:43:17 You're just you and you're all the service providers? Or do you have like some crazy team of people sitting there trying to make decisions on this? Because buying 100 tech companies, that sounds like a job for one or two people. So we actually have a full-time team of six and supported by a great team of kind of partners and service providers. And so trying to keep it super lean. But also we have a lot to do to grow the business. And so it's not just about investing in 100 companies. It's doing that well, making sure we're getting into all of the top companies and opportunities, making sure we're doing so at the best possible terms. And so we have, you know, a lot to be done.

Starting point is 00:43:56 All right. Continued success. And we'll see you next time on this week and start. Bye-bye.

This Week in Startups - Destiny (D/XYZ) and the Buzz Around Public Access to Private Companies | E1933

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