Episode #454: Rex Salisbury, Cambrian – a16z Associate Turned Solo GP on Why He Believes Now could be the Time for Fintech
Visitor: Rex Salisbury is the Founder and Basic Associate of Cambrian Ventures. He was beforehand a founding associate on the A16Z fintech workforce.
Date Recorded: 10/12/2022 | Run-Time: 1:01:18
Abstract: In at this time’s episode, Rex shares an summary of Cambrian and the advantage of the fintech neighborhood he’s constructed over time. We contact on the three-body downside and the way it pertains to enterprise capital, the aggressive benefits of various VC’s, and why he believes you will be consensus and win in enterprise capital.
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Hyperlinks from the Episode:
1:34 – Intro
2:20 – Welcome to our visitor, Rex Salisbury
7:43 – Launching a fund as a solo GP
14:48 – ETF Architect episode
15:36 – How the three physique downside pertains to the way forward for enterprise capital
26:58 – Defining what FinTech means to him
32:16 – How the chance set appears to be like at this time
34:22 – The methods through which Y Combinator has raised the standard of what founders know when beginning a brand new firm
37:09 – Why is Rex solely investing within the US?
39:01 – Rex’s request for startups
43:41 – How onerous it’s to run and nurture the neighborhood he’s constructed?
50:38 – How a lot of the result of his investments has been correlated to his conviction in them on the time he invested?
55:45 – Rex’s most memorable funding
57:54 – Study extra about Rex; LinkedIn; Twitter; cambrianhq.com
Transcript:
Welcome Message: Welcome to “The Meb Faber Present,” the place the main target is on serving to you develop and protect your wealth. Be a part of us as we focus on the craft of investing and uncover new and worthwhile concepts, all that can assist you develop wealthier and wiser. Higher investing begins right here.
Disclaimer: Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. Resulting from business laws, he is not going to focus on any of Cambria’s funds on this podcast. All opinions expressed by podcast individuals are solely their very own opinions and don’t mirror the opinion of Cambria Funding Administration or its associates. For extra data, go to cambriainvestments.com.
Meb: Welcome, podcast mates. We’re again with one other enjoyable present at this time. Our visitor is Rex Salisbury, a founding associate of the a16z FinTech workforce and is now a solo GP with Cambrian Ventures. In at this time’s episode, Rex shares an summary of Cambrian and the advantage of the FinTech neighborhood he’s constructed over time. We contact on “The Three-Physique Drawback” and the way it pertains to enterprise capital, the aggressive benefits of various VC fashions, and why he believes you will be consensus and when in enterprise capital.
Yet another factor earlier than we get to at this time’s episode, whether or not you hear on Apple Podcasts, Spotify, or one other platform, go forward and go away us a evaluation. We like to learn them, and it helps individuals discover the present. Please take pleasure in this episode with Rex Salisbury.
Meb: Rex, welcome to the present.
Rex: Hey, Meb. Nice to be right here. Thanks for having me.
Meb: The place’s right here? The place do we discover you at this time?
Rex: I’m calling in from the Presidio in San Francisco, the place you could find me most day-after-day. So I each reside and work right here, spend lots of time operating. Nice yard to have however nonetheless be within the metropolis.
Meb: Give us a fast Rex background, as a result of, , you left the nice and cozy, fuzzy confines of one of the vital storied and profitable enterprise capital corporations to exit by yourself, which, I think about, is a little bit thrilling however nerve-racking on the similar time. Give us a little bit origin story on you, the way you got here to the place you’re.
Rex: Yeah. So I sort of by chance ended up in enterprise capital and serving to begin the FinTech follow at a16z, Andreessen Horowitz. That was my preliminary foray into enterprise. However how I ended up with this one, so that is Cambrian Ventures, early-stage FinTech fund, which I’m deploying out of now and began January of 2022, truly takes me sort of means again in that, at one time limit, I used to be an funding banker, realized rather a lot, completely hated it, stop my job, moved throughout the nation. I used to be simply excited concerning the alternatives for, like, constructing new issues in monetary providers, particularly round utilizing expertise. So I used to be like, “I need to work in Fintech,” proper? However I’m an funding banker, so I’m getting gives, but it surely’s like, “Come work in finance for this, , monetary expertise firm.” It’s like, “I don’t need to work in finance. Like, I need to do one thing else.”
So I taught myself to code, even performed a coding boot camp. So I got here out right here, gotten a number of gives in these sort of nebulas, like finance ops roles at early-stage firms, and I used to be like, “I don’t need to do this.” So as an alternative, I truly went full in on the engineering aspect of issues, and I joined an organization known as Sindeo, working as sort of lead again and engineer a billion of absolutely automated on-line mortgage pre-approval with one of many co-founders of SoFi, Andy Carra, who’s my CTO there. That firm was a failure, actually nice studying expertise, nice workforce, had an incredible time. One of many issues I constructed there was this, like I mentioned, absolutely automated on-line mortgage pre-approval factor, like Rocket Mortgage, push button, get mortgage. I constructed out sort of the APIs to energy an analogous expertise like that. And I used to be like, “Oh, that is actually…” this was circa 2014, “That is actually cool.” Like, mortgage, one of the vital vital monetary merchandise in a shopper’s life, it’s extremely painful to get a mortgage, proper? It takes, like, three months. It’s extremely pricey. There’s all of this documentation concerned. Like, “Let’s attempt to determine how we are able to simplify that course of.” And so I believed we’d construct some fairly fascinating expertise about that.
However in the meantime, throughout, like, all of monetary providers, you have got these software program engineers and founders engaged on different issues. And I’m in San Francisco now, I used to be like, “I need to discuss to these different people who find themselves working within the different corners of monetary markets to sort of construct new issues which can be cool and thrilling.” And so I began convening individuals on constructing neighborhood for founders, , product managers, software program engineers to speak about issues they’ve constructed and launched in FinTech.
So 2015, I feel it was, we had our very first meet up in downtown San Francisco for Cambrian, the neighborhood. And we had, presenting there, my workforce demoing the applying we’d constructed at Sindeo, we had the Plaid workforce demoing their API, after which we had a 3rd workforce demoing an software they’d constructed largely on high of Plaid. And so, from that sort of core kernel of simply, like, fascinating individuals speaking about issues they in-built FinTech, Cambrian, the neighborhood, actually took off and, principally, by 2019, had, , 15,000 publication subscribers, 5,000 meet up remembers, I used to be operating month-to-month occasions in San Francisco and in New York, had 2 annual summits, quarterly jobs gala’s, only a entire lot of stuff happening, and I used to be getting much more vitality from doing the ecosystem-level work. And I’ve been pulled into investing and advising firms over time. And so I truly stop my job, went full time on Cambrian the neighborhood to run it as an occasions enterprise. So the plan was to lift a small fund.
However then a16z reached out to me, Andreessen Horowitz, mentioned like, “Hey, we’re beginning a FinTech follow. We love what you’ve performed. Like, you perceive monetary markets out of your time in banking. You clearly perceive, like, how to consider an ecosystem and sort of marshal individuals and sources by way of your time constructing neighborhood at Cambrian. We’re going to start out a FinTech follow at a16z. Why don’t you be a part of us and assist construct that out?” And so I used to be the primary associate who was introduced on externally there, with the understanding that I may keep for 2 years, assist construct out that follow, after which, if I needed to, exit and nonetheless go and do my very own factor. And so, spent two years there, targeted totally on the investing aspect of issues, had an incredible expertise, nice workforce, superb alternatives to see, , one of many large names in enterprise capital, go from, once I joined, name it 100 individuals, they’re going to finish 2022 at about 500 individuals, related sort of scale when it comes to AUM as effectively.
However actually, what it got here right down to is, like, I’ve constructed this neighborhood, I had this sort of actually deep connection to, like, early-stage FinTech ecosystem, and by being unbiased, I get to leverage lots of these relationships and networks that I’ve constructed which can be particularly, , well-designed for supporting firms at sort of their earliest stage. And so I focus solely on investing in sort of first cash and checks for firms with U.S. go-to-markets, often, like, a 500k preliminary examine. After which the fund itself has sort of a neighborhood taste to it. After which now we have, as LPs within the fund, lots of the highest founders within the ecosystem, from locations like SoFi, Plaid, Betterment, sort of the listing goes on. We’ve acquired 20+ people throughout all types of verticals in WealthTech, to InsurTech, to actual property, , monetary software program, the listing goes on.
Meb: So there’s a few jumping-off factors, I feel, are fairly fascinating earlier than we sort of get in deep into FinTech and what you guys are on the lookout for. The primary being, , clearly, you have got an superior pedigree at a16z, however constructing the neighborhood forward of time, I think about, is a fairly distinctive, invaluable asset when deciding to launch a fund. Would love to listen to a little bit little bit of that as a result of the way in which you’ve determined to do that is, basically, as a solo GP, proper, and you’ll affirm that. I don’t understand how large your workforce is now, however I’m assuming it’s not 500. So, , Rex, Integrated. Is that one thing additionally that seems like could not have been attainable 10, 20, 30 years in the past? I don’t know. Like, it looks like a extra trendy invention that is a bit more current. So inform us a little bit bit concerning the determination to be solo, in addition to sort of the neighborhood side, if that was a giant assist in launching this effort.
Rex: Yeah. So the primary reply, the one query, I’m a solo GP, and that’s the plan for the foreseeable future. I do have lots of actually nice people supporting me, although, in varied capacities. After which, specifically, though I’m a solo GP, I draw rather a lot from the sources of the neighborhood I’ve constructed. So I already sort of talked about the 20 founders, our LPs within the fund, even have lots of connectivity which can be people within the enterprise ecosystem. And one of many different sort of large neighborhood equipment I’ve constructed up lately throughout the pandemic is now we have a Slack neighborhood of 1,500+ FinTech founders, and so I feel, so far as I do know, the biggest sort of on-line group of FinTech founders on the market. And that, so I’m always in touch and communication with plenty of people within the ecosystem, whether or not it’s our portfolio firms, these 1,500 founders within the Slack, the founders who’re LPs within the fund.
So, like, sure, I’m solo GP, however to your level, like, having a neighborhood equipment is extremely useful for me and the work that I do and extremely useful for me to sort of marshal the sources of that neighborhood to help our portfolio firms. However, , the neighborhood can also be one thing that I’ve constructed to create worth for the ecosystem simply because I used to be passionate concerning the ecosystem, like interacting with people. And I began it six years in the past, and so now I get to sort of use some features of that to what I do in my day job as an investor, however I’m nonetheless targeted on attempting to only create basic worth for the ecosystem by facilitating lots of connectivity between all of the completely different gamers inside FinTech.
I feel FinTech is a extremely fascinating class, , say, versus enterprise SaaS or shopper software program, the place it’s, by nature, extra extremely networked, partially as a result of it’s so extremely regulated, proper? When you’re constructing a monetary product, you’re going to want sure sorts of licenses, authorized counsel. You’re going to want varied infrastructure suppliers. You’re in all probability going to want different companions and channel companions. And so there are all of those the reason why founders inside the FinTech ecosystem have arguably extra must sort of join with one another than you do in case you’re constructing a shopper social app, proper? Like, in case you’re constructing a shopper social app, you don’t essentially want to speak to all the different shopper social app individuals, as a result of there’s not essentially an entire lot you are able to do collectively. However in FinTech, it’s, like, extremely collaborative when it comes to, , why you would possibly have to be working with people within the ecosystem, and so I feel why a neighborhood method actually issues.
And you then additionally had…so I imply, like, may you do one thing like this, , 30 years in the past? No could be the very brief reply. However even for me, personally, I don’t suppose that is one thing I might have performed even 4 or 5 years in the past. I feel one is LP urge for food and curiosity in backing solo GPs. That’s sort of a brand new class of factor. In order that wasn’t there. Two, even in case you did have the urge for food and the curiosity, the concept that in case you needed to fundraise for a fund, you can do lots of that remotely, which I did, that simply wasn’t within the water. I’ve acquired two youngsters. I’ve acquired a five-year-old and a two-year-old, and so, like, the concept of spending, , months on a airplane simply going to speak to individuals is…I in all probability would have simply mentioned like, “Thanks, however no thanks.” So LP urge for food for solo GPs. The concept that neighborhood issues, I feel, is sort of a brand new thought. It’s one thing that I’ve been doing for a very long time however I really feel has develop into extra scorching or topical simply within the final two years, partially as a result of one of many large issues individuals speak about in Web3 is how Web3 is a community-oriented motion, proper?
So LP curiosity, the power to lift remotely, after which, additionally, , and that is the place sort of the FinTech aspect of issues is, simply a number of the infrastructure that means that you can function corporations. There are lots of completely different platforms you possibly can launch a fund on high of now, proper? There’s AngelList, there’s Sidecar, there’s Carta, and people are sort of extra holistic platforms, to some extent, though you continue to want lots of different help. There are additionally issues you should utilize for, like, doc administration, rights administration. Like, there’s all of these things that makes it extra possible as a solo GP to have, like, nice tooling that makes it a little bit bit simpler and sooner to rise up and operating than it might have been, , a number of years in the past.
And I feel that’s actually thrilling, and also you’re seeing lots of people experiment with completely different fashions in enterprise. I feel one of the vital notable ones being that of the solo GP since you break down a enterprise agency, like, probably the most atomic unit is a person associate. And if you concentrate on you’re going to have a Nobel laureate in your present, I feel, later at this time, however one other nice economist, Ronald Coase, , the Coase Theorem, the speculation of the agency is {that a} agency is one thing the place the interior transaction prices are lower than the exterior transaction prices. And so, in case you truly make it simpler to create enterprise corporations due to sort of the substrata of each the infrastructure that exists in addition to the sort of, like, LP urge for food and sources of capital that exist, you must count on to see new methods of being inside the entire sort of enterprise ecosystem. And that’s why it’s going to be fascinating for the subsequent decade to see how enterprise capital, as an ecosystem, evolves, given all of those sort of shifting elements when it comes to how one can take into consideration constructing a agency.
Meb: So did you find yourself constructing the fund on certainly one of these web sites you talked about or companions, or did you do it a little bit conventional means? How did you go about it?
Rex: Yep, I run a conventional fund on high of the AngelList platform. And they also assist me out with lots of the back-office-oriented stuff. After which I even have people that I introduced in who are usually not essentially technology-oriented companions however partially as a result of there are extra solo GPs and extra rising managers now which can be people who’re well-designed from a service perspective to help that. So I’ve an outsourced COO, CFO group that’s sort of well-tailored to working with these platforms and focuses on doing and supporting rising managers. So each are, like, technological elements, but in addition, even the service and people-oriented elements have gotten extra developed for that sort of factor.
Meb: Yeah. One of many cool elements is, in a lot the identical means that lots of the phrases of startup funding has been templated, , the fund aspect now could be too. So it’s, in some ways, like, fairly turnkey, which is nice to see. We joke about this rather a lot in our enterprise with launching an ETF is, in most of the similar methods now, lots of the frictions and trigger. We’ve performed exhibits with mates from ETF Architect, in addition to Tidal and others, that sort of enables you to white label or launch a fund fairly merely. As a result of in case you look again on it, 90-some% of the phrases are fairly normal. I imply, so then, it’s simply getting the plumbing…
Rex: It’s loopy how a lot everybody at each stage of monetary providers pays attorneys to do principally the identical factor. Like, it’s simply insane.
Meb: Yeah. There’s nonetheless lots of fad on the market, as a result of that’s my, in all probability, primary line merchandise as effectively, that very, very private remark, with all the pieces that’s SEC-registered tends to get costly with the authorized workforce. We love our group. We truly use a San Fran…old-school San Fran enterprise. So shout out to Shartsis Friese, in addition to Morgan Lewis. Nice groups. All proper. So let’s discuss a little bit bit concerning the enterprise area, typically, after which we’ll dig into FinTech and sort of what you’re doing particularly. We’ve talked about a few developments, , happening in VC over the previous decade or two. What else is in your thoughts, as you look across the VC panorama, that appears to be shifting? There’s some huge cash floating across the previous 15 years, which I feel is nice. Enterprise is at its core nonetheless, sort of a tiny asset space relative to different areas of sort of conventional asset administration. Once we say some huge cash, you bought to place it in context. What are some views on enterprise, typically? Another ideas on the area? I do know you have been speaking a little bit bit concerning the three-body downside idea, which, for individuals who haven’t been acquainted, is a science fiction work that I’ve learn. Or no less than I learn the primary one. I haven’t learn all of them. I hand you the mic, what’s some basic ideas? What’s happening on this planet of VC?
Rex: Yeah. And have you ever learn that Frank Rotman’s Three-Physique Drawback, which is his sort of tackle equilibrium factors in enterprise capital? I don’t know in case you’ve come throughout that or not.
Meb: Let’s hear it. I’ve seen it, however clarify it for the viewers.
Rex: Yeah. So first, I’ll simply say…we’ll dive into that one a little bit bit, however I feel, to your level, 100%, enterprise has gone from being this very, very small, very, very cottage factor. Like, I feel one of many very first funds raised was, like, Kleiner within the ’70s, and it’s them driving round…you in all probability know the story higher than I do, . It’s a $6-million fund, perhaps, in 1970 that they’ve satisfied everybody of what this factor is and sort of will get going from there. You possibly can go even additional again, speaking about, , like, whaling and people sort of fashions. However at this time, even 10 years in the past, like, I’ve acquired a chart up in entrance of me for capital raised by enterprise funds within the U.S. in 2012, $23 billion, which is, like, a rounding error whenever you have a look at different sectors of capital markets, even non-public markets.
After which, in 2021, it was an all-time document, 150 billion, which is fairly significant, however they’re nonetheless, , in comparison with different markets, it’s not large. However we’re attending to the purpose the place it’s…, a16z, Andreessen Horowitz, my outdated employer, within the, like, a few years that I used to be there, went from about 10 billion in belongings to now, I feel it’s north of fifty billion. So that you’re beginning to get so far the place you’re getting institutionalization of what was a cottage business. Effectively, the sort of panorama for how one can, , launch a fund, construct a fund, what that may appear to be, is altering. And so all that’s to say we’re on this actually fascinating interval the place it’s changing into an actual asset class, and it’s sort of up for debate as to, like, what precisely will it contain into asset institutionalized. And what it’ll appear to be might be very, very completely different, and it’ll in all probability be completely different gamers who concentrate on completely different sorts of issues.
So I feel it’s an excellent level to speak about sort of “The Three-Physique Drawback,” which is a bit written by Frank Rotman, who’s one of many founders of QED, which is a FinTech particular agency, and he argues that there are sort of 4 secure equilibrium factors that he sees because the seemingly locations the place enterprise corporations can sort of specialize and be enduring, no less than for this sort of subsequent section, perhaps 10 years. And a type of are, like, scale partnerships, the, like, a16zs, the Insights of the world. Two are sort of the extra early-stage specialists and extra of the sort of boutique sort approaches or early-stage generalists, specialists, I feel, is what he calls them. And that might be like, , the Benchmarks or the First Rounds. After which one other could be sort of non-consensus alpha people, individuals who actually simply exit and discover new issues which can be fairly a bit completely different. After which the fourth could be sort of solo capitalists, solo GPs who’ve very distinct model worth, very distinct worth proposition for the founders.
And so these are sort of the theories he sees. And the explanation and the way he will get to that conclusion, and , I truly interviewed him lately, talked by way of a few of this, is you possibly can sort of search for historic antecedents for different areas which have gone by way of durations of change. I feel one of many fascinating areas to speak about, and love to listen to your ideas on this too, Meb, are, like, the massive asset managers that we all know at this time, Blackstone, BlackRock, Vanguard. Three very completely different corporations, however all of them have been born across the similar time within the Eighties as asset administration, particularly for public market fairness, granted Blackstone is extra of a non-public fairness platform. All of them acquired began on the similar time as a result of there’s that very same interval of institutionalization, And I feel we’re at that interval for enterprise capital at this time the place, because it goes from being a cottage business to an institutionalized asset class, you’re going to see these bursts of those sort of large mega-firms. In sure methods, I feel Andreessen Horowitz has an excellent probability of being a type of sort of defining that class. And historical past doesn’t repeat, but it surely does rhyme, and so there might be some similarities when it comes to how the remainder of it shakes out.
And so that is the place Frank talks by way of different sort of historic antecedents, issues just like the consulting business, used to have a ton of sort of boutique consulting corporations, and now now we have, like, the massive ones, like Bain, McKinsey, BCG, and so forth. You have a look at accounting corporations, used to have a ton of boutiques, now you’ve acquired the Large 4 and an extended tail of different ones. And so one thing related might be going to shake out in enterprise capital the place you have got some actually large names that construct out large presences, however you then even have this sort of different units of gamers who can exist inside the ecosystem. In order that’s sort of a little bit little bit of the overall taxonomy of the three-body downside however I feel a little bit little bit of what’s going on in enterprise proper now. I, in fact, am biased, however I’m excited concerning the capability of solo GPs to exit and ship worth, and the sort of pitch there may be that, greenback for greenback, these ought to be probably the most useful individuals in your cap desk as a result of they’re often extremely community specialists who ship very particular worth to you and your organization for a factor you want.
So my pitch, at Cambrian, for instance, is, look, I’m extremely networked into the area, however not simply myself, my connectivity into the neighborhood and the ecosystem that I’ve constructed permits me to marshal…I’m sort of accessed to a community of networks, , the 20+ founders, our LPs in fund, the 1,500+ founders who’re members of the neighborhood, and simply the truth that I’m a non-lead additionally implies that I’m in a position to collaborate with multi-stage enterprise funds and many different individuals within the ecosystem in a means that’s sort of distinctive relative to different gamers. In order that’s a little bit bit, I feel, a breaking down of a number of the taxonomy of enterprise, I’d say. However I really like to listen to your ideas too, Meb. I’m positive you’ve thought of it a little bit bit.
Meb: I largely agree with you, and we’ve been speaking about this for a very long time within the conventional public area, mentioned, “Look, the bottom case now within the public areas is zero,” which means zero charges. You will get a worldwide ETF portfolio.
Rex: It’s barely unfavourable. Isn’t there one that you just receives a commission now, or is it…? I suppose Constancy has the zero, proper? So Constancy has some zeroes.
Meb: It’s a few foundation factors, however when you embody brief lending income, you’re basically getting paid on a portfolio, which is superb. Greatest time ever to be an investor. It’s tremendous cool. It’s additionally the best time ever to gentle all of your cash on fireplace and blow it up with dynamite, , with entry to buying and selling actually something. So, to me, that’s, like, the competitors, and there’s nonetheless tens of hundreds of funds on the market that cost much more than zero, proper? And so, once more, it comes again to what’s your worth proposition. And so you have got lots of these legacy belongings the place individuals are paying much more than zero, however they, basically, are simply getting beta. In order that they’re getting the S&P 500, for example, for shares.
Rex: It’s insane. And I do know you’ve talked about this, however what number of S&P 500 ETFs there are that cost, like, 1%? Like, they only take a very long time to die. In order that’s in all probability going to be true in enterprise too that there might be these legacy platforms which can be clearly dying, but it surely’s going to take some time as a result of these are 10-year funds, they’ve deep relationships with LPs. Like, , it might probably take some time, even when it’s very clear they’re on their means out
Meb: Yeah. I imply, look, and probably the greatest issues you are able to do as a newly minted GP is have an excellent first fund or get a little bit lock. However that sort of christens you…there’s been a bunch of educational analysis, additionally within the VC area, on this that it christens you as somebody who actually is aware of what they’re doing and will get a for much longer leash on future funding and fundraiser. However, like, let’s say even in case you’re a storied agency that’s performed effectively, and also you hit a few tough patches, like, you continue to get a good period of time earlier than that goes away. And so, enterprise and personal fairness have such lengthy lock-up durations or simply sort of time to fruition, a few of these being effectively over 10 years, 15 years generally. However, yeah, so the asset on the general public aspect, I feel, the standard gamers, , there’s individuals…cash tends to get cozy the place it’s till disturbed. And so the individuals which can be solely promoting these when somebody dies, when there’s, like, a taxable occasion, divorce, or one thing actually unhealthy occurs, like a giant, fats, nasty bear market, but it surely doesn’t return, , to lots of the standard no-value-add incumbents.
So I feel you’re spot on and that you just’re going to have…I imply, this has at all times been true, but it surely’s changing into extra true, it’s important to have a really clear worth proposition going ahead. Within the public area, in case you can cost greater than zero, I haven’t seen as a lot of the pricing strain in you all’s world but, or in any respect, perhaps there may be, but it surely looks like lots of the argument in VC is that, “Hey, you’re taking pictures for this high quartile. And if you will get it, , you’re going to have an enormous unfold on the efficiency.” So anyway, I agree with you. So we attempt to be…our tagline after we discuss to individuals we see, “We need to be bizarre, concentrated, and completely different,” , which some individuals like and a few individuals actually don’t like. However you sort of must, in my view, in case you’re going to cost greater than zero.
So you have got this example the place you bought these big gamers, like a16z. You will have this new rise of solo GPs. You talked about a number of of your sort of calling playing cards and worth provides. So let’s sort of, like, stroll by way of the method, . So that you raised a fund, 28 million, I feel, and what number of names are you guys focusing on per fund? Is it 10, 20, 100?
Rex: Yeah, I’m focusing on about 30 and deploying over about 2 years, and that comes right down to being a operate of each what number of nice entrepreneurs do I feel are on the market within the ecosystem that I need to be backing and what number of entrepreneurs do I feel I can truly help effectively. And my dedication to entrepreneur is to be very concerned for the primary sort of yr to 2 years, perhaps even a little bit bit extra of that firm’s lifecycle when entry to these networks and relationships actually matter and will assist them discover alternatives they won’t uncover on their very own. When you get by way of your…I’m often first examine in, your subsequent spherical of funding or your subsequent two rounds of funding, often, I’ve a bigger workforce, you have got a way of product market match, the place to look, you have got a workforce that might construct out these relationships, and at that time…and you’ve got a board. And at that time, having somebody like me is much less useful, since you’ve sort of…you haven’t figured all the pieces out, however you figured lots of the unknowns out, proper? And sort of the place you’re wanting, whereas the place I will help is, like, determine the alternatives you won’t even have thought to search for early on, in addition to, like, one of many large issues I will help out with is, , serving to with subsequent fundraises, so.
Meb: Once you say FinTech, it means lots of various things to lots of completely different individuals. So for you, whenever you’re sort of below this umbrella, like, what does it imply? What are you guys on the lookout for on this FinTech ecosystem? Are there sure areas of it that you just suppose are extra relevant to sort of your wheelhouse and fund investments?
Rex: Yeah, completely. I feel one of many issues criticisms of FinTech initially was, like, “Is it even a class?” Like, this was, like, 4 or 5 years in the past. There actually hadn’t been any exits. And you then had Credit score Karma and Plaid. After all, Plaid and Deel find yourself going by way of. So it’s, like, okay, now, it’s sort of a class. I feel now, the issue is, like, it’s so broad of a class, it’s like, “What does that even probably imply?” And I feel what I’m enthusiastic about is simply sort of the subsequent layer down of monetary providers, in addition to sort of intersectional areas. So in case you have a look at FinTech because it intersects with, like, HR tech, FinTech because it intersects with well being care, I’ve performed one funding that’s doing sort of a vertical software program play in well being care. When you have a look at InsurTech, there’s sort of a bunch of stuff that hasn’t essentially been performed there but.
When you go right down to the subsequent stage of simply software program and information orchestration throughout all of the platforms, there’s a bunch of fascinating work to be performed there. Digitization of banking software program I feel was once sort of poo-poo’d by lots of FinTech traders, like, “Oh, you’re promoting software program to, like, the incumbents. You’re going to die.” And that’s, like, sort of studying that, “Oh, they in all probability aren’t going to die, and they’ll have, like, a extremely large function to play in sure areas of finance for a really, very very long time.” So, like, that’s an entire one other class. Industrial actual property lending is one other one the place in case you…I spent lots of time with shopper, residential, mortgage, actual property, very complicated, troublesome ecosystem. Industrial actual property lending and sure segments, simply as large, even much less expertise.
It’s an space the place most individuals haven’t spent an entire lot of time who’re technologists, however a number of groups, truly, as a result of the FinTech ecosystem has gone so large, have spent actually significant time constructing information platforms in that area or different sort of issues, so that they now perceive that downside each as…, there are many individuals within the monetary and actual property markets who do perceive it, however there aren’t that a lot of them who’re additionally technologists. Now, you have got people who find themselves each.
Meb: And so you’ll contemplate these to be, like, for the standard vernacular, pre-seed?
Rex: Yeah, pre-seed might be the easiest way to name it. We name it pre-seed or seed.
Meb: And so what’s the vary on type of the market caps and checks you’re writing for these, only for perspective?
Rex: Yeah, they vary from sort of 5 to fifteen caps, usually, on a post-money foundation. And simply commentary when it comes to how the market has advanced once I first began out very early in 2022, I might say the window, once more, skewed, however the entire window of valuation ranges was from 10 caps to 50. And now, it shifted right down to what I simply talked about to you. Pricing is lastly beginning to appropriate on the pre-seed.
Meb: Good to see, as a result of I’ve been ready. I really feel like, and I don’t see it like the way in which you do, clearly, as a lot, however I attempt to preserve tabs on it. And definitely, it was sort of going bananas the previous couple of years. After which I noticed it begin to sort of appropriate earlier this yr, but it surely’s good…I imply, it’s good and it’s unhealthy.
Rex: Seed is the longest. It’s, like, probably the most insulated individuals. If it’s your first spherical of funding, your selection is at all times simply to attend. Whereas if it’s your second, like, it’s important to elevate, and similar for later-stage firms which can be burning by way of money, and so that is the a part of the market that takes the longest to regulate. And we’re in a little bit little bit of a bizarre scenario proper now the place offers are taking longer to get performed, partially as a result of that’s historically simply how offers have often taken three months for individuals to undergo diligence, and so forth., however partially as a result of there’s rather less readability available in the market as to what the sort of basic market clearing value ought to be.
If you concentrate on promoting a home in a scorching market, you simply have a look at, like, the couple of homes down the road that bought within the final month, and also you’re like, “Okay, that is how a lot this home ought to promote for. Now, in case you’re going out and also you’re elevating, effectively, lots of people didn’t elevate, like, new cash, there are lots of extensions over the summer season, not as many individuals raised new rounds over the summer season. After which your final comps are sort of from Q2, so that you’re like, kina, “What’s the market clearing value?” So, like, A, I’m going to take longer in diligence, B, there’s much less certainty about what precisely the worth ought to be. And so issues are a little bit bit bizarre proper now as they reset.
So it could possibly be, , issues proceed to go even decrease or it could possibly be they sort of begin to stabilize and even go up due to one thing else, I’m positive, you’ve talked about. Like, there are document quantities of dry powder within the ecosystem proper now and lots of these giant multi-stage funds. Enterprise capital fundraising for 2022 was nonetheless at an all-time document, though the markets have slowed down, proper? There’s a little bit little bit of a lag impact there. And lots of these multi-stage funds do need to deploy into seed or pre-seed, they usually virtually don’t know write small checks. And so what which may imply is there would possibly simply be this sort of everlasting sort of stability for the earliest rounds that firms elevate, however we’ll see. We’ll have extra readability on that within the subsequent couple of months.
Meb: Yeah. Historically, that is type of, like, a half millioncheck, a millioncheck, or what’s sort of the ballpark for you guys?
Rex: Yeah. I often write a 500k initialcheck.
Meb: Nice. So inform us a little bit bit about…how’s the chance standing on the lookout for you? , your course of often simply type of, as a solo GP, you have got a singular asset, which is that this community. Are a lot of the offers coming simply by way of mates, by way of individuals ? Like, what’s your course of like, and the place can we stand now so far as alternative standing at overwhelmingly tons of nice founders? Is it fairly focused? What’s the world appear to be for you?
Rex: Yeah, I’m actually excited as a result of I’ve been…within the final two months, I might simply say, the variety of actually extremely certified founders I’ve seen has truly been larger than it’s been prior to now, and I feel a part of that motive is in case you are beginning an organization from scratch proper now, you’re not doing it as a result of it’s, like, this cool, attractive, simple factor to do the place you possibly can, like, stroll out of your, like, model identify FinTech firm and get a $5 million time period sheet in per week from an organization or type a enterprise agency that hasn’t performed an entire lot of diligence. It’s, like, it’s extra work, and that is one thing you’re actually compelled to do, and also you in all probability have a singular motive why you’re doing it. And so I simply really feel like, usually, each sort of a quantitative view or qualitative view that these founders I’ve seen now are actually nice after which quantitative, simply the variety of them that I’m seeing and I’m sort of actively engaged with is larger now than it has been prior to now.
When it comes to how I come throughout, there’s lots of stuff, proper? So I run the Slack neighborhood, so I see lots of people who’re becoming a member of there on the very earliest phases. I truly do co-founder matching about twice a yr, which is generally only a means for individuals early on to have plenty of conversations, assist ideate, after which generally, additionally, , discover their co-founders. That’s one other space. The 20+ founders who’re LPs within the fund, , they ship people to me who’re, early on, even when they’re not elevating as a result of I will be very useful in serving to them discover co-founders, serving to them refine their concepts, serving to them do buyer validation and discovery, in order that’s one other supply. After which I’ve lots of people attain out, name, on LinkedIn, and on Twitter, and thru the web site. So there are sort of all these completely different sources that come collectively. And so generally it’ll be somebody I’ve by no means met earlier than who reached out, known as, or different occasions, it’ll be a workforce that I’ve recognized for a extremely very long time by way of the neighborhood and simply by way of the ecosystem.
Meb: Yeah. And it appears, as an outsider, and you’ll in all probability touch upon this, however simply the appearance of lots of the Y Combinator, Techstars, accelerators over the previous, I don’t know, decade-plus, has raised the standard of no less than what lots of the founders find out about sort of beginning an organization. Is that correct or inaccurate assertion? And , they don’t appear as inexperienced as to only understanding how this entire recreation works.
Rex: Yeah, completely. So, yeah, going from zero to 1 is just not as a lot of a darkish artwork anymore, proper? Like, a lot ink has been spilt about, like, how to do that. Quite a lot of that ink has been spilt by Y Combinator, proper? Like, you possibly can go to their startup faculty, like their curriculum. It’s basically open-source at this level. They’ve additionally performed a terrific job of reducing out some standardized paperwork that mean you can rapidly elevate preliminary rounds of funding, the YC Protected, and so forth. So, yeah, I feel the zero to 1 simply from, like, understanding what that appears like, even in case you’re a first-time founder, you will get far more on top of things. However then, take into consideration the truth that there at the moment are, , name it, 1,000 unicorns. Like, there are simply additionally so many repeat founders within the enterprise ecosystem that the variety of individuals you possibly can discuss to to study from is larger than ever earlier than.
Oh, and by the way in which, you is likely to be a type of repeat founders. Like, in case you have a look at the Cambrian portfolio at this time, lots of people even have helped begin firms earlier than, so. However I feel that is truly sort of an fascinating query for what function does YC play within the ecosystem, or accelerators. I feel, earlier than, it made sense for plenty of founders, particularly virtually each first-time founder, to undergo YC, or by way of YC itself, as a result of there’s the curriculum, there may be the community, there may be the sign related to it. Whereas now, what I see for many refined FinTech founders, whether or not they’re first-time founders or repeat founders, is that they’re like, “I don’t actually need to undergo YC, nor do I must, as a result of one, their phrases aren’t as engaging as I can discover elsewhere, two, I sort of already know the curricular stuff. I’ve my very own particular networks which can be related to FinTech, and their networks are nice, however, like, it’s sort of a distinct sort of expertise. And so I’d actually quite elevate from individuals on higher phrases who’ve very particular area experience and connectivity.”
And so, for me, like, usually, the sorts of firms I’m backing haven’t even thought-about going by way of Y Combinator as a result of they’re sort of like, “I don’t want that,” proper? However that’s additionally as a result of their ecosystem is bigger than ever earlier than. So there nonetheless are plenty of individuals for whom YC is a extremely good match, but it surely additionally means, now that the ecosystem is bigger, there are some individuals who simply don’t want that, which is why you have got other forms of corporations who’re doing different sort of specialization, and so forth.
Meb: You additionally…Cambrian is such a terrific phrase for this, however you begin to see this, I really feel like, in different geographies. , you have got a profitable firm, and it mints a bunch of millionaires, And impulsively, these millionaires can now angel make investments or begin new firms, and it simply sort of populates this entire new ecosystem of founders and angels which sort of propagates, which this entire type of snowball pattern appears to strengthen itself, which is sort of just like the Silicon Valley being exported to your entire world, which looks like a fairly superb pattern. Like, it’s actually thrilling to observe it occur in Africa and all types of Pakistan and different locations now. Are you guys U.S.-only for now?
Rex: I’m U.S.-only for now, and the plan is to try this ceaselessly. So I feel there are superb issues occurring all over the world. Simply concentrating and doing one factor effectively is vital. The U.S. is the biggest unified market, with good rule of regulation on this planet. And lots of what I do is dependent upon networks. So if I spend money on lots of the good FinTech firms within the U.S., there’s plenty of alternatives for cross-pollination throughout the portfolio. If I begin flying to completely different continents, there’s rather a lot much less inter-portfolio connectivity. And, oh, by the way in which, like, my time solely scales so effectively, and worldwide flights price lots of time, so.
Meb: Yeah. And plus, you bought two below 5. My spouse mentioned, , “I ought to make you a deal. You possibly can nonetheless journey as soon as now we have a child, however we get to choose and select on which journeys we go along with you on.” So oddly sufficient, they’d comply with go on journeys to Dublin or Eire as an alternative of, , and I’m not throwing shades, Cincinnati or someplace within the U.S., Chicago even. And I say, “Actually, we’re going to take a two-year-old to Dublin? Advantageous.” It’s a good deal. So, okay, let’s discuss a little bit bit about…you possibly can take this certainly one of two methods, it’s as much as you. Since lots of the portfolios are in stealth, you can both discuss broadly talking about a number of the belongings you’re seeing which can be fairly cool or concepts or sub-industries of FinTech, or you possibly can take, , what are you on the lookout for that you just haven’t seen, , some areas or some issues that you’ve got mentioned, “Man, I’d love somebody to be doing XYZ,” or you possibly can reply each.
Rex: Our very first funding we did was in OatFi. OatFi, like I discussed, is doing embedded lending for B2B platforms that do invoicing, and so forth., so like a enterprise model of BNPL or factoring could be one other mind-set about it. Nevertheless it’s this embedded lending part. If you concentrate on being a small enterprise, everybody is aware of money stream is king, however particularly in case you’re attempting to get a sub-$100,000 line of credit score, it’s simply very onerous so that you can go to a financial institution and get underwritten for that, as a result of they’re going to take a very long time, it’s going to be a really pricey course of, it’s not going to be very highly effective for them. So lots of small companies prolong their extra capital due by way of very sort of costly sources, like factoring, however even that’s typically, like, a separate space and could possibly be fairly costly. If as an alternative the lending is embedded into your on a regular basis sort of stream, like, the provider who you’re working with, once they bill you, there’s only a button you possibly can click on to get extension of debt. And that provider themselves has a button on their finish the place they’ll speed up account. That’s a really fascinating means of simply seeing enterprise lending embedded into the common stream of enterprise versus pulled out and obstructed away right into a financial institution department, proper?
In order that’s, like, A, only a very large and fascinating pattern, and there are additionally so many extra vertical software program platforms. Like, let’s say you’re a vertical software program for somebody to run a hair salon, or a dental provider, or a trucking firm, you’re going to want to make use of, like, , Stripe to just accept funds, however you’re additionally in all probability going to want to make use of some sort of software program to do the invoicing, after which, as a part of that, you in all probability need to monetize to some extent by way of lending, effectively, you possibly can simply combine with OatFi, and OatFi, on the again finish, has varied capital supplier that they construct out debt amenities with who can then present the credit score on your provider. And also you truly get a little bit little bit of a rep right here. So now, you possibly can monetize by way of monetary providers by way of, like, , you will get a take fee out of your, like, integration with Stripe. You can too get a take fee out of your integration with OatFi and the credit score you’re extending. However you, your self, don’t must be a fee course of or a stability sheet, a lender. And so that concept of embedded finance, particularly because it pertains to the concept of individuals constructing vertical software program companies that monetize your monetary providers, is, like, a extremely, actually large thought, I feel, usually.
After which, just a bit bit…I feel that is fascinating in understanding how, like, the Cambrian neighborhood works. So I initially met Mike, the founding father of OatFi, when…truly, I initially didn’t meet him. He joined my Slack group, and I didn’t discuss to him for, like, months. I’d inform him to hitch. I, like, ship a basic welcome be aware, which is one thing I at all times do. After which, like, a number of months later, somebody talked about to me that they have been elevating, and I used to be like, “Oh, that sounds fascinating. Like, let’s go on the telephone.” And the primary time we get on the telephone, Mike’s like, “Rex, it’s, like, nice to attach with you.” Like, “Oh, by the way in which, our very clients, and we met by way of, like, the Slack group.” And I’m like, “That’s nice.” I’ve performed no work, and the primary individual you’re going to go reside with is somebody you met organically by way of the neighborhood. He’s like, “And certainly one of our first infrastructure suppliers,” so somebody they used to do one thing, like, mortgage administration stuff, they’re like, “That’s additionally somebody we met.”
So right here’s somebody I haven’t even talked by way of who’s interacting with the Cambrian neighborhood who has now gotten first clients, infrastructure help, and so forth. After which I ended up investing, like I mentioned, within the pre-seed, and as a part of that, introduced in, truly, one of many founders from our 20-founder LPs to co-invest in that spherical, as a result of they’re, like, good, sort of overlap there. Additionally discovered another people who get entangled. After which, subsequent to that spherical, did lots of work when it comes to, anytime somebody joined the Slack neighborhood or I simply interacted with another person of their early-stage ecosystem who may conceivably need to embed lending into their platform, simply ship them over to Mike. They’ll have a collaborative dialog…are additionally very early-stage founders who’re attempting to determine construct their enterprise, they usually need to monetize by way of lending, however they’re like, “That’s lots of a elevate.” And I feel that’s on my roadmap.” And Mike’s like, “Look, we will help you carry that ahead in your roadmap by making it rather a lot simpler due to how our platform works.”
And so, like, simply sort of the casual connectivity over time. And they also even have a number of clients which can be going reside that they’ve sort of met by way of the Cambrian community. After which, like I mentioned, QED ended up preempting their subsequent spherical of funding. They only did their announcement.
Meb: How onerous is it to run that community? And what I’m considering of is conventional, lots of communities. You get individuals misbehaving, whether or not it’s, , simply being basic social media turds but in addition spamming and advertising. And, like, how onerous is the neighborhood you have got? Are you, like, a strict mother or father, one strike and also you’re out, or, like, how do you monitor and simply run that entire present?
Rex: Yeah. Communities evolve over time, proper? The Cambrian neighborhood I’ve run has advanced over time. Began initially as simply sort of month-to-month in-person occasions in San Francisco. We truly haven’t performed an in-person occasion of that kind for fairly some time now. Now, lots of my neighborhood work is extra digital and thru, like, the Slack group. The Slack group at this time is about 1,500 members. They’re all founders. They’re all individuals who know what it’s wish to be in an analogous scenario. And so I’ve had very, only a few situations of what I might classify as poor habits. I do fear that because it begins to scale once more, like, perhaps that’s one thing we’ll have to consider. However to this point, I’ve been attempting to maintain it sort of usually constrained. So I do take into consideration that, however I’ve been lucky that I really feel like people who find themselves founders and builders, usually, like, know and respect what different individuals are going by way of, and subsequently, attempt to behave accordingly. And that’s usually been my expertise.
Meb: Yeah. Effectively, whenever you’re able to host an L.A. blissful home, we’ll sponsor it. So you possibly can come on down whenever you want some sunshine in San Francisco, and we are able to do a meet up.
Rex: Subsequent yr, I plan to try this a number of occasions, in 2023. So I feel L.A. is on the map. In all probability, we’ll additionally do some in New York and perhaps in locations like Salt Lake Metropolis and different sort of FinTech hubs that I do know plenty of nice entrepreneurs in.
Meb: You have been going to say one other startup that has come out of stealth.
Rex: Yeah. The opposite one is Hold Monetary, and so that is sort of FinTech on the intersection of HR tech. If you concentrate on being an HR group, particularly in a post-COVID world the place issues are extremely distant, and now, workers live in all 50 states, there’s simply, like, lots of issues so that you can handle. And lots of belongings you handle as an HR division are round coordinating compensation and other forms of, like, monetary closing compliance for these workers. So there’s simply lots of stuff on the intersection of FinTech and HR. It’s an space I’ve been fairly enthusiastic about for some time. My spouse, as one instance, leads, like, go-to-market ed, Guild Schooling, training as a profit bought into Fortune 100 employers. They usually’ve performed fantastically effectively. So into that basic space, which I’ve been taking a look at for a very long time, met Rob and Kathryn, or re-met Rob and Kathryn, who’re the founders of Kabbage, the small enterprise lender. Their new firm is known as Hold Monetary. They’re a bonus administration platform for employers.
So that is an illustrative instance. Burger King is just not a buyer of theirs, however let’s say you’re Burger King. And also you need to rent 10,000 frontline staff, and also you need to challenge them a $5,000 signing bonus. Effectively, you can do this, after which, like, the individuals join, they get the cash, after which they, like, don’t present up after the primary day of labor or one thing. And also you’re like, “Effectively, that didn’t work very effectively.” However we’re truly within the tightest labor market, nonetheless, for sure service sector industries, at the same time as, , type of the macroeconomic indicator shift, the tightest labor market in, like, the final 70 years. Employers are determined to recruit and retain expertise.
I really like the worth proposition that Hold says, as a result of they’re like, “How do you recruit and retain expertise?” It’s, like, you pay them. And also you pay them by way of bonuses. And below the hood, these bonuses, that is sort of the monetary product, however they’re structured as forgivable loans that vest over a sure time frame. So now, once I offer you this $5,000 signing bonus, it vests over a sure time frame. When you go away early, it may be forgiven. Like, a portion might be forgiven, after which the remaining will be sort of repaid at zero curiosity over some time frame.
So now, you, as an HR chief, have a brand new instrument in your toolkit to consider, “How do I recruit staff?” By the way in which, the identical platform you should utilize to retain them. You possibly can challenge spot bonuses or retention bonuses. And so, if you find yourself being a really giant employer, like, it truly will get fairly sophisticated to consider how you’ll need to construct out this program at scale. You’re like, “Effectively, how a lot ought to or not it’s? Like, what about in case you’re this stage versus that stage? What ought to be the vesting interval? Like, how do I truly disperse the funds? How do I truly handle, like, the state-level registration as a result of this can be a mortgage product?” Like, all of these are literally fairly sophisticated questions. Like, how onerous is it for a corporation to pay bonuses? And also you’re like…effectively, you begin to consider it, you’re like, “Oh, it’s truly sort of onerous not solely to do it simply from a useful perspective however to do it from a means that truly drives the result that you really want.”
And in order that’s why I feel they’re a extremely fascinating firm, as a result of one, it’s a terrific workforce. Like, Rob and Kathryn have constructed a number of companies collectively earlier than. Kabbage they bought to Amex, I feel it was round, like, a $500 million exit. However they’re a workforce that’s labored collectively extremely effectively earlier than. They’ll materialize a workforce. In addition they have deep connectivity into the sorts of management groups on the sorts of employers they’d need to promote to as their preliminary clients, in addition to their sort of, , tremendous enterprise purchasers sooner or later. And so this can be a nice instance, I feel, of…this isn’t a FinTech firm in a way that it’s actually an HR answer that occurs to have a monetary product that’s underpinning it, and also you by no means would have had somebody, a workforce, that was in a position to consider the way you construct this product however then use it for a really specific answer.
That’s one thing that’s due to all the pieces that’s occurring and simply the notice and the standard of the entrepreneurs, however then, additionally, they’ve a banking associate below the hood who’s serving to them, , energy lots of this, which, 10 years in the past, there are 0 banking companions, proper? Quick ahead at this time, there’s, like, 30 to 40 to 50 banking companions, plus 20 banking as a service platforms. So that is the place the identify Cambrian sort of is available in, proper? There’s been this explosion of the fundamental constructing blocks of monetary providers which can be sort of reconstituted by way of expertise that folks can mix to new and novel methods to deal with issues. So I feel Hold is a superb instance of, like, a extremely nice workforce, FinTech on the intersection of one thing else, in a roundabout way that few individuals are truly eager about. Like, that is sort of a brand new…there actually isn’t anybody else doing this proper now. However when you hear it, you’re like, “Oh, that’s fairly fascinating and thrilling,” proper? So these are our factor, two firms and two nice tales when it comes to eager about what the subsequent era of actually nice FinTech firms can appear to be.
Meb: Yeah. I imply, it’s loopy. I tweeted earlier this yr. I mentioned, , I went by way of a strategy of getting a mortgage, and it was absolutely the stupidest course of I’ve been by way of in, like a decade. And I’m an in conventional asset administration. I imply, we used to must fax in our commerce. So I’m effectively conscious of silly processes, and I’m like, “I can’t consider this in 2022.” You had a tweet some time again. Listeners, you possibly can comply with Rex on Twitter. He’s nice at posting charts and different stats.
Rex: Numerous charts. Numerous charts.
Meb: You have been complaining about…you’re like, “I needed to pay 20 bucks to ship a wire,” or one thing, “And I known as in, they usually waived it.” And also you’re like, “Can we simply waive this sooner or later in order that I don’t must name in?” They’re like, “No, it’s important to name in each time. We felt we’ll waive it in case you’re calling it.” Like, are you getting me? Like, what’s improper with this? As you look again at your time at a16z, it’s in all probability much less at this time as a result of it’s so new, . I’ve heard you speak about sort of eager about consensus, anti-consensus when taking a look at sort of concepts and founders. But in addition, I’m wondering, in your expertise, how a lot of the outperformance, in case you have a look at sort of conventional offers you’ve seen and been concerned in, have been on the time you made the funding? So that you checked the field for sure. So the portfolio that you just’ve seen. How a lot of the eventual final result was associated to preliminary conviction, ? So excluding those you didn’t spend money on, however simply those that, like, you mentioned, “Okay, these have been in our orbit.” Is there any correlation as soon as it hits the sure button, or is it lots of randomness within the final result as effectively?
Rex: You will be very extremely convicted of some companies, however yeah, I feel, like, for absolutely the excessive outcomes, it’s very onerous to know a previous. So in case you have a look at, like, Slack, certainly one of a16z’s large early wins, they actually have been a distinct enterprise that pivoted into one other enterprise earlier than doing extremely effectively. I feel you possibly can typically underwrite sure investments to, like, a fairly excessive ground, however that’s truly fully ineffective. You get a extremely skilled entrepreneur who’s constructed and bought a enterprise prior to now, saying, “Okay, the ground for this enterprise is $200 million,” however that’s truly fully ineffective when it comes to driving what you want from a enterprise return perspective.
I feel there may be an fascinating factor round, like, what sort of investments do corporations are inclined to do over time, and if we return to the, like, free physique taxonomy of, like, scale corporations, I feel, if I take into consideration…enterprise is a humorous class as a result of, often, it’s important to be non-consensus and write to win. Whereas enterprise, arguably, you possibly can sort of be consensus, and since just one individual will get to do the deal, you possibly can nonetheless truly ship outperformance if consensus-oriented offers nonetheless delivered ok returns.
And so, once I have a look at a16z and different giant corporations and you concentrate on what sort of offers are best to get partnership buy-in, you have got this sort of unactionable drive the place scorching offers, offers that get lots of time period sheets, are the one the partnership will get most enthusiastic about. As a result of in case you do, like, actually good considering and give you, like, a intelligent thesis, it’s important to talk complicated nuanced concepts throughout quite a lot of individuals. When you herald a cope with 5 different time period sheets out of your three largest opponents, together with your three largest opponents, you simply instantly have, like, activation and curiosity.
And so I feel there’s this fascinating factor the place, over time, giant outlets develop into extra consensus-oriented, as a result of that’s simply the best option to get offers performed. However mockingly, in enterprise, that’s the one place the place that technique can nonetheless ship affordable returns, arguably, versus each different market the place it’s simply you had the purchase button and there’s a little bit of unfold in, like, you’re competing in opposition to everybody else within the ecosystem. In order that’s going to be a little bit bit fascinating to see how precisely that performs out over time.
Meb: Yeah. I want I may return a decade in the past and begin advertising all of the offers that I’ve invested in, which I feel is over about 350 now, and say, “Right here’s Meb’s….” It made the sure standards, however scale of 1 to 10, right here’s how assured I’m. As a result of I have a look at the outcomes, and I don’t suppose there could be any correlation. And oddly sufficient, like, I really like studying all these…I get the behavioral aspect that individuals are attempting to try this are sometimes like, “This can be a scorching deal. It’s closing. It’s 10 occasions oversubscribed.” And infrequently, I’m like, “That is truly…” I’m a rarity, I assume, however, like, this sort of repulses me in lots of circumstances. Like, I don’t discover, like, lots of those the place I have a look at, I’m like, “Wow, nobody’s on this.” After which wanting on the final result over time…anyway, I want I may time journey, however.
Rex: Yeah, no, completely. However because of this you may also have a number of methods that went in enterprise markets. You could be a consensus store that at all times wins and does scorching offers and possibly delivers ok returns. In all probability the perfect returns are by non-consensus people who discover these offers nobody else believes in. These ought to be onerous to underwrite although as a result of these are often concentrated portfolios with a excessive diploma of zeroes and a few actual bangers. And so, then, for you, because the restricted associate investing in funds, for instance, you’re like, “Was that genius or luck?” And like, to what extent is that? It’s virtually simpler to again the consensus outlets, which in all probability simply delivered ok returns, than it’s the non-consensus people.
So it’s important to…it’s an fascinating query to consider, like, , the place LPs ought to be eager about allocating capital and how much LP ought to choose what sort of agency, as a result of it’s important to be fairly refined to attempt to again the non-consensus stuff. I’m fortunate, I get to do some little bit of each, proper? I’m not tremendous unconcentrated, however I’m not tremendous concentrated. I can, as a non-lead examine, make investments alongside tier one corporations who’re main offers and have performed that on many events but in addition spend money on offers that aren’t alongside tier lead corporations, or generally I commit, after which it seems, like, they’re , and they also are available. However you are able to do a little bit little bit of each when it comes to my contract, which is a little bit bit completely different, so.
Meb: Rex, what’s been your most memorable funding that you just’ve been concerned with that could possibly be both as your profession as a VC or one thing completely unrelated, good, unhealthy, in between? What you bought?
Rex: Most memorable funding, I acquired a full journey to varsity, and so I used to be a part of that, had some cash post-graduation and used that to purchase a home that I lived in.
Meb: Was this a drone league sponsorship? Have been you a soccer lineman? What was the story?
Rex: I used to be not. This was only a basic tutorial and management factor. So I used to be a Belk scholar at Davidson Faculty, which is, like, the Davidson model of the Moorhead or the Jefferson however a lot much less well-known than these two different packages.
Meb: Is that this the Charlotte Davidson?
Rex: That is the Charlotte Davidson. Steph Curry, sure, was a classmate of mine, if that was the subsequent query.
Meb: I did a baseball camp there as soon as upon a time, a few years in the past. Lovely, lovely campus.
Rex: Nice campus. Nice faculty. Nice neighborhood. So in any case, yeah, I purchased my first home proper after graduating, and it was, A, an excellent funding however primarily only a actually good studying expertise. You’re a school graduate, so that you’re like, “Oh, I studied economics. Like, let’s construct a mannequin to know what the returns for this home appear to be for me as a school senior. Oh, let’s go and truly get a mortgage, proper? Let’s exit after which truly see what it appears to be like wish to personal and function an asset over a interval.” I used to be truly residing in it for some time too, which…that’s sort of an fascinating arbitrage alternative for quite a lot of different causes. And I nonetheless personal it at this time, and so I get to trace it.
After which, as you get this fascinating tutorial train, was it an excellent funding? And also you, like, benchmark it to the S&P, and also you’re like, “It’s fairly good.” However you then benchmark it to, like, REITs, and you then benchmark it to single-family REITs, and you then’re like, “Effectively, what about my time? What concerning the truth …?” Like, it’s simply an fascinating lens, and I’ve refinanced it a number of occasions, and it’s been throughout the interval the place the rise of single-family rental REITs has been a factor. So it’s simply been a terrific studying expertise when it comes to understanding how all of those markets work. After which it’s additionally a reminder of simply how complicated finance is, as a result of, like, simply to reply the very primary query of “Was this an excellent funding?” simply attempting to determine what the correct benchmark ought to be is, like, a really onerous query. After which, to not point out, like, all of the stuff round time, and so forth., so.
Meb: You have been adulting, could be the 2022 phrase you hear extra typically, lengthy earlier than it was cool, as a younger school grad. You don’t see that an excessive amount of. Rex, finest place individuals will discover you on all the assorted locations. The place do they go in the event that they need to take a look at what you’re doing, inquisitive about your fund, all that great things? The place ought to they go?
Rex: My identify is comparatively distinctive. So in case you simply Google Rex Salisbury, you’ll in all probability discover me on each LinkedIn and Twitter, or you possibly can go to these platforms particularly. After which the web site is cambrianhq.com, and there, you possibly can subscribe to our publication, discover a few of our different social profiles. And in case you’re a founder, you may also discover the hyperlink to hitch the Slack neighborhood.
Meb: It was a blast, man. Thanks a lot for becoming a member of us at this time.
Rex: Yeah, thanks a lot for having me, Meb. Actually admire it.
Meb: Podcast listeners, we’ll publish present notes to at this time’s dialog at mebfaber.com/podcast. When you love the present, in case you hate it, shoot us suggestions at [email protected]. We like to learn the critiques. Please evaluation us on iTunes and subscribe to the present wherever good podcasts are discovered. Thanks for listening, mates, and good investing.
