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I feel like I know you guys because I listen to you guys on your podcast and it's really fascinating because I think the three part series on Berkshire is kind of like is your signature piece because I think you guys said it's like, oh geez, you know, you never thought you could go beyond two hours. And I know you guys have to cut a whole bunch of stuff out just to fit it into six hours, right? But there's nobody who goes into the depth like you guys and so it's great to talk to you guys here. Welcome to this special episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I am the co-founder and managing director of Seattle based Pioneer Square Labs and our venture fund PSL Ventures. And I'm David Rosenthal and I am an angel investor based in San Francisco. And we are your hosts. On today's show, we have a guest that both David and I have looked up to for years. Ho NAM from Alto's Ventures. Without giving too much away in this early intro, I will say that this episode could be summed up as what if you tried to be a value investor with Berkshire Hathaway's principles, but for early stage technology companies. This episode is the perfect cousin to everything that we talked about on the Berkshire trilogy. Now, before we dive in, I want to say first, if you are new here, join us in the acquired Slack. We'll be talking about this episode and everything going on in the tech and investing news of the day. That's acquired.fm slash slack. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founders so we knew there's a natural fit. We know the host of founders well, David Senra. Hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together and then they say it's like the best curriculum for founders and executives. Errili, as we use your show for research a lot, I listened to your episode of the story of Akio Maria before we did our Sony episodes this incredible primer. You know, he's actually a good example of why people listen to founders and to acquired because all of history's greatest entrepreneurs and investors they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence Steve Jobs talked about him over and over again if you do the research. I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired we focus on company histories. You tell the histories of the individual people you're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles so I just listen to. An episode on Edwin land from a biography that David did David it was the third fourth time you've done Polaroid. I've read five biographies of Edwin land and I think I've made eight episodes of them because in my opinion the greatest such a print or to ever do it my favorite entrepreneur personally is Steve Jobs and if you go back and listen to like a 20 year old Steve Jobs he's talking about Edwin lands my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die but the ideas never do. And so Edwin land had passed away way before the apex of Apple but Steve was still able to use those ideas and now he's gone and we can use this idea so I think what acquires doing what a founder trying to do as well is find the best ideas in history and push them down the generations make sure they're not lost history. I love that well listeners go check out the founders podcast after this episode you can search for it in any podcast player lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders go check it out. All right now as you know this is not investment advice we may hold interests in some of the companies that we discuss on the show and this is for informational and entertainment purposes only. We also have one more exciting announcement today as the world opens up we are marking the occasion by having an acquired party as we wrap season eight. Yes that is an in person event it is going to be here in Seattle at gas works park on Thursday June 24th at 5 p.m. It'll have picnic vibes so bring anything you want to eat or drink rumors are circulating that David Rosenthal is even going to fly up for it. We cannot wait to see you there now onto our conversation with Honeom from Alto's ventures. Oh we are so excited to have you here this is an episode we've been wanting to do for a long time and just speaking personally the last VCs we had here on the main show were Alfred Glenn and Doug Leoni from Sequoia and of course I have so much respect for them. But even though Alto's isn't as well known I have learned just as much from following you over the years and I am so excited to share that now with everyone so I thought maybe a good way to start is Alto's has made so many incredible investments but I thought we could start off with probably your best known one which is Roblox and I think it will tell your whole story in a really nice way including the most amazing part which is how Alto's and I think it will tell you the most amazing part which is how Alto's is so much more important than the one that we are going to be doing. And I think it will be a really amazing part which is how Alto's ended up investing multiple hundreds of millions of dollars into one company Roblox out of what was originally just an 85 million dollar fund. It was 86.5 million dollar fund and you became the largest shareholder at the time of IPO is that right. Well we were also the largest shareholder from the beginning but we increased our ownership percentage over time we increased it and then we went down and they went back up so I'll tell you the whole story. So we met the Suzuki late 2007 in the fall of 2007 and the deal was referred to us by Mark Weinstein who actually works for Roblox now full time as the general counsel but at the time he was a partner at Wilson and he was general counsel for one of our other portfolio. Companies number of years ago is a enterprise software storage company and he said hey I think you're going to really like these guys and we said why because he actually Wilson since he works with everybody of course and so we knew benchmark was looking at it we knew a number of other firms were looking at it Craig Sherman actually who was an EIR at benchmark at the time that David you know very well. So I think benchmark asked him to look at it we asked him to look at it because at the time he was CEO of Gaia and he knew something about social networks and anyway he's a really smart guy we ended up doing the deal and we let Craig invest with us so he was actually like right there from the beginning before he even joined Mara Tech and he came in much later of course so anyway going back Mark said oh you're going to really like these guys and say why is it well they're really scrappy very capital efficient you know just like the altos you know. We like these really bootstrapped kind of scrappy capital vision kind of entrepreneurs we don't like burning a lot of money and they said when you really you know I don't think they really like the seas said really okay great they're going to love you guys exactly our kind of entrepreneur and literally though I mean when we met and we got excited we decided to give a term sheet I mean they would not take our money until we had to be interviewed by the founders father and brother who were both on the board. So like somehow we passed the test I was not even at that meeting was my partner Anthony and Han who were there at the meeting and luckily they passed and they gave the blessing like pass the test. Yeah they passed the test and our term sheet was for two million dollars for a series C financing A and B were all friends and family and they said well two million dollars wow that's a lot of money. That's just too much. What what yours this? This is in 2007 or the deal closed in February of 2008 but when we were negotiating was going to the holidays in 2007 to 2008. Right before a bear staring splurup. Yeah oh yeah so they said it's like yeah two millions too much but we'll take one and a half million from you guys okay we'll start with one and a half so that's how they got started and anyway but backtrack though before that you know why we decided to do the deal it's really interesting because my partner Anthony really had a thesis and specifically he was looking for the next club penguin. I remember club penguin. Yeah and my other partner Han his two daughters were totally hooked on club penguin so they love club penguin and then Anthony got all excited about club penguin because it was another one of those great bootstrapped success stories they never raised any venture funding during British Columbia right. Yeah so Canadian startup which in Anthony's Canadian so Canadian startup I think four or five different dads got together and created this company and then sold to Disney for like four hundred million bucks so back in those days I was like wow that's a huge exit you know. And you're investing out of an eighty five million dollar fund you're like yeah four hundred million dollar exit great. Fantastic right that's a fund returner so so he had a thesis which is really interesting and then for me I did not have a thesis around it and if somebody had told me was like well you know you should fund this company that's like a Lego 3D virtual online playground I would have told you that's kind of dumb idea right I would have said like why would I fund that I don't get that so you know this is kind of an interesting dynamic because in a partnership you have different partners with different passions different ideas and you have this intermixing of different ideas right and so we debate it we talk about it but I might think it's something that really dumb idea somebody else might have a thesis now you have this entrepreneur who walks in the door and why did I get converted from well this is the dumbest idea I ever heard to wow this is really interesting well when you show up in my door and then you have this little graph that shows seven percent compounded growth on a weekly basis for fifty two weeks in a row of engagement hours well that's kind of interesting if you grab that out in an Excel that is a classic exponential curve that just grew 33X in a year okay something's going on and they're not burning much money they're just early in the monetization phase they copied exactly copied clip penguin they had this clip right well we had a club to we called it builders club that that's what it was same exact pricing as club penguin 599 a month and when we first started talking to them it was tiny and by the time he closed the deal I think maybe they were doing $50,000 a month so 5600,000 or annualized run rate this is a red box yeah this is roblox yeah so that was kind of it's like okay something's going on you have exponential growth and engagement you got early monetization and then the thing that was really interesting two other things that kind of sealed deal for us when is you did a YouTube search for roblox it's a unique name and back in those as this was several years before minecraft ever launched that was 2011 and we found like 200 something hits on roblox it's like okay so what are these videos right we start going through all these different videos and some of these were really shaky videos camcorder recordings of the computer screen and kids were so proud of their creations right back in those days it was really difficult so think about all the fiction points you're recording off of an analog camcorder your computer screen and then you have to get that off the tape digitize it and then upload it on a slower bandwidth connections back in those days into YouTube which was very early days of YouTube and then they were so proud of their creations right they want to show it off to their friends so something is going on there's so much engagement so much passion around this community you top it all off you know you meet the bazooki I mean this guy had this vision and this inspiration going back so many years and he had four kids and he really wanted to do something good for the kids for his kids that he would be proud of and his prior company had done something to educate kids teach 3d physics that is a little simulator yeah and that was a successful company but again bootstrapped no venture funding had a nice exit but even though they were it was designed to sell to elementary schools to teach kids physics it was purchased by a cad company mechanical cad company so that Boeing engineers could use the physics simulator right so so he was working for that cad company and it's like okay I think now I want to go back to my original passion do something for good for the kids again so you meet a guy like that in our original investment memo we talked about hey I think this guy is like a head chalk and the head chalk concept was kind of new to us still you know we published this block post in 2006 about the fox in the head chalk in Zillok and Valley and we wrote that block post inspired by Jim Collins yeah Jim Collins exactly and wrote that block post long before we made Dave Buzuki but it's like this guy is a total hedgehog but of course it was very very early in the journey and you only know when you're five 10 years into it whether or not the person truly is a head chalk that's what we talked about in that block post is hey these people have head chalk potential but you won't know until you're 10 years into it and hope for folks who don't know what is the fox in the hedgehog concept yeah well Jim Collins wrote about this in good to great and his conclusion was hey these great CEOs great companies are run by by these hedgehogs that really have one big idea and they have one big mission in life versus the fox who is very smart very clever there may be polymaths they're the great cereal entrepreneurs and they're very popular you know with VCs they could have a great hang out at these cocktail parties and they're very smooth and they're really really good at fundraising and the hedgehog is really this boring creature not very good at fundraising does not networking he doesn't even like VCs doesn't want to meet anybody they're just too busy doing their own thing nose to the ground right that's kind of the head chalk personality so Collins just kind of perfectly nailed it and when I wrote that block post I was thinking oh yeah I mean this is just like Sam Walton I had Sam Walton in my mind he's one of the all time great books his book made in America is like oh my god that told me what what the mind of an amazing entrepreneur looks like and we're very very fortunate that he got sick at the end of his life because he never would have in that book but because he would have been out duck hunting and visiting his stores and doing all those things he loved right but he was kind of bound at home everybody wanted him to write something he finally wrote it so we're very lucky that we got to glimpse into his mind and then and then Buffett of course is another amazing hedgehog right you have the sky who at the time he I don't know how old he was in his 80s or 70s you know he hasn't needed to work for money for decades right but he's still working he's now 90 or 91 years need to work for money when he left Graham Newman that's right like at age 25 you're right at age 25 he had enough to retire but but they keep going they keep going on and on and it's like the energizer bunny they never run out of energy why is that what is it about certain guys that become billionaires and they're still showing up to work and not only showing up to work but they say they tap dance to work right Bezos copied Buffett's lines like oh I tap dance to work every day Buffett's still there right and Sam Walton's still there to the end to the very end you have to carry him out with the stretcher right yeah some of the people who are just like that like we're like trying to study who are these people and and then we're trying to incorporate some of that for ourselves as well how do we structure the work and surround ourselves with the types of people that give us joy that motivate us to come back to keep coming back to keep doing it rather than to say I'm done I'm punching out so we're always thinking about that because our role model is the Buffett kind of guy we didn't set out to start the venture firm for ourselves so that we punch out at the age of 50 or 60 it's like well why did I start something so I could give it to the next generation it's like I think I'm going to just kind of be around for a while right and the next generation could join us and they're fantastic people and these are people I want to invest in and we kind of think of the next generation as we are both LPs and GPs we want to invest in that next generation and I think that's one of the things that I think we we observed with some really enduring franchises where they are no longer thinking about the business as as a GP they're really thinking about it as an LP and they become both LP and GP and there are certain folks like I GSB right that David knows about they're very distinctions yeah they are the LP they've never had LPs in 52 years and so those guys are fantastic they'll be mad at us for bringing up their name on public for folks who don't know the investment group of Santa Barbara which also came out of GSB business school which Althos did as well which we'll get to and specifically Jack McDonald's investments class it's all their own money there's no outside capital but I believe they manage now probably approaching 10 billion plus out of Santa Barbara and they have beaten their own path over 50 plus years it's amazing before we move on from Roblox because I think this is relevant to how Althos has evolved how did you end up making the untraditional moves of putting so much capital in yeah that's always a kind of a mischief for folks so so this is what happens we only got it one and a half million dollar piece and then about a year later first round actually came in because they actually passed on the original round that we invested in but you know kudos to Chris Freilich for tracking it and they said hey look can I really get in throwing an extra half million dollars and you said hey yeah you know we could use that little extra capital so we got them to come in and we actually invested more in that round so every chance we got we kept investing more and a lot of times before we started doing these big SBVs we actually bought secondary shares I think on six separate occasions so every time we have had a chance to pick up some shares whether from it was from employees or founders or whoever the people need a little bit of liquidity is like hey we're happy to buy some more and every time of course the price changes the price keeps going up you know we value it based on what we thought were the right comparable and we had we you know price it at a certain level and we kind of had a similar kind of comparable maybe we're valuing it at five times revenue or something like that so the price kept going up we kept buying more but at some point you know we had this interesting turning point we were very lucky in some ways we thought about selling the company and by that time you know we had had a pretty good game we had a tiny fund of course it would be a very meaningful exit for that tiny fund and and luckily the offers came in at significantly below the price at which we were all willing to sell and even at that higher price it's like we were really reluctant but it's like okay I guess we got to do this thing it's the right thing to do for the fund management business and we'll talk on this topic later because I think a lot of fund managers make decisions to serve the fund but they may not be making the proper investment decision and you got to learn how to separate that or perhaps serve the management company like the institution that you are building with your investment firm that is not necessarily perfectly aligned with the actual investors in that particular fund. Exactly and we've again we felt those conflicting interests right we've made those mistakes or we've made certain kinds of decisions and then we just sort of finally said hey look let's just be very clear about why we're making such and such a decision and it's okay to make a good business decision it's okay to make a decision that's very rational that serves the fund or serves your business whatever it is and it's also okay to make an investment decision but just don't get those confused just understand why you're making certain decisions so anyway we had these bids right and we said well geez at that price we're not going to sell actually we said at that price we should be buyers right and so some people did want to sell at that price and other people wanted to buy and so we said hey look why don't we just buy some more shares so that was a time that you know we kind of stepped up and did significantly more than the nip little nipples secondary so that was another secondary but it was only like a 2.2 million secondary and nowhere near the levels later so by this point you've put 5 plus million into this company so it's becoming a 5 meaningful percentage of the whole fund yes so anyway we bought more and then what ended up happening right after that round was about a year later again the company continued to really perform that's when Craig our friend from Maritek comes back in the picture and he's been he's known about this company like from day one right and it says well you know this this is starting to look quite interesting you know maybe we'll lead the next round and that next round was led at a significantly higher price than the price that we were talking about that you know which everybody was thinking about selling right so it's like okay look at 500 million pre like maybe it's time to sell a little bit right make our health LPs happy increase the DPI now so this DPI thing is very interesting right this is the fun management business yeah works Chris Dubos right who's a like a friend of all of ours right I mean he what what is he say he says it's all about the mula in the kula yeah I love that like like like until the cash is in the bank it's not for real and DPI just for folks it's distributed capital to paid in capital so it's actually dollars don't give me more mark of like like give me dollars in my bank account exactly well and look we all live through the bubble the dot com bubble and you know we thought we were going to be so successful we had all this huge gains and it just disintegrated on us right and so we were all kind of burned by that and LPs are burned by that and the thing is you know look LPs really don't know if something is a fraud or if something is for real right they're trusting us they're trusting the fund managers and so you know they see all all this gain after gain after gain but it's all paper at some point they have to convert that to cash right otherwise like you know they never know and if you've been around for a long time you know we could go to zero so so anyway we had these pressures and so maybe we should increase the DPI it'll help us raise our next funds right that's kind of how a lot of fund managers think and so we decided to sell 15% of our role blocks position so we we were still the largest shareholder at that point after that and you know it makes our LPs pleased and anyway we said that as we were selling that little piece it was such a tough decision we're saying I think that's going to end up being a $200 million mistake which you know $200 million mistake in the context of 86 and a half million dollar fund is a is a pretty big mistake right but we still did it anyway we still did it even though we thought it might be a $200 million mistake well it turned out to be more than a billion dollar mistake right so so anyway but just just remember that because because it was the pain of that mistake that really led us down this whole different path where we became an RIA right so we sold a little bit at that point and then fast forward a year and then we went to later a much bigger round happens $200 million pre and before that $200 million pre round led by Tiger and Greylock also came in in that round we had a number of other people start to get really interested in this company right people just begging to like can we have a chance to look at the company and we weren't really looking to raise money because the company you know again after the first 10 years of equity we got to a point where we were a cash flow positive and we just didn't need to raise any more money period right so people could be knocking on our doors and we just kept saying no no no but look at 2 billion dollars we thought well she said 2 billion maybe we should sell a little bit again like we thought it's like that worked OK last time at 2 billion we could sell maybe only 10% of the of our position and still return a big chunk of the bond right so why not so we actually talk to some folks at 2 billion and they came in at slightly below like they just yeah our asking price was 2 and they for some reason couldn't quite get there they're offering like 1718 and we just said yeah we're just going to pass this is like when Buffett bought Berkshire Hathaway and he where he wanted to sell and it was the chase family right and they came in the they came in at a think an 8th of a dollar below the price that they agreed shook hands on a tender offer yeah and that's when Buffett said are you I'm not going to sell I'm going to buy yeah well I have another one of those great stories for you later remind me who are brothers like you know you're just off by a little bit and it's just so dumb to be off by a little bit just go for it right so anyway those guys were off by a little bit and lucky thing for us because we waited a little bit longer and we got to the 2 and a half billion dollar valuation if we were going to sell it to we should be going to sell it to and a half right but that but it's all relative to how much progress is the company making and then thing is the other key difference was by the time we got to 2 and a half we had registered to become an RIA and so that was the key difference and once we registered to be an RIA we could do these SPVs and we could purchase secondary and RIA being registered investment advisor advisory that's right registered investment advisor and so these C's are exempt from SEC registration because we help create jobs and all of that kind of stuff and there's a lot of truth to that you know these C's are really small and they can't you know it's really for the public investors right but from my SEC perspective if you do too much secondary well they look at it and say well hey look you're not creating any jobs here you're putting dollars into somebody else's pocket it's not going into the company it's coffers it's going to another shareholders pocket well to me that looks like a public trade right share of order to shareholder transaction so so we got to too much secondary that that's kind of what happens by the way before how continues we should just anchor a price and people's mind so you know when he's talking about we invested a million and a half and then you mentioned something around a five hundred million dollar valuation round now you mentioned a two and a billion dollar valuation round it's like man how big can this company get well the public markets currently believe it's worth about sixty billion dollars so it does indeed keep running yes yeah definitely keeps running so that two and a half billion because they didn't need money they only took a little bit of money into the company and then the rest of it was a tender offered to purchase secondary shares so there was a whole process going on everybody got a chance to sell a little bit and remember we sold a little bit in the last round at five hundred and two and a half we told the company you know something thanks but no thanks we're not going to be part of this tender process but what we did was we ran our own little tender process we said you know something we will do this SPV and we'll participate in the round and then we will run a tender process amongst our LPs and say hey look if anybody really wants a chance at liquidity here it is and if they want to roll over you could also roll over so we don't want to force anybody out we wanted to give him a chance to roll over on a no fee no carry basis because the reason we were going to provide no fee no carry is well first of all no fee because we're going to work with this company regardless because we still had a big position right so why should we charge any fees and then no carry because we're crystallizing the carry as we did that distribution so they already paid us a fee carry from that fund so if they rolled over into this new vehicle we shouldn't charge him anymore so it was a free roll over if they want to roll but a lot of people decide to cash out so it was interesting and we cashed out some two right as L you know GPs we know we've been toiling away for a long time we didn't have a you know a whole lot of fund returners at that point and so we cashed out half of our carry and rolled over the other half right so it was a good thing for everybody so we did that and then fast forward later there was another round after when we did the two and a half billion it was a hundred twenty five million dollar SPV right after we did that we didn't think we would do never do another SPV on top of that but yet again you know at four billion when that deal happened we did another hundred twenty five so that's how it starts to get big right one twenty five plus one twenty five now you got two fifty plus we had another round after that pre the pre IP around at forty five dollars a share now when you think about all of these rounds though it's kind of crazy to think even at the forty five dollars a share which people thought was crazy right that was thirty billion dollar market cap and all the rumors about roll box when public was at eight billion and I have no idea where they pulled that out but I think they just the it was reporter saying well if the last round was four billion then the IPO must be at twight two times that and so it must be at eight billion so everybody said this like it's going to go public at eight billion maybe ten and this is famously the IPO that got pulled because people were like oh actually the company presumably thought wow looking around at where tech companies are being valued going out today you know this wouldn't make sense like we actually should raise more in the private market and then decide if we want to go out next year yeah that's that's right yeah these those pops were just kind of insane and we kind of felt helpless to control it because if you do a traditional IPO you have such a limited supply and you just you just can't and a lot of people wanted access to this deal they didn't get a chance to invest and so they didn't buy but as soon as they did the price would spike up and then we knew that it would come back down and we just didn't want people to get burned just didn't seem right also also for the sellers right all these employees and early shareholders they wanted some liquidity and why should they sell at this artificial the low price just because that's kind of what the bankers wanted doesn't make sense we wanted to try to explore and find the right price and we thought the right price was going to be much higher than the IPO price and we did find some investors right to validate that hey look it should be at least $45 to share which is 30 billion market gap way higher than that 10 15 billion maybe people thought it should be priced at and we bought more at that point and so that's again a key lesson to in terms of what how we think about the business and holding on to our winners longer so I think that kind of tells a whole roll box story so I skipped a whole bunch of other things that happen in between because this whole roll box journey would not have happened at all in terms of making these big investments without this other little company called Booba Brothers in Korea and that was one of our early winners and we always said that we didn't think Booba Brothers was going to be our biggest winner but we also always said for a number of years that this is our most important company and if we screw that up we screw up all of all of us right and the reason is we use that company to test out so many different theories about the business and about what we wanted to do what kind of VC we wanted to be and Booba Brothers was the main reason that we registered to be an RIA to do the first SPV so Booba is this little food tech company in Korea that did I think a billion in net revenue last year in GMV I'm not sure what it is $78 billion you know surprisingly big for a little little country of South Korea but we had been involved with that company again from very early stages as well and that company is so fascinating because the founder is one of these non consensus founders he did not go to one of the top colleges in Korea and in Korea you know going to a top colleges like a really big deal right education is everything there and so he was a designer went to design school and started this little little company that failed and so he was in debt and he had to go back and try to pay off his debts and he started this company you know after he paid off the debts or most of it and the company was growing pretty fast we decided to bet on it and we thought hey this could be it was like the grub hub of Korea at the time you know before the whole physical delivery and we thought hey we thought this company could be maybe 30 40 million dollars in revenue and maybe we could exit in Korea you could take a tiny company like that public and we didn't think it would be that big right but it got to 10 million run rate and if not hey this is really starting to work and this is maybe a bigger market than we thought and the CEO comes to us and says well you look I took it this far and I think it's time to get a CEO like you see that's a great story and it's like what do you mean it's like well because I I don't know how to take it from 10 million to 100 million and some of the other board members were saying oh we got to take this company public like in Korea you could take a tiny company like that public but but you have to be profitable so from 10 million to 20 million they wanted to get the company profitable and then take it public around the time it was 20 million and we said no no I don't think that's that's the right approach I think this is really starting to work it's time to step on the gas and we told the founders like you know I think we could take it a little bit further like let's see what happens but let's raise you know raise a little more money and just kind of go for it you do not them back into service yeah yeah it's sort of interesting because you know we're seen in Silicon Valley as these very stodgy conservative pragmatic guys capital efficient you know we don't like burning a lot of money in Korea when we say this tiny little 10 million dollar company should step on the gas right like they think oh geez guys these guys are really aggressive right and this is really very interesting it's like same exact approach because by the time you get to 100 million of course we were profitable we were casual break even we like companies to get to a self-sustaining phase by around the time you get to triple digit millions and so what we're on the time they got to 100 million the CEO came back to us again and he said wow this is amazing now we're at 100 million in revenue and I think you have the wrong man for the job is that really because I got to 100 million but I don't think I'm the right guy to take it to a billion it's like well okay let's see what happens now here's the fascinating thing that he he came to my partner Han recently and said you know look I think we're going to take this thing to 10 billion like it's like just watch me like now he's got the confidence he took it from 100 to a billion and now he knows and of course he's just become a fabulous fabulous CEO amazing is the first Korean to sign the giving pledge right yeah yeah he recently signed the Buffett Gates and the gift and pledge first first person ever to do that from Korea now another founder from Korea recently signed so now they have to out of Korea all in the last few months which is fantastic and you know he's such a special guy he actually started selling some of his shares even very early before he became a billionaire because he just felt like it was the right thing to give back and he made some promises and we told him is that you're crazy for selling the stock you know because we were buying right when as we were buying we told him is like I don't think you should be selling that much but he's like no no I got to sell it because I got to give 10 million to these guys whatever he had made promises and so he sold the stock so he's such a such an amazing guy so anyway along this who are brothers jury right talk about the missing out on price we had again pressures all the feeling the pressures to return some capital right to our our founders and who are brothers was was on a much faster growth trajectory in the early days compared to a role blocks and maybe we thought we would sell 20% of our shares right that returns in a nice little percentage of the fund and we actually had shaken hands on a deal with a great we found this great long term investor that they would be like the altos they we would leave the shares and really good hands because they would be really with the company for a super long time not looking to flip out of it and we shook hands and then when we got the paperwork the price was different it's like oh what's like it's like it wasn't off by a lot but it's like but this is not what we agreed to so we just said no we call off the deal right and it's a lucky thing because what happened was we called off the deal but we were still interested in many of the other early investors were all interested in cashing out a little bit so by the time we found the next investor which turned out to be neighbor and we wanted a strategic as well as we thought neighbor could become a competitor and why not you know get you know make them our friends rather than our enemies by the time we got to that deal we actually got the price that we had wanted from the beginning but again six months passes in a fast growing company six months like makes you pause it's like we're at this price we should be buyers rather than sellers right to the same position we made with broblocks a little earlier it's like yeah we were thinking about selling at this price but I think maybe we should be buyers very similar to what Nolan Bushnell had told us about the Atari deal with Don Valentine where it took so long to close the deal months and months and months went by that when when Don sort of showed up with the the final paperwork to sign Nolan was like hey I think we're actually worth twice as much now and they were I mean you just looked at their growth and like only goal of bust out could have that conversation with Don Valenius it's always a moving target right and you try your best you know the valuing a company is just it's an art and not a site and she can't just like apply simple formulas and it's a moving target it keeps it keeps changing on you so anyway so we decided OK we you know we had been talking about potentially becoming an RIA like that we are going to do it and I think we're going to do it. Anyway so we decided OK we know we had been talking about potentially becoming an RIA like for years like two three years before this will or others decision we thought about doing an SPV for coupon which was you know growing even faster than some of these other companies was early rocket ship and we just could not get comfortable with the notion of becoming an RIA at the time it was just you know for a small fund like ours it was just a big huge undertaking a lot more overhead you have to have a chief compliance officer lot more legal costs I'm looking back to this but you know at that time how many people are at Alta's what did the firm look like we were we were tiny this is before any of our next generation partners had joined us so it was still the three of us just three partners yeah and you know our receptionist was our office manager our admin she's still with us you know we just had tiny little office so we decided not to do the SPV for coupon but we had been thinking about this for a number of years and we talked a whole bunch of people who were registered and they told us is like well you know my advice to you is just don't do it is like really but you're registered it's like but yeah it's a cost of doing business for us but for you guys I don't think it's worth it so I mean literally we got that well meaning advice from a lot of people so we just didn't do it for coupon which probably turned out to be a billion dollar mistake right but that's fight that's one one billion dollar mistake the role boxing was another billion dollar mistake we keep making all these huge billion dollar mistakes and it's like you know at some point we should stop making these big mistakes so so for who are we fighting again we went back to the same exact people that we had talked to before who said you shouldn't do it we talked to some of those guys and we got some advice and we said you know something despite all these costs we were kind of doing the math on it and for this little 30 million dollar SPV I think we'll make enough money on this to kind of justify all the added expenses and overhead kind of forever you know or at least for the 10 years I think it'll pay for all the 10 years of expenses if this turns out to be correct and then we thought it's like you know there could be some other deals like like like three years ago we had coupon now we have more of others there could be some other deals you just never know right so we thought okay why not so we we registered and we got it just in the nick of time we had to register very very quickly to be able to close and the 30 million dollar SPV was 100% for secondary it wasn't did not a penny of it went to the company we bought shares from other early investors like us that needed that liquidity and is that one of the things that you can't do if you're not an RIA is lead a whole round that's just secondary yeah that with the technical technicality is that it's 25% of any fund and so you could have a billion under management but if you have a one fund that's a 30 million dollar fund and if 25% of that one fund happens to be secondary then that triggers the registration requirement for the entire platform so that's kind of the math and so 30 million 100% of it secondary so that triggered the registration and so because we had done that for wooer brothers that's what allowed us to do all those other Roblox SPVs now before this wooer SPV that was the sixth fund that had invested in the wooer brothers so I didn't tell that part of the story so we were investing fund after fund after fund into Gua brothers and canonical VC you know dogma from LPs but I think VCs also believe this is cross fund investing is a no no it's a no no people really don't like it and so when we first started doing this all P's were well first of all when we first started doing it that's because we were just not very good fund managers like like a lot of times you do it because you're just not doing a good job of reserving and if you run out of money we ran out of money it's like well geez we can't support our companies anymore so we had to beg our LPs like can we really like use our new fund to help support some of our older companies so we we did that and LPs didn't like it but you know like they they gave us a little rope right they said okay you could do a little bit but we're going we're watching you our eyes are on you right we're going to start reading those quarterly statements that you send us now yeah and and we're going to make sure that you don't put good money after bad right to support your crappy company run out of money but look we made some mistakes but we also made some good deals and our LPs started to get more and more comfortable with us doing these cross overs and what others when we raise our first Korea fund we raised that fund primarily because of some of the lessons on who others we were starting to run out of money in our US funds for Korea so when we first started raising US funds from institutional LPs in 2005 they let us invest up to 10% of our fund anywhere outside of the US and the reason is we we asked for permission to do that because we started to see some interesting things in Korea it was worded in the legal documents that we could invest anywhere outside the US but we were just only focused on Korea and in that first fund we never reached that 10% limit but in the next one we increased that limit to 15% because we continue to see more interesting deals and so it was in that second fund where we absolutely hit the 15% limit and then we wanted to go beyond that 15% and why did we want to go beyond 15% limit to put more money into woo-woo mothers right that was that was the company that we really wanted to start to lean in on and and so our LPs kind of relented and they said well we won't let you go up to 20% but we'll let you go up to 17% it's like okay we'll you know beggars capy choosers will take whatever we can get so the 17% that incremental to percent all went into woo-woo but we wanted more right and so now we were stuck in that US fund limited at 17 so that's what we went out and said hey we're going to raise a Korea fund Korea only fund because some LPs actually like that idea and want it more exposure their other LPs did not want more exposure to Korea you know there's all kinds of North Korea risk and you know they didn't even know like how to categorize Korea it's like well that's not really a image it doesn't go into the emerging market bucket and like you know so they don't know how to how to categorize it so some of our core LPs actually passed on that first Korea fund but luckily we were able to get enough convinced enough LPs to come along with us on that first 60 million dollar Korea fund and when we raise that fund we told our LPs the first investment we're going to make out of this fund is a crossover woo-woo but others so LP I mean you're literally doing everything that is going to make LPs nervous here you're investing in a market they don't know and understand while you're based out of the US and you'd first investments across over investment those must have been some fun conversations so let me ask you a question this will take us a little bit into sort of firm history so we've thrown around roblox we've thrown around koupang we've thrown around woo-woo brothers at this point you know these multi billion dollar investments these things keep happening to you so you sort of like you know what excellent feels like now in terms of the results and then sort of back testing that against what did those entrepreneurs look like when we invested very early in them can you like take us back emotionally to what it was like the first time you started to see your first 3x 5x 8x where you knew you had something in the portfolio where you were looking at each other like hey we actually might be good at this like one of these companies might go and what your psychology was around that point in time yeah yeah it's such an interesting question it's kind of complicated there's the people equation and then there's also the business equation so I'll talk about the people a little bit and we'll talk about the business fundamentals so the people we already talked about a little bit we we just have a bias towards certain kinds of entrepreneurs what we call the hedgehog versus the fox and you know there's nothing wrong with foxes and nothing wrong with amazing serial entrepreneurs they're incredibly competent people they will make money over and over again but I call the great serial entrepreneurs just amazing people who just have not yet found their true life's calling right so you could be a serial entrepreneur have a bunch of fantastic hits but then you will find something let's say oh my god this is it I found what my life's purpose is I'm here for the rest of my life like we're looking for that match between company founder fit and you know Sam Walton was like that Sam Walton was a very successful serial entrepreneur very successful even as a teenager he was he was making all kinds of money he was making thousands of dollars which is big money back in those days just like Buffett was a very successful teenage entrepreneur right and so he's always been fairly wealthy fairly successful but he did not start Walmart until age 46 he was already a wealthy successful guy but at 40 65 Walmart and that was it that was it for the rest of his life or the one thing so we're looking for the people the one thing right and in the search true life's mission at this point in our lives you know we're not looking for yet another deal to make money like why would we do that like don't show me another deal that just makes money show me an opportunity to build something really special with special group of people that have a mission their life's mission hopefully and how can we support them on that and guess what if you actually do that the money will be there right so don't worry about making money that cannot be the reason to do any deal it's got to be because you want to work with these people and it's got to be because we have a chance to build something right so it's about the people that that's such a critical component you've said a bunch to me and you know I love sort of adapting a Buffett analogy but you want to find people and I think you all think of yourselves this way and out of us where you're you're painting a masterpiece versus you're painting by numbers when you're painting a masterpiece there is no formula and it's never done yeah every time it's just different right and yeah Buffett calls for sure his painting that's my painting and when he buys a business you know from one of these great founders who become a billionaire you know says you know he tells him like you have this masterpiece I want to hang it in my museum right I'm not going to touch it I'm not going to rip it apart right sell it for often pieces and I'm going to hold on to it forever it's a beautiful masterpiece and you know sometimes you know you paint you you do the painting and it turns out to be not so good sometimes it's a masterpiece but it's just unique it's just different every time we're looking for those artists and there's a lot of people out there who you know want a volume they want scale and paint by numbers will do it and you could build a much much bigger business that way much certainly much more predictable and much more repeatable and there's a lot of people who want that right or maybe a bigger business faster yeah it was JP's is was LPs I think it's LPs that are driving it LPs really want predictability repeatability you know they don't want to take too much risk right and I kind of joke that like look I think everybody wants Bernie made off without the fraud like nobody wants to fraud of course but I think everybody wants Bernie made off they want nice steady they're not they don't want to be too greedy they just want that steady returns and there's a lot of big big funds that they're just geared they're set up for that you know company after company deal after deal it's like a cookie cutter right crank them out out of a factory and it's a deal factory deal machine and LPs want it it's okay good for you that's fine we're just going to do something different over here and if you want that you know and it's a small piece of your portfolio because we're not going to be able to you know crank it out in volume like that we just have our own little thing going so that was that's the people side of the equation and then you said there's the business side of the equation yeah so there's a business side so you know around the time a company gets to about a 10 to 20 million dollar scale that's what we call first space that's kind of when we start to get a lot more curious about the business around the time like let's say we were brothers got to 10 million and we're like okay I think we might have something here right and we start to dig in it like sometimes like you know I might not even be paying attention if it's a company of course that I'm working with I'm very you know you know involved with what's going on but as a partnership like we might not know about every single company but if somebody else's deal whatever you know if you get to first space now you got my attention it's like it's like so what do they do again like what is it that they're doing like I want to learn a little bit more about this little business so around 10 to 20 million you get our attention we start to get curious like we learn so much more about the people the business the market because now we're a few years into it right and what we've learned is that you know so many companies venture back companies especially are in a hurry to grow grow grow and the faster you grow the higher your evaluation at the next round and everybody's really happy right but I tell you when you really step on the gas and we've done it before we've had companies go to a hundred million in revenues and then the wheels start falling apart and it's takes so much time so much work to get a company to a hundred it's like the the most heartbreaking thing in the world to have this this thing that you worked so hard on start to fall apart on you and it's really hard to turn it around it's much harder to do a turnaround than to build it right from the beginning and you know I think almost every single company startup has a great culture in the beginning people say well you know the culture gets set when it's like the first five people or whatever and you got to do it right it's like hey don't tell me about that every little company has a great culture you know why because that just to survive that little infant mortality phase if everybody's not pulling their weight like there's no place to hide everybody is contributing everybody knows what the heck is going on you have a great culture every little company but not every great culture at every little company turns out to be great as they grow and so you have to pay a serious amount of attention so around the ten time you get to first space that's when you get to your first hundred people and you really have to do it right and basically in our best companies they're accelerating in growth in the multiple hundreds of millions at a faster rate a lot of times in percentage terms than when they were in the tens of millions that's what we're looking for right we want this acceleration starting at a hundred million rather than a deceleration and the wheels falling off at a hundred million and so when we see something special and again not every company that gets to ten to twenty million it's going to get to that hundreds of millions right so but that's what we were paying attention to it to see which of these have the opportunity to really scale up and if we see the big potential we get more careful and more patient with those because we want to do it right and we want to build the right kind of pieces because by the time you get to a hundred again if you don't have the fundamentals down it's just almost too late it's just really hard I mean you could do it but it just takes a lot of effort but if you keep doing it right like you're making the right kind of decisions at ten twenty thirty million rather than at a hundred million then by the time you get to a hundred million you got some momentum building and you got some practice and you got the right fundamentals going in so at a hundred you have this ability to start to accelerate and so that's what we're trying to do What are some examples of some of those key decisions in the you know ten to thirty million dollar revenue range that you got to take the time to get right in your experience? Yeah well a big thing is people people in culture you know it's so easy to just get people with fancy resumes and they'll take you there super super fast and just have to be careful I mean I have no problems hiring talent and as companies grow we have access to better and better talent you know when you're at a startup you just can't get the kind of people you get at twenty million and when you're at twenty million you cannot get the kind of people you can recruit at two hundred million and at two hundred million I will tell you you cannot get the kind of people you can get at two billion I mean you start to get tap into better and better talent so all along the way we are trying to upgrade the talent but also all along the way we're trying to develop the talent and we're really looking for signs of that of which are the people that we hired early days that are able to keep coming along with us and you have to be patient with some of those folks but if you could like it always makes me feel a little bit more comfortable with the company if I see certain people coming along and we have some history with them because if it's if I wake up one day and we're a hundred million in revenues but I look at the management team and I don't know anybody on the team makes me very nervous actually I might know the business it might have a long ten-year history with the business but I just don't know these people now I got to start the cycle all over again it makes me feel more comfortable when I've known these people for a while and some of them start as individual contributors and they become managers and then the directors and the peace and usually we get to know because we work with these companies for such a long time we get to know people at multiple layers we might know people at four or five different layers within the company at all different stages of their career development and again those are the companies where we tend to get much more conviction around it reminds me of I remember talking about zoom and I remember talking about this with Santee in our episode with them that you know it's such a it's almost it's a very autos like company I remember in the IPO prospectus going through the management team and they all were developed internally and they're all incredible but it looks very different than you know often you'd see in sort of a typical venture path just like you're saying you see you bring in the gold plated resumes at each stage and they're you know they've done this they've done that they've done XYZ but they've been with the company six months before the IPO and we certainly had some of that at World Box 2 I mean you can look at the IPO prospectus or some people we brought in and there's other people like behind the scenes that have been there for really long time some amazing people right and there's some people at the IPO prospectus that might not be like in the documents yet but we know they're in the background and they're getting better and better and maybe five to ten years from now they're going to take over who knows right but we see that kind of a machinery being developed that's really interesting but that's again going back to people I mean so much of this is really about people at the end of the day right that's what certainly makes it more fun for us you know I mean it's interesting because in Korea right we go to a lot of funerals it's like it's so fascinating it's like really well in Korea like you don't have to go to all the weddings but you do have to go to all the funerals it's like a really big deal so I think every month these are not funerals of employees of companies these are up there like older family members yes yes usually we have so many employees at our companies now but I think we go to at least I don't know four or five funerals a month I mean a lot it's a it's a it's a big deal and we take time to do that but you know we developed these relationships right I've seen people who are single they get married they have kids and then at the other end people who become empty nesters right or people who unfortunately who do pass away so we've seen the entire life cycle having been in this for 25 plus years and it's kind of seeing the journey the lifelong journeys of these people and seeing these families grow up I mean that's also one of the things that keeps us coming back but anyway I keep going back to people going back to the business though the metrics I think we do like to see this capital efficiency but we have no problems stepping on the gas it just depends on the business right Kupong is a good example where you know they got too profitability actually or a cash low break even but then really it made a courageous decision to really step on the gas and build out the entire infrastructure and that really cannot be done without serious amount of money and so that was a billion dollar first billion dollar check from SoftBank and then they did another two billion we have another company called Aviva Republic another Korean company FinTech in a corn there I think approaching a billion or so in revenues and you know that took some amount of capital that took a pretty good amount of capital because in the early days we were kind of losing money with every transaction right it was a Venmo of Korea and every single time you did a transaction it cost us 50 cents not great gross margins yeah as our volumes went up we negotiated those rates down much much much lower and then also then as we got bigger because the network effects some of the transactions we had zero costs because you could just leave it in your toss account that tosses the Venmo of Korea so if you leave it in the account and you do a money transfer within the network it's zero cost but if you transfer back to a bank then it costs us whatever we negotiate with the bank but that is an example of a deal that really did cost us a lot of money but we were again this is a good example in places like US and China you would just raise a ton of money and say hey this is like great product market fit like go for it but there like we were trying to slow down the growth because we were going to like drive ourselves out of business right we're this little venture fund we can't you know keep funding this burn rate so we actually did things like oh you know why don't we charge you a transaction fee after the first three five or ten transactions we will charge you so so we it's like in by charging people we will slow down the growth right and so we did that of course and that you know helps subsidize the burn it didn't slow down the growth that much actually but at least we got some money so so we you have to do clever things if you're you know if you're like they there's a saying right creativity loves constraints we try to constrain our companies right in a way that forces them to think creatively about the product and about the business model so that you don't burn crazy amounts of money again I have no problem stepping on the gas when I see something obviously good but again we try to do it within the bounds of some reasonable constraints the number one rule for us is we have to be able to control our own destiny and it's not just to protect the altos ROI we're trying to protect the founders right because the found these founders they start their companies and this is their life's mission let's say let's say we picked the right founder this is a life's mission the last thing I want to see happen is their life's mission blow up and it will blow up if you keep running out of money right I want to see founders in control not the investors if the founder keeps running out of money guess what the founders no longer control some big investor comes in they're calling all the shots and before you know it you know the founder could be gone and then again now I'm staring at a bunch of you know execs that I don't know I don't have a relationship with and I'm not sure what to do with that right I like having relationships with the company and I know I want to know who I'm working with and so we're trying to protect the founders we want them to be under control and if they're burning too much money they're going to lose control over their own companies so we want to protect them and we want to protect our capital efficiency we care about price per share appreciation you know you could have this valuations keep going up but you have so much dilution your price per share is not going up at the same rate price per share appreciation matters Ironically yes valuation is actually not the thing to watch it's a which of course it's you're never going to see price per share in a tech crunch article but it is funny how how people just anchor directly on that on that valuation on this note how I want to take us in a little bit of a investment fundamentals direction so I think it's too easy to say well there's two types of investing value investing and growth investing it's obviously some spectrum and I think you have at least from the outside master the art of identifying where and when to be on which places in that that spectrum and so earlier you mentioned something like well with Roblox with our early investments we paid something like 5x revenues on a on a valuation basis I assume and I haven't looked at the numbers that it's much higher than that now and so I also assume that at some point when you were investing in those multi-billion dollar valuation rounds that it was higher than 5x then too so when are you comfortable and how do you make decisions in fast growing tech companies around what investment multiples make sense yeah that's that's a great question so we use these kind of rough metrics whether it's 5x or 10x when we don't know the business but once we know the business and we know what the potential is then we kind of know hey we could be monetizing more but we chose not to for a whole variety of reasons and so we have to factor that in to the valuation equation and so until you really get to know the business you really don't know how to value it so we have to use these dumb metrics but then once we really get to know the business right then we feel like we are in a better position to value it than anybody else and so you know I like to say like we're different than every other early stage VC because we never run out of money and we never run out of time thanks to our LPs we could just keep investing out of across multiple funds but we're also very different than any other later stage investor because that's where most of our dollars go these days right to later stage but we're different because we don't chase somebody else's unicorn we are going very deep into these companies and I like to say I'm a very slow learner so it'll give me many years to get to know you and your business before I could even qualify myself to make that kind of a judgment call you know we kind of you know Buffett likes to talk about a circle of competence we are circle of competence is quite narrow it's our own companies like you know we look at other people's companies try to learn of course but we're going to town going to studying our own businesses and trying to figure out which of those businesses have potential and trying to understand how does it work you know when a company starts to work that's a rare thing as you know you know we're all in the venture business it's hard to find something that actually works so when it gets when it's something is working that should just tell you maybe you should be paying more attention like something is going on try to understand what's what the heck is going on there are many many explanations behind something that's working it could be the market could be a competitive dynamic it could be the people are really special it could be you have some you know secret sauce maybe you got lucky whatever it is try to unpack it and try to understand the components of it and then try to understand how this machinery works and as you understand the machinery you start to understand what the potential is and how to value it so there's no easy formula but that's kind of one way to think about it now the this interesting comment about value versus growth right like I give a lot of credit to Jack McDonald who you know taught investing for 50 years and he's no longer with us but that's that's the same class at the IGSB guys teach at we go back every year to teach that class Buffett used to come every year he always told us hey value and growth is the same thing as far as he was concerned it's like two sides of the same coin that's what Buffett says two sides of the same coin you know the way McDonald talked about it is well isn't growth just a component of value like of course it is right growth if higher the growth the higher the valuation potentially so it's just one of the many elements that we have to factor in to try to put a proper value valuation on the business right so that's kind of the way we've been thinking about it always for a long time and of course in these early stage venture deals you there are no metrics right it's too early so early so I just no longer even think about the venture deals as investments I think about venture my the venture portfolio as it's just the world's greatest discovery mechanism right try to learn about businesses try to learn about people and once in a while we discover a very interesting opportunity and then we'll develop that opportunity and it's not about you discovered it and you cut this lightning in a bottle and then now you're rich it's like no no no no no no it doesn't happen that way you discover the opportunity now you got the next 10 to 20 years to figure out what to do with it and if you don't show up for the next 20 years you're not going to get paid big you know maybe you'll get lucky and you go flip it to somebody because they're they're going to pay you a big forward valuation but you know if you're not lucky and somebody's not going to pay you for all the future cash flows today you have no choice but to just build it you got to do it yourself do it the old fashioned way do it the hard way just build a damn company instead of trying to flip it to somebody else and get paid with robots right it paid for not doing it like just do it right I remember when you told me this viewpoint it was such a like I never thought of things this way before but you know for me somebody late bulbs went off and really helped me evolved the way I think about investing over the past year it's tied to what we were talking about earlier that the out years of compounding are where the huge lion's share the value is and so if you take the sort of some we say traditional and normal VC approach of you know I'm looking for the markup so I'm looking to get paid etc you know I want growth and I want to offload it you know that that's a perjurative way of saying it but that's how a lot of these things traditional venture companies go you're missing out on the potential to go from roadblocks going from two and a half billion dollars to 68 billion dollars and that's 90% of the value yeah and you know a company like that again we're not thinking about what's going to happen to the price in the next one or two years we're thinking about what can we do with this company in the next five to ten years or 20 years the best ones will keep going longer you know we always talk to like to talk about Geico I love the Geico story because that's a 70 year relationship between an investor and a company it's like well how that would be amazing to have a 70 year relationship you know I don't know you know some of these tech companies they have they might have a shorter life right but you know you could have you could have a nice 20 30 year run and we hope to have some of those kinds of runs the Geico story is the perfect transition to another topic I want to have you educate us on is you also said to me once passing missing that's all in your head that's just a construct you can always invest the Buffett Geico story yeah illustrates that so beautifully like he bought he sold he bought he sold yeah he bought part then he bought the rest of it you can always invest tell us more about that yeah well this is the thing if you've been around for as long as I have right you you get to know these companies now of course we defined our circle of competence for all to us just our own portfolio but just as an investor like we've all been doing public investing now for decades right and I've encouraged people to just do that we have our 401K's structured in a way that we could individually manage it and we want everybody to do that so that they get to practice practice practice practice with this tiny little 401K which is no longer that tiny by the way right and now we have the benefit of decades of experience when we have serious money to manage right on the public side and so it's a fascinating fascinating journey and this concept of you get to know these companies over the period of many years and many decades right and you get to see these teams and and once in a while like whether it's a 2008 crisis or the dot com crash you have these kind of strange things happen in the external environment that gave you this amazing gift and if you have a database mental database of various companies that you know about different models different you know teams that you you you you could really get to know some of these public companies quite intimately I've been quite impressed by meeting some folks on Twitter who really know their businesses and their public investors and they have no special access to those management teams like we do and yet they really know their stuff and like wow I've been very impressed and you know some of the CEOs like you know we didn't invest in some of these companies but I know these people and I realize these people have never met the guy but they know them and it's like they really do they study them I mean because you can study these CEOs they're on videos you know on YouTube they're on podcasts you could read to the quarterly earnings calls and they're going really deep and if you start to go really that deep and then you follow them for 10-20 years hey you really do know there's a guy Tom Russo who's a you know class and other GSP guy speaks at that same class I think he's been investing for like 30 some years ever since he saw Buffett speak at the class in the 80s and and he follows some of these companies like Nestle for like decades and and I think I remember him talking about you know meeting some factory manager in China like more than 20 years ago and he does a factory tour he's just always looking into those companies it's the same company he's still invested in it but now that factory manager is become some big wig executive in Switzerland right this is the Phil Fisher scuttle by yeah the scuttle but just taken to an extreme so you just get to know a bunch of companies you know and and again stick to the stuff that you know like why speculate on stuff you have no business speculating on like like get to know a bunch of businesses and you know just realize take some comfort in the fact that only a very small number of companies are truly special so you don't have to get to know everybody right you maybe you do have to kiss some frogs to find a few princes right so you get to have to know a bunch of businesses good and bad so that you could recognize a great one when when it's staring at you in the face and again if it's not so obviously great then that's kind of easy if it's not obviously great to you then it's not great what an easy thing just pass what is your flow chart look like in your brain on deciding if a business is truly special like what is the mental walk is it first slice by sector and then look at a few key metrics is it more people oriented how do you even begin if I were to tell you hey company a is really interesting you should check it out how do you validate if I'm right or not yeah it's a good question so sometimes it's really really based on how special the company is but it's also based on how does the market do the company because if I think that the market's misunderstanding the company then there's an opportunity for alpha right and so again we talked about people that has to be a critical equation you got to look at the financials you got to look at the balance sheet if it has too much debt if if some unforeseen event could kind of put the company over the edge you know I tend to be shy of it but I'm not totally afraid of that if I think they have you know because sometimes you have the best opportunities in public markets with companies that have a pretty good amount of debt because they they could go to bankruptcy right but you have to use your judgment and say okay they have a good amount of debt everybody thinks it's going to go be K but I think this company is not going to go bankrupt for the following reasons and if you have a thesis that everybody thinks it's going to go bankrupt and you don't you don't think it will then that's a pretty you have an opportunity to make an interesting bet right that has asymmetric upside the classic example this I think I will always think of now is Buffett's Coca-Cola investment where the market then there was the new coke disaster and the market thought oh my gosh I don't know the Coca-Cola go bankrupt but like this is this is they've killed the Golden Goose and I don't know if this is how Buffett looked at it but you could go back and look at that in time and be like okay let's say Coca-Cola classic you know before was classic is done they still have Diet Coke which is the biggest you know so in the world so there's a huge margin of safety there that people were not appreciating yeah absolutely you know one of my favorite examples was during the 2008 crisis there's a little company called Select Comfort now it's called the sleep sleep number and I remember the Motley Fool was kind of touting the stock as this great stock and it was like you know growing like crazy and then it completely cratered in the crisis and a lot of people were saying that well they're gonna go bankrupt or maybe not bankrupt but they were saying things like well no one's gonna buy a three four thousand dollar mattress in the middle of a crisis that people say these kinds of things which is just ludicrous so really seriously nobody is gonna buy this like is it revenue is gonna go from 600 million to zero overnight well let's see what happens like you could look at the financial statements you could talk to listen to the core learnings like well yeah of course they're gonna struggle and of course we have an user gonna go down but they sold quite a lot of mattresses actually during the crisis and nobody goes to the shopping malls and traffic is a lot lighter but wow you know low and behold they I think sold like 650 million dollars worth of mattresses during in the right in the middle of the crisis so like the world just doesn't end you know when bad things happened you like very few things just go to zero overnight so you just have to look at it and then the management team made a bunch of mistakes they were doing in the right in the middle of that SAP implementation switch over in the ERP which is always really painful and it's in a fairly small company trying to do SAP they probably overreached you know I knew that Intel was doing a SAP implementation back a number of years ago and oh my god that was such a nightmare implementation and they spent like hundreds of millions of dollars and it was just like one of those you know black holes right so you could imagine a little company like so like comfort trying to do it and yeah they kind of wasted up you know few tens of millions of dollars and over their heads and things were getting a little bit tight around them you know they had all these lease obligations and they did have some debt again but this is where we have to like apply the judgment of like well they have debt but what are the chances that the lenders are going to come in and seize control right I have to think about that now you could imagine in the 2008 crisis now I have my you know that's so this is a little you know fun detour on the public investing right but like look at the altos portfolio during the 2008 2009 crisis you know we had some companies struggling of course and there was no prospects of raising more equity so we had to rely on some debt and the bankers were getting awfully nervous right and I remember literally sitting across the conference from table with one of the bankers and they were giving us a really hard time about one of our companies you know and we stopped making payments and we wanted to kind of renegotiate a few things like you got to give us a little time you know of course you know the bankers hold all the cards they could like you know seize seize control and I literally I think I pulled out the keys like it's like a mythical keys out of my pocket it's like here it is like take the keys like good luck and as soon as like just take over it's like lucky you know I'll work with that's just take the keys it's yours and I said it's probably like nobody's actually pulled out keys or do I want to operate this business exactly exactly I really don't want those keys it's like what can you do with this it's like well you know if you want us to involved I think we might be able to do XYZ you know but they have to work with us and so we knew that you know companies of course a lot of companies are going through trouble but there are a lot of debt guys who don't necessarily want to take over the keys take the keys there are some guys who do by the way I mean we we've had the unfortunate experience dealing with some folks who are you know the loan to own guys yeah right that's the whole strategy that's the strategy right they take the debt position but they're really control guys they're more like private equity guys but they happen to be on the debt side and so they they're looking for the first opportunities to take over and so so that's a different kind of a debt provider that you have to be careful with because they will take snatch those keys they will pride those keys out of your little clenched fingers right but so you have to know who you're dealing with but for the most part most debt guys you could work with and they're you know good folks and they you know as long as you pay them back they're fine eventually we'll pay pay them back we we've I think we've defaulted on very very few loans in our entire history I'm trying to think like when's the last time we ever defaulted I can't I really to be honest can't tell you when we defaulted there's going to be some debt guy who's listening to this podcast going to say oh you stuck me with this thing when I have no idea when it was maybe it was 20 some years ago who knows but we try we try not to we honor all our commitments I do want to ask that question a little bit of a different way and I think I asked you on a relative basis who we talked a lot about like when could there be attractive investing or windows like buying opportunities but what about like on an absolute basis I mean what makes a company one of this incredibly rare 1% or less that are truly special businesses So I wrote an interesting blog post last year kind of answering this question because people ask me this kind of a thing a lot like what gives you conviction in a business at the end of the day to do these kind of crazy things where you're buying more instead of cashing out a little bit you're buying more shares when you're up so like what gives you that crazy conviction and so I wrote that blog post called how do you know and they're just like some really basic rules of thumb first rule is like this is like kindergarten this is business 101 first rule is well this a business make money right because if the company again we talked about the founders trying to protect the founders make sure that they stay in control if the company keeps running out of money and they have to keep raising more and more and again you know maybe in a faulty environment they could keep raising more and more at higher prices and they're going to be fine but what if the music stops what happens and so we want to make sure that we are within shouting distance of break even even if we're not generating lots of cash let's say that we know the path to survival right we know what belts we could tighten to make sure that we don't just go off the cliff so we want to make sure is there's a business generate cash or we see the path to profitability or cash real break even so that's one now second rule because obviously that's such a basic thing is like well no duh right that's the whole purpose of starting a company so you could make some money now second rule is of course it's not good enough to just make a lot of money if you make a lot of money as Bezos says your margin is my opportunity right so you have to have something more so the second thing is what what if it calls a moat you have to have something that is protectable and again the deeper you get into a business the more you realize whether or not there's a moat and whether or not there's not a moat right and again sometimes it's not totally obvious and the moat can come in many different ways obviously network effects is one of those things you can have patents you can have know how and I think of all the things that I think about I mean network effects certainly are very powerful but I think it's really the know how so much discovery that happens right and as we figure things out along the way if we think that we have figured out some things that are not obvious to the outside world those are the companies that are very interesting to me right I think we uncovered some secrets that other people don't know about and this is the thing that always puzzles me when people say oh we're killing it we're doing so well you know pounding the chest it's like you know something that's not the way I've seen it I think I think people who kind of uncovered some really interesting secrets they want to keep it a secret they're not blasting to the rest of the world the thing that they figured out they're keeping it nice and hush and they're kind of working at it and working at it and working at it but it's really the moat and it comes in again many many different ways but if we feel like we've figured something is out that is protectable that is not replicable maybe in some ways the best mode is maybe not a secret you could tell your competitor exactly what you're doing you know you guys talk about counter positioning things like that right that's a classic example you could tell the competitor exactly what you're doing and they're still not going to replicate right because they can't or they don't want to that's just not their model maybe that's even better I remember one of our companies meeting Amazon and they got very curious and they want to come in and you know with most companies you have to be super super careful because they're going to come in and maybe act like they're going to buy you and then they come back and say you know we've set the change our mind and then they release their own product this this this used to happen with Microsoft Amazon has done this now a number of times I think some other larger companies may do it and who knows it may not be with really bad intent maybe they had already a project underway anyway and they were curious about it and they really wanted thought you would be a part of it but they decided now you don't have anything special they just decided to go down their own their own path but with with big players sometimes you have to be careful about what you disclose but there are other companies I will tell you that have met those kinds of companies like a big scary Amazon or whatever and we said oh yeah I have no problems you could tell them exactly what we're doing you could tell them everything about what we're doing we would have no worries whatsoever so it depends on the secret depends on what you're doing some things you could tell people like like we tell like people what exactly what we do in terms of the crossover investing and the SPVs RIA the you know the structure of our deals I've been very open with it and if people want to do it I think I think that's a good thing because I think it supports more entrepreneurs we don't worry about them competing against us because how many people are going to manage though whatever the multiple billions of dollars under management with zero management fees we have a lot of our all of our SPVs are zero management fees like if you want to like charge zero management fees I think that's good for the world go for it no one seems to want to copy me you know I've had so many conversations with good friends of mine who are in the hedge fund business right and then they go off and they want to do their own hedge fund and I I've had so many these conversations over the years and it's like it's just like I cannot believe people do not copy the Buffett the BPL partnership structure I think like as I don't manage a public fund right but it's like hey I think I think I think that's a fantastic structure you should do that you know Muneesh provides doing it and Guy Spears doing it you know couple of guys are doing it but not that many it's like I don't know why you don't do it it's such a great thing it's a win-win you charge 25% carry after a 6% hurdle like you should do that and no management fees yeah and they all know about Buffett and they know about that they and then they look at me like like I'm like in some idiot like like like what the heck are you talking about like why would I give up the fees right if I have a five billion dollar fund and I have a guaranteed 2% fee every year you know yeah yeah it takes a certain amount of ideological conviction not even faith in your own abilities because I think a lot of people say I know I'm an outperforming the market and many do but it is you truly have to be ideological about it in order to turn down the easy standard default path to those fees yeah so going back to your original question Ben first to so make money have a moat number three now this is where it starts to get into very idiosyncratic portfolio construction because the first two you want in every special top 1% kind of a business right but the third one is more narrowing your circle of competence and more nearing what you choose to do with your life as an investor just to something that personally fits you and that's the third is really about the relationship the relationship is all about people and again we like to go big on companies where we feel like we have a great relationship and if we don't have a relationship with the company in a very deep way then we're like any other investor we're like like we're like we're like an outsider looking in now I did say that some of these public investors are very impressive in that they are not like outsiders that I've ever known they really go deep into those companies but again we like to have a special relationship if we don't then we get very nervous holding on to a massive concentrated position in a company where we're just like any other investor an outsider looking in we have no proprietary knowledge at some point you know of course we had some proprietary knowledge in helping build some of these companies but that knowledge decays over time and then we become like any other investor and so maybe we should just start to distribute our shares or sell our shares or whatever we should get out at some point and we all part ways as friends you know that if the founder or the company found their new best friends because now it's fidelity or T-Roh price or somebody else we're no longer getting the updates and again it's tricky like we're kind of new into this whole public investing realm the relationship is very important to me personally and I think it does give us some advantages of insight and and after a while it just becomes a personal decision I know I think of some of these businesses as really like a family business you know if you had a family business and it takes care of your family and generations potentially some of these family businesses go on for literally generations if your family business happens to do well you and generations of your family will do quite well and if it fails then your family fails and so you better make it work and and there's nothing wrong with writing the on the co-tails of a great family business and you there's nothing to say that you deserve something you don't deserve right if the business doesn't do well you don't deserve to do well and so I kind of start to have and maybe irrational attachment to certain businesses will say you know something it's special to me and I'm not going to tap part with it sort of like like what Buffett says like no matter what he's kind of irrational he just he just won't sell any business he might he might write certain businesses down to zero like with the Berkshire textile mills and so on and so I'm okay doing that so I'm kind of perfectly happy holding on to the shares if I ever need capital so here's another thing that I used to I used to have kind of a more difficult time selling certain shares just because I kind of don't see the dollar value coming in I see dollar value times ten is like you have the word Buffett curse right like I have a curse right so and I just give my wife a hard time is like do you realize that this house that we're building it's actually costing us its money instead of just other money because I see the real value and it's like and I hate we used to hate parting with it but now I've come to a realization that you know something that's what it's there for the capital we work hard to build this capital and then we want to return this capital to our LPs that are funding educational institutions hospitals you know homeless shelters all kinds of great causes and then we use it for our personal needs to build a house to take care of somebody is medical needs educational needs when you need the money it doesn't matter if it's the stocks going to go up another ten X or a hundred X or whatever who cares you need the money that's what it's there for you sell the stock you pay all your taxes and you should use that money and you should be very grateful that you have access to this capital but if you don't need it why are you dancing in and out of a stock and paying all these taxes just why don't you just leave it alone because you know that's one of the things we've learned in investing these public stocks for over all these decades and we've tried different strategies and you know I think we again we wanted to practice before we got better as we practice I tended to be the bigger trader I think my partner sent to be just like just leave it alone the leave it alone strategy works pretty well you know I've seen you know we all kind of go up and down kind of together and there's of course a lot of beta driving all the portfolios and then there's some alpha and we have different strategies and so we're all kind of within dancing shadowing the sense of each other but I've seen the numbers kind of go up and down over the years and it's very fascinating to see the different personalities and different strategies manifest itself some are more concentrated some are more in tech some are you know more in value and I think the kind of the thing that works fairly well is kind of stick to what you know stick to good businesses and it's not that hard and it does not take up much of our mental bandwidth we kind of do it in our sleep our primary job is to you know invest in the auto's funds but I'm glad we did that sidewalk so that we kind of have the experience and the conviction now that we have some serious amount of stocks to deal with I feel perfectly comfortable leaving a bunch of things alone and when I need the money I might sell it or we start to work to various charitable causes and it's it's great because we get to put all of the pre-tax money to work rather than having to put it after taxes it always surprises me that more vcs aren't active public market investors on the side like you say it feels like if you're not doing it you're just missing out on opportunities to practice well that's the thing and I realized that more than 20 years ago I mean many many years because I got my first venture job in you know back in 90 so this is 30 years ago and I knew a lot of vcs and over the years following them and so many you know vcs have made a lot of money and a lot of them it was very interesting they would turn their money over to some wealth manager to some other professional investors and this is again 30 some years ago I was very young I didn't know anything right but I always thought it's like well that seems kind of strange like I thought I thought you were the professional aren't you a money manager so if you're the money manager why are you turning it over to some other money manager like that I didn't quite understand and of course they would have the barbell strategy and say well the venture is my risk part of the portfolio and you know I have this other thing then tax-free municipal bonds or whatever and you know there's some truth to that of course you know you should always have some amount of liquidity and amount of cash that again you are protected on the downside and make sure that you never risk your family capital there's certain amount that you have to set aside but after that the idea that you should turn it over to some other professional when you are the professional and you should try to be the best professional possible and whether you're public or private it doesn't matter it's just fundamentals investing and you should try to be the best investor possible that's kind of what we wanted to be right from almost from day one that's why the public part of it even though it was tiny dollars and so I'm glad we had a chance to practice doing that for all those years because I you know what I wanted to test out was okay after like 27 years if I really suck as a public investor then I'll be like every other VC hopefully I'll make some money and I'll turn it over to the real professionals to manage my public portfolio and if I got a chance to practice for 20 years and I decided that you know actually I'm actually okay with this then it's like okay now I've had a lot of practice I'll just kind of do it continue to do it on my own right and you know it kind of worked out that way it's like oh yeah we feel perfectly comfortable doing it all on our own that's so cool okay so we promised at the beginning of the episode that we would get into the whole Alta story I don't know that we have enough time I think we're gonna have to do another episode so maybe rather than and it is amazing you know coming out at GSB and the Jack McDonald investments class but maybe rather than that we can't let you go without talking Twitter yeah so I pulled some stats here how as of February you had tweeted 1400 times ever and I don't think that's because you were like late to Twitter I think you just like didn't tweet a lot but in the last three months you've tweeted 3000 times and you've 7x year following so what's going on what was there intentional strategic shift did you just wake up and go this is fun what's going on yeah it's a good question so Twitter you know I actually uninstall the app from all my devices for a number of years and and I did that with Facebook too and then I got back into Facebook and and I think I never really quite understood Twitter I never quite got into it and I think I'm finding I'm understanding it better now I'm still kind of a novice because I got back into it recently the reason I started to lurking on Twitter more recently was purely because we had some of these IPOs coming up and I wanted to see what the sentiment was and there were some analysis that was happening people were posting interesting interesting analysis and thoughts on these IPOs and so that's why I started to you know re-engage on Twitter just at least to follow and then of course of course starting to read I got into some conversations with folks right and and I thought the analysis on Twitter was way better than you know a lot of these reporters you know like those articles could be written by a machine right the AI might have done a better job in many cases even then equity research analysts yeah oh yeah that's true so yeah they just misunderstood the business right but there's some people who did understand the business and I was kind of impressed I was like wow these guys kind of did their homework and they're quite insightful and like how did they even get these insights I you know I want to just kind of engage like hey like how did you figure this out or that out so anyway I got into these conversations and then what you get into these conversations I realized what the way I'm using it I don't know if I'm still using Twitter properly or not but the way I'm using it yeah yeah is it's just that it's a conversational platform it's not a PR broadcast platform I think I was kind of using it as broadcast but some news out there if I pull something on Facebook and LinkedIn I also used to post it on Twitter and then I just completely got off of it for a while but now I just don't post very much on Twitter that's kind of anything related to news or altos or whatever I just kind of engage in conversation and you know when I have a chance to look at the feed if there's some interesting comments I'll just kind of chime in and then people respond and when they respond and I kind of feel like I should respond you get those notifications and so that's kind of what happened and as I get again as I started to engage in Twitter then I think some various things triggered in my mind and I started to write something and I realized oh you know this thread concept wasn't a big thing I think early days of Twitter but I saw these people doing threads it's like how does that work you know and I remember like Saturday morning I posted something about Arthur Rock something triggered my memory it's like you know Arthur Rock is so amazing and people these young VCs they don't even know who the heck he is and and I remember this old Mike Morts quote saying and I think I put that in the thread it was some amazing more and he Morts is so eloquent with his wording and and he said like VCs you know when you got a call from Arthur Rock it was like the white smoke coming from the Vatican chimney I think that's what it was I he'll say stuff that I could still eloquent I could never imagine so anyway it's like yeah I remember like Morts saying like it was like that it was like he was so legendary and so I just had one little tweet about Arthur Rock saying like yeah you should remember Arthur Rock and then you know that one tweet then leads to another thought and then another thought and another thought and then I then had this little tweet stream going so I did a whole bunch of tweets like replying to myself and I thought there's some people who are like lurking following me on Twitter make sure I don't say anything dumb they're saying it's like wow you know Ho is really funny because he just tweets and he just replying to himself he's like a conversation with himself because that's what it is right it's like so I just kept boom boom boom so then that became a tweet storm which then I think got a whole bunch of impressions like over 700,000 impressions or whatever it's like okay well and then that led to a whole bunch of followers so so now I kind of I've done it where I have this stream of consciousness tweet storms and then I have these conversations and that's kind of what I've been using Twitter for and I think some of the most valuable things though on Twitter is just meeting certain people for the first time that I thought were quite interesting or impressive and having these offline conversations through either DMs or Zoom calls in one particular case I actually met the person in person as we are coming out of COVID and so there are some very thoughtful people out there and many of them are you know individual they're not institutional guys they're just individual investors right and they're quite impressive actually and I think I think as an individual investor you have a lot of advantages over institutional investors right you could be extremely concentrated you could be extremely long term oriented you could stomach a lot of volatility if you could handle your own emotions right you cannot handle that kind of volatility because I could put you out of business if you're an institutional manager so there are a lot of individuals who kind of approach it the way I would approach it the way that I have been approaching it and so it's been interesting to exchange some ideas and learnings I would learn more from those guys than I would learn from any VC or any institutional fund manager because if I talk to an institutional fund manager again there you know institutional imperative is to protect the fund management business not to get the best returns right and if you're an individual just investing for yourself China provide for your family all you care about is the returns I like to talk to those people who care about only generating great returns well that's probably a great great place to leave it looking forward to following you a lot more on Twitter and hopefully more great stuff for years to come but it's it's been I think a gift to us all to get your your wisdom over the last several months yeah well hey great to have beyond this podcast with you guys I've been looking forward to it and we talked about it last year and finally got around to doing it so it's been fun such a blast we'll link in the show notes for everybody literally everybody go follow home on Twitter he's a gift to the internet any car bounce anything else you want to you want to shout out before we before we wrap here yeah well you know we didn't really talk about the whole history of altos but Larry Morris I should I should give him a shout out because I think he's such a special guy and he I don't know if he would be in business without him I mean he made a commitment to our fund in I think 2003 and we did not close that fund until 2005 so he waited he honored his commitment for two years it took us that long we actually started fundraising in 2001 so it took us two years to convince him and then he had to wait another two years to raise our first institutional fund in 2005 and that was exceedingly difficult because again this is coming out of the fallout of the dot com crash you know when we thought we were going to make all this money and just all blew up and and so you had to have some people who just really bet on us as people and and this is the thing that I I've learned over time is that you know whatever people decide they kind of decide for their own personal reasons that it's not it's not a purely a rational decision there are a lot of people who backed us before we had a track record for whatever reason why we're always grateful to them they they backed us when we had no track record or elected joke maybe they backed us when we had a bad track record and then there are other people who will look at our track record and might say well you got lucky with this or that you know and so they might still not invest in this and so there are people who will pass on us when we have a great track record and they will people there are people who will back us when we have no track record or maybe a bad track record so you just have to find your people find the people who believe in you who will back you no matter what and you know people you know take will take the data and make whatever the heck decision they want to make and no longer bothers me at all if people are doubt doubting our approach or you know rejecting us for whatever reason because there are plenty of people who think Warren Buffett can't cut it or is a fraud or is lucky or whatever and it doesn't matter if you have a 55 year track record there are going to be always doubters so the doubters just don't bother me at all anymore. I love it. Thank you Ho. Thanks Ho. Alright, thanks guys. Well with that listeners thanks so much for listening you should join us in the slack we're going to probably be discussing this episode acquire.fm slash slack and with that listeners we will see you next time let's see you next time