“Instead of thinking about what's forward, it's about how do you see the present more clearly.”
Arjun Sethi is a co-founder of Tribe Capital, a venture capital firm built by engineers and scientists. Arjun sits on the board of Carta, Relativity, and Bolt. As a founder and operator, he has also been an active angel investor in over 100 companies, including Lyft, Opendoor, Gusto, and Front.
Success is never a straight line and involves failure and unsuccessful attempts. Achieving success requires exposure to the people and community where you’re involved. Ultimately, it’s then about the arrival of an inflection point where you decide whether to push forward or stagnate. Silicon Valley offers exposure because of the vast community of like-minded individuals in close proximity. Lessons learned from previous unsuccessful start-ups can help create an even stronger team, where each member brings distilled ideas. “There was a set of folks that I would say, had shared DNA around thinking about iterating innovation and what could you build that's different around looking at technology companies.”
When considering whether to invest in start-up companies, it is important to recognizes one’s own thought patterns and biases. Focusing on what is known about a company instead of a person’s background or network is important in avoid those pitfalls. “We have a motto internally, which is, ‘how do we focus on what versus who you know?’”
LISTEN AND SUBSCRIBE
SPEAKER
Arjun Sethi
Co-Founder & Partner
Tribe Capital
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:07)
Hello everyone, and welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology and public policy. SALT Talks are a digital interview series that we started during this work from home period with leading investors, creators and thinkers. And what we're trying to do on these SALT Talks is replicate the experience that we provide in our global conferences, the SALT conference, which we host twice a year, one in the United States and one internationally. And at those conferences and on these talks, what we're really trying to do is provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And today we're very excited to welcome Arjun Sethi to SALT Talks.
John Darsie: (00:57)
Arjun is a serial entrepreneur, investor and executive with deep roots in Silicon Valley. And more than a decade of experience building, sourcing and investing in high growth technology companies. Most notably, independently investing in companies, such as Opendoor, Gusto, Lyft, Postmates and True Color. Arjun also co-founded Tribe Capital, which is a venture capital firm with about $500 million in AUM built by engineers and data scientists, which have invested in fast growing and notable companies, such as Carta, Relativity, Applied Intuition, Instabase, Momentus and Bolt. Prior to founding Tribe, Arjun was a partner at Social Capital where he led the team that established a successful track record of backing high growth companies, such as Slack, CloudKitchens and Box. He also served on the executive team at Yahoo, where he grew product usage over one billion to over one billion monthly active users. He joined Yahoo as part of the acquisition of MessageMe a messaging app that he founded in 2012.
John Darsie: (02:05)
Prior to that Arjun co-founded LOL apps, a mobile gaming and applications company that he scaled to 100 million monthly users before he sold it to Six Waves, a subsidiary of Nexon. Just a reminder for anybody tuning into today's SALT Talk, if you have a question for Arjun, you can enter that in the Q and A box at the bottom of your video screen on Zoom. And hosting today's talk is Anthony Scaramucci, the founder and managing partner of SkyBridge Capital, a global alternative investment firm. Anthony is also the chairman of SALT. And with that, we'll turn it over to Anthony for the interview.
Anthony Scaramucci: (02:40)
Well, first of all, congratulations on your career, and I'm going to out you a little bit. You said that you were in the lower quartile of the people in your five mile radius. Isn't that how we all think about life, but in all seriousness you're doing amazing Arjun. And I always ask these cliche questions in the beginning, like, what can I learn about you that you didn't know on the Wikipedia, but I'm not going to ask you that one. I got a different question for you, okay? What are the base ingredients for success, the distillation of your life that has allowed you to identify these companies and see where they could be years before they become what they have become?
Arjun Sethi: (03:30)
So first off, John Anthony and team, thanks for having me on board. Two, if I take a step back and try to think through your question, which is a hard one to answer, I think it comes down to a couple pieces. One is raw exposure. What do you see, what is the tribe of things that you see around you? Two, then what's the inflection point at which you decide to push forward or stay stagnant? People think about local, state and federal, but when I think about local, it's also just family. And so your exposure is what are you trying to get done? So I grew up in an immigrant family. My dad came from India with a couple of bucks in his pocket, and his whole goal in life was to survive first.
Arjun Sethi: (04:23)
And then from survival it's to push to the next phase. So I kind of grew up with that perspective, which is if we didn't try as hard as possible, we could be out in the streets. And while that might seem extreme, given where we are today, it didn't feel like it was that extreme as we were growing up. And so the exposure of the folks that were around you was around education, was around science, was around what could the world look like if you had replicators? Similar to what you see in Star Trek? So I think what happens is that when you have exposure to that type of community, we have a very large community here in Silicon Valley that thinks that way. And then we have our sub pockets. What does that allow you to do?
Arjun Sethi: (05:07)
And then how do you start thinking from there? And then the last piece I'd say from a pedestal is what's the speed at which you want to learn? So that the word university is supposed to be, a meaning of like an institution of learning. So if I think about the institution of learning here in the Silicon Valley, where we are based, that just gives you the ability if you want it, the toolkits to keep pushing. And I think that's like one of the privileges of why I liked staying here, being around the folks that are here, the universities that are here, the companies that keep pushing that mantra forward.
Anthony Scaramucci: (05:44)
My life experience has gone up and down. Obviously if you're having a bad day ever Arjun, I want you to imagine me getting fired from the White House in July of 2017, it will make you feel better about whatever kind of day you're having. But you seem to have a pretty amazing career. Tell me about a setback. Tell me about a shot that you've got hit with and then how did you recover from it and what lessons did you learn from it?
Arjun Sethi: (06:14)
I think what people read on biographies, LinkedIn, they'll look at that as a progressive success. What they won't see is, I grew up with a pretty hard family. My dad had lost his job twice, and he had gotten a job in like the semiconductor industry and he had to take a pay cut. In some cases, when we moved from Northern California to central California, to Southern California, we had experienced different forms of racism, and when I was younger I didn't know what that meant. And so as you grow older, you start kind of instilling that into your livelihood. But I got fired from almost every job. I wasn't a good employee. I got fired from Macy's. I got fired from Pfizer Electronics. I got fired from Radio Shack when it existed, all of these companies. And then I think just keep moving up the stack-
Anthony Scaramucci: (07:10)
So was there a common theme, Arjun, of the firing? I mean, my firing is usually I'm doing something really stupid and I'm saying something I'm not supposed to be saying and the next thing I'm in Pennsylvania Avenue. Was there a common theme to your firing?
Arjun Sethi: (07:25)
I think it was, and we can get to it at some point, but there was probably a lack of care, where there just wasn't an inflection point that it really mattered, that you need to start pushing forward and learning and being productive in some way. And that's a different philosophical tilt, but, and I also got kicked out of school. So this thing just keeps progressing, which is, I actually just had a progressive of failure routes, that at a certain point, I think it finally clicked, which is I can't continue to do this. And I think you can get stuck in that, but if I didn't have like a family support, if I didn't have folks around the table that had kept helping to propel me back up and saying that it's okay if you fail. These are not failures. These are unsuccessful attempts, you can figure it out.
Arjun Sethi: (08:13)
But then I wouldn't have had the 15, 16, 17 chances. And so what I took from that was how do you iterate test and design towards what you want to forge moving forward? And so, I appreciate the description of myself, but previous to those companies that I started, 10 failure companies with, founding teams that didn't work, because we weren't iterating towards something that could work. And it doesn't really happen if you don't have a North star. And so luckily I had like a vision of where we wanted to move forward with my co-founders and myself. And that's actually been sort of the emphasis. If you look at my career, doing what I do at Tribe is actually the same thing I was at Lolapps, MessageMe, at Yahoo. That's the exact same thing, it's just, now we're just building a technology company that's deploying capital into venture capital as an ecosystem. And so the mindset is different and the way in which we build is different the way in which we iterate is different.
Anthony Scaramucci: (09:12)
So you left Social Capital after working with the Chamath Palihapitiya and right now, John Darsie cannot believe I-
Arjun Sethi: (09:21)
Palihapitiya, Anthony. It's not that hard.
Anthony Scaramucci: (09:23)
All right, it's close enough.
Arjun Sethi: (09:24)
Chamath Palihapitiya.
Anthony Scaramucci: (09:25)
Chamath doesn't care, he knows I love him. And he knows I don't know how to pronounce his name. It was almost close enough. So you left after a couple of years, what did you learn there? What shaped you from that experience?
Arjun Sethi: (09:40)
Look, the first step, I'd say that, as I mentioned, instead of the five mile radius, go 50 miles. There's a set of folks that have worked with each other for a very long time. I actually met Chamath when he was at Facebook and I was at, Lolapps. He had tried to acquire my company and the apps that we were building on the platform. So there was a set of folks that I would say, had shared DNA around thinking about, iterating innovation. And what could you build that's different around looking at technology companies, right? Instead of thinking about what's forward, it's how do you see the present more clearly, what is there now? And then how do you forge your path forward? And that's the world we live in. And so, a lot of what I think we admire, with Chamath and other folks in the ecosystem and why we all work together in the first place and admired each other was that we were all forging a path towards the same direction, came from the same cohort, same clubs, same schools, in some case.
Arjun Sethi: (10:41)
And, what Social Capital was able to deliver was a collection of a lot of these individuals. You could say the Social Capital mafia. If you look at the folks that came out of the firm, and we all took what we distilled as the most important, and then forged ahead with that. So I took our data science and product approach towards what I think venture capital looks like in innovation. A couple of other folks took different pieces of that, Chamath himself took different pieces of that to the public markets. And then I think you just see a lot of us move in that direction because we had a collection of ideas that were really well-regarded in the firms. I think that's really special. You've seen that with companies like PayPal, you seen that with companies like Twitter, we have a very special collection of individuals and they go out to go do their new thing.
Anthony Scaramucci: (11:30)
It makes total sense. And obviously we had him on SALT and he was very impressive, and as are you. Let me go in this direction. You're an entrepreneur, you're in Silicon Valley, you're trying, start something, you have a vision for something, they come to see you. How do you know? You're the sort of like the Simon Cowell, you're at the desk, you're looking for the X factor. How do you know that they have the X factor?
Arjun Sethi: (12:11)
We don't. The whole point is that we don't, if you think about, what people do and what they build, I think what happens is, for example, you and I are chatting now and so you get, some sort of pattern recognition of your past 20 years of history of saying, "I think this person has it, or they don't." But you're, pattern matching to your biases may that be right or wrong. And so that happens a lot, right? Like you can just see that with the way in which people get funded, the capital they're deploying, that they're being infused. And our approach is, "Hey, I think we may not know, the collection of experiences where this person comes from." We have a motto internally, which is, how do we focus on what, versus who you know.
Arjun Sethi: (12:55)
And so let's forget where, what school they went to. Let's forget where they grew up. Let's forget all those pieces for just a second. Let's look at their team, let's look at the focus of what they've built. And especially in a world that's software and tech enabled, what can you measure, right? What can you measure from a ground truth perspective? It's kind of akin to financial accounting. When you look at the public markets and you look at a company, you look at their guts through financial accounting, balance sheets, [inaudible 00:13:19] income, et cetera, can you do that with software? And that's what we have been working on for our whole careers. And so it was a way of how do you articulate that for the next set of, Zuckerbergs or Dorseys that show up and say, I have this product, but there are outliers, there are extreme.
Arjun Sethi: (13:36)
You might not like the way in which they, articulate their vision. But the whole point is that, that's not the point. The point is what is it that they've built so far? What's their foundation? Let's forget where they come from. You just a second and see if there's any demand from customers, integrations. Is there anything that you can measure that will give you now insights into what the future could look like if could forecast? And that's the fine tuning that I think is really important to think, that's the approach that we take. So the answer is we don't know, but we start building conviction and starting off from a foundation of what they have built, and we morph around them rather than having them morph around us.
Anthony Scaramucci: (14:17)
You're in a very interesting high altitude ether, Reid Hoffman once said to me that if you're waiting for the website to be perfect, you're waiting too long. Let's launch the website and start figuring out as it goes. Do you share that philosophy? And if you do, how would you describe when is the right time to start a business or to try to scale a business?
Arjun Sethi: (14:46)
Yeah. So, I'll try to paraphrase here, but I think it was, if you're not embarrassed about your product, you're doing it wrong. And so while I think that's a good approach or certain types of companies, it's not the approach for every company. So if you kind of split the world into bits and atoms on the bit side, if you're building a mobile app, if you're building mobile infrastructure, you have fast iteration time and feedback. Yes, you can experiment at a faster pace and you shouldn't be embarrassed about what you're building, because you can do it cheaper, faster, better. And that's what that technology stack is all about. And when you move to the world of atoms, you can do that in some cases where if you're trying to build a spaceship or a rocket, if you're trying to help with climate change, if you're focused on drones that go out there, you can't iterate a drone that's gonna like drop in the middle of the sky.
Arjun Sethi: (15:38)
It's not the point. And so I think you kinda have to bifurcate between the two worlds and then say, okay, now, based off of these frameworks, what's the right way to approach the market, the product that you're building, and frankly, how much capital do you need, in order to hit the first iteration that might be embarrassing in that vertical that you're thinking through. So while I agree with that, that works when you're thinking in small terms of the internet, although the market obviously is quite, quite large for the internet in the world of bits.
Anthony Scaramucci: (16:15)
I'm late to the VC space. And I know that there are-
Arjun Sethi: (16:20)
Never late, never late.
Anthony Scaramucci: (16:22)
Never late, okay. So that's a good line, right? That's what people tell me about Bitcoin. We had planned B on yesterday, he said he felt that he was late, but now he realizes he's never late. So that's a good line, but let's say that I'm an old timer. I'm late to the VC space. I see the specs, I see these VC funds. I see these special partnerships, these SPVs, what would you recommend to me as someone that's a traditional stock and bond buyer, I own cash, stock, bonds and gold. What am I missing and how would you recommend that I enter the space?
Arjun Sethi: (17:04)
I think you're smarter than I am on this. And I've watched your talks before, so you take a macro perspective. Right? And say you think about, Hey, what are the financial policies that are being, projected worldwide? Not just here in the United States, but with ECP, the Japanese Central Bank here in the United States, just printing and then rates going down, and then you just continue to do that. Someone hiccups, you do the same thing over and over again. And so you take that traditional approach. It's okay, great. The traditional portfolio approach, traditionally, where you kept your capital may no longer have the same yields and you got to keep up with some aspects of inflation. And not aspects of inflation that are average, but aspects that are cumulative towards certain parts, California and places where you are and vice versa.
Arjun Sethi: (17:53)
If you go to African emerging markets and so, that's the high level macro, and then you go into micro and say, "Okay, well, what are the emerging classes of where you want to spend your time?" There's a power law in equities, there's a power law in alternatives, then there's a power law in certain human innovations. And part of it is, what does Bitcoin mean? As programmable money is what a lot of people call it. What does gold 2.0 mean? There's a lot of ways in which people kind of describe it. And then you keep going into, down the train. What does public equities mean and what is private equities that haven't gone public for so long with a lot of latent demand mean? And then what are the financial instruments to invest into this innovation?
Arjun Sethi: (18:36)
So I think it really comes down everything. I think, to not bury the lede, just comes down to growth. Where's growth going to happen? Is that innovation oriented? Is that incrementalization oriented? Is that stock buybacks oriented? And how do you kind of perceive your way around how you want to deploy our capital? So when you say you're late, I don't think you're late at all, because we've just starting to see, you can call it the ramifications, or sort of a new economy thought process, post 2008.
Anthony Scaramucci: (19:07)
I mean, you're making excellent points. And I do study the Dow and the S&P 500 and the rotation, and if you look at the top 50 names from 20 years ago, they are very different from the top 50 names today. If you look at the top 10 names, and of course you and I know that Tesla just got added to the S&P 500. And so my question to you is what are going to be those leaders, in five or 10 years? Are there private companies right now that you're looking at, you'll say, "Wow, in five or 10 years, they are going to be the Ford Motor Company of 1920, but they're the XYZ company of 2025 or 2030."
Arjun Sethi: (19:51)
Yeah. So, I think this is why I love technology. There's a concept that we talk about a lot. Peter Thiel talks about it, what our perfect monopolies versus innovation monopolies. Internally, we call that one of N versus N of one companies, which is, what's a special company that is just so special it's hard to compete with? And then what are the sectors that are all similar to each other, again, one of N, one of many companies.
Arjun Sethi: (20:17)
And so I think if you take a look of just, this is a good point, just going from atoms to bits and what are the industries that are moving and shaping the world forward. Payments, e-commerce, the retail to digital transformation. This is not just the United States, this is worldwide. Where are you going to be placing your bets? So if you just look at the power law of the public markets, now you can call it the FAANG, MF stocks, where there's different acronyms today. But it's really concentrated towards the future, right? Where those are the companies that are winning now, and that there's going to be a larger majority of them that are going to continue to win given that consumer demand is going that way, B2B demand is going that way and worldwide demand is going that way.
Arjun Sethi: (21:01)
So you just kind of trace route that and say, "Okay, well, where else is that going to happen? What are the ecosystems that need to be there to support them? And then what are the ecosystems that are going to actually just die over the next, let's call it five, 10, 20 years from now?" And I think you've seen that, where private equity went really hard. I don't know if you remember 2008 to 2014 into retail. Retail is coming back. We know that ship has sailed, it's not coming back. COVID has accelerated that, not just here in the United States, but worldwide. And so you kind of, again, trace route that down, say, "Okay, well, what are the next industries that need to be A reshaped, and then B supported?" And that's kind of how we think about it, within the Silicon Valley realm of what we think is going to happen in the future.
Arjun Sethi: (21:49)
And I think it really just comes down to the private companies that are being built today. What are they doing and how are they supporting that ecosystem? And are they special? Or are they just one of many companies that are going to be a part of that transformation? I would argue anything that's D2C or consumer demand related are just one of many companies, right? What's the next brand that you're going to buy from when you go on Shopify or Amazon? But then the next set is who's supporting those brands? Who's someone that monopolize that? Who owns the roads and the railroads of the future. And that's I think what we spend a lot of time thinking through. One, we don't know, two we've seen some of them, and then three, we got to figure out a way to identify them without us having a certain biases that we've had in the past.
Anthony Scaramucci: (22:34)
Tell me one sector. You don't have to give me a name of a company, just say, "Look, this is an unstoppable force that's going to be with us in 10 years.
Arjun Sethi: (22:48)
Financial services, I think is completely and utterly being not only disruptive, but revolutionizing all over the world.
Anthony Scaramucci: (22:56)
So something like neo banking as an example, the revolutionizing the banking industry?
Arjun Sethi: (23:03)
Yeah. So if I walked down the street at 20 years ago, I would go to a retail branch and I would say, "I need these five things." And then depending on my purchasing power or status of, lower income, middle and above, those pieces would be fragmented, right? I'm privileged enough to have, the likes of Morgan Stanley to say, "Here's everything I'll do for you." But you don't have that for folks at a lower tier, and that's starting to change, right? Like I can send an email saying, "I want these five things." You can't do that if you're at the lower income or bracket and you can't do that if you're sitting in Mexico and if you can't and you can't do that if you're in India, driving an auto workshop. But that's starting to change where now they get the ability where the future was already there, but it wasn't evenly distributed and that's what technology allows us to do. And I think people use the word neo banking, but it's much more than that, right?
Arjun Sethi: (23:53)
Where that auto workshop individual wants a USD denominated account. He thinks about preserving his wealth in dollars. And I'll get to Bitcoin in a second and the same thing's happening in Latin American countries, the same thing's happening in Nigerian companies and you have this global influx of people moving back and forth. And so what does settlement look like? What do payments look like? What does banking look like? What does insurance look like? What does real estate look like when these products get bifurcated? And then a lot of people try to think and say, "Okay, Bitcoin is that piece, or crypto markets are going to be that piece." It's possible, but I think you have to think about it from an application perspective. What does the technology, the database, the settlement and the distribution allow you to build? And I think it's more people want trust security laws and you take those all together. Like we have here in the United States. And what are the products that get built off of that?
Anthony Scaramucci: (24:48)
All of a sudden I'm 100% with you and now I'm watching the neobanks take over. They've got no bricks and mortar. So they're offering the services at little to no cost and they're paying higher interest rates. And it becomes almost impossible longterm to compete with that. So I agree with you there. Let's talk about-
Arjun Sethi: (25:12)
Yeah. I think it's more than that. It's, we are willing to pay for a certain amount of experiences and products that they're able to say, in the world of negative and zero interest rates. Forget that for a second. Do you trust my experience to deliver you an outcome? Do you trust my experience to deliver you capital, lending and democratize that? Do you trust my product where you're willing to pay like a subscription fee for all these services that other people got? And then at scale, what people got at the higher tier you're now able to get at the lower tier as well. And I think that's actually the change, which is you can flip the pyramid and say at scale I can offer these services worldwide.
Anthony Scaramucci: (25:54)
Yeah. It's pretty fascinating before I turn it over to, John Darsie and our audience participation. I want to talk a little bit about SPACs. What is your feeling about the SPAC market, it relative to the IPO market? And do you think it's a viable long term solution SPACs or is it a by-product of the regulatory environment that we're in?
Arjun Sethi: (26:19)
It's a good question. If you take a step back and say in the '90s, what did we have? We had roughly eight, 10,000 companies going public, or sorry that were public, on the NYSE and NASDAQ, you had the ability for people to participate in the upside of these companies where they're at and certain valuations let's call it, 500 EV and up, and then what the regulatory regime in the 2000s, and then, again, the regime in 2008, while it may have been, protectionist is also created this mechanism where the regulatory regime just made companies go public later. And so I think you look at any entrepreneur to say, "Do you want to go public or private?" There's a set will say, "I want to stay private forever because I want to control it."
Arjun Sethi: (27:08)
But there's a large set that say, "Yeah, I want access to capital markets, but I can't because it's too expensive." Or you've actually just do the math. If you have 50 million in revenue and for you to go public, it's going to be five or 10% just to start, that just doesn't make any sense from a unit economics perspective. So you just, wait, wait and wait. And now you have, I'm on the board of a company called Carta. And the number one thing all of these companies are asking by the way, there's about 14,000 companies in their platform. It's about a trillion dollars of private equity just in the private markets that don't move. It means that it's just a stake of private investors like myself that are waiting for liquidity or dumping more capital into these companies because they're growing and we're participating in the upside, but the regular markets and an irregular individual is not, regardless of being accredited.
Arjun Sethi: (27:58)
So I think what you've seen now is that there's just a ton of latent demand for those enterprise value companies and not just companies that are in the United States, but worldwide, because worldwide liquidity also doesn't exist. If you're thinking about a growth perspective, if you're sitting in Taiwan or Indonesia or Southeast Asia, you don't really have any options. You're going to look at the US markets NYSE and NASDAQ because their growth mentality and frankly, an American mentality, where you can't go public and these other markets that want like four to five years of profitability. So there's this massive regulatory, I'd say down pressure of private companies where they can't go public, and SPAC I think it's become a mechanism where you can do that. And it's not just the SPACs. You have secondary liquidity. These exchanges have started popping up, we've invested in one, Carter being the one, at certain EV.
Arjun Sethi: (28:49)
And then you start thinking about, okay, well, these companies are still at their inflection point where they need help. They want other folks that are along with them. The world of activist investors in the public markets are gone. And so the SPACs allow people to partner with folks with a cash injection like they have in the private markets to think longterm. Now, while I don't think it's perfect, it's a mechanism, direct listing is another mechanism, and the traditional IPO is another mechanism. And as you know, these are all forms of raising capital or, getting access to the capital markets, for other forms of capital that they might need to grow. And so is it here to stay? I think so. Is it going to be at the peak of what we've had over the last two years? I'm not sure. But we're keenly watching it. A lot of our companies are now in their board decks saying here are my options. Raise capital, go public. And SPAC is a mechanism for that.
Anthony Scaramucci: (29:49)
All right. Well, listen, congratulations on all your success. I've got to turn it over to Darsie who's the millennial in charge, that's going to now try to outshine the two of us, so don't let him do that, Arjun. Okay? You and I have now bonded. Don't let them get the best of us. Go ahead, Darsie.
John Darsie: (30:07)
So Arjun, just following up on the SPAC question, you had a portfolio company recently that went public via SPAC. Was that a positive experience, and has led you to be more receptive to the idea that, SPACs are a long-term solution?
Arjun Sethi: (30:21)
Yeah. So while we were at Social Capital, Chamath and team, and the rest of us had thought of what are all the toolkits that we could provide on behalf of our companies. And one of them was SPAC and at the time it was a pretty dirty word, right? Like you just think of it as companies that aren't good enough should not go public. And that was a mechanism used, or the reverse merger and what we had seen over time, very accelerated by them. And I think COVID accelerated this even more, is that there were certain types of companies that need more capital. So as a private investor, investing into space, climate change, drones, heavy CapEx industries, these companies need 50, 100, 250, $500 million in order to hit their next milestones.
Arjun Sethi: (31:08)
They already have product market fit. We already know technologically their products work. They just need the capital to build it. So if you want to build a farm, right. A vertically integrated farm that deploys, food at a cheaper rate, how do you do that? Where are you going to get that capital from? It's harder to do it in the private markets. And I think I go back to the first question of, how do you know if these entrepreneurs have it or not? Well beyond that? What if they already have it? They don't have access to capital in the private markets. What do you do? And a lot of it is they just get fully diluted. It's really hard for them to get that capital in it and something that should have taken a year or two to accelerate will take five or 10 years.
Arjun Sethi: (31:47)
And so I think that SPAC became a mechanism for that, which is, are people willing to take the risk for certain types of these companies that are definable, there's a narrative to it, there's a team behind it. And someone has done the work that you either trust, or you don't to say, here are the types of companies and here's how much capital injection do you need. And so those are the companies in our portfolio that have been looking at that approach. And so Momentus, which is a first mile and mile delivery mechanisms. So that they've literally attached themselves like a parasite onto a star ship or a rocket. And then they go from point A to point B to point C for you. So it's kind of like a hub and spoke model. They need capital to build their satellites and their propulsion systems.
Arjun Sethi: (32:28)
The first one already works. They've already launched it. So, the technology works and the second one, the launch, with payload for their customers, and we'll be out in the next three to six months. Those are really well-defined companies that you can say, "Okay, great. Let's give them the capital. They already have product market fit. Now it's about how fast can they accelerate and where do you go from here?" The private markets value those companies lower as high risk where we don't think it is, the public markets think of it as a little bit less risk, and they're willing to give them the capital to make it happen. So I think it's been a good experience for those types of companies. It's still TBD for international companies and it's still TBD for generic software companies that are growing and they do have access to private and public capital.
John Darsie: (33:14)
Right. And you saw Chamath first, SPAC was Virgin Galactic, and you've seen it on a nice run lately. And it seems to be a really good solution that they've found, for that company. So, I mentioned in the open about how Tribe Capital was founded by yourself and a team of engineers and data scientists, and you guys are very data-driven, in terms of how you invest. And so you can take a lot of raw transaction data from companies and you synthesize it to create sort of a bottom up approach for private investing, the same way a Dodd Graham type of investor would take a bottom up approach in terms of analyzing a public company's financials. Why is a data driven approach important? And how do you combine that data with your own judgment intuition, from sort of a top down perspective on trends?
Arjun Sethi: (34:02)
Yeah. So there's a lot of questions in there. So I'll try to break those into pieces. Over the last 20 years, if you look at Facebook, Google, Yahoo, like the new order of technology companies, and you just go down the stack like Airbnb, we, we grew up in those companies, we helped those companies. We help them scale. We either through investment or starting them in some cases. So that's the team's DNA. And so you take that team's DNA and you take them to a traditional venture capital firm and you ask them to invest in companies. The first thing we think of, or when I entered venture capital, I'm why are we still using Excel? Why are we still using paper and pencil to make investment decisions? It doesn't make any sense to us.
Arjun Sethi: (34:48)
Because we've built all of these family of frameworks to invest our time, our capital, our products with the fast feedback loop, why can't we bring what we've done for the last 20 years and bring it to the investment side as a way for us to augment our decision-making? That's how it started. I'll call it seven to 10 years ago. It was just so archaic for us that we, when you get into venture, it becomes less team oriented and it becomes more solo oriented. So we flipped it. We flipped the script and we basically said, "Okay, great. Let's take that. As a bottoms up approach to understand a company the same way, we take a bottoms up approach to build products at least in the consumer and enterprise ecosystem."
Arjun Sethi: (35:34)
And I'd say that we have this motto internally. And if you take the dollar bill and you turn it around, I forgot what the exact symbol is, but I think it says like Novus ordo Cyclorama or something like that. It's like a new order of the ages. That's the exact way we think about where we are in venture, and capital allocation, which is you've had this tradition, where you looked at balance sheet, and accounting frameworks. Can you build those frameworks? And can you build systems and software to help you make better decisions? And can you flip the script in the way in which you can help these companies, partner with them. And so when we go to a company and I know this is a long-winded answer-
John Darsie: (36:17)
[crosstalk 00:36:17] like the long-winded answer.
Arjun Sethi: (36:18)
... the pitch literally is if you want the folks that helped scale Uber, Facebook, Yahoo, that the folks that built these companies from zero to billions of customers, that's us with capital. So we are a technology company that think about venture, and we build products, we build distribution products, we build analysis, we build data and analytics that we can serve you in that way, because that's the language you speak. That's how you're thinking about building your company. And those are the types of folks that you want around the table versus, talking to your grandfather. Your grandfather might be really smart, but they're taking a solo approach to helping you. And that's very, it's hard to scale that.
John Darsie: (37:01)
Yeah. One of the aha moments for me lately, and we don't have any financial interest in Stripe, but when Stripe basically started Stripe Capital and the idea that they're analyzing all the transaction data on the fundamentals of companies that are using their APIs and actually investing in businesses, that they noticed really positive trends related to revenues and profits and everything that's going on, on the underlying level at a company, about, the value of data, the exponential value of data in a technology first world. I want to go back to Anthony's question about, founders. So a founder comes to you, and they say, "Hey, I have this idea. I have some money. I could bootstrap it. I could take venture capital money and dilute myself." There's other sources of capital, first of all, how do you know for that founder, whether it's the right time for them to launch the startup and how do that they're ready to scale and how do you give them advice on the best source of capital, as well as the best partners to help them scale the business?
Arjun Sethi: (38:05)
This really comes down to underwriting risk. So if you and Anthony decided to start a company tomorrow, you have access to capital, proliferation of it at the pre-seed and seed stage. So it's called idea and concept. So there's a set of investors that focus on people and markets, tech, experience, et cetera. That's all over the world. That's awesome. Right? Like if you kind of think about it, there's a ecosystem that's being built that kind of mimics or romanticizes what you see here in the Silicon Valley. And so that we're going to adopt that in certain other sectors. That's a different type of risk that you're underwriting and that's become more and more proliferated with more people, right? So it's syndicated out, whereas before it was just in the hands of a couple of folks. And that's called pre-product market fit.
Arjun Sethi: (38:50)
Post-product market fit, that's a new set of investors in a different set of investors. So it's really about the gradients where you are in that life cycle of building. And so to answer your question is we don't know. I think we have to be more bold about investing into harder things and newer things, because it is cheaper, faster, and easier to build that. And so there's a set of investors that do that. We're not good at that. That's okay. We explicitly say that, but we do invest in certain ideas that we like, but we underwrite risk kind of appropriately, which is, we're not giving $20 million to someone that has an idea in concept. We might be giving them a couple of hundred thousand dollars to start, but there's a whole set of us, that you can say times 10, that are going to do the same thing.
Arjun Sethi: (39:34)
And then they have enough capital to start an experiment with. I think that's something that's been lost over time. Where you used to actually have that in the '20s, '50s, World War I, World War II. You had that from the '50s to '70s and it kind of stopped. And it might've not been this public and private partnership, but it was there for things that we wanted to do moving forward. That's not really measurable. And I think the important part here is that you need to invest, to try and have unsuccessful attempts. After that you have frameworks, right? You have people like us that come in and say, I now am able to quantify that you have something that works and it has product market fit. It may not have the same velocity that we might all think, but that's a different risk profile.
Arjun Sethi: (40:14)
I'm not underwriting risk in the same way. And so now it's all about value. What's the value of your enterprise? What's the value of your product? What's the value of your revenue? And that's not any different than financial accounting, the lagging indicators, but you can still do that with software. So again, long winded, but there's a lot of things that you can do. And what's the type of capital that needs to go into trying things and iterating and scientific things that you want to try that are hard. And then what's the capital that goes into it once it finally works, it's a two different states of mind, right?
John Darsie: (40:49)
So I want to end on a macro question that's pretty timely based on IPOs we've seen just this week. So you had DoorDash go public and pretty much doubled immediately before it even started trading. Airbnb is now a North of a hundred billion dollar company that back in March, we were talking about or not, the company was going to survive because the pandemic was supposedly gonna destroy any tourism type of business. But they obviously have rebounded from that spectacularly. Do you think, from a valuation perspective, when you look at these companies that are going public and the valuations we're seeing in a stock like Tesla, that technology is getting into that, B word territory that some people that are less familiar with the technology industry, they come to me and they say, "Oh, John, I know you work in finance. Are we in a bubble again? Is this another tech bubble?" And I sort of guide them to an answer, but I don't want to ask a leading question to you, but do you think things are getting a little bit frothy in the technology space or do you think we're just scratching the surface in terms of what the economy is going to look like in the future? And so these technology companies are still undervalued and you're not late.
Arjun Sethi: (42:00)
I'll preface my answer with, I don't know, but then I'll answer with frameworks that I think are important. So take a step back 20 years, you guys have experienced this, where we had talked about, irrationality and valuations. In the 2000s when we had the technology bubble, before the technology bubble, there were other things happening in the world, right? You had the issue with, Russia, you had longterm capital, I'm forgetting the name of the situation exactly. You had a multitude of things happening all over the world that were negative, not neutral to positive, just negative. And so everyone was rushing towards the next growth story, and that was .com. Anything .com, even if it had nothing to do with technology, you just put .com in your disclosures and you just skyrocketed, that was a different era of companies that had no revenue, no customers, and no substance, right?
Arjun Sethi: (42:58)
And that's the narrative. And then technology continued on its path. And you can argue that it was devalued and it took a longer time for, like the likes of Google to be sort of recognized the likes of Amazon to be recognized during that transition period. Same thing kind of happened in 2008, which is, it's a different bubble. It's a real estate bubble. And now we're entering a world where, again, macro you have negative, to low interest rates, depending on the area. You have a printing of cash and you don't have the yields that you used to have if you wanted to take your capital out of the tech where you could, get, six or seven percent back, in the 2000s up to the 2008 timeframe, you don't have that today. And so the question you kind of have to ask yourself is the value of these companies, the value of their growth, the speed at which they're growing exponentially, right?
Arjun Sethi: (43:48)
It's a super linear, right? It's not stagnant, it's not sub linear. What is the value of those companies that are retaining their customers, expanding with them revenue and engagement wise. And so from a software perspective, those are the questions you kind of have to ask. Do I think some of these companies are overvalued, of course. There's a power law to some of these companies where everyone's piling into what they believe is safe and the equities market, and the same thing happens in the private market. It's just about where do you enter and where do you exit. The great thing about what we do is we enter early and we just leave it up to you guys on the smart side, on the public markets to think about what's overvalued and what's not. But it's a hard one to answer because there's not a lot of downward pressure.
Arjun Sethi: (44:28)
Like where's that coming from? A company like Nikola, which is extremely fraudulent, is still valued at $7 billion. You know that there's something frothy there. And there's not a lot of downward pressure on that company, it's still, I think that's an issue. And then I could probably talk about 10, 11, 15 companies like that. Where that mechanism of downward pressure doesn't exist. So is the market frothy? There's some of it, but I think you're seeing it in pockets. And it's still yet to be determined where, 30% of our GDP was just printed. And what does that look like over the next three, five, 10 years? I'm not sure. It's hard to answer.
John Darsie: (45:06)
Yeah. I mean, I think about Bitcoin in the same way. I came at it for the last several years as a skeptic, but I'm thinking in my head now, look at all the new buyers that we have of Bitcoin, who are the sellers? I don't really see a lot of people that are eager to sell at these levels. And you have all types of companies from mass mutual, to other large investment institutions, Paul Tudor Jones coming out and buying this and buying 1% of their portfolios in Bitcoin. But those are massive astronomical sums of money. But Arjun, thanks so much for joining us. We'll leave it there. Anthony, do you have a final word for origin before we let him go?
Anthony Scaramucci: (45:40)
No, I think, look, it's a fascinating conversation, you're my crystal ball now, Arjun. So I'm going to be calling you from time to time. Like I need to look in there so you can tell me what the hell is going on with the world, okay? I'm counting on you.
Arjun Sethi: (45:54)
We call it the magic eight ball, I'll shake something and I'll give you an answer.
Anthony Scaramucci: (46:00)
Something tells me you're a little bit more precise than that, but I love that line. Well, you be well and thank you so much for joining us on SALT Talks, and congratulations. And I'm looking forward to the future successes for you and your firm.
Arjun Sethi: (46:12)
John, Anthony. Thanks for having me on board.
John Darsie: (46:15)
Thank you, Arjun. And thank you everybody who tuned in to today's SALT Talk.