“Founders are essentially trying to change the world and build products that create innovation in society.“
Ed Roman is the Managing Director of Hack VC, a Silicon Valley venture capital firm, with the mission of democratizing access to top start-ups for investors. He is also the Founder of hack.summit(), the world’s largest blockchain event, which aims to support technology non-profits.
Silicon Valley is headed in the direction of creating information technology companies, and companies with technical founders are where the best investments may be found. More broadly, B2B software companies have the highest degree of predictability: individual consumers have relatively small budgets, whereas businesses may be drawing from large annual budgets with fewer restrictions.
Hiring and investing during the COVID-19 pandemic may seem counter-intuitive, but tech unicorns like Slack, Square and GitHub we use today were borne out of crises. “The greatest challenge start-ups face is finding the right people.” Hire at a time when top-tier talent is most readily available.
LISTEN AND SUBSCRIBE
SPEAKER
Ed Roman
Managing Director
Hack VC
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:08)
Hello, everyone. Welcome back to SALT TALKS. My name is John Darsie. I'm the Managing Director of SALT, which is a global thought leadership forum at the intersection of finance, technology and public policy. The 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 really trying to do during the SALT TALK series is replicate the experience that we provided at our SALT conference global series, which is to provide a platform for what we think are big ideas that are shaping the future, and also provide a window in the mind of subject matter experts for our community. And we're very excited to welcome Ed Roman to SALT TALKS to give a presentation and have a conversation about the state of venture capital investing in a post Covid world. And I think it will be a fascinating and very educational talk for everybody participating today.
John Darsie: (00:56)
Ed is the Managing Director of Hack VC, which is a Silicon Valley based venture capital firm. His mission is to democratize access to top Silicon Valley startups for investors. He has a decade of venture capital experience and as a shareholder and for startups worth over 1,000,000,000 and 17 startups worth over $100 million. Ed is also a bestselling author. And he's been the Chief Executive Officer of three companies with two exits. So he's a founder as well prior to going into the venture capital world. A reminder, if you have any questions for Ed during today's talk, you can enter them in the Q&A box at the bottom of your video screen on zoom. And hosting today's talk before Ed launches into a presentation about the future of venture capital investing in the post Covid world is going to be Anthony Scaramucci. Anthony is the founder and managing partner of SkyBridge, which is a global alternative investment firm. Anthony is also the chairman of SALT. And with that, I'll turn it over to Anthony to kick off the interview.
Anthony Scaramucci: (01:54)
Thank you. Ed it's great to be on with you and congratulations on an amazing career. John and I are super excited to expose our delegates if you will, to your presentation, because I think you are right at the intersection of where today's present means to our future. And it's such a great optimistic story as well, Ed. So I'm super excited about all of that. But before we get into that, I think it's important for everyone to just lay out a framework of you, tell us something about you that we couldn't find on your Wikipedia page.
Ed Roman: (02:29)
Sure. And by the way, it's great to meet all of you and thanks everyone for attending today. Anthony, it's a privilege to be in your company and to have this conversation with you. I'm a big fan of SkyBridge and all your work in the past. So thanks for the opportunity.
Anthony Scaramucci: (02:40)
Always I appreciate it. Thanks Ed.
Ed Roman: (02:43)
So, yeah. So maybe one thing that you might not read up on Wikipedia about me is that when I first started investing, which is probably about 10 years ago now, in the initial stages basically I didn't have access to a lot of the best investments. And I started off in Austin, Texas as an entrepreneur basically just advising start ups. Just trying to help them out because it is very natural as a CEO to start advising other companies. And when you start advising companies, they ask you to invest in them.
Ed Roman: (03:09)
So I became an angel investor, like a lot of other CEOs do. And like a lot of other CEOs, my very first few investments were losing investments. So I lost money as an investor when I first started out as an investor. And what I didn't realize at the time was that a lot of the best startups were being cherry picked by some of the top Silicon Valley VCs. So that's how I got my start as an investor and went on a 10 year journey to help address that problem and taught other investors to solve that problem, basically. So that's the Genesis for how I for sure started off on this.
Anthony Scaramucci: (03:41)
And it's an amazing story, but you had a game that you developed called Ghostfire Games.
Ed Roman: (03:47)
That's right.
Anthony Scaramucci: (03:47)
So you were in the gaming business and you were in the software programming business for games. How did you make the transition from that into venture capital?
Ed Roman: (03:57)
It was very organic. So basically my mission originally when I was creating this video game company was to help overweight gamers around the world to lose weight playing video games, by tricking them into playing video games and having them exercise as a byproduct of playing that game. So you might remember Nintendo Wii system that came out a decade or so ago. So that system has a motion sensing controllers, you can actually lose weight playing video games on those controllers.
Ed Roman: (04:24)
So my mission was if I can show these gamers a fun game to play, what if they could lose weight as a byproduct of playing that? So we created that game. We created some great games that got great reviews. And I started off as an engineer. I was a programmer and I learned business over time. So I was fortunate to have started three companies that have had a couple of exits and that organically led to me becoming an investor over time. Startups just asked me to help advise them. And then that led to me then becoming an investor in them. And then that's what started my path to become a venture capitalist eventually.
Anthony Scaramucci: (04:57)
What do you like about startups? We know that there's an exciting element to that and you're sifting for unicorns. We know there's a lot of failure in startups as well. And so what attracted you to startups and what's your competitive edge in identifying a winner?
Ed Roman: (05:13)
It's a great question. What's attractive about startups is that the founders of these companies are essentially trying to change the world and are building products that create innovation in society. And we benefit from that by being around people like that, it actually up-levels who we are as human beings. Because think about the character traits of being an entrepreneur, you have to be driven, motivated, hardworking, hopefully you're honest, passionate about what you're doing. That's the kind of people that I want in my life.
Ed Roman: (05:42)
I have a theory that if I can surround myself with people like that, that up-levels who I am as a human being. Because I learned from that, you are a product of who you surround yourself with. The five closest people that you surround yourself with. So I have the privilege of being on a monthly phone call with dozens of startups that we've invested in. And I learn from them, they learn from me and if I can give back and help them to avoid some of the mistakes that I made when I was an entrepreneur, that's a win for me in my life. That means I could be helping a startup to avoid creating waste and maybe shaving months off their progress timeline. That could be substantial in terms of the impact that start ups can makes to society.
Anthony Scaramucci: (06:20)
I actually think that is a perfect segue Ed into your presentation. But before you go there, John, do you have any quick follow up questions before we turn over to Ed's presentation?
John Darsie: (06:32)
I have a question about the Hack summit, which we've talked a little bit about Ed prior to coming on the talk, it's a programming event that attracts tens of thousands of attendees providing free technical education on blockchain and coding nonprofits and things of that nature. What is the future of programming? We hear a lot about programming boot camps and the need to retrain our workforce. How have you found success in combining your philanthropic and business endeavors in that field of coding and getting more people into coding?
Ed Roman: (07:03)
That's a great question. So actually it's something that we'll talk about in a little bit, but the quick preview here is that there's a shortage in America right now of one million software developers. And yet there's some substantial layoffs that have been happening in this country, and there's a lot of folks who are out of work and yet there still is that shortage of software developers. And so this is one of the problems we're trying to address here with our online educational event, basically. So we are essentially helping startups to find great programmers. And that essentially is what's allowing us to get allocations in these over contested and financing rounds.
Ed Roman: (07:36)
So we think the future of where Silicon Valley is headed is in a software categories and information technology, technology companies like Zoom that we're using today for this event. And that's basically what we're investing in. Is the next generation of companies like Zoom and that's built by programmers. So we think that technical founders are really where you want to be from an early stage investment perspective. You look at companies like Dropbox, for example. Dropbox was started by Drew Houston, which is a solo founder, who's an MIT engineer who built a company worth billions of dollars. And we think there's going to be many more companies like Dropbox in the future that become large and valuable that come out of all parts of the country and all parts of the world.
John Darsie: (08:18)
Well, it's fascinating Ed, we're going to turn it over to you to give us a presentation on the present and the future of venture capital in this post Covid environment. And we're looking forward to the presentation. And then following your presentation, we'll get to audience questions. We already have a few that have been emailed in. So we're looking forward to that portion as well, but we'll kick it over to you to share your screen and give us the presentation.
Ed Roman: (08:38)
Great. So here's a little about me and my bio. So I've been investing now for about 10 years. Learned the hard way and made a lot of mistakes when I was early in my career, have gotten better over time. And now we've been fortunate enough to be investor in four companies worth over a billion dollars and 17 of them worth over a million dollars. I've written a book on programming and that gives me a technical background to help evaluate some of these startups. And we also manage to syndicate of family offices that we help invest in startups. So we're helping families get access to some of the best startups in Silicon Valley. And I started in Cornell. That's what my background, I have a computer science degree from Cornell.
Ed Roman: (09:17)
So let's talk a little bit about how technology companies are fairing in this post Covid environment. We're going to start with the public markets. I'm going to show you some data about how public market companies are doing, then we're going to transition to private market companies. So as you probably noticed, we're having quite a bit of a run on the stock market recently. The NASDAQ is at all time highs and there's been a little bit of bouncing in the last few days, but it still has recovered quite nicely from it's Covid debt.
Ed Roman: (09:43)
And if you look at the Dow Jones, the New York Stock Exchange, those indices haven't quite fared as well as the NASDAQ. And one of the reasons behind this is because of software companies. Because of IT software companies. So you've look at companies like Okta and Zoom and Amazon Web Services, which is the cloud hosting, and Microsoft, which is also very cloud-based and Apple. These are some of the companies that are leading the charge in terms of the stock market recovery. Which surprised a lot of investors. A lot of investors didn't think that we'd have a recovery this quickly and it's being led by tech and software.
Ed Roman: (10:16)
So what's interesting here is that a lot folks are wondering, "Is this sustainable?" Like, "Can we actually continue to see the tech companies continue to thrive?" And, "Or is this another .com bubble burst like we saw 20 years ago, which I lived through." So we pulled some data here from William Blair. And this is data as of 2017. And this data shows which sectors were performing relative to other sectors back in 2017. And what's interesting to hear is that IT was actually the number one performing asset class against any asset class that includes materials, and gold, and crude oil. And this is all pre Covid. So there is historical evidence here that even before Covid that IT was an interesting category. And why is that? Why is IT software such an interesting investment category. I personally like it, and there's a reason why I like it. It's because first of all, you're selling software.
Ed Roman: (11:07)
So software is one of those products where it's a 100% margin. Where there's no cost of goods sold. You don't need to actually build a product. There's no product recalls. It's not a onetime purchase. You're subscribing to a service, like Netflix or Dropbox or Slack. You're actually getting a recurring subscription, which means there's predictability to the business. Which means, let's say your sales force is ineffective at selling software next year, you can still probably make around the same revenue next year that you earned this year. Because of the recurring nature of the software.
Ed Roman: (11:40)
And the fact that the software is fairly sticky. So we actually like B-to-B software. We think B-to-B software, business-to-business software is the category that has that most predictability. And the reason is because businesses are wasteful. They tend to spend a lot of money on things that come from large budgets that they have. And you compare that to consumers, consumers have much smaller budgets. They tend to be a bit more flaky than businesses.
Ed Roman: (12:04)
So Zoom, for example, which we're using today will be a good example of a B2B software company, and that has thrived in the pandemic. So that's how we look at public markets and why we think IT is interesting. Now let's transition to Silicon Valley and private markets and look at how things are changing here. So the first question we have to ask ourselves is, is Silicon Valley even an interesting category to be looking at from an investment perspective post pandemic.
Ed Roman: (12:29)
And what we did was we looked at it back in time and we looked at, what did it look like in the previous crisis? So we had a crisis back in 2008, 2009 in the financial crisis. And if you look at all these companies here, Slack, Nutanix, SendGrid, Square, Yammer, PagerDuty, Stripe, Twilio, CLOUDFLARE, and GitHub, what do they all have in common? The interesting thing that they all have in common is that they're all IT software companies and they're all unicorns. They're all worth over a billion dollars. And they were all started during the 2008 to 2009 financial crisis.
Ed Roman: (13:02)
So if investors were not investing during that time, they would have lost out on those opportunities. So we actually think that a crisis is actually a pretty good time to start a company. And there's a few reasons for this. One of the reasons is that it's easier for companies to hire great talent. So there's been a lot of layoffs recently in this country. And a lot of folks are looking for work, which means it's easier to build a team and assemble a team during a crisis because talent is more available. One of the biggest challenges that our startups have is finding qualified team members to help them build their companies. And as soon as the crisis hit, that actually became the opposite.
Ed Roman: (13:38)
Our startups had many more job applications than they had had in the past because of the crisis. So that makes it easier. And there's also less competition when acquiring customers. So a lot of businesses are not doing advertising right now. You look at traditional businesses like gyms and spas and hotels. A lot of them are not really advertising much because of the pandemic. So that opens up the opportunity for you to acquire customers more cheaply. You can even buy competitors more cheaply in case some of your competitors are struggling.
Ed Roman: (14:07)
So when we talk to entrepreneurs and they're thinking about starting a company, we're generally encouraging them to take that risk and to do it now, because we think that in the midst of chaos, there's always opportunity. There's always ways to make money and to build something that changes the world. But the caveat here is you have to be in the right sector. So you can't just start a company in any sector because a lot of these sectors are going to be challenging.
Ed Roman: (14:29)
And this is the quick snapshot of how we think the sectors compare between the challenging sectors and the sectors that are seeing a Covid tailwind. Meaning, the sectors that are actually benefiting from the pandemics. On the left hand side of the challenging segments here, and a lot of them are obvious like transportation, hotels, sports, fitness facilities, spas. Those are the obvious ones. Those are businesses that are physically closed, or people are not traveling, et cetera.
Ed Roman: (14:54)
Then there are some that are less obvious like apparel and luxury goods. You might not necessarily want to invest in buying that fancy watch or that diamond necklace, if you're not really going out as much. There's not a lot of opportunity to show that off. So that's a challenging segment right now. Online dating is also challenging because how do you get to go out with other people and go on a date in the pandemic? So some of these are less obvious than others, but then in the tailwind category, you've got companies that are doing online education.
Ed Roman: (15:21)
So teaching you to learn from home, video conferencing and virtual event technologies, as well as some things that are a little bit less obvious, like video games in virtual reality. People have more time on their hands right now, and they can't really go out as much. So they have to entertain themselves from home. And so those are the types of companies that we're seeing in Silicon Valley that are now, what a lot of VCs are looking at as interesting categories to invest in. Some of the companies that are doing really well right now in Silicon Valley are the next generations of companies that you see in publicly traded markets, but they're now being invested privately by these VCs. And we'll talk about those in just a second here.
Ed Roman: (15:59)
So here's some data that also backs this up. So what you're seeing here in this chart is layoffs in Silicon Valley in spring of 2020, this is a layoff's chart. This is how many jobs are being lost among the startups in Silicon Valley. And at the top of this chart, you'll see retail, travel, fitness, real estate, those categories are having more layoffs. And then at the very bottom of this chart, you're seeing IT having the fewest layoffs. So this again, supports what we talked about earlier about IT, software being like a Covid resistant category that a lot of VCs are excited about right now.
Ed Roman: (16:33)
And a lot of those companies are being highly contested by VCs because they're in that category of digital transformation, which a lot of businesses are going through right now because of the pandemic. So let's go through a few examples of what are some of the trendy startups in Silicon Valley that are thriving post pandemic. The first one is called Standard.ai. And Standard.ai is AI powered autonomous checkout. So what this means is, it is a service that retrofits a grocery store, like a Walmart, for example, or Kroger's and gives them the ability to have consumers buy groceries by just walking into the store, picking a grocery off of the shelf, and then literally walking out of the store without ever interacting with a human being.
Ed Roman: (17:20)
So the idea here is that it's using cameras in the sky to detect what items you're actually picking off the shelf. There's cameras that are built in the ceiling of these businesses. And they use artificial intelligence and computer vision to detect what items you are picking off the shelf. And then on a mobile application on your phone, that's when you get charged for this. So the idea here, the vision for this company is, "Let's actually reduce the cost of food in this country." Because by having a store that runs more efficiently with fewer cashiers, you actually can drive the prices of food down for consumers and really help consumers get access to food at cheaper prices.
Ed Roman: (17:56)
So it's one of those businesses that is helping the consumer to get access to food more cheaply, but it's also a fantastic business because you're helping the bottom lines of these grocery stores. You can even do things like detecting security. So what if someone pulls a knife out of their bag? What if someone tries to steal from the store? Well, you can actually detect that with the cameras in the sky. So there's a lot of potential for this technologies going... This has been kind of a 50X multiple in just two years as one of the hotter Silicon Valley startups right now.
Ed Roman: (18:26)
Here's another example, this is one that's directly benefiting from what's happened in the last few months, is Medina's health. So Medinas Health is a marketplace for hospitals to find much needed medical equipment. So let's say you're a hospital and you're trying to get access to very important surgery equipment and medical supplies, things like that. Medinas Health helps you find that equipment. And then once the pandemic hit, all these hospitals became very desperate to find masks and ventilators and gloves, because those were in very high demand once the pandemic hit.
Ed Roman: (19:05)
And then Medinas Health serviced that demand. So they helped these hospitals locate those ventilators, those masks. And you could see their revenue has pretty much been on a tear since the pandemic hit as a result of that. So this is a great example of a company that's doing good for the world. They're helping people, they're helping hospitals to source ventilators and masks. And they're also a great investment. They're also a profitable company. So that's why we're pretty bullish on these guys. And they grew five X just during Covid in terms of their revenue. So it's been a pretty substantial run for them.
Ed Roman: (19:37)
Here's another example of a company that's doing well in Silicon Valley called Crowdcast. So Crowdcast is like the next generation of Zoom. That's one way to think about it. It's a technology that allows you to host virtual events. So Zoom is more for these little, very informal sessions that we're doing here. We're just a few people chatting. Crowdcast takes that to the next level, they said, "What if we wanted to have 50,000 people together at a virtual event all at once? And let's make a next generation experience around them."
Ed Roman: (20:05)
So Crowdcast has done no marketing at all, and you can see here their run rate has grown again, 3.7 X in about three months, just as a function of the pandemic. Because a lot of folks are not able to attend conferences anymore. And conference organizers are now reinventing their conferences as virtual conferences. So Crowdcast is servicing that demand. There's one last example I'll give you. So as many of you may know traditional education that's in-person education is challenging right now. A lot of colleges and trade schools are closing their doors and they're turning students away. They're turning to online education, and this is also happening at the consumer level.
Ed Roman: (20:48)
A lot of consumers who learned skills at traditional businesses can't do that anymore. So for example, learning to dance is something that a lot of folks cannot do anymore because you can't take dance lessons from an instructor because it's not safe. Because you have to get very close to that dance instructor. And so a lot of the dance studios are closed now. So this company Steezy is a Silicon Valley company that's disrupting that. And they have online dance lessons where you can learn to dance from home. And this is street dancing. This is dancing where you can do it by yourself. There is no partner in this, so it doesn't require that you get near anybody else.
Ed Roman: (21:22)
And again, this company is on a tear due to the pandemic. So they've grown five X in the last year or so. Just as a function of Covid being a tailwind for their business. So these are some examples of companies that are benefiting right now and that are in that attractive category. Now, the other thing to think about is that there's some Silicon Valley companies that are not doing so well right now. That are in some of the challenging sectors and Airbnb and Lime bike are two examples of that.
Ed Roman: (21:48)
So Airbnb unfortunately had to slash their evaluation from 35 billion to 18 billion. So it's about a 50% reduction in their evaluation. And Lime bike, which is the e-scooter company, they had to reduce their evaluation from 2.4 billion to only 400 million. So that was an 80% reduction for Lime bike when they pulled their scooters off the street. And unfortunately this is having an impact on Silicon Valley. The impact this is having is that lead stage venture firms may have invested at too high evaluations into these companies.
Ed Roman: (22:19)
And they're needing to pour more money into these companies to keep them alive during the pandemic, which means they have less capital available to make new investments. So what that means for the other VCs, for the rest of us is that there's less competition. There's fewer VCs making new investments because a lot of capital is being allocated to save these "struggling Covid companies". Which means that if you are investing in new companies right now, if you are a VC that is writing checks, you're able to negotiate pretty well on price. You're able to actually negotiate on valuation because there's fewer options that startups have to raise from.
Ed Roman: (22:53)
So we think that investing in a pandemic is actually pretty good timing from a venture perspective. And this is some data that supports this. So this data comes from my friend, Tomasz Tunguz at Redpoint. And you can see here that the number of rounds of funding have been steadily decreasing. And this data is relevant as of July of 2020. So you can see here, the number of seed rounds, series A rounds, series B and series C rounds have all dropped precipitously especially in the last six months or so due to the pandemic. What's interesting here though is, this next chart shows you that the number of the sizes of those rounds have actually increased.
Ed Roman: (23:31)
So we're actually seeing bigger rounds, but we're seeing fewer of those rounds. And the reason why this is happening is that a few companies are doing really well right now, like the ones we saw earlier. And investors are dog piling on those deals. And they're putting more money into those companies because they're winning companies in the pandemic. And so that's why the round sizes are going up, even though the number of rounds are going down.
Ed Roman: (23:54)
So let's talk a little bit about social responsibility of venture capital. Something that I admire about SALT and about Anthony is that you guys have a very big focus on social responsibility and charity parody, and we do as well. So this is an interesting fact here. So if you look back in 1978, the most common job in America back in 1978, who would have guessed it's actually a secretary. Is the most common job in America back in 1978. This is about 40 years ago now. Number two, being a farmer back in 1978. And what's interesting here is if you fast forward about 40 years, this is what it looked like in 2014.
Ed Roman: (24:29)
So this is about six years old, but still relevant. And look what happened. Secretary is barely on the map anymore. And now truck driver is the number one most common job in America. It's truck driver actually. And the thing that I worry about is that these truck drivers may in the future have their jobs threatened by VCs in Silicon Valley because of self driving trucks. Autonomous trucks could be threatening to this workforce down the road. And what are we going to do about that? I think we have a social responsibility to think about this. It's not just about making money. It's also about addressing the societal change that's being caused here.
Ed Roman: (25:06)
So right now, unfortunately, this according to CNBC, that 47.2% of Americans are currently out of work because of Covid-19 and many of those jobs are not coming back right now. And this is because the companies are filing for bankruptcy. We've had a lot of local businesses in San Francisco shutter their doors permanently. Because of the pandemic. And yet, and this addresses your question earlier John, is that there's a shortage of one million programmers in this country right now. And unfortunately, most Americans are not skilled to fill those roles.
Ed Roman: (25:36)
So a lot of the people who are losing their jobs cannot fill those roles? So the small way that we're trying to address this is we aim to educate the world on the craft of software development to re-skill a lot of these workers, that way they can take some of these jobs. And we do this through our basic a global virtual event that educates folks on the craft of software development. And then what we do is we then place those programmers at our startups. So we have a service called Hack jobs that all of you can check out, which connects startups with programmers. And that also benefits us as a venture firm because we're able to credibly tell the startups that we have access to these programmers and that solves their biggest problem. And that earns us allocations in their rounds.
Ed Roman: (26:18)
That's one of the ways that we're able to fight our way into some of the better deals in Silicon Valley. So it's a good example of how you can marry social responsibility with economic upside and have the two together. Why do you have to pick one or the other? Can't you build a business that has both economic upside, but also social responsibility? And so we're big fans of that model. In fact, at our events we make no money on the events. All the proceeds go to charity, raise money for organizations like Code for America, women who code, girls who code, those are the folks who benefit from our events. We're not lining our pockets with them.
Ed Roman: (26:49)
So that's how we think about the world. So the last section here, before we go back to our fireside chat is what are some tips and advice for, "How do you earn returns in early stage venture capital while reducing risk?" So let's just get real here and talk about the positives and the trade-offs with venture capital. So one of the positives of venture capital is that it's a very patient way to earn strong returns. So if you're patient about it, if you can wait 10 years or so then the rewards can be substantial, but it's a long-term buy and hold strategy. This is not the type of asset where you'll get immediate liquidity. It's for people who are able to be patient and earn those returns, and are accessing equities that are unavailable to most investors.
Ed Roman: (27:31)
So a lot of these Silicon Valley deals are behind closed doors. You have to know the right people in Silicon Valley, you have to be a Silicon Valley insider to get access to them. And if you can get into them, it's usually quite lucrative. And the reason for this is because you're accessing an asset class that most people don't have access to. So on public markets, everyone has access to those equities. And for me, I like to play the game of accessing equities that other people don't have access to. So that's where I think it gets interesting with venture capital. And there are potential for out-sized returns in venture capital. So this is again, a very rare situation.
Ed Roman: (28:08)
But with Uber, if you were able to invest in Uber's very first fundraising round, you would have made 3,100 extra money on that investment. You have turned $10,000 into $31 million had you invested in an Uber's very first round. Now, again, that's very rare. You have to be very lucky to get into an Uber, but it is possible. And it also offers diversification against other asset classes. So if you're building a portfolio of real estate and public stocks, this is a way to hedge against those a little bit. And they're also helping to change the world. You're helping entrepreneurs to do good things.
Ed Roman: (28:42)
Those are just some of the positive venture capital. But then there's some challenges. One of the challenges is that, it's very volatile and it can be risky. So if you're investing in venture capital, there is a high variance, the asset class. And it's less predictable than other asset classes. And you need to be in the right funds. And a lot of the right funds are oversubscribed, unfortunately. So you look at funds like Sequoia capital and Floodgate, and Andreessen Horowitz. A lot of these funds are not accepting additional capital right now because there's so much demand to invest in those funds. Those are some of the challenges. So the way that we think about this is, "Let's look at how these different venture funds compare."
Ed Roman: (29:19)
So on average, a smaller venture fund will outperform a larger venture fund. This data comes from Preqin and you can see here that, as a fund size of around a hundred million, that's where you're getting the best returns as an investor. On average of course, there's always exceptions here. But then as the fund size gets larger, the returns on average start to drop. And the reason for this is because the investors have to invest bigger and bigger checks at later and later stages. And that can hurt the returns a little bit for the fund.
Ed Roman: (29:50)
Here's another interesting graph for you. So it turns out that most of the unicorns are only held by only 36% of the VC. So basically just about a third of the VC hold most of the unicorns. So again, illustrating why you need to be in the right funds. It's one of those asset classes where if you can get into the right funds and you have that access, then you can do very well for yourself. But if you can't, then you probably shouldn't be playing the game at all because it's a very easy way to lose a lot of money if you're not careful about it. And this is some data that shows that. So this data shows different venture funds based on top quartile versus bottom quartile.
Ed Roman: (30:26)
So on average, over the last decade or so the best venture funds, the top quartile have performed at a 19.45% return. Whereas the bottom quartile funds have only had a 4% return. So this is not true in other asset classes. So if you look at real estate and other asset classes, you don't see this huge disparity between the top quartile and the bottom quartile. And we're not even talking top decile or bottom decile here. We're just talking quartiles here. So again, illustrating why you need to be in the right fund.
Ed Roman: (30:57)
So in summary, these are some of the challenges. Venture capital is volatile, any VC could underperform in any given year, and you can invest in a large number of VCs and that can help reduce the volatility. But then picking a VC firm is tricky. You have to be able to due diligence them. The top VC partners can change firms all the time and funds have gone larger. That hurts returns. And access is hard, the best venture firms can be oversubscribed.
Ed Roman: (31:21)
So in summary, what I'll just tell you is what we're doing to help address this problem, because this is something that I'm passionate about is how do we solve this problem? And so what I've been on a mission for the last decade or so is essentially to transform the asset class of venture capital. And so basically what is a better asset class? So what we're basically doing is creating a new asset class out of venture capital through a diversified Silicon Valley fund.
Ed Roman: (31:44)
And what we basically do is we write small checks in to startups and then we build ownership over time, over multiple checks, and that reduces some of the risk. And to this diversified fund, it's not as concentrated. So it's more predictable. We're basically turning venture capital into a more predictable asset class through a larger portfolio. And our goal is to basically aim to access the top 10% or so of these early stage startups. And we invest alongside some of the top VCs at early stages before they get access to them and they mark it up at higher valuation.
Ed Roman: (32:17)
So we're trying to get an early at these low stages and we're investing in Covid-19 tailwind companies like the next Zoom, et cetera. We're focused on IT software. So we've been doing this now for about a decade now, and we have four companies worth over a billion dollars and 17 of them worth over a hundred million. So that's what we're up to and there's other solutions to this as well. So if you're a family office out there and you're looking to invest directly into startups, you can also apply some of these principles to a direct investment strategy.
Ed Roman: (32:47)
So for example, if you were to be investing in companies yourselves, I would encourage you to maybe write small checks into these companies to seek diversification. Maybe have a portfolio of 30 or 40 companies. Don't bet it all on just one company, and that should help you to shield from isolation. So you can emulate a little bit of what we're doing on your own as well. So that's it. If you have any questions you can email me. My email address here is ed@hack-vc.com. And I'd love to take audience questions [inaudible 00:33:15] the fireside chat. So thanks for listening to me today.
John Darsie: (33:18)
Absolutely. Thanks so much, Ed. That was a great presentation. I have some questions and I know we have some audience questions that have both been emailed in, and then we have some that have been posted in the Q&A box. Reminder, anyone watching, if you want to ask Ed a question, you can enter it into the Q&A box at the bottom of your video screen on the Zoom window. And we will answer it as long as it's appropriate and relevant. But I have a question to start things off. So I think it was a very interesting slide you had up. You had Airbnb and Lime bike talking about how you've had some short term disruptions in companies that have really compelling long-term stories.
John Darsie: (33:52)
And I saw some data a couple of days ago about Airbnb is having a massive resurgence in its revenue and bookings. Whereas hotel chains like Marriott are still suffering in the Covid environment. What you're seeing is a phenomenon where people are looking to get out of some major metropolitan areas and rent potentially rural cabins or other properties. How do you go about identifying what is the baby and what is the bath water? And are there other examples that you have of companies that are suffering in the short term, but it just provides a great entry long-term. Is that a quantitative process or a qualitative process that you go through? And what are some other examples that you're seeing about separating long-term opportunity from short-term pain?
Ed Roman: (34:36)
That's a great question, John. So, in general, we have seen that there's a trend right now towards essentially migrating away from the cities. So, in Silicon Valley in San Francisco, right now, the rents here have dropped by about 10% because a lot of workers have realized we can work remotely. You don't necessarily have to go to an office anymore. Even you John were telling me before our talk today that it's about an hour and 15 minute commute each way for you in New York city to get to and from work. And that may not make a lot of sense for a lot of workers. So what a lot of employers like Facebook and Google and other companies like that are doing and Twitter for example, is they are actually allowing permanently their workers to work remotely where they don't actually have to be in the city anymore. And that's opening up the opportunity for workers to do what I call maximizing the virtual office, which means if you work at a company like that, you could theoretically work anywhere in the world.
Ed Roman: (35:29)
Now, some places are more realistic than others. Like if you work somewhere in some Island in the Atlantic ocean, you might have a time zone issue collaborating with your employer because maybe there's very different time zones between the two of you. So I think staying within the same hemisphere makes a lot of sense. Now I do believe that that is going to be a somewhat temporary phenomenon. So what we're predicting will happen is that once the pandemic starts to wane and once the vaccines are ready and once they're distributed and manufactured, which by the way will take a while to do all that. It's not going to be a V-shape recovery, but once that all happens, then there's going to be a resurgence of cities, where people start to return to cities.
Ed Roman: (36:08)
But it's not going to be 100%. So what's happening here is that people are finally opening up their eyes to the idea of a virtual office and how that could be beneficial to workers. In fact, for all three companies that I've run as CEO for the last 20 years, all three of them have been virtual offices. So I've learned a lot about how to run a virtual office myself and learned a lot of lessons about how to do it the wrong way and how to do it the right way. And a lot of companies are going to have to learn those lessons over the next few years. So I think it's going to be a hybrid. You're going to have some companies that allow virtual offices and some that don't and some will be open to a mix of both. And so we do believe that the cities will still have a permanent function and that companies will be returning here. So that's a great question, John.
John Darsie: (36:49)
Yeah. From a SkyBridge, just to editorialize on my end briefly. From a SkyBridge standpoint, I went into the city yesterday for the first time. I live on long Island, like you said, it's about an hour and 15 each way for me. So two and a half hours of commuting every day. I went into the city yesterday. It was nice to be back in the office, but by the end of the day, I said... Given the time that I spent commuting I was on calls and things while I was commuting. I said, "This isn't necessarily the best use of my time. It's definitely valuable to be there at least a couple of days a week, but I envisioned myself working remotely and maximizing my time in a remote environment.
John Darsie: (37:21)
And also from an event perspective, you talked about Crowdcast. We actually have an audience question about this that we can segue into. But from an event perspective, we always had our SALT conference was virtually 100% an in person event. People gathered in Las Vegas about 2000 people every year, fantastic networking in a very insulated environment. We view those events going forward as being hybrid, even in a post Covid two, three, four, five years down the line of having a digital element built into the in person gathering. So Crowdcast, we have an audience question about Crowdcast and Steezy. Do you see those businesses continuing to grow after the Covid environment that we're in? Or do you think growth might slow or what's your forecast for those types of companies after we get clear of this pandemic?
Ed Roman: (38:05)
That's a great question. So, we do believe that these companies that are doing really well based on the pandemic, they're not going to see the organic growth levels that they are seeing today just because of the pandemic. So Crowdcast has done no marketing. They have grown five X just because of the pandemic, off no marketing. Now we don't think they're going to get all that free growth without investing in marketing going forward. So we think that in the future, they're going to need to invest more to cause their own growth on their own without the pandemic.
Ed Roman: (38:38)
But we do believe that there is going to be a permanent need and value for having virtual events. For the reasons that you and I talked about, which is that a lot of folks are now open minded to the idea of a virtual event. The idea of a virtual conference a year ago would have been unthinkable for a lot of conference organizers. And a lot of folks like virtual events, "Do those even work and do I even get value out of that?" And now since it's the only way we can do business, now folks are open minded to it and they're seeing, "Wow, I actually can get value out of a virtual event."
Ed Roman: (39:06)
So we've been doing these now for six years. We run the largest program or event in history, which is virtual. And we've been believers in this for a while. So we've been hopeful that folks would embrace virtual events now for six years. And now they finally are out of necessity. So we think it's going to be a component but not the only answer going forward. We think it's going to be a mix of both. And so for companies like Crowdcast and Steezy that are having this huge tailwind, and we think that the tailwind will eventually subside and they're going to have to cause their own growth.
Ed Roman: (39:35)
But this does a lot of benefit for them anyway. It de-risks their next fundraising round, their traction goes up quite a bit, they're less dependent on investors. They need to raise less capital from VCs because they can get profitable very quickly. And by the way, both those companies are profitable, which is very rare. You look at all these publicly traded companies, they are.... How many IPOs do we see these days for profitable companies? There aren't that many of them.
John Darsie: (40:00)
[crosstalk 00:40:00] is a great example of that. They lose what? Over $500 million a year.
Ed Roman: (40:04)
That's right. So there is a hand full, but most of them are not. And Silicon Valley has this reputation of turning out these publicly traded companies that are unprofitable. And here we have companies that have even raised their series A, that are profitable, coming out of Silicon Valley. So this is a new generation of companies that we think are self sustainable and the pandemic has been helping them in that regard.
John Darsie: (40:25)
So the next question, Steve Case is somebody who was at our SALT conference in 2019 in Las Vegas. He did a SALT TALK a few months ago. He's a big proponent of this concept of the Rise of the Rest, which is that there's going to be... Even pre Covid, He was preaching this. That there's going to be a wave of entrepreneurship and capital that flows to second tier cities in the US basically non Silicon Valley and to a certain extent non New York. So he's helping to invest in a lot of those companies. He has a bus tour that goes around and does a startup competition, pitch competition.
John Darsie: (40:58)
When you look geographically at startups, do you have a bias towards different places? We have an audience member who's asking whether you look at startups in, for example, the Atlanta or Southeast Georgia area. You talked about the Hack summit that you do that helps companies identify and hire coding talent, and you have the hack jobs platform as well. How do you think about companies geographically? And do you agree with cases, narrative that there's going to be a wave of entrepreneurship outside of these hubs, like San Francisco?
Ed Roman: (41:28)
And that's a great question, John. And thanks for asking that, David. So over the last five years or so, I have been trying to help startups fundraise from other VCs. In addition to ourselves who we believe have merit that are not based in the US and not based in Silicon Valley. And as you get further and further away from Silicon Valley, it can get more challenging. So to be realistic, the reason why this is challenging is because most of the VCs are in Silicon Valley and they preferred to not have to travel for their board meetings, because they have families and they're trying to manage their time and they don't want to be on flights their entire lives.
Ed Roman: (42:04)
They'd rather just have a good family life. So that bias causes other VCs to essentially deprioritize startups that are not based in Silicon Valley. Now that rhetoric has been changing over the last five years or so. So what I'm seeing now is that because of additional competition in the VC industry, because there's a lot more VC firms now than there used to be, the VCs are having to get more creative around, "How do I actually win the best deals?"
Ed Roman: (42:32)
And a lot of the best deals are not in Silicon Valley right now. So you look at Salt Lake City, Utah, for example. There was a largest SAS exit in history, in Salt Lake City, Utah, which was $8 billion that came out of there. Where SAP made an acquisition out of that area. And then Pluralsight, which I was a board observer on also based in Salt Lake City, that IPO-ed for 4.5 billion. So Salt Lake City is an up and coming center now. And most VCs have some strategy or presence now in Salt Lake City. New York City is another good example of that. Los Angeles is another good example of that. So there are certain hubs that are now popular from a VC perspective, and it's easier to raise the next round of funding if you invest in a company that's in those sectors. Because other VCs want to invest in those geographies.
Ed Roman: (43:20)
So it's almost like, by having empathy and by investing in the geographies that other VCs want to invest in, you're actually de-risking in the next round of funding for the startup. And that helps de-risk the investments. So now with the pandemic though, a lot of that is changing. So VCs are now taking their meetings over Zoom, and they're a lot more open to where the startups are located. So we think there's going to be a lot more optionality in terms of where your company is based. And now we're seeing fully virtual distributed teams raising their rounds of funding. So it's going to be interesting to see what happens?
John Darsie: (43:50)
You talked in the opening with Anthony about early in your career, you were frustrated by a lack of access. You felt like you were missing out on a lot of great investment opportunities because you couldn't get access to those. A ton of competition in Silicon Valley. Especially when you talk about those big firms that you mentioned earlier, that get access to all the top deals and crowd out potentially some other investors. How were you able to get into the top startups, given all the competition in the market? And we have a question from an audience member, Chris, what are other ways to solve that access problem other than getting invested at the very early seed stage?
Ed Roman: (44:22)
That's a great question. So, basically here's our strategy. So what we do is we partner with other venture firms. So we partner with firms like Sequoia, like Bain Capital Ventures, like Floodgate, these oversubscribed funds. We have alliances with them. And our business model is that we invest very small checks into those companies at very early stages. And by investing a small check, it doesn't threaten these other VCs business models that are happy to allow us to join for a small check because their whole goal is to write a very large check into these companies and we're enabling them to do that. So what we do is we help them find the best deals. We are literally giving away all of our best deals to our friends who are other VC firms to allow them to lead these rounds. And we're co-investing for small checks. And the reason why we're doing this is because we are transforming the asset class of venture capital into a more predictable asset class through diversification.
Ed Roman: (45:15)
So by having a larger portfolio of these small chunks, that's what creates consistency in the returns. That's what allows us to take the volatility out of venture capital. So we actually don't desire to write these giant checks. We're happy to write a modest check. And then if the company is performing well, then we reinvest in future rounds. We build this position over several checks. So it's almost like we're dollar cost averaging our way into this investment. And by taking this position, it allows other venture firms to essentially be open kimono with us about getting us access to some of their best deals.
Ed Roman: (45:47)
So we're able to invest in companies that the general public generally can't access because those other venture funds are oversubscribed and we're able to access them for that reason. And then the last part of this is that the CEOs themselves are demanding that we invest in their companies. Because we have access to all these engineers because we run this large program or conference. You have to have empathy for the CEO also, they're the ultimate decision maker about whether you get into these companies. And by solving their biggest problem of hiring engineers, they're generally pitching us to take their money. No matter how many term sheets they have, no matter how hot the deal is. We're almost always able to get a small allocation for ourselves because that value add is so important for the CEOs.
John Darsie: (46:29)
We have another audience question, you mentioned the idea of investing in startups outside of Silicon Valley and also even outside the United States. And we have a specific question about India. And India I know it's a hot place for technology entrepreneurship right now. There's several companies, Google just invested a significant amount of money in the Jio platforms based in India. But do you have a specific view on startups that operate in India and are there any other international markets that are of keen interest to you?
Ed Roman: (47:00)
So we do invest in India as well as South America. LATAM is a big focus for us as well. We think that there's opportunities to essentially clone Silicon Valley companies in those geographies. One of the biggest risks you take as an investor is how do you risk what's called product market fit? Meaning how do you prove or disprove the hypothesis around your business model? And that's one of the biggest risks that an investor takes. So if you have a business model that you know works, where you know it's a good business model and it's been proven in the US and if you clone that business model in other geography, then you're taking away that product market fit risk. You know the business model will work. It's just a question of execution at that point, "Is this a good team? Can they execute?" And you can diligence that as part of the investment process, by doing reference checks on the founders and by looking at their past work. People who tend to do well in life tend to repeat that success and do well multiple times.
Ed Roman: (47:53)
So we tend to look for what is the history of success that these folks have? Are they winners in life in general. And that predicts whether they will be successful with these companies. So that is one thing that can make it more straightforward to invest in international markets. And we believe that valuations are also more attractive there, because if you look at the publicly traded markets in places like Latin America or other parts of the world, the public markets are not as healthy as the US. So the US publicly traded markets are very healthy compared to like Latin America, for example.
Ed Roman: (48:26)
And the valuation multiples that you see in Latin America are much lower than the US for the same company. If you were to IPO a company in the US versus Latin, you're going to see a much lower multiple on revenue on that publicly traded company in LATAM because the markets aren't as hot there as here. So what that means, you've got to be careful from a valuation perspective. You have to come in at a low valuation and give a little bit of a discount to the valuation, because they're in Latin America. And as long as you bake that into your Math, it can be very lucrative.
John Darsie: (48:57)
We have another audience question. This was actually one of my questions as well. So at SkyBridge, we deal with a lot of families. Family offices are pretty much our largest constituency of clients. And a lot of times when we bring whether it's hedge funds or venture capital funds to these families, some of them have a preference to invest deal by deal, as opposed to in funds, what are the advantages and disadvantages of investing in a venture capital fund versus trying to invest in deal by deal? And what are some common mistakes you see investors make when they're trying to invent themselves deal by deal in terms of due diligence and company's selection?
Ed Roman: (49:33)
That's a great question. So let me answer the second part of your question first. So we actually have a PDF file that we made that gives a bunch of tips for how to avoid making mistakes when you're doing your own investments, deal by deal. And I'm happy to email that to anyone in the audience that wants to hear about this. I'll just type out my email address here. It's ed@hack-vc.com. If you send me an email, I will send you this PDF file. It's called Angel Investing Tips, and it contains a plethora of best practices that I've learned, the mistakes I've made as an investor over the years, crystallized into a PDF document for you to review.
Ed Roman: (50:09)
Then the other part of your question was, how do you judge the difference between deal by deal versus funds and how do I know which is best and what are the trade offs between the two of them? So we offer both at our venture firms. We do both deal by deal and fund investments through our venture fund, to our LPs. And we do find that investors like to choose their own deal. There's something sexy about being able to pick a company and to have some intuition about whether that company is going to succeed. Because everyone comes from different walks of life.
Ed Roman: (50:42)
Everyone has different life experiences, and you personally may have some intuition about a company that other investors don't have. So why can't you pick your own deals? And so there is a trend right now towards doing that, where families are getting more and more comfortable picking their own deals. The caution that I'll give you is that most family offices suffer from what's called adverse selection. Adverse selection means the deals they're seeing are the ones that have already been picked over by the top VCs. And this is the problem that we're actually trying to solve at our venture firm. Because this is a problem that I experienced because I have my own family office. I had an exit 20 years ago, and I started a family office and lo and behold, I got access to a bunch of deals that other VCs didn't want. And that was problematic for me.
Ed Roman: (51:23)
And that's why I went on this journey to help solve for that. So the way you can avoid that, one way you can avoid that is to partner up with a VC firm. And there's many of them we're one of them, but there's plenty of others too, that you can partner with. Where maybe they can be a second set of eyes for you to help you vet a deal. That way you have a professional that's looking at the deal with you to maybe assist you a little bit on due diligence and to maybe help you out with deal flow. Now, the one caution I'll give you is that, and this is something that VCs are pretty famous for and a lot of families don't realize this is that, sometimes what a VC will do is they'll invest in a company.
Ed Roman: (51:54)
And then if the company under-performs they'll then offer that deal to their family offices, to essentially give the company more runaway to help them have more dry powder to turn it into a good company. And guess what? Those are some of the bottom performing companies in their portfolio. The best ones, are able to raise on their own. They don't even need family offices to raise from them. I would look at your own deal flow from a perspective of what is called a jaded eye. Meaning I'll be cautious about your own deal flow, make sure that you have good counsel, a good venture firm you can work with to be a neutral second set of eyes on this deal. And that can help you avoid some of the losses. Investing in funds gives you what's called a fund level protection. Meaning if you invest in a fund you're investing in a basket of companies and the winners and losers offset each other. So the [inaudible 00:52:40] doesn't make any profits, any carried interest unless the whole fund performs.
Ed Roman: (52:46)
So that means that there's accountability for performance. You don't enjoy that if you invest deal by deal. So if you're doing your own deals, the winners and losers, don't offset each other from a profits perspective. If someone is sourcing a deal in there, they're taking a profits interest on that. They're getting a deal by deal profits interest, which is a very good deal for them. So that's why I would be a little bit cautious. It is sexy to invest in your own deals. And we think it's a good thing, but you've just got to be very careful about it. And email me, I'll give you my Angel Investing Tips to help you navigate that.
John Darsie: (53:15)
Fantastic. I think you might get the sexier returns, as you mentioned sometime, and maybe it has an element of excitement to it trying to pick over deals. But you might settle for a slightly lower return, but with significantly less risk in a fund structure. We have another question from Chris talking about SPAC. So we had Chamath Palihapitiya from Social Capital on he's become the face of this surge in SPAC, Special Purpose Acquisition Companies that provide basically a back door for companies to go public versus a traditional IPO. Do you think SPAC will become a more widely used tool? And what is your general opinion of SPAC? Is it a byproduct of the overheating potentially of the private capital world or what's your general opinion of SPAC? And do you think they'll continue to be a popular substitute for traditional IPOs?
Ed Roman: (54:06)
That's a great question. So I will caution the audience that I am not an expert in SPAC. I'm more of an expert on venture capital, but I will do my best to answer. So my understanding is that there's about 110 SPACs right now that are competing to essentially acquire a company and effectively IPO with them. And the value of that SPAC is that you're not just getting access to IPO and giving yourself liquidity, but you're also saving on the fees that the brokerages will charge you. And that's a lot of savings right there. That buffer that you're saving from not having to go through a wall street broker, that's money that you're leaving on the table as an investor, if you go through a traditional IPO. And the other value of a SPAC is that you're actually able to do a primary fundraise for your company as part of the liquidity, which is also attractive because IPO company is basically a fundraising event. You're raising money for your company, so SPACs have that value.
Ed Roman: (54:58)
So those are some of the benefits of SPAC. But then there's also some trade offs and some downsides as well. So we think that there's going to be a mix. We think that the future is going to be a mix of both SPACs and IPOs. I think one thing that hasn't been discussed too much is that there is this emotional benefit that an entrepreneur gets from ringing the bell on wall street. There's something that's very proud about actually going through an IPO that people just want to experience in their lives. So I think that the demand from IPO is going to go away just because of the ego factor of doing that process. Of saying, "IPO-ed a company." A lot of entrepreneurs just want to say that regardless of the process. And a lot of people just aren't up to speed on SPACs. They're not as familiar with it, and they may not be comfortable doing the SPAC because it's a newer instrument and the IPO is the more traditional instrument. So we think it's going to be a mix going forward. And we think there's room for both of them.
John Darsie: (55:49)
I think we could talk for two more hours easily given all the audience questions and questions that I have for you, but we'll wrap it up just with one more quick follow up on that. And it's a meta question about public markets versus private markets. So obviously you see public tech companies are performing very well prior to that, private technology companies were extremely hot, private equity and venture capital were very much the hot dot and you're talking about different ways to go public. Is there really a strong need for a lot of these private companies to go public or private markets developing with such maturity that you're going to just continue to see some large companies remain private for long periods of time and potentially never go public.
Ed Roman: (56:29)
That's a great question. Yeah. So, the trend that we're seeing is companies are taking longer and longer to go public. And a lot of folks are realizing like, "Why would I even want to go public? What is the benefit of going public?" And the most common answer is, "It's a way to reward the employees who are breaking their backs building your company." Because you're offering them liquidity, you're offering the opportunity to sell their shares to other parties. And there are other ways you can achieve that. You can do a secondary offering on private markets. You can have some of the employees cash out that way, but that's harder to orchestrate for a large number of employees.
Ed Roman: (57:02)
So an IPO is a more elegant way to do that. There's a lot of trade offs, so there's a lot of negativity to going public. Like for example, you may have activist shareholders that try to take over your company and you may have lawsuits that happen from class action lawsuits. Because let's say, Elon Musk puts out a tweet that says that there's a good chance he'll get some financing and doesn't happen. That happened in the last year or so.
Ed Roman: (57:27)
And there was a bunch of class action lawsuits that result from things like that, which you have to deal with. So it's all this nonsense you have to deal with as a company because you're under public scrutiny. So it takes about a year or so to just prepare to go public in terms of getting your books in order and all that stuff. I've been through this process before when I was a board observer at Pluralsight and it's nontrivial to go through that process. So a lot of folks just want to avoid that pain and the potential fear of the public scrutiny. So they'll remain private for a while. But then there's this pressure from the employees to cash out. And the VCs also want to cash out. The VCs want to... A venture fund is only intended to last for 10 to 12 years.
Ed Roman: (58:06)
So once that timer expires, at that point you're obligated to produce a return for your investors. You can do that through a secondary sale. You don't need to go IPO, but an IPO is a nice way to do that as well. So there's some of the trade offs. So we think that people are wising up to the fact that you can now have what's called a second class of shares. Like Mark Zuckerberg has this for Facebook, where he can't be removed as CEO because his voting shares have more votes than other shares. So things like that, if you're a really, really hot company, you can do that. Only the best companies can do that, that can elude some of the fears around going public for some of these companies. So it's going to be a mix and every entrepreneur is going to make their own decision. And we think is going to be interesting to see what happens going forward.
John Darsie: (58:49)
Well, thanks so much for joining us. It was really educational, both for people that are in the industry, who might've learned something more from your presentation and also for people who are less knowledgeable about the venture capital world. I think your presentation was fantastic. And again, I think we could do another hour without blinking, but we'll have to have you back on and definitely have you back at one of our future in person, SALT conferences. And maybe we'll use Crowdcast to make it a hybrid event. Congratulations on all your success with some of those investments that you mentioned.
Ed Roman: (59:18)
Thanks, John. And the audience, thanks for tuning in. Again, if you have questions, just email me ed@hack-vc.com take care.