“Entrepreneurship and innovation don’t know boundaries, so great ideas can surface anywhere.”
Jihan Bowes-Little is the co-founder and managing partner of Bracket Capital, an alpha-driven global investment firm. Lo Toney is the founder and managing partner of Plexo Capital, an institutional investment firm spun out of Google Ventures.
Diversity within a VC firm is more likely to lead to a diverse portfolio of companies and founders. Investing in people of color and women naturally produces stronger results as they’re more likely to challenge conventional wisdom and identify unique opportunities. VC’s can more easily seek out diverse companies and founders regardless of proximity as technology has made remote work and collaboration easier. "We know based on data, if there’s a diverse set of investors around the table, their portfolios end up being diverse."
With the growth of venture capital, there has been a rise in secondary markets where IPOs were once a company’s main liquidity event. This allows entrepreneurs to be more patient in going public while also providing investment realization to investors and the company’s early
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SPEAKERS
Jihan Bowes-Little
Managing Partner & Co-Founder
Bracket Capital
Lo Toney
Founding Managing Partner
Plexo Capital
EPISODE TRANSCRIPT
John Darsie: (00:07)
Hello, everyone and welcome back to SALT Talks. My name is John Darsie, I'm a managing director of SALT, which is a global thought leadership form and networking platform in the intersection of finance, technology, and public policy. SALT Talks or digital interview series that we started during this work from home period in 2020. It's gotten great tracks and we look forward to continuing it as we sort of embrace the digital future the way a lot of companies have. But what it is, is conversations with leading investors, creators, and thinkers. And our goal on these SALT Talks is the same as our goal in our SALT Conference Series, which is to provide a window in to the mind of subject matter experts, as well as provide a platform for what we think our big ideas that are shaping the future.
John Darsie: (00:52)
We're very excited today to welcome two guest, who have been active investors in a lot of those big ideas, Jihan Bowes-Little and Lo Toney to SALT Talks. Jihan Bowes-Little is the managing partner and co-founder of Bracket Capital, an alpha driven global investment manager focused on later stage technology-enabled companies with asymmetric risk reward profiles. Jihan began his investing career in London on Goldman Sachs' esteemed Global Macro Proprietary Trading desk. in 2006, he moved to credit trading where he managed a multi-billion dollar portfolio through the great financial crisis generating record profits and gaining invaluable expertise, investing in semi-liquid markets and emerging asset classes at scale. He then joined Millennium Capital as a portfolio manager and was later recruited to lead a multi-strategy portfolio for BlueCrest Capital.
John Darsie: (01:45)
Lo Toney is the managing partner and founder of Plexo Capital, which is an institutional investment firm that he incubated and spun out from GV or Google Ventures. Plexo Capital invests in emerging seed stage VCs led by diverse teams and invests directly into companies sourced from the portfolios of VCs where Plexo has an investment. Prior to funding Plexo Capital, Lo is a partner on the investing team at GV, where he focused on marketplaces, mobile, and consumer products. Before GV, Lo was a partner with Comcast Ventures, where he led the catalyst fund and worked with the main fund where he focused on mobile messaging and marketplaces.
John Darsie: (02:25)
And hosting today's talk is Anthony Scaramucci, the founder and managing partner of SkyBridge capital, a global alternative investment firm. He's also the chairman of SALT. And with that, I will turn it over to Anthony for the interview.
Anthony Scaramucci: (02:36)
Okay, well on behalf of Lo and Jihan, I just want to thank you for reading their bios the way their moms, their respective moms wrote the bio. I thought you did a great job, I mean...
John Darsie: (02:48)
Those were condensed bios [crosstalk 00:02:48]
Anthony Scaramucci: (02:51)
I know that your moms chipped in on that. It was unbelievable, if I had a bio like that, I'd be nailing it to the wall behind me. So congratulations to both of you. I want to start with both of you with a question I ask everybody. Our people love hearing about this and I'll start with you Lo just randomly. I need to hear something about your life I can't find on Wikipedia or from the bio that your mom wrote on your behalf, so tell me something about you that we need to know.
Lo Toney: (03:24)
Well, probably the thing that you can know is I love video games. And speaking of my mom, she probably is still holding on to some of my comics that I used to collect as a kid.
Anthony Scaramucci: (03:35)
Oh good for you. So, your mom is absolutely terrific then. My mother incinerated hundreds of thousands of dollars worth of comics. And I'll totally expose myself in my age. G.I. Joe dolls, you guys are probably not old enough to remember those but I've lost a fortune. I don't even go on eBay for the tears that I shed as a result of my mother's OCD and our cleanliness.
Anthony Scaramucci: (04:01)
What about you John what can we learn about you that we don't know?
Jihan Bowes-Little: (04:07)
I guess staying on the topic of kids, I got a three and a five year old so I'm deep in the business of parenting and juggling that with running the fun. I would say there's a-
Anthony Scaramucci: (04:17)
Boys, girls, what kind of kids you have?
Jihan Bowes-Little: (04:18)
A boy, girl.
Anthony Scaramucci: (04:19)
Okay, what about you Lo, you have kids?
Lo Toney: (04:21)
I do too.
Anthony Scaramucci: (04:23)
How old are they?
Lo Toney: (04:24)
22 and 20.
Anthony Scaramucci: (04:27)
All right good for you. Well, you guys look great, God bless.
Lo Toney: (04:30)
Thank you.
Anthony Scaramucci: (04:30)
I have five children, so you guys can catch up anytime you want, okay? You just have to catch up.
Lo Toney: (04:37)
No, thanks.
Anthony Scaramucci: (04:38)
No, thank you, I hear you.
John Darsie: (04:40)
The youngest is known to storm into the room while Anthony's on MSBNC and start bashing... it was a Santa Claus doll that he had.
Anthony Scaramucci: (04:47)
The youngest has a media contract, he came into the room one morning, "I told you not to work on Saturdays." He karate chopped me in the Adam's apple, he took out Santa, he pulled me out of it. It was a bad scene on live television but we get through these things.
Anthony Scaramucci: (05:02)
Okay, you both have these amazing careers and we have so many young people that listen in and they're looking at the two of you and saying, "Okay, my God. Congratulations on your careers but how do I get started?" Describe the early parts of your careers if you don't mind. And talk about the trials and tribulations, the successes and failures. But what was the arc and the mindset to help you get to where you are? Why don't we go with you Jihan first and then we'll have Lo follow-up.
Jihan Bowes-Little: (05:33)
Sure. So, I started my career in investment banking. I moved into trading very early, I became a proprietary trader for Goldman after my first year within the firm. At that point I'd never put on a single trade in my life.
Anthony Scaramucci: (05:48)
What year was it when you started Goldman?
Jihan Bowes-Little: (05:50)
2002.
Anthony Scaramucci: (05:52)
Okay.
Jihan Bowes-Little: (05:54)
So, I started 2002 in New York-
Anthony Scaramucci: (05:55)
You were still running London, Bob Steele? Was he still running London at that time?
Jihan Bowes-Little: (05:59)
It was Sherwood when I was there mainly.
Anthony Scaramucci: (06:01)
Oh, Mike Woody, yeah. Woody was actually in my training class.
Jihan Bowes-Little: (06:07)
Oh, yeah?
Anthony Scaramucci: (06:07)
Yeah. I'm an old-timer at Goldman back in-
John Darsie: (06:12)
Believe it or not, he worked at Goldman Sachs. They won't tell you that anymore but he actually did work at Goldman.
Anthony Scaramucci: (06:17)
Look, John's trying to hurt my feelings guys but it's okay. After I got my ass fired from The White House, there's really no way you can hurt my feelings. But yes, Goldman has more or less tried to erase me from their alumni network but it's sort of too bad because Solomon comes to my wine party in Davos every year. So, he won't erase me because he likes drinking 100-Point Robert Parker wine. But I would say the rest of the firm has totally written me off. All right. But go ahead Woody's a good guy so you work with Woody?
Jihan Bowes-Little: (06:45)
Yeah. Many layers below, I was a first-year, second-year analyst. Christian Siva-Jothy was running the prop desk at that time. A great group of some of the foremost traders probably in the firm's history I just was there to soak it up. I learned from experience, there's not a lot of you can teach people sometimes. I think about proprietary training a lot of it is about understanding yourself, your own personal psychology, philosophy, risk, limits, fear, tolerance, things like that. And I spent a few years there. Most of them went on to set up their own hedge funds or go work at hedge funds, and so I moved over to credit trading. I never really market made in my life so I'd never really had that experience of touching and feeling the market. Those people start on the sell side and with a significant experience move over to the prop side.
Jihan Bowes-Little: (07:31)
I was kind of doing the reverse. So, I moved into credit trading, 2006. The firm I think has always been very good at allocating its resources ahead of major market changes. Earlier in my career I noticed a lot of employees being moved into commodities before the big commodity boom, and the same thing happened in credit. So, they moved some of us over into credit. Obviously, the subprime crisis unfolded, we had a front row seat for that. That was obviously a real pivotal time in terms of me understanding risk, managing risk at scale, understanding unknowable risks, and convexity, et cetera. After that I ended up moving over to the buy side. Like John said, I spent some time on Millennium and BlueCrest, kind of going back to my proprietary trading routes. And so, I traded a mixed portfolio, some credit default swaps and options, equities as well. That's generally been the arc of my career before I came back to California which is where I'm from in 2017. To set up Bracket Capital, which is focused on private markets.
Anthony Scaramucci: (08:34)
Okay, terrific. So, Lo take us back and take us through some of these trials and tribulations.
Lo Toney: (08:41)
Sure not as fancy as Jihan. I was listening, that's pretty fancy. I almost had to go and dust off my finance book to understand what he's [crosstalk 00:08:50]
Anthony Scaramucci: (08:49)
Unbelievable Goldman Sachs humble-bragging, we'll get to that later. Unbelievable, there was like a potpourri of name dropping and even threw convexity in there Lo Toney, I mean "Come on." I've been on Wall Street for 33 years I still have no idea what convexity is. That's fine. [crosstalk 00:09:08] Rub it in, Jihan, rub it in.
Lo Toney: (09:12)
I learned about convexity actually, I was like "Wait, come back, okay. All right. Got it." So, my background goes all the way born and raised in Oakland, went to school in Virginia Hampton University, a historically black college. Decided that I wanted to enter finance as well. I wasn't fancy enough to go to Goldman or Morgan, so I ended up at some of the commercial banks. And I really discovered that the thing that was really interesting to me was more on the technology side. The reputation that I developed was... believe it or not, when I was in college I actually took Computer Science classes. I cannot use any of those languages anymore things like Cobol and Pascal. Although if you work for a financial institution, probably every now and then you have to break some emergency glass and pull a Cobol programmer out so your whole system doesn't crash. Because a lot of these infrastructure players are still running on them believe it or not.
Lo Toney: (10:07)
But nonetheless, decided that what I really was most interested in was just nerding out on technology and always looked for ways to see if I could do clever things with Excel pretty much at the time to solve some of the problems that I was tasked to do. Went back to grad school and during grad school I entered thinking, "Maybe now I actually will be able to go work for one of those fancy investment banks." I was a little more interested in the Hamricks and Quest, or the Robertson Stevens of the world. Because at the time, the four horsemen as they were called then were the ones that were taking the tech companies public. Because the fancier brokerages didn't really understand or maybe even believe in the power of these new technology companies that were coming to market.
Lo Toney: (10:56)
Now a funny thing happened, on my way to the coliseum, I ended up meeting a lot of venture capitalists. I was fortunate to go to Takao, I think that also played a role because just proximity-wise, there were a lot of VCs that would come in and just talk about what they were doing. And I have this epiphany that, "Wow, it's actually more interesting what they're doing. Which is at the front end as opposed to what the bankers do which is on the back end." So, I decided to completely shift gears and to focus on trying to get into Venture Capital. The eager beaver that I was, I would run up to every VC that came to speak to our class and ask how do I do it. Got some good advice, go be a product manager, run a P&L, see if you can be a CEO of a Venture-backed company.
Lo Toney: (11:46)
And that's the path that I set myself upon. And have some great experiences doing some of those things at companies like eBay. I was employee 2838 I think when I came in and four years later they were 15,000 people developed a great network there. And then was able to have some good experiences at companies like Zynga, the creator of FarmVille. I went there because I wanted to learn about game mechanics. I felt that game mechanics were going to be something big. And who would have ever thought that the combination of that eBay and marketplace experience, along with game mechanics would actually be able to help me understand some of these models that I see today? But I was also fortunate to finally enter Venture Capital through Comcast Ventures and then was pulled over into the GV, formerly Google Ventures.
Lo Toney: (12:43)
The early stage investing unit for alphabet is GV's goal. Saw a lot of amazing companies that came through, got to work with some incredible Venture capitalists that helped me really understand how to invest. And there was a strategy that was in place to kind of drive some alpha by working with GPs that were black and people of color and women. And decided to productize that strategy and kind of convinced the folks at GV that, "Hey, I think I want to just take this model that we've been using and then I'd like for you to keep paying me while I develop this into a platform." And then spun out with Plexo Capital.
John Darsie: (13:24)
You need to be my agent, Lo. That sounds like a pretty good deal.
Anthony Scaramucci: (13:28)
It's an amazing career. I have a relationship with David Drummond, you may or may not remember David was GC there.
Lo Toney: (13:36)
Absolutely. David was my internal sponsor when he was there [crosstalk 00:13:41] for Capital along with David Crane, the CEO of GV who reported into David Drummond at the alphabet level.
Anthony Scaramucci: (13:48)
I can't think of Jack's last name now but he's a guy from New York, maybe Jack Abernathy maybe? I'm not sure. But David was a terrific guy and David, he's good friends with Ronnie a lot. We do a number of Super Bowls together, which hopefully we can get back to those post pandemic, we can go back and party at the Super Bowl.
Anthony Scaramucci: (14:11)
Jihan, let's talk a little bit about the limited general partner relationships and could you share the way you partner and do co-investments and so on? I'll ask Lo Toney the same question, but what's your thought process and philosophy there?
Jihan Bowes-Little: (14:30)
Sure. I think a lot of things within Venture Capital and perhaps just in financial markets right now that, that relationship is really evolving. And I think our relationship with Plexo, and LP, and Bracket Capital, and Lo and I know each other very well. It's evolving to encompass more I think than perhaps what was traditionally the standard arms length. LP writes a check into the GP who operates kind of with full discretion and reports back on a quarterly or annual basis. I think that just as funds like ours are beginning to be more creative and thinking about ways to approach the market, probably talk about that more later. I think that LPs are thinking the same thing. Actually at Bracket, one of the main things that we've done is structure our fund not just to optimize returns on the company level but also to optimize the relationship between us and the LPs. One example of that, we kind of doubled down pretty heavily on and which Lo and Plexo have been involved in is the co-investment side that comes from some of that top of funnel activity that we do.
Jihan Bowes-Little: (15:35)
We're out looking at companies diligencing, researching, et cetera. Many of the LPs in our cap table are highly sophisticated as well. Some on the technology side like Lo, some from traditional hedge funds, institutional matter, etc cetera. They have their own view and there may be things they want to double and triple down on which make more sense in the context of their portfolio at their level than our level. We have an operation where we invest primarily from the fund, and we report, and kind of manage that relationship in a standard way. But we also bubble up co-investment opportunities on many of the deals that we do. LPs like Plexo, et cetera, can just take their pro rata allocation from the fund but they can also exercise a view. I think this trend towards the institutionalization of family offices, the trend towards being both an LP and a direct investor, I think this is all kind of ties into the blurring of the lines which is happening where people are becoming multi-stage, multi-asset, most multi-strategy.
Jihan Bowes-Little: (16:38)
Most of our investors are quite active on the co-investment side as well and this is a trend that I think that we're going to continue to see develop.
Anthony Scaramucci: (16:47)
Anything you want to add Lo Toney?
Lo Toney: (16:50)
That I think really encapsulates the way that we saw the opportunity. When we set out to execute on the strategy, the thing that i identified from our time at GV was we used the investment as an LP into some of these seed stage funds to really supplement our deal flow. It was another channel of deal flow and i think it's a strategy that's actually fairly widely used, it's just executed differently. I could think it's known that folks like Marc Andreessen, Chris Dixon and Andreessen Horowitz, they do it on an individual level. Folks like Lightspeed. they do it through both investments as well as through scout programs. Sequoia has a very robust scout program that bleeds over a little bit into some early stage folks. Then you have firms like Foundry Bradfeld's Group out of Colorado, they've done it so well through Brad's initial LP commitments. They actually brought in Lindel from UTIMCO and formalized a strategy around it. This is not something that's new I think the approach that we've taken at Plexo Capital and it's an approach that i think some of the family offices are looking at as well is to leverage investing as an LP as one of the sole sources of deal flow.
Lo Toney: (18:08)
We've got these GPs that are building amazing franchises, they're doing some heavy lifting looking at tens of thousands of companies on an annual basis. They invest into the top one to five percent or so. In essence, that's a curation of the best that they've seen in the market. It allows us at Plexo Capital to be able to use that group, that consideration set as our primary focus. And obviously we're spending a lot of time with our GPs like Jihan and others talking with them about where they see some opportunities. We're looking at all the reports and then that allows us to be able to operate in a much more leveraged approach and streamline manner in our operations and team building. But nonetheless, still have the ability to identify some amazing opportunities to invest into.
Anthony Scaramucci: (18:59)
Okay. It's brilliant stuff and I love the way you guys are describing it. And it's sort of the future of the cross-sectional investing where people are wearing many hats and doing different stages of investing to really... it's almost like you're getting diversity through the staging as well as through the different technological sectors and whatnot.
Lo Toney: (19:22)
That's exactly right.
Anthony Scaramucci: (19:24)
What are some the most important trends that you're seeing in Venture Capital in private markets right at this moment? Where's the money going?
Lo Toney: (19:34)
I think there's money that is available across a multitude... one of the things that we touched on a little bit is this trend in essence around secondaries. I think that is something that's really interesting, just looking at the evolution of the secondary market. You can kind of think kind of pre-early 90s. Around the 2000s, the secondary space was fairly small. Probably, think around the financial crisis around '08 or so when a lot of the rules changed from a regulatory perspective which had this natural extension effect on the timelines for companies to go public. Because it became a much more onerous process to do the IPO. Maybe even kind of almost kind of later on couple that with the interest from some of the non-traditional players to come into some of these companies at the growth stage. I think the combination of both of those things kind of allowed these companies to be able to operate a little more patiently and not have to rush to the markets to provide liquidity.
Lo Toney: (20:44)
Then you bring in the fact that in order to actually get some realization both for the early employees and founders, they could actually execute secondary strategies to kind of offset their eggs being entirely within that one basket of their company. That was also the case for their investors. The investors could also now use the secondary whether they were individuals where they weren't really that concerned about trying to drive anything back to other investors, it's just going to their own pocket. Or for folks like ourselves, where we actually need to drive some dollars back because often our investors may get a little impatient. So it's nice to be able to have a realization through an avenue other than a merger or an IPO.
Anthony Scaramucci: (21:30)
Jihan, that blurring between public and private markets, that's a hundred percent a positive development. It allows smaller and more diverse set of investors to get involved in some of these exciting tech companies early. Are there any downsides to that blurring or how do you think about sort of this democratization of access to private companies?
Jihan Bowes-Little: (21:53)
I think it's a great question. I think there's interesting points to explore on sort of the supply and demand side. I'd say one of the benefits to being new to a space is that sometimes, would you may lack an experience you may make up for the sort of clean eyes, right? So when we first entered the market after having spent so much time on the traditional side. One of the things that stood out most to me and this is kind of how my partner Yold and I began to zero in on this strategy was that every other developed market really is a secondary market, right? In Venture, you have this unusual bifurcation whereby the primary market is probably 100 times larger than the secondary market. Secondary market is generally an afterthought. What you think of is Venture Capital is primary market investing. But the stock market has a primary market as well, it's the IPO, right? And the bond market has a primary market which is the new issue. But neither of those markets are what fund managers spend their time trading, right? You actually operate almost exclusively in the secondary market in stocks, bonds, real estate, collectibles, et cera.
Jihan Bowes-Little: (22:55)
So, coming into Venture also thinking a lot about competitive advantage, right? And thinking about kind of transferring some of the skill sets which myself and the team had from other areas over into the private market landscape. The ideas struck out to us is quite obvious, right? That as companies, were extending their duration as low as referring to a company like Amazon went public sub 500 million dollar valuation. You have ByteDance now worth 250 billion, right? So, clearly the value creation is happening disproportionately in the private markets. The duration is extending because there are so many diverse capital sources helping to keep these companies private for longer. Which creates... in speaking of impatience, it creates an infeasibility for the average employee, right? For the first time entrepreneur, and also for the average employee, and often times for an early stage investor to wait 10, 12, 15, 17, years for a liquidity event is impossible in all but the most unusual circumstances, right?
Jihan Bowes-Little: (23:56)
I think that there was this view within Silicon Valley for a long time that if you were committed to your company, that you should be able to wait until a public market event. And I think that would be a three to five year timeline. It's probably reasonable, right, for alignment of interest? I think once you start talking about double digits, people start these companies and join these companies in their mid-20s. By the time they're in their mid-30s life has often changed and responsibilities have changed, et cetera. I think the outcropping of the secondary market is just an inevitability right as long as there is capital that wants to find its way into the primary markets, the private markets, which there is. This will continue and to your point, when you think about democratization, there's one side which is currently very topical obviously as we're recording this which is access to stocks and those might be public or private. That's sort of on the demand side.
Jihan Bowes-Little: (24:48)
But to Lo's point, democratization works in the other direction as well. I think if you feel like you want to join a startup, if you have that energy, if you want to create one, you want to be an entrepreneur or be involved in an entrepreneurial enterprise. And you realize that you're taking a thousand or a hundred thousand to one odds, right? But perhaps you're willing to do that. But you know that even if you create billions of dollars in enterprise value, you still won't be able to buy a home within driving distance of the office because you need to wait 10 to 20 years for a liquidity event. That turns off a certain kind of individual. There are certain kinds of risk tolerance and there's certain kind of inequities in the kinds of people who can afford to take a 10 or 20 year bet.
Jihan Bowes-Little: (25:30)
I think actually the development of the secondary market besides being in my mind... probably one of the most unique asymmetric risk reward opportunities that I've ever seen on the long side. I also think from a democratization and an ethical perspective. That it really gives access to being an entrepreneur, to being an early engineer in these kinds of places to know that if you do create value for your shareholders and your investors, even if it's paper wealth, then you won't be prohibited from monetizing some small portion of that along the way. I think that really opens up the funnel and the aperture for who can start companies and who can work at them. I do think that's good for everyone.
Anthony Scaramucci: (26:14)
Lo, I want to jump to you on a separate topic and it has to do with diversity within the whole financial industry and Venture Capital industry I think are both plagued by it. But you've seen a wave recently of companies whether it be Andreessen Horowitz with their cultural leadership fund bringing more diverse voices into the asset allocation side of things. And you're also probably as a result of that seeing I think more startups led by minority founders. What are you seeing and do you think things are improving in terms of the diversity and the allocation of capital to more diverse founders within the industry?
Lo Toney: (26:47)
This is a topic we're super passionate about is the thesis around the sourcing side for Plexo Capital and how we make our decisions on GPs. So, we have this insight around the ability for black GPs we started with and then extended it to females and other people of color. But at GV, what we saw was that there was an access to a particular type of network through black GPs and this indirect path they had into Venture Capital. It allowed us to be able to have this moment where we said, "Oh, we can actually turn this access into an alpha strategy." Because what deals were being financed by these diverse GPs at the early stages, it required a little bit of familiarity with the market since there was not an abundance of data. And it required a little bit of a different approach and lens to evaluate an entrepreneur, since to your point which I think you're alluding to, we know based on data if there's a diverse set of investors around the table. Their portfolios end up being diverse and it partially has to do with the networks.
Lo Toney: (27:54)
So, we saw an alpha opportunity. And I think the realization that i had with Plexo Capital is that I can build this firm into a brand name institutional investing franchise and focus on using that same strategy to deliver these returns. But our strategy has this interesting byproduct of increasing diversity within the ecosystem. And i think what we need to see more of is that flow of dollars down the stack of Capital from the limited partners into the hands of diverse GPs, which should then go into the hands of diverse entrepreneurs. We have seen it getting better, so recently we've had a couple of instances of unicorns actually led by black founders. Calendly is the one that that sticks out in the minds of most people was-
John Darsie: (28:41)
Based in Atlanta all right, Calendly?
Lo Toney: (28:41)
That's right it. Was sneaking around under the radar and had only taken one round of financing. I think for maybe less than, I don't know, call less than a million dollars and now Lo and Bohold, they just took in some money at what is rumored to be in excess of a three billion dollar valuation. So we're moving in the right direction. The more that we can have those events, as well as the liquidity events that come after them, will be able to put these diverse founders down the wealth creation path but also some of those early employees. And listen, the calculus changes when one has a significant financial backstop because then one's profile and optionality changes. An employee that's early that has that liquidity event can then take the risk, go start a company or go invest as an angel. And then capital goes back to those diverse GPs if they string along enough events that lead to liquidity. Capital goes back to the LPs, then the LPs can look at that and say, "Wow. We should double or triple down on this because it's working."
Lo Toney: (29:44)
That's what I get excited about is that leveraged approach to really kick start that flywheel. Look, this is not dissimilar to geographic ecosystems outside of places like the San Francisco-
John Darsie: (29:56)
That was my next question question because if you're on Twitter today and you follow a lot of people in Venture Capital, every other tweet is about Miami. Oh, Miami, everyone's moving Miami. There's a SoftBank has a hundred million dollar fund now to invest in Miami-based startups. But we have Steve Case, has been to our SALT conferences and been on SALT Talks. And he's more about the distribution of capital across a wide variety of sort of second tier cities in the U.S.. Geographically, where are you seeing opportunities, is it distributed or are you seeing a few Austin, Miami type of places that capital is flowing to?
Lo Toney: (30:33)
It's a combination. One thing that this pandemic has shown us is that we've changed on a psychological perspective, in our acceptance of being able to have a remote workforce, a distributed workforce. And also this notion around, "Do I necessarily need to go and visit a company in order to get comfortable?" For a long time, there was this thought that in order to be an investor you wanted to invest in your backyard, so that on your way home from the office you could pass by your entrepreneurs and see if their cars were still in the parking lot.
John Darsie: (31:07)
If you're on the Google bus, you're waving out the window at your companies you invested in? Okay.
Lo Toney: (31:12)
Exactly. But this things have changed and now we've become more comfortable with having remote workforces, making investments into ecosystems that aren't in our backyard. It's easier because we can hop on a Zoom call, we've now become accustomed to get comfortable doing this type of diligence and having these conversations. But I think another thing that's really important, right? So it used to be, "Hey, if you want to be a movie star you go to Los Angeles. If you want to be an entrepreneur you go to San Francisco." Well, look entrepreneurship and innovation don't know any boundaries and so great ideas can surface anywhere. Now obviously, there are some advantages that will remain over time in places like San Francisco, but in addition to the other obvious ecosystems Los Angeles, New York.
Lo Toney: (31:57)
We are seeing some exciting developments in places like Atlanta, in places like the Midwest. What we like to look for typically in an ecosystem is are there certain elements? We like to see there's a little bit of an entrepreneurial spirit or a counter culture that comes with certain political views or views around activism. And if we think those as important ingredients, we like to see an educational institution that's very research driven that can spawn off not only a number of well-trained engineers and business people but also the research that comes out of some of those institutions that can be commercialized.
Lo Toney: (32:31)
And then, we also like to see a few other things, exciting places to live that are going to be attractive to young people, and have the ability for there to be a nightlife when they're not at the office working. And then probably some type of element of an international type of vibe. The ability to kind of have a reason for that place to be on a road map, all of those things when they come together it creates magic. And then if you can add to that, an anchor industry that's undergoing digital transformation and today what industry is not, then you can have some interesting crossover for both companies looking for new innovative ideas. And for those companies that are at the startup phase to have access to customers and potential acquirers as well as potentially even employees that want to jump on the startup craze.
John Darsie: (33:22)
Right. We'll let Jihan jump in here. Jihan, I want to talk about investor psychology for a minute. You've lived at the hedge fund level [crosstalk 00:33:30] a little bit of an investment [inaudible 00:33:32].
Anthony Scaramucci: (33:31)
You see how the millennial just took over the whole-
John Darsie: (33:33)
I took over the conversation and my bonus [crosstalk 00:33:36] has gone down by about 20 percent as opposed to me monopolizing the conversation.
Anthony Scaramucci: (33:41)
My contract says I'm allowed to talk more than you but go ahead and keep going.
John Darsie: (33:44)
No, you ask Jihan a question.
Anthony Scaramucci: (33:46)
No, it's fine.
John Darsie: (33:49)
He gets mad when I get the fan mail, you know how it works.
Anthony Scaramucci: (33:52)
Oh, Toney I paid him his bonus last week. This is how he acts, he gets all a reverend for the next 50 or so weeks.
John Darsie: (33:58)
He's not wrong I [crosstalk 00:33:59]can now
John Darsie: (33:59)
talk back to him.
Anthony Scaramucci: (34:02)
He's only nice to meet the week prior to the bonus payment and you know how that happened at Goldman Sachs, right? You know exactly what I'm talking about. Go ahead Darsie, go ahead. My feelings aren't hurt.
John Darsie: (34:12)
Jihan, right now we see public markets are extremely hot, tech stocks have gone crazy partly due to the pandemic of this transition to remote work, and everything's digital. How has that affected valuations and just the entire climate in private markets as a result of sort of the I don't want to say froth but the the heat that we're seeing in public markets?
Jihan Bowes-Little: (34:35)
Yeah. The heat indeed. Look, I think private markets are in a period of price discovery to some extent, right? We're in sort of uncharted territory here with the digitization of everything with zero slash negative rates, with the kind of global economic, and political backdrop, et cetera. I think that common knowledge over the last few years felt like the majority of so-called traditional or institutional investors, sort of those industries that I came from, generally thought that Venture Capital was overvalued, right? They were looking at these companies and saying unprofitable, being valued on unbelievable forward multiples, IPO window was relatively closed. These companies were continuing to stay private and I think that the commonly perceived wisdom was that they were staying private because they had no opportunity to go public and here would be no appetite from public market investors. Who I think like to think of themselves as sort of more sober and more rational and perhaps more more quantitative than the dreamers from California.
Jihan Bowes-Little: (35:41)
I think what's happened in the last 12 months besides the future being pulled forward due to COVID, et cetera, is that public market performance by some of these highly-valued and commonly thought to believe overvalued late-stage private companies. The public market performance has been exceptional and you have examples like Snowflake, you have examples like Palantir, et cetera. Which have sort of defied many investors' expectations. And I think one of the things which is great about the public markets and which I think is unfortunate for investors who've only spent their time in private markets is that the short feedback loops in public markets force a kind of honesty on every investor.
Jihan Bowes-Little: (36:26)
You're talking about investor psychology, it's very difficult to continue to hold a view in public markets, which is wrong because the market tells you you're wrong, right? It's painful but you have to realize it on a day by day if not a minute or second by second basis. Private markets have very long feedback loops, right? Sometimes it can be five or ten years before you know if an investment has worked or not. That company may have pivoted two or three times in between the early stage investment and so you may not know if the reason you invested and the reason you profited is actually the same thesis that drove you to make the investment in the first place.
Jihan Bowes-Little: (36:59)
So, I think there are benefits. Strong benefits to a very long-term mindset that the private markets have and endorse. And I think the public markets can learn from that, but also I think there's a degree of humility and a degree of kind of transparency with respect to looking in the mirror on the public side. And so, I think anybody who's honest with themselves who has sort of a public market mandate needs to look back at the hypothesis and sort of the wisdom of the crowds from the institutional side over these last few years. And essentially admit that they were wrong, right? They were wrong at least in the near term about what these companies could do. Certainly they were wrong about the investor psychology from public market participants, right? Because the stock price on any given day can show you that. And so, what does that mean?
Jihan Bowes-Little: (37:45)
What does that mean for public market investors beginning to look at private markets. Can you use the same kind of valuation metrics, can you use the same sort of mental models, is it as useful to be able to perform a discounted cash flow model on a business which is growing 500 percent as it is on something growing five to seven percent a year and so? I think we are in this very interesting area of price discovery. Obviously, the innovation with specs and direct listings and things like that are continuing to blur the lines between public and private. In my sense and sort of our bet in some ways as a firm at Bracket, is that some of these distinctions are really going to be looked upon as artifacts, right? I think that you're increasingly going to have someone who's an equity investor.
Jihan Bowes-Little: (38:31)
Now whether or not that equity trades on the Nasdaq or not is really sort of sort of an illusion to some extent. I think you have startups certainly and those have a different risk reward profile. You have very large companies right like the FANGS. But you have this very interesting subset of late stage businesses which we almost focus exclusively on which are market dominant, large enough to be public, in many cases larger than the public companies they're competing with. Oligopolistic like pricing power SpaceX's, the ByteDances, the Stripes of the world. And to have an artificial distinction from such a large capital base of institutional investors that say that they can't buy that company until it's in S&P 500, really is just forfeiting a lot of alpha to people who can look across that blurred line. And so, increasingly, I think that we're going to have [crosstalk 00:39:26] multi-stage investors on both sides.
John Darsie: (39:28)
Is that line going to disappear completely?
Jihan Bowes-Little: (39:32)
I think so.
John Darsie: (39:32)
And what does that look like?
Jihan Bowes-Little: (39:33)
I think what it looks like to me is that... as we said earlier, secondary markets are the norm, right? And so there will always be primary market financing on both private and public stocks. But I think that the end game is a very liquid secondary market which is orders of magnitude larger than the primary market, which as we said is the case of pretty much every other developed asset. And I think that the ability to buy an Airbnb last year or a Stripe this year will probably not be as liquid as buying Amazon stock today but it might look something like the corporate bond market. And so increasingly, I think you're going to see these things changing hands once companies can get their head around the rules and regulations. And there are concerns about having people in private companies sell stock too early, there are more hazard issues that need to be worked through, et cetera.
Jihan Bowes-Little: (40:21)
But all those things are achievable and so I think eventually, you're going to have a stock market, right? And that stock market will span the gamut.
John Darsie: (40:32)
I mean with Stripe, it raised at a 36 billion valuation in, i don't know, was it September or was it earlier in the year? We call late in the year and interested in maybe buying some... oh, it's a hundred. Just the movement that you're seeing in private markets the magnitude of those moves I guess is a reflection almost magnified that you're seeing of the the heat as we said in in public markets. But great time to be where you are Jihan, for sure and Lo. You guys partnering as well. I wanna ask one more quick question. We'll get quick responses about government regulations. So, we've seen a wave of outcry about censorship on social media. We have a new administration coming in that potentially could be a little harder on the regulatory front as it relates to business and tech. What do you expect to change at all, if at all, in the new administration as it relates to regulation around tech companies and how do you expect that to affect public and private market prices? And we'll start with you Lo.
Lo Toney: (41:38)
What an interesting question, it's a tough one to answer fast. But I will just say that i think that we have just seen along with the change in the administration, we saw some of the forces that came to light that led to some of the issues that we had around political parties clashing. And clearly the platforms play a role in that. I go back to something that i think about which is, the first amendment is designed to protect individuals from the government. But when we look at the decision-making process that that Jack Dorsey went through on Twitter when he was making his decision around former President Trump. The one thing that came to light to surface to me was, "Oh, of course he can do whatever he wants to, it's a private company." But what happens, individuals have options you can go to another platform and start your own site. But what happens when that platform becomes so dominant that it's almost like a utility where everyone that has something to say is expected to go on? And so I think we're in this interesting point where, once again, we are seeing how technology evolves at such a rapid pace. It's almost impossible especially for documents that were written three, four hundred years ago to try and keep up.
John Darsie: (42:59)
All right. Jihan?
Jihan Bowes-Little: (43:02)
Yeah. I think what I'd add there is that from my perspective, I expect there to be substantial regulation on large public tech companies and the platforms in particular. I feel like that's coming. I also think that probably the positive side of tech recognizing that it has sort of a societal role and not trying to be entirely distant from government. But realizing the two need to work together now that technology businesses are effectively the incumbency and that they affect the lives of people every day. Is that many of the most important problems that need to be solved, now that we know how to deliver food to ourselves at the click of a button and shop on social media channels, et cera. The areas like healthcare, FinTech, these are highly regulated areas. It takes a special and a different kind of an entrepreneur to operate in these kinds of spaces. And so I think the recognition that technology companies need to find a way to cohabit with governments, national governments, and local governments.
Jihan Bowes-Little: (44:10)
There's a lot of wood to chop on that side but there's also a lot of opportunity because I think that the real promise of some of these Venture-backed businesses if they're really going to be transformational is to deal with some of the most important problems. And some of the most important problems in our society are in those heavily regulated industries. And so it won't be easy but I think that there's actually a cause for a lot of optimism or around governments and technology businesses learning how to work together.
John Darsie: (44:38)
Well, Lo and Jihan, thank you so much for joining us today on SALT Talks. Anthony, very sorry for taking over the conversation, it was too interesting that our guests today were too interesting I felt compelled to jump in. And next time we don't have time for it today but Jihan is going to show off his musical talents on SALT Talks here. He sort of had to keep his musical career on the down low, Toney, when he was at Goldman Sachs. But thankfully now, he can openly show off his multitude of skills.
Anthony Scaramucci: (45:08)
I mean this is some wise ass millennial though right you see how he used your name as a [inaudible 00:45:12]
Lo Toney: (45:13)
That was good. I've never heard that, it's not as good as Obama's.
Lo Toney: (45:15)
[crosstalk 00:45:15]
Anthony Scaramucci: (45:16)
Do you remember Ed McMahon? He's his own Ed Mcmahon where he laughs at his own jokes.
Lo Toney: (45:22)
I mean, look, it's not as good as President Obama when he asked me, "Oh, Lo Toney. So is there a High Toney?" That's the best one I've ever heard
Anthony Scaramucci: (45:31)
Sometimes, Low Toney was probably high though, right? Is that what you're talking about? I'm kidding man, I'm kidding.
John Darsie: (45:38)
All right. Well, thank you guys for joining us.
Anthony Scaramucci: (45:40)
God bless you, guys. Okay, I'm looking forward to watching the sensational career arcs that you guys are on and I wish you much great success in the future.
John Darsie: (45:49)
And I think we're going to end up co-investing together on a couple deals guys. Let's work on that and we'll get you back on SALT Talks.
Lo Toney: (45:55)
That'll be fun.
Jihan Bowes-Little: (45:57)
That was great. Thanks for having us.
Lo Toney: (45:59)
Thanks for having us. Take care.
John Darsie: (46:00)
All right. Thank you to everybody who tuned in to today's SALT Talk with Jihan Bowes-Little and Lo Toney. Just a reminder if you missed any of this episode or you want to watch some of our previous episodes, we have all of them on our website free and on demand at salt.org backslash talks backslash archive. And you can sign up for all of our upcoming talks at salt.org backslash talks. Please follow us on social media Instagram, LinkedIn, Facebook, and Twitter, we are on there please follow us. And please tell your friends about SALT Talk, we love growing the community we love today, getting to know our guests, Lo and Jihan. And we love meeting more people through these SALT Talks. But on behalf of the entire SALT team, this is John Darsie signing off for today. We'll see you back here again soon on SALT Talks.
