TRANSCRIPT
Slava (00:02.379)
Hello and welcome to another episode of Smart Humans. I am very excited as always for today's guest. We have an expert in the world of pre -IPO venture. He knows about IPOs and what's happening next. Atish Davda from Equity Zen, welcome. Yeah, so you're the CEO and co -founder and we'll be talking about all of the platform and all those details soon, but we always like to start in the beginning, which
Atish D (00:18.506)
to be
Slava (00:29.309)
Atish, where did it all get started? How did you get into private investments, into alts? How does that
Atish D (00:36.865)
Yeah, so the story, look, the story starts back at school, back at university. I grew up kind of studying computer science and engineering, mathematics, finance, anything with numbers made sense to me. And I was very lucky that graduating three of my really good friends and I all got offers to work at the same place. We all joined a quant hedge fund called AQR Capital.
Again, perfect place, smart people, numbers oriented, access to financial markets, actually applying a lot of the stuff that we learned in school. And one of my first projects there was to take this massive pension fund endowment fund strategy, which is like $50 million minimum checks, right? And turn it into a mutual fund that my mom with 2 ,500 bucks in a Vanguard account can invest. And that was at the onset of the liquid alts movement.
That's where the seed got planted. I think it just took hold. And maybe we'll talk about this a little bit later. I don't want to make this about equity's end too early. for me, I personally had a need. then having been on the buy side of the market, having a need as a sell side on the market, then realizing, technology solved these problems before in other areas.
That's how my world is kind of just has revolved around the alt universe closer and closer
Slava (02:02.015)
What year are you referring to when you first were at that quant hedge fund and had to try to figure that
Atish D (02:07.147)
I started off in 2008. So funny story, I interned at Lehman Brothers. And I like to say out front that I did not have anything to do with the 2007 quant crisis nor what happened afterward. I, yeah, so I saw this institution of 150 years go down. And my first week of working at AQR Capital, we saw 4 % movements up and down in the equity markets. And some of us thought that was completely normal. And so it just made a ton of sense that, okay, you know
if equity and bond markets, which are large, can have these kind of movements, maybe diversification needs to extend beyond the typical stock bond portfolio. And so alternatives have always been kind of near and dear to both my heart and my portfolio.
Slava (02:52.445)
And just so I understand, did you go from that quant hedge fund to then starting equities then or is there steps in between?
Atish D (02:59.914)
Yeah, so my story is I worked at that hedge fund for a while. I got this itch to start a business and I didn't know how to start a business. So I joined a startup as its first employee. This was 2010, 2011, I want to say. And then after being there for a couple of years and earning equity in that company and having sweat equity in a few other companies, I had been dating my then girlfriend,
wife and mother of my children for several years. we wanted to get on with our lives. We wanted to get engaged and get married and build a life together. But it turns out startup equity is not nearly as liquid as hedge fund cash bonuses. And that was the real impetus for me. I wanted to buy an engagement ring. I tried selling my stock. went to second market back in the day and any broker I knew and wealthy people I had in my network. And I said, can you please do this for me? And even though I found a buyer,
for my shares, it turns out it's a really latent, regulatory complex paperwork. And so these are legal documents, hundreds of pages long. that's really how the idea of inequities then got started. Was a personal lead as a seller, my prior experience as a buyer and me going around to a bunch of people saying, well, if the buyer and seller are okay, and the company is okay, why can't technology solve this problem? And so the minimums back
to justify having a banker and an accountant and a lawyer involved were just so large. There were $10 million back in 2012, 2013. And that was really the kernel, I would say, that has been at the heart of equity since then. And that's how I got into this world.
Slava (04:46.849)
That's amazing. What's the minimum now just to give perspective versus $10 million?
Atish D (04:51.783)
Yeah, so compared to 10 years ago, the minimum was around $10 million. We brought it down to $10 ,000 last year, and we're now bringing it down to $5 ,000. And yeah, look, our goal is that wealth is not just for the already wealthy. And you have to be an accredited investor to participate in these transactions today. But I like to call the not yet accredited group of people for whom we create a lot of educational material.
Anyway, I don't want to get into a whole plug here, but I'm a big believer that 10 years from now investment minimum should absolutely be, you know, down to $1 ,000 and perhaps even lower with more, you know, suitable products available for qualified investors.
Slava (05:33.995)
That's amazing. just to state the obvious, was it your own need and trying to move on with your life and getting a little bit more liquid as to would you say that's why you were able to start equities then or was it more your experience at the hedge fund in the early days? I mean, the only reason I'm asking is because I genuinely believe that there's so many entrepreneur could be out there. They just don't put together the steps from, the, wish I wish I could have this better and then just look to solve it with whatever approach they can.
Atish D (05:47.939)
Yep.
Atish D (06:01.19)
You're spot on. Look, it was 100 % a personal need that made me say, why doesn't this exist? It was my prior experience that made me say, hey, this should exist. And the macro forces for this exist. And there's tailwinds for the jobs act had just been passed back in the day. I knew that because I was a big finance nerd. And so I was following some of this stuff. And I'm saying, well, here's a bunch of
who are used to buying Google and Apple stock on Monday and being able to sell it on Thursday if they want to. Now they're going to be buying these alternative illiquid portfolios. Okay, great. They're not going be able to sell it three days later. They're not going be able to sell it five years later. So what's going to happen to those people? All of a sudden they're going to be in for... And so a lot of the ideas behind what's become equity zen was really born out of personal need and shaped by... I would say the conviction
Yes, this is possible came from prior experience and people I knew and validating the idea over a six, 12 month period, just talking to people over a coffee at breakfast and a coffee in the afternoon for over a year actually.
Slava (07:06.335)
And those in -between startups, were they Equity Zen -like or they were just other startups that you were involved with?
Atish D (07:11.488)
advertising technology startup, SaaS company for which I did some consulting. I was involved in kind of like a real estate focused education company. So totally different parts of the world, but fundamentally, the spirit of getting on the ground floor, participate against all odds. And if the company succeeds, the option holders, the equity owners should have a way to monetize the stake that they've built.
and not just have it flip -flop between, it's worth nothing, I'm a billionaire, it's worth nothing, I'm a billionaire. And I think it was really that changing that binary choice to a spectrum is really what we've done for thousands and thousands of shareholders over the last 10 years, 12 years actually, of being
Slava (08:01.227)
I mean, it's a great example of you don't need to be a perfect expert to be able to create a startup. So sometimes it's even the opposite. I mean, it is helpful to be knowledgeable in the space, but sometimes it's helpful to be totally naive.
Atish D (08:13.243)
Frankly, lot of a lot you're totally right a lot of second time founders that I talked to like friends of mine that have exited and are considering starting a new company There's almost a like the lack of naivete like almost the knowledge of knowing what they're up against Can slow them down and pulling the trigger? So I think you're spot -on not knowing can sometimes be a real blessing And I know that was the case for me. I look I've made a thousand mistakes. I'm gonna make another thousand
So long as they're different mistakes, think it can still be a journey I can find excitement
Slava (08:45.963)
Amazing. So let's talk about how you like to invest. So obviously you have your own equity net worth, which there's probably a lot of it tied up in equity then. So let's just put that aside because that's just like a one -off. How do you think about investing into stocks and bonds and alternative investments?
Atish D (09:04.245)
Yeah, so first of all, let me just say, I am a buy and hold kind of person. I take plenty of risk with, as you said, the portion of my net worth that's tied up into equity, and therefore the venture space in general is meaningful. And so I really try to create a more diversified portfolio. I'm not someone that has the time and I would say probably the desire to really look at my portfolio every day.
So what I try to do is really methodically, once a month, once a quarter, obviously every year, take a look at our allocation. My wife and I really do a big capital allocation conversation, asset allocation conversation, as opposed to exactly what stocks we're picking. The other thing I just wanted to say is, because of her employer, we're actually restricted in owning single names a lot. it actually forces us to say more methodically, well, what are the trends that we're going
And so that's the framework that we use in order to do a lot of investing. We obviously still allocate to equities, we allocate to bonds, we have a tiny piece in commodities, and we have a very meaningful stake in alternatives. And if you not count the equities and exposure to venture, we still have a decent amount of our capital invested in alternatives, primarily because we're in the middle third of our life right now. And
The general rule of thumb is 100 minus your age, that should guide your allocation for equities. And we've taken that and modified it a bit in order to kind of fit our needs. so alternatives is at least 10 closer to 20 % of our portfolio, not counting the direct venture exposure that we
Slava (10:55.937)
Amazing. So the things that are non -public equities and non -bonds are about 10 to 20 % of
Atish D (11:05.52)
Yes, not counting equity, son. That's
Slava (11:07.553)
Right, exactly. And then inside of that 10 to 20%, let's call that 100%. So that 100%, is that a little bit of commodities and mostly all pre -IPO stock or are any other alternatives like private credit, real estate, crypto, art collectibles, et cetera, that you'd like to put in there?
Atish D (11:25.918)
There's a lot of pre IPO. There's a lot of products that, you know, obviously, equities that has put put forth that I personally have a lot of belief in and I've, you know, put put our money where you know, our mouth is. Look, the the framework we use on a lot of this is speculative versus yield generating. Okay, so even even within the 100%, even within the alternatives, the question we ask ourselves is, are we making this allocation because it's a speculative bet. So some of
Blockchain based investments or crypto investments that we've made these are speculative bets We're not doing this because we believe there's consistent yield in the long run That we're gonna get here We don't have a meaningful art investment But if we had a meaningful art allocation that would be in the speculative if we had a meaningful line Allocation or collectibles allocation that would be in the speculative bucket. We don't have that because especially in the current interest rate
and especially in the heyday of 2021 where the venture portfolio just because of the denominator effect got so large, the pre -IPO valuations were large, that we really turned the dial a little bit more towards the yield generating portion of alternatives. So, a little bit of private credit, real estate investments that are yield generating, and then actual physical real estate that we would rent out and try to generate income from. Those are kind of in
illiquid bucket, if you
Slava (12:55.201)
And that's included in that 10 to 20 percent of the alternatives.
Atish D (12:57.596)
That's exactly right. Yeah. And if you include the real estate portfolio broadly, then it would be a little bit larger than that even. for the purposes of what we're talking about, the alternatives, the yield generating component is the complement to the pre IPO component. So really, if you think about it, even in the 10 to 20 % alternatives investment, we've kind of taken an equity and a bond strategy. So the pre IPO strategy is the equity strategy. And then we have the bond strategy.
some of the equity investments will hit and yield. And for what it's worth, our pre -IPO investments and lot of the equities and products, you know, we're actually in double -digit IRRs on, on the bond side, the same time we've been collecting yield. And so, look, none of these are massive numbers, but this is the framework that we use in order to invest. And the way we think about it really is...
Again, buy and hold, not trying to time the market, not trying to pick individual names. Even these investments within ALTS, they tend to be more diversified basket vehicles. And we can talk about that a little bit later why we choose that, but that's how we've set it up for ourselves.
Slava (14:07.713)
So using like a round number for your age and for the listener, let's call it like you're approximately 40 years old. So does that mean it's the hundred minus the 40? So that's like the heuristic. So that's about 60 % equities, which then leaves 40 % for the other stuff. And we said it's about, let's call it 20 % alternatives, which leaves about 20 % bonds. And inside those, there's both the speculative and the yield generating, both in the bonds as well as or in the alternatives.
Atish D (14:34.884)
That's exactly right. Yeah, you nailed it. So that's, that's speaking, our, our, our allocation. Maybe we're a little bit lower in equities and a little bit higher on real estate, but again, for the same reasons we talked about.
Slava (14:46.143)
Yeah, super interesting. Thank you for sharing all that color. What is your personal thoughts on a specific category, independent of where you hold or don't, of crypto?
Atish D (14:57.523)
I think crypto is a must -have, meaning it should have a non -zero allocation. We personally have a small allocation, single -digit percent allocation. And frankly, a big reason is if crypto currencies in general become the de facto model
how the economy will operate, adoption from larger economies, not just the smaller ones that we've seen in some Latin America and Eastern European countries. the way we, like life as we know it will have changed quite a bit. And so our view on this is in that scenario, most of the assumption sets will need to be revisited. So in a world where most of the assumption sets will hold, crypto is a fantastic call option to
So you should have non -zero allocation. And if it ends up being huge, that's OK. Because if it ends up being huge, most of the world will look quite different. And we don't want to make assumptions about what the world will look like at that point in the future. So more than zero for us, single digits, is kind how we've arrived at.
Slava (16:09.185)
Amazing. And this is going to segue into the next question about your point of view on the market and the economy, but just off of your annual planning process and the let's call it the interest rate environment is probably going to be changing in the current months or quarters. How would you guess that you might be shifting your allocation around your 60, 20, 20 or how you're playing it? Not exactly factually what you're going to do, but how do you think that might evolve for 25 and 26?
Atish D (16:37.239)
Yeah, look, it's a fantastic question. Clearly, no one has a crystal ball on this, but one of the big trends that we've noticed, I'm sure the listeners here have read a lot about it, listened to a lot about it, is for 100 years, was this relationship between equities and bonds. Equity goes up, bond goes down. Bonds go up, equities go down. And that relationship literally lasted 100 years, up until the global financial crisis.
In the last 15 years, that relationship has changed. That negative correlation where one goes up, the other one goes down, kind of became a positive correlation. And so the good news is over the last 10 years in pretty unprecedented macroeconomic policy environments with 0 % interest, they kind of both moved in the same direction. What's going to happen as the high interest rates start to come back down? I really don't know if we're going to revert to the more traditional
equity bond relationship or not. And therefore, we are focused more on not really the first rate cut, but the size and the speed of the second rate cut. And by the way, this is not just a personal account, you know, decision. It's also the way we think about capital allocation, you know, for equities. It's not just the first rate cut where, okay, all of a sudden, hallelujah, it's now a new era. It's more
It's going to be more gradual than that. And unlike maybe the quote unquote recovery or change of direction we saw in 2020 when post COVID massive amounts of government subsidies hit the market. And all of a sudden the turnaround was very rapid. know, most people I talked to, including myself, you know, our belief is the turnaround is going to be a lot slower, a lot more gradual this time. And so I don't think we're going to make any immediate changes, but I think we're going to have to be prepared to make a bunch
iterative changes, really keeping track of, how soon are the rate cuts happening? What's the magnitude of the rate cuts? And obviously, hopefully, the government's able to pull off, the Fed is able to pull off a soft landing. If we enter into a recession or specifically a deeper recession, then I think we would really reallocate accordingly. So we just don't know. And so I think we're going to take a quarterly approach to
Slava (18:56.097)
So nobody knows, but my next question is your opinion as to where we are and where we're headed as it relates to the market and the economy. And, you know, I really just want to hear from your perspective, given all your knowledge and all the data you see and all the trades that you see, just what's you know, Atish opinion on the next 18 months. You're allowed to be wrong, but we love to hear your perspective.
Atish D (19:10.247)
Yeah.
Atish D (19:18.609)
Yeah, so look, I think we're going to start, we're going to see at least one rate cut before the end of the year. Public markets have continued to grow, but it's really, it's really a dozen names that are carrying the entire public market. I think if we start to see that change, a lot of the, and we're already seeing this with a lot of the smaller cap and the speculation as to kind of which way the election is going to go. I personally believe we're going to start to see, you know, closer, closer pathway to the soft landing we're looking for.
Somewhere in the next six to nine months, we're expecting, okay, hopefully there's gonna be a second and a third rate cut in the books as well. And again, as that happens, the confidence that the cost of capital will continue to come down, not just come down a tick, but there's actually now a yield curve that looks friendly to investing, to longer term investing. That I think is, we personally believe that's gonna happen. I think that's less than a year away. And so what does that mean for
So I think what that means for markets is already this year we've seen more IPOs in the first half of this year than we did a year ago. It's like 30 % higher in the number of IPOs.
Slava (20:25.053)
in the first half of year versus the first half of the year or versus the whole previous year.
Atish D (20:29.009)
Yeah, so in the first half of 2024, we saw a 30 % increase in the number of IPOs in the first half of 2023. So year over year, first half is higher. But more importantly, the aggregate capital raised over the same period of time was over 80 % higher, 83 % higher. And so what you're seeing is not only more supply, if you will, more companies willing to take a chance and kind of leap into the public market, but a broader reception.
by public market investors. So that's number one. The other thing is obviously there's a smaller number of larger deals carrying a lot. There's been seven deals that have each raised over half a billion dollars. That's not something we saw last year. There was a lot of skepticism. And the reason these things matter is that, it's not as if investors have forgotten the lessons of the last two years. But public market investors, from what we're seeing, are more comfortable.
with accepting a company that isn't already profitable, they will take burn as long as there's strong controls, as long as there's a clear pathway to profitability, and as long as the revenue is sustained. Like if the revenue for a company comes from other startups, which is what we saw in IPOs that went public two, three years ago, those names are not trading that well. But if you have a company whose clients are enterprise clients.
or who are selling software to offline industries that are becoming online. Okay, well, that's pretty interesting. The investors are willing to give some rope to companies like that that are basically betting on a secular trend, and there's stronger tailwinds there. And so they're not demanding profitability, which I think has been why a lot of companies have not been able to go public. So I think with all these macroeconomics that's moving in the right direction, we're going to continue to see increasing
number of IPOs. don't think the second half of this year is going to be quite that high. Election seasons tend to be dampeners because they tend to drive volatility. But I do think, you know, after the election, there's probably a narrow window before the end of your holiday. And certainly, think January, February should be a little more exciting than the last two of
Slava (22:44.957)
Amazing. So let's talk about equity zen. Not everybody knows it, even though it's been around for years and it's quite large. Can you just give us some background in terms of what exactly equity zen does and give us some metrics in terms of how large and the scale of what you're doing?
Atish D (23:00.525)
Yeah, absolutely. Look, EquityZen is a marketplace to buy and sell stock in private companies that are large. So these are what we call pre -IPO companies, at least $500 million in enterprise value. Most of the trading happens in names that are over a billion dollars in enterprise value. EquityZen has been around for 12 years now. The way EquityZen works is we
Sellers from companies, so these are shareholders, whether you're an employee, whether you're a founder, an advisor, you invested in seed round series A, B, C, D, E, doesn't matter. If you're a shareholder in the company and you want liquidity, meaning you want to sell your shares in exchange for money, then that's one side of the marketplace that we operate. The other side of the marketplace we operate are accredited investors and some of the same folks on the sell side, right? A series B investor can be a seller in one name and a buyer in a different
And so you have accredited investors, institutional investors, qualified purchasers on the buy side, you have these shareholders on the sell side. And critically, and this part is really important, in this market, getting the company's blessing, the company's approval is paramount. So, equity is in, we've been around for 12 years. One of the key, key, key ways that we have differentiated ourselves in this marketplace is that we always, always, always get the issuers blessing for any transaction that we close.
This,
Slava (24:23.785)
So just to double click on that, so what does that mean? So sometimes a transaction could happen, but the company hasn't blessed it, so it's actually never gonna go through. It's actually the term ropher, right? Right or first refusal. We're not gonna get into the details there, but what is it that that blessing provides for the?
Atish D (24:40.991)
Yeah, there's one of two things that could happen. So look, let's compare it to public companies for the listeners as opposed to private companies. In a public company, Google stock alphabet has listed on an exchange and it has said, who currently owns this block of shares can sell it to anyone else who wants to buy that block of shares. Now we've agreed to a set of terms with the exchange. We don't need to be involved in blessing every single trade. In the private markets,
That exchange concept does not yet exist. It's illiquid. There's not as many trades happening every single day by design. And therefore, the company has to bless. It has legally the right to bless every single one of those transactions. If the company chooses to block a transaction, it can say, no thanks. I don't want the seller to sell. I don't want this buyer to come in onto my cap table, which is the ledger that basically shows who owns how much of this company.
So the company can outright block a trade. A company can exercise the right of first refusal, like you said. you know, seller can get their money, but we will pay for it. The buyers are not allowed. Or they can actually accept the transaction. And equity then, after working with these companies, again, for over a decade now, we sit on the cap table for almost for over 450 companies. We have a 95 % success rate with companies
transfer notices we send them. And so the way it works is we go to a company and we say, we have three sellers, we have 30 buyers, EquityZen will create an SPV, our own subsidiary. We will actually be the shareholder for you. The way BlackRock might have like a street name, if people are familiar with that is, you know, I might own a piece of an ETF, but really the ETF owns a piece of another public company stock. And so similarly, EquityZen will have an SPV.
SPV will be the shareholder of record for the company. We sit on the cap table of almost 500 of these large private companies. We've done transactions in nearly every single unicorn. And again, we have a 95 % success rate on this. And the reason for this is we kind of learned the lesson from the prior iteration of this marketplace. So really quick 30 second history lesson. 2013 is when equity is founded.
Atish D (27:06.28)
In the 10 years prior to that, there was a company called Second Market that did fantastic work in trying to build up a market like this. They did a lot of trading for Yelp and Groupon and Facebook stock. One of the challenges that that industry at that time ran into is that companies felt like they were cut out of the process. Companies would get slapped a transfer notice. And this wasn't really Second Market's fault. There were a lot of brokers that had popped up along the
that were kind of doing some of this behavior, where they would just start jamming transfer notices to companies and the companies would say, I'm trying to run my business. You guys are kind of making it hard for us to do this. We're just going to shut down secondary transactions. No more secondary transactions allowed. Then equity then came along. Slowly by slowly, we started talking to all these issuers. we, you know, I'd like to say that obviously we weren't alone in this,
I'd like to say that we were one of the first ones to restart and almost reignite the secondary market by really giving issuers a seat at the table. Again, this is a three -sided marketplace. You have a buyer and seller, sure, but you need the issuer to actually bless the transaction. And we can talk about this in a bit, but the way equity then really runs its business is you have sellers that want to sell, buyers that want to buy. We match them on a size, at a price for a given period of
And then we work with the company and we say, look, we're already on your cap table. We'd like to conduct another trade. And by establishing this both relationship with the company and a repeat relationship with the company, we've now been doing this for, we've processed well over $2 billion. Flows, we have over 650 ,000 users on our platform. Over a quarter million of these folks are accredited households.
and we have over 100 ,000 shareholders on our platform. We conduct, just to give a sense, for every year, we conduct transactions and it depends on the year obviously, but plus or minus 200 issuers a year. So unlike some companies who kind of focus on 10, 20 names, we really focus on the whole spectrum of private companies out there, not just the 20 names that are the hottest, like most popular. We really try to conduct transactions and create a market
Atish D (29:21.796)
a wide
Slava (29:24.673)
That's amazing that history lesson was super helpful. And obviously the numbers are very impressive. You mentioned that, you you deal with 200 issuers a year, 450 in total. And, maybe not only focused on the top five or 10, but for just for the listeners sake, when you say the top five or 10, what kind of companies are you referring
Atish D (29:43.586)
Yeah, so these would be like the open AIs of the world. mean, you look at, if you were talking about key trends a little bit earlier, it's like, obviously, the AI focus is huge right now. Open AI and bunch of companies like that are obviously like a key ingredient, Anthropics, another one, right? And so you, like the companies that typically people think about the household name companies are the ones that, you know, demand a lot of attention.
command a lot of attention and they get a lot of buzz. And the reality is that's great. In addition to that, there's actually a long tail of companies where there's value being created, there's investment opportunities, and arguably, there's deeper discounts available in many cases, better investment opportunities. So again, there's a difference between the most popular companies and perhaps the most profitable investments.
And we really try to create a marketplace where someone can come in and say, I only want to invest in OpenAI. That's all I want to invest in. If OpenAI is okay with this transaction going through, great. And they might come in and say, okay, but I'm more of a value investor. OpenAI's valuation is through the roof and that's fantastic, but it's a little rich from my blood. How do I invest in something else? And that's where they can come in and find like a full menu, if you will. We take a Greek diner approach, if you will.
except that we try to source our supply with the company's approval every single
Slava (31:16.001)
Amazing, and then some of the other big ones would be like SpaceX or Stripe or Databricks, et cetera, right? So speaking of the trends, can you kind of give me a little bit of what's hot right now in terms of the verticals and on the opposite, what's cool right
Atish D (31:21.224)
Exactly, exactly
Atish D (31:32.17)
Yeah, so look, it's no surprise everyone's going to know this already. AI is a big, big, big focus right now. Security is another one, right? We all just experienced this CrowdStrike related kind of disruption to our entire ecosystem. CrowdStrike is just one of many security companies, cloud security companies in particular. We just heard about Wizz. It was actually going to
one of the companies that I personally would love to invest in, but now the secret's out. Now the Google's tried to purchase them for $23 billion and they've decided to reject that bid. So AI companies, security companies, cloud security companies in particular. I think maybe one of the other trends to point out is valuation adjustments. Obviously after 2021, there was a massive come down on valuations. It took a while. It took actually most of 2022.
for the valuations to actually come down. And maybe the first half of 2023 for a lot of these companies and therefore their shareholders to accept, wow, I'm going to have to accept a lower valuation compared to where the last round was. A lot of the trading we see happening now is easily 30%, 35 % discount to the last round of financing. That deep a discount was frankly just a hard pill to swallow for lot of shareholders.
The bid had come down quickly, the buy side was ready to invest actually as early as second half of 2022. They just wanted a really good deal because they knew the uncertainty was ahead of them. And so maybe one of the strongest trends that we're seeing in 2024 is maybe the acceptance of a lot of the shareholders to say, okay, that era of zero interest rate environment fueled valuations is just not coming back either ever or certainly not in the next couple of
And while I can hold that for two, three years without getting additional liquidity, I can't hold that for 12, 13 years. And so I might as well accept the bid where it is. And so that, you know, almost coming to reality has been very healthy for not only companies who are now raising flat rounds or even down rounds, but for the shareholders who are saying, okay, I would rather take 70 cents on the dollar than hope for 120 cents in the dollar that may not happen for a couple of years
Atish D (33:54.461)
I've got a house to buy or loans to pay off or kids to put through college.
Slava (33:58.249)
And what are two or three of the verticals that are cooler, that are not in the hot space, let's call
Atish D (34:03.396)
Yeah, know, SaaS companies have come under pressure a little bit. That's number one. E -commerce companies, you know, have continued to get hammered. This is actually the second year in a row that we've seen e -commerce companies kind of, you know, be a bit more subdued. And obviously, part of this is like inflation pressure. But part of this is supply chain challenges. Like it's just it's gotten it's gotten more expensive to produce and passing on those costs to buyers.
is not something that they can continue to get away with, so to speak, over and over again. And so their margins compress. Some of these companies were in an effort to grow already had smaller margins. And so when they compress even further, it becomes harder for them. One of the things I recently just yesterday actually picked up on is luxury goods companies, like the absolute top tier of luxury companies like Hermes, they've continued to
support and growth, but the next tier down, the Michael Kors of the world, they're actually struggling. The Berberies, they've actually had a tough time keeping up. so, again, there's, as with every cycle, there's the haves and the have -nots, and the haves in this case, just like the public equity market, there's a very small number of winners, and there's a whole bunch of folks who will need to make some adjustments. And consumer,
as well as kind of software companies, enterprise software companies, I've seen a bit of a drawdown recently.
Slava (35:36.309)
Super helpful. And then you already mentioned this in terms of the IPO window, we're already seeing the first half of 24 more action than in 23, 30 % increase in IPOs, 83 % increase in the actual capital raised over seven deals, over half a billion dollars, which is awesome. You mentioned that with the election, it's probably gonna be a little bit, let's call it slow until after the election. Maybe that window opens up, let's call it Thanksgiving time.
but you're pretty bullish about early 25. Is there any more color you would add about what you expect for the IPO window?
Atish D (36:11.996)
Yeah, look, I think everyone should just really stare a lot at the yield curve. That's what we're doing. I think there's some names that I'm pretty excited about, know, Skim, Service Titan, StubHub. These are names that we've heard about that there's some buzz around. Maybe they'll even list before the election, and that'll be pretty exciting. But no, I think from our side, think Q1, Q2 are really where we're focused, probably after the...
after the actual change in the administration that occurs at the end of January, I think that's really when we're kind of saying, okay, like right now is our time to continue fine tuning, getting ready and gearing up. And that first half of next year is really when I think we're going to start to see a recovery in our world, which again is very dependent and tied closely to IPO activity and deal activity in general. I know a of bankers, for example, that are waiting for, you know, as soon as rates start coming
They can't wait for all the refinancing deals that they're going to get to do. That in the last two years, a lot of companies have taken on debt, the cost of capital is higher. As soon as cost of capital comes down even a little bit, I know a lot of bankers that just, the debt capital markets are kind of frothing for this. And I think they're kind of saying, okay, early next year is when the boom's coming.
Slava (37:29.345)
I really appreciated you put out some names there. So Skim, Service Tight, and StubHub. What other names come to top of mind that if I said, hey, which companies are going to IPO by the end of 25? You obviously don't have to be right. This is not investment advice. It's really just an opinion. What are five more names that you throw out
Atish D (37:50.41)
wow. You know, I don't know that I five more names, unfortunately, but, you know, these are the ones that we are gearing up for internally, candidly. So just as a quick side note, in secondary markets, when there's an IPO that's announced, there's a lot more kind of trading activity. There's a limited window within which there's a trading activity that's allowed. And after that, everyone kind of enters a lockup and then there's no trading allowed. And so one of the things we do is almost like, you know, Amazon has to gear up
kind of their seasonal kind of windows, we have to, you know, get ready for kind of trading activity that might take place and some of these names that are are buzzed about going public before they actually enter the lockup period and then, you know, go on the road show. So look, I think those are the names that come to mind. I skims in particular just keeps coming up over and over again. And part of this is it's one of the few consumer companies, you know, besides the Reddit, if you can call it that, if you can call it a consumer company.
Slava (38:48.644)
two very different companies.
Atish D (38:50.049)
Yeah, two very different companies, that's for sure. Brand appeal and dinner table recognition, both up there. And I think those are the types of companies, frankly, that also get people paying attention again to the public markets and the IPO markets. And that's what we're personally kind of jazzed about is, OK, this is, you people shouldn't think about IPOs as like, OK, who knows when they're going to happen again? Like names they can recognize are kind of close.
Slava (39:17.889)
So I'm gonna talk personally on behalf of the listeners. So let's say I wanna use EquityZen and I wanna buy $20 ,000 of StubHub. So I'm allowed to do that, right? Cause it's over the 10 ,000 minimum, is that right? Or does each name have its own
Atish D (39:36.151)
So no, think certainly some companies may be more restrictive, but no, most of the time what we see is because we syndicate checks into a single check for the company, we tend to see a lot more success with even five, $10 ,000 minimums. But yeah, I think $10 ,000 is kind of the steady state minimum. So you want to invest $20 ,000 in StubHub, go ahead.
Slava (39:59.041)
Okay, great, so, and as part of that is the seller who's selling me the StubHub shares, paying the fees, or what are the fees, am I paying the fees? So if I put in $20 ,000, how much is the seller receiving and how much stock am I receiving? Am I receiving $20 ,000 of stock? Can you just answer
Atish D (40:20.47)
Yeah, sure. So we charge both sides, the sellers and the buyers. One of the key reasons we do that is that there's transparency to both sides and each side is aware of what they're paying. Some platforms out there only charge one side, but there's no free lunch. And so what that means is if the buyer's not paying any fees, guess what? They're paying a higher price. And so our view on this is we charge both sides. We charge for the smallest check sizes, 5 % on each side.
And for larger check sizes, know, it's 3 % are negotiated for check size over $10 million. And so depending on the investment that someone's making, we will, you know, charge them individually, they'll pay a commission. So let's say you put in $21 ,000, $20 ,000 would go towards purchasing the stock, you would own $20 ,000 worth of stock. And the seller in that case, pro rata, let's just say it was a one person transaction, they would get $19 ,000.
Slava (41:16.16)
Okay, great. Super, super clear. And outside of doing like individual stock purchases, are there any options on EquityZen to get baskets or an index or any sort of diversified offering?
Atish D (41:28.315)
There are. you for asking that. Look, I think the smaller a person's ability to write a check, because I'm a big believer in diversification, one of the key things we've done is launch products that provide basket exposure. So there's two types of basket exposure products that we offer. One is just general market basket exposure. We did this nine years ago. Every year we launch a vintage. It's called the Growth Opportunity Fund.
I'm sure our 10th vintage is going to be out and open by the time the listeners are able to listen to this. So please hear me loud and clear. This is not investment advice. I'm not soliciting investments for that particular vehicle. But for the last nine years, we've done this and we're now in our 10th year of launching an annual vintage where people can write one check, they write a $25 ,000 check. This fund will now make investments on their behalf.
for the period of a year into 2025 names. So they're actually getting an effective minimum of $1 ,000 per investment. And they're dipping their toe in the pool and getting comfortable with these investments. for what it's worth, folks write million dollar checks into these vehicles also. But you can start very small. So that's one type of basket exposure. Another type of basket exposure is more thematic. You want to invest in a feature of food companies. You want to invest in security companies.
You just want to invest in the top five or 10 most high demand companies. These are all kind of themes that we offer. And again, it's a way for people to get diversified exposure without firing $20 ,000 bullets each time, which can be a lot for certain people. just to kind of zoom out a little bit, our view on this is wealth creation isn't just for already wealthy people. And so one of the ways that we're doing that is saying maybe $20 ,000 is
your entire allocation into pre IPO, well, fine, you can still get a diversified portfolio for that. you know, for that, you know, for that, think people can make their own decision and what they're comfortable
Slava (43:39.393)
For those baskets, am I able to trade in and out of that basket or the individual names or more importantly, do I just have to stay in it until the entire basket has exited its 25 stocks, for example?
Atish D (43:53.199)
Yeah, so for the basket vehicles, we do not offer the ability to trade in and out. For single names, there is that ability. But the thing to note about the basket products, just to compare it against, for example, like a private equity product, would be as soon as there's exits happening, you're actually getting distributions. And so in a typical environment, what we would see actually is the investor cuts a check in year
And already by year two, three, four, five, they're starting to get exits, proceeds. Now, look, it's not guaranteed, obviously, but unlike, for example, a more traditional private equity or venture fund where you don't get distributions until much later, you can actually get distributions pretty early. And this is really an artifact of the universe of companies we focus on, which are pre IPO, they're more mature companies. They're not in year two of operations, they're usually more two to five years from an
Slava (44:51.361)
Right, excellent. Last question, just opinion on WIZ. Do you think you mentioned WIZ and at the moment of production here, they recently turned down the $23 billion opportunity from Google. Do you think that they actually have turned it down and they're really gonna be heads down path to IPO and this is quote unquote bullish for the IPO market? Or do you think this is just what slide negotiation and it's gonna
a transaction still happening, whether it's with Google or somebody else, within the next six months.
Atish D (45:25.305)
So it's a great question. What I've heard is that there's a bit of a challenge with antitrust reasons. And so that was actually a factor maybe in the deal busting up. To answer your question directly, I don't know that it's purely a negotiation challenge, a negotiating tactic. I think what it might be more so, sorry, I think you're hearing maybe my daughter in the background. There you
Slava (45:49.761)
We all love kids, it's all good.
Atish D (45:53.103)
I think more likely to be than a negotiating tactic. It's maybe an opportunity for the company's board to say, if this company can come in and there are other cloud providers that want to compete with Azure and AWS, then perhaps there's a way that we as a public company can command a bigger premium and then have kind of a buyout after we're a public company. A public company buyout can often command a higher premium.
than a private company buyout. So I think that's one hypothesis. For me personally, I think one of the things I think about all the time is there's a company called AppDynamics. I don't know how many people would really remember this. It went on a road show. It had a fantastic road show. was about to go, this is like nine years ago. It was about to go public. It was about to start listing. It had priced. It was about to start listing on the New York Stock Exchange at 9 .30 the next morning and at 11 p literally the 11th hour, they announced an acquisition by Cisco.
That I would not put out of the realm of possibility for a company like this one, especially because, you know, the acquirer in this case, Google has pretty deep pockets.
Slava (47:02.209)
So I guess the takeaway is stay tuned.
Atish D (47:04.042)
Stay tuned and if you can, buy Wiz, do it.
Slava (47:08.115)
There you go. We all try to be as smart as our guests. So what is it that you're watching? What is it that you're listening to? What is it that you're reading? What makes, you know, Atish Atish give us some of that wisdom.
Atish D (47:20.648)
Look, I am an old school person. I like physical books. Of course, I listen to podcasts. Of course, I try to, you know, I'll read The Economist and The Journal and The FT and TechCrunch. But I try to really just read physical books and really talk to people that have maybe some contrary points of view. So there's two books in particular, maybe two authors, I should say, that I follow a lot and really resonate with me. One is
Ashwin Chhabra, he's written this book called The Aspirational Investor. I think it's a foundational book for anyone looking to invest. And it's not just about how to make the highest return. It's about, if you want to consider yourself to be a successful investor, let's first define success and then I'll give you a bunch of ways in order to get there. And it's about kind of figuring out what kind of life you want to lead and then therefore deploying capital accordingly. And almost anything by Morgan Housel.
You know Morgan now runs a collaborative fund, you know a lot of the a lot of the stuff He's written the psychology of money for example is a book that kind of stuck with me quite a bit For anyone you know that that hasn't really read those books I recommend it you can you can disagree with it But at least they're thought -provoking concepts, and that's really at the heart of it What I look for is can this challenge my thinking can this evolve my thinking a little bit and I find
less frequent but deeper dives are the way my mind kind of responds well to some of these framework -based investment decisions.
Slava (48:56.609)
Amazing. Thank you for sharing that. We're now at one of the favorite part of the shows from our listeners, which is they love to hear the specific recommendations or thoughts from our guests around what's an investment pick that you would make today in the public markets for three years out and what's a pick in the private markets for three years out. Obviously for public markets, it's very easy to be specific. Just give us a name and a ticker. And for the private markets, the more specific you could be, the better. We would love to track it.
Atish D (49:24.476)
Yeah, so great question. Let me start off by saying because of where my wife is employed, we are restricted on single names. And so I may have positions in these names, but they're a long dated position because we can't trade in and out of it. So let me just kind of start off with that disclaimer. Public company, look, this is going to sound boring. That's okay. I'm a pretty boring person when it comes to my investing strategies, Microsoft. have been, you know, there's this concept of first to market.
There's a concept of first to money. And Microsoft consistently, time and time again, has kind of been this company that wasn't always the first, but boy, they figured out who was on the rise. And even most recently, we've seen their leadership at the OpenAI. We've seen their lead. And so Microsoft's my easy choice. I know it's boring, but
Slava (50:17.121)
But to be clear, we're talking about a $3 trillion company. So three years out, opportunity cost wise, you think that's the right place to be buying and holding for the next three years.
Atish D (50:27.642)
I do. here's why. First of all, we'll see what kind of trust busting actually takes place with big tech companies. think I'm personally a little skeptical that that's going to happen. Even if it does, spin offs often yield fantastic returns for holders of the parent company, even if it reduces the growth prospects. And I don't really see a lot of this happening within the three year window. That's number one. Number two. Yeah, look, the rich have gotten richer in the public
sorry, in the public equities market. Microsoft is absolutely one of those companies that's benefited from that. And just to draw a contrast, not only is it one of the OG kind of tech companies, even a company that we now think about as an old school company like Amazon, Amazon's 30 years old, but even as a 30 year old company, Amazon still has catch up to do, not just in terms of valuations, but in terms of maturity as a firm.
companies like Apple, Microsoft, Cisco, Oracle, they have gone through a process of maturation where low -hanging fruit was gone, and they now really had to combine a lot of their internal divisions and squeeze more juice out of the same fruit. Amazon hasn't done that yet, and man, Microsoft has shown time and time again, kind of like Apple, how it can evolve from the one trick that made it famous. So like after Windows,
finally moved on to Azure and the cloud and clearly it's paying off. yeah, I'm just personally, think $3 trillion is rich, but I think if you compare it to other valuations, yeah, expected value is higher for me on this stock.
Slava (52:08.449)
All right, perfect. And in the private markets, obviously, you know a thing or two about pre -IPOs, so we would love to hear a name there and across any category.
Atish D (52:15.663)
Yeah, so I will give you a name. I'll first tell you that personally, I believe even within private markets, a diversified investment is actually the right way to go. I don't think you should invest in a single name. And the easiest kind of thought process I go through is if you invest in a diversified vehicle, you could have access to Uber and you could have access to, you know, VIA. It would really be a shame if you picked
via instead of Uber and you kind of are sitting here saying, yeah, I got some exposure to ride sharing, but boy, it would have been good to invest in Uber. And again, like we don't know how long it's going to take these companies to really mature. It could be a decade before you truly see the like meteoric rise. And so again, my personal philosophy, which is how we've deployed capital into pre IPO names and private investments in general has been diversified.
My trend in picking this, and I'll give you a name, been, like the themes are, love security businesses, love data businesses. People talk a lot about picks and shovel businesses. Obviously, those are fantastic. That's a reference going back to like the 1849 gold rush, right? You know what else they had in the gold rush is they had security, had surveillance, and they had intelligence. And so I think those are the three things I think about a lot is, of course, picks and shovels,
a lot of people forget that there's actually an ancillary support system beyond the picks and shovels. And so I love companies that mix computer plus human. In many ways, equity then kind of does that as well. And so given that, the companies that are top of mind for me are security focused companies like Arctic Wolf. It's a name of a company that, you know, isn't always the most popular name out there, but boy, boring businesses that deliver.
reliable and necessary service. I'll take that, especially if it makes human and computer ingenuity. So that's probably the name I would go with as if you had to pick a single name and not a diversified offering, that's the one I would go with. But if you have a choice, pick a diversified offering because it's just, it's too early for these companies to really pick a single winner because you don't want to be missing out on the rest of the tide.
Slava (54:32.417)
That's amazing. I fully agree on the diversified offering or diversification. just would make my show very boring to have everybody say diversify. So we got to ask for a specific name. thank you for humoring me. This has been an incredible conversation. We started out, you know, going all the way back to, you know, starting at the hedge fund, the Quan hedge fund 2008, you helped destroy Lehman. I mean, you had nothing to do with this. And you had a great line, which is startup equity.
is not as liquid as hedge fund bonuses. I love that. I think that's going to have to be one of the takeaways of the whole talk. You you've been in the process of moving minimum investments from 10 million into pre IPO to 10 ,000 or 5 ,000, eventually one day, a thousand, which is incredible. You gave us a great heuristic, which is you should be putting into equities about a hundred minus your age in terms of percentage. You talked us through your 60, 2020 in terms of your equities.
Bonds and alternatives love all your exposure and your thoughts about speculative versus yield on the portfolio mix and It's not about the first rate cut. It's about the size and speed of second rate cut another great quote Your predictions may be one cut by the end of the year. You do see a soft landing You do see a second and third cut happening soon thereafter probably this time next year And already 2024 has shown a lot of progress compared to 2023. So we should be bullish
EquitiesN has been around for 12 years, has 95 % success rate, works with 450 companies, over $2 billion in transactions, 100 ,000 shareholders and more. You told us what sectors are hot, like AI, cloud security and discounts. What's cool, like SaaS and e -commerce. We talked about some names that are coming soon, like Skim, Service Titan, StubHub, which is awesome. You're pretty excited for early 25. You gave us some great books, The Aspirational Investor and The Psychology of Money. Have to check those two out. And you put
down two great names for things to look at, Microsoft in public and Arctic Wolf in private. So thank you very much, Atish.
Atish D (56:30.268)
Hey, thank you so much. This was a great conversation.
