TRANSCRIPT

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Slava (00:00)

In this episode of Smart Humans, we talk with Auren Hoffman, who's the managing partner and founder of Flex Capital. He talks to us what it's like being a dual threat, both an operator and an investor, how you're able to optimize your returns by thinking about your tax strategies upfront. And of course, he gives us lots of great picks of investments to make and his point of view on how every brand is a scam.

Slava (00:54)

Hello and welcome to the latest episode of Smart Humans. Super excited for today's guest. We have an incredible operator, entrepreneur, and now VC. Auren Hoffman from Flex Capital. Welcome to the show.

Auren Hoffman (01:08)

Super excited to be here Slava.

Slava (01:10)

All right, well let's just dive in with always the beginning, which is how did you even get into alts? Where does it all start for you?

Auren Hoffman (01:18)

Well, I had to pay my way through college. And so even in high school, I I had to kind of be an entrepreneur. started like a teenage temp firm in high school, doing household chores, babysitting, lawn mowing, moving, et cetera. And I'm taking like 10 % of what the other kids make. And then I also worked every day. And then that got me through my first three years of college. I ran out of money after my junior year and then started an internet company to pay for my last year.

Slava (01:49)

When were you taking your first percentages from other kids? How old were you?

Auren Hoffman (01:54)

I was between ninth and tenth grade, kind of started that out and was learning a lot about how to do it and how to collect money and how to pay and all those other types of things. This is like pre -internet days.

Slava (02:10)

Why do you think that came to you as an idea? It doesn't sound very normal back then to just be entrepreneurial and charging a VIG on other people getting jobs. So where do think that came from?

Auren Hoffman (02:23)

I read an article when I was like maybe 13 or so, it's one of those like kids magazines about another kid who had done this. And I remember there was like this picture of him and he had all these like video game machines in his house that he had bought with all the money. And I was like, this kid sounds like he's like super successful. I have no idea. I would be really interested in knowing who that kid is today. And like, I want to be like that kid.

Slava (02:50)

So from there, you then go on to start some incredible companies before you get into the investing game. How does being an entrepreneur impact you becoming an investor?

Auren Hoffman (03:04)

I'm much more of an entrepreneur and an operator than I am an investor. So my partners in the investing space are more investor focused and they're much better investors than I am. I like the company building side of things, like the investing company building side, more than just like the actual investing side of things.

Slava (03:24)

So take us from the third year of school until obviously you start investing. What's that operator experience that gets you into starting to invest and build these other companies?

Auren Hoffman (03:39)

One thing that's interesting is like how important things like singles are. And I think a lot of like a lot of what we talk about are like home runs and hitting home runs. I've personally never hit a home run. Like the best I did was a double with live ramp. But most of my successes come from just like consistently hitting decent singles and occasionally striking out. And like singles add up quite a bit. So I've never even hit a triple in my life.

whether as an operator or as an investor, except for my personal life, of course, I've married well and have great kids. But in the business life, I've never, but you can still be quite successful, like consistently hitting singles.

Slava (04:22)

So for the listeners, they might not understand exactly what a single or home run means exactly. Can you give some perspective on, I imagine a home run for simplicity sake is like a unicorn, like a billion dollar exit, et cetera. Can you give some perspective on what a single means or a double or triple?

Auren Hoffman (04:37)

Yeah, about a billion dollar exit could still be a single depending on your ownership and a whole bunch of other types of things. So you own less than 1 % of billion dollar exit. You're kind of hitting a single. So I think all these things could depend on a whole bunch of different kind of factors.

Slava (04:54)

But when you say like hitting a consistent single, is that like 10 million, 100 million, just directionally?

Auren Hoffman (05:03)

Yeah, let's say like, it's, let's, let's say you, you, you end up with like single digit millions or something like that, or you have an income stream that kind of adds up over time. Like most people who have a high income stream, they may never have an exit, but if you add it up over time, it's quite wealthy. If you add it up over 10 or 20 years, it compounds quite well. so that would be like a great single that you hit. And then you might get like, some people may get multiple single, some may end up like taking some of that proceeds from just like a normal job and investing in something.

and that can do well. So there's lots of ways of kind of like consistently hitting singles that are really important. Single really kind of may depend on your circumstance as well. But I would just say like each one would be like an order of magnitude bigger.

Slava (05:42)

And you

And in regards to LiveRamp, you mentioned that, so what was the exit there?

Auren Hoffman (05:52)

We sold the company for $310 million and so yeah, I would say that would be like a good double.

Slava (06:01)

So obviously you're being really humble, but $300 million is a lot of money in most people's books. So obviously it's perspective on ownership and all that stuff, but that's an incredible, incredible feat. So kudos there. And obviously that sets up a little bit of the table for you having perspective on how to build future companies and how to invest into others. know, transitioning a bit into kind of how you think about your personal wealth and allocating your wealth.

Do you stick to, and this is really a softball question, because I know the answer is no, but do you stick to the 60 -40 kind of split of putting 60 % of your wealth into public equities and 40 % into bonds?

Auren Hoffman (06:46)

Well, I think there's a barbell. I think it's at least for people like me, there's usually some sort of barbell where you have quite a bit of like some sort of number of wealth in some sort of relatively safe assets. And this could be bonds or this could be just like general equities or something like that, but things that you feel like relatively good about. then there's like a number and then anything above that number, you might as well be like a little bit more risk taking on that.

So that number is something that like once you feel like you can take care of your family, maybe you don't want to risk anything beyond that. So you've got this kind of pool and for everybody that might be a different side. But okay, now I can take care of my family. I can do something. I'm to put that in like a very, very safe portfolio, which might be a 60 -40 type of portfolio. It might even be like a 30 -70 portfolio and just feel good about it. It's just not going to go down. And then the rest you can take a little bit more risk on.

having a lot of access to catch is really important because when markets move, they move down usually together. And so you want to both not have to be like super fearful in a bad market move. You don't want to have to unwind positions. So you certainly don't want to be like ideally leveraged or something, or you have to unwind positions when that happens. You want to be able to be long -term. And just like, if you have like some sort of pool set aside,

you can just, psychologically, you can be a little bit more risk taking at that point.

Slava (08:21)

When you think about cash, are you thinking that as a percentage of wealth to have available or are thinking about that in absolute numbers as an amount to have available?

Auren Hoffman (08:29)

I think of it as absolute numbers, but I think everyone is different and depending on their situation, they may think of it a different way. And if you look at like certain companies, certain companies have just like an extreme amount of cash, whether it be Berkshire Hathaway or Alphabet or Apple or something like that. And they're clearly like have a sense that they're waiting for some sort of rainy day or waiting to pounce or they just don't know what to do with it maybe.

Slava (09:00)

And then for you personally, so Auren, what percentage of your 100 % is more of that risk on stuff that isn't the, let's call it the bonds or the equities or the cash of 100 %? Is that 1%, 10%, 90 %?

Auren Hoffman (09:16)

Well, it really depends. It's really like a hundred percent of everything above a certain number. And so that number can potentially fluctuate depending on how I'm doing, but it's like a hundred percent of almost everything above that.

Slava (09:29)

Gotcha. And directionally, is that a big percentage overall?

Auren Hoffman (09:34)

It can depend on how well things are doing just depending on the day, right? So let's say, I mean, if you just like, let's say you have money in like crypto, like, well, that could like be very, very, that could change like by the hour. Yeah.

Slava (09:49)

Sounds good. double clicking into that alts portfolio, which is obviously what we're focused on here with this smart humans podcast. We think about a number of different categories, whether it's real estate, private credit, art, collectibles, venture, pre IPO, and crypto. So how do you think about accessing each of these

asset classes? there certain that you like certain the ones that you avoid? How do you think about your 100 % of exposure to the alts as it to those categories or feel free to add another category if there's something I didn't mention.

Auren Hoffman (10:26)

Yeah, I think for everyone it should be different, but like it should be something you enjoy doing and you find it like exciting and interesting and something that you feel like you have some sort of advantage in or at least you want to learn about. So maybe you don't have advantage and you're willing to have, you know, below average performance in that category, but it's something that you're excited about that you want to learn about. And I think for everybody, it's like quite different. One thing I think is important is just like really looking at after tax return.

And so for most people, they're not like a foundation. It's not like they're the Ford Foundation or Harvard Endowment that doesn't pay any taxes. Taxes are very, very, important. And so thinking of strategies where they may have tax deferred or some sort of low tax is... And then likely for most people, taxes will probably go up.

If you're in a relatively high wealth category, taxes are going to up. If you think of it, there's four main wings of the political wings. There's the AOC wing, the Biden wing, the Romney wing, and the JD Vance wing. Three or four of those wings want to raise taxes on the wealthy, only the Romney wing wants to keep them where they are. And so there's a good chance that taxes will go up even more, so it becomes even more important. And that's especially true if you live in a high tax state. I think, Slava, you live in New Jersey. Is that right?

Slava (11:51)

Yep. Yep.

Auren Hoffman (11:52)

the evil of an extremely high tax state. So figuring some of those things out and structuring those things, I think are also really important.

Slava (11:59)

So again, just double clicking on you personally, outside of personal real estate that you live in, whatever, do you think about investing into real estate as an asset class?

Auren Hoffman (12:11)

I personally don't, think real estate folks have figured out the tax thing really well. There's like so many crazy tax loopholes for real estate, but I only own my home and I'm not interested in real estate. just not an area that I get excited about. It's not an area that I'm passionate about. And I feel like somebody else will outcompete me because I'm not as good at that. So it's just not my core competency.

Slava (12:36)

I'm in the exact same camp and is that similar for private credit or you like some yield oriented private credit?

Auren Hoffman (12:43)

I mean, a very little bit of that here and there, but that's more on the wealth preserving side of things. So some of those things are there. And some of those things also have some really good tax advantages where like, if you put $100 into them and you're getting $12 a year back, that $12 a year are going to repay the principal. And then only after that is it taxable. So there's like some tax deferred kind of things in some of those structures that are out there.

But I think for like, if you're a venture investor, like the most amazing thing is QSBS. And it's really exciting and it really can compound quite quickly. And so if you think of like an after tax IRR, if you're an angel investor or something like that, especially if you're relatively early and you're investing directly, so cause SAIFS could sometimes defer that QSBS time clock or that five year time clock.

That could be a really, really great way of compounding wealth in a tax advantage way.

Slava (13:44)

So just for the sake of our listeners, what exactly is QSBS?

Auren Hoffman (13:48)

So qualified small business is a way of investing in startups and the startups have to, there's a lot of criteria and so anyone can go read about it, but you have to really follow the rules quite well. They have to be certain types of structures. They have to be under a certain amount of valuation, et cetera. If you invest in those and they have an exit after five years, then...

either all or quite a lot of those gains are either in some cases they're tax free or in some cases they're tax deferred. And certain states are also QSBS enabled. like some states like California are not, still have to pay. So in many cases you'll pay like more in state tax in California than you would in federal. But in other states where people that I live in the state of Virginia, Virginia is kind of abides by the kind of the same QSBS form.

Slava (14:41)

Nice, and then some hard assets like art or collectibles. Is that interesting to you as an investment or you avoid those things?

Auren Hoffman (14:52)

I think those are super fun scams and I love those types of scams reading about them. I think those are great. I know a lot of people who do like pumps and dumps and art and wine and collectibles and stuff like that, but I personally don't own any. I don't own any art, any wine, any collectibles at all. And not because like I don't find it interesting. It's just, again, like I feel like somebody else is going to out compete me in those areas. And so I, I, I,

I don't have, I have zero assets in those things. I love reading about it though. Like some of those, some of those things are just amazing to learn about.

Slava (15:23)

So we covered.

If you were going to invest into an art or a collectible and you didn't think there were a scam, what would be?

Auren Hoffman (15:37)

Well, again, I don't see scam in a bad way. these are, know, any type of brand is a scam, right? So, I mean, you have a wine bottle that tastes great at $30. Another wine bottle tastes kind of maybe even worse at $30 ,000. But like one has like a slightly cooler label than the other or something. And a lot of it's like marketing, etc. to get a better arts the same way. You'll see these two paintings like you know,

I can't tell the difference between a forgery and a non -forgery. don't really know anyone who can. So you put it on your wall. It's not like you'd feel necessarily any different about it. But people will ascribe $100 million in differential value between these different types of things just because there's a story behind it. And I think that's great. think that's really cool. And it makes us human to be able to buy into those scams. But

But it's just not something that I can underwrite. Like I just don't understand it enough to underwrite. So I try to stay away from it. like an investor, as like a reader and appreciator of sociology and society, I love it.

Slava (16:44)

What would be the kid in you or even the adult in you, what's the one art or collectible piece that you would enjoy owning? Again, ignore the investment value.

Auren Hoffman (16:54)

Honestly.

I wouldn't care. don't like get souvenirs. I don't really care about any of those types of things at all. you know, and I'm kind of believer too that like a, like it's pretty hard. Like even if you go out to eat and you go out to like a super nice restaurant, like a restaurant that will cost you like $500 a person and a restaurant that'll cost you $50 a person, usually the $50 one is better.

Slava (17:03)

Alright.

Auren Hoffman (17:26)

And so it's pretty rare for that $500 actually to be like it might be a cool experience and you can brag to your friends that you went to like that really cool $500 restaurant. But now the $50 one's probably better than the $20 one. But like once you there's an asymptote that once you get above like $50 a person is probably not actually getting better. And it's just a great way for like rich people to spend their money.

to talk about it and brag about it, but I don't think the food is actually any better.

Slava (17:58)

Nice, so we covered a lot of the assets that you're less interested in. I think we're gonna now cover them, the ones that you're more interested in. What do you think about crypto?

Auren Hoffman (18:08)

I think crypto is interesting. I had an opportunity in March of 2013, my friend Mickey Malca sent me five Bitcoins. I had heard of Bitcoin but I had never owned any before. At the time, they were $50 a coin. So this was $250. So this was a lot of money to send me. I was very, very grateful.

That was on a Thursday by Sunday of that week, just a few days later, it went up to $100. So I remember all of sudden, like, these being worth like $500 and just being like so fascinated with it. And I don't know if, again, I think it also could be a great scam. So it's just a scam that I kind of understand a little bit more than the art scam or the wine scam. It could be, it could all go to zero tomorrow. And it's really just a story.

But it's a fun story that we can collectively talk about. again, I don't necessarily suggest to other people that they should invest in crypto. It's kind of like, if you like the story, if you like the scam, if you want to talk about it with other people online and kind of like follow it and you think it's fun, then do it.

Slava (19:20)

So beyond those five BTC, are you actively investing or have exposure to crypto?

Auren Hoffman (19:26)

I have exposure, I haven't invested new dollars in a while. I own Solana and Ethereum and Bitcoin, so more of the blue chip ones that are out there. But I'm probably not a core believer in those things. I'm a curious person.

So, and I think some of those things are great. Some are also really about the founders. And so there's like a story about the founders that make them interesting. And so if you think of like Bitcoin, okay, there's this founder, no one knows who this person is. It's kind of deity person that's out there. It might be a collective group of people. It may actually be one person. That person may be dead. We don't know. And so we can ascribe all these great things to the founder.

And so if you just think of any type of movement, it's really important that that founder is a good person, et cetera. If you think of Ethereum, OK, well, the founder is alive. But he actually seems like a really good guy who is very much an altruist. He's a very odd kind of person. He doesn't feel like he's doing things for his best interest. He's actually doing things that are good for society.

So he's just like very, very different from almost any other, like you can't like put them in any category of a tech founder or anything like that. And I think part of the reason like Ethereum has done so well is you have this kind of like benevolent person behind it who's really trying to do a good job. And I have no reason to doubt that he is like actually who he says he is. He just seems like a really good person. And so part of the thing about like, I think those two,

and why they've done so well. It's like the founders have this kind of mythical quality behind them that makes investing behind it so compelling.

Slava (21:27)

And as it relates to crypto, do you see that as like a single digit, low single digit or double digit exposure to your portfolio or how do you think about the sizing?

Auren Hoffman (21:39)

Well, I'm not like in my own personal portfolio construction. I don't think about it necessarily that way because it's very, very hard because crypto changes so rapidly. depending on the person and I have friends where crypto is 99 % of their thing and then, know, so it's very hard and then like you can't like rebalance it all the time. So if you just said, I want to win crypto to be X percent, well, it's it's varying so widely that

like if you rebalanced it all the time, it would be just very bad from like a tax perspective and stuff. So you kind of just hold it and it goes up and down and you just can't really think about what percentage it is of your portfolio because there certainly be times where it's probably like irrationally too high if the crypto goes up a lot or if it goes down a lot, you know, maybe at that point you might want to like double down if you really believe in and stuff, but it's very hard to kind of follow that game.

Slava (22:37)

And then the last one, which is probably your main exposures venture outside of the companies that you're personally involved with deeply. How do you think about getting access, investing and the amount of exposure you have into these other ventures, whether it be funds and individual companies, et cetera.

Auren Hoffman (22:57)

I'm this, I'm beside for my own fun. I'm an LP and some other, you know, maybe, maybe about 10 or 12 other venture funds. And I think it's good to learn from other people who are great investors. think most of these funds are probably better investors than I am. So I get to learn from them and see how they're doing and appreciate what they're doing. Venture is very, very hard business.

And most most venture firms have negative IRR or, you know, somewhere in that regards. So it is very, very competitive. It's very hard to do well in that business. And so it's great to learn from other folks and kind of see what they're doing. For most venture firms, though, their main client is a foundation. And so they don't care about taxes. Taxes are not important to them. And so there's a small number of venture firms who are like their main

client, their main LP are individuals, and then they're going to think about things a little bit differently when they're doing investing as well. So just like a learning that and understanding that is helpful as well. The other thing I would mention is just like another powerful, besides for QSBS, another powerful thing that just like anybody who's listening to this podcast could do is just doing self -directed 401ks. And so even if you have a very small amount of money...

If you invest it well and you self -direct it well, if you want to use that for your alts and stuff, and those alts go up a lot, well then you have just this very interesting tax -deferred compounding machine, which can be really exciting as well.

Slava (24:35)

Is it fair to say that over half or a majority of your alt exposure above that line is venture, i .e. individual companies, funds, meaning beyond just your personal companies?

Auren Hoffman (24:48)

Yeah, yeah, that's probably true.

Slava (24:50)

Okay, great. And here's an open ended question and take it wherever you like. What do you think of today's market, the economy, the stock market, take it wherever you'd like.

Auren Hoffman (25:02)

I have no idea and I don't really try to figure that out. never know. I've often predicted lots of crashes when they never happened and predicted other tips of stuff. So I wouldn't say that my predictive ability is even remotely accurate. In fact, I may be really good at predicting the opposite of what's happening on the macro world. So maybe you should just like, I should just write it down and then you should just bet exactly the opposite of what I say.

Slava (25:31)

Well, that sounds like a great game to play. So what would you write down?

Auren Hoffman (25:31)

So I think these things are.

Yeah. Yeah. Well, right. I don't know. And so at this point, I don't even like trust my own judgment about like where the the market economy is going. There's so many great if you read enough, you can convince yourself of any position at this point. Is China going to do well? Is China going to is China going to implode? Who knows? I don't think anyone has any real understanding here. Is Japan going to do well or implode?

how well the US do over time. I just don't have a good sense of any of these types of things.

Slava (26:10)

All right, fair enough. So as it relates to Flex Capital, can you give us a little background on how that got started and what it focused on?

Auren Hoffman (26:20)

Sure, Flex Capital started with me and one of my closest friends, Todd Setra Dottie. And we had pooled our own investments and we're investing together as kind of angels. And we did a series of angel investments together, probably collectively over 50 angel investments that we did together. And we did some later stage stuff as well. And then that kind of ended up like many of these things morphing into a fund. We're now on our second fund.

And part of our goal is also just to try to mechanize it a bit. Well, there's like kind of the art of investing and you'll never take away the art, but there's also a lot of things that you can mechanize and kind of science ties those things. And for me, those are like the more exciting things. And those are ways to really kind of scale up and be able to deploy a lot of capital if you can mechanize it and actually like put a little bit more process behind it.

So the vesting firms that I really admire are like BlackRock. And they've really just done a great job of just kind of like recognizing investments and just trying to reduce fees and get great returns without actually putting like the fort on investing.

Slava (27:35)

What kind of investments is Flex focused on?

Auren Hoffman (27:40)

We generally focus on seed investments and special investments that long -term could be tax advantaged as well. So we can get it like QSBS because a lot of our LPs are individuals and we want to make sure that those individuals make a double return, not only make good IRR, but the after -tax IRR is more best of class. And then we're focused on just the classic venture capital, just great seed founders.

who are doing disruptive things.

Slava (28:13)

And I know that with LiveRamp and SafeGraph and all of the amazing things that you've done, you often have a great data lens. Is that part of your investment thesis and what you look for?

Auren Hoffman (28:27)

Yeah, I really like data companies. don't like them as much as venture capital investments. Data companies are generally like really great profitable and I'm a part owner or more majority owner in many, many data companies that are out there. These data companies can be quite profitable. They can spit off cash. They can be great, great compounding machines. They're less good usually on the venture capital lens.

So there really aren't very few unicorns that are data companies. If you think of just the number of unicorns that have started in the last 20 years that are data companies, it's like one, maybe two, depending on how you count. And there's been like thousand SaaS companies during that time. But there's many, many, many good data companies that are doing incredibly well, that are very profitable, that put out dividends, et cetera.

They're much better companies to think about like less in a venture capital lens. But if you have data companies in your portfolio, if you help start data companies, if you're involved in data companies or your shareholders data companies, they can be really great kind of like cash assets to own.

Slava (29:40)

So do you think of that as like a private equity investment or is that like a lifestyle business? How do you think about those types of companies and investments?

Auren Hoffman (29:47)

Yeah, I think they're great private equity. fact, most, even the biggest data companies, if you just think of most, there's very few public data companies that are out there. Even some of the very, very largest data companies, data companies that have been around for 40, 50 years, most of them are actually owned by private equity firms. And, and so they tend to be very predictable. They tend to be very good. Private equity firms are generally good at like, if you take them over, they can like ring out so certain costs. They tend to be very profitable.

And so there are businesses that are, some are not growing as fast, but they tend to be good. Now, those are like on the top end, but even at the bottom end, there's like many, many great, like $20 million data businesses that are out there, like many of them. And they're just incredible businesses and they're super profitable and they have great products that they serve a niche really well, but it's very hard for them to potentially expand out of those niches. Those are like bad, very bad venture businesses because

They're not going to be like the multi -billion dollar company, but they could be extremely good investments depending on how you invest them. So if you put a venture lens on it and you're saying, this is 10X ARR or something, it's very, very, very tough to make your money back. But if you're more of an EBITDA investor in some of these businesses, then I think they could be quite good and they tend to be really good investments.

Slava (31:10)

And is that an opportunity for a roll -up?

Auren Hoffman (31:14)

It can be, yeah. So we bought through kind of different companies involved in a series of different data businesses that are out there. They can be great for rolling up. They can be. And also some of these data businesses are somewhat cyclical. So if you have a few together, then you have a little bit more, less exposure to like a swing in the market, especially if they're like somewhat uncorrelated with one another. So if one like has some problems, like another one might be pulling through.

So there's lots of other reasons why like putting some of these data businesses together can be can be good. And there are quite a few kind of bigger private equity owned data companies that are like that.

Slava (31:54)

From your perspective, from your seat, being an operator, getting into these PE style deals, also being involved with Flex, what do you think of the current investment market from your perspective? Is it hot, cold, cheap, expensive, lots of deals, not enough deals? What's just your perspective?

Auren Hoffman (32:18)

I don't know from like a cheap perspective, but I will say that investing is incredibly, incredibly hard, incredibly competitive, and it's getting more competitive every year. So if your goal is to like make money by being an investor, seems like harder and harder to do every single year. And there's all these super smart people that are trying to do it as well.

And certainly, venture would be a good example. It's like much harder to make money today than it was 10 years ago. And it was harder 10 years ago than it was 30 years ago. And prices have gone up. And you have all these other kind of reasons where it's like incredibly competitive and incredibly difficult. If your goal is to like make money, then certainly like being an operator is easier. And it's probably a little bit more predictable. And you can bet on yourself and you probably do quite well.

So there's a lot of different kind of factors in there, but I think being an investor is very, very hard. And it just seems like it will just get harder and harder and harder.

Slava (33:20)

AI has been the buzz for the last basically year and a half, two years. How has that impacted your investing lens and what you're seeing?

Auren Hoffman (33:27)

I think for these data companies, AI is both a gift and an existential threat. So for the data companies that I'm involved in, you could write a future where AI just like massively helps the data companies. It adds a lot more buyers. It reduces costs greatly, et cetera. And you could also write a future where it makes it much easier to compete with these data companies. It allows lots of other people to do that very, very, very quickly.

It potentially commodifies some of it as well. And there's probably going to be like maybe a bit of both that could happen. But I think for everyone who's running, whether it's a tech company, a data company, anything that's in the kind of like technology space, like you have to be thinking about AI quite a bit. And if you're investing in those companies, you have to be thinking about it. It's going to have an effect and it could, it could

both kill your business and massively accelerate your business. And depending on like how you, what you do, how you operate, where you go, where you invest in, it could have a massive swing either way. And it's extremely scary time to operate or invest in these businesses, but also an extremely exciting time as well.

Slava (34:47)

Nice. And we're obviously also in a presidential election year. So what's the impact that's having on the opportunities that you're looking at, how you're making decisions? How do you think about that?

Auren Hoffman (35:02)

I mean, I don't know that much except I think I don't make decisions based on the presidential year that's happening. and I think that things sometimes change a lot, but sometimes they don't change that much. It's very hard to predict what's going to happen in any scenario. right, let's say we're doing this in August 2024. Let's say it's a 50 -50 shot of either of them winning.

But I'm not even sure how any of my investments will change either way. It's just so hard to know like the butterfly effect of all these things. So I'm not personally like making changes based on that.

Slava (35:46)

Got it. And then I know you mentioned before the show that you're intrigued by software in the political space. Is there anything you could expand on that for the show?

Auren Hoffman (35:57)

Well, I'm just, I am interested in just like the political market, data for the political market. I there's a lot of really great data companies that are there. That's been something I'm just interested in. Things for things of government as well. I don't do very much in that today, but it's just an area that I have a lot of interest in and just learning about. So that's an area where if you're just like interested in government or interested in politics, and then you're interested in technology or interested in data.

that's a good kind of Venn diagram overlap. so for me, it's something I'm learning about and maybe in the future is an area that I may be investing.

Slava (36:36)

Bringing it back to flex and you being an operator, we see more of that trend of operators becoming investors. For some people, that's really hard to fathom because it's like very different. And for others, it seems very obvious. Can you provide perspective? What's the benefits of being an operator when you think about investments? What's the challenges of making investments, being an operator? How do you think about that?

Auren Hoffman (36:59)

There's actually quite a lot of these, what we call dual threat through CEOs. So these are people who are like actively running a company at the same time. They've got, you know, some sort of money that they're managing and they're investing in maybe other startups that are kind of like them, et cetera. And it gives you a lot of perspective. It almost certainly makes you a better investor. You should have better access to deal flow. It's much easier to get into the deal.

A lot of well -known venture investors are people that were operators, but they were operators 10 years ago. So many things have changed in the last 10 years, just how you operate a company, how you run a company. Maybe the very, very, very big things haven't changed, but everything else has changed quite dramatically during that time. So you're just a little bit out of date, even if you were a very successful operator from 10 years ago.

So these dual threat CEOs have just a lot of advantages there. And they're just because they're seeing vendors all the time and they're evaluating vendors for their own company. They just have a lot of like insight into what's happening, what's going on and what they should be investing in. almost certainly being like a CEO of a tech company will make you a better investor. I think the question is harder to answer is if you're an investor, will it make you a better CEO? And I think that's a little bit mixed.

Slava (38:24)

I agree with that. Are there any challenges that being an operator, are there any challenges to investing by being an operator? Obviously there's a lot of benefits. Are there any challenges to that in your opinion?

Auren Hoffman (38:37)

Well, I think the challenges could be like, does it make you a worse operator? Cause it just, it's a, it's a time thing. So you have only a certain amount of time that's out there and really just like anything that competes with your time. So even if you play golf or you go work out or you have a hobby or you want to spend time with your kids, like does compete with you being an operator. and so being an operator is a very time intensive thing. And so whatever you're doing outside of that,

whether it's a hobby or whether it's a money making thing or whether it's family oriented or whether you're just trying to work out to get a little bit healthier, like in some ways does make you a slightly worse operator, at least in the short term. And so it's always hard to know like how you should allocate your time accordingly.

Slava (39:21)

It's all opportunity cost, I guess. Moving on then, you're obviously super unique, super knowledgeable, and our listeners wanna be more like you. So what is it that you're watching? What is it that you're reading? What is it that you're listening to? Ask some examples of shows or content on the daily, on the weekly, or the stuff that you're interested in.

Auren Hoffman (39:42)

just like reading a lot of books and so I try to read or listen to maybe four books a month, three to four books a month and just try.

Slava (39:51)

Is it always, always audio books?

Auren Hoffman (39:54)

I'll usually read one book a month and then listen to the other ones. Yeah, and so I find like books are just great just because they're You know people put it a lot podcasts as well. So I'm also a huge podcast fan I also like reading like long form stuff. So I spent a lot of my time just like reading or listening to information and and from a wide variety of topics feel like when you mostly nonfiction, but but from a wide variety of topics

Slava (39:58)

Nice.

Auren Hoffman (40:22)

I'm just kind of learning about things. I never watch non -fiction, so if I'm watching something, I watch fiction. I don't like watching non -fiction at all. I feel like it's kind of a big waste of time. But I like listening or reading non -fiction. And some books I'd recommend that I read recently is, you know, if you really want to just try to understand America, there's this like beautiful book by Rob Henderson called Troubled that I liked, which is just a...

It's kind of in a similar genre as like the other Westmore or Hillbilly Elegy by JD Vance. It's really just a book about someone who grew up in very, very, very tough circumstances and fosters as a foster child and just kind of like help people like me understand those circumstances. I thought that was really good. An investing book I read recently was called Burning the Tables in Las Vegas by Ian Anderson.

And it's a really interesting book. is a book about a professional gambler who is trying to tell you what he does to not get caught so he can still be a gambler. And so how he obfuscates his trades, how, what does he do to, you know, he spends some time like purposely losing money when he's at the casino so they don't turn them off.

Slava (41:33)

Are we talking about counting cards or other games as well?

Auren Hoffman (41:37)

Yeah, well, so he's a card counter in Blackjack. That's what he does professionally. But he'll do all these other things that were like he plays craps to lose money on purpose on the side, just so like he they won't throw him out of the casino. So he has like a whole theory about how much you have to lose on the side to go do that. This was recommended to me by a friend of mine at Jane Street, who's one of the best traders that I know. If you're looking for another book in that world, there's a book called Fortune's Formula.

by William Poundstone. And that kind of like goes through the history of people like Ed Thorpe and a lot of other kind of like information age things that happened in kind of the 1960s. Ed Thorpe is really like the father of hedge funds. And he's still alive today. And kind of one of my idols is I think one of just like the best investors of all time. He also started in the blackjack tables. But it just gives you a really good sense of just like how people think about investing, allocating risk, things like the Kelly criteria.

et cetera.

Slava (42:37)

Awesome, and then you mentioned you like podcasts. Any example or two that you have there?

Auren Hoffman (42:41)

I love podcasts. The examples of things that I like are ones that probably most of you are listeners like. Of course, I love your podcast, Slava. I've got my own podcast called World of DAS. And I love it. It's called World of DAS, D -A -A -S. So if you want to know about data as a service, kind of dive into data as a service. I love the acquired podcasts.

Slava (42:54)

Sorry, what's your podcast called?

Perfect.

Auren Hoffman (43:06)

If you know Samuel Bursche, he's got a great podcast called Live Players if you want to learn about things like Europe and Eastern Europe and stuff like that, which I always find really interesting. So there's a lot of like really great podcasts that are out there.

Slava (43:19)

sweet. So many great examples. And then now we always come to the fun question of three years from now, what's going to be an interesting investment that you can make today? Which is when we look back at it three years from now, which is what's one public stock that you would pick today for a good return three years from now?

Auren Hoffman (43:39)

That's really hard. I don't know, but I will tell you that the company I think is just like amazing that I love is Shopify. And it's very possible that like that might not be so well performing because it's like there's just so many people who are already like excited by and in it. But if you look at like a Shopify offshoot, so like what goes up as Shopify goes up, but maybe hasn't got all the gains. So that would be like Klayvio.

or some of the Klaviyo, or however you pronounce them. So maybe a Klaviyo would be a really good investment. If you believe in the Shopify ecosystem, they probably haven't done as well, you know, yet on that. And so maybe there's like more gains to be happened there. And we're also investors in a company called Gorgias, which is a private company, which is in the Shopify ecosystem. It's kind of like a Klaviyo.

but for customer service. So kind of like a Zendesk competitor, but for Shopify, that's another kind of company I really love. And again, they're just like playing. So if you believe in the Shopify ecosystem, these are like great bets to make.

Slava (44:48)

Amazing. So that kind of almost front run my second question, which would be, what would be a non -public, so private, alt investment, and it could be across any asset, probably the assets that you love, are the ventures based in the companies or potentially crypto. So is Gorgias your pick or do you have something else you'd like to mention?

Auren Hoffman (45:05)

Yeah, I think it's a great pick because it kind of fits with that ecosystem. And again, if you think Shopify is going to continue to do well, and if you think they'll, you know, it's always risky to invest in that ecosystem. So if you're a Klaviyo or Gorgias it is risky because maybe Shopify can come in your territory or take more of your rents or something. But they have shown that they're quite a good partner.

And there's just a lot of partners that have been built on the Shopify ecosystem. A lot of people have done incredibly well, whether they be small companies, services companies, consulting companies. And of course, now you have like major public companies that are built on the ecosystem. So I'm quite long, as long as the CEO and the president and the other kind of core leaders of Shopify remain where they are and don't get like bored and go buy an island somewhere.

then I would be, I feel like they're really trying to, they're long -term greedy rather than short -term greedy. And think that's good for everyone in the ecosystem.

Slava (46:07)

Amazing, what stage is Gorgias at?

Auren Hoffman (46:10)

Gorgias is a, you know, it's it's like a series D kind of stage. It's doing incredibly well, growing really well. And a great CEO, great team, great tech team. They move super fast. And they've got that good like French entrepreneur blood, which so many of these great companies have. And, and so they're, just a really good kind of company. I got involved in them through Jason Lemkin.

who is one of my favorite investors. I just think he knows a lot about SaaS companies. I've learned a lot from him over the years. And so he maybe five years ago or so suggested that we invest in Gorgias when they were much, much smaller. And now it's just a really great company. They've got thousands and thousands of customers that use them and benefit from them.

Slava (47:04)

I appreciate the clear and direct answer. This has been an amazing conversation. We've covered so many topics, starting from your teenage years when you right away started to be able to get a VIG from other kids to be able to bring them jobs to talking about, you don't need just home runs, but singles are also super valuable, especially if you stack them. Make sure you have cash available for that rainy day so you can pile in when you need. You talked about taxes quite a bit, which is awesome, which not everybody does. So whether it's QSBS or making sure they're holding for five years.

I love maybe the quote of the whole show is any brand is a scam, which might be the quote of my entire podcast history, which is amazing. And that $50 restaurants are probably better than $500 restaurants. You are not into the real estate, not into the collectibles, not into all those other quote unquote scams. You do like crypto, but you really like the blue chip stuff like BTC eats Solana. Again, you talk to us about self -directed 401ks hitting about taxes again.

You're not into predicting the market, which is amazing. mean, a lot of people like to opine on my podcast about where the market's headed. I couldn't get much out of you, which is awesome. Again, you talked about your fund being about seed and tax advantage, QSBS, hitting that tax note again. And you know, there very few public companies that are really about data. It's more of a PE play. And this is really a great takeaway. It's hard to create massive scalable companies from a data company. It's harder than ever to make money and venture because it's just becoming more competitive.

and you like, like yourself, a dual threat CEO VC, kind of the Michael Vick, if anybody gets that reference of, the VST and entrepreneurship, you gave us a lot of examples of books, whether it's troubled burning the tables, in Las Vegas or fortune's formula and gave us a bunch of podcasts, yours world of DAS, acquired and alive players. And finally, what people love to hear two amazing predictions for the future.

If you like the Shopify ecosystem, which clearly you do, Auren, in public, go Klayvio in private, go Gorgias. Thank you very much, Auren.

Auren Hoffman (49:03)

Thank you, thank you, Slava.

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