Episode #454: Rex Salisbury, Cambrian – a16z Accomplice Turned Solo GP on Why He Believes Now could be the Time for Fintech
Visitor: Rex Salisbury is the Founder and Normal Accomplice of Cambrian Ventures. He was beforehand a founding accomplice on the A16Z fintech crew.
Date Recorded: 10/12/2022 | Run-Time: 1:01:18
Abstract: In at the moment’s episode, Rex shares an outline of Cambrian and the advantage of the fintech group he’s constructed over time. We contact on the three-body drawback and the way it pertains to enterprise capital, the aggressive benefits of various VC’s, and why he believes you could be consensus and win in enterprise capital.
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Hyperlinks from the Episode:
1:34 – Intro
2:20 – Welcome to our visitor, Rex Salisbury
7:43 – Launching a fund as a solo GP
14:48 – ETF Architect episode
15:36 – How the three physique drawback pertains to the way forward for enterprise capital
26:58 – Defining what FinTech means to him
32:16 – How the chance set seems at the moment
34:22 – The methods during which Y Combinator has raised the standard of what founders know when beginning a brand new firm
37:09 – Why is Rex solely investing within the US?
39:01 – Rex’s request for startups
43:41 – How arduous it’s to run and nurture the group he’s constructed?
50:38 – How a lot of the end result of his investments has been correlated to his conviction in them on the time he invested?
55:45 – Rex’s most memorable funding
57:54 – Be taught extra about Rex; LinkedIn; Twitter; cambrianhq.com
Transcript:
Welcome Message: Welcome to “The Meb Faber Present,” the place the main target is on serving to you develop and protect your wealth. Be part of us as we focus on the craft of investing and uncover new and worthwhile concepts, all that will help you develop wealthier and wiser. Higher investing begins right here.
Disclaimer: Meb Faber is the co-founder and chief funding officer at Cambria Funding Administration. As a result of business laws, he is not going to focus on any of Cambria’s funds on this podcast. All opinions expressed by podcast contributors are solely their very own opinions and don’t mirror the opinion of Cambria Funding Administration or its associates. For extra info, go to cambriainvestments.com.
Meb: Welcome, podcast pals. We’re again with one other enjoyable present at the moment. Our visitor is Rex Salisbury, a founding accomplice of the a16z FinTech crew and is now a solo GP with Cambrian Ventures. In at the moment’s episode, Rex shares an outline of Cambrian and the advantage of the FinTech group he’s constructed over time. We contact on “The Three-Physique Drawback” and the way it pertains to enterprise capital, the aggressive benefits of various VC fashions, and why he believes you could be consensus and when in enterprise capital.
Another factor earlier than we get to at the moment’s episode, whether or not you hear on Apple Podcasts, Spotify, or one other platform, go forward and go away us a evaluation. We like to learn them, and it helps folks discover the present. Please get pleasure from this episode with Rex Salisbury.
Meb: Rex, welcome to the present.
Rex: Hey, Meb. Nice to be right here. Thanks for having me.
Meb: The place’s right here? The place do we discover you at the moment?
Rex: I’m calling in from the Presidio in San Francisco, the place you’ll find me most on daily basis. So I each dwell and work right here, spend a variety of time operating. Nice yard to have however nonetheless be within the metropolis.
Meb: Give us a fast Rex background, as a result of, you understand, you left the nice and cozy, fuzzy confines of one of the crucial storied and profitable enterprise capital corporations to exit by yourself, which, I think about, is just a little thrilling however nerve-racking on the similar time. Give us just a little origin story on you, the way you got here to the place you’re.
Rex: Yeah. So I form of by accident ended up in enterprise capital and serving to begin the FinTech apply at a16z, Andreessen Horowitz. That was my preliminary foray into enterprise. However how I ended up with this one, so that is Cambrian Ventures, early-stage FinTech fund, which I’m deploying out of now and began January of 2022, truly takes me form of method again in that, at one cut-off date, I used to be an funding banker, discovered so much, completely hated it, give up my job, moved throughout the nation. I used to be simply excited in regards to the alternatives for, like, constructing new issues in monetary companies, particularly round utilizing expertise. So I used to be like, “I need to work in Fintech,” proper? However I’m an funding banker, so I’m getting presents, nevertheless it’s like, “Come work in finance for this, you understand, monetary expertise firm.” It’s like, “I don’t need to work in finance. Like, I need to do one thing else.”
So I taught myself to code, even accomplished a coding boot camp. So I got here out right here, gotten just a few presents in these form of nebulas, like finance ops roles at early-stage firms, and I used to be like, “I don’t need to try this.” So as an alternative, I truly went full in on the engineering facet of issues, and I joined an organization referred to as Sindeo, working as form of lead again and engineer a billion of totally automated on-line mortgage pre-approval with one of many co-founders of SoFi, Andy Carra, who’s my CTO there. That firm was a failure, actually nice studying expertise, nice crew, had a tremendous time. One of many issues I constructed there was this, like I stated, totally automated on-line mortgage pre-approval factor, like Rocket Mortgage, push button, get mortgage. I constructed out form of the APIs to energy an analogous expertise like that. And I used to be like, “Oh, that is actually…” this was circa 2014, “That is actually cool.” Like, mortgage, one of the crucial essential monetary merchandise in a client’s life, it’s extremely painful to get a mortgage, proper? It takes, like, three months. It’s extremely pricey. There’s all of this documentation concerned. Like, “Let’s try to determine how we are able to simplify that course of.” And so I believed we’d construct some fairly fascinating expertise about that.
However in the meantime, throughout, like, all of economic companies, you’ve gotten these software program engineers and founders engaged on different issues. And I’m in San Francisco now, I used to be like, “I need to speak to these different people who find themselves working within the different corners of economic markets to form of construct new issues which might be cool and thrilling.” And so I began convening folks on constructing group for founders, you understand, product managers, software program engineers to speak about issues they’ve constructed and launched in FinTech.
So 2015, I feel it was, we had our very first meet up in downtown San Francisco for Cambrian, the group. And we had, presenting there, my crew demoing the applying we’d constructed at Sindeo, we had the Plaid crew demoing their API, after which we had a 3rd crew demoing an utility they’d constructed largely on prime of Plaid. And so, from that form of core kernel of simply, like, fascinating folks speaking about issues they in-built FinTech, Cambrian, the group, actually took off and, principally, by 2019, had, you understand, 15,000 publication subscribers, 5,000 meet up remembers, I used to be operating month-to-month occasions in San Francisco and in New York, had 2 annual summits, quarterly jobs festivals, only a complete lot of stuff occurring, and I used to be getting much more power from doing the ecosystem-level work. And I’ve been pulled into investing and advising firms through the years. And so I truly give up my job, went full time on Cambrian the group to run it as an occasions enterprise. So the plan was to boost a small fund.
However then a16z reached out to me, Andreessen Horowitz, stated like, “Hey, we’re beginning a FinTech apply. We love what you’ve accomplished. Like, you perceive monetary markets out of your time in banking. You clearly perceive, like, how to consider an ecosystem and form of marshal folks and assets by means of your time constructing group at Cambrian. We’re going to begin a FinTech apply at a16z. Why don’t you be part of us and assist construct that out?” And so I used to be the primary accomplice who was introduced on externally there, with the understanding that I may keep for 2 years, assist construct out that apply, after which, if I wished to, exit and nonetheless go and do my very own factor. And so, spent two years there, centered totally on the investing facet of issues, had a tremendous expertise, nice crew, wonderful alternatives to see, you understand, one of many huge names in enterprise capital, go from, once I joined, name it 100 folks, they’re going to finish 2022 at about 500 folks, comparable form of scale when it comes to AUM as effectively.
However actually, what it got here all the way down to is, like, I’ve constructed this group, I had this sort of actually deep connection to, like, early-stage FinTech ecosystem, and by being impartial, I get to leverage a variety of these relationships and networks that I’ve constructed which might be particularly, you understand, well-designed for supporting firms at form of their earliest stage. And so I focus completely on investing in form of first cash and checks for firms with U.S. go-to-markets, often, like, a 500k preliminary verify. After which the fund itself has form of a group taste to it. After which we now have, as LPs within the fund, a variety of the highest founders within the ecosystem, from locations like SoFi, Plaid, Betterment, form of the listing goes on. We’ve received 20+ people throughout all kinds of verticals in WealthTech, to InsurTech, to actual property, you understand, monetary software program, the listing goes on.
Meb: So there’s a few jumping-off factors, I feel, are fairly fascinating earlier than we form of get in deep into FinTech and what you guys are in search of. The primary being, you understand, clearly, you’ve gotten an superior pedigree at a16z, however constructing the group forward of time, I think about, is a fairly distinctive, invaluable asset when deciding to launch a fund. Would love to listen to just a little little bit of that as a result of the way in which you’ve determined to do that is, primarily, as a solo GP, proper, and you may affirm that. I don’t understand how huge your crew is now, however I’m assuming it’s not 500. So, you understand, Rex, Included. Is that one thing additionally that appears like might not have been potential 10, 20, 30 years in the past? I don’t know. Like, it looks as if a extra fashionable invention that is a bit more latest. So inform us just a little bit in regards to the resolution to be solo, in addition to form of the group facet, if that was an enormous assist in launching this effort.
Rex: Yeah. So the primary reply, the one query, I’m a solo GP, and that’s the plan for the foreseeable future. I do have a variety of actually nice people supporting me, although, in numerous capacities. After which, particularly, despite the fact that I’m a solo GP, I draw so much from the assets of the group I’ve constructed. So I already form of talked about the 20 founders, our LPs within the fund, even have a variety of connectivity which might be people within the enterprise ecosystem. And one of many different form of huge group equipment I’ve constructed up not too long ago throughout the pandemic is we now have a Slack group of 1,500+ FinTech founders, and so I feel, so far as I do know, the biggest form of on-line group of FinTech founders on the market. And that, so I’m consistently in touch and communication with plenty of people within the ecosystem, whether or not it’s our portfolio firms, these 1,500 founders within the Slack, the founders who’re LPs within the fund.
So, like, sure, I’m solo GP, however to your level, like, having a group equipment is extremely useful for me and the work that I do and extremely useful for me to form of marshal the assets of that group to assist our portfolio firms. However, you understand, the group can also be one thing that I’ve constructed to create worth for the ecosystem simply because I used to be passionate in regards to the ecosystem, like interacting with folks. And I began it six years in the past, and so now I get to form of use some elements of that to what I do in my day job as an investor, however I’m nonetheless centered on making an attempt to only create normal worth for the ecosystem by facilitating a variety of connectivity between all of the totally different gamers inside FinTech.
I feel FinTech is a extremely fascinating class, you understand, say, versus enterprise SaaS or client software program, the place it’s, by nature, extra extremely networked, partially as a result of it’s so extremely regulated, proper? In the event you’re constructing a monetary product, you’re going to want sure sorts of licenses, authorized counsel. You’re going to want numerous infrastructure suppliers. You’re most likely going to want different companions and channel companions. And so there are all of those the explanation why founders inside the FinTech ecosystem have arguably extra must form of join with one another than you do should you’re constructing a client social app, proper? Like, should you’re constructing a client social app, you don’t essentially want to speak to the entire different client social app folks, as a result of there’s not essentially a complete lot you are able to do collectively. However in FinTech, it’s, like, extremely collaborative when it comes to, you understand, why you may should be working with folks within the ecosystem, and so I feel why a group strategy actually issues.
And then you definitely additionally had…so I imply, like, may you do one thing like this, you understand, 30 years in the past? No could be the very quick reply. However even for me, personally, I don’t suppose that is one thing I might have accomplished even 4 or 5 years in the past. I feel one is LP urge for food and curiosity in backing solo GPs. That’s form of a brand new class of factor. In order that wasn’t there. Two, even should you did have the urge for food and the curiosity, the concept should you wished to fundraise for a fund, you possibly can do a variety of that remotely, which I did, that simply wasn’t within the water. I’ve received two children. I’ve received a five-year-old and a two-year-old, and so, like, the thought of spending, you understand, months on a airplane simply going to speak to folks is…I most likely would have simply stated like, “Thanks, however no thanks.” So LP urge for food for solo GPs. The concept group issues, I feel, is form of a brand new thought. It’s one thing that I’ve been doing for a very long time however I really feel has turn out to be extra sizzling or topical simply within the final two years, partially as a result of one of many huge issues folks speak about in Web3 is how Web3 is a community-oriented motion, proper?
So LP curiosity, the power to boost remotely, after which, additionally, you understand, and that is the place form of the FinTech facet of issues is, simply a number of the infrastructure that lets you function corporations. There are a variety of totally different platforms you may launch a fund on prime of now, proper? There’s AngelList, there’s Sidecar, there’s Carta, and people are form of extra holistic platforms, to some extent, though you continue to want a variety of different assist. There are additionally issues you need to use for, like, doc administration, rights administration. Like, there’s all of these things that makes it extra possible as a solo GP to have, like, nice tooling that makes it just a little bit simpler and sooner to rise up and operating than it could have been, you understand, a number of years in the past.
And I feel that’s actually thrilling, and also you’re seeing lots of people experiment with totally different fashions in enterprise. I feel one of the crucial notable ones being that of the solo GP since you break down a enterprise agency, like, essentially the most atomic unit is a person accomplice. And if you concentrate on you’re going to have a Nobel laureate in your present, I feel, later at the moment, however one other nice economist, Ronald Coase, you understand, the Coase Theorem, the idea of the agency is {that a} agency is one thing the place the inner transaction prices are lower than the exterior transaction prices. And so, should you truly make it simpler to create enterprise corporations due to form of the substrata of each the infrastructure that exists in addition to the form of, like, LP urge for food and sources of capital that exist, it is best to count on to see new methods of being inside the entire form of enterprise ecosystem. And that’s why it’s going to be fascinating for the subsequent decade to see how enterprise capital, as an ecosystem, evolves, given all of those form of shifting elements when it comes to how one can take into consideration constructing a agency.
Meb: So did you find yourself constructing the fund on one among these web sites you talked about or companions, or did you do it just a little conventional method? How did you go about it?
Rex: Yep, I run a conventional fund on prime of the AngelList platform. And they also assist me out with a variety of the back-office-oriented stuff. After which I even have folks that I introduced in who aren’t essentially technology-oriented companions however partially as a result of there are extra solo GPs and extra rising managers now which might be people who’re well-designed from a service perspective to assist that. So I’ve an outsourced COO, CFO group that’s form of well-tailored to working with these platforms and makes a speciality of doing and supporting rising managers. So each are, like, technological elements, but additionally, even the service and people-oriented elements have gotten extra developed for that form of factor.
Meb: Yeah. One of many cool elements is, in a lot the identical method that a variety of the phrases of startup funding has been templated, you understand, the fund facet now’s too. So it’s, in some ways, like, fairly turnkey, which is nice to see. We joke about this so much in our enterprise with launching an ETF is, in most of the similar methods now, a variety of the frictions and trigger. We’ve accomplished exhibits with pals from ETF Architect, in addition to Tidal and others, that form of allows you to white label or launch a fund fairly merely. As a result of should you look again on it, 90-some% of the phrases are fairly customary. I imply, so then, it’s simply getting the plumbing…
Rex: It’s loopy how a lot everybody at each degree of economic companies pays legal professionals to do principally the identical factor. Like, it’s simply insane.
Meb: Yeah. There’s nonetheless a variety of fad on the market, as a result of that’s my, most likely, primary line merchandise as effectively, that very, very private remark, with all the things that’s SEC-registered tends to get costly with the authorized crew. We love our group. We truly use a San Fran…old-school San Fran enterprise. So shout out to Shartsis Friese, in addition to Morgan Lewis. Nice groups. All proper. So let’s speak just a little bit in regards to the enterprise area, on the whole, after which we’ll dig into FinTech and form of what you’re doing particularly. We’ve talked about a few developments, you understand, occurring in VC over the previous decade or two. What else is in your thoughts, as you look across the VC panorama, that appears to be shifting? There’s some huge cash floating across the previous 15 years, which I feel is nice. Enterprise is at its core nonetheless, form of a tiny asset space relative to different areas of form of conventional asset administration. Once we say some huge cash, you bought to place it in context. What are some views on enterprise, on the whole? Another ideas on the area? I do know you have been speaking just a little bit in regards to the three-body drawback idea, which, for many who haven’t been acquainted, is a science fiction work that I’ve learn. Or at the least I learn the primary one. I haven’t learn all of them. I hand you the mic, what’s some normal ideas? What’s occurring on the earth of VC?
Rex: Yeah. And have you ever learn that Frank Rotman’s Three-Physique Drawback, which is his form of tackle equilibrium factors in enterprise capital? I don’t know should you’ve come throughout that or not.
Meb: Let’s hear it. I’ve seen it, however clarify it for the viewers.
Rex: Yeah. So first, I’ll simply say…we’ll dive into that one just a little bit, however I feel, to your level, 100%, enterprise has gone from being this very, very small, very, very cottage factor. Like, I feel one of many very first funds raised was, like, Kleiner within the ’70s, and it’s them driving round…you most likely know the story higher than I do, you understand. It’s a $6-million fund, possibly, in 1970 that they’ve satisfied everybody of what this factor is and form of will get going from there. You possibly can go even additional again, speaking about, you understand, like, whaling and people form of fashions. However at the moment, even 10 years in the past, like, I’ve received a chart up in entrance of me for capital raised by enterprise funds within the U.S. in 2012, $23 billion, which is, like, a rounding error whenever you have a look at different sectors of capital markets, even non-public markets.
After which, in 2021, it was an all-time document, 150 billion, which is fairly significant, however they’re nonetheless, you understand, in comparison with different markets, it’s not enormous. However we’re attending to the purpose the place it’s…you understand, a16z, Andreessen Horowitz, my outdated employer, within the, like, a few years that I used to be there, went from about 10 billion in belongings to now, I feel it’s north of fifty billion. So that you’re beginning to get so far the place you’re getting institutionalization of what was a cottage business. Properly, the form of panorama for how one can, you understand, launch a fund, construct a fund, what that may seem like, is altering. And so all that’s to say we’re on this actually fascinating interval the place it’s changing into an actual asset class, and it’s form of up for debate as to, like, what precisely will it contain into asset institutionalized. And what it’ll seem like might be very, very totally different, and it’ll most likely be totally different gamers who specialise in totally different sorts of issues.
So I feel it’s a superb level to speak about form of “The Three-Physique Drawback,” which is a bit written by Frank Rotman, who’s one of many founders of QED, which is a FinTech particular agency, and he argues that there are form of 4 steady equilibrium factors that he sees because the probably locations the place enterprise corporations can form of specialize and be enduring, at the least for this sort of subsequent section, possibly 10 years. And a type of are, like, scale partnerships, the, like, a16zs, the Insights of the world. Two are form of the extra early-stage specialists and extra of the form of boutique kind approaches or early-stage generalists, specialists, I feel, is what he calls them. And that may be like, you understand, the Benchmarks or the First Rounds. After which one other could be form of non-consensus alpha people, individuals who actually simply exit and discover new issues which might be fairly a bit totally different. After which the fourth could be form of solo capitalists, solo GPs who’ve very distinct model worth, very distinct worth proposition for the founders.
And so these are form of the theories he sees. And the rationale and the way he will get to that conclusion, and you understand, I truly interviewed him not too long ago, talked by means of a few of this, is you may form of search for historic antecedents for different areas which have gone by means of durations of change. I feel one of many fascinating areas to speak about, and love to listen to your ideas on this too, Meb, are, like, the massive asset managers that we all know at the moment, Blackstone, BlackRock, Vanguard. Three very totally different corporations, however all of them have been born across the similar time within the Eighties as asset administration, particularly for public market fairness, granted Blackstone is extra of a personal fairness platform. All of them received began on the similar time as a result of there’s that very same interval of institutionalization, And I feel we’re at that interval for enterprise capital at the moment the place, because it goes from being a cottage business to an institutionalized asset class, you’re going to see these bursts of those form of huge mega-firms. In sure methods, I feel Andreessen Horowitz has an excellent probability of being a type of form of defining that class. And historical past doesn’t repeat, nevertheless it does rhyme, and so there will probably be some similarities when it comes to how the remainder of it shakes out.
And so that is the place Frank talks by means of different form of historic antecedents, issues just like the consulting business, used to have a ton of form of boutique consulting corporations, and now we now have, like, the massive ones, like Bain, McKinsey, BCG, and many others. You have a look at accounting corporations, used to have a ton of boutiques, now you’ve received the Huge 4 and an extended tail of different ones. And so one thing comparable might be going to shake out in enterprise capital the place you’ve gotten some actually huge names that construct out enormous presences, however then you definitely even have this sort of different units of gamers who can exist inside the ecosystem. In order that’s form of just a little little bit of the overall taxonomy of the three-body drawback however I feel just a little little bit of what’s going on in enterprise proper now. I, in fact, am biased, however I’m excited in regards to the capability of solo GPs to exit and ship worth, and the form of pitch there may be that, greenback for greenback, these ought to be essentially the most useful folks in your cap desk as a result of they’re often extremely community specialists who ship very particular worth to you and your organization for a factor you want.
So my pitch, at Cambrian, for instance, is, look, I’m extremely networked into the area, however not simply myself, my connectivity into the group and the ecosystem that I’ve constructed permits me to marshal…I’m form of accessed to a community of networks, you understand, the 20+ founders, our LPs in fund, the 1,500+ founders who’re members of the group, and simply the truth that I’m a non-lead additionally signifies that I’m capable of collaborate with multi-stage enterprise funds and plenty of different folks within the ecosystem in a method that’s form of distinctive relative to different gamers. In order that’s just a little bit, I feel, a breaking down of a number of the taxonomy of enterprise, I’d say. However I like to listen to your ideas too, Meb. I’m positive you’ve considered it just a little bit.
Meb: I largely agree with you, and we’ve been speaking about this for a very long time within the conventional public area, stated, “Look, the bottom case now within the public areas is zero,” that means zero charges. You may get a world ETF portfolio.
Rex: It’s barely adverse. Isn’t there one that you simply receives a commission now, or is it…? I suppose Constancy has the zero, proper? So Constancy has some zeroes.
Meb: It’s a few foundation factors, however when you embrace quick lending income, you’re primarily getting paid on a portfolio, which is wonderful. Finest time ever to be an investor. It’s tremendous cool. It’s additionally the simplest time ever to mild all of your cash on fireplace and blow it up with dynamite, you understand, with entry to buying and selling actually something. So, to me, that’s, like, the competitors, and there’s nonetheless tens of hundreds of funds on the market that cost much more than zero, proper? And so, once more, it comes again to what’s your worth proposition. And so you’ve gotten a variety of these legacy belongings the place persons are paying much more than zero, however they, primarily, are simply getting beta. So that they’re getting the S&P 500, for instance, for shares.
Rex: It’s insane. And I do know you’ve talked about this, however what number of S&P 500 ETFs there are that cost, like, 1%? Like, they only take a very long time to die. In order that’s most likely going to be true in enterprise too that there will probably be these legacy platforms which might be clearly dying, nevertheless it’s going to take some time as a result of these are 10-year funds, they’ve deep relationships with LPs. Like, you understand, it will probably take some time, even when it’s very clear they’re on their method out
Meb: Yeah. I imply, look, and top-of-the-line issues you are able to do as a newly minted GP is have a superb first fund or get just a little lock. However that form of christens you…there’s been a bunch of educational analysis, additionally within the VC area, on this that it christens you as somebody who actually is aware of what they’re doing and will get a for much longer leash on future funding and fundraiser. However, like, let’s say even should you’re a storied agency that’s accomplished effectively, and also you hit a few tough patches, like, you continue to get a good period of time earlier than that goes away. And so, enterprise and personal fairness have such lengthy lock-up durations or simply form of time to fruition, a few of these being effectively over 10 years, 15 years generally. However, yeah, so the asset on the general public facet, I feel, the standard gamers, you understand, there’s folks…cash tends to get cozy the place it’s till disturbed. And so the folks which might be solely promoting these when somebody dies, when there’s, like, a taxable occasion, divorce, or one thing actually dangerous occurs, like an enormous, fats, nasty bear market, nevertheless it doesn’t return, you understand, to a variety of the standard no-value-add incumbents.
So I feel you’re spot on and that you simply’re going to have…I imply, this has at all times been true, nevertheless it’s changing into extra true, you must have a really clear worth proposition going ahead. Within the public area, should you can cost greater than zero, I haven’t seen as a lot of the pricing stress in you all’s world but, or in any respect, possibly there may be, nevertheless it looks as if a variety of the argument in VC is that, “Hey, you’re capturing for this prime quartile. And if you will get it, you understand, you’re going to have an enormous unfold on the efficiency.” So anyway, I agree with you. So we attempt to be…our tagline once we speak to folks we see, “We need to be bizarre, concentrated, and totally different,” you understand, which some folks like and a few folks actually don’t like. However you form of need to, in my view, should you’re going to cost greater than zero.
So you’ve gotten this case the place you bought these big gamers, like a16z. You could have this new rise of solo GPs. You talked about just a few of your form of calling playing cards and worth provides. So let’s form of, like, stroll by means of the method, you understand. So that you raised a fund, 28 million, I feel, and what number of names are you guys focusing on per fund? Is it 10, 20, 100?
Rex: Yeah, I’m focusing on about 30 and deploying over about 2 years, and that comes all the way down to being a perform of each what number of nice entrepreneurs do I feel are on the market within the ecosystem that I need to be backing and what number of entrepreneurs do I feel I can truly assist effectively. And my dedication to entrepreneur is to be very concerned for the primary form of 12 months to 2 years, possibly even just a little bit extra of that firm’s lifecycle when entry to these networks and relationships actually matter and will assist them discover alternatives they won’t uncover on their very own. When you get by means of your…I’m often first verify in, your subsequent spherical of funding or your subsequent two rounds of funding, often, I’ve a bigger crew, you’ve gotten a way of product market match, you understand the place to look, you’ve gotten a crew that would construct out these relationships, and at that time…and you’ve got a board. And at that time, having somebody like me is much less useful, since you’ve form of…you haven’t figured all the things out, however you figured a variety of the unknowns out, proper? And you understand form of the place you’re trying, whereas the place I might help is, like, determine the alternatives you won’t even have thought to search for early on, in addition to, like, one of many huge issues I might help out with is, you understand, serving to with subsequent fundraises, so.
Meb: If you say FinTech, it means a variety of various things to a variety of totally different folks. So for you, whenever you’re form of beneath this umbrella, like, what does it imply? What are you guys in search of on this FinTech ecosystem? Are there sure areas of it that you simply suppose are extra relevant to form of your wheelhouse and fund investments?
Rex: Yeah, completely. I feel one of many issues criticisms of FinTech initially was, like, “Is it even a class?” Like, this was, like, 4 or 5 years in the past. There actually hadn’t been any exits. And then you definitely had Credit score Karma and Plaid. After all, Plaid and Deel find yourself going by means of. So it’s, like, okay, now, it’s form of a class. I feel now, the issue is, like, it’s so broad of a class, it’s like, “What does that even doubtlessly imply?” And I feel what I’m enthusiastic about is simply form of the subsequent layer down of economic companies, in addition to form of intersectional areas. So should you have a look at FinTech because it intersects with, like, HR tech, FinTech because it intersects with well being care, I’ve accomplished one funding that’s doing form of a vertical software program play in well being care. In the event you have a look at InsurTech, there’s form of a bunch of stuff that hasn’t essentially been accomplished there but.
In the event you go all the way down to the subsequent degree of simply software program and knowledge orchestration throughout all of the platforms, there’s a bunch of fascinating work to be accomplished there. Digitization of banking software program I feel was form of poo-poo’d by a variety of FinTech traders, like, “Oh, you’re promoting software program to, like, the incumbents. You’re going to die.” And that’s, like, form of studying that, “Oh, they most likely aren’t going to die, and they’re going to have, like, a extremely huge function to play in sure areas of finance for a really, very very long time.” So, like, that’s a complete one other class. Business actual property lending is one other one the place should you…I spent a variety of time with client, residential, mortgage, actual property, very advanced, tough ecosystem. Business actual property lending and sure segments, simply as huge, even much less expertise.
It’s an space the place most individuals haven’t spent a complete lot of time who’re technologists, however just a few groups, truly, as a result of the FinTech ecosystem has gone so huge, have spent actually significant time constructing knowledge platforms in that area or different form of issues, in order that they now perceive that drawback each as…you understand, there are many folks within the monetary and actual property markets who do perceive it, however there aren’t that a lot of them who’re additionally technologists. Now, you’ve gotten people who find themselves each.
Meb: And so you’ll contemplate these to be, like, for the standard vernacular, pre-seed?
Rex: Yeah, pre-seed might be the easiest way to name it. We name it pre-seed or seed.
Meb: And so what’s the vary on form of the market caps and checks you’re writing for these, only for perspective?
Rex: Yeah, they vary from form of 5 to fifteen caps, typically, on a post-money foundation. And simply commentary when it comes to how the market has advanced once I first began out very early in 2022, I might say the window, once more, skewed, however the entire window of valuation ranges was from 10 caps to 50. And now, it shifted all the way down to what I simply talked about to you. Pricing is lastly beginning to appropriate on the pre-seed.
Meb: Good to see, as a result of I’ve been ready. I really feel like, and I don’t see it like the way in which you do, clearly, as a lot, however I attempt to maintain tabs on it. And positively, it was form of going bananas the previous couple of years. After which I noticed it begin to form of appropriate earlier this 12 months, nevertheless it’s good…I imply, it’s good and it’s dangerous.
Rex: Seed is the longest. It’s, like, essentially the most insulated folks. If it’s your first spherical of funding, your selection is at all times simply to attend. Whereas if it’s your second, like, you must elevate, and similar for later-stage firms which might be burning by means of money, and so that is the a part of the market that takes the longest to regulate. And we’re in just a little little bit of a bizarre scenario proper now the place offers are taking longer to get accomplished, partially as a result of that’s historically simply how offers have often taken three months for folks to undergo diligence, and many others., however partially as a result of there’s rather less readability out there as to what the form of normal market clearing worth ought to be.
If you concentrate on promoting a home in a sizzling market, you simply have a look at, like, the couple of homes down the road that bought within the final month, and also you’re like, “Okay, that is how a lot this home ought to promote for. Now, should you’re going out and also you’re elevating, effectively, lots of people didn’t elevate, like, new cash, there are a variety of extensions over the summer season, not as many individuals raised new rounds over the summer season. After which your final comps are form of from Q2, so that you’re like, kina, “What’s the market clearing worth?” So, like, A, I’m going to take longer in diligence, B, there’s much less certainty about what precisely the value ought to be. And so issues are just a little bit bizarre proper now as they reset.
So it may very well be, you understand, issues proceed to go even decrease or it may very well be they form of begin to stabilize and even go up due to one thing else, I’m positive, you’ve talked about. Like, there are document quantities of dry powder within the ecosystem proper now and a variety of these giant multi-stage funds. Enterprise capital fundraising for 2022 was nonetheless at an all-time document, despite the fact that the markets have slowed down, proper? There’s just a little little bit of a lag impact there. And a variety of these multi-stage funds do need to deploy into seed or pre-seed, they usually nearly don’t know the right way to write small checks. And so what that may imply is there may simply be this sort of everlasting form of stability for the earliest rounds that firms elevate, however we’ll see. We’ll have extra readability on that within the subsequent couple of months.
Meb: Yeah. Historically, that is form of, like, a half millioncheck, a millioncheck, or what’s form of the ballpark for you guys?
Rex: Yeah. I often write a 500k initialcheck.
Meb: Nice. So inform us just a little bit about…how’s the chance standing in search of you? , your course of often simply form of, as a solo GP, you’ve gotten a novel asset, which is that this community. Are many of the offers coming simply by means of pals, by means of folks you understand? Like, what’s your course of like, and the place can we stand now so far as alternative standing at overwhelmingly tons of nice founders? Is it fairly focused? What’s the world seem like for you?
Rex: Yeah, I’m actually excited as a result of I’ve been…within the final two months, I might simply say, the variety of actually extremely certified founders I’ve seen has truly been greater than it’s been up to now, and I feel a part of that purpose is in case you are beginning an organization from scratch proper now, you’re not doing it as a result of it’s, like, this cool, attractive, simple factor to do the place you may, like, stroll out of your, like, model title FinTech firm and get a $5 million time period sheet in every week from an organization or kind a enterprise agency that hasn’t accomplished a complete lot of diligence. It’s, like, it’s extra work, and that is one thing you’re actually compelled to do, and also you most likely have a novel purpose why you’re doing it. And so I simply really feel like, typically, each form of a quantitative view or qualitative view that these founders I’ve seen now are actually nice after which quantitative, simply the variety of them that I’m seeing and I’m form of actively engaged with is greater now than it has been up to now.
By way of how I come throughout, there’s a variety of stuff, proper? So I run the Slack group, so I see a variety of people who’re becoming a member of there on the very earliest phases. I truly do co-founder matching about twice a 12 months, which is usually only a method for folks early on to have plenty of conversations, assist ideate, after which generally, additionally, you understand, discover their co-founders. That’s one other space. The 20+ founders who’re LPs within the fund, you understand, they ship people to me who’re, early on, even when they’re not elevating as a result of I could be very useful in serving to them discover co-founders, serving to them refine their concepts, serving to them do buyer validation and discovery, in order that’s one other supply. After which I’ve lots of people attain out, name, on LinkedIn, and on Twitter, and thru the web site. So there are form of all these totally different sources that come collectively. And so generally it’ll be somebody I’ve by no means met earlier than who reached out, referred to as, or different instances, it’ll be a crew that I’ve identified for a extremely very long time by means of the group and simply by means of the ecosystem.
Meb: Yeah. And it appears, as an outsider, and you may most likely touch upon this, however simply the arrival of a variety of the Y Combinator, Techstars, accelerators over the previous, I don’t know, decade-plus, has raised the standard of at the least what a variety of the founders find out about form of beginning an organization. Is that correct or inaccurate assertion? And you understand, they don’t appear as inexperienced as to only understanding how this complete sport works.
Rex: Yeah, completely. So, yeah, going from zero to at least one just isn’t as a lot of a darkish artwork anymore, proper? Like, a lot ink has been spilt about, like, how to do that. Lots of that ink has been spilt by Y Combinator, proper? Like, you may go to their startup college, like their curriculum. It’s primarily open-source at this level. They’ve additionally accomplished an amazing job of slicing out some standardized paperwork that let you rapidly elevate preliminary rounds of funding, the YC Secure, and many others. So, yeah, I feel the zero to at least one simply from, like, understanding what that appears like, even should you’re a first-time founder, you will get far more up to the mark. However then, take into consideration the truth that there are actually, you understand, name it, 1,000 unicorns. Like, there are simply additionally so many repeat founders within the enterprise ecosystem that the variety of folks you may speak to to be taught from is larger than ever earlier than.
Oh, and by the way in which, you could be a type of repeat founders. Like, should you have a look at the Cambrian portfolio at the moment, a variety of people even have helped begin firms earlier than, so. However I feel that is truly form of an fascinating query for what function does YC play within the ecosystem, or accelerators. I feel, earlier than, it made sense for many founders, particularly nearly each first-time founder, to undergo YC, or by means of YC itself, as a result of there’s the curriculum, there may be the community, there may be the sign related to it. Whereas now, what I see for many subtle FinTech founders, whether or not they’re first-time founders or repeat founders, is that they’re like, “I don’t actually need to undergo YC, nor do I must, as a result of one, their phrases aren’t as engaging as I can discover elsewhere, two, I form of already know the curricular stuff. I’ve my very own particular networks which might be related to FinTech, and their networks are nice, however, like, it’s form of a special kind of expertise. And so I’d actually quite elevate from folks on higher phrases who’ve very particular area experience and connectivity.”
And so, for me, like, typically, the forms of firms I’m backing haven’t even thought-about going by means of Y Combinator as a result of they’re form of like, “I don’t want that,” proper? However that’s additionally as a result of their ecosystem is bigger than ever earlier than. So there nonetheless are plenty of folks for whom YC is a extremely good match, nevertheless it additionally means, now that the ecosystem is bigger, there are some individuals who simply don’t want that, which is why you’ve gotten other forms of corporations who’re doing different form of specialization, and many others.
Meb: You additionally…Cambrian is such an amazing phrase for this, however you begin to see this, I really feel like, in different geographies. , you’ve gotten a profitable firm, and it mints a bunch of millionaires, And impulsively, these millionaires can now angel make investments or begin new firms, and it simply form of populates this complete new ecosystem of founders and angels which form of propagates, which this complete form of snowball development appears to bolster itself, which is form of just like the Silicon Valley being exported to the whole world, which looks as if a fairly wonderful development. Like, it’s actually thrilling to observe it occur in Africa and all kinds of Pakistan and different locations now. Are you guys U.S.-only for now?
Rex: I’m U.S.-only for now, and the plan is to try this endlessly. So I feel there are wonderful issues occurring around the globe. Simply concentrating and doing one factor effectively is essential. The U.S. is the biggest unified market, with good rule of regulation on the earth. And a variety of what I do will depend on networks. So if I put money into a variety of the nice FinTech firms within the U.S., there’s plenty of alternatives for cross-pollination throughout the portfolio. If I begin flying to totally different continents, there’s so much much less inter-portfolio connectivity. And, oh, by the way in which, like, my time solely scales so effectively, and worldwide flights value a variety of time, so.
Meb: Yeah. And plus, you bought two beneath 5. My spouse stated, you understand, “I ought to make you a deal. You possibly can nonetheless journey as soon as we now have a child, however we get to select and select on which journeys we go together with you on.” So oddly sufficient, they’d comply with go on journeys to Dublin or Eire as an alternative of, you understand, and I’m not throwing shades, Cincinnati or someplace within the U.S., Chicago even. And I say, “Actually, we’re going to take a two-year-old to Dublin? Advantageous.” It’s a good deal. So, okay, let’s speak just a little bit about…you may take this one among two methods, it’s as much as you. Since a variety of the portfolios are in stealth, you possibly can both speak broadly talking about a number of the belongings you’re seeing which might be fairly cool or concepts or sub-industries of FinTech, or you may take, you understand, what are you in search of that you simply haven’t seen, you understand, some areas or some issues that you’ve got stated, “Man, I’d love somebody to be doing XYZ,” or you may reply each.
Rex: Our very first funding we did was in OatFi. OatFi, like I discussed, is doing embedded lending for B2B platforms that do invoicing, and many others., so like a enterprise model of BNPL or factoring could be one other mind-set about it. However it’s this embedded lending element. If you concentrate on being a small enterprise, everybody is aware of money movement is king, however particularly should you’re making an attempt to get a sub-$100,000 line of credit score, it’s simply very arduous so that you can go to a financial institution and get underwritten for that, as a result of they’re going to take a very long time, it’s going to be a really pricey course of, it’s not going to be very highly effective for them. So a variety of small companies prolong their extra capital due by means of very form of costly sources, like factoring, however even that’s typically, like, a separate space and may very well be fairly costly. If as an alternative the lending is embedded into your on a regular basis form of movement, like, the provider who you’re working with, after they bill you, there’s only a button you may click on to get extension of debt. And that provider themselves has a button on their finish the place they’ll speed up account. That’s a really fascinating method of simply seeing enterprise lending embedded into the common movement of enterprise versus pulled out and obstructed away right into a financial institution department, proper?
In order that’s, like, A, only a very huge and fascinating development, and there are additionally so many extra vertical software program platforms. Like, let’s say you’re a vertical software program for somebody to run a hair salon, or a dental provider, or a trucking firm, you’re going to want to make use of, like, you understand, Stripe to simply accept funds, however you’re additionally most likely going to want to make use of some form of software program to do the invoicing, after which, as a part of that, you most likely need to monetize to some extent by means of lending, effectively, you may simply combine with OatFi, and OatFi, on the again finish, has numerous capital supplier that they construct out debt services with who can then present the credit score in your provider. And also you truly get just a little little bit of a rep right here. So now, you may monetize by means of monetary companies by means of, like, you understand, you will get a take price out of your, like, integration with Stripe. You may as well get a take price out of your integration with OatFi and the credit score you’re extending. However you, your self, don’t need to be a fee course of or a stability sheet, a lender. And so that concept of embedded finance, particularly because it pertains to the thought of individuals constructing vertical software program companies that monetize your monetary companies, is, like, a extremely, actually huge thought, I feel, typically.
After which, just a bit bit…I feel that is fascinating in understanding how, like, the Cambrian group works. So I initially met Mike, the founding father of OatFi, when…truly, I initially didn’t meet him. He joined my Slack group, and I didn’t speak to him for, like, months. I’d inform him to hitch. I, like, ship a normal welcome notice, which is one thing I at all times do. After which, like, just a few months later, somebody talked about to me that they have been elevating, and I used to be like, “Oh, that sounds fascinating. Like, let’s go on the cellphone.” And the primary time we get on the cellphone, Mike’s like, “Rex, it’s, like, nice to attach with you.” Like, “Oh, by the way in which, our very prospects, and we met by means of, like, the Slack group.” And I’m like, “That’s nice.” I’ve accomplished no work, and the primary particular person you’re going to go dwell with is somebody you met organically by means of the group. He’s like, “And one among our first infrastructure suppliers,” so somebody they used to do one thing, like, mortgage administration stuff, they’re like, “That’s additionally somebody we met.”
So right here’s somebody I haven’t even talked by means of who’s interacting with the Cambrian group who has now gotten first prospects, infrastructure assist, and many others. After which I ended up investing, like I stated, within the pre-seed, and as a part of that, introduced in, truly, one of many founders from our 20-founder LPs to co-invest in that spherical, as a result of they’re, like, good, form of overlap there. Additionally discovered another people who get entangled. After which, subsequent to that spherical, did a variety of work when it comes to, anytime somebody joined the Slack group or I simply interacted with another person of their early-stage ecosystem who may conceivably need to embed lending into their platform, simply ship them over to Mike. They will have a collaborative dialog…are additionally very early-stage founders who’re making an attempt to determine the right way to construct their enterprise, they usually need to monetize by means of lending, however they’re like, “That’s a variety of a raise.” And I feel that’s on my roadmap.” And Mike’s like, “Look, we might help you deliver that ahead in your roadmap by making it so much simpler due to how our platform works.”
And so, like, simply form of the casual connectivity over time. And they also even have just a few prospects which might be going dwell that they’ve form of met by means of the Cambrian community. After which, like I stated, QED ended up preempting their subsequent spherical of funding. They only did their announcement.
Meb: How arduous is it to run that community? And what I’m pondering of is conventional, a variety of communities. You get folks misbehaving, whether or not it’s, you understand, simply being normal social media turds but additionally spamming and advertising. And, like, how arduous is the group you’ve gotten? Are you, like, a strict father or mother, one strike and also you’re out, or, like, how do you monitor and simply run that complete present?
Rex: Yeah. Communities evolve over time, proper? The Cambrian group I’ve run has advanced over time. Began initially as simply form of month-to-month in-person occasions in San Francisco. We truly haven’t accomplished an in-person occasion of that kind for fairly some time now. Now, a variety of my group work is extra digital and thru, like, the Slack group. The Slack group at the moment is about 1,500 members. They’re all founders. They’re all individuals who know what it’s prefer to be in an analogous scenario. And so I’ve had very, only a few situations of what I might classify as poor conduct. I do fear that because it begins to scale once more, like, possibly that’s one thing we’ll have to consider. However to date, I’ve been making an attempt to maintain it form of typically constrained. So I do take into consideration that, however I’ve been lucky that I really feel like people who find themselves founders and builders, typically, like, know and respect what different persons are going by means of, and subsequently, attempt to behave accordingly. And that’s typically been my expertise.
Meb: Yeah. Properly, whenever you’re able to host an L.A. comfortable home, we’ll sponsor it. So you may come on down whenever you want some sunshine in San Francisco, and we are able to do a meet up.
Rex: Subsequent 12 months, I plan to try this just a few instances, in 2023. So I feel L.A. is on the map. In all probability, we’ll additionally do some in New York and possibly in locations like Salt Lake Metropolis and different form of FinTech hubs that I do know plenty of nice entrepreneurs in.
Meb: You have been going to say one other startup that has come out of stealth.
Rex: Yeah. The opposite one is Maintain Monetary, and so that is form of FinTech on the intersection of HR tech. If you concentrate on being an HR group, particularly in a post-COVID world the place issues are extremely distant, and now, workers live in all 50 states, there’s simply, like, a variety of issues so that you can handle. And a variety of belongings you handle as an HR division are round coordinating compensation and other forms of, like, monetary closing compliance for these workers. So there’s simply a variety of stuff on the intersection of FinTech and HR. It’s an space I’ve been fairly enthusiastic about for some time. My spouse, as one instance, leads, like, go-to-market ed, Guild Schooling, training as a profit bought into Fortune 100 employers. They usually’ve accomplished fantastically effectively. So into that normal space, which I’ve been for a very long time, met Rob and Kathryn, or re-met Rob and Kathryn, who’re the founders of Kabbage, the small enterprise lender. Their new firm is known as Maintain Monetary. They’re a bonus administration platform for employers.
So that is an illustrative instance. Burger King just isn’t a buyer of theirs, however let’s say you’re Burger King. And also you need to rent 10,000 frontline employees, and also you need to challenge them a $5,000 signing bonus. Properly, you possibly can try this, after which, like, the folks join, they get the cash, after which they, like, don’t present up after the primary day of labor or one thing. And also you’re like, “Properly, that didn’t work very effectively.” However we’re truly within the tightest labor market, nonetheless, for sure service sector industries, whilst, you understand, form of the macroeconomic indicator shift, the tightest labor market in, like, the final 70 years. Employers are determined to recruit and retain expertise.
I like the worth proposition that Maintain says, as a result of they’re like, “How do you recruit and retain expertise?” It’s, like, you pay them. And also you pay them by means of bonuses. And beneath the hood, these bonuses, that is form of the monetary product, however they’re structured as forgivable loans that vest over a sure time frame. So now, once I provide you with this $5,000 signing bonus, it vests over a sure time frame. In the event you go away early, it may be forgiven. Like, a portion will probably be forgiven, after which the remainder could be form of repaid at zero curiosity over some time frame.
So now, you, as an HR chief, have a brand new device in your toolkit to consider, “How do I recruit employees?” By the way in which, the identical platform you need to use to retain them. You possibly can challenge spot bonuses or retention bonuses. And so, if you find yourself being a really giant employer, like, it truly will get fairly sophisticated to consider how you’ll need to construct out this program at scale. You’re like, “Properly, how a lot ought to or not it’s? Like, what about should you’re this degree versus that degree? What ought to be the vesting interval? Like, how do I truly disperse the funds? How do I truly handle, like, the state-level registration as a result of this can be a mortgage product?” Like, all of these are literally fairly sophisticated questions. Like, how arduous is it for an organization to pay bonuses? And also you’re like…effectively, you begin to consider it, you’re like, “Oh, it’s truly form of arduous not solely to do it simply from a purposeful perspective however to do it from a method that really drives the end result that you really want.”
And in order that’s why I feel they’re a extremely fascinating firm, as a result of one, it’s an amazing crew. Like, Rob and Kathryn have constructed a number of companies collectively earlier than. Kabbage they bought to Amex, I feel it was round, like, a $500 million exit. However they’re a crew that’s labored collectively extremely effectively earlier than. They will materialize a crew. In addition they have deep connectivity into the sorts of management groups on the forms of employers they’d need to promote to as their preliminary prospects, in addition to their form of, you understand, tremendous enterprise shoppers sooner or later. And so this can be a nice instance, I feel, of…this isn’t a FinTech firm in a way that it’s actually an HR answer that occurs to have a monetary product that’s underpinning it, and also you by no means would have had somebody, a crew, that was in a position to consider the way you construct this product however then use it for a really explicit answer.
That’s one thing that’s due to all the things that’s occurring and simply the notice and the standard of the entrepreneurs, however then, additionally, they’ve a banking accomplice beneath the hood who’s serving to them, you understand, energy a variety of this, which, 10 years in the past, there are 0 banking companions, proper? Quick ahead at the moment, there’s, like, 30 to 40 to 50 banking companions, plus 20 banking as a service platforms. So that is the place the title Cambrian form of is available in, proper? There’s been this explosion of the essential constructing blocks of economic companies which might be form of reconstituted by means of expertise that individuals can mix to new and novel methods to sort out issues. So I feel Maintain is a superb instance of, like, a extremely nice crew, FinTech on the intersection of one thing else, indirectly that few persons are truly eager about. Like, that is form of a brand new…there actually isn’t anybody else doing this proper now. However when you hear it, you’re like, “Oh, that’s fairly fascinating and thrilling,” proper? So these are our factor, two firms and two nice tales when it comes to eager about what the subsequent technology of actually nice FinTech firms can seem like.
Meb: Yeah. I imply, it’s loopy. I tweeted earlier this 12 months. I stated, you understand, I went by means of a strategy of getting a mortgage, and it was absolutely the stupidest course of I’ve been by means of in, like a decade. And I’m an in conventional asset administration. I imply, we used to need to fax in our commerce. So I’m effectively conscious of silly processes, and I’m like, “I can not imagine this in 2022.” You had a tweet some time again. Listeners, you may observe Rex on Twitter. He’s nice at posting charts and different stats.
Rex: A lot of charts. A lot of charts.
Meb: You have been complaining about…you’re like, “I needed to pay 20 bucks to ship a wire,” or one thing, “And I referred to as in, they usually waived it.” And also you’re like, “Can we simply waive this sooner or later in order that I don’t need to name in?” They’re like, “No, you must name in each time. We felt we’ll waive it should you’re calling it.” Like, are you getting me? Like, what’s unsuitable with this? As you look again at your time at a16z, it’s most likely much less at the moment as a result of it’s so new, you understand. I’ve heard you speak about form of eager about consensus, anti-consensus when form of concepts and founders. But in addition, I’m wondering, in your expertise, how a lot of the outperformance, should you have a look at form of conventional offers you’ve seen and been concerned in, have been on the time you made the funding? So that you checked the field for sure. So the portfolio that you simply’ve seen. How a lot of the eventual consequence was associated to preliminary conviction, you understand? So excluding those you didn’t put money into, however simply those that, like, you stated, “Okay, these have been in our orbit.” Is there any correlation as soon as it hits the sure button, or is it a variety of randomness within the consequence as effectively?
Rex: You could be very extremely convicted of some companies, however yeah, I feel, like, for absolutely the excessive outcomes, it’s very arduous to know a previous. So should you have a look at, like, Slack, one among a16z’s huge early wins, they actually have been a special enterprise that pivoted into one other enterprise earlier than doing extremely effectively. I feel you may typically underwrite sure investments to, like, a fairly excessive flooring, however that’s truly utterly ineffective. You get a extremely skilled entrepreneur who’s constructed and bought a enterprise up to now, saying, “Okay, the ground for this enterprise is $200 million,” however that’s truly utterly ineffective when it comes to driving what you want from a enterprise return perspective.
I feel there may be an fascinating factor round, like, what sort of investments do corporations are likely to do over time, and if we return to the, like, free physique taxonomy of, like, scale corporations, I feel, if I take into consideration…enterprise is a humorous class as a result of, often, you must be non-consensus and write to win. Whereas enterprise, arguably, you may form of be consensus, and since just one particular person will get to do the deal, you may nonetheless truly ship outperformance if consensus-oriented offers nonetheless delivered adequate returns.
And so, once I have a look at a16z and different giant corporations and you concentrate on what sort of offers are best to get partnership buy-in, you’ve gotten this sort of unactionable pressure the place sizzling offers, offers that get a variety of time period sheets, are the one the partnership will get most enthusiastic about. As a result of should you do, like, actually good pondering and provide you with, like, a intelligent thesis, you must talk advanced nuanced concepts throughout quite a lot of folks. In the event you herald a take care of 5 different time period sheets out of your three greatest opponents, together with your three greatest opponents, you simply instantly have, like, activation and curiosity.
And so I feel there’s this fascinating factor the place, over time, giant outlets turn out to be extra consensus-oriented, as a result of that’s simply the simplest solution to get offers accomplished. However satirically, in enterprise, that’s the one place the place that technique can nonetheless ship cheap returns, arguably, versus each different market the place it’s simply you had the purchase button and there’s a little bit of unfold in, like, you’re competing in opposition to everybody else within the ecosystem. In order that’s going to be just a little bit fascinating to see how precisely that performs out over time.
Meb: Yeah. I want I may return a decade in the past and begin advertising all of the offers that I’ve invested in, which I feel is over about 350 now, and say, “Right here’s Meb’s…you understand.” It made the sure standards, however scale of 1 to 10, right here’s how assured I’m. As a result of I have a look at the outcomes, and I don’t suppose there could be any correlation. And oddly sufficient, like, I like studying all these…I get the behavioral facet that persons are making an attempt to try this are sometimes like, “This can be a sizzling deal. It’s closing. It’s 10 instances oversubscribed.” And infrequently, I’m like, “That is truly…” I’m a rarity, I assume, however, like, this sort of repulses me in lots of instances. Like, I don’t discover, like, a variety of those the place I have a look at, I’m like, “Wow, nobody’s on this.” After which trying on the consequence through the years…anyway, I want I may time journey, however.
Rex: Yeah, no, completely. However because of this you can too have a number of methods that went in enterprise markets. You is usually a consensus store that at all times wins and does sizzling offers and doubtless delivers adequate returns. In all probability the most effective returns are by non-consensus people who discover these offers nobody else believes in. These ought to be arduous to underwrite although as a result of these are often concentrated portfolios with a excessive diploma of zeroes and a few actual bangers. And so, then, for you, because the restricted accomplice investing in funds, for instance, you’re like, “Was that genius or luck?” And like, to what extent is that? It’s nearly simpler to again the consensus outlets, which most likely simply delivered adequate returns, than it’s the non-consensus people.
So you must…it’s an fascinating query to consider, like, you understand, the place LPs ought to be eager about allocating capital and how much LP ought to choose what sort of agency, as a result of you must be fairly subtle to try to again the non-consensus stuff. I’m fortunate, I get to perform a little little bit of each, proper? I’m not tremendous unconcentrated, however I’m not tremendous concentrated. I can, as a non-lead verify, make investments alongside tier one corporations who’re main offers and have accomplished that on many events but additionally put money into offers that aren’t alongside tier lead corporations, or generally I commit, after which it seems, like, they’re , and they also are available. However you are able to do just a little little bit of each when it comes to my contract, which is just a little bit totally different, so.
Meb: Rex, what’s been your most memorable funding that you simply’ve been concerned with that may very well be both as your profession as a VC or one thing completely unrelated, good, dangerous, in between? What you bought?
Rex: Most memorable funding, I received a full journey to school, and so I used to be a part of that, had some cash post-graduation and used that to purchase a home that I lived in.
Meb: Was this a drone league sponsorship? Had been you a soccer lineman? What was the story?
Rex: I used to be not. This was only a normal educational and management factor. So I used to be a Belk scholar at Davidson School, which is, like, the Davidson model of the Moorhead or the Jefferson however a lot much less well-known than these two different packages.
Meb: Is that this the Charlotte Davidson?
Rex: That is the Charlotte Davidson. Steph Curry, sure, was a classmate of mine, if that was the subsequent query.
Meb: I did a baseball camp there as soon as upon a time, a few years in the past. Stunning, lovely campus.
Rex: Nice campus. Nice college. Nice group. So in any case, yeah, I purchased my first home proper after graduating, and it was, A, a superb funding however primarily only a actually good studying expertise. You’re a university graduate, so that you’re like, “Oh, I studied economics. Like, let’s construct a mannequin to know what the returns for this home seem like for me as a university senior. Oh, let’s go and really get a mortgage, proper? Let’s exit after which truly see what it seems prefer to personal and function an asset over a interval.” I used to be truly residing in it for some time too, which…that’s form of an fascinating arbitrage alternative for quite a lot of different causes. And I nonetheless personal it at the moment, and so I get to trace it.
After which, as you get this fascinating educational train, was it a superb funding? And also you, like, benchmark it to the S&P, and also you’re like, “It’s fairly good.” However then you definitely benchmark it to, like, REITs, and then you definitely benchmark it to single-family REITs, and then you definitely’re like, “Properly, what about my time? What in regards to the truth …?” Like, it’s simply an fascinating lens, and I’ve refinanced it just a few instances, and it’s been throughout the interval the place the rise of single-family rental REITs has been a factor. So it’s simply been an amazing studying expertise when it comes to understanding how all of those markets work. After which it’s additionally a reminder of simply how advanced finance is, as a result of, like, simply to reply the very primary query of “Was this a superb funding?” simply making an attempt to determine what the suitable benchmark ought to be is, like, a really arduous query. After which, to not point out, like, all of the stuff round time, and many others., so.
Meb: You have been adulting, could be the 2022 phrase you hear extra typically, lengthy earlier than it was cool, as a younger school grad. You don’t see that an excessive amount of. Rex, greatest place folks will discover you on all the varied locations. The place do they go in the event that they need to take a look at what you’re doing, taken with your fund, all that great things? The place ought to they go?
Rex: My title is comparatively distinctive. So should you simply Google Rex Salisbury, you’ll most likely discover me on each LinkedIn and Twitter, or you may go to these platforms particularly. After which the web site is cambrianhq.com, and there, you may subscribe to our publication, discover a few of our different social profiles. And should you’re a founder, you can too discover the hyperlink to hitch the Slack group.
Meb: It was a blast, man. Thanks a lot for becoming a member of us at the moment.
Rex: Yeah, thanks a lot for having me, Meb. Actually respect it.
Meb: Podcast listeners, we’ll submit present notes to at the moment’s dialog at mebfaber.com/podcast. In the event you love the present, should you hate it, shoot us suggestions at [email protected]. We like to learn the evaluations. Please evaluation us on iTunes and subscribe to the present wherever good podcasts are discovered. Thanks for listening, pals, and good investing.
