The below is a full (unedited), machine-generated transcript of a Youtube session / podcasting episode I recorded with Drew Oetting, founding partner at 8VC in Q1 2022. You can view the video/listen to the podcast on Youtube, Apple Podcast, Stitcher or wherever you get your podcasts.
Erasmus Elsner 0:06
All right, let’s roll. So welcome everybody. And I have a very young and accomplished person here, who has managed to build a venture capital franchise in 10 years from starting very small to now managing north of 6 billion, starting it in his mid 20s. It’s true OTN, co founder of eight VC along with Joe Lonsdale Drew, super happy to have you here with us. Where does it find you this session today?
Drew Oetting 0:32
I mean, Austin, Texas, which is the new headquarters, we moved here last summer after being in the Bay Area for just under 10 years. And we still have a large office in San Francisco. That half our our team isn’t there. But the other half is here. And we’re very excited about being here.
Erasmus Elsner 0:49
Yeah. And before we get to the Austin part and what the move entailed. I want to talk about your time. In San Francisco, especially during the pandemic, in the midst of the pandemic, there was a Wall Street article about what you and your roommate were doing, it was quite impressive. First of all, you have some interesting hobbies, like drinking shots of apple cider vinegar for breakfast. But after that, in your apartment in Russian Hill, you got a text message from someone who was looking for PPE equipment, and you were hacking together supply really in an impressive and quick turnaround way. You heard from a small logistics company that had excess supply because they were supplying the luxury industry. And then you texted a classmate who’s I think at that point, working for the Iowa Senator who exactly needed this PPE equipment you were hands on, you were not like the rest of us watching from afar, just reading the news. But you were actually shifting into full gear, as everybody else was in paralysis. So quite an impressive thing there.
Drew Oetting 1:53
I don’t think we were in any means the only people who were trying to help out stuff, it definitely wasn’t nearly the sacrifice and sort of effort, though a lot of millions 10s of millions of people across United States were going through but basically you kind of like you outline in April of 2020, we were pretty aware of what was happening, that there were going to be potential issues and in this PPE sort of shortage came about. And just basically through the random types of things that VCs did, right, most of what we do is we spend time connecting people and learning about other people who have great expertise and stuff. And then hopefully, we’re a bit of a router and kind of getting them all together. And so, you know, I was fortunate to hear about just, you know, people who had TV, it was random. It started with being you know, a couple of our portfolio companies, you know, hadn’t sort of deep expertise on supply chains in China, primarily where there actually was a lot of production of PPE. But then everyone started coming out of woodwork around PPE. And so, you know, one with Jake Manuel, he’s another one of the partners of APC. And then also a friend of ours, Robin chan kind of started thinking about how we could solve this problem. And we knew of kind of from the beginning, you know, we didn’t want to make money on this wasn’t a business thing. It was it was, you know, at the time, we felt like it was an important thing to do. You know, as folks that were fortunate to be able to keep doing what we’re doing through the pandemic tried to help out. And but they basically became obvious there was a cool network of new entrants into PPE, that existed, and it was both highly frustrating. And I think in some ways, it was not maybe the most ethical thing that happened. But at the same time I started, we started looking at it like we would in our day jobs as a venture capitalist and looking at like, Okay, well, how does this market work? How can we get connected into it? How can we start putting together the pieces so that we can actually get the small hospitals and states that didn’t necessarily have massive stores of PPE, but also didn’t have relationships? Basically, the pandemic took a procurement process, which normally is a very slow paced process when driven by hospitals, so I’m curious person, a local hospital and I call my rapid McKesson or Cardinal or Medline, I’m gonna get my my PPE or I’m gonna pay him on, you know, probably net 30 or net 60 terms. It’s going to show up FedEx, it’s gonna be great, right? Pretty standard, sleepy part of the overall hospital, right? It’s not like, as crazy as the ER though and stuff. But all that changed overnight, and that person who’s doing procurement, he’s not necessarily you know, an expert on how to find local brokers and, you know, interface with, you know, Mandarin speaking folks overseas, you know, working weird hours and dealing with paying up front taking risks, all those things are totally foreign. So we tried to do is we set up operation as we stepped in there and help on the sourcing side, do as much as we could on trying to help vet one of the stuff was legitimate or not, but then also help them understand the new world they were living in, which is the need to take risk. They needed to be able to wire someone money and realise that they might not get the product they wanted or might be fake, but that was the only way they were gonna get anything. There was no saviour coming In the form of, you know, with the large PD providers, at least over the short term, then over time, what we realised was that there’s a lot of hoarding happening, FEMA, and the federal government started figuring out how to buy and more, they started putting people on the ground. And we started helping then the US government, from a federal perspective, start connecting with the networks that we had built through it. And then luckily, that problem had passed, it was a very interesting experience. And hopefully, we were able to do a little bit to alleviate some of the pressures on these mostly local hospitals and in state governance, like Iowa, where I’m from originally where they weren’t getting the attention that maybe bigger states or bigger hospitals were.
Erasmus Elsner 5:38
Love it. It’s such a beautiful story. And I think in many ways, it’s emblematic of the mantra that you have at HSBC, which is, if it’s broken, fix it, this whole spirit of actually doing something not just being capital allocators, passive capital allocators. But always getting your hands dirty and coding something, working on something, obviously, with a firm having a very entrepreneurial DNA with Joe being the founder of these breakout companies. But I think it really goes through the entire organisation that you’re a hands on, very young and dynamic team that also builds credibility with entrepreneurs by being hands on and actually doing stuff when they see there’s opportunity. And this case, having the sprint in the midst of the paralysis of the pandemic, it’s really great story. This brings me to the next thing you did during the pandemic, which is investing in a company that seemed to be born out of the pandemic, which is a company called resilience, where HVC led the series B a pretty substantial Series B, which I think for other companies, you would typically call it a Series F. But it goes along with the vision and mission of that company, if I understand correctly, wants to be the AWS for the pharmaceutical industry, basically a full stack pharmaceutical company, from discovery to manufacturing. As the pandemic has exposed these gaps in the manufacturing and supply chain, you are leading the steel from the HPC side, you’re a founding board member, maybe run us a little bit through what this company is achieving and how it came about.
Drew Oetting 7:13
Yeah, so just to clarify, we co founded resilience actually, from kind of day zero along with Bob Nelson in March. And obviously we’re, we’re financial investors in that business as well. And so resilience very much dovetails off of the experience we have with Operation mass, in that the big realisation we had around PvE was that the reason why the United States was so behind was primarily due to where the means of production were owned, and where they were not only like from a financial perspective, who’s the equity owned, in terms of who actually physically controls them. And so, one of the most impressive things the Chinese manufacturing industry was how quickly sort of non healthcare manufacturers pivoted into being able to in a very sophisticated way, manufacture PPE one that I worked closely with a company called BYD, which is one of the manufacturer electronic electric trucks, and Warren Buffett owns 90 10% of it, and you know, was a great visit beforehand. But they actually were able to become one of, if not the world’s largest mass manufacturers over a matter of months. And really, the big issue for them was getting regulatory approval in the United States, more so than actual manufacturing. So I started thinking about that. I was like, why it’s amazing, you know, it’s company was able to do that. And they had all the, in the all these companies were able to kind of take their manufacturing prowess, and that there was a generalisation there that they were able to apply. And obviously, we have that United States and started thinking about, okay, the MPP, because the PV problem was actually solved quite quickly. And a lot of it was due to just unprecedented demand. And to be honest with you, a lot, 14 by both governments and hospitals, versus their actual being, you know, a critical shortage for as long as there was there was a shortage for a while, but a lot of it had to do with warranty, I started thinking, Where is there actually more structural problems within vulnerabilities for us as the United States, but also just where is their media, a lot of concentration in one area. And we were thinking also about what was next with the pandemic. And it was obviously, actually in the bio manufacturing infrastructure in the United States had really not been invested in focused on in decades. So the vast majority of innovation in biotechnology happens, you know, in United States, the UK, Canada, and then now increasingly in China, but it’s fairly concentrated yet the manufacturing actually occurs in different place, and it APC, a huge part of what we do is investing in what we call bio it really, that’s the intersection of computational science and biology. So things like cell therapy, gene therapy, and then the infrastructure around beds to manufacture. And so it’s something we think a lot about, and a lot of our companies face a lot of problems as they think about planning their manufacturing, because these next generation medicines mRNA is now the example everyone knows about which no one knew about, doesn’t it? But cell and gene therapies have been, you know, I think something that people have been appreciating, you have potential that huge impact, right is the ability to actually make changes to our genetics in order to fix diseases, or with the case of cell therapies make that special engineered cells that can do things in the body and have magnitude sort of more efficacy and safety in using chemicals or biologics. But the manufacturing infrastructure for these drugs is, first off, it’s very nascent, it’s it’s hasn’t really been developed, it’s right now is still very much one off processes, there’s been very little standardisation organisation, that secondly, it’s already being sort of moved overseas, or at least it had been up until last year. And we felt that that was not wasn’t good for society, it wasn’t good for our companies. And it wasn’t good, really, for competitiveness in the world for the United States. And so we started resilience, kind of under this sort of two prong thesis, one, that there would be massive demand for manufacturing capacity for these next generation therapeutics for advanced biologics as we call them, in the United States. And secondly, that investing in r&d, II, and taking real scientific and engineering risks in that company, in order to change the manufacturing paradigms and processes and in each one of those therapeutic areas, would ultimately yield the ability to capture a platform, similar to the way AWS has done with Compute, similar to the way that Taiwan Semiconductor has done with semiconductors, and that you could build this abstraction layer on top of the manufacturing portion of these next era therapies. To be clear, we are not a therapeutics company, in that we’ll go and try to develop our own hypotheses validated on pathways, do your own research and then make the drive we’re not that would be competitive with our customers, what we do is we want to build the best infrastructure so that way, you’re a researcher who wants a very small amount of a product or whether you are a massive form of wanting to produce, you know, millions of doses, and we can provide you the best infrastructure at the lowest cost and the fastest turnaround time to produce those products.
Erasmus Elsner 12:25
And super exciting, it is a hard problem to fix. And as a result of this also a very capital intensive one, especially in the pharmaceutical manufacturing side. There is this, as you I think alluded to also this geopolitical aspect to it as also the pandemic showdowns, right. Your firm is going with high conviction into some of these opportunities, also deploying quite substantial amounts at an early stage, because you’re a problems first company or investor maybe moving a little bit to you as a person in your background. And I listened to a couple of other podcasts you’ve been on. So I found it quite refreshing that you are not having this typical venture capital attitude that venture is more of an art than a science. But you you actually have a pretty down to earth approach to it, comparing it to the private equity side as well. You studied at Claremont McKenna, which is one of the leading liberal arts colleges in the US, where two notable alumni are the founders of KKR. Henry Kravis and George Roberts. And so I think it’s probably a mandatory book to read barbarians at the gate in the first semester, whatever you study there a book that also you read, and that shaped you. And now you’re sitting on a board with Henry Kravis, I think at Rubicam and you have this first row exposure to that person who’s the hero to many people who want to be in private equity. But to bring it back, you have this attitude that venture is similar to what private equity is doing, which we all know, but very few people in venture like to admit it that you are taking money from LPs and you’re sitting between those supertankers of LPs and those speedboats of startups and that your capital allocators, and I think it’s a pretty down to earth, pragmatic way of looking at it.
Drew Oetting 14:18
Yeah, I’d say first of all, I totally respect for Mr. Kravis and Roberts, they’ve obviously been not only really successful in finance, but also incredibly huge supporters of Claremont McKenna, when I went and had scholarships that I’m sure that they donated to, and also, you know, in sporting business, just to clarify, I’m an advisor and sit on the advisory board, it would come down on the board, but obviously, you know, I’ve been fortunate to be involved in a lot of companies for them and other mentors of mine who built some of the other big private equity firms have served and I think this is actually has changed a bit as venture has expanded so much. So those comments may be a little bit antiquated at this point, but it always bothered me a little bit that nature kind of wanted to pretend they was sort of special in some way. I from private equity, not to say that it’s not different. I mean, it is right. I mean, we in venture capital are minority investors almost by default. And so it’s very different to own 1020, maybe 30% of a company, knowing also that you’re going to be probably diluted by other investors coming in than it is to own 100% of it. Right. And it’s different in almost all practical realities. The thing that’s not different is the business model. Right? So like, still raise money from other people. And we invest it in stuff, or pay them a fee. And we’ll pay to promote. And fundamentally, that is the business that you could argue that Kravis and Roberts and and other people like Matt invented may have heard the story about why two and 20 was chosen is relatively arbitrary, right. So that business model originated there. And I think a lot of people forget that those people were unbelievable and normal, like no one wanted to go into private equity, or even really investment banking in the 80s. It was not the smartest people in our business school, you know, the most polished pedigree people that were going into what we think is finance today, back then they probably wanted to go work at, you know, GE or Disney or something like that. Right? You mentioned our we demolished about two months. So I’m very fortunate to work there met incredible group of people to talk about later that were there, I get great training. And then I went and sort of like, you know, I think, unfortunately, wasting people’s time and then left to go work with my business partner, Joseph, she just stopped. But I think moles is an incredible company. And I also think Ken Wallace is an incredible entrepreneur. And I think a lot of people don’t give these people credit. You know, DL J, were a lot of these folks came from Drexel Burnham and forth. I mean, these, if you look at the networks of people, and what they went on to build, it’s pretty incredible. And they were running huge businesses at very young ages. So there was no like, it’s not like an investment right now. Or yet, like, you know, 15 different levels of folks there. That’s what they built, right? They built that institution. I mean, back then they were working 100 plus hours a week, but it was a very different thing. It was like, wild west. I mean, it’s obviously great examples of how that’s changed, probably in some ways for the better than we for the worst. But anyway, part of it is just, I like the stories of how industries have been built. And I think both Wall Street on the banking side, and then, you know, the private equity side, which they really worked hand in hand in building. I just think it’s filled with entrepreneurial stories and with entrepreneurs. And I think it’s still it is. And so when VC is trying to like separate themselves out, it bothers me a little bit, because I’m like, you’re supposed to be obsessed with entrepreneurship, why don’t you pay attention to what’s going on over here? Right? Yes, of course, like, private equity is different. But your business model is not different. And the entrepreneurial stories are interesting. And I think they’re worth sort of respecting and paying attention to. So my comments before have been about that, I think it is changing a bit. Because I think if you look at what’s happening right now, in venture capital, there’s a bifurcation happening, there are groups that are doubling down on the venture part of venture capital, the early stage doesn’t mean that they’re not taking a wider aperture, but it’s about being in the early stage about be early about taking lots of risks. And then there’s folks that are doubling down on the capital side, and are I think right now are building the next large asset management groups. And I have a huge amount of respect for the folks who both we at ABC have decided to focus on the early stage doesn’t mean that we’re not managing, you know, the CDFI amount of capital, but it means we’re focusing on entrepreneurial energy, you know, focusing on building companies, we’ve been building kind of six, seven companies a year, internally at ABC, like resilience, we’ve talked about when we’re doing more of that, but then some of our peers, you know, Hemanta, general catalyst. And obviously, the folks at Andreessen have raised tremendous amounts of money. And I think, in hiring really incredible people investing in growth in trying to build up real platforms, and expanding asset classes as well. And I have a huge amount of respect for that, because again, it’s an entrepreneurial story. And so I do think venture capital, he’s embracing some of the aspects of private equity. And maybe that’s by necessity because of competition from those larger groups coming down. But I think it’s also because the opportunity set is there to do that. And there’s really ambitious people who are interested in being more than just venture capitalists and are really interested in building the next gen as we get to platforms.
Erasmus Elsner 19:24
Absolutely. I think it’s so interesting, just 15 years ago, Andreessen Horowitz sending around the first deck, you know, nobody believed in them. And now, a 16 set is considered to be the new Sequoia. And everybody’s treating them like they’re this long standing institutional, but they haven’t been around for that long. If you look back and know, I think the first fund was a 2009 vintage and the same with KKR. You know, everybody thinks this is this is like set in stone named partners, but it’s a 30 year 30 year franchise and they’ve built it from the ground on up. So, it’s always great to look back in history and, and think about, you know, there was always a day one for these firms. And when it comes to building a legacy and a franchise, let’s talk about HPC. And it’s been an incredible journey so far. I mean, you started out originally in 2012, as formation eight with the predecessor fund, when you joined you were Chief of Staff. But then you became a co founder of ABC, obviously, we talked about your co founder, Joe Lonsdale, he’s made a name for himself as the co founder of Palantir. But he’s done incredible others things like the FinTech at a par, which is if I understand it correctly, it’s pooling the services of many other fund providers. And being like the high net worth Wealthfront, if I understand correctly, then also working on Open Gov, I think, another project of his so an incredible track record of having hands on vision and also execution. And obviously, if you have someone like this, as a co founder, it inspires you give us some background on how you two came together and and how this whole gather ality in the first place. Yeah, I’ve
Drew Oetting 21:07
been fortunate to work with Joe basically my entire career, other than a few months at moelis. So recently, I joined this as Chief of Staff, who’s still the CEO of airport. And so Anna par is is basically a task that we focused on the wealth management industry. And so unlike a lot of Silicon Valley that was focused on tools for individual wealth management, the wealth funds for the world, this was focused on managing the vast majority of assets, which are still managed by family offices, independent RAs, and now Edwards were with large banks and their private wealth groups. And so I think that Ademar is a very interesting company to come after Palantir, where Joe was a co founder and build that up for a number of years before leaving to start Fr. And they really borrowed a lot of the same words, which was that there were these opportunities to build data integration, and then normalise data around an ontology or schema, and then basically functionalize that through application level application software, and that you could purpose build that for an industry, if you did that, then you’d be positioned as a potential platform. And so the insight that I think Joe had, and you know, that a few other folks had, it kind of came out of that Pay Pal world was that there is going to be massive change that happened inside of large enterprises, because of software, data, science, etc. But that you wouldn’t see just through pure SAS, you wouldn’t see the magnitude, you know, 100 billion dollar plus magnitude outcomes, like a Facebook or whatever, until you add platforms. And so this movement from thinking about software as like a tool that you buy, it does this thing, and that’s a good business, but really, the only way you could massively expand that is if you, you know, bought tonnes of tools. And he became like a SAP or an oracle or something, instead saying, Well, you know, if you had these tools in the cloud, and if you owned, like, the workflow, and you thought more about it as owning this user, right, building their entire workflow through the day, same way, you want to own them on Facebook, you know, in their personal lives, you want to own their workflow, that you would have the potential to build a Facebook Ads work, you know, it was on Google Eska platform within the enterprise. And so that was the real, that was the real idea of that apart. And the platform aspect is actually really cool, because it’s just starting to now like come to light. So it maybe takes a bit longer than you think you got to build the pipes and the pipes, media sell software. But it’s really cool, because no party has like, trillions of dollars of assets that are on the platform, doesn’t mean that we’re the wealth manager for them, right? We’re empowering their wealth manager to you know, but we own all the reporting and integrations and all that kind of stuff. And then what’s really cool is now they’re actually offering products and services through that onto that asset base. So now, you can imagine that someone might come up with a really good, you know, accounting, or Billing module or tax module for our trade independent, or is that just layers on? Right? Where they might come up, some might come up with a really good sort of tech enabled tax deferral strategy. And instead of having to pick up the phone and call up that person’s raa, and try to pitch them on it, you could just deploy it. And so me as the RN, right there, and I can actually layer it on virtually onto my clients portfolio and see, does that make sense? From here? No. Right? The power of owning that workflow, and then owning the data model is that you can do those types of things and massively reduce friction. And so they’re in the marketplace, and AdWords just started rolling.
Erasmus Elsner 24:43
I heard I don’t know if you know, co founder of the hustle, or even solo founder, and he just sold it to HubSpot for I think 30 50 million. And then basically, he got a login from his investment advisor at Morgan Stanley. It looked also antiquated and broken to sort of just to compare There are certain ETFs. And then he was asking around, what’s a better solution there. And then someone told him about added par. But then they told him yet, you need to have more money than you even with this first exit, he
Drew Oetting 25:12
doesn’t, he just needs to tell his wealth manager that they need to sign up. And so, add a part is not charge based off of the they don’t have any limitations around the wealth. But obviously there are sort of implicit requirements to make it an economic purchase for the RA or the wealth manager who may be treated as clients. There are folks that run family offices that they care a lot about the data, they care a lot about the software, they might be willing to invest in Annapurna at a earlier stage than in, you know, a firm that that’s farther flung. So he should put some pressure on his wealth manager. But anyway, if he needs one that you know that he already uses that apart, I got some like, we were just checked. But anyway, so airport was just incredible in the job and working on starting a venture capital business with a couple folks that are former business partners. And so when I met Joe, I met him through a friend of mine, he played Paul, us, he was a friend of mine from college Claremont, he made the introduction to Joe, which obviously is, least introduction I’ve ever gotten. And so obviously, I’m forever grateful for that. And Joe wanted to cheat the staff. And when it clicked to get some staff, we would have been great. But Clint wanted to start a company itself, I think, you know, I was maybe the fill in for that. So he could go do that. And we started working together. And very soon after, God realised he was gonna replace himself a CEO of ampark. And, and focus full time on building out at the time was called formation eight, with two of our foreign business partners. And so we did two funds on information aid, you know, I think we were really lucky to get to invest in a bunch of great companies, and really kind of start learning how venture capital works, kind of wild to think about now that first fund, I think, least a few 1000 meetings trying to pitch for money. There was like 280 investors in it or something. It was $450 million fund.
Erasmus Elsner 26:53
Yeah, it was going to ask because it’s rock hard, poor first time fund to raise such a large fund, even if you have this entrepreneurial background, it’s super hard, because people want to see track record, they want to see TV, pi D, R VPI, all the good stuff.
Drew Oetting 27:08
You know, I mean, this is the biggest thing I’ve learned from Joe. I mean, first off, Joseph, he’s unbelievably smart. He’s unbelievably, you know, strategic. And he’s done a lot of great. Now, obviously, Palantir is huge community. But even at the time, Palantir was a very well known company, and he was very well respected. But there’s probably not anyone in Silicon Valley, he’s had a level of success that Joe has who works, or maybe there’s one or two people that could like get close, but I mean, that first one is a prime example. Like, I’ll never forget, when he, he kind of like, lifted me up, he was like, I think I’m gonna have to, like, you know, go raise the rest of his fun, can we be fortunate to have a couple of families that were of our foreign visit partners that had put in here, the first kind of chunk, but we signed a long way to go, I was just carrying his bags around. But to watch, like, we basically want to sprint around seven days a week. And the other thing that I that I realised is like, a lot of people are too proud, or they have a construct in your head of like, I’m gonna raise a fund and like, the minimum check size is 5 million, right? thing I learned from Joe was like, you’re an entrepreneur, you gotta get to the number, if you set a high bar for the number, we raise 448, millions, like, you’re not going to get there, if you have a $5 million minimum. And at least in a way you can control but you can control raising of fun, if you have enough, you know, to stand on enough energy of going and convincing a bunch of people to put in, you know, 500 KV or a million bucks here or whatever. And a lot of those people can write much bigger checks, but they’re taking a bet on you to see how you perform right to where you can get it done. And so I’ll never forget that. And you know, the times when I’ve had to raise money on my own, I always remember that because, and I always tell to people, when they’re going to raise their own funds, it’s like, yes, if you’re got an amazing pedigree or you are okay, with a smaller fund, maybe that’s not the right strategy for you. But if you have a number in mind, you want to do it. Or maybe you don’t have any track record, or you don’t have any pedigree or whatever, just like beating down the doors is the only thing in your control. Really, you can control if someone says yes or no, you can try and spend your time. So the two biggest things become Are you going to put in the reps? And then are you going to be honest with yourself about who actually will say yes to you, right? Like if you just keep trying to go and meet with MIT, like, you know, maybe a waste of your time, as opposed to going to meet with some folks who don’t have exposure to venture and are willing to take a bet on you. So that’s that was the biggest learning experience I had was was was kind of being a fly on the wall for for that first fundraise, because it was it was just it was a real example that everything you think, oh, this person, let’s just be the smartest or this person must just like always make the right decisions, or this person must have some secret playbook that Peter Thiel gave that to them or whatever, right? There’s a lot of stuff that’s like sort of true that like we could get into but the reality is, is just like the thing I’m most struck by is like most people, and I will be honest like my natural liberty, like most people don’t naturally, no one naturally works as hard at the level of success that he’s had the jet engine, I’ve always remembered.
Erasmus Elsner 30:11
That’s important for everyone to hear not just for people thinking about raising a fund, but also people raising for a startup, I think it’s always raising the seed is the hardest. And then basically, it goes down exponentially after product market fit. And I mean, if you look at where capitalist deployed, it’s always at the growth rounds where commodity capitalist piling in, preempting every round. And that’s when it starts to get easy, but you have to put in the reps in the beginning to sell the vision. As a first time fund, you’re basically walking around with a deck, you might have an angel track record, but LPS don’t look at it as a full blown comparable track record for a fund. This brings me a little bit to the unique thesis and I touched upon this earlier, this if it is broken, then let’s fix it attitude that runs through the entire organisation. And we’ve now a couple of examples on how that plays out with you incubating not just investing passively, but really incubating and venture building in a sense at the firm. But maybe you can share some more light on how that looks on a day to day basis. Yep. Yeah. So
Drew Oetting 31:17
first, you know, the world is broken, let’s fix it. Here’s our mantra. And there’s obviously two marks, they’re separated by a comma. The world is broken, right, which is a basically a recognition that it’s an increase in a realistic view of the world, and also in a, in a sort of active view of the world, which is that there are constantly opportunities, right. And there’s constantly deficiencies, but then it has this other part, which is optimistic, which is like, let’s fix it. Right. And we thought about this felt like it’s the most profound meaning actually right now, but at the framework behind it has been, you know, really trying to monitor that. Like, it’s not enough just to point out the problems in the world. Right? You can go on Twitter, and you can add all these smart people telling you about all the stuff that’s fucked up and like, great, what are you going to do about it? Right, it’s not even clear, it’s better to point out problems, unless there are going to be people who fix them, like, we may as well live in delusion, and just think everything’s great. Unless, by pointing out the problem and making yourself feel, you know, upset about it, there’s like going to be people who grabbed those problems and turn them into solutions. And so this is a it is, it’s an unbelievably important part of ABC, because we like this realistic optimism or this optimistic view of reality is like fundamental to, it’s fundamental to being a venture capital investor. It’s fundamental to being an entrepreneur and building companies. But it’s honestly, it’s fundamental to like being a participant in society, it is somewhat important for there to be people who are really good at pointing out problems that is necessary, but not sufficient, they are only valuable in that there are people who are crazy enough to grab those problems, and then try to solve those problems in the face of a bunch of other people pointing out all the problems in their solution, right. And so we want to be part of the people who grab problems and try to do something with them. And so that’s why it’s our mantra. And a big part of that is that, and this is not just to fit with monster, but it’s also because it’s where we think we have core, basically comparative advantage, right? Or what in the Koch Industries sort of management framework, they would call capabilities. And it’s a really great way, if people haven’t read that I would recommend it. I think that Charles Koch and Koch Industries in general are not one is a totally misunderstood in this sort of common in common culture. But more importantly, he put the politics upside, they have very strong and great and applicable principles for organisational management and development. And one of these is understanding what your capabilities are. And the capabilities are basically comparative advantage is things that you do in the marketplace better than everyone else. Hopefully you do them great, but it’s that you have a competitive edge. Right? So most of venture capital, we don’t have a comparative advantage, but we might have pairwise competitive advantages, or we might have, you know, you might possibly be competitive advantages, but it’s like clear that they’re durable, and that they exist beyond maybe one person or right, they’re not necessarily firm like that’s okay. Most businesses don’t have any comparative advantages. So it’s okay. But we believe we have a very strong capability within building this is something that it wasn’t like obvious, like when we started, what we noticed was we were organically attracting incredibly talented people who wanted to be a part of what we were doing. They were interested in the investing side, but didn’t want to be like, professional investors forever. They wanted to start companies but they wanted to learn about companies and potential opportunities, how to build companies from Joe and increasingly from from the entire firm and serving 2018 When we had sort of fully figured out the transition from formation ADP See and kind of hired, you know, up the the team where we wanted it, we formalised what we call the build programme. And it was a formalisation of activities that have been happening since the very beginning, you know, and the goal was to return each of our investing funds through companies we originated, like ourselves, and you could call it incubated, you call it co founder, you call it bill, originally, whenever I’m trying to term I really liked it much. But the, the idea is, he’s coming to not exist if we weren’t there. So it sounds like we’re trying to go and like, oh, and we’re co founders, and this deal is like already gonna happen. It’s like, companies like resilience, where we’re talking with Bob Nelson, and he’s bringing in all these people, we’re trying to read people, we’re talking about this problem in the world. And it’s starting, you know, at the highest level of, you know, basically a lack of resiliency in mission critical supply chains. And we’re narrowing that down to the abstraction layer on top of obvious biologic manufacturing, and then doing recruiting the team against it. And so it really, you know, we truly are co founders in these businesses. And then it also, there’s this other great factor, which is that as a fun, we can deploy capital against those ideas in a way that maybe would be just hard to do. You know, without it, right. It’s a great like organising function. So if you want to, you know, do something that requires a lot of money, then you can deploy a bunch of money, and maybe partner with another great group that brings another aspect, and they put in money, and then you could partner, you can do something that might just not happen organically. And so it’s a huge focus for ABC, it’s a place that we’ve invested in very heavily, you know, we’ve over 50 people at ABC, and many of them are folks that, you know, you wouldn’t necessarily have it a normal venture fund, at least in early stage one, unless you were kind of doing what we do, you know, engineering, design, operations, product management, and then we always have at least a few, if not more, ecom ers are intrapreneurs, whomever builders and residents, but they’re basically people who are looking to start businesses, and maybe they have some idea of where they want to start, maybe they have, they’re coming in as a great engineer, a great product person with a totally open slate, and we’re running them through all the playbooks that we built on the investing side, but also in the company building side to find something that works. And I think the last thing about it is, unlike a lot of, we still have the investing business, right? And that has two really incredible things besides just the fact that we have a lot of knowledge in these areas. It imposes opportunity cost. So if all you do is build companies, sometimes you can kind of lose sight of like, is this a big enough idea? Right? Or like, is this like actually the best use of my time where this entrepreneurs time or whatever? Or is there something big right, you can lose touch of it, because you just don’t mean like the making creating, it’s cool, you know, you’re hacking around and stuff, a bunch of great stuff comes out away. But as a business, we have this opportunity cost, which is that we can go just deploy our dollars and time into existing companies that are already working, right. So the bar is high for these, these products. And the second thing is we are greedy. I mean, we’re not not greedy, and we’re not rich. So like, when we comes to co founding these businesses and setting them up, like we don’t take too much, because the reality is we want the best people to come do these with us. Here’s the reality, like, if you take too much, you’re not gonna get the best talent, and or they’re gonna renegotiate you later. And so some models in kind of the purity incubation or whatever world, I think underway talent, and they basically are overly greedy, because a bad to be to get paid what you deserve, but is sort of overly greedy as relates to equity. And I think what you’ve seen is that it just tends to either down the line, it gets renegotiate, which we see all the time as investors because we’re sometimes doing it. So we’re like, listen, let’s not set ourselves up to then later have to, you know, redo this, or you just end up not getting quite the same level of talent and or there’s tower churn. So we think there’s very synergistic businesses, even just structurally as it relates to the mechanics of building companies. And so far, you know, the bar has been that we will return or at least I shot at returning each of our funds through companies that we co found, and obviously, every fund becomes a, you know, it’s a new new challenge in that, but so far, it seems like we’ll be pretty close to meeting that bar. And, and it also meant that, you know, our investors, our money partners get exposure to companies that we have full deal control.
Erasmus Elsner 39:25
Exactly. And I was going to say, I mean, back in the days, successful entrepreneurs would would have these venture studios, they were called, at the time, smaller versions of what you’re doing with the builder programme. And even Yelp came with Jeremy Stoppelman came out of such a venture studio, but you’re taking this to the next level and having adjacent to that also the main fund that’s doing outside investments, minority investments in companies where you’re obviously competing with other firms, but I think it is very compelling both for LPS to get this exposure as well as for you to always be operational at the same time, maybe talking a little bit about you as a venture investor, there’s this public bank gentle side, I liked reading this review of you, it gave you 10 out of 10. So must be an entrepreneur who loves you, or either one who loves you, one of those really wants to wants to suck up to you, you wrote yourself, I don’t know. But it reads like this. Drew’s really top notch incredible pattern recognition. Having high conviction around deploying capital is something that I noted as well, when I looked at your portfolio, it’s a rather concentrated but high conviction portfolio. And then post transaction you were a fantastic partner always available, super strategic, and very founder friendly. I mean, founder friendly is such an overused term these days, but I think you can make a credible case for being founder friendly as you, you run this build programme, you’re really in the trenches with the intrapreneurs. Maybe from your side, if someone would describe you in 50 years time, you know, writing a biography, like for Henry Kravis, what kind of investor Do you want to be remembered us?
Drew Oetting 41:09
Answer that I have to bifurcate because I do think there’s the one thing that’s interesting about venture capital, especially at the early stage, and this is why I do think people call it more like an art or whenever there’s something there, and it’s in the spirit of it. And it is that what makes you a very good venture venture capital investor, to a founder to an entrepreneur, or tweet exactly, you didn’t need to be the founder, but to the person who’s running a startup, he’s not necessarily saying things that make you good. As an investor, it happens to be that they’re highly correlated, which is good. And they’re mostly highly correlated. Because in venture capital, there’s really a value chain, it’s like, see good deals, you know, pick good deals, when good deals. And then there’s this fourth bucket, which is like, you know, help good deals, become better deals. That bucket is like up for debate about whether that’s more situational or whatever, but you can definitely help some links, right, the Sega deals part. And then the winged deals part are, like, very much based off of your reputation in dealing with founders, like, our portfolio sends us somewhere, depending on the quarter or somewhere between like 30 and 40%, of like, what I would consider like the sort of high priority qualified deals. And so if your founders liked you a lot, and like, even just like a lot, for whatever reason, you’re going to see more deals. And then in the winning part, having great references is helpful and good, for obvious reasons. And so that makes you great, it makes you a great investor in venture capital. If you see a lot of great deals, and you can win a lot of great deals, if you pick the wrong ones in venture, luckily, as long as you picked some good ones, in addition, all the bad ones, you’re okay, right. And in the portfolio support stuff, I think that is a part of being of what founders want from you. But it’s misunderstood. Like founders want your input on stuff, if you actually know what you’re talking about. And that means that you’re informed on the actual company who’s actually harmed because they’re changing very rapidly, and nor that you have, either just like, you’re just really, really, really, really smart or something, or you actually have done it. Right. So what I try to do is, and this is the other thing is, I would say, I’ve been very, very fortunate, like the founders who had to work with me when I was like, in my early 20s. I’m sure I was like a total Yeah, I’m sure it was a lot worse to deal with now. I mean, I got hope, I would hope at least as I got better. And I hope that the ones that work with me in 10 years will be like, you know, will have a much better experience than they do now. Because I was in a very lucky and also very sort of strange position that like, you know, in my early 20s, I was serving on boards, and I was trying to figure stuff out first principles. And so I think early on me the mistakes of trying to like trying to do too much, right? I mean, you do this means so much to you, but it’s not really yours, right? It’s like there’s this stewardship angle that’s yours, these responsibilities that are yours. And in some cases, Fisher duty, it’s yours, but it’s not your company. And the other thing is you’re not going through, they’re going through. So you’re doing a bunch of different stuff and your life feels stressful, but the reality is, you’re not actually like responsible in the same way that a CEO is. And so, I think early on, and it was, you know, I’m sure I just had like the wrong you have x, you know, too excitable email yell, people would be too overly pessimistic or optimistic, you know, try to be smart enough and all the time in meetings and stuff. And what I realised was like, you kind of have to try to customise a little bit more than the founder. And you also have to customise to the situation. It’s also not being your best friend necessarily, right. I mean, there’s a lot of founders, over time, you’ll have certain founders to become that but even that can be problematic, but it is this job of stewardship, which is just different. And it also knowing when and having the relationships with other people who can solve the problems that you can’t and being comfortable to pass off these relationships. And I’ve been also very fortunate APC, we’ve been very fortunate, we have no economic or cultural incentives, around meeting to like own relationships, it doesn’t matter where the sourcing comes from, it doesn’t matter we serve on the board, none of that matters in terms of the way people make money. And so because of that, you know, many times I’ll pull in when my other partners are off, you know, they’ll pull me in or, you know, I’ll pull in an independent or whatever. And I think that that economic environment determines a lot of the way people operate, right? A lot of you Caesars are just very fearful of losing the relationships, because they may not get paid in a certain way. So when I hope the answer your ultimate question is, I hope that founders that I work with, whether it’s in 50 years, or if I’m able to be VCE, Pureline, I’ve had and Tom for over two guys that I’ve been very fortunate to work with very different people, but Barrett to date, in their 80s have been, you know, legendary VCs, but I worked with a lot of, you know, other folks who probably should have hung it up a little earlier. But
it’s all hopefully I hang it up when the time is right. But in the future, I hope that, you know, I think the most impressive thing is when is the folks who’ve seen so much, but yet they know like when to push and when not to push. And they’re really good at understanding place a founder is and providing them the right level of support the right time, and fit this role, which is like part friend, part Coach Park, you know, mentor park service provider, right. And it’s this holistic view. And it’s very hard to describe to see it, but it’s someone who’s so fully in command and present with a founder. And that’s when I think I always wish I could be more and be more present in the moment with founders on their businesses, because, you know, I think I’m pretty good at like, rapid firing off budget intros and trying to network for them and help them with fundraising stuff. But sometimes you’re just like, really what this person needs is they just need you to like, be present. It’s probably what you’ve, you know, relationships raised as your relationship advice. But I think that’s, I think it’s a big bait. And then in terms of investment, it’s a little different, which is that the thing I respect most, there’s really two like ultimate North Stars, right. One is the you that the Kravis Roberts model is figuring it’s actually how to build a team of investors, which is incredibly hard. Right? Like they have hundreds of people, most of whom are very highly paid, highly educated, super Alpha ambitious people, not necessarily agreeable, right. And they’ve built an organisation which can capture all that, when, of course, they could go do their own firm, right? But for these people, somehow, they figured out this archetype, they can do it, and I’m so impressed by that. And so that’s like the idea of being this investor who translates their investing principles into the world as an organisation, right? KKR, Blackstone, tighter I would say is that as well, I have tonne of respect for sky for me. And he’s basically playing like a different game than everyone else. And like the way that he he doesn’t sort of manifest that through like massive headcount, but manifested through strategy, and then through the use of third parties, right. And I have tonnes of respect for that. The second sort of Northstar, which is actually kind of different are the folks that basically have removed almost all sort of friction as it relates to the way that they interact with the asset class world, like the the surface area of investments. And they have, because they’ve removed friction, in many cases, they manage all the money themselves or with a very small team. They’re able to like have the purview of like a macro investor, and while still having domain knowledge across tonnes of things. And, you know, I think Stan Druckenmiller is an example of that. He’s honestly, you know, it’s not like he’s made me just consult. But it was a relatively small amount of people. He’s been one of the best performing investors ever. And it has huge amounts of knowledge on both macro but also individual names like Facebook or something or Microsoft, Warren Buffett in their map, and I assume he has kind of a similar purview. And then there’s people like Charlie song heard that maybe all people don’t really necessarily know. But he’s arguably one of the most successful investors across both angel investing, venture investing crypto, but public marketing assets as well. It’s just him and him talking to people and I just have so much respect for these people who’ve been able to distract themselves out of like, even if you want to be a dealmaker, like KPR blacks, and it’s like, you could build this machine and be like the best dealmakers of all time. And still do great, right, but you’re scaling the trade, which is so hard to do, right in an environment like private investing. And then the other thing I have massive respect to these folks who’ve figured out how to sort of pull themselves out of being dealmaker zones, like philosophers, right? I mean, TEALS a bit like a to where they’re just, they’re able to see the world at a viewpoint that other people want and seeing it and least investments. And so, you know, I hope that I basically, I think the first order is I hope that I’m able to choose one that gets stuck in the middle trying to be both. And that doesn’t work. And I need Secondly, obviously, you know, get as far along towards those Northstar as possible
Erasmus Elsner 50:14
a very considered answer that I didn’t expect. It gave me the full arc from public market investing, indexing and venture with scotch live for two, to building a huge LBO franchise. I personally was very fortunate to meet Howard Marks very early on in his days with oak tree, he’s another candidate of that, yes. Non consensus being right concept, the deal that he had early in the days where he did start off with a distressed investing side, like not being hurt thinker. But true as we’re running against the clock, I wanted to touch on Austin and the silicon hills where you move to what’s going on in Austin. If I read the press announcement, it seems like you’ve got more going on there than just you know, moving the headquarter there, because I think Joe has plans of building like a little alternate reality with flying drones, robots, tunnels, autonomous vehicles, like buying a lot of land, and basically using it as a breeding and testing ground for an alternative society. So what’s going on there and Austin in silicon hills?
Drew Oetting 51:16
Yes, it wasn’t it, we made a decision that we were gonna be opening an office sort of off the coasts. And I think it’s for a variety of reasons, I would say, one, you know, from looking at the data in our portfolio, but still the, you know, obviously, a clear majority of companies are coming from the bay or New York, the derivative underlying, you know, especially in line employee drugs, where employee growth was located, but even on where companies were based, was shifting pretty markedly towards what we call like, a democratised set of cities. So it’s not like 50 cities, but you know, it’s kind of like, you know, 10 or so second thing is, I think that we kind of came to a realisation after, you know, trying, you know, with no real success, to invent San Francisco was not going to be a place where we wouldn’t be able to see things we wanted from a community anytime soon. There’s a lot of wonderful things about San Francisco. And this is common, most guns here, Cisco, not the overall bay, because they were all based, much more heterogeneous. But because we were based in San Francisco, and because a lot of the firms that we were investing in work, we felt that, you know, it is important what’s happening in San Francisco, because, you know, if you have to commute an hour or two hours, in order to you know, perform your work, but also provide your family, you know, the life that you want. That’s, that’s a really, it’s a very tough thing. And it’s a very regressive way to run a society. And so the biggest thing for us was, the cost of living in San Francisco was just getting that it was just being very untenable. The, the services provided by the city were in shambles, like, just no public, very little public transportation, they were not able to solve the homeless problem, despite almost endless amount of money, which is bad for both folks who aren’t homeless, being bad for folks who are homeless, I mean, money’s not going anywhere productive, and then also call them schools, just a absolute travesty, as it relates to public schools. I mean, I grew up in Iowa, going to close school with public schools are great. And, you know, the statistics basically, show the teachers in San Francisco are making only a marginal amount more. And then teachers in place like where I grew up in Iowa doesn’t make any sense at all cost of living is like eight times higher in San Cisco. So we made a decision that we wanted to relocate. And then we took a blank slate approach. We knew Austin was number one, you know, kind of the number one place because we had companies like qualia and hearth and op city and other businesses that were based there. Either they be founded there, or they had moved there. But we kind of took a blank slate approach. And we did a bunch of different places, visited a bunch of different ones. And ultimately, Austin was the clear choice. And I would say we had high expectations, and it is exceeded those expectations.
Erasmus Elsner 53:56
I’m looking forward to visiting at one point in time. But Drew, thanks for being with us here today. And taking all this time. We’re already 10 minutes over the clock. Where can people find out more about you and what you’re up to?
Drew Oetting 54:07
Well, they can check out what we’re doing at ABC. I just abc.com and that’s probably the best place to get a sense for for what we do. My Twitter is Andrew pudding, but I don’t tweet very much. I leave that to Joe. He can already do that because he’s he’s insightful. You’re controversial tweets.
Erasmus Elsner 54:25
Lots of distraction. Yeah.