🎧🍌 Inside Goldman’s $22B Bet on Venture Capital | Hans Swildens, Industry Ventures

How VC secondaries grew from a $250M to $150B market in 25 years, why asset managers are acquiring venture firms, how Seed survives the platform era, and lessons on manufacturing liquidity

Hans Swildens started Industry Ventures in 1999, and we recently sat down to record his first podcast since getting acquired by Goldman Sachs in 2026.

Hans has been buying venture secondaries longer than almost anyone, and the combined business is one of the largest VC portfolios in the world: 525 firms, 1,600 funds, and over $22B in capital commitments.

We get into why he sold to Goldman, starting Industry by acquiring funds at 99% discounts during the Dot Com Collapse, why most seed funds without a real angle have 5 years left, the LP base that's a completely different species every fund cycle, the day he passed on a multi-billion-dollar data center deal, how VC’s are manufacturing their own exits, and why the secondary market may eventually be multiples the size of the primary market.

Thank you to Zach Coelius, Will Quist, Emily Zheng, and Andrea McGee for help brainstorming topics for the conversation.

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Timestamps to jump in:

• 0:00 Inside Goldman’s $22B venture bet

• 7:57 1,600 funds over 525 firms

• 11:11 Why scale lets you “see the cube”

• 14:17 Most humbling lesson in 26 years

• 16:19 Three types of Seed funds

• 18:47 LP's evolve every fund cycle

• 22:00 VC is a sales game

• 24:38 A strong CRM is non-negotiable

• 29:06 Buying secondaries during the Dot Com Collapse

• 31:33 Triangulating opinions across GP’s, founders, and LP’s

• 37:22 Seed without differentiation doesn’t work

• 42:16 Biggest mistakes by first-time GP’s

• 44:31 Buying Enron’s VC portfolio at a 99% discount

• 50:15 Entrepreneurial finance is underappreciated

• 52:15 Why asset managers are acquiring venture firms

• 58:47 Why it’s hard to start venture programs

• 1:03:20 Secondaries: $250M to $150B market in 25 years

• 1:08:06 Continuation funds & debt structured secondaries

• 1:12:02 “Secondaries might be multiples bigger than primaries”

• 1:19:52 How to structure secondary transactions

• 1:26:00 What happens after SpaceX, OpenAI, Anthropic IPO’s

• 1:30:35 How Seed survives the asset manager era

• 1:35:16 How to manufacture liquidity

• 1:41:41 How AI is impacting secondary markets

Referenced:

• Industry Ventures

• How Big is the Secondary Market for Venture Capital?

• Exploring the Growth of Venture Secondaries

• Pitchbook’s US Secondaries Market Watch

Find Hans on X / Twitter and LinkedIn

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Transcript

Find transcripts of all prior episodes here.

Turner Novak:

Hans, welcome to the show.

Hans Swildens:

Thanks, Turner. Thanks for having me.

Turner Novak:

So you started Industry Ventures over 20 years ago, I think 25 years ago, and you were recently acquired by Goldman Sachs. Can you just kinda talk about what happened with the acquisition?

Hans Swildens:

Sure. Yeah, we’ve had a long relationship, a 20-year relationship, with Goldman, and it started as an LP and a co-investor back when the dot-com collapse happened and there was a lot of corporate venture funds and hedge funds and mutual funds that held venture securities that were trying to liquidate them. And so it’s, it’s been a really long-term relationship.

They started originally kind of as a competitor. They were funding one of our competitors, and then they started becoming a partner, and then they invested in our funds as a limited partner, and that’s kind of how the relationship started. I went to business school with the gentleman now that is the global CIO of alternatives and runs XIG.

His name’s Mike Brandmeier and he was in the class before me at Columbia. And so we had worked together when he was in the vintage funds, which is our secondary funds, and Harold, who runs the secondary funds, today, was there with Mike as well at that point. And so that’s how it started.

And then over the years, we started working on more things together. We co-developed a direct co-investment fund together after we launched and built a seed funding business of seeding venture funds and then co-investing with them and buying LP’s in them. That business here we call our early stage team.

We have an early stage team, a secondary team, and then a co-investment team for buyout, tech buyout here. But then, the co-development of our co-investment funds with them was in 2016. And then, after that in 2019, they were keen on investing in our management company with their Petershill funds.

And so we actually took an investment, from, from the Petershill funds in XIG, the division that we’re now in, and Oli and Rob run those funds. And so they became a minority equity investor in our firm. I mean, we crea-created a firm balance sheet at that point.

That was seven years ago. So we kind of had a, we’ve had a phased relationship with most of the different investment teams that are in our group, and we’ve been working with all the partners, in the group as well as all the folks managing all the funds for a really long time. So it wasn’t something that...

It was a progression rather than something that, just showed up.

Turner Novak:

And why do it? Like, it seemed like things were going really well. Like, what’s the point of getting acquired by someone and joining a whole new firm?

Hans Swildens:

Yeah. I mean, everything here was a green light. So we didn’t have any yellow or red lights last year in terms of market growth, fund performance, team execution, portfolio construction, relationships and all that stuff.

But that’s... I found as an entrepreneur, ‘cause this is the third company I’ve had. I had two software companies with my brother before starting Industry Ventures, that when things are great is the best time to think about strategic options.

So we were thinking about it. We were continuing to get inbound interest from large publicly traded asset managers. It’s been happening now for six years.

And we had a, we had a competitor get acquired, by StepStone- And that they’re, they were Green Spring, that was their name. And ever since then we’ve been kind of on people’s lists to, to try to target to see if they can, take our team and our funds and, and plug it into their multi-asset, alternatives firm. So we had, we had, we had, we had get an appro- we got approached again by another party that approached us five years ago.

So they reapproached us So we spent a good four months digging into everything. I would say they they knew us better than we knew them. And so a lot of, I would say it was two-thirds about us getting to know them better and kind of how we can take what we’ve built and add it to their business, and then have it be a one plus one is three.

But after, I mean, every week we dug in, every week we came back saying, “Wow, we didn’t realize that would be a huge benefit to us.” And then by the end of the whole process, we both, decided that it would be a great fit. So we d- we went for it and negotiated a transaction.

Turner Novak:

And I know you’ve told me before that this combined kind of Industry Ventures Goldman, I’m not sure. Actually, what is the name currently? Like, what do people...

Like, “Hans, he works at...” Like, what do you say?

Hans Swildens:

Yeah. So we have, um... It’s actually kinda nice because we- we’re gonna keep our brand as a team.

Each one of the teams in our d- in our division has their own brand, and the funds are, have their own fund name, and so we’re gonna keep Industry Ventures. Just like there’s, the Goldman Sachs Petershill team, there’s the Goldman Sachs Industry Ventures team, and there’s the Goldman Sachs Vintage team. So yeah.

So the, the brand will continue to live on and, but we’re operating within, GSAM, and then within GSAM, the group that we’re in is the External Investing Group.

Turner Novak:

And so I think you mentioned before that you think you may have, the biggest secondaries portfolio, or at least one of the largest in the world. What is, what is kind of the scale of the business today just in terms of, how many funds, the capital, the relationships you have?

Hans Swildens:

Yeah. So we combining it with, the XIG team, we believe that we have one of the largest portfolios of venture capital funds and, investments in the world. We’ve, we’ve, we did all the aggregation.

We are, we’ve, we’ve kind of organized it all, and we’ve got a bunch of IT systems as well as people, and whatnot that, are being applied to this. But the, um... So there’s an effort that we’re working on called, VC at GS.

And so at a high level, before the transaction, we had eight and a half billion of capital from institutional investors. That’s pension funds, endowments, foundations, family offices and, and hospitals and whatnot. And XIG has over 500 billion.

And when you look at, what we had before, we had 325, venture firm relationships- And then we had 850 venture funds, the partnerships that we owned a part of. When we when we did the aggregation, then we had, we had some overlap, but like, because we’re so heavy on the small fund side of the market and they were heavy on the large fund side of the market, when you combine it we added approximately another 200 firm relationships. So we went up to 525 or so approximate firms that we are a limited partner in their funds.

And then it’s, it’s, it’s almost 1,600 venture funds. So, and it’s over 22 billion of commitments. And so I was struggling to find another group that had a portfolio this large, both in terms of firm count, fund count, and commitment size.

And, I actually spent a little time with, with the CEO of Cambridge Associates when I was down at Milken a couple weeks ago, and he said that their client portfolios Have 40 billion of commitments to venture funds. So, if you look at, if you look at, they’re one of the largest kind of endowment foundation consultants. And if you look at their whole network and aggregate it has about 40.

But there’s not many of us in the world, and they they’re the ones that everyone points to the indexes, right? ‘Cause they produce benchmarks and indexes on funds because of their client portfolios. But we have a similar capability now, right? ‘Cause we have s- we have, we have so much of the market in our, in our group in terms of the data flow, the reporting, the, all the investment back and forth with not only the people, but also, all the information, that we actually can start doing things like aggregated, industry level.

Turner Novak:

Oh, yeah. I was gonna ask. You should, you should start doing that.

Hans Swildens:

We’re looking at it. I mean, I think we’re gonna... We did it ourselves before, just for our own benefit.

We’re not sure that the market needs another index.

Turner Novak:

Another benchmark report.

Hans Swildens:

Yeah. But we were already doing it ourselves, right? Because when we invest into a new venture fund, or we are buying an LP out of a fund, or we’re buying a portfolio, or buying a direct investment and whatnot, we look at all of our analytics and everything across everything we own.

So we have, we already have, general statistics around, overall DPI in the market year by year, out-performance against averages at small, medium, large size funds. You know, call, capital call pace, distribution pace, TVPI metrics. So we have a lot of that here at Ray, and we...

You know, ‘cause we do a lot of analysis on the funds and the

Turner Novak:

Companies every day. And y- I’m assuming, there’s... So this is one of the things you can do with scale.

Like, is there anything else, being this large that it just kinda, allows you to operate a little bit differently than maybe a different player in the space?

Hans Swildens:

Yeah, we think we’ve got a bunch of advantages by being, having scale. And one of the advantages is our market, as you know, right, is a very, relationship driven curated market where deals- Deals are kind of curated, right? So by having scale, we’ll have more deal flow and more proprietary deal flow.

And then in addition to that, once you work with firms over a long period of time and built trust and participated in their funds and participated in their companies and helped them with liquidity structures and issues, and even talked to them about their firm at a management company level of how to, how to grow that, they m- a lot of venture funds add you to these restricted lists, so they kind of restrict transfers in their partnerships. And so that gives us an advantage if we’re on all those lists. And, it’s the same thing on the company side of the market where companies are curating now who’s buying their shares, who’s...

Obviously, who participates in the rounds. And, and with scale and relationships, the market, you can traverse it easier. You know, we have a, we have, we w- If you think about what we do here in our team, it’s a multidimensional investment strategy.

So, we’re not only, talking to the companies, we’re, talking to the funds, we’re also talking to the LP’s in the funds, and we’re also talking to the non-venture investors in the companies, corporate CVC’s, hedge funds, mutual funds, family offices. So when you look at, the dimensional aspect of what we’re doing, it’s actually quite fascinating. And as you get scale, you can just see the cube more,

Turner Novak:

Right? What’s been the most interesting thing, as you’ve gotten the scale, whether this was recently or even, 10 years ago? Was there, anything that really changed your mind on something, or changed the way you look at the world, or think about the strategy of the firm getting that viewpoint?

Actually, that’s

Hans Swildens:

One of the best things about this job. I’ve been doing this 26 years, and every day I learn. And that’s what keeps me excited to come in and everything.

It’s like, it’s such in a fascinating job in business. I’ve learned so much and I’m, I’m learning even, eh, today I’m sure I’ll learn some- something from you. But, the, there’s just a long list.

In terms of, the companies and kind of the power line in the companies, there’s a lot, bunch of learnings there. In terms of the funds, the risk levels in the funds, the portfolio construction in the funds, the stage of the funds, how the funds source investments that are proprietary that create outsized returns and the power law dynamic. I mean, there’s just, I

Turner Novak:

Mean, there’s just thousands of things to learn. Of course. Maybe we need to do a separate podcast of, the thousand things that you’ve learned, over the past 26

Hans Swildens:

Years. Probably 5,000. Okay.

Like, I’d say one of the, one of the number one thing I’d probably have learned is that no matter how smart you are, and no matter how good you are- There’s always things that happen in companies, in, in portfolios, and at firms that you can’t predict. And, and I think over time, the people that have been doing this for a long time, it’s just very humbling. ‘Cause you can be right and be right for a really long time, and then be completely wrong later. And it could, it could be your fault or it could not be your fault.

But in terms of just understanding that things can go wrong and, and for, a lot of reasons. And then that... I’d say how you construct a portfolio to understand how to get rid of that risk, so you don’t over-concentrate your portfolio on certain things at certain stages. ‘Cause the risk, the risk and the humbling effect is higher as you get closer to seed investing.

So there’s like a, there’s like a green to red risk level bar that sits next to, how you’re constructing your portfolio and then how humbling it is. ‘Cause if you do crossover investing and stuff, you can have loss rates of 10 to 20%. If you’re doing seed investing and formation stage investing, you can have loss rates of 60, 70%. And so, and you know as well as anyone, there’s a lot of ways to lose money.

And, fortunately we’re learning less of that, but we’re still learning it. And I think kind of over time, it’s just very humbling, this market.

Turner Novak:

Interesting. Okay. Well, so then maybe this is an interesting question in terms of the, the risk appropriate levels of portfol- or the appropriate levels of risk portfolio construction-wise for a seed stage fund.

How would you approach thinking through, this is a good setup for a seed fund today?

Hans Swildens:

Yeah. I think it depends on the type of seed fund. So I think that there’s categories of seed funds and, we have a- We have a certain type of portfolio construction we like because of what we do.

But that doesn’t mean that the portfolio construction that we don’t like won’t work. It just means it might not be the best fit for us. So if you think about us, everyone has their shtick, right?

I mean, we are funding new seed funds. We’ve got a portfolio of over 150 managers today. We’ve seeded almost 100 of them, and the other 50, we bought secondaries in them and maybe done a staple or, a new primary in the new fund to fill the hole of the old LP.

But, if you think about that portfolio, we do have one of the largest seed fund portfolios in the world. And a lot of... There’s, they they kind of fall into different buckets.

You know, there’s the founder-led seed fund, which is kind of what, when I started, I was kind of, kind of like me, right? I started a software company, as you know, with my brother. I sold it.

I started another software company, and then I started investing. So there’s kind of the founder coming from the founder side of the market seed fund. They act a certain way and, and source deals in a certain way that’s different than the other categories.

Then there’s the, spin out of Kleiner or Sequoia or Andreesen or whoever. And, there’s sole GP’s, there’s multi, multi GP spin-outs and they come from the investment side of the market and they’re investing and constructing a portfolio a little differently. And then you have kind of the third side, which is like just rapid spray and pray, large in index portfolios at the seed stage, and then trying to capture, the 10, 20% of that portfolio that is performing and then concentrating capital in there.

So it’s a different way to do it. And, and that could either be some, someone who’s coming from the founder side, coming from the VC side, even coming from the LP side of the market or the CVC side of the market or hedge fund. And so, yeah, so we’ve seen it.

We’ve seen that people construct portfolios and source, transactions and, investments differently. We, the one-- we like both the founder led side as well as the spin-out side. We don’t like the indexed side as much.

What do you like and dislike about those? Well, so if you think about us, so when-- I think one of the things venture fund managers should learn if... ‘cause I actually didn’t know myself. It took me a while to- Okay.

You gotta understand your LP. Hmm. Yep.

There’s different types of LP’s, and they all want different things, right? A pension fund manager is more of an allocator. You know, a fund of funds or someone seeding funds is maybe looking also for co-investments and secondaries like us.

You know, there’s, there’s LP’s that are, only looking for brand name funds and don’t wanna invest into new venture funds. You know, there’s all different types of LP’s, right? And they all want different things.

So one thing I learned early on is when I started calling to raise capital was like, what do they want? And do the-- which category of LP’s want what I have? And then, that actually will change as your firm develops, which is something people don’t talk about very much.

But the LP’s that are in your first fund and your LP’s that are in your second fund, are a different type of LP that’s gonna be in your tenth fund. And so you actually have to change who you’re talking to over time and develop different types of LP’s as you’re scaling and growing your firm. And nobody really talks about that, but that’s, that’s kind of a whole, a whole thing that probably should be

Turner Novak:

Described better to venture managers. So how would you describe the process of doing that? Like, if I asked you, “Hey, how do I transition and think about scaling my LP base or evolving my LP base?” Anything you’ve kind of, picked up on as best practices?

Hans Swildens:

Yeah. I learned a lot there ‘cause I wasted a lot of time, like most in, GP’s, talking to the wrong people. And so I would say I probably would’ve saved a couple...

So I’ve been doing this 26 years. I probably would’ve saved a couple years of my life in terms of just literally- Like, time spent? Talking to the wrong people.

Mm-hmm. Damn. What’d you mess up?

It’s a big... It’s like talking to the wrong entrepreneurs, right? So a couple things.

One thing that I that I learned was, and I’ve... You know, we work with all these seed stage funds and new formations and everything every day, emerging managers, and most don’t understand it. First, this really is a sales game.

It’s really a, it’ll be agent driven, but not, historically was a CRM driven pipeline sales. You gotta think about raising capital for your funds as a... You’re a salesperson.

You’re doing outbound. You’ve got leads. You’ve got qualified leads, unqualified leads.

You’ve got, highly likely to, to invest, and then you’ve gotta layer onto that things that you would normally do if you’re a salesperson. Like, “Have you ever done a fund like mine before? Did you like it?

Was it successful? Would you like to look at another one?” And then just kind of weed through the, 10,000 LP’s to understand which thousand fit for you, right? And then focus there.

And then what ha- and the thousand that will be a fit for you in your fund one, fund two, fund three, kind of where you are today, are not gonna be... Very few are gonna be an awesome fit for you when you’re on fund 10 and your fund’s 800 million or whatever it is, ‘cause it’s just a different type of investor, right? The ones that are funding you in fund one, two, and three are looking for, high multiple, high risk, emerging manager, as well as they wanna get, spend time with you and do some co-investments with you, a lot of them, and kind of use you and you use them for learning and access to whatever you’re doing and whatever they’re doing.

The fund 10 LP’s, a lot of them will be pretty passive, right? They’ll write you a $50 million check, $100 million check, and if they’re a large US pension or they’re a large US endowment, they might not have the capability or interest in doing any co-investments at all because they can’t due to their

Turner Novak:

Internal investment processes. Yeah. It’s interesting.

Some people love that we do co-invest and we raise SPVs, and some people hate when you say that. Yeah, of course.

Hans Swildens:

So I think you gotta, you gotta create this, the CRM system’s a must-do. One of the managers I met with that was creating a fund, when I described that to him, and he kinda laughed and shrugged it off and said, “Hey, I don’t need to do that. You know, I’m gonna raise my fund in three to six months, and it’ll be done.

You know, I’ve got a, X, Y, Z is gonna anchor my fund, and I’ll be done.” And I was like, “Well, it’s like there is, 1% to 2% of the managers that do that, okay? But 90-99% of the managers take a long time to raise their first fund. It’s not something that’s just, easy.” And so I said, “You should probably start, tracking all this in a CRM system.” And he’s like, “Nah, I won’t need to.” I’m like, “Okay, great.” And then he calls me back like six months later, he calls me back and he goes, “What CRM system

Turner Novak:

Do you use?” What do you use? What was the answer? We use Dual Cloud.

Dual Cloud, okay.

Hans Swildens:

I’ve,

Turner Novak:

I’ve heard of it but I’ve never used it.

Hans Swildens:

Yeah. I mean, Affinity didn’t exist when we started, and I think that’s kind of a next-gen product now that people are using. But yeah, we use Dual.

We started actually with, a micro- Microsoft CRM. That didn’t work great. It didn’t scale, and so we switched it to Salesforce.

I mean, that’s a long time, so you know that shows how old we are. Salesforce was sexy back in the day. We did.

We s- we used Salesforce, and we constructed our own data model and had all of our own analytics flowing through there, and we were, auto-generating analytics off of our, our force. com data model. Oh, interesting. Yeah.

We had a pretty sophisticated- Salesforce implementation. And then we moved it all into DealCloud And, and modified it

Turner Novak:

So this, this setup that you had, what were the most important things to do when you, when you, when you talk about, the analytics? Like, what were you getting? Because someone might say, “It’s a, it’s a CRM.” Like, it’s like, what are you...

What kind of anal- analysis are you doing?

Hans Swildens:

I mean, we... So I you know, I came from being a software entrepreneur, so it’s very different, right? Like, I didn’t come from being VC or a endowment manager or whatever.

So we’ve always... And the companies I’ve dealt with were mostly infrastructure software. So when we went into this thing, we were like, “How can we build a systematic, repeatable data set that we can leverage over time and grow to make what we do, better?” To help us learn, too, about, from our mistakes, to help us learn from, what went right and wrong, and then become a better investor over time, as well as just leverage data so we don’t have to redo our work every time.

So in terms of what we did at that point, we had a model that we built, which, when we were analyzing a fund, you- you’d put in, all the metrics in the fund, and you get it from the audit and get it from the quarterly report in terms of the fund size and kind of amount of capital called, dis- how much distributed, blah, blah. Then you go into the SOI, which is all the underlying companies, input in the cost, the nav, the ownership, the enterprise value at entry, the enterprise value at nav, and then, you’re trying to predict-

Turner Novak:

You were manually typing all this in? Yeah. You can use AI today, yeah.

Hans Swildens:

I don’t know. That’s, that’s, that’s actually the funny thing, is we’re kind of in this new phase of having this all being automated. But, and then, but go- having that all go into the database and then reusing that later, and so if you’re gonna look at the same fund later or if you’re gonna look at, investing in a new fund later, you can look at the old fund.

If you’re looking at investing in one of the companies directly, you can pull the old context. And having, the funds map to the companies, and having it so that, all your company information’s auto-filling into the fund analysis and having all that fund analysis auto input into the company analysis. And then have the, funds linked into the LP’s in the funds, so you know who see-through owns the companies in the funds, in the, and also through the, to the LP’s.

I think, very few people, what I’ve found over a long time doing this, have that sort of visibility and, and are tying the company data and the performance at a company level quarter for quar- quarter after quarter with the funds and with the SOIs in the funds, and then they’re not, doing the multidimensional linking into, the LP’s and into the other people. And so it’s like, it’s like seeing the cube, right? Maybe that’s my highlight here, is just the, the data set is, is super interesting once you can see it in a multidimensional way And then if you can invest into it in a multidimensional way too, it’s actually very unique.

Because most people are only investing into one dimension. So when you can invest into any dimension, it ends up being fascinating because you can see things that other people can see, and you can understand things other people can’t understand.

Turner Novak:

And it sounds like, the LP flow-through was important to you because you would potentially be buying some things from... Like, they were also kind of in your world. Like, if for, as a venture manager, you probably don’t need to...

Like, as a GP investing directly in the startups, not, no fund investments at all, no secondaries. The LP flow-through might not be that interesting. But for you it was, because that was, you’re also buying from them in a sense.

Hans Swildens:

Yeah. So when we started, the dot-com collapse happened, and we started buying people out of portfolios of their venture investments. So I bought Enron’s venture funds out of bankruptcy, Enro- Enron Broadband Ventures.

I bought InfoSpace’s venture capital funds off their balance sheet. I bought Electronic Data Systems venture division, right off their balance sheet. And so when, when you...

That’s how, that’s how kinda we formed doing secondaries. And then we started buying fund interests. So, I bought Williams Communications, Will Tell’s fund portfolio.

In ‘09 I bought, Washington Mutual’s, LP portfolio. It was called Strategic Investments. And, and so when you look at, how do you buy this stuff, right?

It’s very difficult because if I get your fund SOI. So, I you know, I bought a secondary in your fund, right? That’s why we’re talking today And I get your reporting, right?

And you’re showing me, “Hey, here’s all my deals.” You’re talking about your best deals. You’ve got three funds. You’re highlighting each one of those in, in the report, or maybe I’ll talk to you and, on the phone or see you and grab coffee or lunch, and we can walk through it or maybe I go to your AGM, and we’re always talking about these things.

If you can capture all the information and understand what’s going on in all these funds at the company level, and then also talk to the companies and verify what the funds are saying, and then also talk to the LP’s who are trying to sell part of their funds, right? And if you can understand kind of all that, which is difficult to understand ‘cause everybody wants to keep their information private. The companies don’t wanna give the information to the public.

The funds don’t wanna give the information to the public, and a lot of the LP’s don’t wanna tell anybody that they’re in the funds. So there’s a, there’s like a barrier to like understand even what it all is, right? Like who owns what.

Now there’s databases, so when we started like 26 years ago, Preqin didn’t exist. PitchBook didn’t exist. Crunchbase didn’t exist.

You know, you couldn’t go into, an LLM and say, “Give me all the LP’s in Banana Capital one, two, and three,” and you know, it probably won’t spit out much ‘cause... But it’ll spit out something. And, so there was no visibility and databases around this stuff when we started, so we had to like do our own.

Turner Novak:

What When you talked about like the differences between what an investor would say, like the GP and what the company would say, what do you find is like some of the biggest differences between GP saying something and then you talk to like the founder of the company, “Yeah, it’s, it’s not true”?

Hans Swildens:

Yeah. I mean, that happens. My partnership over time, right?

This is, this is when, experience matters My partnership over time and all the, people that I work with here. And then that affects also how we underwrite their funds, think about their companies they’re talking about. So part of it’s just getting to the point where you’ve already...

Like, if you’re invested in Flex, right, in your fund one, and, I go meet Flex, and then they’re telling me everything about their business, and I can ask them about you and blah, blah. And then you’re gonna tell me about it. You might not know I’m, I’m talking to Flex, right?

And, but I already have context there. Or I might be talking to another manager that’s in Flex, Titanium is in it I think. And so, I can be talking to them, and they tell me one thing.

I talk to you tell me another thing. I talk to the company, they tell me another thing, and then I can start kind of triangulating around, what do I think, right? So the one interesting thing about this job of being a primary investor, a secondary investor, a co-investor, a direct investor, is that you get to talk to all those people.

So you can form your own opinion and your own kind of thesis and underwriting model on whatever you’re gonna invest into, and then you can kind of get everybody else’s opinion on it Typically, GP’s are not able to do that, right? They’ll do it sometimes if you’re a growth stage GP and you’re talking to the seed funds. But what we’ve learned over time is what the seed funds are saying to us is gonna be different than what the growth funds say to us, depending on

Turner Novak:

What stage the company is. Really? So what’s the, what’s, what causes the difference?

Because they’re

Hans Swildens:

Both... When they invested, they’re both investing completely differently, right? W- you know, one’s going after the entrepreneur, how much, domain experience they have, how much hustle they have, their confidence level in that person or people, if it’s a group, to go execute on this awesome opportunity.

And if for some reason they can’t execute, their ability to pivot into a new business. And it’s more of a, you’re backing teams and you’re backing people and mar- and, and pr- trying to predict markets. That’s like the early stage group.

They’re not doing comp s- comp analysis, capital market analysis, valuation analysis, CAC and churn, LTV, or any of the, any of the analysis that a growth stage investor’s doing, right? I mean, growth stage investors are trying to quantify how much value and growth and profits and, are in a business, and how durable it is, and then projecting it out and trying to pay a value that captures all that growth of revenue and earnings, and they can grow through their price if they’re paying a high price. So that, a lot of what’s happened in growth is that you have to pay a price above what the current value is of the business.

And so, a lot of them are trying to pay, two, one, two, three years out of that value. But then if they hold the security for seven to 10 years, it compounds and they make their 3x or 5x By just compounded, revenue growth and earnings growth. And so when you talk to them on the, the five things they’re talking about are completely different, right?

I mean, management team and founder’s obviously on the list, ‘cause that’s critical. But then they go into all the other metrics about the business, right? How healthy is it?

How healthy is, sticky are the customers? What are the margins? Over time, what’s the competitive dynamic?

You know, there’s a lot of like, uh, five forces analysis and, and financial analysis. And then you also have the capital markets analysis for short comparable trading. What’s, what’s comparable?

What does it look like? How does it compare to what’s being already valued by the public market? How is it how are, how are M&A deals valued?

Is this, what’s the most comparable company to this in an M&A exit? Was it a PE exit? Was it a strategic exit?

How strategic is this? ‘Cause if it’s strategic, it might have a higher value. And that’s like what the growth investors are all noodling on all day. And the, and the, and the seed investors literally don’t do that.

Turner Novak:

Yeah. I’ve had one time where somebody asked me, “What do you think about, all the, all the competitors to this company?” And I’m like, “I don’t know any of them.” Like, they started this company before, they kinda created the category. There’s no one else, and like, I still don’t know who the competitors are.

Here’s the deal. That is not your job. I should, though.

I probably

Hans Swildens:

Should know. I should be on top of it. I mean, I’ve found, we have found seed managers that are very good growth investors.

But I would say it’s less than 20% for sure, and it’s probably less than 10%. The skill set of being an awesome seed investor and getting in this, in the deal flow that’s spinning out of whatever, OpenAI now and Anthropic and Google and everybody else, and being with the right talent, with the right people, and seeding them and convincing them that you’re gonna add value and that you should take your money, and having... That skill set is a very different skill set than, leading, a billion-dollar round in the next AI business,

Turner Novak:

Right? It’s very different. And so speaking of that, is that what you think a good seed manager should be doing right now?

Like, should I be trying to... If I if I’m Banana Capital, right, I have a $10 million fund, should I be trying to find the people leaving OpenAI and Anthropic to start the new, vertical AI Neo lab? Or, what do you think kinda makes sense right now at seed?

Because, there’s a lot of stuff going on. It’s a little bit of a crazy time in the world. I think that

Hans Swildens:

The seed market now, it’s, it’s even more important to have differentiation in how and what you’re sourcing. So for example, you had Oli on here, right? And, with Neo, and, he’s got a lot of stuff going on at the, technical founder kind of formation stage, right?

Due to his whole strategy in terms of how he’s sourcing deals, what kind of people he’s looking for. He’s, he’s getting them early, he’s watching them, he’s, he’s... So he’s got, he’s got an angle, right?

And it’s not your angle, right? And so, you’ve gotta, have your own angle. I think that there’s also, multiple...

There’s a lot of angles that work, right? I mean, we’ve been in funds that, they were people that worked at Google or wherever, and then they got to know everybody and all the talent and just funded all the best people that left. That’s an awesome strategy, right? ‘Cause you know the people.

You know what they can do. You’ve worked with them. You trust them.

You know they can build something awesome. You know they’re probably top.1% in what they do. And, and so, that’s, that’s a good strategy.

I think, there’s a lot of different strategies And a lot will work, but the, the most important thing is to actually have a differentiated one.

Turner Novak:

You know what I mean?

Hans Swildens:

Like, if you’re just another fund that’s got 50 to 200 million bucks and you’re just like, “I’m gonna be AI,” and you have no differentiation, you have no sourcing advantage, you have no access to the best talent advantage, you have no kind of curated deal flow that’s coming from your networks or what you’re doing to generate that, that’s

Turner Novak:

Not interesting. Is that a pretty down the fairway average pitch that you see today? Is like, we’re raising a, we’re $100 million seed fund and we’re investing in AI, and there’s, there’s not enough else around it to make it interesting?

Hans Swildens:

Well, I would say most of what we’re looking at, we’re looking at from referrals from the other managers we’re in. So, we’ve been, we’ve been, we’ve been, we’ve been seeding the seed funds now for, since 2007, right? Is when Roland started doing it.

So, and then I started doing it in 2009 and the rest of the team since probably ‘09 as well. So the, uh... Since we already have over 100 of them, right?

And they’re all working together in se- ‘cause seed rounds are typically syndicated We are getting pointed to people, and people are being introduced to us as a, like we’re a value-added LP. And so I think there’s a brand advantage now we have. But, in terms of, in terms of, what we’re actually putting checks into new managers, most of it’s through our current relationships.

If you think about it so in the second bucket, which is spin-outs, we’re in 525 firms’ funds now, and we can... You know, when they spin out, what do they do? A lot of them call some of the investors they had in the funds they got to know.

So I mean, that happens here. And we’re, sometimes we’re in the funds and in the spin-out funds, right? So, we’re in both the main funds that have been around for a long time, and then we’re also in the spin-outs.

And we’re able to determine which spin-out to invest in because we just talk to the, partnership and say, “There’s three GP’s that spun out of your firm in the last five years. Which ones have you written checks to, and which ones would you write a check to again?” So it’s like diligence gets easier too, right? So the, the deal flow gets a little easier to see and the diligence gets a little easier to do because you’re having a confidential relationship with everybody in the market anyway It’s the same thing with the companies, right?

In terms of like new founders going out and starting a fund, the probability of us knowing one of their prior venture investors is 90%. So we can just talk to who funded them, you know? What were they like working as a CEO and a founder, and, did they you know, how key were they to the whole thing?

Or did they become a chairman one year after they founded it and were not ever there again? You know, we I mean, it’s a very easy,

Turner Novak:

Very easy call. What do you see as one of the biggest mistakes when someone’s doing that, when they’re starting a fund and they talk to you in like that first, the first conversation? I don’t know if there’s like a lot of patterns or if any one specific very, red flag-type instance stands out, but like what are some of the biggest mistakes peop- you see people make when they’re kinda putting that first fund together with their LP’s?

I’d just

Hans Swildens:

Be humble, right? Like, people that my team meets and I meet that are not humble and not, respectful and not someone you’d wanna actually work with, I think that’s a big turnoff. And I think that, a lot of the VC’s and new VC’s think that they need to come into the LP’s and pound their chest and say, “Hey, this is how I...

I did this, I did that, I did this, I did that.” You know, guess what? Like, we meet like 10 people like that every day. So, it’s not different, right?

I mean, why people are doing what they’re doing is ‘cause they already did that. So it’s like what we what we factor in, too, is like, do we wanna work with this person? Do we trust this person?

Do we... If they’re representing our capital, are we proud of that? You know what I mean?

Are they treating people well, right? Are they a good... Do they create value, right, for the investments they make?

How do they treat other people? And like the last thing an LP wants is to have somebody that’s gonna mistreat them, right? I mean, you’re talking about a 10-year commitment that really is 12 to 15 years if you stick in it the whole time and don’t sell it in secondary as an LP.

And like nobody wants to be 12 years with someone they don’t like and someone they don’t trust And I mean, this is just like, that’s like the worst, right? It’s like being in a bad marriage, right? You’re just trying to get out.

Right. So yeah, I think, so I think, coming in and, explaining your successes ‘cause otherwise, it’s hard to have a track record to back, but in a way that- I- in a way that is, I guess, just more level with, with the LP’s you’re talking to. Hmm.

Turner Novak:

And, this is a slightly different topic, but I didn’t wanna miss it ‘cause you said it and it was pretty interesting. So you talked about how you... I think this is one of your sh- really early days of industry.

You bought Enron’s venture portfolio. So how does that come about? And like how did

Hans Swildens:

That go? So yeah, so I mean, I was a little... So I owned Enron stock, and I got...

Lost my capital in it and I got kinda pissed off, right? I mean, and so I went in and said, “If this thing is bankrupt, what can I buy from it that’ll make me my money back?” Right? And that’s how, that’s how that one started.

And so I just went and called everybody that I knew and networked all into the people, and I ended up, going right into the trustee of the bankruptcy and, being aggressive and, digging in the portfolio, and found some, found some investments there I really liked. You know, the second company I had with my brother was called Speedera Networks, and it was a content delivery network. And so we basically, we dropped in, servers in all these different locations in the world, and we had a caching system and then we you know, bought bandwidth, resold it through our, overlay network to speed up everybody’s videos and, so you could listen to like, like iTunes.

We served iTunes, we served Netflix, we served DoubleClick, all that stuff to, get the, get... So there’s no buffering and you can get videos to people and large files to people quickly. So- And this was back

Turner Novak:

When the internet was slow, right? This is, this is like in the late ‘90s, I think.

Hans Swildens:

Yeah, we started, Speedera in 1999, and we competed directly with Akamai. We ended up getting acquired by Akamai, so it’s part of Akamai. But, the broadband, they called it Enron Broadband Ventures, right?

So, some of the stuff they owned in there, we knew. So, I... You know, one of the assets was Interxion, which was the largest data center in Europe.

And they had a, they had a, they had an ownership in it. So we kinda dug through the whole thing and negotiated a deal to buy the whole portfolio. And, it ended up being a good transaction.

You know, the thing that I missed there, though, I’ve missed a lot of stuff, but the one thing that’s interesting that I missed is they showed me the data center that was built in Vegas, ‘cause it was also part of the bankruptcy, and it was also part of this, broadband division, and they said, “Do you wanna buy that thing, too?” And I was like, “Well, let me check it out.” And it was, a fully built- Kind of amazing next gen data center sitting on, one of the hubs of the internet in Vegas, but it was empty and it was losing money ‘cause it ha- it didn’t have any customers yet, and it was, just brand new, spanking new thing with nothing in it. So I looked at it and said, “Hey, that’s a real estate deal, like I’m buying, tech stuff.” And I didn’t realize that, that thing. So there was a entrepreneur that bought it and it became Switch.

And when he bought it Pablo got together some money to buy it and then he he actually signed a lease. He leased the entire thing out to eBay And he’s creating a multi- multibillion-dollar data center business. He’s one of, one of the largest data center...

Turner Novak:

Oh, wow. Imagine telling someone that today, that you passed on an empty data center that was ready to go and you didn’t invest in it today.

Hans Swildens:

I mean, I didn’t understand at that point that I should be buying that. It just, it just looked like a hole in the ground. I did the same thing with Whammo where they had, they had a conference center right next to the airport in SeaTac that they’d owned, and I was in the...

I was buying their venture portfolio, and they’re like, “Hey, we have a wind farm we own.” They owned a wind farm asset, and they owned, this conference. And like I said, there was a hotel in it. It was huge.

It was huge. It’s like, and a family bought it killed it. But it was like a dis- it’s distressed ‘cause they were using it as their corporate kind of hotel, conference, meeting center next to the airport so you didn’t have to go up to Seattle.

And so you’d fly in, ‘cause, Whammo was so big, you would just go over to their, kind of corporate, conference and meeting and hotel. And it was huge. Center, that thing, when it when it you know, when it went bankrupt, it was, it was empty.

And, some of the hotel had some, had some people staying at it though. And, but it was just one big loss, looked like a hole in the ground. And, a family bought it and I think they I think they made,

Turner Novak:

$250 million. And this was just sitting there for you in the bankruptcy and you didn’t take it?

Hans Swildens:

Yeah, but I didn’t have it left. At that point I was just struggling with trying to build this thing and fund it and, buy investments. Just so focused on buying the venture investments, I wasn’t thinking

Turner Novak:

About the other assets. And th- and was this, pre-fund? Were you still investing off of your own dollars, or had you, had you raised, outside capital yet?

No, we had, we, at that point, uh, we were doing SPVs. Okay. So you were like deal by deal.

You’d go and like I’m gonna raise the, 5 million, whatever the number is, to buy this Enron portfolio that is at like 1% of cost or something like that.

Hans Swildens:

Yep. That’s exactly right, and we put actually the Enron deal and the Infos Bill- Infospace deal into one fund. We ended up doing two deals in one SPV.

Oh, wow. It was scrappy. I mean, most of these firms, by the way, and you probably know this, but if not, like most firms, even larger ones, when they formed it was a scrappy situation, right?

It’s like entrepreneurial. I think that entrepreneurial finance is underappreciated. And I also think, by the way, Goldman’s history and teams and how they’ve been an entrepreneurial finance business is extremely underappreciated because everyone views the firm as like a bank or a financial institution or investment bank or an asset manager and they don’t understand all the innovation and kinda creativity around creating new products, creating new businesses, entering new markets, and doing entrepreneurial finance activities.

And I think that’s one of the things that has been eye-opening for me going from being an entrepreneur, with my own funds and stuff, to a firm that is large, that has a lot of fund teams, that has a lot of different business units, that has developed markets, right? They’ve been... They’ve done what...

A lot of the people in there that are senior in the org have built businesses from scratch inside the firm. And so, that’s one thing that’s kind of underappreciated with some of these asset managers, if you wanna call them, or investment banks or financial institutions is, where did you think the businesses came from? You know what I mean?

They didn’t just show up. Like, it’s, it’s, they had to be created by somebody. And to be like a number one player in a segment, you need to be early, you need to be innovative, and you need to be competitive.

And, and so there’s an entrepreneurial aspect to it.

Turner Novak:

Do you think that there are gonna be more, acquisition of venture firms over the next, I don’t know, whatever the time period is? Or like is this, is this a trend that’s, that’s gonna really start to take off or?

Hans Swildens:

It’s already been one, I would say Will it will it accelerate? It’s probably gonna keep its current pace. I mean, you’re, you’re gonna see other, firms in the venture growth space be acquired for sure.

I mean, I would say if you look at the, if you look at the asset management landscape, none of these firms were publicly traded until like 10, 20 years ago, right? So, you have a, you have a new cohort of, asset management firms that are publicly traded. Some of them came from the buyout market, some of them came from the credit market, some of them came from the real estate market, some of them came from multiple parts of the market.

And then they’ve added new businesses to their, entrepreneurial, finance again. They’ve added new business units. They’ve added new ways to make money.

They’ve added new strategies. For example, there was sports investing was a new category, right? Buying minority equity positions in s- in professional sporting teams.

That was a new thing that happened over the last 10 years. That’s now in, KKR, for example. And, Apollo and Ares have efforts.

The GP stakes business of like, hey, you have these private GP’s that are like you and like I was, but can you fund them, right, as an equity investor and be a growth investor or a venture investor into the GP’s, which are the fund managers? And what does that, how does that, how does that investment structure look? How does, how do you make money on that?

How do you deal with kind of over time monetizing it? You know, that’s all was a new category in the last 15 years. And so, these businesses are being built in an entrepreneurial way, and they’re adding new business units in different categories.

But if you look at the macro trends. Everyone has a pretty sophisticated buyout mar- ma- business. Everyone has a pretty sophi-- uh, most have a sophist- pretty sophisticated real estate business now.

Most have a pretty sophisticated credit business, right, today. And so when you look at, where they have a... Most of them also are having an infrastructure, business in terms of funding infrastructure through funds.

And, and so who has a venture growth business, right? I mean, there’s a, there’s a lot of holes in these asset managers as a, as a, a, as a... ‘Cause, ‘cause they wanna ha- They’re building multi-asset management firms that can leverage a corporate infrastructure of accounting, finance, compliance, fundraising. There’s all these services and people and technology needed to execute and help execute fund strategies, and they have the infrastructure for that.

And so if they can add boutiques in different areas and then leverage all that, it’s actually a win-win for both the investment manager that’s the boutique as well as the, larger corporate that’s scaling. And so, so I think that you’re gonna see more and more of these. I mean, I know ‘cause I’ve been talking to all of them, and some of the CEO’s are in my fund as LP’s afterwards and, and still.

And so they’re all looking at venture growth, trying to figure out how to do it I would say there’s a lot of struggle with, a lot of them struggle with the scalability issue. There’s a, there’s a scale issue. Like, if you’re gonna, if you’re gonna rank it and you’re gonna say, “Hey, would I rather do data center business that can be huge and fund all the new AI data centers or do a venture business?” Like, a lot of them are like, “Meh, I’ll do the data center business.” So it’s like a ranking of like what are they you know, what are they what are they looking for?

Turner Novak:

Yeah. Like I’ve seen, I’ve seen multiple times people proclaim, like the CEO of an asset management business on a stage at a conference, right? They proclaim that, data centers and compute is like the biggest asset class ever in humanities, in history.

So, you should fund that. Without the AI wave, we’d have flat GDP. Yeah.

Well, so one question based on that line of thinking is why acquire someone, like let’s say like Banana Capital, I get acquired by like, I don’t know, Oxif or like just like some pub- I don’t know, like a publicly traded like hedge fund or whatever. So you have a meeting business,

Hans Swildens:

And then you have your investment business, and so you do, you do probably have some enterprise value,

Turner Novak:

Right, in your business. I think it’s actually a lot higher than what other people would pay. Like, in my mind, I’m like, this is like extremely valuable.

I would n- I would never sell this, and someone might look at it and be like, “Yeah, here’s your P&L. Like, I’ll give you a million bucks for it.” And I’m like, “No way.” Like, that’s not, I’m not doing it.

Hans Swildens:

And that’s how I felt, and then some, I decided to at one point sell it right? But we still have ownership moving forward in our carried interest pools and things, so it’s a little different ‘cause you’ve got two different... So, these fund businesses have two different, revenue streams.

You’ve got your, management fee revenue, and you’ve got your carried interest profit sharing revenue. And, and what... Those can be decoupled, right?

So you can, you can have, a partner in your management fee revenue, but they’re not a partner in your, in your, in your carried interest, and then you can have the reverse, which is partners in your carried interest, but not in your management fee. Hmm. I didn’t think about that.

Yeah, that’s what makes these businesses really interesting is, there’s, there’s two different, and one is long-term capital gains if you hold the securities long enough. The other one is short-term, ordinary income. And depending on what state you’re in, that matters a lot, right?

So, and, but it but by holding securities longer than three years or five years and, funding the securities early, you can h- you can, you can claim long-term capital gains on your investments.

Turner Novak:

At everything net of tax. And do you... So you think it will mostly be acquisitions of these firms, not people starting it internally?

Like, the... ‘Cause Goldman kind of already had one internally. It’s

Hans Swildens:

Both. Yeah. I mean, our team internally here, not our team, but the, the group I’m in looked at doing this themselves, of course, right?

Why would, why would... You know, if you’re gonna buy something, you have to consider building it. And the challenge with building this is, is pretty, pre- it’s a pretty hard challenge, right?

It takes... It took us, two decades to get approved and into the market to scale. It...

Maybe we were at scale at, after, 10 to 15 years and, but 25 years later, we’ve been at scale with information flow and things for probably about 10 years, but it took over 15 years to get there. And I think, I think the... So there’s a barrier to just being in the, in the market, right?

Owning all the funds, having transferred into all of them. And then there’s also a technology barrier to, how you’re processing that data, how you’re, how you’re using that data for making investments. Then there’s actually the o- there’s the other thing, which is really a pain, which is, getting the right capital, right, from the LP’s, and having scale and for raising capital to fund and grow your business, both in terms of your profit pools and the carry, plus your management fee and earnings.

And so you need a base. And then there’s the track record, which by the way, as you know, is the hardest thing in this market. It’s the chicken and the egg thing that is the, the, the thing, which is are you proven to make money over cycles, right?

Have you proven in a 20-year period, through multiple cycles of multiple drawdowns, capital market crises, GFC, COVID, everything, that your funds will make money and compound at rates that are appropriate for the risk and the, and the lockup? And so there’s the track record, and that relates to investment management, and it relates to, experience in your team. And so all those things, are difficult, right?

Because you have to have expertise, you have to have... The, the way we do things, it just takes a long time to get it to a point where it’s systematic and repeatable and scalable. If we were just a small fund and we had, 50 million bucks and we had no systematic repeatable stuff, no one would wanna invest with us or buy it right?

So a lot of it’s about creating... I mean, this is actually something I have a lot of conversations with managing partners that are managing firms Because I actually went and created, a management company and a holding company, and then looked at it like an entrepreneur would, which is an enterprise value and, and then... And how to create, enterprise value, right, at the firm level.

Most VC’s don’t think about that, which is shocking. But so they... The irony of this is that VC’s fund entrepreneurs, right, to create enterprise value, but they don’t think about their own enterprise value.

They’re funding their firm, but they’re not thinking their firm as a, as a firm. They think of it as, an LLC or something. Yeah.

I mean, it technically is. It- Well, I know, but, it the, but it ha- but you can convert it into a limited partnership, which you should, and that creates, a different tax structure as well as, you can start, creating more of a firm, ‘cause you can share partnership interests with others easily compared to an LLC which is difficult to cut up, weigh, or share with it, ‘cause it creates tax issues. It’s,

Turner Novak:

It’s funny, you see a lot of entrepreneurs will comment on, there’s these VC’s that are like, they’re backing, AGI, and then you talk to, their firm is just, some dude sending emails, sit around a table. It’s like the opposite of the technology business. So one, I think, interesting question is today, we haven’t really talked about the secondary market much today, but how do you think about the secondary market today?

Like, what is kind of... What is it I guess? We actually never really defined, what a secondary transaction is for someone who’s never heard this word before, and then, how big is the market?

How does it work just for someone who’s kinda coming into this for the first time?

Hans Swildens:

Yeah. This was, for me when I... When after the dot-com collapse, which was, at that point, we were in a market, the venture capital business, the industry itself, was primarily a primary investment business.

Where you bought shares from the

Turner Novak:

Company.

Hans Swildens:

The LP’s were buying, a partnership interest when the fund started with nothing in it in a primary investment. The funds, the managers were buying into the companies directly when the, to fund them with the capital for a primary investment. When I started doing this, that was pretty much the whole market There didn’t really exist a functional secondary market, right?

The first year I started doing it there was $250 million of secondary, as we estimated, transacted in the entire year. So it’s very small, right? Because it just didn’t exist.

It was like a nascent thing. That could be like a single Series A today. Oh, just, tiny.

I mean, just one continuation fund now, like we’re looking, we’re looking at one right now, it’s 700 bitty million dollars. Just one deal. It’s bigger...

Three times larger than the whole market was in 2020-- 2001, sorry. So yeah, so but what’s happened is, and this has been just fascinating and just, exciting and interesting, just like every other software market or technology market or whatever market, it developed and grew over time and had multiple segments develop. And so just like venture is segmented into seed, early growth, crossover, buyout, tech buyout, ‘cause it has segmented now, right?

And now you have funds that are in each one of those segments focusing on those segments, or they have full stack, platforms focusing on all the segments. When 26 years ago there wasn’t that. It was, “Hey, your fund should be small, no more than like 400 million, and you’re doing primary investing.” That’s the whole market.

We didn’t have crossovers. We didn’t have, had not many hedge funds. We didn’t have...

The corporates were like Intel was the biggest one. You know, it just didn’t look like today. But what’s happened is the secondary market also, developed in-into a huge market, and then also segmented.

And so, and the segmentation in the secondary market is different than the primary market, interestingly. Because the segment- the segmentation in the primary market is segmented by stage, right? When you invest, it’s by stage, right?

And, and in the secondary market, it’s actually by transaction type And ‘cause you have pretty much one transaction type, right? It’s like you buy the stock from the company and it issues it to you. In the secondary market, we have transaction types based on different types of securities and different counterparties of sellers.

So our segmentation in the secondary market, it started as like corporate CVC’s that you’re buying out and then some hedge funds and mutual funds, and then it went to like venture funds selling some things. So like there was this Facebook moment when there was a count issue in Facebook and, there was a regulatory count that you had in terms of number of shareholders and they were gonna break it so they had to have a secondary process to keep their count, into the regulatory window. And then they had VC’s started selling, Facebook stock pre-IPO.

And, and that’s when the other VC said, “Wait, I can sell my venture stock pre-IPO? Someone’s gonna buy that?” And then the whole, institutional VC market started selling stock. It started slow, right now it’s, all over the place.

And they started buying the stock too, by the way. So both selling and buying. And so when you look at the segmentation today, we have things like direct secondary market, which is one-off direct secondaries.

So if you wanna buy XYZ shares in XYZ company, and you can go directly into either from the founders, from the employees, from the tender offer into the company, from a venture fund, from a CVC or whatever, just one-off. Like, I want XYZ stock, and you just buy the securities from whoever’s selling them. That’s direct secondaries.

Then you’ve got continuation funds. So these are venture funds that are at the end of their life or ha- don’t have much DPI, and a secondary manager like us can go in and buy and restructure the partnership itself by tendering the LP’s, restructuring the re-re-we ame- re-amend the LPA. You know, create a new term, a new set of, a new set of, time periods, as well as a new set of, GP-LP economics.

We can even... We can take the partnership agreement and just amend it and modify it and red line it or we can create a new partnership, and then it is buying everything from the old partnership, and you just do a transfer affiliate from one partnership to another, and you’re still the manager of, from one to the other, right? Is you’re the still the manager, so it’s an affiliate of yours.

And so there’s different ways to do this, continuation fund. You know, taking a partnership that owns securities that are 15 years old and great, and they, ‘cause they wanted to stay private longer and whatever. They’re one of the top 20 companies in the world in enterprise value that are venture funded, and you, put them in a continuation fund.

So there’s that part of the market. And then there’s a, there’s part of the market which direct portfolios that are being bought without a GP attached. Okay?

And so, a hedge fund portfolio and the hedge fund won’t manage it anymore. They just wanna take the private securities in their hedge fund and just blow them all out at once, for example, to be a pure play public market investor again. Or they got overweighted in it right?

Then there’s the LP-led secondary market, which is LP’s selling to another LP as secondary, or LP’s selling an entire portfolio of LP interests, like a whole portfolio of funds at once. Then there’s also structured equity solutions. This is one...

I mean, there are so many different segments. I’ve never heard of this before. Yeah, the structured equity solutions, that’s actually a big part of the market.

It’s not debt, but it looks like debt in a way because it’s structured equity, and so there’s a structured return to it and those things are typically on top of portfolios. So like, so like if you are a pension fund and you’ve got a billion dollars of private equity or venture or whatever, what you do is you just transfer all these things into an LLC or a partnership that’s now, you own that, 100% of it. And then someone comes in the partnership and restructures it with a preferred equity tranche that is, compounding...

That’s a compounding pick, and then a participation on the distributions. So it looks like a loan, but it’s not a loan, it’s a preferred equity... It looks like a Warren Buffett kind of deal, where it’s like, “Hey, we’ll drop a preferred on top with a interest rate, minimum return threshold,” and then there’s a pr- you know, a profit share on the back end of the, of the, of the net asset

Turner Novak:

Value when it gets distributed. So this is like it’s, it accrues interest like debt would, but you don’t have to actually pay. It just like increases the balance over time.

Hans Swildens:

You can do it either way. You can have, you can have it pay interest or not pay interest. You can, you can have it be non-interest bearing for five years and then pay interest.

It... You can, this, it, you can structure it however you want. It’s just a, special situation structured equity instrument.

And then there’s the debt side. So there’s the loans. So there’s actually like secondary loans.

So like loans against your common stock if you’re an employee to have an option exercise. You know, there’s, there’s loans against portfolios, right? The 25% loan to value on top of a private equity venture portfolio.

You know, there’s a, there’s the actual debt structures too to get liquidity to people. I mean, there, this whole thing got developed into a massive business. We think last year there was Probably over $150 billion of transactions that closed just in venture growth.

And so it’s approaching the size of the whole primary business. And we’ve had a thesis for 20 years. It’s taken a long time, but it’s been cagering at a amazing rate for the, for... ‘Cause it went from nothing to, 150 bill.

But we think there’s a, an argument that the secondary market will be a multiple of the size of the primary market. Because every other equity, every other equity or debt asset class, that is the case. So if you look at, if you look at the stock market, it’s all secondaries.

If you look at the, real estate market, it’s predominantly secondaries. If you look at the debt markets, it’s predominantly secondaries, right? I mean, everyone’s trading what’s already been built or already created or issued.

And so we think that over time, that this market will be larger than the primary market.

Turner Novak:

Is it probably bigger than most people think it is? Like, is the size of the market that shows up in reports most likely underreported?

Hans Swildens:

Yes. And why that’s the case is because brokers have been the ones historically that reported the market, and the brokers in the secondary market predominantly broker private equity secondaries, and it used to be predominantly only the LP-led secondaries. Now they’re doing the LP-led and the GP-led, which are the continuation funds, and they’re predominantly doing them in private equity, real estate, infrastructure and whatnot, and to a lesser extent, venture.

Venture, they do capture venture deals, but a lot of them are through these multi-asset portfolio sales. And, and a lot of what’s being transacted in the venture business is never registered through a broker and not registered with the government. It’s just being registered in the private partnerships and in the private equity structures.

And so it doesn’t have to be reported. And so it’s like, it’s like, it’s, it’s very hard to track. And so, if you’re just looking at, brokers brokering LP stakes and looking at that size of the market or continuation funds and LP stakes, you’re missing, a massive part of the market.

They’re not even reporting the direct secondary market. So they don’t report the tenders in the companies, for example, which is now obviously a huge market. And so what you have to do in this market, which we’ve, we’ve got frustrated and made our own reports over time, is like break all these segments down, size them all, and then, add it all up in a bar chart to get your aggregated market size.

Turner Novak:

Okay. What, what are like the biggest sections of this? Like, where’s the most capital moving right now?

Is it the LP-led? Is it the GP side? Is it like the direct from the company and the employee side?

Or is it all, is it kind of like one-thirds each? All three of those. Yeah.

Those are the bulk of it kind of equally splay roughly. And then there’s all these different smaller pieces.

Hans Swildens:

But yeah. The, I would say that the fastest growing segment, which if you take the bar charts and you look at how it’s gonna grow in the next five years, we think, the fastest growing segment is continuation funds

Turner Novak:

So this is essentially just, um... When you think about, when you talked about this, every other market has secondary purchases, and it’s the bulk of it. So it’s basically someone issues the primary, you buy the primary, and they just hold forever until there’s an IPO.

This is basically you issue it and you hold it d- to not quite forever. Someone starts to buy, and then they start to trade. Once it’s traded, you’re selling it in a secondary.

Hans Swildens:

The IPO can be primary and secondary together, or it can be secondary only, but most of the time it’s primary only. But it could be all that stuff. The, uh...

Once it lists, it’s a secondary. The entire NASDAQ and, and, NYSE is secondaries.

Turner Novak:

Yeah, and it’s interesting because you think of, as of today... I mean, maybe it’ll go public after this gets published, but who, six months ago will say, SpaceX, right? Super popular company.

Everyone wants to own part of it but it’s, it’s difficult. There’s a ton of friction. But just suddenly it IPOs, and you can, anyone in the world can buy and press a button, and there’s probably gonna be billions of shares or volume, probably hundreds of billions of volume traded per day in SpaceX.

And you think that’s just gonna start happening before the IPO. There’s just gonna be more liquidity, more trading of the shares of, well-known assets. They’re already up.

And they’ll just get more prominent.

Hans Swildens:

But, yeah, every year it is.

Turner Novak:

Yes.

Hans Swildens:

I mean, I’ve had for 20 years, this is like, I know I’m like gave up. It’s like for 20 years I’ve had, when we go raise our capital or we go talk to people that don’t understand the market, they’ve said, “Well, this is gonna slow down” or, “This is gonna go away,” or, “This is just a flash in the pan,” or, “If the regulatory restrictions get lifted on compliance, that everyone’s gonna list and then there’s no secondary market.” And, and, when these big IPOs happen, there’s gonna be no secondary market. And it’s like every year this thing keeps growing and growing and growing bec- as the number of companies that get funded grow, the amount of capital that goes into the primaries grow, and that keeps funding the derivative market, which is the secondary market.

And they’re just,

Turner Novak:

Assets that people wanna own. Like, people want part of this good asset. It’s investments, yeah.

Just, it’s simple investments.

Hans Swildens:

The thing that also is interesting about the secondary market i- for venture growth and private equity and stuff is you can have the same security held in different structures trading. So you can have, a company, a stock in the company’s trading in a secondary, and then you can have the fund interest that holds the stock trading itself as well, that holds the company that’s trading. So it’s, it’s multidimensional So like you can...

And then those two things might trade at different prices too, right? Because a buyer that wants to buy the stock directly might not wanna buy into a fund that has a fee and carry on it and has other assets, right? Most of the time they don’t want that, ‘cause they don’t want- they don’t know how to underwrite the other assets, they don’t want the other assets.

They just only buy one asset. But they have to take everything else, ‘cause it’s a fund interest, right? They can’t, separate it out.

Although people are starting to try to separate things out now inside the fund stakes, but that’s a whole nother, a whole nother conversation. Okay. There’s like a, there’s like a little bar chart, the little bar that’s starting that’s derivatives and futures.

And do you think that’ll get pretty big? I don’t know. I kinda don’t...

I would rather just buy the title to the securities and own the vanilla securities, either the fund interest or the, or the direct stock certificates or baskets of them So maybe we’re just old and, and, used to that. But like, in terms of derivatives and forward contracts and things, it’s a small piece, but it’s growing. You know, it could become big.

We also decided a long time ago not to do a lot of these option exercise loans, so we don’t do that. And there, that is a segment of the market, which is the employee stock option exercise loan market. And, we just, we just didn’t...

Because you have, you have to be a lender and there’s, there’s regulatory stuff around that, and we just wanted to be an equity investor. But yeah, so there’s a derivative market, there’s a loan market, there’s, there’s, a structured equity market, all in these different segments that people don’t see if you’re a primary investor.

Turner Novak:

So one of my friends, Zach Coelius, he’s, he said that he’s worked with you guys on some stuff in the past. He said you’re one of the most creative sec- like one of the most creative, like deal terms, deal maker investors he’s ever worked with. So how do you typically approach a secondary transaction?

Like when you guys are coming in, like what are you specifically looking for? How do you think about making sure everyone’s happy? Because you could argue that someone’s getting a bad deal in any of these, in any transaction that happened, whether it’s like the company, the LP, the GP you’re buying from, you guys are maybe getting a bad deal.

Like, how do you just think about structuring one of these things and approaching it?

Hans Swildens:

Yeah. I mean, I come at from like a solution provider perspective. Like, I’m, I’m, what do we need to do to help you, right?

If you are a seller of anything, why are you selling? What do you want to accomplish selling? And then how can we help you do that if we want to buy what you have?

So I think that’s the first thing is just approaching it like a partnership of like you’re a seller, we’re a buyer, we’re trying to solve your problem, we’re trying to put together a solution, and then we have to be competitive because there’s other buyers, right? And so I think one of the reasons why Zach might have said that is that we’ve always looked at it as how can we solve this and when, right? I mean, because otherwise you never invest.

And so I think, we’re willing to do like special structures with people. Like if you say, “Hey, I’m getting a divorce, and I want to keep my voting of the certificates, and I’m a founder, and I own twenty percent of a business that’s worth two billion dollars,” so it’s, it’s, it’s, it’s, do the math, four hundred million bucks on paper, “and, and my husband or wife is getting half of that,” so two hundred million bucks, “but I want to keep the votes of that.” We’d be like, “Fine.” You know what I mean? As long as it doesn’t impact our ability to exit at some point and get our cash back And we do the diligence around it that maybe we’re fine giving you the vote, right?

We just give you our proxy. And we could give you our proxy for a period of time, and then it revokes. So, a lot of people, wouldn’t think about doing that, right?

I mean, literally. Same thing with funds. It’s like, “Oh, I want liquidity in my fund.

I haven’t had any DPI.” Like, if you have a fund that has no DPI, but the one asset in the fund that is sellable that people will buy, I don’t wanna sell. But I w- so I wanna try to keep it right? But I still want money from it.

So what do you do? How do you do that? That’s the point.

You have to sell it don’t you? So we can say, “Hey, just go to your... We will sign a deal with you that you go to your investors with,” ‘cause you have to get their approval because you’re gonna get compensated.

You’re selling and you’re getting compensated, so you need approval from your investors. And we will lift out that investment from your portfolio and put it in a new partnership that sits next to your portfolio. Let’s say it’s called Banana Capital Fund 1, and I’ll create a Banana Capital Fund 1-A, and I’ll just move the certificate from the 1 to the 1-A.

Or you’re gonna ask the company to do that. And then you’ve gotta ask your LP’s, “Hey, if you wanna get liquidity on this thing and get two times your money back, I’m willing to do that. These guys want me to manage it and they’re gonna compensate me for doing that transaction.

Here’s what I’m doing. You know, it’s fully disclosed. Here are m- how much money they’re gonna pay me.

And you’re, you’re gonna have to approve this, and then we’re good. And you can... You know, the asset will be sold and moved into the fund.” And you can say, ‘cause some of them might say, “I don’t like it,” and you say, “Well, then great.

You can just roll your stake in there and have the same economics as you had before and you’re net neutral. So the people that wanna sell in your fund can sell. The people that don’t wanna sell don’t sell, and nothing happens to them.

They’re not forced into new economics or anything like that. They’re just net neutral. And then we could do, a deal with you and help you with that liquidity issue.” It’s also, another one’s, you’re a corporate venture investor.

You ran out of money. Your CEO, your CEO’s new and says that there’s a billion dollars of venture on your balance sheet. You’re publicly traded, and there’s probably 500 million of unfunded to keep funding all the rounds so you don’t get wiped out.

And the corporate entity doesn’t wanna do that anymore. And we can go in there and say, “Hey, we’ll put up the 500 million to fund all your unfunded obligations, and we’ll do that in a structure with you where you take your securities, put them in a fund, and we’ll r- we’ll negotiate terms and payments around how our capital’s being invested and called and when we get it back and at what rates and with what splits and what percentage of the partnership we own over time and what our return profiles are and stuff. And we will remove your unfunded 500 million on liability, and here’s an equity structure for that, and it looks like that.” And so, because we because the market was...

I think we do this so well because when the market was so small, there was no transactions happening, and we had to, solve- You had to, make a transaction, yeah. Yes. But what happened is these transactions we were doing became segments, right?

And then became their own markets And that’s like the amazing entrepreneurial journey in this adventure, right? I mean, we’ve been on this like 25-year adventure, and like the mountain keeps growing as we climb it. And so like we keep thinking we’re gonna hit the peak and then the thing grows another mile.

And it’s been, an incredible journey, honestly.

Turner Novak:

And so thinking about like the mountain’s gonna keep growing, right? Whether this is in 20 years or even- Yeah... Even in the next like 12 months we’ll probably have...

I don’t know. I never know the timing of this stuff. Like SpaceX, OpenAI, Anthropic, it seems like they’ll all go public within the next 12 months.

Who knows when. Maybe there’ll be more. W- like, what’s kinda gonna happen over the next e- next year or so?

Are there things you’re kind of expecting or looking at, working on waiting for? Well, at

Hans Swildens:

A high level, the thing that’s the most concerning about the venture category to invest into is for the... Since 2001, so it’s been five years, the distributions coming out of the industry have been 75% less than what they need to be to be healthy. This is each year it’s below what it needs to be.

We need, we need about 20% of all the NAV in the market to exit each year to have a healthy market, because if you exit 20% of all your NAV in your fund every year, for five years you’ll get your fund capital back, and then for the next five years you will get your returns back. It’s very simple. That’s the math.

For the last four or five years, it’s been five years now, been an average of like 5 to 7%. So you have a situation where most venture funds might have 20 cents back in the last five years. The whole industry hasn’t produced the, the distributions of cash that’s needed to have it function correctly.

So, whether or not these... So there’s gonna be have and have-nots in this thing, right? Like, whether or not these companies you mentioned go or not, I can’t comment because of where I work, but, not every vent- not all the venture funds are invested in these companies.

And if you have them in your funds, you’re probably gonna have, if they if they do what people think, distributions. And so you’re gonna see, I think it might create a bifurcated- M- more concentrated venture market because what’s happened... So the really interesting thing in the last, three years, and you can, this is a whole nother conversation, but it’s super fascinating, is, I believe that the market’s barbellled.

So It’s either you’re very small and very... You have a very strong advantage doing a specific thing and you’re very differentiated, and you can still get the great deals at the early stages. You know, or you’re like a huge platform that you’re full stack all the way into the seed market and into the crossover market.

And so these larger platforms have just been pressuring everybody in the middle and everybody down into the seed market even. And if, if those are the people that own all the equity in these businesses, they’re just gonna get bigger. And so what’s gonna happen is you’re gonna have more pressure to keep barbelling in the market, and everybody in the middle is gonna get blown away.

And so, yeah, I think that it’s, it’s, it’s, it’s, it’s kinda

Turner Novak:

Fascinating. It is. It seems like those big ones that have sucked up a lot of the capital, they’re also the ones giving capital back.

So, they’re kind of, I don’t know, in a way, they have ball control over that flow of funds. They’re giving money back, so it’s like, do you wanna put it somewhere else or do you wanna give it back to them? Like, what’s, what’s the call?

Hans Swildens:

Are you gonna... So as an LP, ‘cause, I’m an LP, who are you gonna prioritize? Someone that gave you all your money back or somebody who hasn’t given you anything back?

Yeah. That’s fair. It’s pretty simple, right?

Like... Yeah. So, yeah, I think what the markets, the markets...

So one of the reasons why we decided to do the one plus one is three with the firm here, is we believe, and we got to a place where we thought this entire industry is gonna be very institutionalized. Kind of already is, but it’s gonna be even more so. And then you have to be more at scale and have more proprietary information and more proprietary deal flow to compete over time.

So, we needed to decide if we were gonna get bigger and more competitive and, having more capabilities and to be in front of everybody. And we decided that it was a good time to

Turner Novak:

Do that. Do you... This is a little bit on that comment before.

So what would you do as a seed stage manager that is trying to continue to compete against the super, dominant platforms that are returning a ton of cash? Like, how do you, how do you think about putting a stake in the ground and, actually competing against them with a realistic strategy?

Hans Swildens:

Well, if you don’t have an answer for that, you should stop investing and go do something else, literally, ‘cause you’re just wasting your time and money, I think. ‘Cause, or you’re just gonna have to be lucky And I don’t think lucky is a strategy, but maybe for some people it is. I think you-- I think that everybody needs to really work on how they’re getting into the best companies at the early stage, and what it will take for them to take your check. It’s, I think the market’s changing in venture where it’s getting more and more and more difficult to get in them, right? ‘Cause there’s so many different people trying to put money in them that you have a hyper-competition, dynamic.

And in that case, the only way to win is to be super specialized, right? Carve out your own, carve out your own, your uni- your own unique deal flow mode. It could be with, proprietary AI technology.

We’ve seen that. Some of our managers have developed pretty incredible, sourcing and underwriting and transacting AI-driven, systems. So that’s, that’s one thing.

So there. And some of them, we have one that when we went through the whole thing, we’re like, “Wow, that’s incredible.” Like it is very awesome. And I think it’s, it’s focused on sourcing, right?

Sourcing and, and being first and the, and the best And doing that at scale so that even if they have hit like the thousand new companies that might be the next unicorns, that they actually can write a check into, 20% of them. ‘Cause I think that the challenge now is not whether or not you can see them, it’s actually whether or not you can get a check into them, right? When before, the seed funds would see them and be able to write a check ‘cause they were all like, there was a lot of hot tub thing where it’s like, “Oh, I’ll let Joe and, you know, Jennifer, everybody’s gonna come in, and here’s, 500 grand, 500 grand, 500 grand.” It was a hot tub thing. Now it’s like, “Oh, this one manager wants to give me 50 million out of 250 pre and I don’t even have a deck.

I’ll take that.” So then it’s not syndicated anymore. Sorry. So then the seed funds don’t even...

They can’t even write a check, right? So I think that dynamic is new, and it creates challenges because if you’re a seed fund and you’re not getting into the best companies,

Turner Novak:

And you probably do have to be taking quite a bit of risk then, where you’re taking a risk on a founder that they’re not gonna give 50 million to without a deck, or in a category. Maybe that’s, a new category that’s not, an instant check without even having a deck or a product yet.

Hans Swildens:

And those sometimes do work, right? That’s the humbling thing about the market, is sometimes those people are the ones that create the biggest and best businesses, but it’s not normal. It’s a hard thing to systematically, repeatedly do.

Turner Novak:

Yeah. And you also... It’s not like you do that and then in three months it’s like, “Oh, this works.

Here’s more money.” It’s like you need to have a track record over a long period of time to prove that you’ve done it like, once a year, a couple in each fund. So it’s like takes 10 years to get there.

Hans Swildens:

One or two in banana one or two in banana two, one or two in banana three. You need to exit them. You need to return, three, four X net on your funds if they hold your s- hold those securities for longer than eight years to get your 20% compounded IRR or no one’s gonna give you

Turner Novak:

Any money. Is that probably the threshold, do you think, in venture, is the 20% IRR? You get above that?

Hans Swildens:

Yeah. You need 20% IRRs. High teens are okay, but, otherwise why are you doing venture?

Turner Novak:

Yeah. You can easily get 10% in the public markets.

Hans Swildens:

Yeah, you can just go buy, go buy distressed debt today at 15% returns. I mean, right? Senior secured loans.

Why would you do... That’s more liquid and it pays, a monthly dividend. And you can lever it and make 25.

But that’s probably too jun- probably too junky. But, so yeah, I think venture needs to be high teens, low 20s. And compounded over 10 years, that’s a big multiple

Turner Novak:

Yeah, that’s fair. What, then what is your kind of rough ballpark then? Is that like a 5x, 10x over the years?

Like, what do you think you should shoot for?

Hans Swildens:

Well, here’s another one that is a learning thing. We’re, we’re having, we’re... This is probably number 10 on the list of talking to you Sell seconders Do a continuation fund.

Do a secondary sale. Do a, move securities over to a side fund to buy out the LP’s and the main fund from that security that wanna sell and get DPI. For the ones that don’t care about DPI, they’ll just roll.

Manufacture liquidity. Th- this is, this is something that people now, by the way, like the large platforms, have dedicated teams and their entire job is to manufacture liquidity. So if you’re a venture fund and you’re a seed fund and you’re not thinking about manufacturing liquidity, you also are a disadvantage to them there too because they will have more DPI and distributions than you ‘cause they’re manufacturing liquidity.

Then you have another disadvantage against them. So yeah, you need to start manufacturing because when you look at... You have to look at cash flow, time, and IRR.

So like LP’s don’t care if you give them a 5x multiple over 20 years. They’re better off buying muni bonds At no t- like literally, like it’s, your IRR is like six, right? I’m better off buying California muni bonds that are tax-free.

I will make more money buying an automated muni ladder than putting money with you, and I get monthly income that’s tax-free. So, like the multiple is one metric, the IRR is the other, and you need to look at both. Because if you’re not compounding capital at 18% plus, no one’s gonna give you money.

I mean, maybe if 12 they’ve... Maybe they’ll take a shot thinking maybe the next one’s 18 or something. But like if you consistently have produced 9%, 10%, 12% net IRR funds, that is not interesting.

How do

Turner Novak:

You look at, like a ‘19 through ‘21 vintage, like as a pool? Like, what are you seeing as being interesting in terms of like the IRR on that pool? Because it was like a, it was a, it was a rough vintage.

Hans Swildens:

The funds that we’re in that have manufactured liquidity are doing 10 times better than the ones that didn’t. But we’re in a fund that’s a growth fund, okay? Which you’d think got destroyed, ‘cause most of them did.

And it’s like two and a half X net. That’s a 2021 vintage. And it’s, it’s almost fully real- it’s almost fully realized, ‘cause they did a whole continuation fund out of it.

Well, the DP- it’s already got 200% plus DPI And they’re out of the securities. They’re sitting in the continuation fund

Turner Novak:

If you- unless you roll. So this is probably, 50 to 100% IRR, I’m assuming, based on when they did it.

Hans Swildens:

When I look at that manager, yeah, the IRR is awesome, the DPI is incredible, the multiple’s good. I’m gonna reload, ‘cause that manager managed my money in an amazing way, but it wasn’t through natural exits. It wasn’t through an M&A exit or an IPO exit.

It was through secondaries.

Turner Novak:

And this is, this is, a pretty new thing in venture, and we probably, romanticize the IPO and romanticize, this incredible founder relationship for decades upon decades. But in private equity, in se- like, I feel like it... The way I think about it is, as a seed stage manager, I’m, a lower bottom middle market private equity firm.

And the way private equity works, it’s like you sell to a firm that sits slightly above you in the stack, and then you sell to a firm that sits slightly above, and you might do that, four times. And then it’s, a public company. It’s a- but...

And that’s, super common. Like, there’s, five secondary transactions of the asset. It’s, 60, 70% of how people exit in that market.

Yeah. So y- and so you think over the next decade, this is just going to become... Like, as a, as a...

Maybe even today, as a venture manager, you gotta think about this. I don’t think venture funds have a

Hans Swildens:

Choice anymore. I think they used to have one, until for five years there’s 5 to 7% DPI coming out of the funds. If you’re in year, 10, and the, your fund has, 20% DPI, nobody’s gonna give you any money.

Turner Novak:

You would probably just need, an absolutely incredible asset in there to justify him not selling it. But you probably should’ve been trimming some over time anyways to give you some DPI back.

Hans Swildens:

That’s death to a firm. If you... Like, we have, we have this one firm which I can’t even talk to anymore because it’s like, and, it’s like the fund was awesome.

Okay? It was at, a 30% net IRR. It was at a 4x.

It was, four years in. I mean, it was cranking. And- They had a bunch of SPACs in the fund, three of them, and they could have sold them all.

And then all the SPACs melted, okay? And the fund’s at a.8 with no DPI. And they could have realized, a 4x.

It could be 400% DPI. And the only reason why they they didn’t, they they just decided to hold. Sorry.

Go ahead. I’m sorry. And it’s just, it’s just frustrating, as an LP because, I would talk to them and be like, “Just sell your fund cost out.

Just, take 25% of your securities and sell them. Keep the other 75, just give us our money back. You’re at a 4x, that’s great.

You’re at a amazing gross and net return. Like, you’re a home run. Like, you just won.

You won the lottery.” Like, you know what I... And the carried interest in that thing, it was, 200 million. So if you do the math, it was like 8, 700 million of profits.

It was $140 million of the GP that’s now zero.

Turner Novak:

That’s insane. That’s, that’s really unfortunate. Yeah.

H- how do you think AI is kind of changing this stuff? Like, is there any developments around the capabilities of LLMs that’s gonna impact the secondary markets, and maybe venture as a whole, and maybe... Like, what are you seeing already?

Hans Swildens:

All this stuff’s gonna impact you and me, for sure. It already has, I think. I think to under- W- we’ve been implementing, we have this GSAI internally we use, and then there’s also Copilot and some other technologies, and there’s a whole muc- bunch of new stuff coming down the pike that is making underwriting easier Better.

And we also are, I think sourcing is also gonna become much more improved. I think the entire process of sourcing, selecting, underwriting, transacting, exiting, even with the different secondary categories and segments we talked about, some of it could be more autom- Like if you just dropped your fund, uh, documents into, if I had an LLM that was my own, and you just like uploaded your, audits and your LP reports for the last five years, and all your one-pagers and all your financials and all your companies, everything like that, and I just like would spit out a price Or maybe that would help you value the portfolio. I could actually have a, I could have a statistical analysis of all that data

Turner Novak:

Oh, that’d be helpful, yeah...

Hans Swildens:

Where you, where you are in your capital calls and distributions and your IRR multiples, and at what points in time do you need to sell certain things or restructure things to get you and manufacture a 18% net IRR on a low case so that you, constantly are doing distributions and, and having a minimal return to meet the threshold of what your investors want. So you can manufacture it out if you have good assets. If you obviously have bad assets, no one’s gonna buy anything.

But if you have, good companies that are compounding that you could kind of use it to, continue to optimize that multiple VPI IRR matrix That’d be a

Turner Novak:

Very easy thing to do. Well, it’s, it’s just like a lot of work with all that, but maybe if it’s like a new relationship, you can just be like, to your point, “Give us all your stuff. We’ll ingest it all,” and the LLM will be like, “You know, this is directionally pretty interesting. Let’s spend some time.”

Well, thanks for coming on the show. This was a lot of fun.

Hans Swildens:

Yeah. It was great to see you, and thanks for having me.

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