Speaker unverified: evaluation

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…a separate fund which is just long-only and that can scale quite a lot. We tend to hold them longer and you can buy very large cap companies. So privates. What was your first private position for D1? That's a good question. I think our first private position at launch was, I rolled a stake… I had taken a stake starting in 2010 in a company called Lineage, which is a cold storage warehouse company that I rolled off of my personal balance sheet into the fund. And then we made subsequent investments and then in the first couple years we did a variety of different things. Some, I think, worked out not as well. JUUL was like a—I'm not quite sure if that was, it was good and bad at times. I think it's going to be good now. And then we did Ramp really early. That was good. John was nice enough to allow us to invest in Stripe. How did you underwrite Stripe? Because again, we weren't profitable at the time and, I don’t know, what does the process look like for something like that? I actually started out my career as a financial service analyst so I had looked at all the card networks, all the processors. It was pretty clear to me that the competitive set in merchant processing was very mediocre at best and that their technology was not conducive to most internet companies. Nor did they have the tech stack that would allow them to adjust to what was happening in terms of e-commerce. And look, at the end of the day, I think that there's going to be one, maybe two companies that actually can provide the technology for companies to enable e-commerce, or any online transactions, and you guys seemed pretty smart. We do a lot of work on management teams. Huge market, great management team, weak competitive set is a perfect recipe for making a lot of money. So you've got Ramp, Stripe, SpaceX and maybe one day, of course, all these companies go public, but it would seem as if there's a lot of later-stage private companies now. Why do you think that's happening and where do you think that's going to go in a couple of years? Are public markets just going to be the laggards and all the new hot stuff will be private? Or will it rebalance one day? I mean if I ran a private company like Stripe, I wouldn't go public. I think the public markets— It's kind of ironic because you're a public markets investor. Yeah, I think the public markets are kind of problematic at this point. Let's just take Stripe, for example, and I won't speak for John, but basically Stripe grows earnings cash flow at some amount. Value compounds and they do tender offers and the tender offers are relatively in line with the value creation and therefore the people who are working at the company, and they're creating that value, get paid for that value because the stock price goes up in line with value creation. Now what we see in public markets is you take your company public and depending on what the retail crowd is doing that day, the stock may trade at some insane value and most people are high-fiving, “This is amazing! Our stock is trading two X where it should be. This is great, we're all rich.” The problem with that is that— It goes both ways. at some insane value and most people are high-fiving, “This is amazing! Our stock is trading two X where it should be. This is great, we're all rich.” The problem with that is that— It goes both ways. You've now pulled forward a ton of value and so all the people working at the company now are being overpaid because they didn't actually create this value. The stock gets this value and then the people who you're hiring, and those people are probably more likely to just cash out because they've just made too much money. You're robbing future employees to pay your current employees. Exactly. And then future employees now you have to give them stock options or RSUs at a stock price you don't really believe in. And so the stock is so volatile that you're actually not being paid as an employee based on value creation. You're being paid arbitrarily based upon multiples which have nothing to do with the true intrinsic value of the company. I think obviously it's bad to be undervalued as a company because then you're issuing stock to employees at too low of a value and then they don't appreciate it usually. But it's pretty bad to be overvalued, too. Because employees, if the stock doesn't go up, they will definitely come back to you and ask for more options. If the stock goes up way more than it should, they're not going to come back to you and be like, “Oh, you know what? Hey, I made too much money.” And so you end up having this asymmetric—I think it's really not a healthy dynamic to be a public company. Is there anything that should be changed about the public markets to make it better? So, for example, Robinhood got rid of commissions. Is zero the correct amount of friction for entering and exiting trades? This is hard. I had breakfast with Vlad this morning and I really like Vlad. I think that it's a moment in time. My view is that over the long term, stocks will go to intrinsic value. It's taken longer than I've expected for some of these things. I still believe it. I believe it. I can't tell you I have a lot of evidence that's the case, but that will happen. That doesn't necessarily help a company like Stripe if they go public and if eventually in five years it's in fair value, but in the meantime they're just kind of— Whips up and down. Yeah, whips up and down, that's bad. I'm not sure you can do anything to change markets. Markets are inherently volatile. You would think that in the current world, if I told you that we just have perfect information, everybody has all the information, it's at your fingertips. Everything should be more efficient. Wow. Stocks are going to be so correctly priced! Right—everyone has this access to the same information. It's actually gotten less efficient over time, for sure. And I don't know, I don't think you can just necessarily fix that. You mentioned starting your career as a banking analyst. How has the banking industry changed? en less efficient over time, for sure. And I don't know, I don't think you can just necessarily fix that. You mentioned starting your career as a banking analyst. How has the banking industry changed? Most of the banks tend to be very dominant in one geography. They're not like tech companies like Google or Meta where they're just dominant. JP Morgan is dominant in the US, but Europe… Same thing with the European banks. Up until now, I think the legacy banks have, more or less, in most geographies, been able to keep their market share. However, you increasingly are seeing banks like Nubank or Revolut that don't have the tech debt of mainframes and old code. And just offer better customer experiences. Don't have branches, iterate on product faster, have better engineers. I think that those banks are going to increasingly take market share. Neobanks have happened in Brazil with Nubank, have happened in Europe with Revolut and Monzo and people like that. Haven't happened in the US, really. And there's probably other geos where they have and haven't. Do you have a view on, will it happen in all markets? Are certain markets more impervious than others? I think that it depends on how good the incumbent bank is. I think JP Morgan is a very well-run bank and the big banks are well-run, but do I think that they are vulnerable to disruption? Definitely. But you still buy bank stocks, so how do you get comfortable? Then there's a more theoretical question of, okay, well if all these AI agents… Basically, Revolut and Nubank just hired the best engineers and so they were just naturally going to beat JP Morgan. But if AI agents make it so now everybody has the best engineers, because best engineers are actually not people, they're just agents. Maybe JP Morgan can be as good as some other companies. That's theoretical. It's probably not correct. In the US, I haven't seen someone come in and be that disruptive. But is that because of market structure reasons or just we haven't seen the great founder yet? It's a good question. I mean, look, banking is not, it's not like you have both sides. You need deposits, you need to provide credit, and you need a lot of scale. And a market like the US is much more difficult to penetrate because it's so big and the competitors have so much capital to invest. Whereas, smaller countries… Revolut has low single digit to mid digit market share in every country. I think that'll keep growing, but they don't actually provide credit. So I think we're in the early days of disruption. I think if you roll forward like 20 years, there's going to be some companies that didn't exist 10 years ago but are going to become enormously large banks. But I also think the incumbent banks are probably going to innovate enough that they're not going to go the way of JCPenney. Last question. If you're a youngster interested in investing, you have views on companies but you don't feel confident yet in how to underwrite and construct a model and things like that, what advice would you give them? Someone who's interested in this stuff but still getting their feet wet?…

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