Episode 201 - Marks on the Markets: Beyond the Bubble: Why This Could Be Venture's Most Explosive Era Yet with Rob Go of NextView Ventures
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The venture capital world can currently feel like chaos—founders are "quietly freaking out" about AI's explosive impact while trapped in a brutal liquidity crisis that's left investors without returns for years. Yet beneath the turmoil, top VCs believe we're at the precipice of the most transformative technological revolution since the Industrial Revolution, with AI reshaping everything from software to hardware investing. In this raw conversation, three battle-tested investors reveal why they're more bullish than ever on venture capital and how faith-driven founders are stepping up to shape AI's future where social media let us down.
Please note that the views expressed by the hosts and guests are their own and do not necessarily represent the opinions of Faith Driven Investor.
All opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. This podcast is for informational purposes only and should not be relied upon as specific investment advice for any individual or organization.
Episode Transcript
Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it.
Richard Cunningham [00:00:00] You're listening to Faith Driven Investor, a podcast that highlights voices from a growing movement of Christ-following investors who believe that God owns it all and cares deeply about the heart posture behind our stewardship. Thanks for listening.
Host [00:00:17] Hey everyone, all opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies and securities discussed. And this podcast is for informational purposes only, and should not be relied upon as specific investment advice for any individual or organization. Thanks for listening.
Richard Cunningham [00:00:45] Well, friends, welcome back to another episode of the Faith Driven Investor Podcast. A joy to have you with us for what is episode 201. If you missed episode 200, it was a joy to have Luke Rausch and Henry Kasner with us, a couple founders of this FDI movement in space, talking all about the history and landscape and kind of where this broader movement has been and where God has taken it. And we're back with Marks on the Markets here for our July episode of Marks in the Market, joined by John Coleman. And John, we've got a couple of heavy hitters with us as we're talking venture markets today. And Jake Thompson, who runs the venture business at Sovereign's Capital, and Rob Goh out of the Boston area who runs NextVue Ventures. Gentlemen, this is gonna be a lot of fun talking venture market. We are just off the heels of 4th of July. How is everybody after their Independence Day? Oh man, doing well.
John Coleman [00:01:33] Well, it was a relaxed weekend for the Coleman family, and I feel like with the venture focus, we are doing our version of All In right now, and since JCal gets to falsely claim they're the biggest podcast in the world, I think it's safe to say Faith Driven Investor is the biggest podcasts in the word, so Rob and Jake, you make it that way.
Jake Thomsen [00:01:51] Awesome, Booth, you guys, and yeah, really a privilege. All the Thompson kids have all fingers after the long weekend, which is always a success. So we're excited to meet again.
Rob Go [00:02:00] Awesome. And we had a good long weekend as well. I actually was preceded by my 20th anniversary. So I went away with my wife for about a week before the long weekend. So getting back in the swing of things here. That's awesome.
Richard Cunningham [00:02:12] Man, that is awesome. Good deal. Well, yeah, the Cunninghams are here in Austin, Texas, where just, you know, worth saying, we are on the heels of some pretty devastating flood tragedy. Oh yeah. I was able to escape away to the Pacific Northwest with some extended family, which is just a beautiful place, but definitely coming home to heavy hearts and a lot of thoughts and prayers for the people around kind of the greater Hill Country area here in Austin. We had a boat swept away in the. Floods on Lake Travis in particular and that is about as small of an issue you could imagine considering what others are going through and just kind of the devastation and loss but shifting back to let's talk more positive things let's get into the docket today. Jake Thompson I kind of want to give you a chance because venture markets have been under the microscope if you will over the last few years there was kind of the peak valuations and the venture frenzy of 21 and 22 a little bit of a fall post that. The wave of artificial intelligence is taking off as of recent, it seems like there's some momentum and optimism back in IPO markets, but we maybe just kind of canvas the venture landscape for us over the last few years to kind of set our conversation today, and then I'll let Rob chime in after you. Yeah, small question. Yeah, very small, we're starting small.
Jake Thomsen [00:03:22] We're starting small. How much time do we have here? Absolutely happy to, Richard. Yeah, you know, even you asking that question just makes me think how resilient and unique the founders are in this season, because you think about these last five years and it's just been, we often talk about being a venture founder is like being a boxing match where you're just getting punched in the face over and over again. You're bobbing, you're weaving, you're trying to get some punches in. And this has been a season of a lot of those punches where you start off and there's relative normalcy right pre-COVID and all of a sudden everything changes, lockdowns, everybody wonders what's going to happen to these companies, are they just going to sort of shrivel and die, and all sudden there's unexpected boon with working from home and just a whole lot of optimism, right, as there's more money out in the system, a lot more people investing in these companies, valuations just shoot up, right. All the fundamentals get very, very positive. People assume big growth rates, low risk rates, and so even as you run the discounted flows of these companies. A bunch of reasons why it just ballooned up and became quite a bubble. And then you get to 2022, you have interest rates start to go up. That just let out a lot of the air from the system and it just got really, really hard to raise venture funds. 2021, early 2022, we saw this kangaroo explosion of new fund managers, oftentimes first time managers getting out there. It seemed like every dollar you deployed was just up and to the right, like, oh, this stuff's easy. How come not everybody's been doing this for so long? But then that 2022 came, rates went up, and just everything ground to a halt. You looked at the deal count just started to fall through the floor. You got the amount of money deployed, just so much uncertainty. Then you get to everybody's capital being locked up in the banks because you had the banking crisis that was soon after that. Everybody got to the other side of that thinking, okay, what kind of sigh of relief can we breathe? Rates started to come down, but then that stopped. Then you had AI, which is just such a fundamental revolution in so many ways. I mean, if you get back to the boxing match, now it's like a boxing match during earthquake. Where you just don't even have firm footing as you're trying to take these punches and give them. And AI today, and we'll get in more into this, but there's this term that was in a well-known blog recently that everybody is quietly freaking out, right? You might have money in the bank, you might have venture backers, you may not, which might be its own benefit, and yet everybody's quietly freaking out because you just don't know what's going to happen in three months, in six months, in three years, right. But there are these IPOs now, right, we went about two years with no tech IPOs. And then 2023 started to crack that open with a couple of Clavio, Instacart, a couple others over the next few months. 2024 is better, but especially the last few months, you started to see a decent number of IPOs. And again, we'll probably get more into that. But these are IPOs that are across a lot of different types of sectors that seem to be validating that people are ready to go back and go public, get DPI, right? Distributed Come back. And yet the fundamentals are still so uncertain, right? Today, capital markets do not like uncertainty. And so you get to where, okay, well, inflation seems to be low, but is that going to jump back up with tariffs, right. Economic activity seems to strong, but is, that can totally change with AI if people aren't backfilled as they're acquitting and just, what does that look like? So I think the number one thing that I would say today is there's just so much uncertainty that the last few years have been this combination of, well, pockets of really good data and fact patterns. Pockets of really challenging data and fact patterns, and a whole lot of uncertainty politically, economically. It's just a really hard time. And so back to my first point, founders in the season, a really, really special breed. Many of them are fit in terms of the fundamentals of the companies, and yet a really hard time to be running a company and to be investing in these kinds of companies, given some of that uncertainty.
Richard Cunningham[00:07:01] All right, that's a world-class canvassing. I can see John and Rob both kind of jumping out of their seats to jump in. So gentlemen, I'm just gonna kind of open the floor and say, Jake just opened up the Pandora's box. What thread would you like to pull on? Rob, go, we'll start with you.
Rob Go [00:07:13] Jake, that was an outstanding overview of the last few years and description of where we are. So kudos to you for sharing that. So I have this view that it's easy to think of where we are in the venture markets as sort of like a normal venture cycle, right? By nature of what we do, it's a little bit of a boom and bust dynamic. I actually think that we're not in the normal venture circle and that things have fundamentally changed, especially for early stage investors. So bear with me for a little bit. I think that there are essentially like four major shifts that have changed this market and more or less for good. So number one, I think the industry has matured, right? So we went from a world where venture was a cottage industry into a world where it's much more of a mature industry. What happens mature industry, there tends to be concentration at the top of the market. As the big players tend to compete on scale and scope, and there are small players, but a lot of the economic rents get concentrated. So that's number one. Number two, there's been a rise of two unstoppable forces in the venture market. Force number one is Y Combinator, which basically eats up, by my estimate, 10% to 15% of the early stage supply. The other unstoppable force are mega funds. That essentially take up another 10% to 15% of the market with essentially price and sensitive activity at the early stage. And so you basically have this shrinking canvas for early stage investors, because it's very, very difficult to compete against those two forces. The third is the idea of the power law went from being. Sort of like a non-consensus right idea to be something that everybody believes in and believes in to like the nth degree. And I think that that has huge implications in terms of how the different players in this market are behaving. And the last is we're at the beginning of this AI super cycle, which has a much longer time horizon than a typical venture boom and bust cycle. This is more of like 20 to 30 year horizon as opposed to a typical, I don't know, like five to seven year or like. You know, good times, bad times kind of cycle. And so you put those all together and man, we are in a different moment in time than we have been in since I think I started in the venture business more than, you know 15 years ago.
John Coleman [00:09:25] So I'll try and be controversial on the other side. Jake laid out some of the challenges to the industry. I think this is probably the most bullish I've been on venture capital, at least in my career. And I think the reason for that is, you know, venture capital ultimately is about disruption first, right? About the ability to start new companies that have the potential to disrupt or change industries and more mature companies. And about the advancement of technology, because the vast majority of venture capital today is oriented towards either hardware or software. And I thinking if you look at the underlying dynamics of the macro environment right now, we are on the precipice of what could be the biggest ... A series of technological changes in human history. So at least since the Industrial Revolution, but I could argue that it's greater than the Industrial revolution because the fundamental technologies are more advanced and capable of advancing more quickly. So if you break that down, what's good for venture investing? First is technological disruption. And I think disruption cycles in markets, in business, are faster than ever. I think new technologies quickly overwhelm old technologies. Business models change more quickly. I think there is more disruption in mature and immature businesses alike than ever before, which I think actually lends itself to new models and new businesses that can participate in that disruption. At the same time, I think we're on the precipice of several different technological advances that would be world-historic in their own rights and actually feed into one another in unique ways, right? The internet is probably the most disruptive thing that we've all experienced in our investing career in terms of fundamental change to technology. But I think a series of things around energy production, around artificial intelligence, around robotics, around medical and scientific advances, and maybe some other categories are all coming together right now in a mutually reinforcing way, which means that we could go through a transformation in the underlying nature of the economy, the way that people work and businesses work, that it's more radical than at any point in history. Now, that is predicated on the continued advances in things like quantum computing and energy, But if you think about it, artificial intelligence is like the backbone of that. But with the artificial intelligence, not only do you get this disruption in every single industry in the way that we have now machines that can perform like humans in terms of thinking, but those actually reinforce the technological advancement in those other areas. You need energy, for example, in order to support artificial intelligence. And so now we're seeing nuclear markets open. We're seeing advances in energy production technologies. We're seeing governments be more open to alternative methods of production of energy, both because of resource scarcity and the increasing needs of AI. You're seeing robotics advance in a way that, you know, robotics have been around for a long time. But the combination of robotics and artificial intelligence are going to create fundamental advances in those areas, I think, that are different than in the past, right? If you have humanoid robots, if you have self-driving cars or planes, now we've got hypersonic jet engines, which are making a comeback and more accessible and cheaper to produce. And AI is able to advance those technologies more quickly than they would have advanced in the absence of that. And that bleeds into things like medical technology, et cetera. And so if I think about just the fundamental opportunity to try and get in on the ground floor of the creation of new businesses that can fundamentally grow into massive businesses in a much quicker cycle than ever before with limited resources, I think that capability is greater. And the ability to dig into these technologies that are gonna influence the way every mature business operates in the world, right? Every single business has to pay attention to robotics, artificial intelligence, energy and other technologies right now. And I think new companies are best positioned to at least start those and pioneer those. And then, Jake, what you mentioned is the other side of the capital markets is now wide open. Rob, you mentioned mega funds. Jake, you mention IPOs. There's less, I think, constriction on the ability of big companies to participate. We're seeing Google and Meta and Microsoft done hundreds of billions of dollars into these markets now through acquisitions, acquihires, funding new startups. So, I think we could be on the precipice of a massive, massive technological change. The best way to access that change being through venture investing and venture backed companies. So, that might be the optimist's view for why now is actually one of the most exciting times to be in the market despite its challenges.
Jake Thomsen [00:13:55] Yeah, I'd agree with you, Jonathan. I'd say that's almost two sides of the same coin, because what I hear you saying, I draw a distinction a little bit, there's the technology markets generally and completely agree with what you're saying, because technology is being supercharged in all those ways. And some people ask, well, hey, is there still generally the advantage of having venture versus public markets? And to your point, right, there are these category-defining companies. If you look at the 1980s, 1990s with the personal computer revolution. And there's been research done that says, well, every dollar of revenue for the Microsoft's, IBM's, the Apple's in that season led to about $10 of GDP, right? You have this 10X multiplier of the underlying technology. I've got to believe that AI, I mean, it could easily be 10X at, right? For every dollar that is spent on revenue in these AI solutions, could lead to 100X at in terms of general growth of the economy, economic activity, and good companies have always been able to capture the value they create. And so I think we'll continue to see that. We'll continue see in the longer term, our performance and venture. And at the same time, it's never been easier to write code to start a company. We've never had so many companies, right? You just look at base 44 acquired by Wix after six months, right, for $80 million, right. To be a venture investor and say, well, it used to be the software that was really hard to develop. And so, I could bet on a good team that could develop software. Well, now that's the easy part of it. So almost the picking the winners as a venture investor and all the competition you have as a Venture Founder, I would say makes it harder as an individual in that system. And yet the system overall will continue to go in a really exciting direction, because I agree with your analysis there, John, that the market in general will drive forward in really compelling ways. It's interesting though, that
Rob Go[00:15:36] But there's this very stark dissonance where I think most people agree with what you share, John, at the macro level, right? Like a huge amount of optimism about the potential of these technologies to be transformative and be, you know, kind of multiplicative in the economy. But at the same time, you have a lot of folks on the ground who are having a really either raising money, building companies, exiting. Lack of liquidity. So that dissonance I find very, very interesting. It's not that those two things are in conflict with one another, but there are other things going on that we need to get through to enjoy this period of flourishing that hopefully will be on the other end.
John Coleman [00:16:13] The illiquidity in capital markets, particularly because Jake mentioned DPI in his opening comments. I mean, any time you talk to a limited partner right now, they are not getting the money back for the last three years that they expected from their private funds, from private equity, from venture capital, et cetera. And so I do think one of the challenges for the industry is like, how do we shorten that liquidity cycle in such a way that people actually have the liquidity to reinvest? In these markets because the hold times have just been too long for people to get the liquidity to reinvest. And so Rob, I think you and Jake are entirely right. The capital markets are still a little frozen for investors who have traditionally participated in venture because they remain over-allocated into old funds from which they haven't gotten distributions. Right? And I think the IPO markets and, you know, big companies like Meta or Google or Microsoft acquiring are helpful to introducing capital for acquisitions, but not for funding from the ground up, or at least dominantly not for finding from the ground up except internally. And so there is a disconnect right now, I think, in the capital markets and the opportunities that might be out there if they were.
Richard Cunningham [00:17:17] All right, we've got three really intelligent gentlemen going at it here. And then I consider myself the people's host because then there's me. And so just to kind of level set, because you've thrown out a lot of terminology, Jake and Rob in particular sit in the general partner seat, which is they are fund managers. They go raise limited partner capital from wealthy individuals, family offices, high capacity folks, institutional investors, things, endowments, pensions, foundations, things of that nature. They pull that capital together as venture managers and then go deploy it into Deals, founders, startups, and those folks. And so they kind of have this unique perspective where they've got their limited partners they need to care for because they're stewarding and shepherding their capital. And then they go out and they pour the capital they get into companies they want to take bets on. And so I just want to kind of orient people around to where expectations are. And you've got this liquidity issue where the limited partners who have invested in the funds are eager to get DPI. So distributions back to themselves as investors. They're saying, hey, we need these companies that Jake and Rob have invested in. To exit to generate some type of return so we can get our capital back and go invest in another fund or whatever it might be, or we're just, we're liquidity strapped and we need to get some cash back in the door. So just kind of want to get some terminology right there. So Jake and Rob, in that seat you're sitting in right now, what are you thinking about the most? Cause you've got to source new deals, you've gotta go find the founders out there. You've got the founders you have invested in across your funds. And then you've also got the demands of limited partners who are asking you, knocking on the door, Hey, when are we going to get those distributions? I mean, you're in an incredibly complex role right now with all the dynamics we've spoken to. Maybe the question is just how are the founders doing? Like those that you interact with on a day-to-day front that you're investing in. Jake, you mentioned their resilience early on. What are they thinking about right now and all the founders that you've invested in?
Jake Thomsen [00:19:03] Yeah, so it is, it's a difficult time where I think I'll go back to what I mentioned earlier of just not quite knowing what things will look like for the next few years, largely related to artificial intelligence. I mean, late 2022, when chat should be first came out. I remember being at a Christmas party and just making Christmas poems from it and thinking, oh, this is going somewhere. This is going somewhere pretty fundamentally potentially changing of everything we do. And yet we don't know what that looks like. I couldn't have guessed how I'd be using various LLMs and AI and CLOD today. And I think you generalize that and you say, well, what does that look like over the next few years? And it's almost a, you don't know what you don't t know where so much of technology has been linear, where you can kind of see, okay, the internet, you can track where we thought it would go. Right. First, you had more of a linear progression of everything that was already being done came online. Right. All of a sudden you had the white pages, yellow pages online. And you had Pepsi.com, right? Business as usual is now online, but we couldn't have foreseen were those internet native companies, social media and others would probably wouldn't have said this is going to happen down the line and yet those are some of the biggest companies of that era. And so I think the question is, how does it fundamentally change? What does it look like to be AI native to implement these tools? Because if you're not implementing tools at every level of your stack, if you are not hiring people that are thinking kind of first, how do I adopt the efficiencies of a lot of If you have this framework where there's perfect competition on one end, venture has always been very clunky, right? Again, the software, trying to get venture investment. Well, it's becoming more and more increasingly through AI of a perfect competition construct. And you're going head to head with a whole lot of people. So we see a lot of founders that they'll raise around, they've got 12, 18 months, and they kind of can breathe for a little bit, but they're already terrified of what 12,18 months looks like because they're going to build with working hypothesis. They don't know how that needs to change. So they just can't. Have a magic crystal ball and try to figure out what that looks like. So it's just, it's that uncertainty is what a lot of these founders are experiencing day to day. That's what we're seeing.
Rob Go [00:21:02] Yeah, maybe if I can chime in, we were thinking about all the things that you mentioned, right, liquidity, new investing, you know, supporting the companies that have been out there, right? Like the beauty and the curse of being a fund, you know, having multiple funds that are in different stages is you kind of have. You know, I'm thinking about a founder who just raised their first seed round last week and they're just trying to find early signs of product market fit, and then I'm talking about founders that, you know, they're 12, 13 years into their journey and they are either thinking. How do I get an exit or like maybe it's day one and I see another 10 to 20 year horizon here for this company to keep on growing. And how do I be aggressive about that? Right. So it's kind of funny being a GP, you kind of like live all these parallel lives at the same time. I actually think that there is general optimism, I would say, you know, in our portfolio among the founders, right? Because if you started a new company. You're hopefully optimistic, right? Like you're still trying to take the first hill and you build conviction around this problem and this product that you're building and you're excited about that. I think for a lot of companies that are in the mid or later stages in life, they just got through this very, very difficult period where maybe they were sitting on a super high valuation, had a lot burn, they had to get fit and get their companies in shape, but they've sort of done that. You've either done that or you haven't, you're not gonna survive if you haven't done that And now you have this like new substrate of like really, really interesting capabilities that hopefully you're forward thinking and are applying into your businesses. And you're seeing really great returns. Like one of the interesting things about AI is that a lot of the returns can accrue to scale players, right? Because if you save, you know, 10 or 20% of costs somewhere. Like it doesn't matter that much if you're like a 10% startup, it matters a ton if you are like a, you know, thousand person company or a company of really significant scale. And so, you now we've seen a lot of our late stage companies, you have new lines of business or massive efficiencies gained through some of the, you kind of low hanging fruit presented by AI and that's just really the beginning. So I think that generally there's actually a lot optimism in the portfolio, albeit with full awareness of a lot the challenges that folks are encountering as well.
John Coleman [00:23:13] Are you seeing a bifurcation amongst type of companies? So like one of the things that strikes me, because Jake mentioned it earlier. You know, we are seeing companies now that barely even exist with people leaving OpenAI or Apple or whatever and getting like a billion, eight billion dollars. Johnny, I haven't got these crazy valuations. You can build a billion dollar company with a couple of people now that's software oriented, that's AI oriented. But we're also seeing a shift to hardware investing and venture and breakthrough hardware technologies, where obviously the capital intensity of those businesses is greater. So it's a little opposite of what you guys described, where there's just so many founders, things are getting created so quickly. You know, to create, you know Jake a cloud seating platform or something like that. You actually need more capital intensity to make that work. But we're also seeing some of the most interesting companies being hardware oriented now rather than software oriented which I think is a bit of a pivot. Are you guys seeing kind of a break in the types of companies in the way in which founders are acting or VCs are acting at the moment?
Jake Thomsen [00:24:15] Yeah, I'll chime in and say, absolutely. And I credit that with a couple of different trends. One, because software is no longer the scarce resource, right, we're investing in things that five years ago, we would have said, well, there's friction there because it's hardware, because it is hard tech, because there's a services component. That friction was a negative back then because you really wanted to focus on the software piece. Now that software is almost interchangeable, all of a sudden that friction becomes your economic mode. And so it's the way that you protect your positioning. And so we are, I mean, we've invested in a handful of companies that wouldn't have been on the target in the past. I think there's that piece of it that the hard things are more defensible. There's also, I love to hear Rob Stotz on this too, but there's almost a change in the zeitgeist a little bit of kind of what founders are most motivated by. Probably the confluence of whether it's the elites in Silicon Valley, right? There are more and more, you mentioned all in podcasts, right. And there's a couple of those guys just have gone a little bit more right and unpack that in ways that they're being listened to. You've always had Peter Thiel's and Elon Musk and Mark Andreessen with American dynamism, right? You have more of that where there are the cultural elites, you have this almost political narrative, which not to get too much kind of sociological, but the difference in just the tenor of the two different administrations. Right this administration is much more the vision of the good life is quite different therefore the threat we face is quite difficult and that threat tends to be external right it's different nation states it's the the future of american prosperity right there are a lot of founders that have been there quietly building that now have a renewed sense of agency and a new voice and so we're seeing i'll just give a shout out to the reindustrialized conference right it in its second year up in detroit on this week there's like discipulous ventures that are all hard tech investors. I mean, Rob talked about Y.C. And the bellwether they are. You know, Gary Tan, just I think it was last week, had said, hey, we've really been focused on agents and the rest, like we need to focus on hard tech, too. So they're making a call for startups all around the hard tech space. And you see, take those two things that the elites, the political narrative and then even the policy where there is more I mean tariffs do lead to reindustrialization in a way that we saw a lot of interest in a company just recently that their thesis was the U.S. Produces the most cotton in the world. And we import the most cotton products, but all the steps in between, right, it's going all over the world before it comes back. Why don't we just have technology that are 3D printing for knitting, right? Let's build something like that. And a bunch of ECs were clamoring to get an awesome entrepreneur. But that is something that wouldn't have been nearly as competitive a deal even just two, three, four years ago, because you have the type of policy like tariffs that make that possible. You know, the Pentagon launched its Office of Strategic investment right to invest in long term hard tech and that was. Signed under Biden but wasn't operationalized until just now. You have a lot of things coming together that I do think you're seeing like cloud seeding, like nuclear small modular reactors, a lot that just would not have been considered kind of core venture that are getting closer and closer to the core just over the last couple years, especially the last year in particular.
Rob Go [00:27:15] I'm going to take a little bit of a contrarian view here. I think this is a point of view that like software is commoditized because of AI. I don't think that's going to be true. I actually think that great products will still distinguish themselves. I think that crappy products will be commoditize, but I think really great software products will still stand out and you're going to build amazing companies around that. I think that there is a couple smoke screens on the two extremes, right? Like the 10 person billion dollar startup. I don't know if that we've seen that yet. I don't know if we're actually going to get there. There is a billion dollar valued companies with 10 people, which are essentially acquihires. But like, you know, are 10 people going to build great products that customers use and pay for and are defensible? I don't really know if thats going to happen. On the flip side, I think the hardware thing... We have some hardware companies in our portfolio, and so I'm not going to knock that, but I think it's a little naive to think that like, okay, like things are just going to be easier for hardware startups today. I think there's two forces going on. I think one, we're in a boom cycle within sort of AI robotics and that sort of thing. And so capital is just flowing there more easily. I think the second is that like because it's been a hard period in sort of traditional software or, you know, software exits, there's the sense of like, If I'm not going to get a decent outcome from a software company, I may as well bet the farm on a crazy hardware company, right? And by the way, the mega funds have a ton of capital that they're pouring into these things. So I'm probably going to getting a markup or my chance of getting a markup is just as good, right. As a software. But like when this is all said and done, like what are the best companies going to look like? I think there's still going to. Look mostly like software.
John Coleman [00:28:58] Can I ask a second question to you guys? So, I remember a very contrary intake I heard, gosh, nearly 20 years ago now, 15 years ago maybe, from Peter Thiel, where he was arguing that basically there hadn't been much scientific progress since the computing revolution, that most of the new technologies that are really exploded. Were not actually human advancement in the way that cars were, industrial technology were, like social media, which I would argue has been arguably one of the only tech advancements that's been like a net negative for society, at least in the ways that it's impacted individuals for human flourishing and on, you know, metrics that we can measure, there are a lot of problems as a result of that. It strikes me picking up what Jake said with this tenor of American dynamism, solving hard problems, and maybe Elon was a part of this or others were. That a lot of entrepreneurs now are thinking about impact more than they were in the prior cycles. Like a lot people rather than just saying, I'm gonna create the new social platform or a new dating site or whatever, are really leaning into structural problems that humanity faces, whether that's manufacturing. Defense technology, energy production, weather influence, things like that, where they can define what they're doing in terms of the positive ways it will impact flourishing in society and represent more fundamental scientific and technological advances. Am I just like an optimist about the environment right now or are you guys seeing a similar vibe shift, so to speak, amongst founders? Like how do you see that versus maybe 10 or 15 years ago?
Rob Go [00:30:30] So embedded in that question would be the thought that 10 or 15 years ago, founders maybe were less ambitious or saw less of a connection between what they were building and sort of like the meaningful problems of the day. I don't think that's the case.
Jake Thomsen [00:30:47] I agree. I think the founders that do really well, you've got to have that conviction that you're doing something for a very good outcome, not just financial outcome, to put yourself through this kind of wringer. And I do think this maybe is a bit of vibe shift just more recently than 10, 15 years ago. And it's a gross oversimplification. But if the prior spirit of the age was almost like seeing the good life is a bit different and therefore the threat's a bit different, I think there was almost a sense of the threat is internal in some ways. And the way that people, not both what they built, but also how they built I think was very much aligned with their value system, right? This is where you got to a lot of, how do you think about who we hire? How do we think about addressing some of the problems in society through various structures and systems, right. A lot of just the conversation of the last few years, you saw that as a big conversation in the tech community. And so it's almost like the problem that was being solved more recently, might've been different than addressing that threat externally, a little bit more of like, hey, we're addressing the threat in our systems and structures. So that there's always, I think ever since the beginning of Silicon Valley, where you got all the hippies going out and saying that we're going to build new things for society, I think that's still there. It just takes different shapes over time.
Rob Go[00:31:56] I also think that companies like over time earn the right to expand their ambition. And that's not really a problem. And sometimes you have companies that go out with huge ambitions out of the gate, but it's just not practical or, you know, it's more narrative than it is reality. One of the things that I really can't stand in the market right now is this concept that like, you need to have this infinite narrative in order to be a successful startup company. And I think that that's just like so backwards. Like we've totally lost the script if that's what we're telling founders at this point. Because like, I think building great products and solve real problems is like the ultimate narrative. And if you have success and scale that earns you the right to expand the narrative down the road. And in an example of that in our portfolio, we're investors in this company called Whoop which is a human health and performance company. We've been in this country for 12 years. You know, I think Will is a very ambitious founder, but it had a very narrow goal around trying to understand rest and recovery for elite athletes, of which he was a part of and he had connections to those type of people. And in the last year, they've expanded the vision of the company beyond what originally was around human performance to lifespan and healthspan and longevity. And I actually think that this is a company that they could have gone out with that mission out of the gate, and maybe that was in the background, but they had to should earn the right to be able to do that and to do it credibly. Instead of just being a business that like, okay, we're saying we're going to do this great thing, but like, do we really deliver outcomes for our customers? Or are we just like, you know, trying to feed into an infinite narrative so that folks will fund us down the road? I don't know. I just don't like that.
Richard Cunningham [00:33:32] All right, shifting gears a little bit, wanna go into the performance conversation some. Both of you guys, Jake, Rob, John, you as well, I mean, you've been in market raising funds, private market funds in particular, and the MAG-7 went on such a run. How was it defending private markets investing to limited partners who were just saying, hey, if I just put money in the S&P 500 or the NASDAQ, whatever it is, it just goes up into the right and this is easy. Like, why on earth would I tie up money for long periods of time in the liquidity window? Where are you at sentiment wise? What are you recognizing in the market as people kind of LPs in particular look to the private markets, ventures specifically, with kind of this private versus public and how folks are kind of reconciling that conversation and just kind of the overall performance of the asset class.
Rob Go[00:34:19] So this goes back to the point I had around the power laws consensus. And I think we've really seen the power lot work over the last few years, not just in early stage investing, but across all stages of investing, right? So you talk about the mag seven. We don't hear that as much, but what we do hear is, boy, I could have just bought late stage SpaceX or, you know, shouldn't I have just like bought Nvidia stock and like, how are you going to beat that, right. We've seen this like concentration of performance in a very, very small number of companies. And so if you're, you know, because when you buy venture capital, the whole idea is you're trying to buy alpha, trying to by like outperformance while absorbing a greater amount of risk. And, you there are other ways to do that. I think that in the last few years, that's actually been a very compelling argument. It's hard to actually argue against that. My view, though, is it goes back to sort of where we are in the innovation cycle. I think that we are in the very baby step ages of the super cycle around AI, which over the arc of the next 20 or 30 years, I think, that you're going to continue to see our performance from early stage private and liquid investing in the application layer. But early on, you actually don't, right? If you think about the early days of the internet, most of the outperformance comes from a very small number of infrastructure and sort of enabling technology players, right? And that's where we are on this innovation wave. Or, at the end of the last cycle... You know, all the performance is concentrated in a couple like big, big mega late stage companies. So we've been in this like moment in time where I'd say early stage venture is almost destined to underperform. But I think if you look over the arc of several decades, there's reason to be optimistic because, you know the stage that we're in is not going to last forever.
Jake Thomsen [00:35:58] And that question, too, is a little bit of selection bias. If you knew the Meg 7 were going to be the Meg 7 number of years ago, well, yeah, it makes all the sense in the world. And if you knew, the hottest venture names are going to the hottest names, and you bet on the fund that had those, I mean, you'd drastically outperform the Meg seven. So I think one of the benefits of a venture capital is you do have professional managers that are going out finding these companies, that you have a distribution that the median is still going to outperform. You can't always pick the winners ahead of time. If you invest. If you take that view now, only time will tell. But if you have a basket just in the mag seven, who knows what that'll look like over the next three to five years, especially compared to the up and coming private companies that venture would invest in.
John Coleman [00:36:38] In a couple of macro comments, and Rob touched on this, the outperformance of public markets generally has been enormous, particularly since the great financial crisis starting in 2008, 2009 after the collapse. We have been in basically an uninterrupted bull run with little dips around COVID and some other things that's like historic in relation to public markets and one of the biggest bull runs in the history of public market. A lot of that outside of these Mag-7 was fueled by monetary policy, honestly. You dump trillions and trillions of dollars into an economy like you did after the great financial crisis, like you do during COVID and after COVID probably too long, and you're going to inflate markets. That money has to go somewhere. Public markets are going to go up. U.S. Public markets are the biggest destination for capital in the world right now. U. S. Public market are the flight to quality. They're going to go up. And so the return to the S&P 500, particularly for the last 15 years, since the great financial crisis or a little bit longer, have been an historic bull run, even outside the mag seven, even without selection bias, which I agree with Jake, private markets over that period of time, still outperform public markets, but by less than they used to And I think one of the things that Rob and Jacob already mentioned is the number of new GPs in private markets has exploded over the last 10 or 15 years, particularly that COVID bubble where in 2021, we were just seeing a radical expansion of the venture capital industry. But what that's led to is a bifurcation between the best venture capital firms and the worst. If you look at top quartile venture and private equity firms, they're still blowing away public markets. If you look at the average or the median. It's a little bit more compressed because the bottom quartile performers significantly underperform public markets. I mean, the gap between a bottom quartel and top quartile venture firm is like 2,000 basis points, right? It's not, you know, 100 basis points. There's a huge difference between the quality managers in this area and those managers who aren't consistently able to produce quality. And so I think... You know, we do hear that a lot. I mean, you know, the famous example, the Buss family is selling the Lakers right now for $10 billion. It's the biggest sale in the history of American sports. He bought the team for $68 million in 1979, got $10 million for the family here in 2025. If he had invested that $69 million in the S&P 500 in 1979 it would now be worth $13 billion, right? I mean you know you get these anecdotes all the time. But I do think, look, bull markets don't last forever. I think private markets still outperform. I think particularly with the winnowing of GPs that's come over the last four or five years where the number of new funds started has declined, that you will see better funds continuing to kind of outperform public markets, particularly as they plateau. And the only question mark now is, do we now live in a winner-take-all world where the mag-7 or the top 10 or 20 companies in public markets that are massive, that have tons of cash, whether that's Apple or Google or Microsoft or Tesla or maybe OpenAI, once they public, etc. Are just so scaled and better able to compete in this new environment because of the capital at their disposal that they can continue to accumulate the vast majority of returns in public markets. And Rob, you mentioned like late stage SpaceX, like 50% of the returns of the S&P 500, not the alpha, the returns to the S& P 500 have been the magnificent seven over the course of the last, I think it's like three or four years, right? 50% of the returns of 3,000 stocks have been seven stocks, right? And the question I think some people are asking is, is this just the new normal where it is more of a winner-take-all in public? And that is a question, I think, but I think the average performance of private markets versus public markets is likely to be a bit better going forward, and particularly if you can get an above-median manager or top-quartile manager, their outperformance has actually been pretty steady over that time and will continue to be.
Richard Cunningham [00:40:48] Good reflections. Thank you, guys. Hey, let's go around the horn one last time before we get into our final question and just, hey, what's that last thought kind of thing on top of your mind that we didn't get to, I got my eye on the clock, that you'd want to share maybe just a quick kind of comment on the venture markets you'd like to leave the listeners with. Rob, we'll start with you.
Rob Go [00:41:03] I continue to believe, and actually it's validated with folks I talk to actually know a thing or two, I think, about the technology, we are much more likely to underestimate the impact of AI than we are to overestimate it. And that's easy to say now, I guarantee you, in two years or so, it's going to like an AI wasteland because these markets have this sort of boom and bust dynamic. So just remember, when we're in the bust period, sometime in the next couple of years, even when we were optimistic, we were underestimating how great this is gonna be. So that's my last thought. All right. Jake, what do you got?
Jake Thomsen [00:41:42] That's a great thought and totally agree I might take a little bit different perspective just given this subject matter we have around faith. We've had a lot of conversations recently about technology and at what point are we playing God and we're all kind of nervous around this and how do we think about it faithfully and I just love that the simple framework as believers where we can look to scripture we can say okay where's technology show up in scripture well a couple of illustrative examples right you got God quite literally prescribing technology right you read in early and assess where he gave. Most advanced maritime technology, like quite literally the schematics to go and build tech, right? So, so God has prescribed that at times. You go to the Tower of Babel where there's this construction technology able to build something, but for all the wrong reasons, well, God decided to step in and actually thwart something that was going in the wrong direction for his overall plan. And you look even further on and you can see where he repurposes technology. I mean, the Cross was quite literally, the most advanced kill chain technology of the Romans. And we all know that that took something that was so awful and horrible and turned in the most beautiful day three days later of all of history. Right? So God can prescribe technology, can thwart it, can repurpose it. And so we don't have to be afraid, I guess, to the point. We serve a sovereign God. We are His hands and His feet. We can go and develop thoughtfully, right? We can build. We can use products. And I think we can have an optimistic perspective of technology and of investing in technology, even from the fundamentals of our faith.
John Coleman [00:43:05] And I just want to build on both of those comments. Rob, I think you're 100% right. I mentioned it earlier. I think we're underestimating the technological change that's coming. I mean, the only thing I can think of that's even remotely similar would be the Industrial Revolution, which fundamentally changed humanity. I mean GDP per capita now is something that one or 200 times what it was for the 3,000 years prior to the Industrial revolution, right? And I think this change that's coming, you know, absent some sort of intervening force. Technology continues. We are in for as radical a transformation of the human experience as the Industrial Revolution, maybe even more so now. And there's reason for optimism. Rob, I think every technology everyone has ever been afraid of in the history of humanity has worked out better for humanity. There have always been anti-technology movements, they've always been wrong. However, you know, there are visions of the future you can paint now where we have humanoid robots and artificial intelligence and people are out of work. Disruption cycles like the Industrial Revolution lead to abuse. They can last for decades, not months or years, right? And so I think particularly as people of faith who care about individual human flourishing, we have to be optimistic because of our sovereign goddess, as Jake articulated, but we have be uniquely attentive to what is changing about the human experience and how can we as investors and people help to shape that in a positive and constructive way and help the people who are struggling with this adjustment find their purpose, meaning their way of life through that, right? Because you can picture this going bad and us ending up in idiocracy or wally, you know, this terrible vision of humanity where we serve the machines or the matrix or the Terminator if you're really, really negatively inclined. You could also picture like a Star Trek future where all this technology enables us to explore the stars, to learn more about ourselves and the universe, to really uncover something beautiful about humanity. And that choice is going to be not ours to make. We have a sovereign God, but we have an influence here as people of faith, I think. In the way that humanity navigates this transition. And if Rob is right, that this is gonna be bigger than we even anticipate right now, I think we have to be more attentive to what that does to individual people and how we as investors and technologists shape that future such that it can be a continuing positive story rather than an era that we look back on and say, wow, there was so much that was broken then, there were so many people who were lost, there were many people that didn't navigate it, right? And so. That's one thing I think about a lot is like, this technology is coming. No one can stop it. Absent God in a Tower Babylon moment, no one can stop it! How can we navigate that in a way that the average person's life gets better, not worse, and that humanity in the future looks better, not worse.
Jake Thomsen [00:45:50] If I can, not to extend this too much longer, but let me just pick up on that. It's been so encouraging, you know, at Sovereigns, we invest in faiths and founders. And this weightiness and this sense of stewardship that you're talking about, John, it's so cool to see the body of Christ stepping into. And there's this felt sense that we kind of missed the boat in social media, right? And there wasn't a strong view of human flourishing in a lot of the companies that really shaped social media. And we kind see what happened with mental health and depression and the rest. And there was this felt of sense of We can't miss a boat with AI. And so believers have to step in. We have to build with excellence, but we have to built with the meta narrative and view of what it means to be human, like what it mean to flourish, right? And that's been a really cool thing to see from my vantage point of the way that we are the hands and feet of Christ, even in technology and to see the charge that a lot of faith from founders are taking. I've been encouraged by that and just values driven founders for that matter, right. It doesn't necessarily have to be from faith, but that's cool to see.
Richard Cunningham [00:46:45] Well, Rob, your comment was so profound that it caused John and Jake to misbehave and jump the gun and start giving a kind of a scriptural spiritual reference before I ask the question. So we're gonna give you the final word on anything God's been teaching you and then through his word lately, it would take us home.
Rob Go[00:47:02] Yeah, so there are a couple of things that I'll tie together and I'll make a couple of recommendations to while I'm at it. So we're investors in this company called Hallow, which is primarily Catholic focused, but really it's an app that I use every day and there's a bunch of different types of content that you can consume there, but anyway, so this morning the scripture reading was around Jacob wrestling with God. And one of the things that really struck me about that passage was how kind of like in awe and fearful. But also anxious, but also amazed he was to have had a direct encounter with this being. His response is both like, he's fighting with this person. He's like, wait, who are you? Tell me your name. Oh my gosh, I can't believe I survived. It's just like this amalgamation of emotions because of how rare and unusual it was, I think, for him to have this direct encounter. So that really struck me. I've also been reading a book by Greg Boyd. I'd previously read a book of his called Cross Vision, which is pretty dense. He essentially created a, like, 120-page, easy-to-read, good parts version called God Looks Like Jesus. And his basic thesis is, you know, it's very hard to understand the God of the Bible unless you think of Jesus as the full reflection of God's person and character and the ultimate reflection of that. And when I put these two together, the reflection that comes to mind is just, like how privileged we are that we live in the era of post Jesus, where we don't need to. Have an encounter with God that feels so mysterious and weird and unclear where we have a person that is a more complete reflection of who God is and then that person invites us into a relationship with them. And so it's just like such an amazing privilege that we can have that intimacy and a reminder that we didn't always have that. So that was kind of the thing that was on my heart today.
Richard Cunningham [00:48:51] Perfect word. Well, folks, what an epic edition of the FDI pod. Thank you so much for joining us. Jake Thompson of Sovereign's Capital, Rob Go of Next View Ventures, what a treat to have you guys on. For John Coleman, I'm Richard Cunningham, and we will catch you next time.
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