Grit vs Grift

[00:00:00] Hi, I'm Eric Newcomer. And I am Madeline Rynbarger. And this is the Newcomer Podcast. Each week, Eric and I discuss the VC deals and the drama that went down. Let's do it. Here we go. Welcome back and happy Tech Inauguration Week, Eric. Happy. I'm happy, but I don't know if I think the Inauguration Week is making me happy. Is a cause for celebration?

[00:00:29] You know, it's sort of I'm happy despite everything that's going on. Is it a cause for celebration? I mean, the image has really stuck with me. We've written a lot about, you know, tech and politics over the last few months. And we had all the tech CEOs sitting right behind the dais as, if you will, if as Trump was inaugurated. Elon Musk, Jeff Bezos and his wife, Lauren Sanchez, Sundar Pichai from Google, all lined up ready in the front view.

[00:00:55] You know, it's like the anti-elite candidate. You know, the guy who represents the masses has got, you know, all his billionaire CEOs on stage with his cabinet secretaries. And we've got governors sort of cast off to the side. You know, I feel like the conservative critique of the left is always that, you know, where you have the left, which I include myself with such a hive mind. We're sheep.

[00:01:25] We're all sort of humming at the same tune. And then to watch the inauguration where, like, everybody's on message. It's like DEI is over. My Twitter feed is, like, singular in its message of this new moment in time. Goodbye, liberal groupthink. Hello, conservative groupthink. My Twitter, maybe I need to get on Blue Sky. I'm sure some of the Democrats on here will be like, get off Twitter and you'll see a different world.

[00:01:53] But my Twitter is, like, so unanimous. It's like DEI is over. It feels like the fight is whether it's, like, we're getting rid of DEI or we're getting rid of, like, the Civil Rights Act itself. Yeah. And then at the same time, you've got the sort of conservatives paying fealty to Trump. You know, you've got Sam Altman and Masa, Yoshi's son, doing this Stargate thing with Trump.

[00:02:18] Though, obviously, you know, if it's a $500 billion deal or whatever, it didn't come together in the Trump administration. You could imagine. That had to have taken a lot of time and effort to put together. This is clearly, you know, Trump jumping on something that was already existing. Right. So you've got. In the works. You've got, you know, at once sort of a collective decision that we're moving on from sort of the cultural moment of the woke years. And we're there's no resistance.

[00:02:46] All the elites are going to pay fealty to Trump and hope that sort of kissing up to them. He'll forget his hatred. You know, there was a point on one of the interviews. Just I have to say this where Mark Zuckerberg complained about how like Joe Biden had talked about him. I think Joe Biden may be called Zuck an oligarch where Trump has literally called for like Zuckerberg to be like jailed.

[00:03:11] You know, it's just like somehow it's like the tough talk from the Democrats was so mean. They mentioned that we're very wealthy. Like but in Trump, meanwhile, like throws around the idea that he's going to like jail his opponents. And people are like, oh, yeah, like, you know, that's Trump. He's just talking. Anyway, it's yeah, it's a little too much groupthink for me.

[00:03:35] It's not just the ultra wealthy, you know, business owners of VC class that are really in the groupthink right now. I mean, there was a really good piece by Margot McCall in TechCrunch this week about all of the founders circling between David Sachs's crypto parties and the crypto ball and all of the different parties in Washington trying to get as close as possible to these bigwigs. But also the Trump administration themselves for deals, contracts.

[00:04:02] So it extends beyond just the people with the clearest financial incentive right now. Yeah. Why do you think that is? Yeah. I mean, so, you know, groupthink natural human tendency. But this moment goes far beyond that. I think there are a couple of things happening. One which you just sort of touched on is people want government contracts. I think for good, it feels like this is going to be a great moment for business. Let's do some business.

[00:04:26] I mean, I think both of our concerns is that this could be I think we're calling it grit versus grift, you know, in the newsletter. It's like hopefully this is a moment of grit where everybody's building and doing real things, you know, for all Elon's faults. He does build rocket ships and great electric cars. Or it could be grift and the Trump token and just sort of instead of government contracts going to sort of boondoggle defense contractors. Now they're going to go to startups with fake products that are still developing.

[00:04:55] So certainly here, I, you, we are cheering for grit over grift. But I think we've got both both types of people sort of leaning in and hoping to get what they can out of Trump. Well, you look at some of his executive orders he signed this week. He repealed Biden's executive order on AI safety, which I mean, we've talked about. There were good things and bad things in that order.

[00:05:18] But I think Marc Andreessen rightly pointed out that that really favored big tech incumbents with the reporting requirements and developments over startups in the AI field. So for AI startups or people, you know, pushing technology, some of the regulations really did not favor them. So in some ways that there's moves already happening that could really be beneficial. Yeah. Yes. For the moneymakers, but also for everyone.

[00:05:43] Trump's going to unleash energy development, but then seems to single out like stuff like wind farms and some other renewables where it's like, that's actually where technology could help. So I hope the energy sort of regulation, I hope if he's going to clear the way for reduced regulations on oil and gas that extends to new forms of energy that could take us to a better place.

[00:06:09] I mean, to me, though, the most shameless reversal is just the abandonment of like diversity, equity and inclusion. The problems with DEI were it's sort of run through human resources. It's like heavy handed. It's, you know, in some ways too bureaucratic. And now we have those same bureaucracies in the sort of big tech companies saying like, oh, now we need to root them out. It's like you were the ones doing this in a super heavy handed way.

[00:06:35] I think what's most surprising to me, I guess that's surprising, but just a little shocking coming right around now is it always felt a bit like that could have been, you know, bureaucratic. Like for all of the complaints we've had about these programs. Right. The swiftness in which every single one of these organizations dropped them, I feel like just revealed the game. Right. Like it was like, OK, you literally did not care. I always thought like, oh, you know, I support the effort of more diversity.

[00:07:04] Certainly the sort of ideas of the rule and like you should think about sort of diverse candidates in your pipeline. That to me still makes sense. And we shouldn't walk away from that. But obviously, I felt like some of it, some of the talk moved away from meritocracy and meritocracy did sort of become a more taboo world in some of the more leftist circles. I think that is probably a mistake.

[00:07:27] I will say besides Trump, I just think there's there's a reality that like when we were in peak DEI, there was sort of like a lot of hiring. It was boom time. 2021 valuations. Interest rates were really low. It's like, oh, we want to fire people. We've got AI. We don't need as many people. And so it's like, oh, we're just going to hunker down with like our sort of elite tech workers. And we're a little less worried about who's getting on sort of the boat with us. It's also been a big shift in the media environment.

[00:07:55] I mean, Sam Altman was sitting with Theo Vaughn in the podcaster row at the inauguration. So this alternative media apparatus, especially on the right, is now getting equal credence to a lot of these wealthy tech donors right now. Eric, what do you make of, you know, this kind of thinking that is spouted on these shows that we've touched on occasionally? As the owner of a media company, I do love this meme that attention is the most valuable resource. It's like, fuck money. You need attention.

[00:08:24] It's like, great. All right. I'm in the right business all of a sudden. I love eating impressions. Exactly. It's like, OK, if you can worm into people's brain, that's worth something. I mean, it is worth something. But now people are saying it's worth a lot. So certainly cheering for that. I mean, I have no problem with like Theo Vaughn. I mean, I've only really consumed him through his TikTok. But I enjoy some of these like podcasters. It's like fine.

[00:08:49] You know, I'm very interested in, you know, there's so one meme is attention is everything now. And Trump won because he controlled attention. I think there's some truth to that. The other meme is like the open sort of oligarchy. I think part of what's happening here is, you know, the New York Times ran an interview. Ezra Klein, you know, conducted the interview with Curtis Yarvin, who's sort of a monarchist, the type of person that the mainstream media would have said don't platform him.

[00:09:17] But now, obviously, that Trump's in charge, you know, he's getting interviewed. I think Marc Andreessen was like, just because you read somebody doesn't mean you agree with them. And I take him at his word. I do think there can be an overcorrection. But, you know, you see sort of in the discussion people. He's clearly very influential and very well read within these circles. I mean, Eric Torenberg, you know, was writing tweets, basically riffing off some of Yarvin's points. So it's definitely in the air.

[00:09:45] Again, this sort of contradiction that Trump runs as the populace, the everyman. And now it feels like literally like the oligarchs are sort of suiting up to like be be in charge. And, you know, I don't know. Well, they're commanding they're commanding money. They have government power with Doge and they also have attention with this media apparatus. Yeah. Yeah.

[00:10:08] And, you know, I'm I started off the Trump election by saying if we're going to and I think maybe I said it on the podcast last week. It's like if we're going to have a version of if Trump's in charge, the version I want is the tech elites running it. So in some ways I've come out in the pro oligarch camp. You know, like if we're going to have you heard it here first, we're going to have a given that it's Trump. Eric Newcomer endorses tech oligarchy.

[00:10:35] I mean, I'm just saying like of the options, like and the oligarchs all fight with each other. And like, you know, I think there is sort of the. Yeah. I mean, obviously, I wanted to I want, you know, the American people to vote on the next person. I want as many Americans as possible to vote. And I am terrified by sort of the unilateral presidential power.

[00:10:56] I am somewhat annoyed with Biden pardoning his family and with Biden at the 11th hour trying to pretend like he could unilaterally pass a constitutional amendment. Like, why would you want to be seizing executive power right before you hand it over to a president that every Democrat is terrified is going to take too much executive power? So I'm really worried about executive power. I am not supporting any sort of monarchy and oligarchy in terms of the president just doing whatever they want. And that is deeply troubling to me.

[00:11:25] But in terms of do I want Musk and people running around? Yeah. As long as they're not trying to find a way to make Trump, you know, the CEO of America, then then, yeah, I'm still right now. I think that's the best of sort of a nightmare situation that America finds itself in. Eric, I'm going to challenge your pro tech oligarchy stance here simply just because this first week of the Trump presidency, we've already seen a crypto pump and dump scheme from the president.

[00:11:56] Certainly the regulators that he's been appointing around crypto, people are very excited about because they're looking to deregulate the industry. But this just sort of embodied everything that people criticize the industry about. Right. And that's coming in week one. Yeah. So the self-dealing is going to be worrying. I mean, it's it's clearly like loss. I mean, it's sort of like a lost cause. They're so like openly corrupt. I mean, I think part of the hope is that all the tech companies, you know, are ultimately competitive with each other.

[00:12:24] That Elon is dunking on Stargate and says they don't have the money, even though Trump was announcing it with Sam Altman on stage. I mean, that's true. That's a one good place where he wasn't immediately, you know, kissing the ring and being, you know, immediately like immediately subservient to, oh, this is so great. This is this great project. He is willing to say things where he feels like it's worth it. Of course, he has his own vested interest with XAI. You know what I mean?

[00:12:50] Like if they all if they're all just sort of aligned, then we lose sort of all of capitalism. We need the big companies to be sort of racing each other and competing. I mean, I am very, you know, and I'm somewhat sort of tongue in cheek about the oligarch. I am. I'm somewhat supportive of the oligarchs. I am not pro oligarchy. I want that to be very clear. Clarifying point here on the newcomer podcast.

[00:13:13] I do worry that the sort of like tech, the tech CEOs in some ways can lose sight of sort of what you're saying. The importance of like our norms and like good business practices and all that. And sort of this sort of running towards Trump and just say, oh, we're going to have a business bonanza. It's like we do need sort of, you know, like just my own psychology. Right. It's like I'm building a business person. I'm building a business myself.

[00:13:39] It's like what you should want in America is to build a real business of substance. At the same time, it's like, oh, we should have a fucking token if it's like grab money while it's like falling out of the sky. You know, there is like you can see in your own personal psychology that sort of norms eroding. You know, I sound like a conservative. It's like we need character and values, you know, and the rule of law. Right. Exactly. It's like I do think a lot of the traditional conservatives believed in were important.

[00:14:07] You know, if we had Mitt Romney or his father, you know, talking about what America is about. Those are the things that I really worry we're losing. Like in some ways, the problem of Trumpism is going to be losing the conservatism of like good business principles and how a business should operate in the sort of normal norm. The norms beyond just like get cash, do whatever, you know. And yeah. So I want to bring up a point you've made in the newsletter before, Eric.

[00:14:35] The norms and laws and rule of law are help what make America the best place to practice business in the world. Right. And we have set rules. We have a lawyer. I know. Yeah. Lawyers love this. Lawyers love me. But seriously, having the rule of law helps businesses flourish and conduct and grow.

[00:14:58] And if you don't have that and that's just immediately thrown out the door, that opens a whole can of worms around whether or not businesses will operate fairly under capitalism. It's just straight to cronyism, which doesn't make for a healthy tech ecosystem. Right.

[00:15:41] Right. My high level message is like I think the mood is way too optimistic about Trump. This is just sort of like kiss the ring. It's what makes sense right now. You know, I've sort of embodied the stance as sort of the the opposition that it's like we need to give them time to sort of fuck up enough without. Otherwise, we just sound like whiners. Right. Right. It's like better for us. So like do I mean, do a couple of things, have real, you know, real objectionable stuff that we can.

[00:16:09] Well, we want the future of the country to be good and for tech to succeed. So if things work out, obviously, that would be great. Right. You're right. It's not even a it's not even a pose. It's like if you are great, like Godspeed. But I'm skeptical. And when you fail, then we will seize on that as a good point of how this is totally misguided. But until then, give me a second, you know, it's like we're not even really, you know, the whole Musk hand gesture. Like, I don't know what's in his heart, but I think it's a losing political fight.

[00:16:38] You know, it's just sort of like I want to do something that, you know, Nick Fuentes thinks is like a signal to to me. But right. You know, but certain audiences view it a certain way. That kind of tells you exactly that it's a mistake. Yeah. But but yeah, I don't think it's the message that we should be fighting on. I mean, we're waiting for terrible treatment of human beings.

[00:17:07] I mean, I I'm deeply worried just like I hope that the left wing response to this is sort of that sort of love and taking care of our fellow person. And a lot of honestly, Christian values that, you know, are important and like that Trump doesn't embody any of them. I mean, that's sort of unfamiliar language to the left. But yeah, I think that's going to emerge eventually that we, you know, it's just so mean spirited to me. Yeah.

[00:17:37] That he's complaining about like the bishop just saying, like, care about people like that. That would be sort of on its face objectionable. It's like what? Yeah. Yeah, that was that was just ridiculous. Anti-episcopal slander. But I was raised Episcopal. Yeah, actually. I'm a humanitarian universalist. So I'm even more left wing. You're even more than just practice. Nice. Yeah. We want tech and tech business to succeed.

[00:18:04] We want the golden era of tech and venture returns. And on that note, let's shift gears to actually talking about business for once on this podcast. We'll do our jobs, not talk about politics and just call balls and strikes on business. What's what's on the slate? Well, on the slate today, jumping in. Let's jump in. Let's dive into the deals. No. On the slate is fresh data from you, Tim.

[00:18:30] We've got the data from the University of Texas and Texas A&M Investment Management Company. Internal rate of return. We've got we've got how the venture firms are doing. We've got it. We're tracking over time. We have the real data. This is nerdy venture shit. This is real in the weeds. We have the we have the fund return metrics as reported by FOIA requests. Let's get into it. If you care how GGV was doing pre-China split, we have the answers. Right here. Subscribe now. No.

[00:19:00] Seriously. I mean, you should subscribe. This is a good this is the classic newcomer story you should subscribe for because we're going to touch on some of it. But ultimately, we have, you know, charts of USV's performance. We have the actual filing screenshots so you can see what you Timco is telling people. This is definitely we're going to give you the themes here. But if you if you're want to get into numbers, you should become a paying subscriber to newcomer. What were your takeaways from digging into this report? Jumping in some top takeaways.

[00:19:30] The biggest things I'll give you some high level stuff, because, again, you should subscribe to see the full charts and the full data. Thrive Capital was the biggest outlier in you Timco's returns. They've only been in Thrive for a couple of years. So it's a newer investment for you, Timco. But they are rapidly outperforming a lot of other bricks, Carvana, OpenAI. Turns out, invest in very valuable things. I mean, I called them like I give them the SoftBank Tiger Global Award for top tick investing or whatever the other this year.

[00:20:00] Now we're saying they're doing a great job because it turns out if you make investments at huge late stage rounds and they get marked up, you look like a genius. And yeah, you get to skip the whole J curve. So you do. And one point also to one piece I also got from talking to pitch book analysts for this piece was that because Thrive's portfolio is so heavily indexed in a lot of these later stage AI companies. These companies are hot. They've been going back to market multiple times a year sometimes.

[00:20:28] So the markups happen a lot quicker than traditional venture. Like that really is inflating their performance metrics just by the sheer number of times these companies that are in Thrive's portfolio are going back to market. That's one thing that helps them stand out. But otherwise, there's kind of Thrive and then there's kind of everybody else is the other takeaway I'd say for these returns. Literally, if you look at it, it's like, you know, because old funds do well. And then we look at newer funds and they take longer to do well.

[00:20:55] And Thrive is sort of pretty new and in the positive where everybody else, if you look at the chart, is sort of negative if they're a young fund. So if they're 2020 or later. Yeah. I mean, the other big theme that came out of this was just when as funds get older, you generally expect their IRR to improve. But that's not what we saw. What's going on there? Yeah. Some are pretty steady. I will say Union Square Ventures only had mild declines in some of its older funds.

[00:21:23] So if you have the strength of a portfolio, it's not guaranteed that you'll see big depreciation. However, across the board, even some of these older vintages, their IRRs are going down. Some are remaining positive. So that's great. And the lot haven't fully slipped into negative return territory. But it is looking overall like the curve from the downturn is very visible in the data in a way that it wasn't last year.

[00:21:50] Like we've now had about three years of the venture downturn and you can see it in the downward slope of IRR across all these funds. The only exception is... You didn't sell your portfolio companies in 2021. It's the boat. Like that was the exit opportunity moment. And if you didn't do that, like your portfolio is going to keep getting worse. I mean, that's... Yeah. Another exception I will give, though. I have to give credit where credit is due. Sequoia, we mentioned a lot and their returns not looking as great because UTEMCO only got

[00:22:19] in in 2020 and 2021. So again, it's a recency bias kind of thing. But a lot of their US and European vintages that are the funds pre-split before they pulled out their China and India holdings, those are now switching into positive IRR. So they're starting to see that typical J curve. The returns are coming in for those funds. Sequoia. They're good at what they do. So take away from this, bullish on Sequoia. But for the rest of the data, you should like and subscribe. Yeah. Cool.

[00:22:49] And we're going to have more. Honestly, we have, I think, a lot of data coming in the next month inside venture, both macro and sort of at the firm level. So yeah, I feel bullish on... Stay tuned. You're going to want to pull out your checkbook by the end of the next month. All right. Let's wrap up with our deal of the week. Madeline, you track these closely. What was the big deal in tech this week? Divi Homes property tech company announced Wednesday that it is getting acquired by Brookfield Properties,

[00:23:18] the real estate megacorporation, for about a billion dollars. Divi Homes is a property tech company. My understanding is that they help people with a rent-to-own model where they can rent a home and move in right away and then build in savings for a down payment over time in that sort of zone of the property tech space. A good exit. A good exit. Not a great exit considering its valuation in 2021 was $2.3 billion, but it's not zero. So that's good. Sounds big. Don't raise so much capital along the way.

[00:23:48] They also had a lot more debt than a traditional venture-backed company has. They raised around $700 million total, but that's a combination of debt and equity. They raised from the former GGB capital, which has split, but also Andreessen Horowitz and Tiger Global. And their last big round was in 2021. So it's kind of a classic 2021 boom story. So we do not think this would be improving new Timco's returns. I would say most likely not.

[00:24:19] But it is an exit. I will say one part that has some a little frustrated with this deal was after repaying its debt and transaction costs, no common shareholders in Divi Homes will receive any consideration from this exit. Brutal for the employees. You build... Brutal for the employees. A billion-dollar business, though, I guess it has all...

[00:24:42] It's very complicated to say that it's a billion-dollar business, but still, you build something of value to someone and you're not getting any money out of it, but you're paid in shares. That's brutal. Yeah. It's been a tough couple years for property tech as a venture-backed category overall. So this exit, at least there's something there, but it does feel also sort of indicative of this being a tough category. All right. That's our episode.

[00:25:10] If you want us to publish more venture performance, you can be part of the solution. Email us at newcomer at newcomer.co or... Send us your venture returns. You can reach us both at our first names at newcomer.co. Yeah. Send us stuff. We're always happy to take anonymously sourced... We prefer anonymously sourced information. So do your part. Keep the information flowing.

[00:25:37] Join and we'll talk about business and not spend the whole podcast talking about Trump. Otherwise, I can't promise. If we don't get the numbers, we might just talk politics all the time. Back to business on the Newcomer Podcast. See you next week. All right. Thanks. Thanks.