E249: How LPs Unlock Liquidity Without Selling

Speaker 1 Alex, so you allow LPs to loan against their illiquid positions. Tell me about this, and how does one go about loaning against their illiquid position?

Speaker 2 Sure. So, we essentially provide nav loans

Speaker 2 where LPs in private fund interests can use it to serve as collateral. So, we assess the underlying portfolio, we model the expected cash flows and structure credit facility or term loan against that.

Speaker 2 And this is essentially just a way to unlock liquidity without forcing a sale. And it's just designed to be efficient efficient and discrete for the LPs.

Speaker 1 An LP needs liquidity to have the option to do a secondary. I guess this is a second option of getting a nav loan.
In which case, it's just somebody get a secondary versus a nav loan.

Speaker 2 So essentially, it's a data discretion. I mean, with a secondary, it's permanent.
So you're exiting at a discount and losing the future upside.

Speaker 2 Whereas a loan allows the LPs or potentially the GPs to assess the liquidity while still retaining ownership in that particular fund position.

Speaker 2 And it's particularly attractive when someone has conviction on the underlying assets, but simply needs the liquidity for personal other business uses while the investment uses.

Speaker 1 Give me a sense for your scale and how many of these deals have you done and who have been the early adopters or who have been the counterparties on these loans?

Speaker 2 So, I mean, we've structured loans ranging from a few million up to about $50 million.

Speaker 2 Our platform is designed mainly to scale for the needs of ultra high net worth, family offices, small institutions. We haven't really focused on large institutions.

Speaker 2 So we've tailored more for like high net worth. They've got investments in alts.
And especially as alts are growing,

Speaker 2 the general need for liquidity has become more prominent, both from the fund side and both from the investor side. So that's kind of like the vertical we servicing.

Speaker 2 We're seeing a massive demand through the wealth management channels. That's been a massive need and demand push from us.

Speaker 2 And yeah, and that's sort of like where the main focus has been focused on.

Speaker 1 Give me a sense for the rates in the markets, Day.

Speaker 2 Sure, so from It really depends on the quality of the underlying collateral. So we look at diversification, the maturity of the fund.

Speaker 2 The rates generally fall on the high single digits to low to mid teens, depending on the quality. So your blue chip type funds will be on the lower side.

Speaker 2 And then your more risky or venture type assets that we'd look at will probably be on the low to mid-teens. And the pricing variant just reflects both on the

Speaker 2 illiquidity of the asset and the flexibility that we're providing. That's sort of how we price it, but it's really depending on the underlying collateral.

Speaker 1 What are larger institutions doing versus smaller institutions?

Speaker 2 But the high net worth investors often,

Speaker 2 so from a youth perspective, they're using it mainly for personal liquidity needs, but institutions such as pension funds, endowments, larger family offices,

Speaker 2 they're using these sort of nav loans for the portfolio management, capital calls and rebalancing.

Speaker 2 So on the one side, we're seeing ultra-high net worths are using it more like personal, tax, et cetera.

Speaker 2 And then the large institutions and family offices, it's a lot of restructuring, optimizing the portfolio, potentially finding an arbitrage to retain the existing positions and receive the upside that they intended and to reinvest it elsewhere.

Speaker 2 That's where we're seeing there's a massive difference in the use of funds.

Speaker 1 To large wirehouses, JP Morgan's, Goldman Sachs, they in theory at least provide these kind of loans. Are you competing against them as a different part of the market?

Speaker 1 And tell me how you fit into the ecosystem.

Speaker 2 So directly and indirectly, a lot of the larger banks such as JP Morgan, Goldman, they focus a lot on their clients, we've noticed,

Speaker 2 and funds are like on their platform, whereas we're a little bit more bespoke to a a large extent.

Speaker 2 Also from a timing perspective, client onboarding, our main focus is the lending relationship. We're not trying to get into the wealth management space, et cetera.

Speaker 2 So we're trying to be as omniescent and flexible as possible. And that's kind of how we differentiate.
Whereas when you go to a bank, there's a lot more comprehensive services you can receive as well.

Speaker 2 And that's sort of how we come in. But we get,

Speaker 2 yeah, we get a lot of bespoke requests. And it's very depending on the client, especially with speed.

Speaker 2 That's where we find there's like a big differentiation in terms of the bespoke speed needs that they have.

Speaker 1 And how do you balance speed with doing enough diligence? And what are you, what exactly are you diligencing on these assets?

Speaker 2 We get an overview of the underlying portfolio companies, but we don't do a deep dive into each single one.

Speaker 2 We read it so we have a lower L T V to kind of counter a little bit of the risk, hence why we're not taking much of a discount on the assets.

Speaker 2 But yeah, we've got an amazing team that goes through a deep dot, a deep dive in terms of like the documents that we received through the underwriting process.

Speaker 2 And then we take a conviction on that based on giving them an LTV rented terms as mentioned

Speaker 2 previously.

Speaker 1 What are the LTV rates today?

Speaker 2 Anything between 20 up to 40% we've done.

Speaker 2 So depending on the use of funds, depending on the unlike collateral, we've stretched it between depending on the interest rate that they're looking to get, we've changed it quite a bit.

Speaker 2 So we've got a whole standardized model, but we've also got very bespoke ones and that really depends on the client-by-client phase.

Speaker 1 So you may have have 10 million in assets. You could loan out 2 to 4 million, depending on various factors and depending on whether you could underwrite the underlying assets.
Correct.

Speaker 1 And the idea being that if you have $10 million, as you mentioned, Sequoia, Blue Chip, Andreessen Horowitz, then you more or less know that it's unlikely to go down more than 60, 80%.

Speaker 1 You have that comfort for yourself, and you're really looking to diligence the... underlying whether they own the assets is kind of like the ownership versus the actual portfolio.

Speaker 2 Correct. And we also have to have a look look if they've got existing pledges or

Speaker 2 other credits

Speaker 2 liabilities. So we've got to just assess them from a personal perspective just to make sure that

Speaker 2 all of that is in place to make sure that we can retain the funds, the principal, the interest over time.

Speaker 1 You mentioned high single digits, low teens.

Speaker 1 What are some of the drivers? So what do you need to see to get them to high single digits and what de-risks it to you as an investor and as essentially a holder of these assets?

Speaker 2 Backpack ruler funds, vintages, a sort of quality. So we've kind of built out our own analysis of a range of different funds in the markets.

Speaker 2 And we work backwards from there. That's kind of our dictation.
But every use case is different. Like we've had clients with one or two fund positions and we've had a client with up to 30.

Speaker 2 So depending on the portfolio, that's kind of why it becomes like more of a client for a bespoke type solution.

Speaker 2 From a cash redemption, private equity and private credits would be easier to get towards those, that price range.

Speaker 2 And we're working towards getting on the other asset classes like VC towards that price range range over time as well.

Speaker 2 Because VC is more volatile than paradigm as well. Yeah, longer term, we found that that's sort of where our range is fitted.

Speaker 2 But over time, we look at bringing down the price overall as much as possible for all asset falters.

Speaker 1 What should larger institutions do today in order to gain liquidity? And how do they solve their liquidity issues?

Speaker 2 From the large institution side, you've seen a range of different uses. Like NAV loans are very prominent.
This is nothing, it's not really a new concept.

Speaker 2 There's amazing players out there in the market, larger credit funds and banks that do this too for the institutions.

Speaker 2 But from like a rebalancing perspective, like nav loans can be quite a useful tool for them just to rebalance their portfolio, get some cash in, keep the keep retain the positions that they've got.

Speaker 2 Just being aware of if they can pledge their assets going into new investments or what they have on their existing portfolio, that would be quite a useful data point for them to understand.

Speaker 2 On the secondary funds, it's really on a case. I can't speak on whether they should go through a secondary process.

Speaker 2 But in any sort of given liquidity situation, the premise of just knowing that you can attain liquidity, whether it be through the secondary market from a sale or through a loan, is quite a positive data point just to understand whether you can or can't.

Speaker 2 And then from there, it really depends on

Speaker 2 sort of the process. Like, of course, it's at their discretion.
Sometimes it's more preferable to get rid of the assets, go through a discount, the tax, et cetera.

Speaker 2 And then that process is done. Because if you go through general liquidity process, there is the opportunity cost.
There's a time. There's a process.

Speaker 2 That's why we've seen a lot of reception on the loan front because you don't have to go through and find a

Speaker 2 buyer or go through a brokerage firm, et cetera. Whereas if the collection fits certain criteria and you're happy with the pricing, you can keep the asset and just get a loan against it.

Speaker 2 We've seen quite a big speed difference on the NAV loan perspective versus the sale.

Speaker 1 Are these typically recourse loans, non-recourse loans? And

Speaker 1 tell me about that dynamic.

Speaker 2 Certain breach of assets that we're extremely comfortable with, they'll form on the non-recourse side. For certain assets, they may have limited recourse through a

Speaker 2 full personal guarantee, which a lot of ultra-high networks are very comfortable with in the space based on their background, especially working with facilities and credits.

Speaker 2 So, yeah, it very depends on the underlying collectoral. But we've been negotiable with a lot of use cases and a lot of channels that we've built deep relationships with.

Speaker 1 And it's always been curious to me that these loans, that underwriters aren't looking at the purpose of the loan. For example, buying a yacht on one side versus making an investment.

Speaker 1 In theory, the investment has value, should go up. And oftentimes, these are the best opportunities where people are willing willing to take out loans.

Speaker 1 Why do you think that the purpose of the loan doesn't play more into a factor, more as a factor? And perhaps I'm missing this point. Is purpose of the loan kind of a big factor?

Speaker 2 As a massive driving factor, we've seen most of our adoption happens through third parties who manage the wealth of a lot of these

Speaker 2 LPs or sometimes GPs, whereas either from a tax accounting or wealth management perspective, they see the opportunity to get leverage against illiquid assets as a very valuable tool for their clients.

Speaker 2 So that's where the purposes drive, whether it's for rebalancing a portfolio, being the CIO of a family office, whether it's

Speaker 2 just wealth management and diversity for an individual or a family office to get personal liquidity or to make other investments that are very timely, to find an arbitrage or for tax.

Speaker 2 We've seen the purpose definitely drives the need.

Speaker 2 We've also seen just some use cases where we've given terms to individuals and families just for them to understand what they can get. They may not need it at the point.

Speaker 2 They just want to have an indication of

Speaker 2 what funds would be accessible through us and that they can get liquidity to make them a little bit more comfortable keeping the assets.

Speaker 2 I definitely think purpose drives the need for liquidity, but also just having this as sort of like an insurance policy to know that you can get it for certain assets that you have got an investment with.

Speaker 2 It gives you a little bit of insurance policy personally to know that

Speaker 2 these can be leveraged if the need for liquidity comes.

Speaker 1 Said another way, it increases your risk tolerance, it decreases your fragility, knowing that you could always borrow maybe at a higher rate than you would like, but you could always borrow some standby loans if something happens, if you have a capital call unexpectedly and things like that.

Speaker 1 It makes the investing less fragile.

Speaker 2 100%.

Speaker 1 A big use case, and specifically in venture, but also in other classes like private equity today, less so in private credit, is

Speaker 1 GPs are having trouble making their GP commits because the time to DPI is a long amount of time.

Speaker 1 For the use case of a GP, let's say they're on a fund three and their first two funds have not gone liquidity.

Speaker 1 Talk to me about how a GP can leverage their previous both GP commits as well as carry in order to underwrite their GP commit in the third fund and just some lessons learned from that.

Speaker 2 Our main focus has been on the LP front, but of course naturally we've received a lot of demand from GPs, especially some GPs that are LPs of funds.

Speaker 2 So we don't focus on carry. They're just not part of our core business model.
So we focus on fully funded positions. We've seen a range of different solutions on the GP front.

Speaker 2 We try not to push just our products. So

Speaker 2 they've got a range of different solutions. I mean, some funds have got continuation vehicles, they've got existing subscription lines.

Speaker 2 So depending on the use of the funds, but the main use case is just more on the personal side where GPs have come to us either to get a personal loan for personal reasons or making other investments, as a lot of their

Speaker 2 net worth is tied in their illiquid vehicle that they started or co-founded. And then we've also seen a lot of use cases where

Speaker 2 there isn't as much DPI as expected, which happens normally in the private markets.

Speaker 2 And a lot of GPs have come to us to kind of get the LP some liquidity in the interim, which LPs consent for or they would like, and they would like to retain their position in the fund.

Speaker 2 So we've seen a range of uses.

Speaker 2 So we're just a tool. We're kind of like just an open-minded tool that they can have on hand for their use.

Speaker 2 But it's really, there's a range of uses that there might be that, and there's some that we probably don't know to the state.

Speaker 1 And I want to stress test the model a little bit. So you said 20 to 40% LTVs, oftentimes for GP commits or, you know, it's like the house, house car baby.

Speaker 1 You know, it's like these small purchases that people need to make at some point in their life cycle. And taken to the extreme, let's say you have a portfolio of 500 startups or many different assets.

Speaker 1 Is there always a amount of money that you would loan against? Could you push that down to like 5%, 10%?

Speaker 1 So for somebody to fund their GP commit? Or is it kind of binary? We like these assets and not. And then it's within this window of 20% to 40%.

Speaker 2 It's a mixture.

Speaker 2 So we do have a more standardized approach where it does fit within that um 20 to 40 but we are flexible so our loan ranges have been roughly between one up to 75 million dollars we can take in um but for certain cases we can lower the ltv like you mentioned to lower build the risk um so if we're comfortable with the individual or the borrower um and sort of the asset cost from an underwriting perspective we can be a little bit more flexible on a biswer basis i know you're very asset driven but behaviorally it must matter to you the borrower their credit score their track record of paying off their their loans How much does that factor into the process?

Speaker 2 It definitely has a strong factor. We don't go through, we don't change the credit score or anything like that, as these aren't consumer loans.
But we focus on just understanding, A, the use of funds,

Speaker 2 their history from a personal balance sheet perspective that is important. So we do take a view on the personal financial statement or the statements of the family office to understand what existing.

Speaker 2 leverage has happened previously has it been paid back so there's a bit of a track record in terms of managing financing or what other pledges have been.

Speaker 2 So yeah, that is a good indication to understand the use of funds, even though we don't limit it, is quite important.

Speaker 2 So whether it's to make another investment, to know whether investment is going to happen or whether it's for personal uses,

Speaker 2 God forbid a divorce or if they need it like a family emergency, it's important for us to know the use of funds, just to understand that will this principal amount be used?

Speaker 2 at the given time or up front or will it be used to repair it

Speaker 2 and do the other do they have other methods to bring in income either to pay the interest or we could do sort of like a reserve interest component whereby part of the principal, we would reserve a proportion of interest upfront so that they're less just to pay it at the end when they when they pay back the principal.

Speaker 2 So there's different structures that we're happy to accommodate based on the borrower.

Speaker 1 Circling back to this use of funds for your investments. How positive of a use of fund is that if you were funding a new investment, how would you rank those range of uses?

Speaker 1 Like what's the best use and what's the worst use?

Speaker 1 I'm using more holistic language, but really like from a risk standpoint,

Speaker 1 as the creditor, what was your ideal use of funds be and what would be the worst use of funds? How would you rank them?

Speaker 2 Same on the business side to make other investments

Speaker 2 or capital costs, because then we know where the liquidity is being driven to from an asset allocation perspective.

Speaker 2 So if those were to be seen as the collection that, God forbid, we would need to seize in a collection perspective, then we know what we can take conviction on.

Speaker 2 On a personal side,

Speaker 2 those are, I think, a little bit more risky, but it really depends on a a case-by-case basis.

Speaker 2 Those are needed for personal uses. But then, of course, if we're comfortable with the underlying collection that we would use from if we were to take a personal recourse,

Speaker 2 it's hard to rank in too much. But I'd say from the business case perspective, it's easier to say to follow the flow of funds to understand where funds are going.

Speaker 2 Because if we've got a little bit of a conviction on the assets they're looking to invest in, or the capitals they're looking to make for those certain underlying funds, and we've got a certain conviction on where those are driven to, that would help us.

Speaker 2 It's just easier to manage as opposed to

Speaker 2 if the funds go elsewhere, are we confident we can receive the principal and the interest?

Speaker 1 How long on average, not the mean, but the median time that loan takes, and what's 80th percentile?

Speaker 2 So our average loan is roughly 24 months. We do loans between one to four years, and we can refinance it based on the need that they have.

Speaker 2 And loans can take relatively, if we're comfortable with sort of the funds, they can take about two weeks from initiation legals to deploying to more complex cases can take up to truthfully about 14 weeks.

Speaker 2 I'd say lower, but to manage expectations, the longest we've done is like 14 weeks. So it could range between that.

Speaker 2 But if we're comfortable with underlying, we can get just the necessary documents in place.

Speaker 2 There isn't too many different legal structures from a trust perspective, et cetera, trade or take on the shorter side.

Speaker 1 Last time we chatted, you said something extremely interesting, which is you're now partnering with funds to be standby nav loan lenders, essentially. You'll partner with the ABC Growth Equity Fund.

Speaker 1 And if any of their LPs need loans, you've underwritten the fund or you're up to date on the fund and you could underwrite it quickly and provide that kind of standby liquidity.

Speaker 1 I think this is going to be a big trend in the industry. Talk to me about that.
And do you have any examples you could talk about, whether named or unnamed?

Speaker 2 We are in discretion with in terms of the actual names, but we have been approached by certain private equity funds that have got previous vintages,

Speaker 2 VC funds, and they would just like to have it on hand. So it kind of sends a certain indication to the investors that it makes it a little bit more evergreen.
So we've seen a few of those approaches.

Speaker 2 It's a little bit difficult to do on like emerging managers in the VC space, but definitely a need we would love to cater for, or we see the need arising more and more.

Speaker 2 They have illiquid funds that have kind of been pre-screened

Speaker 2 as you go through raising.

Speaker 2 To a certain extent, we've received data and just indication from a lot of GPs that it helps to a certain extent on the fundraising process because then investors know that the fund can be leveraged.

Speaker 2 It's been pre-screened and it can potentially help them raise more. We don't have specific data, so I don't want to overstate anything.

Speaker 2 But that is some feedback we've received. And that is a channel that we are growing and helping with.

Speaker 1 We're active in the GP stakes field. We think it's a really interesting field.
And it's one of those situations that's solving its liquidity needs just in time.

Speaker 1 You have these like 10-year funds that turn into 14-year funds, and now people are doing evergreen funds. And have you looked at that space? And what are your views on a space?

Speaker 1 When you want more for your business, start with Northwest Registered Agent, the company that helps you build your complete business identity from the ground up.

Speaker 1 Northwest gives you access to thousands of free guides, tools, and legal forms to help you launch, grow, and protect your business all in one place.

Speaker 1 Your business identity isn't just your name or logo, it's everything customers see and everything they don't, like your operating agreements, compliance paperwork, and meeting minutes.

Speaker 1 And Northwest helps you handle it all with ease. They've been helping entrepreneurs and small business owners for nearly 30 years.

Speaker 1 With over 1500 corporate guides, real people who know your local laws, you'll have expert support every step of the way. And with Northwest, privacy is automatic.

Speaker 1 They never sell your data and everything is handled in-house.

Speaker 2 Don't wait.

Speaker 1 Protect your privacy, build your brand, and get your complete business identity in just 10 clicks and 10 minutes.

Speaker 1 Visit northwestregistered agent.com slash invest free and start building something amazing. Get more with Northwestregistered Agent at northwestregistered agent.com slash invest free.

Speaker 2 There's a lot of these small to larger funds. There's great funds that can't support capital.
capital. And I think it really depends on just the need that they have.

Speaker 2 Sometimes, as mentioned, there is the opportunity to buy out

Speaker 2 a position and it's more preferable than a loan.

Speaker 2 So it's great to have, just as a customer in life, just to have as much optionality as possible is really just important, both from sort of the supply side, like being the GP or the buy side,

Speaker 2 just to know you've got all these solutions in place. Because it really depends on the person at the end of the day.

Speaker 2 Sometimes from a financial standpoint, a loan or a secretary may may make more sense, but their preference based on the personal relationship with the fund or the personal conviction on assets

Speaker 2 or their personal liquidity needs. So I think it's just really good from like an omniescent

Speaker 2 position just to have flexibility and options. So we're just trying to fill that one gap, the one gap on the lending side.
So I think both are critical in the market.

Speaker 1 Tell me about the origin story. How did you go about founding Liquid LP and how did you get into this business?

Speaker 2 Sure. So my background has been more from like VC fund business space.
I've started a few companies prior in South Africa, one in Australia,

Speaker 2 had some success, had a failure, but naturally just through kind of my entrepreneurial

Speaker 2 progress, I've always been one that's had a natural loving and building relationship. So had a lot of relationships in

Speaker 2 the finance space and executive space of a lot of late stage pre-IPO companies and saw similar models providing liquidity against private shares. So we started.

Speaker 2 the business originally supported with to focus with Citibank to focus on lending non-recourse loans as employee benefits against executive shares in pre-IPO companies.

Speaker 2 And as we started to try to push and grow their company, we found a lot more product market fits focusing on LPs. And one of our earlier backers, which was a credit fund of Atlanta,

Speaker 2 they saw our growth and they were being amazing to work with. And then we kind of like repositioned the business to focus on the LP segment based on a lot of internal and external fit for this market.

Speaker 2 So they further backed us and they've been amazing and they've

Speaker 2 and that's kind kind of how we grew more into the LP segment.

Speaker 2 And we learned that we would rather focus on a diverse, more diverse portfolio of assets as opposed to single fund, single company positions for a range of reasons.

Speaker 2 And naturally, our network was more in the LP and GP space, both with the fund and ourselves personally. That's how it naturally progressed.

Speaker 2 But it, I'd say it came originally from seeing the opportunity with pre-IPO lending, which there were a lot of great players in the space.

Speaker 2 We just wanted to focus them on more on the tech side and a platform approach. And then naturally, just based on a lot of conversations and product market fits, we shifted to focus on this.

Speaker 2 And that's kind of how we it evolved.

Speaker 1 What are some unexpected risks in providing nav loans? And what are some kind of tail risks that you encountered and that you've solved around?

Speaker 2 I'd say the pledging of the assets and disclosure is very important. So when underlying, we've had a few cases in the past where we've

Speaker 2 underwritten

Speaker 2 a range of assets for a certain borrower that was inquiring.

Speaker 2 And only after like stronger due diligence, we found out that there was other assets that they didn't disclose that they've pledged, that they're still paying off, or if there's like double pledging, which is of course illegal, but that takes a certain due diligence.

Speaker 2 And

Speaker 2 there is technology, but I think it's still like growing in like the blockchain space where you can only pledge things once. But right now, a lot of it's contractually based.

Speaker 2 So that was one challenge we did face in a few cases that we didn't go through, but we had to uncover. In the private markets, it's very hard to

Speaker 2 kind of just have conviction on assets, especially based on like no-name brands. You really just need to, it really comes down to like the performance, the use of funds,

Speaker 2 the quality and the trust of the borrower. So these are all like light touch factors that just take experience.

Speaker 2 We've been fortunate to work with a credit fund behind us to help us in the underwriting perspective. So they came in with a strong credit view to look at more venture private equity type assets.

Speaker 2 So that's helped having a complement of a great team that comes from private equity and venture capital alongside a credit fund

Speaker 2 and an amazing advisory board, including Mike Offler, came from First Republic Bank. I think that combination has been quite a blessing to approach the market.

Speaker 2 But naturally, different things arise from the price of I'd say those were the factors.

Speaker 1 And you've built out a great advisory board around you. Tell me about that process.
What are your lessons learned? What were some mistakes?

Speaker 1 What were some key lessons from building your advisory board?

Speaker 2 From previous ventures, it's always great to have great names. on your advisory board.

Speaker 2 I think it's just important from the founder perspective and to manage expectations from the advisor to kind kind of have certain milestones or expectations in place.

Speaker 2 I have found based on the stage of the company, certain advisors brought on board too early with big names.

Speaker 2 They physically can't do much in the beginning because they're at a certain level where their impact is really more effective at their level.

Speaker 2 So I think it's important to kind of not get too excited, like a horse before the carriage, that phrase, to bring on really known-name brands, even if they're very willing to commit and help

Speaker 2 at an early stage. Like you should try and meet them where they're at as much as possible or just manage expectations to be like, cool, we'd love to have you on board in the beginning.

Speaker 2 And we kind of did that really well with this company. Like we had a lot of expectations with the advisory board, but we knew that we had to get to a certain level.

Speaker 2 And that's where they became more effective.

Speaker 2 And we managed that really well on both sides. So I'd say that was like one learning that I learned from my previous businesses that we applied here quite well.

Speaker 1 What are the different vectors of value add that advisors could bring in? And do you get them all in one person?

Speaker 1 And just talk to me about putting together a holistic strategy around your advisory board.

Speaker 2 So I think definitely, definitely introducing to each other, even before they may have like signed fully, to see if there's like a culture fit, to understand like there's a compliment and just a good connection from an energy perspective.

Speaker 2 That was one thing that's

Speaker 2 that I'd suggest based on learnings.

Speaker 2 And in terms of

Speaker 2 like giving them always a full strategy of like where they see the business and also just understanding like what is what are their goals aside from a time commitment

Speaker 2 dealing with certain advisors, they may have certain entrepreneurial goals they'd like to pursue in the future they may have certain um

Speaker 2 they may have certain personal goals with their family so just really managing expectations from a timing perspective a convection perspective um is super important and just to be real with them um

Speaker 2 and yeah and certain advisors i think are crucial with opening doors some advisors are great just to have the names there and and to give like sort of an insurance or comfort and credibility associated with the business that's it's a subtle like quiet touch but it is important Um, but really getting them involved in whatever capacity they can bring.

Speaker 2 So, like, never to force something. Like

Speaker 2 in general life, you could take a horse of the water, you can't make it drink, but if you could just bring it close and then let it do its thing in any way or form, I think that's naturally quite beautiful any way or form.

Speaker 2 So, I think not force structures, but just highlights in the strategy of the company, where we're looking to go, how we see the future, seeing if they align, giving their contribution

Speaker 2 is great. And not forcing anything, I think just that's one thing we're going to do.
It's interesting.

Speaker 1 You're kind of meeting them where they are, seeing their natural strengths, their natural weaknesses, playing around their strengths, and not forcing a donkey to run in the Kentucky Derby.

Speaker 1 Meeting them exactly where they are.

Speaker 2 Yeah, like there may be certain advisors, especially those more mature, that have reached a level of self-actualization where they just want to impact the world and they're not too focused on like money and commercial.

Speaker 2 Whereas as founders, you're more focused on like profitability and just generating revenue. So you need to stay where they are.

Speaker 2 Even though they may like you personally and they may like the business, like their incentive is not to make money. It's great.
They can make advisory fees and the equity may be worth something.

Speaker 2 But if you can just personally meet them where they're at, even if it's helping

Speaker 2 on their philanthropy side

Speaker 2 and then come in and bring in just their perspective very lightly, but just affording them the time that they need to focus on what's important to them.

Speaker 2 Like that was quite important because when you get there, when you do get there,

Speaker 2 hour or eight hours a month, whatever, it's very impactful because they just feel personally you just make them where they are. So I think that just it's more like a life basis.

Speaker 1 Speaking of meeting them where they are do you find that the best advisors are kind of driven by impact and they use the money and the advisory shares as a way to to be shown respect or are the best ones the ones that are coin operated that'll go to bat for you and kind of do the most amount of work and how do you balance the mercenary versus a missionary yeah so it's yeah it really depends on like the the environment there is that mercenary um transactional focus which is great and Sometimes it's like a

Speaker 2 second wind that they get after the period that they can like dive into an entrepreneurial journey, back the energy of the founding suite, and just enjoy the ride.

Speaker 2 And I think that's that's a whole certain channel.

Speaker 2 Um, there's certain ones they want to do well commercially and impact, or there's certain people that I found that will have like a sentiment towards the founders, such as myself or others, and they feel just that this founder in the future will do great things that are aligned with the impact that I'd like to do now.

Speaker 2 So, if I can empower him or her at this stage to do well, but kind of guide them also on like a personal and spiritual perspective on how they run their business from an ethical and value perspective.

Speaker 2 Essentially, you're kind of creating an impact on their question that they can be better in the future in maybe non-business activities.

Speaker 2 So I've seen that subtlety, and sometimes they're very open with it.

Speaker 2 And you can just feel it by the way that they advise you on how you should treat people or employees or direct the business and from an ethics perspective.

Speaker 2 And that's quite a, it's a great perspective that I've noticed.

Speaker 1 Through the podcasts and through my expanding network, I've gotten to meet these really transformational entrepreneurs, people like Blake Scholl, who started Supersonic.

Speaker 1 Yesterday I spent the entire day with the founder and CEO of Republic, who's trying to digitize assets. They all have these drives to make these big changes and evolve society.

Speaker 1 And sometimes I struggle to translate that to the finance world. And how do you bring that kind of vision? And how do you get people excited about something like making money or putting in loans?

Speaker 1 How are you able to frame that in a way that gets people excited to wake up every morning?

Speaker 2 Truthfully, it's also been a personal challenge to me

Speaker 2 because realistically, sometimes the narrative of, okay, we're lending money to wealthy people or privileged people, but what is the impact there?

Speaker 2 So like there is that question that comes back and forth from a personal perspective.

Speaker 2 In that, there's a need we're solving.

Speaker 2 So as long as it's driven towards solving a genuine need or like helping people, especially in a personal financial position, or just altering or growing a certain market, like opening up the alt market to become more investable, just being another liquidity option that adds value.

Speaker 2 Those are great.

Speaker 2 If you can, I think engaging with people, like one of the fortunate things we've had the opportunity is meet definitely over a thousand types of investors that invest in the private markets and to learn through them and kind of like just exchange dialogue, exchange energy.

Speaker 2 That's been quite special just to like transfer a certain sentiment to people. Even if 80% of the people that we've engaged with, we don't actually do a deal with or work with.
If we can

Speaker 2 just send

Speaker 2 a good vibration to them or work with them or connect them to other people, they could do business, anything like that. We've seen a lot of motivation on that side.

Speaker 2 From a cultural perspective, having a lot of banter and like just laugh is like very important.

Speaker 2 Culturally, I'm from South Africa. So we used to tease each other.
It all came from love.

Speaker 2 So like just the intention behind doing things, we're all here to like make money, do well, you know, have a good name.

Speaker 2 But I think just, of course, like

Speaker 2 a lot of my personal mentors always said to me, like, Alex, you're extremely hard on yourself. Like, you know, you're still young, et cetera.
You need to enjoy the journey.

Speaker 2 But the one thing I've learned as I'm trying to enjoy the journey, which I'm not always very, very present on, is the company you keep on the journey.

Speaker 2 So, like working with your friends or new friends is quite important, especially like if you can isolate where your strengths are, whether it's on like the business development side or the operations side or like investment side.

Speaker 2 That's been quite important. And I think that energy transfers into like external conversations.

Speaker 2 Yeah, that's probably the best answer I can say. I just, I can't lie and say that lending directly impacts, you know, like good causes that hopefully I could do bigger things in the future.

Speaker 2 But that's how we try to

Speaker 2 how we stay motivated as aligned as possible in the interim.

Speaker 1 There's an Alex from Mosley quote: In my 20s, I thought it was about this destination. In my 30s, I realized it was about the journey.
In my 40s, now I realize it's about the company.

Speaker 1 So there is something about that who you're on the journey with that's oftentimes underplayed, kind of in your 20s, you're just trying to get to that milestone.

Speaker 1 The way that I kind of, I kind of look at it a high level, and the way that I look at it is from a leverage standpoint. So if you're an employee at a company, you have your thing that you work on.

Speaker 1 So, and you go in, you work on, you have your little piece, and that's great. If you're the CEO of the company, you might have hundreds of people that you're leveraging.

Speaker 1 Your impact is across the entire organization. And you have each individual person that works.
In theory, if you're a great CEO, you empower them to do a better job. You allocate resources.

Speaker 1 Then you have on the GP level, you have maybe 15 to 30 CEOs. So now you're basically managing the CEOs that manage the employees.
And then like we do GP staking.

Speaker 1 So we're partnering with these GP stakers and you provide loans to the people that are maybe investing into these GPs. Why does that matter? Is it just finance?

Speaker 1 We live in a world where there's different polar views on different things. So I believe there's like the state, basically totalitarianism, communism, fascism.

Speaker 1 And then there's capitalism and free markets. These are kind of two polarities that fight against each other.

Speaker 1 And the absence of a strong, equitable, like efficient, capitalistic market, you start to get this kind of totalitarianism. We're seeing that a lot today from both sides of the totalitarianism.

Speaker 1 And I like to think that by bringing more capitalistic and free markets into the world, we're playing a small part in thousands of companies, perhaps not a large part in any one company, but to drive this kind of positive force into the world.

Speaker 1 It's making people happier, healthier, more unified versus this kind of of dark, dark totalitarian polarity.

Speaker 1 That's kind of how I viewed it. And that's become a good organizing principle for me.

Speaker 2 I agree with you. And I think just in principle, essentially, you are,

Speaker 2 if you're sort of underwriting lending or buying GP positions or lending against LP positions with certain funds, you're probably going to be lending against certain assets.

Speaker 2 So you're lending against good investors. You're probably going to be promoting good companies.
That's sort of the thesis.

Speaker 2 So you're kind of creating jobs and you're incentivizing people to work with good companies that would hopefully do well that probably got good a good mission and are solving a good solution so yeah i think i think the peripheral of like

Speaker 1 growing the economy in different ways that is a motivating factor so i think quote from what you said that really shines a lot there's a cathedral parable a a foreman asks three workers what are you doing and this is at a cathedral and the first replies i'm laying bricks the second says i'm building a wall the third says i'm building a cathedral so I think unifying principles and understanding the concepts behind what you're doing.

Speaker 1 Again, most people in finance will say that's not in the spreadsheets. That's woo-hoo stuff.
That doesn't matter. And yet it adds a sixth gear to people's motivation.
It aligns people.

Speaker 1 It makes them work the extra hour, extra two hours every day. It puts more focus and intensity into that work.
It helps them recruit. It helps them build narratives.

Speaker 1 All these things that are downstream of purpose, along with behavioral finance, one of the most underrated aspects of finance today.

Speaker 2 I agree.

Speaker 2 No, I agree. I mean, I could get very deep with you.
Like, I love

Speaker 2 generic talk to me. If it's the intention behind anything, it's super important, even if it's a simple question, like, how are you?

Speaker 2 In every, yeah, in every situation, whether it's internal conversations, external conversations, just having

Speaker 2 just like an undertone of love, um, as wooers that may sound is just super important because, like, we are on this earth for like a short time, life is short. So,

Speaker 2 yeah, I definitely agree with you on that.

Speaker 1 Well, on that note, Alex, many people people may not know, we were friends for a while before we even, before I even knew what you did.

Speaker 1 You've always been a good friend to me, and we had a great trip to Charlie Monger's last Berkshire meeting and spent some good time there. And you've been a great friend.
I appreciate you.

Speaker 1 And I look forward to continuing this conversation.

Speaker 2 Likewise, I appreciate it. Thank you.

Speaker 1 That's it for today's episode of How to Invest.

Speaker 1 If this conversation gave you new insights or ideas, do me a quick favor, share with one person your network who'd find it valuable or leave a short review wherever you listen.

Speaker 1 This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.