Ali Hamed is a Partner at CoVenture Holding Company LLC. Since his college days he’s been building an impressive network and unsurprisingly has built an impressive business. 

What’s unique about CoVenture’s model is that they’ve found an interesting synergy between debt financing and venture capital. In addition to making venture investments, Ali and his team provide balance sheet capital to innovative companies that are financing new asset classes. As CoVenture puts it: “CoVenture partners with founders who are inventing new asset classes, identifying new economies, or who require alternative types of capital to grow -- and backs them with venture capital and/or debt financing.”

If you’re interested in the business models of venture capital, debt or general finance I think you’ll find this conversation to be educational. I certainly did. 

Show Links

• Follow us on Twitter: @AliBHamed / @coventurevc / @mpd
• Guest Links: CoVenture Holding Company LLC, Crossbeam Venture Partners‍
• Podcast Links: YouTube, Twitter, Facebook, LinkedIn

Transcript

MPD: Ali, thanks for being here today, man. 

Ali Hamed: Thanks for having, yeah, I'm flattered to be on.

I feel like this is a good excuse to catch up generally. Yeah. We're way overdue. It's been years. I know. I do definitely remember writing you like these cold emails as an undergrad, because you were like one of these like hot shot and your tech guys were like, oh my gosh, like, how do I be like you one day?

So it's very cool and flattering to be able to have this conversation with you now. 

MPD: That's awesome. I don't remember those. But only just like straight, a lot of them as you all, do you probably get a lot of emails like that now? 

Ali Hamed: You can keep track of it. I find that I'm the ones that get the best responses are the one with ones with the most specific asks like the how do I get a job in venture?

Capital email is always like a very hard one. The, Hey, do you know anyone at this company? Because I like it for these, this reason. And I'd like to work, there is an easy one to help with. So maybe that was my mistake. I needed to make my asks more narrow as the the young cold emailer. Yeah. I, 

MPD: what I did is I still get a lot of the generic general questions.

I started producing content to answer the most common questions. And then I send people a link 

Ali Hamed: that I have 

MPD: like an hour video or half hour video on my PA on my blog, which is like how to get the job in VC because everyone asks that. And it's 10 slides on how you get the job in VC. And I just forward the links.

I want to help everybody. You can't possibly do 10 hours of meet and greet calls a day and get anything done. It's impossible. 

Ali Hamed: That's right. The it's funny because I often tell people, I can tell you how to get a job in VC three years from now, and it is a journey. You know, and you know, it's when you find the silver bullet answer, let me know.

MPD: Yeah. I don't think there is one. I think it's an unfortunate reality, but hopefully you can, when you, I've tried to respond to everybody, hopefully there's a nice tone to it. Even if it's, Hey, I can't jump on a call at the moment. One of the negative and of challenges of our business, having this imbalance, the number of people who want the job versus number of jobs 

Ali Hamed: that's right.

I'm still here trying to hang out with you. So I think you're doing a good job. 

MPD: Awesome. I'm glad you're on. Do you want to start off by just giving, just a brief background? No, I know you've you haven't had many legs of your career cause you, you beat the pack and skipped all the way to home base very quick.

Do you want to give a little overview? 

Ali Hamed: Sure. So I mean, growing up, I feel like my 16 year old self would be really disappointed by how nerdy mind 29 year old self became. You know, so I grew up playing baseball. I went to Cornell to play baseball. And while I was there, I just got hooked on startups and I started one and it didn't work out, but I caught the bug and, and I addicted and I was doing consulting and doing consulting.

Doing any odd job that I could convince anyone to pay pay me to do this sort of this goofy process where I'd run around to two events kinda by myself, which was always an odd thing to do, look at my phone and act like I was busy doing something until someone was willing to talk to me and asked them what they did.

And as soon as they told me what they did, I'd be like, oh, that's amazing. That's exactly what I do. And I think I can help you with that. And you know, I do these random projects, building apps, or helping people set up offices in cities. They didn't know well. And and after that, I I finally saved up a tiny amount of money where I want to start doing angel investors.

And those angel investments wouldn't have been very productive because if I went up to someone like you, who is well known in the New York tech scene, and you were invested in this hot shot company, I said, Hey, my name is Alia. It's really nice to meet you. I had this wonderful experience at screwing up a startup, and I'm a junior in college.

You should let me into this hot deal. I feel like that'd be like a pretty poor pitch. And so instead what we started doing was building software for equity and founders who are non-technical because we knew how to build product and a lot of people didn't. And and that was our kickoff, that, that was like the original co-venture.

And, uh, we started it my senior year. And you know, I always joke, I go back to college reunions and stuff and people ask me what's new and there's nothing, I have the same job I'm with the same girl. I live in the same apartment. I feel like I've had this incredibly monolithic life since school that's because you skipped all 

MPD: of the failures and confusion along the way and went right to the wind.

I'm sure. You found the right lady from the sound of it. You just got married. 

Ali Hamed: Congratulations. Thank you. Thank you. It's still, it's still married three months later so thrilled for that 

MPD: a hundred percent success 

Ali Hamed: ratio so far. That's right. That's right. And yeah, definitely. I'm sure. I'm sure I'll get everything right from this point forward.

That's 

MPD: amazing. Oh, look, I think it's a great background. I think it would be helpful for everyone listening to get a little bit of a headline about co-venture. Would you do an overview of the 

Ali Hamed: firm once you guys? Yeah, sure. Um, at co-venture, you know, I guess even more broadly in my background, I helped manage two different firms, co-venture which provides credit to startups and we do it out of two different types of pools of capital.

You know, we do asset backed. Asset-backed credit doesn't mean that we do venture debt loans. It doesn't mean we do corporate loans. I started doesn't come to us and say, Hey, we raised $20 million from index. Can you give us another $10 million to extend runway? Instead, what it means is it's a technology startup, that's originating some sort of loan or asset, or come up with some sort of idea and we provide the debt financing behind them.

So an example that might be pretty well known is a company called Clearco finances, a bunch of e-commerce businesses. We were early and continue to be early providers of capital to them so they can finance those assets. You know, produce pay would be another purse, pay finances Latin American farmers who grow produce, we don't lend money to produce pay.

What we do is we provide them the capital. They use to private financing to those farmers. You know, and so we like all kinds of, esoteric or novel or interesting assets and we provide the debt financing behind it. And then we have another strategy where we it's more of a go anywhere strategy, special situations, complicated ideas, structured preferred equity.

As in venture capital generally has done a good job of figuring out what tobacco, but it's pretty unsophisticated in terms of how to back it. And we consider ourselves a small little team that can go from a 10 $25 million checkup to a $300 million check and give you any kind of capital you need when it doesn't when it doesn't fall right down the middle of normal venture capital.

Right. But the $300 

MPD: million check is not when people hear that it's not a series E traditional growth check. You're giving a pool of capital. They can draw on. It's more like a tool than it is an 

Ali Hamed: investment in the company. That's right. The really boring version of it. It's called it's an delayed draw asset backed facility.

And so what happens is the technology company will do a bunch of stuff. They'll go make a loan and sell into an SDV or they'll provide an advanced and we'll find an out. And if the technology company is like a holding company or like the C Corp, they set up a subsidiary, which is an SPV and they put the assets into the SPV and then we provide the debt financing to that.

However, we do have pools of capital where we can go provide a lot of capital to the corporate and allow them to do something. Now it won't be, we're just using it for general purposes. Usually they're making an acquisition or they're doing a roll up of some sort of assets. So we like to think of ourselves as like a blank canvas.

And we just tell people like, Hey, it sounds like you need a lot of capital people. Can't figure out exactly what you need it for. It's too complicated. It's too weird. Come to us with anything you want. And there's going to be a pool of capital there for you. And it's a really fun job because we, look at things all over the world and weird kind of asset classes.

And it's usually something where we often say that what we do is usually unpriced not mispriced. It's usually something no one's ever even done before. And so, so we just have a blast kind of learning a lot through that. 

MPD: So is that, but there are other firms that do this, like we're investors in EasyKnock.

Easy knock essentially has made a very humane version of a reverse mortgage product. They're helping people get assets and liquidity out of their homes. If they have financial need for many their homes or their single most significant asset in general. And in order to do that, they needed a ton of capital that wasn't actually an equity investment.

It wasn't part of their operations. It wasn't used for their company. It was used to transact, right? Another company we're involved with this properly. It does, it has a similar type of dimension to it. Those I, the people I've seen come up and do those checks or the big banks I've seen hedge funds. And one of the BlackRock or Blackstone I was going to confuse Goldman.

Those are the players in there. Is that what you're bumping up against? Or who else do you see in this. 

Ali Hamed: So, so we've seen everybody. But I think what I would encourage you to think about is what is the actual asset in a reverse mortgage? Like reverse mortgages are newly humane, but they're not new, reverse mortgages are generally, the type of asset where somebody who's elderly, might need some capital or their family needs some capital.

The only asset they have is liquid. So let's make them alone, against the asset and it's pretty expensive or punitive. And there's weird things about how you know, what happens to the asset after sadly you're reading against the person in many cases. And the end of the day, the asset you're secured by the house.

Residential real estate is not a new asset class. However, you in our case, perishable produce is there's no such thing as perishable purposes and asset class. And for really good reasons, if you lend against perishable produce, it goes bad. But prudish has figured out all these bells and whistles that actually make it a financeable institutional asset class altogether.

And what ends up happening or Amazon third-party sellers is another Amazon third party selling. Wasn't it. In 2011 or 12. And so it's just a brand new asset class. So you clearly have even institutionalized it by then. And a lot of these cheaper sources of capital, whether it's a bank or an insurance company, we'll come back to groups like, BlackRock, Blackstone, et cetera.

In a moment, part of what they're trying to do is they're trying to buy assets with good risk rewards. Part of what they're trying to do is also buy assets that fit within the regulatory framework that they live under you. An insurance company has capital charge issues. You'll pay your premium, and it's only happened at your house, the insurance company better give you the money.

And so there's all these rules about what they can put their money into to make sure they have the capital that way, when something happens, it's there. And but, but you kind of like a lot of rules and regulations, there's inflexibility, and one of the uh, general assumptions that financial regulations often.

Is that the longer the asset class has been around, the safer it is. There's more track record. It turns out people have been living in homeless for a really long time. So it's not like residential real estate is like a new asset type. And so for, for those types of assets, you actually can get them rated and put them into an insurance company.

A regulator will look at a bank and consider it tier one capital. So you can use depository capital, something like perishable produce or an Amazon seller, because it hasn't been around long enough. It's very hard for it to get rated and then sell to the abs markets where there's a lot of these hedge funds or securitizations that can happen to bring down cost of capital.

It's very hard to bring that into banks. It'll happen, but often it takes time. So what we find is that we're not always efficient for something like a reverse mortgage asset, as an example. And by the way, a long duration asset has to be fairly low yielding. Otherwise the interest would eat into the entire you know, margin that you're paying.

But what we often tell people is send us. Because what we've found is the technology world, generally, wouldn't be able to give you, even within Blackstone, how Blackstone works, should you go to bam? She got to be soft. She'd go to GSO. She'd go to tack ops. She'd go to the real estate fund. Where does GSO and tack offs overlap.

Like we'll teach everyone where they should go, even if it's not for us. So we just tell people, bring us everything, and then we'll tell you where to route it. And so what I'm hearing 

MPD: from you, which isn't very interesting is you're specializing in lending against not risky assets, but not easily under rideable assets because they're new 

Ali Hamed: we're often looking for is an asset type that feels brand new.

Exactly right. Where we don't think it's riskier. We just think it's novel. But what we can actually do is we can say what does this remind us of Amazon third-party sellers is a really easy one is an Amazon third place home. What does that mean? What if Amazon shuts that down? I'll be at the end of the day, these are small businesses.

They sell stuff online and they have EBITDA. If they're any. And we lend in normal direct London, like in corporate buyouts, you do all these really big loans where there's like an equity sponsor, like a private equity fund. They put in a hundred million dollars. The lender puts in $200 million. And the two things you use to underwrite, those deals are a loan to value.

The lender puts in 200 or $300 million is a 67, 66% loan to value. And the debt to income is basically the amount of EBITDA that company is generating compared to the debt that's outstanding. So the private equity fund, bought that deal for, 10 times EBITDA. You know, they bought it for $300 million.

It was earning $30 million EBITDA and there's $200 million of debt there. You know, it's like kind of an eight ish debt to income. That's pretty wide. And what they're relying on is the loan. In the Amazon ecosystem because companies are generally newer and they're bought by for lower multiples for all these different reasons that we can talk about later, you can provide higher LTV financing, but you're still doing the same thing.

You're just lending money secured against EBITDA using the debt to income, a debt to income covenant. So it sounds funky. It sounds weird at the end of the day, we try to take away all the noise and figure out like, what is this thing actually, you're 

MPD: good at abstraction, distilling it 

Ali Hamed: down to what it really is and speed, I mean, we'll, we've written, I think even a couple of weeks or we, we were an $80 million check within 24 days of meeting the company.

You know, and so we can move really fast, which is also rare for, a more, um, regulated institution perhaps. 

MPD: And when you're let me get, get a sense here. So I know you guys are writing some pretty big checks and running a decent bit of capital here. What's the, what bucket do you fit into for LPs?

Are you more an alternative ass. And they're trying to think of you and looking, looking to underwrite you with some 25% plus IRR, or are you more bucketed with the debt players where you'll see lower returns? How do you fit within that schema as people get to this? Because it sounds like cutting edge ventures, maybe riskier, at least optically, but it's a credit 

Ali Hamed: product, which is, yeah.

So if we had our druthers, people would put us in their asset backed bucket. If we think about walking up the risk spectrum, and one of the things, we haven't gotten to is we also do venture capital and, and one of the things I don't think enough venture capitalists do is really just think about pricing and what kind of risks should they be taking and why are the IRS are targeting makes sense.

And I think one of the things that credit has taught us is really how to, where to sit and how to think about where you sit in the kind of risk spectrum. You know, there's treasury. And then there's like high yield or excuse me you know, uh, investment grade, and then there's like high yield.

And then you start getting this stuff. That's a little more alternative. You get to private asset back, which might be, seven, eight, 9% type net returns. You have things like direct lending, which by the way, are like mid single digits, but levered to high single digits or low double digits, maybe high single digits out of defaults.

And then you have things that are more like esoteric, weird types of asset backed credit, where people put us in like the low double digits net back to investors. And then you have private equity which ends up saying that it's going to earn you a mid teens that return, and usually ends up getting you a height, low double digits net return.

And by the way, that's like on an IRR basis and there's a lot of cash drag and whatever it might be. But, but the IRR seemed great. And then you have you know, growth equity, which is high teens, and you have venture capital, which is low twenties, allegedly. And so, you and then a lot of people will put us in their absolute return bucket, which is a, we want an uncorrelated asset type, and we think that perishable produce and Amazon third-party sellers might be, different types of risks just using those because, I've already talked about them.

And so they liked that we have this diversified income stream you know, that's sort like an absolute return type profile. So my hunch is we tell people to post in their asset backed bucket and they nod and they smile and then they go back to their investment committees and they say they're kind of asset backed because even at the technology startup, where to go BK, they're secured by the assets of the assets are self-liquidating and there's a loss coverage ratio on all these other credit metrics.

But they're earning the same returns as a private equity fund. So maybe we don't think it's as unrisky, as they're trying to. You know, so maybe it's not as risky as asset or as risky as an asset backed, but it's certainly maybe not as risky as private equity. And so I think they try to triangle us into those and that's all my own assumption.

I'm sure every single firm and allocated as your own way of thinking about it and what we hope to get may or may not be what we get. So we just have to be careful about you know, w where we just view ourselves and taking a rational approach to the market. 

MPD: So psychological, when you're going to deploy a product like this, especially on the credit side, I think the mindset is pretty different from the venture capital side of the house, which I know you're in as well.

And we'll talk about in a minute, is the goal on every deal to hit it out of the park, or is the goal to consistently hit a yield in the, you teens zone that you're targeting and show consistent? 

Ali Hamed: Um, maybe putting on my, more talking about the asset class side of the house, I would say most lenders are often trying to figure out how do they create the most absolute dollars of alpha or absolute dollars of alpha type income, not the highest IRS.

And if you think cause if I wanted or if any credit manager, one of the highest possible IRR possible they would just make the fund really small. The reality is it doesn't serve a lot of needs and by the way, I have. I have LPs. I'm sure everyone else has LPs who want to put a lot of capital at work and they'd be frustrated and say, Hey, look, it's really great that you actually even let's talk about e-commerce and compare advertising to it, right?

If you went to an e-commerce company and they told you the CAC to LTV was like 10, they're, they're earning $10 for every $1. They put it and you take great, spend more. I don't want that high of a return. I want you to create more income, not more like your ratio is already good enough.

Like you're not impressing me anymore that this can't scale. And we're the hardest thing to do in early stage. Investing with direct to consumer businesses is figure out like Candice strategy. That's earning a lot right now. Continue to earn more at scale. I think a lot of credit investors say, what is the most capital I can put outstanding where I'm still generating some excess return relative to similar risks in my asset class.

And when people talk about credit, they talk about things like a 10% return, 11% return of 9%. And it sounds like you're talking about a hundred basis points. The reality is you're talking about 10% of your total. Yeah. One of the things that I think is really goofy about venture and credit is venture gets such a hard time for excess valuations because people are really bad at comparing numerators to denominators.

And it turns out like Americans are really bad at fractions. Like those denominators sound like small numbers, but they actually have crazy impacts on like the vector that you're on. And so I would say that the average credit investor, more often than the old school venture investor, although that's changing with firms like tiger, and some of these others is to generate the most absolute dollars of income that exceed the benchmark for their asset class.

And if they can earn a 18 on a hundred million dollars of capital or a 14 on a billion dollars of capital, it might make more sense to earn the 14. 

MPD: So interesting. But I agree with you. I think most people are solving for that and that's the paradigm that leads to a lot of the venture guys. And again, we're, we'll flip over that in a second.

Oh, over raising. Oh, over-funding a strategy. They find a mousetrap that has a great. Then they keep raising as much as they can until they asymptotically approach the market low. And as long as they can hit that in a stable way that might optimize for total payout for them versus maximizing the return for their investors.

So it's a sign of misalignment to a certain 

Ali Hamed: extent. So I'll take another point of view. I think some funds are under raising. So if I let's imagine I was a fully altruistic individual. I had no incentive in making money for myself and I had one LT and that one LP was the best non-profitable time.

They didn't spend any money on administration. All the money went to a good cause let's assume that we all universally agree on what that causes. What would my job be for them to make as much money as I possibly could. And if I sat there and I said, Hey, I have a hundred million dollar venture fund and it's 10 X in.

Every time I raised my phone. And th the LP said gosh, you we have a billion dollars and you keep taking a hundred and we're so happy for everybody. Cause it's helping the kids or helping whatever. Cause we're doing, do you mind taking 200? And I said no, I can't take 200 because I had only eight X my fund.

They'd be like that's great. We done $1.6 billion back instead of a billion dollars back and be like that's okay. Just find other people say we can't, you're the only one that can earn that kind of return. In fact, I would cause that me being almost like, putting my own interests ahead of their interests lifestyle.

I liked that they love me. I like to can I, I can trot out these ridiculous returns. I don't have to fundraise, but I just think it's not one or the other, like the job of an allocator is to align themselves. Tiger might be, I should do the best thing for their LPs. They might say what else you can do in the market is either us or a bunch of.

And and so you should actually, we should actually set up the vehicle for you where we can make as many dollars above what you should be making for this risk as possible, even if it means lowering the cost of capital for our asset type. So maybe maybe intentionally provocative, but I don't think it's as obvious as saying raising money more money is bad.

No, 

MPD: I think actually make a good financial economic argument. The challenge is it's usually that there's a curve to that. And a lot of people, when they raise from 100 to 200 million, they donate exit. They go from 10 X into two X-ing right. And they're destroying a total absolute dollars. 

Ali Hamed: I completely agree with that.

You know, and one of the first thing that was ever told to us when we built our firm, which I thought was a kind of a goofy line but really resonates is, running a billion dollar AUM firm is a great business to be in. Unless you raised this. I used to run a $6 billion AUM firm. It's really hard to go back.

Yeah, I think it's hard for momentum. It's hard for the team culture. It takes layoffs it or not of just pay cuts and individuals, employees, people at your firm want for progress. So I think I appreciate and resonate with the concern of growing too fast. What I don't resonate with is no incremental growth.

And I often find that a lot of firms are not run by their founders anymore are often incentivized to just do whatever the founder would have done. You'll firms like Andreessen Horowitz or some of these others. Part of the reason they're so entrepreneurial under evolving first rounds and other is because they're still run by their founder.

And like people will follow mark and Ben to like the dark Knight because they're the founders. I think it's going to be really challenging. And every firm has this, that when the founders leave the mission and by the way, this is true for companies to the mission is to do whatever the founder would have done.

Especially the founder wasn't kicked out. The founder was just, um, sunsetted or. And you know, I think it's just complicated and I agree with your point where it's not about growing 20% each year, 50, a lot of firms grow 10 X or two X each year. And that's when it gets really tricky.

Okay. 

MPD: So you said you want everyone with an asset backed credit, need to call you and you'll help route them. So if you're listening to this, call them, okay, here we go. What are you actually looking for when someone calls you, how do you evaluate to determine whether or not it's a fit or not? 

Ali Hamed: Yeah. So when we're looking at a company we try to figure out like, what are the risks we're taking?

You know, and and, and we're looking for things like let's talk about let's talk about SAS lending. The SAS lending is a hot topic right now. So in assassin, basically, Vista came out with this quote you know, for SAS revenues, better than firstly debt, because you probably keep paying your AWS bill before you'd end up paying your interest payment because you need your AWS bill to even keep your company alive.

And your creditors would probably agree. You probably wouldn't pay your AWS bill. If Amazon went bankrupt, if the provider of the software suddenly went out of business. And so we often spend our time thinking like, what is like the fallacy or what is the argument we're being given? And then what is, what are we actually underwriting?

Now? It turns out SAS businesses are generally good businesses to underwrite. They have sticky revenues, they have high margins. They at scale become a machine. You put a dollar in and you get a dollar back. And then we, so we, we try to figure out like, what is the risk we're actually. And then we say what does this remind us of?

You know, and so in the case of Amazon third-party sellers, it sounds wonky. Like you're selling you're, you're funny, like potentially eBay sellers but then you look at the track record, you look at the actual default rate and you say, this is small business lending.

What kind of default rates do we see in normal, small business lending? Especially if those debt to income profiles and just a lot of data you can find there. So then we take, what is the comp in the market? And then we say, what is the first party data we're actually getting from this company? And do they match you?

And Jeff business has this wonderful quote of if the data in the story don't match, just stay still, or trust the story. You know, we struggle when the story doesn't match the data that we're actually receiving. And then we want to have an aha moment. You know, why is it that a like the risk we're taking is just so outsized, a reverse factoring is a great example.

So you can go to let's imagine a large company like. And, this is sort a random example that, that we obviously don't do, but you said, Hey, Uber, your drivers are all owed money by you. Why don't we make your drivers alone secured against the payment you owe them? You end up doing, as you get paid, like you're taking the risk of the consumer who drives for Uber, but you're actually taking the credit risk of Uber itself.

And it's definitely a spread. So we look for a lot of those like aha moments. What's an example of something that we can earn a really good spread. And then we want to understand how can we get it to scale. And then also we want to make sure that if we're able to get a really good deal, how is that deal good for the company itself?

Because you can have every legal agreement you want. And by the way, these loan agreements at scale, get to 500 pages between the loan service agreement, SPV, the purchase and sale, the joinder, the law the legal opinions, the subordination agreement, Cohen, it's crazy. But, um, you could have, but it was not a good deal for the company.

You just don't want to be in it because it's, they're going to losing money on a unit economics basis. So they don't have a path to become unit economic, profitable, et cetera. And then once we believe all these different things and every company after that's fairly bespoke in terms of what you have to originate, you're also looking for flow funds.

You want to make sure that you can control cash. It's very hard to commit fraud. You want to make sure that you can observe the fraud if it were to occur. You know, in many cases we actually apply for a loan for lending to a lending company to make sure that what they're telling us to tell the consumer, they're actually telling the consumer, we buy the product.

We do a lot of using the product itself. You know, and then after that, we're usually calling former employees, former colleagues you know, it's, it's a really thorough underwrite because in credit there's a lot less risk for for losses for the founders often surprising. And by the way, most credit investors, what they'll do is they'll say, oh, all credit investors are a pain, but we're really amazing and awesome.

We're not going to do this to you. The reality is most credit investors give you a term sheet and then figure out what. Because my background is really in technology. The first job I ever had was in venture. When we set a term sheet like something better, someone better have like, had to lie steal or cheat for us to not close on that term sheet, but we spent a lot of time ensuring that.

So those are some of the hallmarks and trademarks that we're looking for when we find a deal is what do we expect the market to actually be like, does the data match up to the story? Is there an ah-ha moment where what you're getting paid makes more sense than like the risk that you're taking and how we validate that in 90 different ways?

MPD: So what's the pipeline look like for this? Cause it sounds like there's a lot of very bespoke thinking for every single deal, maybe at a level that isn't as common for technology where there's a lot of pattern matching between companies. Are you running through hundreds of deals a year? And how many are you digging into?

How many do, how many checks you're writing a year with this type of product? Because it's the way you're describing it. And everyone does a lot of work on diligence, not everyone, but a lot of the firms that put numbers. But it sounds as though it's so time consuming that you probably can't do many cycles in a year write 

Ali Hamed: many checks.

It's a lot of say no quickly when you know that a deal isn't going to be down the middle for, or doesn't have the potential to be down the middle. And it's a lot about that being that router, as I mentioned. And you know this, you say no to almost every deal and it takes, one out of however many and to actually get one close.

And so when you're in the no business, whether you're saying no to a cold email from some knucklehead undergrad, or you're saying no to a startup founder, who's really terrific. It's really important to say no the right way. And so for us, our way of saying no the right way is either explaining exactly why we don't think, we think the risk is wrong.

You know, a lot of companies things are taking mitigating risks when actually they're taking compounding. If this happens or that happens, you lose the money. And we like deals that are mitigating, which is if this happens and that happens, you lose the money. So we like an statements or statements, other things like the reverse mortgage business that you mentioned, we say, look we're just not going to be competitive.

And I know nine people who can outbid us, let us introduce you to those nine equipment leasing. You should go to Adeline or Keystone, mortgages. You can go to Guggenheim or security benefit, like there's all these different groups that you can go to consumer loans, go to victory park, um, whoever it is that doesn't really well on the fairway 

MPD: for you.

That's the question I wanna hear what's down the fair rate. It's an asset, other people aren't going to touch so you can get a, probably a higher rate on it. 

Ali Hamed: Yeah. Th that a regulated body would have a hard time doing, because there's not a lot of track or couldn't be asset class, that it would hit a return hurdle, which is in the double digit area range.

That would have what we consider a two time loss coverage ratio. So we take a base case of losses and we have to see two times that at least before our first all loss of income, Where the asset is self-liquidating which means that we're not relying on have to sell the asset after we own it. It should just produce cashflow.

So it runs off. So we don't do things like collectibles or wine or art or people get it, by the way, I just have, I have bad tastes. So deciding if like wine, there are two of us were wearing the same shirt today. That's right. My high school experience would have been much better if I was better at that stuff.

And so, um, can we put at least 50 to a hundred million dollars out over some period of time? And then are we somehow in the flow of cash and then is that their arbitrage of what is the risk that everyone what is this getting priced at? And who's making a lot of money for us giving them the capital versus what is the, the cost of capital of the should be, if this is like a regular way asset, that's one of our comps, a wide bucket though.

It's not 

MPD: trying to do a year, when a portfolio like this, how many deals in a portfolio? I think the cadence. Yeah. 

Ali Hamed: Yeah. Um, We've taken a point of view that we have mostly, uh, evergreen vehicles which means that, we have a pool, we, we don't try to do a series of delay, draw funds where you have 10 funds and you do the next one.

You do. That's fun. We just have a portfolio, one big portfolio, really. The, we, we try to do about eight deals a year. If you think about that on the credit side. So we probably see over a thousand, we probably held pretty good 

MPD: volume, eight deals a year for the level of work you're doing.

It's pretty good. 

Ali Hamed: The credit team is, who are doing the day to day blocking and tackling and the actual diligence execution, all that stuff. Although of course our finance and ops team is very involved in that too. It's well, Josh, Mike, mark, Brian, and I six people, one of us each year does two deals.

It's not the, it's, it's not actually a crazy amount. And by the way, some deals we with years, we didn't warrant. We could do up to 15 in a year and we can do as few as four. But I'd say eight to 10 is by. 

MPD: Tell me about your evergreen construct, because most for folks listening, most GPS out there go out, they panhandle for money, whether it's easy or hard, they raise as much as they can.

They're targeting to get, if they can, they put it into a vehicle, they deploy it, they generate a return and then they start over and it's a new legal entity. It's a new process. Very often the same actors are funding the next the next fund. But it's a, there is a period at the end of the sentence of that vendor, that venture, that fund.

And then it starts over and evergreen concept means you make money back and you're redeploying it into the next opportunity. Most LPs aren't okay with that. Most LPs aren't okay with that. So how did you guys land on evergreen construct? 

Ali Hamed: So maybe it's easier and probably more appropriate for me to talk about different types of fund structures generally.

And, and then, um, hopefully the types of stuff we do will become a more elucidated. As you mentioned, most firms, a lot of firms have a series of funds and they're, close and delayed draw funds. I commit a hundred million dollars to your fund. You'd take my money over a two to three year investment period.

And then after the investment period, you start giving me the returns back over time. So during the investment trip period, you're charging fees on what I gave you, in credit is actually, usually what's called out, what's committed inventors, usually what's committed. And then like you get the income as it comes back.

And then after the investment period is called, the amortization period, which is like all the assets cycle off and you get whatever you want in evergreen funds. Most evergreen funds really can't hold a liquid assets. And the reason is, if there's like a redemption, so usually you go into a fund and let's take like a regular way, a long, short equity, hedge fund.

You commit, there might be like a minimum amount of time that you have to commit for you. Can't redeem the next day. But they're liquid assets. And so you can. Now, along these funds will have gates because you know what happens during the recession or during a time when people lose liquidity is everyone needs to redeem at the same time.

And if you have to sell it to your positions too aggressively, you could kill the market and hurt your own returns. So usually there's gates and they're like 25% per quarter, 10% per quarter. So eventually the fund has to wind down, but it didn't have to wind down all at once. A lot of people who want to do illiquid assets in a an evergreen fund, we'll use the same construct and they'll rely on their liquid assets to get people the money back.

The thing that people often would get concerned by though is God forbid the easy stuff to sell, which is by the way, the performing stuff, cause it's easy to sell. Somebody wants it. The only thing you're left with at the end is bad assets. And so then becomes a race to the door. Oh my God, there's redemption.

I better get out before I'm getting left with the crap. You know, th the way that we like encourage people to set these up is you have a more uh, mechanical redemption process. And you can do that, all kinds of different ways. You know, in a peer to peer lending fund, what you might have is something called side pockets, where you say, Hey, I have a hundred different loans.

Three of the loans are bad. So what I'll do is if somebody redeems, I side-pocket, I have two capital accounts. I have a side pocket cab account, which is three loans, which are impaired and 97 different loans that are, that are not impaired. You know, if you were deemed, I'll give you 97 cents of the dollar back, and then whatever is impaired.

If I get the money back, you get some back. And if you don't, it kinda balancing it out for everybody, you can do the same thing with the liquid assets. So let's imagine you had some things like, let's imagine a book that was 50% liquid and 50% illiquid. Even if the 50% that are illiquid are performing, you can't give them the money back.

And you don't, if your whole goal was to have a 50, 50 split, you're going to screw it up. If you get them all their money back. So what you would do is you'd say, look, I'm going to, side-pocket your capital account. I'm going to give you 50% on the dollar back immediately because they can and the rest you're going to get back as.

And, that has a term, if it's a liquid or some sort of format, and then you get the money back as the underlying deals come up. And that would be a way that you get away with doing an evergreen fund. Got 

MPD: it. And these cases are, or the evergreen fund construct you're describing, is that typically it's all the money called up front or is it one of those words that delayed draw?

So cause it seems like it would go, it would pair up nicely with a called on day one. 

Ali Hamed: Yes. So a lot of people, everyone would prefer that they get called immediately. You do the best you can. You know, I think the challenge is if you're doing a liquid investing, you call the capital all at once. You're seeing on what's called cash drag.

So there's, let's imagine you have 50% of your assets are in 10% for your turn. And 50% of just sitting in cash. You'll earn a five net back to investors and they'll ask you, why are you charging them fees on the cash? So it's reasonably important to have something to do with the money. And there's firms that are hybrid.

Yeah. And the on top of that, when you start to get to these bigger and bigger firms, whether it's, um, a fortress or an avenue or a Blackstone or any of these others, you end up getting a credit business. And within the credit business, there's many other businesses, and now I'm going to get over my skis.

Cause I don't know exactly how each of their individual funds work or all that other stuff. And I know that all the people, all this places to nor do, I want to speak too much about their business, but generally what you end up finding as these firms are scaling is to say, oh, you want a litigation finance, a strategy.

We have a litigation fund. You want corporate card, we've got a corporate credit fund. You want a secure loan fund. We got a secured loan fund. And one of the reasons that's so hard for people in the tech world to understand where to go with their debt needs is like all these different firms are reasonably opaque.

And it, and just um, you know, you could go if somebody told you I have like a. A company that's doing financial services media, you and I would be like, oh, you start to hire Linden it social leverage. And if you had a company that was like a vertical SAS company, you'd be like, oh, go talk to Mike Brown at at Bowery, like all those nuanced.

Can you imagine trying to get a credit investor to know all that stuff? It just takes years and years of learning, which firms do what 

MPD: got it. Okay. And how much of your process for evaluating deals and underwriting is automated versus manual? Sounds like at the clip you guys are doing with your team construct, it's a, hands-on, typical kind of finance partnership 

construct.

Ali Hamed: Yeah. We're, you we use technical tools but they're not like we're not using like AIML tools. We're not reinventing the wheel. You know, we're pretty, hands-on Emmanuel now we rely on platform. So like we love financing stuff on Amazon. Cause if you use Amazon data and you can plug it into the Amazon data.

And and we fund companies that use quite a bit of We've never resonated much with companies that win because our algorithms that great, we often resonate more with companies that have better data because algorithms are black box. You can have short half lives. Data often is kind of obvious once everyone finds out about it.

It's just maybe hard to get. You know, maybe one of the sweet spots we look for is companies that find obviously better data than anyone else has that they just have a unique way of getting an embedded financial services. Business could be an example of that. Carta could lend money to all the people who have their, stocks, uh, or their shares with Carta or custody by card or whatever, because they have information on you that Morgan Stanley's private bank wouldn't have.

The reason people are seeing saying buy now pay later becomes so exciting right now. And especially international buy now pay later is because there's an incredibly wonderful dataset that you can collect, the, the, the basic premise or the basic plan, a. I don't want to go into the secret sauce of some of the other companies, but the thing they all do is they basically advertise to consumers and they say, Hey, great, good news.

We're going to give you a loan. And these are usually in countries where there's not really phyco or there's very little credit card penetration. There's people who have no credit. So everyone applies. But if you make ever an Alona, underwriting, it turns out you're gonna have a very high default rate.

So you make very small loans and high default rates. So then you make a second loan, you see a lower default rate, but only to the people who pay you back the first time and make a third loan that people paid you back the second time, making them a bigger loan and so on and so on.

And so what you're left with is a book of 5% brand new borrowers. And if we get 95% people who you and only, are good borrowers because you train them to be good borrowers. Those are examples of very obvious datasets that we love because they're hard to get access to, but then once you have them, you have this huge advantage.

MPD: Love it. And you also do a venture business. We've alluded to it a few times in the show, but you give a quick overview of the VC side. Yeah. 

Ali Hamed: Um, it was a couple of their partners. We started a firm called crossbeam and crossbeam, does early stage venture capital, right? It's half a million to two and a half million dollar checks into primarily seed stage startups.

There's really four areas that we liked the most. One is your FinTech. Having talked to me for this period of time, you can imagine why FinTech might be interesting and exciting to us, especially anything that's a financing business. We find a lot of joy and pleasure in the fact that most DCS couldn't tell you why some lending companies are valuable and some are not.

And it turns out that it's because most lending companies, aren't very similar to software companies and soft, and you have to back up and try to figure out like, why are software companies so valuable? Why do they trade a high multiples? You know, we often joke that people of doing lending to SAS companies for a long time, because the multiples on SAS revenues are so high.

That if you say what's expensive equity for, sorry, cheap equity, you say expense. We're like now in that gray area where the two aspects of emergence. So why are SaaS software companies valuable? One reason they don't take a lot of capital start or grow and they grow fast. The second reason is they have high margins.

The third reason is they usually have barriers to entry. The fourth reason they're usually growing markets. If you go down this list, these companies are not worth a lot because someone one day said the word software they're valuable because they're actually good cashflow and businesses that are structurally sound.

Let's take a lending company. A lending company is kind of garbage for the most part. You have a company that guzzles a kind of equity because it needs to put equity underneath this debt. If you make a bad loan, you lose your equity. You got to raise more. So it's diluted. You're selling capital, which is, a commoditized product.

By the way, is if somebody made you a mortgage loan, like it was chase you to say, wow, chase is so amazing. I shouldn't shop my next loan. You shop it again. But your next house, see this commoditized product is extremely expensive cat because you're selling expensive products to people. Very highly.

Every once in awhile, you find a software company that actually are lending money to actually act like a software business. And that might be because we're have some components of a software business that might be because it has proprietary data. We can lend to people that no one else can lend to. So you can lend it higher rates than they ought to, and have very low default rates and earn a high margin.

And because of the only ones who can lend to them, they have repeat business. You might find a company like a firm that integrates with the POS of these e-commerce businesses or the shopping cart page, where they have the dynamics of a SAS company where they're not getting paid for the consumer risk.

They're taking, they get paid by expanding AOV or lowering and lowering CAC. So we really like financing business because we have a point of view on what makes them valuable, what not. And we think of a competitive edge there. The third place that we really spend our time on is what we call the re-emerging.

Middle-class largely driven by the decay of network effects and the expansion of platform economies. Let me just know what that means. There's the meme of, this tech take away jobs or just create new jobs. I'd imagine most people listening probably assume that hopefully it will create new jobs.

I don't think it's that. One, you know, I don't have a lot of wonder of what those new jobs are. It's the people who sell on Amazon. It's the people who produce content on YouTube. It is the you know, people who make content on Instagram or Etsy or Shopify or whatever it might be. So the small jobs of tomorrow, or excuse me the small businesses tomorrow live in these platform, economies, not on main street, but what's really amazing is that these people making are starting to make more money than they ever did.

For two reasons. One is antitrust. Amazon has to prove that it's a highway for small business, not a monopoly. The second reason is the K of network effects, largely driven by the fact that social media is no longer social. So when you watch YouTube or when you watch Twitter, if people like you making the content, not your friends, not the average individual.

And thank God, my friends are pretty boring. YouTube has incredible content. And the reason it has such good content is because it's better and YouTube cares about promoting good content, but also YouTube. Instagrammers don't make money. And so that's why on Instagram, everything's a meme. Memes are really cheap to produce.

You can't get, make a video on Instagram. Eventually Instagram will help people start to make money because it has to allow people to make better content, because I think we're all named out already. And so we're watching these social media companies just become media companies. And I bet you, your life is no better if I'm using YouTube than if I'm not.

Cause you're not watching me. You're watching professionals as this shift happens. As these network effects matter less, the platforms are going to have to share more of these economics, just like Instagram's. We have to share the economics of the Instagrammers. And we're seeing that happen in all these different platforms.

Those are the main places we invest. 

MPD: And so outside of social media, what other sectors are you seeing 

Ali Hamed: this transition happening? So Amazon's a terrific example. You know, Amazon, it used to be that Amazon used to sell stuff to us. And then when we saw and they saw something selling well on Amazon they were trying to come up with their own competing product.

And then one day they realized they just can't compete with the third party sellers. The third party seller. It turns out like free markets or. And if you're, if you think of what is, um, Amazon, it's like the, I'm trying to figure out like an appropriate way to say, this is the state sponsored entity.

They sell you their stuff and it's their brand. And, they, they squished down the little guy and then they realize when you're like, oh, capitalism actually worked pretty well. Let's just create a free market. And the free market ended up outperforming Amazon, and they ended up making higher margins on it and you could actually become the everything store.

And so that's an example where it used to be that people wouldn't want to start businesses on Amazon because it's really scary to, to it's the best place to start a business. You get common review moats, you have variable costs. You have high margins because you don't spend money on ads. It's actually a wonderful place to be.

So that would be another example. 

MPD: Okay. So for the entrepreneurs listening, which entrepreneurs should reach out to you, what's that very high-level tear sheet for something that's a fit for you as an investment. 

Ali Hamed: So it's an early stage before. It's either commercializing jobs are starting to emerge or helping create new jobs that have never existed before it's any company that tells to a consumer finance app or sells into financial services, businesses, any company that has a balance sheet or is capital has a lot of capital consumption, but still could be equity, efficient, capital efficient and equity efficient are two different things.

But I don't think you'll really appreciate anything that's related to a financing business. 

MPD: It's almost like any 

Ali Hamed: business where capital is part of the product. Yeah. That'd be a great way to frame it. And then, we're, we're spending like an example of a new type of job can really range.

Ygg is like a fascinating business. Ygg is a Guild that basically buys axes on behalf of players in the veteran Venezuela or the Philippines. They train these players and then they rent them or they sell them to other people who want, more evolved players. There's hundreds of thousands of people in some of these countries being lifted out of poverty because they're training these players.

You know, roadblocks is another example of an ecosystem where kids are making games and making real money out of them. So these are examples where the platforms that were built, 15, 20 years ago, or less realized we have to share economics. So the people on our platforms, the companies on the last two to three years, they started that way.

They just knew that was the right thing to do. And they took this like government state sponsored, maybe socialist approach to a platform and said no, no, we should be capitalists. And I'd say AXI, infinity is like a capital first capitalist first approach to building a platform. And these other platforms that have historically been very large and the Fang stocks are trying to race towards that.

MPD: So why are these two businesses synergistic? 

Ali Hamed: Yes. You know, we often joke that our, you our credit business, the crimp is not involved in co venture is like the front door to. It is, it lets us swing above our, or you know, punch above our weight class. It lets us get into rooms that we might not otherwise be able to get into.

The world, has a hard time finding focus on one more seed fund. But what we do in credit ends up being fairly differentiated. We're usually financing asset classes and nobody else has financing and we're doing it with pretty big checks. So we built a very institutional approach to investing and we have scale and access and connections that most people don't have.

And in venture venture is like where we learned the future and it's the front door to the companies, when we see hundreds and hundreds of deals, thousands of deals per year of all kinds, whereas something like investing in yield generating assets in the metaverse are not necessarily institutionally credit worthy products yet.

It sure helps that we have our credit business so that when they are, we have a compelling pitch to these folks to say, look, when you're ready for a serious amount of capital, we can help you figure that out either by being at ourselves or, or show you the. And in credit we would never understand what was going on there.

What was going on in roadblocks? What was going on in YouTube? What was going on in Instagram, Tik TOK, et cetera. If we didn't have our venture business where we could, be on the bleeding edge. And then it's always, it's not always, Hey, we can provide the capital to every company, but often we'll do one deal that teaches us about another deal that teaches them about another deal.

Um, Borthwick at at, Betaworks always has this quote of he's trying to build a rainforest. We're almost trying to build our own little rainforest of, it turns out like being really close to clear-coat, which funds tons and tons of ad spend per year financing. A bunch of companies that ads for business models is like actually a pretty good thing to partner with.

So all those different ways that we can help our different companies work together creates an ecosystem where the two businesses work hand in hand. 

MPD: That's fantastic. That is unique. Being able to plug into the more institutional capital sources. I think most VCs are a layer or two removed from.

And if they're not removed from it, they're not, it doesn't seem like they're usually tapping into it too much of their portfolio. 

Ali Hamed: Yeah. I think, you it just comes down to also, how do you think strategically about capitalizing your business? Like when you want to do an acquisition, why are you funny all with equity all the time?

I remember there was one business where without saying what the company is, but they launched a bunch of retail storefronts and you, they have a top co and the top co raises equity and the top co also owns all these different businesses. They own the Tribeca store. They own the upper west side store.

They own the SF store and they had this wonderful pitch. They said gosh, you we can get our stores to profitability within six months. I was like, that's awesome. Why don't they? As soon as they become profitable, you drop it down into a subsidiary and then provide a loan to that company because you have EBITDA and then take that loan back up to the top co and now you've recapitalize your Topco instead of raising more equity, by the way, also isolated the risk of every single one of your stores.

If one goes bad, it doesn't hurt or suck out cash from the others. And your loans are all at the subsidiary level. So the loan can never go back up to your top. It's not like any lender who's listening would be like, yeah, that's not that smart or hard or anything. I just don't know why it doesn't happen in venture.

And so this is all we do, but know as part of it. So 

MPD: this is an interesting business. It's a unique model in the sense that you've got this credit venture hybrid. You don't see a lot of that in the venture ecosystem. How did you build this business? How did you go from kind of college student tinkering around to person sitting on a to product strategy out writing pretty big checks and having impact.

Ali Hamed: Sure. So do you take it even a step backwards or further back either the first shot that we did kind of like, really punched us in the face. You know, I remember I had this idea for a startup. You know, we moved it down to New York and I remember the very first time so I was moving down to New York.

So I was like new York's really expensive. And I said, I don't agree. And I found a two bedroom, two bath for $900. And that's, it tells you a lot about the street that I was on. And I was living in the Bronx and, and it was, by the way, I still have like lots of lots and lots of love for the Bronx are actually a lot of things about that neighborhood that I wish actually were in my current neighborhood.

But it a little bit tricky. You know, and there were, you didn't really want to go home after, after dark. And, and the startup didn't work. And it was a really painful experience and it was new to the east coast. I didn't really have a lot of friends to lean on. And so I ended up re really like annoyingly getting, this, this job, if not annoyingly ended up being a blessing.

I had this business called Chloe softer fruit company because I needed to make money because I was like, I was kind in between figuring out my living situation. And I needed to start passing out flyers. So if you ever see someone passing out flyers you should be nice to them because I used to be me and it was on 17th and Broadway and close officer fruit just to run a quick commercial here.

It's a really amazing product. It's actually made of only three ingredients, it's fruit water, and a touch of organic cane sugar. It's only 80 calories and actually got less sugar than it. A little bottle of coconut water. The only reason they add sugar by the way is to bring down the freezing temperature.

So it comes out of the machine in a fluffy format that feels like soft serve or frozen yogurt, but it's officer fruit. There's no dairy or anything like that. And so I spent a lot of my time and actually the reason Chloe's ended up being such an incredible experience for me, apart from the fact that, I had an employee discount, I maintain that employee discount to this day where I get 50% off of my clothes.

And I think the crunchy salty is the best thing they sell. Oh, it's actually Michael Sloan. One of the founders of Chloe was our first investor and our first believer and he encouraged me to go back to school. He helped me go back to school and. You and to this day, co-venture, wouldn't be here without Michael.

And when I got back to school, I was determined. I really wanted to be in venture capital because I thought, gosh, giving people money would be so much better than asking for money. Little did I know that to be a venture capitalist, you have to go around asking for money nonstop, which is a totally terrible way to think of it.

And so I was just so determined to build top of funnel so I could go raise the money. So starting my sophomore year, I go to every career event, every lecture series, everything at Cornell just to meet alumni. And if I met them, my job was to get their business card and to remember what they wore so that I would go to that where some memorable things, something that they said some line that they meant mentioned to make sure they knew that I actually met them in person.

And I would build this list. And then I had an update sheet where every month or every quarter, I would send out four quadrants. This is what I'm up to. This is what hasn't worked that I'm trying to fix. These are my, this is what I'm gonna do my next quarter. And these are three or four specific.

And I just, and there was no hun subscribe button. So this alumni base constantly actually knew how to help me. It was like this specific aspect I used to mention. And this is actually going to be a funny comment. It'll tie back to the very beginning of the cold emails. So then what I got together with a friend of mine named Brian Hartford, who actually now works at our firm.

And Brian and I started doing these research reports that we would do research reports on like elderly care or travel or marketplace infrastructure, all this stuff that most undergraduates spending their weekends doing. And what I would do is I then call the Corp dev offices of companies in the elderly care space, but the travel space, wherever, because Corp dev officers were so much easier to cold email and get in touch with the VCs because VCs have such high call volume.

And then what I do is I email VCs cold saying, and I guess that their emails first first letter, then last name, first name at domain, whatever. Hi, my name is Ali. I, I put together this research report about an industry. Two of your portfolio companies are in it. I'd love to talk to you for 15 minutes and tell you about my findings.

And I'd say one out of 50 responded and I'll get it. And I get it. And my meeting was like important. I spend those 15 minutes, explain my thesis and explain my thesis for their specific companies and then offer them, do you want to meet two companies that may buy your portfolio companies? So it went from a, Hey, how do I become a VC conversation to how do I help you so that you remember me?

And then what I do after a while, I started to meet like a concentrated amount of VCs in the travel space or the marketplace space. And I said, Hey, do you guys want to meet each other? Because you do the same thing. And it was like two hot shots and then me in the middle it might be actually one of the re I can't remember that time at backer, but it was something like that.

And so I would just do this over and over again until I had critical mass of VCs that I knew, and then I would, and then I'd help them enough times where I could finally make an ask. And I always just think I have to help someone two to three times before they, I can ask them to help me. And instead of saying, Hey, do you know anyone who might be able invest in my VC fund?

I would say that I have no track record for, and the nobody should give me a capital for. And so what I would do is I'd go to their LinkedIn and I break down every single person they knew, who I thought was in. And I'd say here's all the family offices, here's all the VCs, here's all the institutional, whatever.

And then I'd write them five fordable emails with the specific name of the person I wanted to meet. Cause I said, Hey mark, what's a investor that, you're not going to introduce me your best contact, even though we're friends, you'll introduce me to the person. You just talk to. That's convenient that well, not your best person, because now you're putting an ask on them.

If I put their name in that email, it's very easy to forward it. I don't know. I just asked let me feel free to say no. And then nobody would say no, because it was a kid and I put their name in and I showed the reason I wanted to meet with them. And I started getting such a critical mass in my network that people started making interest to me faster.

I could ask for intros and in the slide we'll just started. And so today, we've, you raise capital for, from hundreds of people. You know, and I always joke, if you have an office between 60 and 61st and Madison, like you're probably an LP of some vehicle that we have. And we just worked really hard to build social densities within certain groups of.

Build a really high top of funnel and not ask for capital within, until we had given someone three or four favors until we had known them for a year. And that was how we launched onto the scene of getting deal flow, knowing VCs and getting access to capital. 

MPD: Now you've got these relationships, you've been building it for a long time.

What do you think is your secret sauce for maintaining and strengthening LP relationships going forward? 

Ali Hamed: Um, it's constantly providing services, including investing the capital. It's good quarterly reports and explain our thesis and what we're thinking about doing it's offering co-invest it's you know, doing quarterly calls or by annual calls, it's the events, it's the trainings.

And a lot of what people are looking for is not just that you made the money, but how you made the money. If you make money for somebody, your reporting is bad and nobody knows that you made the money. It doesn't help it. If you're not giving someone a preview, like we always joke that, if I was giving advice to a fund manager, I would say it takes three years to raise your first fund.

And it also takes about two years to raise your second fund. And even though you can say that you're in the market for six months, you are in the market. Now I actually even tell people they started raising money the minute they were in high school. So I, I it's because if the person that you have a lot of data points with who expresses themselves as the smartest person, ask for money, you would argue, just give them the money because you already knew them.

You already impressed with them. All the other things. There's a woman. I went to high school with who I used to use her pencil to take tests. I call it the elder pencil, like the elder lawn from Harry Potter, because she was so dang smart that I just wanted, like the osmosis of her smartness is that woman ever asks us for money.

It's a blank check for me, like whatever she wants. And so, you there's um, so I think a lot of it is. Have a good product. Do what you said you were going to do, explain it on a quarterly basis in a, in a functional high fidelity format. Make sure that when you do a deal, you have a lot of rationale for the deal getting good returns.

Doesn't matter if you've got the returns for reasons you didn't expect. So we talk a lot about our quality of returns. Did our thesis play out or did it not play out? And then we also have to have a point of view on the world. Whereas venture now, where markets, how do we think about valuations and actually like sounding like you have an original thought as opposed to just trying to like mimic something that you saw or read five or six years ago.

And then when you're out raising your next fund, like as soon as you close a fund, you should say, Hey, we're going to raise another fund in two years, I'm gonna spend the next eight quarters convincing you that what I said I was gonna do, I did. And then when you go to your budget meeting in November to figure out your 20, 22 budget or in November next year for your 2023.

You already pencil us in. You already know that we're coming back to the market. So a lot of it is just understanding the game, the timing makers, they can do their odd the right way, and also create a lot of positive references and referrals. I know there's certain groups, former partners at a certain firm or C-suite executives that accompany that IPO, where we might have six investors in that cohort.

Getting the seventh is really easy because they have so much social validation around them. Those are some of the ways, I guess we're just very programmatic and formulaic about it. Okay. 

MPD: Let me give you one more layup. I know it's something you probably want to talk about. You alluded to it before that the venture market has changed a lot.

How do you see those changes? What do you think the required responses from VCs in order to be relevant and continue to be successful? 

Ali Hamed: I mean, the venture market changed a lot. Let's talk about evaluation. You know, so valuations are higher now. And I was alluding to the fact that valuations in all asset classes are higher in credit.

The version of higher is that yields are lower in, in venture or equity, because the evaluations are higher. Valuations probably should be higher now than they used to be. I don't, I'm not by the way, proposing that they should be as high as they are, but they certainly should be higher. Why?

It used to be that you were taking a lot of technical risk or product market fit risk, or mark business model risk. You're not really taking technical risks anymore and you're not taking business model risk anymore. Every business is either, a SAS company or marketplace. Every technology you're launching, you're using nine other technologies.

So it's really like a product market fit risk which is a lot riskier than before the second is the founders have usually founded a company before or where like the unsung hero of another company, it used to be that you were backing these kids or even adults who were spitting out of a big company who had never been a part of a startup or product team.

Maybe your own investing is different, but I bet you, it's not. I bet you, most of the people you're backing out are just people you've known for a long time. They started a company and you're here for the second ride and it's not their first time building the sales team. They're not hiring a bad CFO.

They're not calling people CFOs when they're really controllers, they're, they actually know how to run a business. So you're taking less team risk. The Internet's bigger now, it used to be that we were all really successful. If we built, back to a billion dollar company, a billion dollar company is great, but it's not a $10 billion company.

That's the new sort of thing that everyone's trying to hit. You know, and, and, the, the speed that they get to be in a billion dollars is so fast now it's for two reasons, the first is the buyers of enterprise software products are more used to buying enterprise software. And the team's built to sell enterprise software products or SAS products, whatever are more robust.

If it's a founder who's already built nine of these teams, they know how to train their STRs or inside sales or account managers, how to pursue negative turn, like just the tools we have to build those teams for much better. And in consumer social media, or now media has become way more data-driven it used to be you put a TV ad up and then you hope Nielsen measures enough people to tell you how many people watch your ad.

That is insane. Now we actually have like really good analytical data to be data-driven about how we attract consumers. And you can get a lot of consumers really fast. You can get a million users in the time. It used to take people to get 20,000 users. You'll remember this, it used to be a big deal when someone had 20,000 users.

Now you'd be like, what do you do? Like you spend three months building this product. That's your 

MPD: signup list? So that's your pre-launch 

Ali Hamed: signup list, right? So why would I ever assume that valuation should be the same now as. And then on top of that, VCs have gotten way better at knowing about a market before the company comes in.

You. I think the sloppy way to do VC is to say, holy crap, deals move so fast. Now I should just do less diligence. The smart way you have to be a little thesis oriented. You know, you have to know a lot about a space. And then by the time the company comes to you, you already have a point of view or do pre-work or whatever it might be, because yes, the company is going to get us round done the next three to four weeks.

You have to be ready. Or at least a lot of the hot deals. Preempting is a lot harder than it used to be. The rounds are more fluid. The other things that we're seeing is everything's a double round. Either the valuations have been moving so fast that everyone's trying to figure out a price discovery.

So as soon as around gets done in the price is validated, then there's another round that happens at 20% premium, like half the time. If the company is willing to allow it. So a lot of these things are starting to change or mature that just didn't use to exist as much before. 

MPD: Thank you for your insight.

Appreciate you being on. It's great to catch up. 

Ali Hamed: T I, I, am really excited to be here and hopefully we can find more to do together. It would be an honor.