$300M Venture Fund: Building Trust With Investors

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my today I have my dear friend Steve Brotman.

Steve is the managing general partner at Alpha Partners, a $300 million AUM venture capital firm out of New York. Steve has been recognized a few times as a finalist for the Ernst and Young Entrepreneur of the Year Award, as well as being named in Crain's Tech 100, Top 25 Players Shaping Silicon Valley, Top 40 under 40, and he's been listed among New York business leaders.

So what does this mean? Well, this means that Steve understands how to deliver an edge to investors so that they too can enjoy their pursuit of Making Billions.

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[THE GUEST]: Steve is the managing general partner at Alpha Partners, a $300 million AUM venture capital firm out of New York.

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• 27:09 (Cont.) $300M Venture Fund: Building Trust With Investors

Transcript

Ryan Miller  

My name is Ryan Miller and for the past 15 years, I've helped hundreds of people to raise millions of dollars for their funds and for their startups. If you're serious about raising money, launching your business or taking your life to the next level, this show will give you the answers so that you too can enjoy your pursuit of Making Billions. Let's get into it. 

Ryan Miller  

If you're gonna start raising capital and closing deals, it all comes down to trust. My next guest talks about building trust in funds and what he's done to grow his company to $300 million as a venture fund in New York, all this and more coming right now. Let's get into it. 

Ryan Miller  

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my today I have my dear friend Steve Brotman. Steve is the managing general partner at Alpha Partners, a $300 million AUM venture capital firm out of New York. Steve has been recognized a few times as a finalist for the Ernst and Young Entrepreneur of the Year Award, as well as being named in Crain's Tech 100, Top 25 Players Shaping Silicon Valley, Top 40 under 40, and he's been listed among New York business leaders. So what does this mean? Well, this means that Steve understands how to deliver an edge to investors so that they too can enjoy their pursuit of Making Billions. So Steve, welcome to the show man.

Steve Brotman  

Thanks, Ryan, I really appreciate it. I'm a fan of the show, I love, I love what you're trying to accomplish here. I think sharing, you know, having gone through what you've gone through, to get where you are, and then being willing to sort of let the ladder down a little bit, to enable other folks to think about how they potentially can follow that, you know, similar path and maybe be a different genre of opportunity. But a lot of the truisms in life are very similar, whether you're pursuing growing a private equity fund or a venture fund, or building a business, or whatever it might be. Thanks for having me on.

Ryan Miller  

It's such an honor to have you, man. So you know, I've been very fortunate to be in the top 2% in the world. It's all because of amazing guests just like you. So we're all about alternative investments, investing. No more Wall Street, we got all street. So we're going to invest in these types of investments, and that's where billions are made. So let's start right from the beginning here. So we have a lot of emerging fund managers, family offices, investment bankers, everybody's listening to this show, one of the things we take pride on is we default to how. We don't just talk about platitudes, but on our show, and you're certainly one of them. So we have a very keen interest in helping people like we wish we would have had help, but now, through the love of podcasting, we're able to do that, so let's talk to beginners. In the beginning, let's say someone is an emerging fund manager launching their first fund, what advice would you give them on how to raise their first fund?

Steve Brotman  

Yes, well, I would say they're really three keys, and each key is super important in different ways. And I was just talking to Ed Sim from Boldstart Ventures, who just, I think he just closed on a quarter billion dollar fund and has raised close to a billion over the last 10 years. We were talking about this, but you can't just be smart, you've got to have an edge. You have to have a real edge and a passion for that edge that's kind of, that's not just good for this day or this week or this month, but a persistent edge that is going to translate over the next decade or two and play out. It's partially strategy, there's lots of ways to develop edges, Alpha's edge, the firm that I run after being an entrepreneur and then as a VC for 15 years, early stage VC. I decided, you know what my edge is, the 300 VCs I've known and all the great companies that are invested in, instead of competing with all my VC partner friends, why don't I partner with them? And what we do is we solve a particular problem in the venture industry, which is, they do the seed, they do the A, but then they have no more powder left for the B and the C and the D rounds, and 80% of venture is in those growth later rounds, that's where 80% of the money is made. So that's Steve's edge with Alpha and our strategy and I think what I want to also say is this, is that it's little counterintuitive, but edges are all about being, having being not just a contrarian, but being a contrarian and being right. The more you are right and the more the market is wrong, the bigger your Alpha that you're going to create. So it's important to get something that's an edge where it's a little bit edgy, if you will, and that the market kind of doesn't quite see yet. And but the righter you are, and the more violent the market disagrees, the bigger your returns are. And that's how folks make billions, ultimately, is that arbitrage, I mean, you know, talk about Bill Gates. You know, he was like, hey, I think the software is valuable for these little they were like Hobby kits for computers. And, you know, the IBNS, the world sort of ignored it, focusing on the hardware, he focused on the software. Everyone at that time thought is all about hardware, Bill was like, no, it's about the software underlying the OS and well, the and the more right he was, the bigger that opportunity became for him. Yeah, so having an edge is important. 

Steve Brotman  

The second thing is that you've got to have a plan to move beyond friends and family, and that's really, really important. So that edge isn't just like, oh, my friends like me or my family likes me, that this is more about, like, drilling a little bit deeper on that edge. Um, one of my former partners, Ben Freeberg, started a firm called Oncology VC and you know, after a couple years with us, he actually fell ill with, testicular cancer, and, you know, which is pretty big blow for a young young man. You know, after recovering, he realized that what he really wanted to do was address this bigger cancer issue, especially on young people, but the whole population overall. But he couldn't just jump in and become a VC and raise a fund, he knew he needed to get the tools. So he spent several years in the industry, in business development, figuring out where the opportunity was for him to ultimately raise a fund that's now called Oncology Ventures. And if you think about it, his edge is he's addressing an area where a lot of VCs sort of fear to tread. They tend to be either in it's a regulated industry, so that's, that's a little bit of an edge, but it's massive. You know, the obviously, cancer affects, I don't know, a third to a half of the population. You know, probably more, whether it's yourself or your family members or whatever it might be, so big opportunity. And the other thing is, was really interesting is that, you know, he was addressing processes just within hospitals, like serving those patients better and getting medicine that works to the right patients. There's still a lot of inertia in the market where the right treatments aren't being addressed to the right, aren't being addressed to the right people. And so, you know, and the best part of all this is that, when he was fundraising, they're not just pockets for people allocating to make returns. They're also folks that want to do impact. And if half every second LP that you talk to has someone in their family that's impacted by cancer, they're going to be leaning in pretty hard in that conversation about Oncology venture. So I think it's important to build up at that point. 

Steve Brotman  

The third key I would, I would say, is that if you want to raise a billion dollars, it's a lot like eating an elephant, any big task needs to be broken down into pieces. So how do you raise a billion dollars? Well, it's a lot easier to raise a billion dollars when you raise 500 million. Okay, great. Well, how do I raise 500 million? Well, you might want to start with 2 or 300 million, and so on and and, yes, if you're trying to raise 100 million or 50 million, maybe it's a good idea to raise 10 or 20 and even in the first step is raising one or two. That's really, you know, I think really important, I think you got to have that runway if you're not of the industry, if you don't have 10 or 20 years, let's say Bessemer or KKR or whatever it is, and you're not just spinning out with sort of a natural strategy and extension of and have those skills, and you're trying to sort of come out of industry as an operator or without very much private equity experience, you really got to build your own. That's the only way to do it and you need to make sure that you have a runway to do that. A lot of funds fail in that, you know, I probably say 1000 wannabes reach out to me over the last few years, and maybe a very few handful make it. But it's a lot about having the edge, making sure that you can, you know, have a strategy to consistently raise money beyond friends and family and then eating that elephant one bite at a time.

Ryan Miller  

Brilliant. You know, having an edge is so important, thank you for that, that is absolutely brilliant advice. So making sure that you have an edge, I think you found that to be quite advantageous, because the context is saying, how do we raise our first fund? And you're saying, well, first thing is, you gotta have an edge, meaning an edge that investors find valuable. And that's what your partner did in your second example is saying he understood what edge he needed. He got to work to create that, if he didn't have it already. And then now he's in the place he always aimed to be with an amazing, little heavy backstory of how it hits a little close to home, so to say. And then the other one, which I find because, as you know, Steve, have helped over 2000 people launch their own fund. And I can tell you, so many people are like, I'm going to be a billionaire, so they hear the word fund and they just think, oh, this is the easy straight to billions of dollars. Well, look at a fund as a vehicle, that's all, it's just a vehicle, it's not a lottery ticket. And so it's a vehicle that you containerize your efforts in. And so if you want to get to that place where you are Making Billions, I absolutely love that is to say, just start small. In fact, even smaller than a fund and probably this is good advice, hear me now, for those of you who have heard me teach you how to launch a fund, that's not the right vehicle for all of you. Launching a fund is a scale vehicle, this is my opinion, it's not Steve's, this is a scale vehicle. And sometimes just do a couple deals, maybe make 50 grand, and then bring that story to investors, say, here's how I made the last guy's 50 grand. The last guys were maybe my cousins or somebody and friends and family, but I think I'm onto something, and I have a skill where I can generate some profit. And then they're like, wow, you made 50 grand, I wonder if you can make 5 million, here's some more money and you just keep scaling under exactly what Steve taught you. And so raising capital, as long as you appreciate that, this is a marathon of sprints, and each sprint is maybe a fund that you keep step laddering up and working your way up to that. But really, whatever it is you decide to do, and I think I can speak for you, Steve, but keep me honest is just move forward with your eyes open. This is what we're here to do, is to say, look, maybe we didn't start this way, but there's no reason why you can't end up here or where it is, wherever it is that you're trying to get. But it's okay to say this thing's an elephant, and I'm just gonna eat it one bite at a time, I absolutely love that advice. Anything to add to that?

Steve Brotman  

No, I would say that actually, what's, what's nice about what you're what you're talking about, Ryan, is that you're speaking about, you're manifesting the strategy a little bit better in the we actually at GSAVP, my first fund, we invested in a handful of companies. We didn't even charge fees or carry or anything. We just had our friends and family come into that opportunity, and you know, they were wildly successful. And then with Alpha, we did something similar, as well as, like, we raised, like, a ten million fund, but ultimately raised over 100 million in these SPVs. And actually, we made more money in those SPVs than we did in funds. So, you know, so you're absolutely right, I guess that would be sort of a fourth key is consider, when you're trying to build a new product offer taste to your potential customers, I would say that the speed of where you get to your destination is going to depend on your ability to pick winners, right? And so, you know, my first investment was a company called live person, and it went public 18 months later. I'll tell you that that was really helpful when starting a venture fund is and so.

Ryan Miller  

Profit, yes.

Steve Brotman  

You know, well, this gets into sort of, you know thinking about this as a, as a long term game. And, you know, really there, there are a few things that long term games mean. One of that is just being patient. You know, don't be in a hurry to do a deal for the sake of doing a deal. You know that that can easily lead to ruin. So be patient with what you're doing, do not be in a hurry. It's really important that you wait for that big pitch and be patient about how you do it. And I would say even as you're staffing up, this applies to all aspects. Is that don't hire that if you're looking for help, be patient in terms of the people that you bring on and the way that you do everything. You don't have to race, this isn't a race, this is, this is about execution. 

Steve Brotman  

I think also it's really important, if this is, again, this is a long term game, fundraising on the dollar bill, it says In God we Trust. Money is about trust. Fundraising is about trust. So what are you trying to do in the end? Is you're trying to scale trust, and your friends and family are important on that trust, trust wagon, because if they don't trust you, how are third and fourth parties gonna trust you, right? So that's really important in terms of how you scale that trust and your reputation and your integrity, all those things. There's all the things that in kindergarten they talked about is don't lie. Might seem like kind of juvenile in a way that, but that's the ultimate. This is a long ball game, and you know, what you're trying to do is scale trust and show that trust in everything that you do and everything that you say. 

Steve Brotman  

And the last piece is something, somewhat tactical and a lot of people have different perspectives on placement agents, I think especially early on, be pretty skeptical. No one's going to sell better than you listen as I, as I've scaled, I have, I've had, at times, try to use contingent placement agents, just to sort of see they come at you and they're like, hey, look, I'll just, you know, make a few introductions and etc, etc. It's very rare that that stuff turns into anything. So just keep your expectations in check. And if you're going to pay a placement agent, I've actually never paid a placement agent that it actually worked out. I have had people on my staff and my team that work for me day in and day out for many years, and that's worked out pretty well, but especially in the early days. I think until you get to 2, 3, 500 million, or even a billion, most agents aren't, aren't a great use of time. They can potentially help you top off a fund, you know, in a strategy that already has like a fund three or fund four or beyond, but very hard for an agent to make a difference in fund one. And I apologize to some agents who might be listening here, or I'm going to get a lot of flack again, if you're a placement agent, you got to wait for those big pitches, and you got to know what's your game and if your game is topping stuff off, that's what you should probably focus on. But I think a lot of emerging managers get caught up in, oh, I just need to hire the right agent. And I think if you talk to 100, a 100 different folks, maybe, if you're spinning off from BlackRock or insight, maybe an agent can step in and wave a wand and raise 500 million or a billion, but it's, it's pretty rare. 

Ryan Miller  

That's amazing. So what, what I've noticed then, because I've I get asked all the time, as you know, and many others, I teach people how to raise capital, and one of the things I always ask is, like, one of the easier desires, I want to do it, and that is the question I ask, is to the effect of what you just said, those will tell me about your background. And they'll say, well, you know, I got one rental property, okay, done any other deals? No, don't hire a placement agent. I love what you say that it's probably better suited to top off rounds of experience, funds, than to fill rounds of new funds to the effect of what you said. And so dealing with placement agents, I am yet to meet someone who's had a good experience. Now that doesn't mean it's a bad industry or it's a waste, but I think if you the bad experience comes is when you're using them in the way that they're not meant to be used. And I think you hit it perfectly, is that the best place to consider a placement agent is after you've raised a few funds, you've done a lot of deals, you have a big background that you can share, that they can share, more importantly, and now you're in a position to leverage their experience, their context, and they can sell you to investors, because you're too far removed. That's what I think, you're just too far removed.

Steve Brotman  

I would use one caveat, the expectation should just be very low, like not if you're paying someone 10 grand or 20 grand a month, your expectation is this person's not going to deliver anything. It's really, if you're going to do that at all, you should be very happy that if, in five or 10 years, if they've given you, like, let's say they put you in front of the Harvard Endowment, which, you know, I've been in front of, you know, years ago, or whatever it might be, you know, that's great experience, but you're paying for that. 

Ryan Miller  

Yeah. 

Steve Brotman  

You, Harvard Endowment is likely not investing in your emerging managing fund, I mean, it could lightning, could strike. It is feasible and there are some, some endowments, foundations and pension funds, that do emerging managers. They are, they do exist, but it's like lightning striking. It is very difficult, you know, you have to think about the fact that there is more private equity funds and venture funds than there are mutual funds in the world. People have so many options and you know, if you get up to that institutional level, you're in the pro leagues, baby. You're competing against the pros. This is not tiddlywinks, this is not your high school debate competition. This is not your college competition. This is not your, you know, Olympics, this is like Pro League. No one hires an emerging manager or fund manager, they want someone who they have confidence in is going to make them money. That is what that is what they do, right? 

Ryan Miller  

That's what you get hired for. 

Steve Brotman  

That's what you get hired for. No one raises their hand and say, oh, I want to invest in emerging managers. You know, they want to think about yourself even. Do you want to invest in someone with one year of experience? 

Ryan Miller  

No, I don't want to pay for someone's internship. 

Steve Brotman  

Which is why, why doing those deal by deal, those SPDs is you can sort of self create that internship, if you will, and on a deal by deal basis, someone can check your homework. Oh, they did the diligence, this is what the you know, you're talking about a real estate property, or if it's a venture deal or private equity, or whatever it is, a lot of people do get their start doing that, and you learn a lot, and you learn whether you're even any good at it. You know, the other aspect is, who wants to invest in a bot, a medium quartile fund, like the median? Who wants to do that? 

Ryan Miller  

Yeah. 

Steve Brotman  

How about third quartile? No. Fourth quartile. You know, first quartile, you're getting there, but no, no one wants to invest in an average rewarding fund. They want to invest in the top quartile, or, better yet, the top decile or top 1%. That's what investors are thinking about. So unless you can get there and show them and deals are a little different, because they can, they can use some of their cognitive abilities to be like, You know what? I have seen a lot of real estate deals, I have seen a lot of venture deals and this one makes a lot of sense. One of the things I'll throw in there is that Alpha actually, one of the things we do factor in, there's seven things that we look for which we don't need to get into now. But one of those things is, are there other smart people around the table, investing at the same new money, investing at the same time, at the same price? And if they're not, it's sort of like that old joke. If you want to know who the idiot at the poker table is, and you don't know who it is, it's you. 

Ryan Miller  

That's so right. And hopefully I never find myself in that situation, but I'll never know, because no one will tell me. But I absolutely love that man, mastering patience, scaling your fund, is really about scaling trust, and just if you're starting out, man, because again, we're talking about beginners in the context of this discussion. So we're not saying, in general, in the whole industry, don't do these. We're just saying, if you're new and you're just starting out, you're on fund one or two even, there's some principles to say it's just like working out man. Like, don't go and try to act like you're some wild bodybuilder and then wake up the next morning and you can't move, you're like, that does you no good to have that much pain without a lot of benefit on the upside. So just ease into it and learn to enjoy it, don't bite off more than you can chew, just one bite at a time with the elephant. You know what you're talking about, we'll round this up before we hop into the market. One of the things that you're talking about, talking about, and I know you've heard me say this before, and everybody that listens to the show, is Triple R, reputation, relationships and results. That should be the outcome that you're wildly chasing like a man possessed, is saying, I will not do anything to jeopardize my relationship, the relationship my partner's relationships with my firm, or the reputation of that same group, and at the end of the day, our job is to produce results. There was a time early in my career where I was very close to the leader of the organization, number two in charge. And I remember I was exempt from this rebuking, but he went to all of his generals, and I was there in that meeting. And we'll say results were slipping a bit to put it lightly, and I remember he leaned in in a very firm but loving way, and he said, simple thing, I've never forgot. He said, leadership is about results, and if you don't get results, why are you here? Let me tell you, you could hear a pin drop in there. But it's true, it's not rude, it's not mean. It's just saying, if you are here, people have expectations that money will come into the firm from investors. Deals will come into the firm from investors, because you have a solid reputation, you have great relationships, which means you treat people fairly around you, and most importantly, you know how to produce the result that we're all here to get. If you can do those, you're solid, if you can't, maybe reassess. Maybe you go smaller, maybe you do an SPV, but just make sure that you operate at the scale, that you don't jeopardize your reputation, your relationships, or your results. If it's too big or too small, that may be a reality you deal with. And none of us here on this show want you to deal with that, so we want to help you protect that, Steve and I included. Thank you for that. That was, that was brilliant man. So all of that advice for an emerging fund manager, raising a fund. Take it, take it easy. A marathon of sprints, there was a ton of content and a ton of value in that, but we're not done, brother. So we wouldn't have a show called Making Billions, we don't talk about the market, right, so the almighty market. Now, I know the market isn't a market, there's plenty of sub markets within there, but as far as the context of VC and your world and Alpha Partners and everything that you're looking at, what are you seeing out there? What's catching your attention? And maybe share with us some of the either the good, the bad or the ugly that you're seeing right now.

Steve Brotman  

Yeah, before I get to the market, let's talk about the market for emerging manager, it's probably the most important market if you're an emerging manager. But I'll, so I'll try and be brief here, I was meeting with Chemi Perez, who's the head of Pitango Ventures, which is in Israel right now, as you can imagine, Israel is in pretty pretty, you know, difficult shape, with the war going on, and fundraising for new funds is pretty low. But that actually, right now, today, I think the average fund to a few, actually, a few years ago, the average fund two would be raising a fund two, after a fund one, about 40% of the time. Now it's 12% of the time, so that's just in Israel. I would say in the US, it's very similar. And I don't have the, you know, the facts and figures at my, at my fingertips, think that the chances of a fund three, raising a fund for have also declined from 40% down to 12% so even after you make it is a fund one and fund two. Investor to make it to fund five and six and seven is a journey, it's a marathon, you got to keep on performing and keeping on executing. 

Steve Brotman  

But the point is, is that fundraising right now is a bit of a challenge, but the flip side of that is this, and it goes back to remember we were talking about edges. The flip side of that is that the market is suggesting that now is a really bad time to raise, and it's going to be really hard to raise. Here's the good news, if you do, you are more likely to be successful because the market is contrarian. Is you're being a contrarian to the market and if you are right, and you are executing on a strategy, because you look out and you see whether it's like real estate trading for negative value, and you're picking it up basically for free, or private equity or venture or whatever it is, the harder things are, the bigger the reward. So don't, don't be totally depressed about that. There's never a good time to raise a fund, never, if there never is for an emerging manager, it is hard and it is painful, and it can take a long for a lot of emerging managers. So just to say, right now, fundraising is a bit of a challenge, I would say that it does feel like valuations have kind of stabilized a bit. We've had a massive reset in venture land, so which is actually great. As an investor, you want to buy low and sell high, you don't want to try and buy high and sell higher. So this reset is really, really healthy and what that means is emerging managers who raise over the next two or three years, they have a much more if they can raise, they're much more likely to prosper, right? So on the valuation side, having falling valuations isn't horrible, they're starting to stabilize. The Fed just cut rates, which suggests that, you know, the tightening is a bit over, a bit in the near to midterm, but I'm going to talk about in the long term in a moment. 

Steve Brotman  

The other thing, and I think everyone's talking about that, especially in venture land, is that is about AI. I think, for those folks who, especially that are not long term tech investors or are not familiar with the market, this is just one way to think about it. If you go back to mainframes. They were 1000s of mainframes sold back in the 1960s and then the next wave was mini computers. And those were sort of client, server type operations of sort of time sharing mini computers. And 10s of 1000s of those were sold. And ultimately that wave was replaced by another wave, with the PC wave, where hundreds of 1000s and even millions were sold. So each wave has been 10x bigger than the prior wave. Now you've got other ways, so look, look, you've got after PC wave. There was the client server wave of connecting PCs together, that wave was 10 times made, PCs 10 times more valuable, and corporations adopted them. And then you have the internet wave. So not only did you have connected PCs and corporations, but now they are all connected all over the world, so that made those machines even 10 times more valuable than those and so on and so forth. And then you've got social media wave, which was massive, but even that was kicked up to a higher note because of mobile computing. So billion almost the entire planet now has a has cell phone, a smartphone, a smartphone is basically a computer in your pocket, 10 times bigger than that. So I'm not trying to hyperventilate on the show and talking about and being, you know, crazy. I'm just telling you what happened over the last few five decades in technology. AI could potentially be that next 10x wave, yeah, and that's where some things are going and I you know, that's, that's how to think about AI in general. And we can start, and you can start debating about, well, the opportunities in the infrastructure layer, the app layer, or whatever it might be, right now that's sort of being sorted out. I will say that within AI and if you look back on past booms like the telecom boom in 2000 there was a massive build out in telecom companies and infrastructure and people laying fiber right, 2, 3, 4, years later, that all busted, they over built. But there's so much fiber out there that firms like Google and Facebook and YouTube emerged to suck up all that extra bandwidth. So on top of that infrastructure boom, the next boom was then created. So while there's certainly money to be made, I think, in the infrastructure land and will continue to be made, it's not necessarily a sure thing, and it might not last forever. So just thinking about these different waves, and our job as fund managers is to surf those waves, right?

Ryan Miller  

Brilliant. And so, you know, you mentioned that where the disruption will happen a lot? It could be certain areas, but I'm sure this is up for opinion, I'm curious of where you see a lot. I have my own theory, but I'd love to hear from you. Where do you see a lot of this AI disruption a word we hear almost too much in our industry. But where do you think AI will be felt the most, according to say, global GDP?

Steve Brotman  

Yeah. So let me, let me just back up just a tick to sort of say, over the last 20 to, let's say, 30 years, the percentage of global GDP and stock market capitalization for Tech has grown from 2% to 20%. Healthcare, similarly, 2% to maybe 15-20%, which you could argue is somewhat like tech right. Today those, that's where we're hovering, around 25% of global GDP and stock market capitalization is from Tech. If you take a step back and think, okay, global GDP is 90 trillion with the T and there's $45 trillion of paid human labor. If you think about any industry, there's paid, certainly paid human labor, and there's also, this doesn't even conclude, white collar labor, but AI will improve the output of half of global GDP, the export. So if you think about it, let's talk about this is going to lead to pretty substantial economic growth around the globe. It'll be uneven, though, but if you think about it, you know, if there are humanoid robots walking around that are fully capable of picking up garbage or mowing my lawn or doing relatively simple tasks, and then over time, given the acceleration of AI, they're going to be able to do more and more and more sophisticated tasks. Right now, we haven't even really seen the physical labor side. We've seen queued apps, we've seen some penetration into rewriting or writing different different types of documents, but we're really just scratching the surface. So, you know, you're talking about, you know, it could easily be 25% of global GDP shifted to things that are powered by AI, easily over the next 20 years, that's, that's, that's, that's pretty substantial. Again, going back to my humanoid robotics example. You know, it doesn't take that much to make billions in that segment, but that's a pretty big, you know, opportunity set, and that's why everyone's talking about it. I will say AI infuses almost everything and just like, like when the mobile wave happened, every company that could be mobile, mobile, or use mobile in some way, went mobile over time. It might not happen that moment, but over the next 20 years, even Five Guys has its own mobile app to order Five Guys Hamburgers, AI is going to be the same way. So AI is going to be used in the, you know, in the software world, but it's also going to be used in the physical world and it's going to be pretty damn amazing. But it could be not just 20 or 25% because if you think about it right, today, I, you know, I'm living the suburbs. I have someone to mow my lawn. You know, every other week I might have someone help clean up my house. But why wouldn't I have a robot to help do that? Why wouldn't I have 10 robots? What does that do to global output? If you think about applying this to consumers, but also. Businesses in terms of what, what that and I'm just talking about one specific opportunity set, is you're talking about no one's going to be okay with just one. They're going to want, you're going to want as much as you can. So I don't want to sound crazy, because I think you know who's going to make money in that environment is going to be hyper competitive, there's going to be pretty brutal competition pretty brutal competition. And what the great part is that we're all going to be beneficiaries of that Boom, just like we're beneficiaries from other tech and other improvements in global GDP. You know, I was reading the other day that, you know, basically, if our economy only grew at 1% instead of 2% over the last 50 years, per year, we'd be a very, very poor country. I want to say, you know, I don't, I don't want to, I don't want to point out any particular country in mind, that in mind. But if we didn't grow that 2% over, over the last 50 years, the US would be a very poor country. So I think, you know, grasping on to these opportunities is going to be increasingly important. And by the way, as our economy grows, it's not just about tech. You know, you mentioned private equity, you mentioned real estate, all these segments are going to benefit from this rising wave of technology that's probably going to be the biggest ever, bigger than anything we've ever seen in technology or humankind. So it's pretty cool time. 

Ryan Miller  

Yeah, and I honestly, Steve, I think there will be a time in the very near future of a billion dollar market cap company with employee of one person, and I think that'll be enabled by AI, but more importantly, to that, well, that's cool and sensational. I can't wait to see who that actually is, the one guy that created a billion dollar company, and it's just him and a whole bunch of AI. The important thing that you talked about is $90 trillion GDP and half $45 trillion is going to be disrupted, not evenly, unfortunately, but it will go to those who create the value. So in other words, to put it maybe a little bit differently, is to say there's a huge amount of opportunity right now in this space. You don't have to create AI you can be an AI enabled company, right? Just like you don't have to create the cell phone to be a mobile enabled company like Uber, right? And so leveraging this technology over half of the global GDP, there is tons of table stakes here for any of us, including fund managers, who can go out and say, what would an AI enabled fund from compliance and all that, what would that look like? I mean, not experimenting with AI, but actually successfully deploying AI in their business? What would that look like? I'm excited to find that out.

Steve Brotman  

So the, Tech is one thing. It's the applications as well. But I want to give you an example. There's a, there's a big firm called Iconiq, that's the family office of Mark Zuckerberg. And you think, okay, he's got his this family office became a multi-family office, so serving lots of different families, and they created a growth fund. And I think the growth funds like $6 billion and so they've been wildly successful, and they've crushed it on a performance basis. But guess what? You know where they really crushed it. They have a data center fund over three, four times bigger than that, that's really driving a lot of value. What's a data center? It's not a data center is something is the real estate underneath that the server, the folks who build the data centers, who want to build data centers sit on top of so in the real estate world, that's a, that's a many, many billion times that's that's a huge, massive real estate opportunity, right? And similarly, so, just to put a finer point on what you said, Ryan, is that every industry is going to you don't have to be the one who makes the computer or makes the robot or makes the software. It's the peripheral effect of what that's going to do in that particular industry, and that's, that's what's what's wild, and it'll probably be 10 times bigger in these other segments than just in the pure technology alone.

Ryan Miller  

Yeah, brilliant, thank you for that. I'm just curious, since we're talking about global GDP and global things, there's a lot of global moves that are happening in the US tends to find itself in the middle of it so hard to ignore. Whether it's right or wrong is not what I'm getting at, I'm just saying it's probably close to home that we should consider the implications of this. And so with that being said, what are you finding, both internally with, say, deficit spending, de-dollarization, de-globalization. I mean, what are you seeing out there as far as the macro moves are concerned and how do you think that's going to affect all these fund managers and entrepreneurs, though?

Steve Brotman  

Yeah, I kind of it's funny. I'm asked that question a good amount, and I'm no macro genius. I'm no George Soros, or want to be George Soros, there are other, better people to ask about macro conditions. You know, the deficit is pretty mind blowing and depending on how we and how we react at a certain point, I think only 14% of the, of the government is, um, is discretionary spend. The rest is, you know, defense, Social Security, Medicare, Medicaid, what are you going to cut, right? If you're spending 2x what you take in, we're talking about spending 30% of GDP and taking in tax revenue 15 at some point the market is going to give and say, okay, us, you can't continue to borrow that. And it's unclear when that's going to happen, but if we're forced to rein in spending or increase taxation substantially, which is very feasible, is that all this excess spending actually increases inflation. You could very well get a scenario where you've got stagflation and then you also have, I mean, you talked about de-globalization. I mean, you're watching, watching it happen on television today, with all the wars going on as the US, is sort of thinking, geez, do I, do I really want to be in these, you know, entanglements, these foreign entanglements, and these are sort of longer range, you know, cycles. These are going back, you know, before World War II, the country was relatively isolationist and so our country has gone back and forth between being proactive and isolationist and proactive and isolationist. And it feels a lot that both, both parties at this point are, you know, if you look at even, even Trump's taxes on foreign products, and Biden sort of kept on the that road, it feels that, you know, we're decoup, we're trying to decouple from the rest of the world. Peter Zeihan is a famous proponent of this worldview is, is that in a de-globalizing world where we're withdrawing, we're going to build more and more stuff at home, meaning that it's going to be much more expensive for us to build stuff here than it is in China or Vietnam or Thailand or, you know, wherever you might be. 

Steve Brotman  

That's the power of globalization is that you had a natural deflationary things always got better, products got better and cheaper because countries could specialize. But if we're truly deciding to de globalize and no longer be that policeman for the world and keep our oceans open, I think people think that, you know, we're doing all this, the Grand Bargain was we, everyone lives under the US order, and we're making sure that ships pass and can freely travel from Papua New Guinea to wherever else in the world, basically for free on container ships if we're no longer, you know, policing those, those those oceans, and making sure everyone plays by those rules. All of a sudden, Papua New Guinea needs to stop importing stuff and start producing stuff at home at far more expense than they currently do. And that's a small, small country, but you iterate out to lots of different more developed countries, China and Europe, they import a lot of energy, they import a lot of their food. Well, guess what? The US doesn't import a lot of their food, and doesn't import a lot of their energy. And so if you're supporting this whole globalization infrastructure, it's helping everyone else, but we're paying for it all. At some point we're just going to be like, you know what, we're going to withdraw. So that's what you're sort of seeing, is de-globalization, which is going to lead to higher inflation as well. 

Steve Brotman  

The good news is, I mean, I, I am, I'm sort of a techno optimist, I'm excited about all the things we talked about on the AI side, and what I see when I'm asked that question, no one knows whether, sort of the that pro growth side is going to win, or the or the de-globalization deficit boogeyman or is going to win. You know, in terms of, like, which way it's going to go, you got to be a bit of an optimist, but it's a basically, in any given year, it's going to be a fight between those forces to how they're going to execute, how those are going to play out. I think that if you're going to have a 50% boost in GDP, that's going to be pretty bullish, and it might actually pay for all this deficit spending. And maybe, you know, if we can make things more efficiently at home, maybe that's going to play out. Well, maybe we, maybe we become wealthy enough to be like, you know what, we're okay with continuing our role as a global leader, and that's why, that's why technology is so important, and why we have the right tax policy. I wish more of that was discussed in our media today, I think it is starting to be discussed on podcasts like this, where folks are sort of bringing up, well, hey, what like, what about the future? What is, what is the, what does the long term look like? But I'm optimistic that in this world, we're gonna have great opportunities funded by people on this podcast. It's not going to be just Steve Brotman or Ryan Miller. One of my heroes is a guy named Tim Draper, who I met 25 years ago, and he was the first, one of the first like, I'd raise maybe six or 7 million from friends and family, and he put a million bucks in on my first fund. And the, what he said to me at that point was, what I'm trying to do is spread entrepreneurialism and give you that spark. So if anyone can come away from today's conversation with that spark that's in Yiddish terms, that's a mitzvah, and I'm thrilled that to be to be able to be a part of this with you guys on this podcast.

Ryan Miller  

Yeah, it's it's amazing to have you, man. So there's a ton of stuff that lots of things going we got an election year that seems a little more exciting than. Usual, will say, but I think people are starting to say like, hey, there's some it's not just changes in you know, who's president of the United States, why that is typically a pretty important election globally. There's a lot of things that are at play and so people just want to know, how is that going, given all of these changes, whether politically, anything, globally, whatever that might be. A lot of people, when there's a lot of changes, kind of get unsettled and so what, what Steve and I would love to do is just say, hey, here's my perspective. It's not financial advice, but here's what I think I'm seeing right now in the market. We're looking at the same thing, but what does it mean? So it's an interpretation and so 45 trillion is going to be disrupted with a trillion dollar of deficit spending. That's going to be an issue that, you know, there's some ways to deal with that, but it does need to be dealt with and then de-globalization may lead to higher inflation over the long term. I absolutely love that.

Steve Brotman  

But also the important piece is within that, how do you craft that edge around that, if you believe in those things, right? How do you craft that edge, going back to what we said earlier, right? It's, it's super important. So as we, as we think about that, I craft our strategy. If you look at alphapartners.com, you'll see companies that we believe are going to benefit in this type of environment, companies like Shield AI, companies like Apronic. Shield is a software for drones, for autonomous drone flight, Apronic is a humanoid robotics company. We have companies like Pearl that do dental software for dentists that increases their revenue 10-20% for relatively small amount of money per year. We're just we have one company called Semperis that addresses the cybersecurity threats through where, where. Phishing attacks account for 90% of all phishing attacks. So there's huge opportunities here and even during downturns in the economy, there are big opportunities to be made. So, you know, I think it's just being, you know, clear eyed about those types of opportunities. 

Steve Brotman  

One thing I also want to say about the presidency and the presidential race, because I think that is really important. My guess is that no matter who the candidate is the day after the election, the market is going to rally, right? And a lot of folks, when Trump was elected, bet against him pretty heavily, bet against the market and said, okay, time to sell everything, this is going to be a catastrophe. And guess what, they're wrong. So it's a bad idea to bet, at least a bad idea to bet against the US, the US system and the US capital markets. It's historically been losing that so, and I, you know, you're in Canada there, Ryan, in many ways. I don't want to comment about Canada, but you know, the two countries are pretty tightly linked and echo a lot of different elements. I defer to you on that, but I think in general, like we give leaders a little bit too much credit for things that happen. It's not these leaders that create jobs and create the future. It's people, it's like people who are listening to this podcast that make the future not the not those political leaders. 

Ryan Miller  

Yeah, agreed, and yes, they're both economies are strongly tied, and I just want to see everybody win. Is that too much to ask? Just, everybody's cool with each other, everybody's prospering, having families, hugging people they love and but maybe I'm an idealist, I don't know, but it's hard to get there unless you get the economics right that. I mean, who doesn't that stress out? I mean that that knows no political affiliation, economic hard times it's everybody, regardless of where you lean on either side of that. And so as we wrap things up on our time together, it's hard to do because I could listen to you for hours, brother, you're one of the smartest guys I've ever met. And one of the things I would love, often we look back as the as we see the gray enter our beards, and we say, well, maybe at this point I might have a few valuable things to say to people starting out or experience, but if you want to take my decades and compress decades into days, here's what I would say. So with that in mind, what's maybe one or two unfair advantages with all your experience and everything you've done, what are some unfair advantages you can provide for our listeners today? 

Steve Brotman  

I can say, I mean, I think everyone has their own superpowers, and you know, no one can tell you what your superpower is going to be and you but you should probably try and lean into it. There are in those superpowers, there are weaknesses as well, which is a whole other podcast to talk about. But one of the things that I found is that there's really no shortcut to success, is that you've got to work hard, and you got to work a lot harder than anyone else. And part of the reason is that the harder you work, the luckier you get. And that sounds cliche, it doesn't mean that you can't get lucky and by the way, I got I've been very, very lucky in a lot of ways, but I've worked really, really hard to make sure that when the luck came I could capitalize on it. So when I had a ten million fund, and I got the biggest deal of my entire life, it was a company called Coupang, which is the Amazon of South Korea, I just had, okay. I was like, okay, we could invest half a million dollars in it and that's great, because ultimately coupon ended up returning half my fund. 10 million turned into 20 million, which is great. Um, we split the carry, by the way, that's how we motivate our VCs to partner with us. Um, so if you're a VC out there listening, if you have a, the next Coupang, please do get in touch and we'll share. We have 20% carry, we share up to half of that. So we did, we did pretty well with that deal. But what killed it was it we, then called up all our friends and family and said, look, we've got this amazing deal. And for the next probably month, I worked so hard and raised about $16 million in capital around this opportunity. And six months later, I raised another 15 million around that opportunity and it took a while, but six years later, we returned 20 times that capital to our LPs. 

Ryan Miller  

Mmm, brilliant.

Steve Brotman  

So you know it's, it is, it's knowing it's, it's working hard, but working smart on the right things and by working there's a lot of things I worked on personally that didn't turn into things that they couldn't been. But if you keep on working hard on those, on those one things, and being able to recognize when you finally get that luck, that's the incredible piece. So working hard, I don't think there's a substitute for it. Actually, Jason Calacanis mentioned this to me years ago, and he said, Steve, you're the hardest working VC in New York, and I have this ten million fund, I was hustling my ass off. You know, that's, that was really, really important. But no one recognized me for that. It was what the results that came from that which we'll talk touch on in a moment. 

Steve Brotman  

So the second thing I'd say, beyond hard work, at least for me, is being authentic. Most people can tell when you're selling them or putting on a show, right, if you're not authentic, it repels people. Remember what we were talking about earlier, about scaling trust, is that being authentic is what brings people to you. It's, it's, it's, it's, can I trust this person to tell me the good, the bad and the ugly? And that's really important if you're going to be a fund manager, you got to be able to talk to your team, your staff, the investors, your the companies that you're investing in, I think being authentic is really important. You know, there's some folks that maybe have another superpower where they can be super fake and super manipulative, maybe that works for them. But if you're trying to build something of lasting value, I think being authentic, I tend to think about it as being a bit humble as well is like as much as you've achieved, there's other folks that achieve so much more and so much more that I'll ever achieve. You just got to be authentic in your way and I think over time, that builds your reputation, your relationships, your results, is hard work and being authentic. And I think people gravitate to those, to those type those attributes, at least, that's what I found for myself in terms of, you know, what I would call are those advantages that no one else can have. I don't, I don't think so, but the folks that truly work hard, and I think the people who are truly authentic, there's a there's a deep, deep need for those types of folks in the in the marketplace, and people will beat a door to you if you, if you exhibit those things.

Ryan Miller  

I love that. So just to summarize everything that we talked about, really, just create your own luck. Working hard is the best way to get lucky and really putting yourself in those circles, putting yourself in those rooms, but more importantly, working your butt off, either getting in rooms, getting in circles, doing due diligence, everything you do, just work hard, and you will find you will get a lot more lucky. And then the second one that you mentioned was, just be authentic, to scale your reputation, relationships and results. Don't put on a show, just keep it real with people and watch them line up to work with you. You do these things, and you too will be well in your way, in your pursuit of Making Billions.

Ryan Miller  

Wow, what a show, I hope you enjoyed this episode as much as I did. Now, if you haven't done so already, be sure to leave a comment and review on new ideas and guests you want me to bring on for future episodes. Plus, why don't you head over to YouTube and see extra takes while you get to know our guests even better, and make sure to come back for our next episode, where we dive even deeper into the people, the process and the perspectives of both investors and founders. Until then, my friends, stay hungry, focus on your goals and keep grinding towards your dream of Making Billions.