$75M Venture Fund: Secret VC Strategy to Launch Your First Venture Fund

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

Charley is the co-founder and Managing Partner of a $75 million venture fund known as Pathlight Ventures. Prior to Pathlight, Charley was part of multiple early stage teams that built and scaled enterprise software startups like Plaid, Ramp and Alloy, as well as a critical role at JP Morgan covering R & D, payments, strategy and blockchain before it was cool.

So what does this mean? Well, it means that Charley is an expert in venture capital, closing deals and building reputation, relationships and results, and he's here today to help us understand the fundamentals of launching our first venture fund and how that can change not only your life, but 1000s of others in the process.

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• 10:40 (Cont.) $75M Venture Fund: Secret VC Strategy to Launch Your First Venture Fund

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  

Have you ever wanted to start your own venture fund? Well, my next guest is going to walk you through the fundamentals of how VC funds see the world and what you can do to operate your own all this more coming right now. Here we go. 

Ryan Miller  

Hey, welcome to another episode of Making Billions, I'm your host, Ryan Miller and today I have my dear friend Charley Ma. Charley is the co-founder and Managing Partner of a $75 million venture fund known as Pathlight Ventures. Prior to Pathlight, Charley was part of multiple early stage teams that built and scaled enterprise software startups like Plaid, Ramp and Alloy, as well as a critical role at JP Morgan covering R & D, payments, strategy and blockchain before it was cool. So what does this mean? Well, it means that Charley is an expert in venture capital, closing deals and building reputation, relationships and results, and he's here today to help us understand the fundamentals of launching our first venture fund and how that can change not only your life, but 1000s of others in the process. So Charlie, welcome to the show, man. 

Charley Ma  

Thanks for having me. Long time listener, first time caller, so I'm super excited to be chatting today. 

Ryan Miller  

Yeah, man, it's so good to have you, and thank you for that. We've been very fortunate to be in the top 2% in the world, and it's all because of amazing guests like you. So you know, we've gotten to know each other a little bit offline, and I'm glad we're able to formalize this inner conversation. So you've been in venture capital for a long time, let's jump right into it, man. So when people are launching their first fund, or whatever that is, from all of your experience in startups and funding now those startups, what are some ways that you would recommend that people launching their first fund, how do they win? 

Charley Ma  

Yeah, it's a great question. One thing that we talk about around when we were starting our fund, and we also talked about with anyone that started anything, right? It's like, what are the actual jobs to be done that you really need to excel and be exceptional at right? And for us, we distill it down, and so what we kind of call the 4S's and 1E I'll figure out how to make an S at some point. But for us, we think the job of a venture is really, it's sourcing, selecting, signing, supporting, and then at the end of the day, exiting and happy to go, kind of more detail than we each one too, but that's kind of where we start off with.

Ryan Miller  

Okay, so, so sourcing is the first one. So we have this framework where we're able to really say, all right, we're gonna launch a fund. There's many things that need to happen, but securing our pipeline of deals and capital is job number one. I think anyone who's spent more than five minutes in venture capital would agree, and so the first one is, how do we find these deals? So finding it so it's great to know everything about startups and have a ton of experience, but sourcing those deals and getting those deals is a really critical part. So what would you recommend that emerging VCs or experienced ones like yourself, what would you recommend they do to source the best deals? 

Charley Ma  

Yeah, the fun part is that there's no right or wrong answer. Right if I can give you, here's exactly the way that I would think about sourcing, and here's how to find great companies. We'd all be making a lot of money by now. And the fun with, particularly with early stage venture and where we invest in right, is there's no right way or wrong way to go and source founders. Right? The job, at the end of the day that we're trying to do is we're trying to back companies and founders as early as possible, provide those entrepreneurs capital to build their business and and hope that they're able to actually achieve, you know, product market fit, go to market fit and hyper growth on the companies, right? But it literally means that we're trying to find the needle in a haystack, right? Every single year, there's 1000s of entrepreneurs that want to start businesses. A lot of those businesses are amazing businesses, right? But only a very very small select few will are able to kind of achieve, I think, venture scale, right, and venture growth, right? And I think it's important to also understand, on the founder perspective, what is the journey that they're signing up for, right? Where, hey, more. Why is it that a, you know, the local laundromat? Why is that not a vengeful backable company, right? Versus, you know, maybe some AI company, right, that the people are throwing capital in, and there's a lot of different answers to that, but that the end result, at the end of the day, for the what we're looking for is we're trying to build a portfolio of founders and eventually, of companies where we're really expecting the vast majority of them to fail, right or not, achieve some crazy escape velocity in terms of product market fit or revenue, and only a select few of the investments that we make, you know, are really going to be at super high growth scale. But the trick is, you know, how do we identify those founders, those opportunities, those markets, as early as possible before they become, you know, very, very massive companies?

Ryan Miller  

Yeah, that is the trick is discovering that. What are some of the things that you would recommend that people do to really start priming the pump on sourcing the right deals?

Charley Ma  

Yeah, most my background, I've had the fortune of building and scaling a mix of kind of go to market teams, right? So think that's just old fashioned sales, if you will, right? And we think about sourcing as it's really a top of funnel exercise, right? What was it that we're trying to do? We're trying to have as many high quality meetings as possible with founders building in spaces that we think are really exciting and interesting, right? And then the alpha that we believe we provide is we're trying to identify, you know, something non consensus about that founder, that founder background, or something non consensus about the market, right? Where we can provide venture capital dollars, and they can actually apply those dollars in a very intelligent manner, and hire the right team, build the right product, and then start to achieve what we call product market fit, right meaning that, you know, they have customers that want to buy the product, and that's growing at an exponential rate, month over month. And so we think about the job of sourcing at a very high level. I always think about as channels, right? Just as you would build different channel mixes for top of funnel, we're building different channel mixes for our top of funnel on those founder conversations, right? We have an inbound funnel, and that can be a mix of referrals, right? 

Charley Ma  

So one great source of sourcing, if you will, is talking building strong relationships with other investors, right? It's not a super large community of venture investors. And then when you distill it down to venture investors that you get along with and that invest in companies that you also think are interesting or have a similar taste in founders, that number gets smaller, right? So when it comes to building those relationships, a lot of time that I spend on building relationships with other venture investors is understanding what is it that they're excited about, what type of spaces that they're interested in, and can we actually kind of collaborate? Do we get along at the end of the day? Right? And we do want to work alongside and back, you know, founders together. So that's one source, and it's a great source of inbound deal flow, if you will. Right? It's talking to other investors, talking to other angels, talking to operators that, just like are able also in the job of trying to find amazing founders to back up the early stages. There's also just good old fashioned marketing, right? So doing stuff like this is a form of marketing and trying to generate inbound, right? Where, Ryan, with your podcast, you have an amazing reach of not only great investors, right, but also people thinking about starting companies, of people that want to get the inside perspective of what's it like to raise from VCs. So doing stuff like this also helps in terms of brand building and just getting your name out there and increasing the reach of people understanding what is it that the areas that we're excited about, right? And so that's also a form of generating inbound from a sourcing perspective.

Charley Ma  

 And then we also do a lot of our own outbound, where a lot of time, I spent a lot of time going deep into specific industries or verticals I'm excited about. So as part of that exercise, I will cold email executives, operators, people building in spaces I mentioned excited about. And more often than not, you know, they won't actually be founders, but they'll be able to provide a really interesting or extra perspective about the market that will help me think about how I think about that market that I'm excited about, and then usually it's the second or third connection where things start to get really interesting, right? If I tell them, hey, if you do many friends that are thinking about exploring ideas in this space that you think are really smart, I would love to meet them, right? I would recommend, as you thinking about, you know, building out your sourcing strategy. Think about like, how, what are the areas that you really, really spike on, and what do you enjoy spending time with, right? There's some investors I know that are incredible at keeping up with other investors, incredible at sharing deal flow and just know how to operate that whole network, right. There's other investors I know that are amazing at Field Marketing, but put on these amazing conferences and events and bring together interesting operators and founders, and that's also way to source. There's no right way or wrong way, and I would recommend just exploring different ways around that.

Ryan Miller  

Yeah, that's brilliant. So it sounds like just to recap that is really just make sure you're constantly having conversations with new people, whether it's investors or entrepreneurs. So maybe you can throw universities in there. You didn't say that, but that's another strategy. There's a lot of smart people that are trying to put their fingerprint on the world, and that really starts to fire up in university, where people start having ideas, and they start tinkering around in their dorm room, and there you are to say, hey, we might be able to fund you and help you to grow that. So that's amazing. So sourcing is really good top of the funnel. So you can look up ADIA, A D I A, for those of you who are wondering, what the heck are you talking about? A funnel that's that's a very rudimentary framework for that, but it's really just top of funnels, just saying awareness, hey, we exist. We like to do deals in this area. And yes, going on podcast is amazing. In fact, right now, in my communities and people that follow me, I'm challenging people who are emerging fund managers and deal makers to get on as many podcasts as possible. I have a dear friend who, just from this show, has gone on to get more than a dozen Madison Square Garden audience. Could you imagine going on just one show and getting the lift of 12 sold out shows of Madison Square Gardens? And that's from one he's been on 50, so millions of views, and people just get to know you and understand what you're about. So phenomenal way of just creating awareness, that is a great way to source deals, and, dare I say, investors as well. But that's just one of the Ss what the next one that you mentioned was selecting the right deals. So what have you found, and what advice can you give to people as far as, how do you select the right deals once you're able to see them? 

Charley Ma  

Yeah, I think the thing that's, you know, really interesting about the stage that I typically invest in, right? So I'm usually investing at what I call kind of seed stage, right, where it's anywhere from the proverbial two founders in a garage, right, that are exploring ideas up to, you know, maybe they built, you know, an early version of the product and an MVP or minimal viable product, right, that they've started talk to customers with, but more often it's very early stage, right? They haven't really quite figured out, here is how we're scaling out our team, our business. Here's what the product exactly looks like. Oftentimes it's pre revenue or just, you know, they just maybe got their initial first few customers, right? So a lot of the selecting within early stage is one, you're really kind of selecting two things, I think, right one, you're selecting the founders. And you almost do a lot of psychology, just understanding, why is it these founders are wanting the ability that they build? What drives them, what gets you excited about back in specific founders? What do you try to look for in founders at the early stages. 

Charley Ma  

And the second thing that I do care about, and a lot of other early stage investors will disagree with me here, is I also do care about the market that they're building in, right? And I'll talk about that a little bit where, if I were to break down sort of like a two by two, right? Amazing founder versus okay, founder, amazing market versus bad market, right? I generally believe that the best companies are in this kind of top right quadrant, where you have the intersection of an amazing market, amazing high growth market, with a founding team that's truly amazing, that have built a great product. That's where the magic really happens, right? But oftentimes you'll meet kind of categories in the founders or teams. In other categories you meet founders where maybe the founders are amazing, but they're building in a market that isn't that great, right? Or you meet founders that are okay, but they're building a great market. I actually think that, like, okay, founders in a great market can actually result in decent outcomes, like, sometimes the market just so big and so massive and so fast growing, then it'll pull up, you know, first, second, third players in that market, you can get to decent outcomes there, right? 

Charley Ma  

I generally believe, though, that even if you have an amazing founder, if the market dynamics just aren't working out, or there's no market, market demand or demand, an amazing founder can only do so much, right? And generally speaking, I think the market wins, right? The hard part about early stage is that sometimes you'll meet amazing founders that are building in, you know, quote, unquote bad markets. But I also do believe that amazing founders are also able to figure out, at some point, very quickly, oh, this market's not a great market be building in, actually moving to another market, right? The classic pivot.

Ryan Miller  

Pivot.

Charley Ma  

If you will right, and sometimes those are always the trickiest, right, like, I think there's the classic Silicon Valley stories, right? Airbnb was a pivot. Slack was a pivot, right? A Slack I think Stuart Butterfield, when he first started the company, it was a gaming company, right? They raised venture capital dollars. The gaming company didn't take off, he laid off the entire team, kept a small team of engineers that were kind of dedicated to figuring something out. With the money that they had raised, they had built an internal chat bot to coordinate project management of this game, right? That was, oh, this is kind of interesting, let me work on the side project that ended up being project that ended up being, you know, the multi billion dollar that up in that slack, right? And so the hard part, though, was, you could have been right at the time of investment, right, of, hey, I, you know, I love that founder, but the market you're building in, I'm not a big fan of, I'm gonna pass, right? That was the right decision. It was the wrong market, right? But that also could have caused you to Slack and vice versa. And so I think what's really important, though, is when it comes to selecting, is figuring out what's actually really important to you as an investor, right? There's some investors that I know at the early stage where they're 100% founder, whereas, like, I don't care at all what the founder is building in. I just want to back the best founder possible and let them go figure stuff out, right? I would say I'm probably more at the intersection, I would say I'm probably more 51% founder, 49% market. Percent market where I do want the founder to be building an interesting zip code, where they don't necessarily have to have the market explicit defined. Or it could be a market where I'm maybe not as excited about this market personally, but you have extreme conviction as the founder around that. And I think the zip code is something interesting, and there's room to pivot around, right? I do think I have found it really rare that founders pivot to something completely different, right, and be able to get product market fit. I think the founders I tend to like to back are those that are perhaps a bit more programmatic on how they go about picking the markets and the areas that they explore. But every investor is different. I think it's important to kind of figure out your own style of what you prefer.

Ryan Miller  

Brilliant. We've got sourcing, selecting, and now we're signing the deal. So signing the deal, there's all kinds of things you have to consider, terms, term sheets, their council, your council, financial modeling. And just put all of that in a couple pages and slide it across the desk and say, here's what makes sense to us. What's your experience and what's your advice for these emerging fund managers or even entrepreneurs? This is good to know as far as signing deals, what's your insight on that? 

Charley Ma  

Yeah, I would say that the pendulum has definitely shifted, you know, towards the founder, towards founder having a lot of power, right? Where, generally speaking, when it comes to early stage investing, there's not that much, really, too due diligence, to be honest, right? It's, you know, more often than not, it's potentially pre product. Maybe there's a few customers, and so, you know, there's some due diligence that we can do around customer references and looking at just making sure that some of the contracts are real and that the founders are, you know, good people, if you will, and reference well, but it's not like there's exhaustive due diligence. We're not really running, you know, comprehensive DCF models to figure out the valuation and pricing. Oftentimes it's more a function of, okay, what are, what's, you know, the amount of capital that that founder wants to raise, part of the total round, right? What type of investors to do, they want to bring on board, and what are they optimizing for, and then getting towards, you know, a valuation or price that you think makes sense, is reasonable to given, you know, where you think the business is at, the quality of those founders, where you potentially think that business could kind of exit path in right, and just how you got how competitive that deal is, right?

Charley Ma  

And more often than not, I would say most deals, at least, that we find in venture do end up being competitive, right, it is a very, very competitive game. There is a lot of venture capital money that exists in the market, and that just the sheer numbers. There's just not just not that many, actually high quality, you know, founders, right? That will achieve venture scale businesses and so as a result, if there's something interesting about that founder or that company, more than that, we are going to be competing with other venture funds for allocation, right? We have certain ownership targets, given our fund strategy and our fund size, right? That we give sort of balance around, you know, here's what type ownership targets that we need, right? For example, for our firm, we're typically leading, or our co-leading, or we're happy to split around right alongside another investor and be collaborative, but we can't be a small investor on the cap table, right? Just doesn't really make sense for in terms of the amount of ownership, and what we think actually drives returns for our LPs, we need a certain amount of ownership for it to make sense from a time value buddy perspective, for us to invest, generally for us, it's somewhere between we want to get, you know, anywhere between 8-12% of the company when we're investing at that early stage right, some founders will be opinionated around you know how much dilution they want to give up, how much the company do they want to give up for that funding round? Right? Generally speaking, when it comes to kind of venture, the range is anywhere from like 12 to 20% the company is usually given to investors, right, per investment round. But it could differ rather, I've definitely seen the really hot founders, really hot companies that are able to push, you know, the terms be a lot more aggressive, right? We're like, I want to raise 5 million. I want to give 8% of the company, great, now you have an applied valuation that you're investing at, right? And it becomes a negotiation, a discussion with the founders of, well, what's the price that I'm willing to come in on, right? And that, I think, is a reasonable valuation and a lot of the I think, valuation exercise we're doing, it sounds precise and honest, honestly I would say for release agents, it's extremely qualitative, right? Like, what's the difference between me investing at a company of $20 million you know, post money versus ten million post money versus 5 million post dominant money, the founders are often all pre revenue, right? So there's nothing that I'm actually quote, unquote, value the company at. It's some, you know, it's some extrapolation of my belief of that founders ability to execute, and where I think the business will grow over the next 5, 6, 10, years or so and so. 

Charley Ma  

Long story short, yeah, when it comes to signing, the hardest thing is probably not actually setting terms and drafting the terms, the hardest part is actually getting that founder to sign the term sheet. You have to be extremely competitive and I think one of the things that we obsess about is, what are we as a product? Right? Why should founders pick us versus another investor? Right? Great founders will get, you know, four or five term sheets from other investors, and at the end of the day, only one or two of us will be able to invest in that company. And so then it turns to the founder side on, why should they pick us? Right? There's the just like quantitative metrics, right, of maybe we can compete on price, but hey, we're willing to invest more capital at a higher valuation, right? So you're giving less of the company. And there's one variable that you could that you can play with, right? But then at the end of the day, it also comes down to, you know, why is that found to want to work with you and partner with you, and how do you kind of compete against other investors in the market? 

Ryan Miller  

So other than price, what other levers exist when you're in this phase of just signing a deal. What other levers have you seen that both you and the entrepreneur have your hands on the same lever and moving it in different directions? 

Charley Ma  

Yeah, I think when it comes to qualitative stuff, I mean, there are some small things you can kind of negotiate around, right? Or they could be large, right? Board Seat often comes up a lot, right? I think typically, at seed, at least, we're not usually taking the board seat. We're usually taking a board observer seat, right? Because we don't necessarily believe that the founder has to give up that management right at the sea, just because it's still very, very early. But for some of the venture firms, that is important to have a board seat, right? And that is something that some founders are sensitive to around. There's other things, negotiator on options, pools and other terms, but generally speaking, I would say at seed, most of it is just, I would say, most of the time that we spend on is around, just the round size, the valuation, and then at the end of the day that the founder has to pick who they want to work with. We're, I would say, pretty market friendly, and that we're founder friendly, really, that we're not really putting a lot of structure. I have seen other venture firms that will put a lot of quote, unquote structure on deals right, things like liquidation preferences, super pro rata rights, pro rata being, you know, they have the option to invest even more capital in later rounds, right and it explicit right to do so. We are typically taking what we believe are market terms that are given by other venture firms to the vast majority of other founders in the market in order to make it as easy as possible to work with us and sign with us.

Ryan Miller  

Brilliant. So, so that's signing deals. So folks understanding the terms and the levers that move back and forth between investor and invested, that's that's one. But what about you mentioned supporting the deal? So let's say get the signature, everyone agrees. We've got favorable terms that makes sense on both sides of the aisle. Here's the capital Ready, set go. And so now they're off, they're investing it, they're building assets, or whatever it is that they're doing with your capital, supporting them. So now you're in the support stage of running their business, maybe you have that board advisor seat, or whatever that relationship is. Now, what have you found, as far as being effective in supporting those deals that you just signed? 

Charley Ma  

Yeah, once again, yeah, it's probably recurring them. It really depends. There's no right way, wrong way to do this, right? A lot of it goes down to, I think, what was, what was it that you promised to the founder right when you were trying to convince them to work with you and sign up the deal? Right? I think that there's kind of two spectrums on the investor side, right? There's one side where I promise that I'm going to be extremely involved, right? Where, if you want me to be involved as an investor, I can go super deep into tactical things around sales, around hiring, around fundraising, right? And there's certain spikes around there. I think that bucket tends to fall under people like myself, right where I am an ex-operator, and I've had the benefit of being at the front of several kind of high growth companies, and so one of the value props that I pitch to our founders is, I'm more than happy to spend as much time as they want on kind of talking through go to market tactics, talking about fundraising strategy, going in depth into kind of their sales playbooks, and offering my feedback and input around there, right? And I view that as an edge that I have around other professional investors that may not necessarily have the same operating experience and can't necessarily give the same tactical advice, right? 

Charley Ma  

There's other investors where, hey, like my what I actually, I'm just providing you capital, I'm completely hands off. You will never hear from me again, right? I'm gonna let you run the business, whatever the way you want, and all I really want is get updates, and I'm a pure capital cat, right? And that also is something that founders could be interested and excited about, right? And so when it comes to supporting at least, what we believe is that when it comes to venture, it's a very, very long game, and the thing that matters the most to us is founder NPS, right? What's the Net Promoter Score of the founders that we work with? Because at the end of the day, are by far, when it comes back to sourcing, our best referral channel, when it comes to sourcing is other founders. It's other founders that have had, you know, been able to work with us and say these investors actually were really, really helpful, right? Where they were actually, when things were really, really hard for me, when I had doubts about the business, I was able to call them at 2am they picked up immediately. They were able to kind of talk me through a hard decision I had to make, and I would 100% take their capital again, right? Versus everyone else that I've been at I had to work with and hey, if I have a friend starting a company, 100% gonna send them to you. Right?

Charley Ma  

 That's one of the key referral loops that we really, really believe in when it comes to supporting and the other part that we also believe is that your best companies won't really need your help, right? Your best company is, if you know they're on an amazing trajectory, they've probably hired really well. They have a great other advisors, they brought in a great exec team. They're doing really well. They don't really need your help, right? If a company's doing well, I'm not gonna come in and say you should do more of that. Of course, I'd like to do more of that, right? But keep doing what you're doing, seems like it's going great, right? The reputation I think of as an investor when it comes to supporting it, really comes in when your companies are not doing well, right, where the vast majority of time on portfolio support is spent on companies not doing well. And the weird part about this is that those companies, from pure just like ROI of my time perspective, probably actually, I shouldn't be spending time with those companies, right, if I were to be completely ruthless and honest, right? If anything, I should be trying to help my best companies do the continue to exceed, right? Because, from a portfolio perspective, for RLPs, we if we invest in a basket of say, 20-30 companies, it's really going to be one or two of them that are gonna be driving the vast majority of returns and are performing the best, right? There's gonna be a whole mix of them, they'll probably become more, you know, not the whole runs that we're looking for, but more base hits, right? Maybe they'll exit for 100 million, 200 million or so, and those will be no good a good returns, but not better skill returns. And then there's gonna be a bunch of companies that will just fail, right? Whether, you know, could be founder breakups. It could be the market just completely disappeared. It could be they lost to a competitive, competitor. There's a lot of reasons why companies fail, right? And it's hard to predict those very, very early on, and those are actually where we're going to be spending the vast majority of our time with right. How do, what do we do when those founders, they were thinking about other companies, when they were navigating trying to get acquired? And I think the best reputations are made in the most difficult times, and that's actually where we spend a lot of our time with our founders on.

Ryan Miller  

Yeah, brilliant. And as I alluded to in the beginning of the show, reputation relationships and results those, those were the three on the ethos of this show, and even in all the businesses that we operate in and you're right, if you're let's call that a relationship. So you're in a business relationship, but nobody wants to be in a business relationship when times get hard, or any relationship, and they're just, they're not there. So if there was ever a time to build that relationship, therefore build your reputation is to say, hey, when times get hard, we're here for a man like we want you to succeed. We obviously put money into that, believing you'll succeed if you ever need anything, that's what we're here to do. That's why you decided to come to us and sign with us. It's not just cash, obviously that's number one, but it's also, and that's kind of the VC way is to say, but we're also here to help you succeed. Like it's not just an investor, you're getting a firm that's in it to win it all the way. So you mentioned so those are the 4Ss, and then there's 1E, maybe walk us through what exiting means to you and everyone at Pathlight.

Charley Ma  

Yeah, so at the end of the day, right, we have, as a firm, we have LPS that, at some point, are expecting a return, right? The fun part about venture is that when you invest in a venture firm, you don't expect those returns or distributions to come until many, many years after you provide that firm capital. Generally speaking, historically, the typical venture math was played on a seven to 10 year horizon, right? Where, when you raise a venture firm, usually it's a three to four year deployment period, right? So, you know, we raised $75 million for our fund too, over the next three to four years. We'll deploy that $75 million into a basket of companies, right? And we'll continue to deploy additional capitalism that we have reserves. So we'll continue to deploy additional capital into our best performing companies, hopefully as they continue to put continue to grow and take on more capital to fund their businesses. But at the end of the day, we're kind of playing a bit of the waiting game right where, okay, and hopefully within, you know, 10 years from now, we're going to have a couple companies that have been able to hit, you know, really significant revenue milestones and there's just, there's really two ways to exit a business and get liquidity right. 

Charley Ma  

One, IPO, go to the public markets and go to an IPO, or to get acquired. Right. Historically, what we've seen is this, this has been increasingly trickier. Liquidity has been very, very low among venture capital firms. More and more companies are staying increasingly private, right? And also the IPO markets, just given all the stuff that's been happening in our economy, have been very tricky to navigate, right? And so as a result, the other side that people have been relying upon historically, then, was okay, well, M&A environment, right? We've historically had a very healthy M&A environment, you know, here in the United States, where you have large companies or large incumbents that have a lot of cash that could go and actually acquire these companies at healthy multiples, right? You saw a lot of this happen during 2021, kind of post pandemic, particularly with the large tech companies that were super cash heavy, because they were just growing so fast, they were starting to buy companies left and right, right? This has slowed down pretty dramatically, for better, for worse, with the DOJ coming, you know, increasingly involved in the SFDC, and just regulators, just include just increasingly scrutinizing the impact and effect that large tech companies have on consumer, on consumers and businesses. And so the M&A environment has also become quite tricky to navigate, right? And so what we spend a lot of our time with our founders is at the day it comes back to relationship, right? It's understanding and kind of consistently underwriting with that founder and that final relationship that you build. What is the company that they want to build? How they actually performing, right? And where do we actually think this company should exit to as it gets closer to some sort of maturity, right? If we've been working with a company for 9 to 10 years and the company hasn't really been able to achieve breakout velocity. They haven't really gotten a product market fit. Honestly, we probably would have the conversation much earlier of hey, you know, does it actually make sense for you to return capital, right? You gave it a try, you haven't quite gotten the outcomes that you're looking for, and does it make sense for you as the founder, to spend another 10-20, years trying to hack away at this business, or does it make sense for you to potentially return capital, we can then take that capital, redeploy the other companies, right? 

Charley Ma  

Or two, we can even find maybe a landing spot for you, add another technology firm, add another incumbent, and return some of that capital to our LPs, right? It won't be a home run exit, but even being able to generate, you know, 1.5x 2x on some of that capital is really, really meaningful for us, right? We can either recycle that or distribute that to our LPs. And so one of the things that we actually believe is, I think that venture capital investors can take a bit more, I wouldn't say necessarily, activist role around kind of generating liquidity, but I think they can be modeled proactive, liquid. I think usually the conception is as a venture capitalists all I'm doing, I'm providing capital, and then either that company gets acquired or their IPO, and I'm just here along for the ride, right? And we actually believe in this market, a lot of the liquidity will be provided by other firms, right? Whether I joke that, you know, during the pandemic, we saw this crazy bubble happen in tech, right? And if you were a venture investor and you had, you know, wonder companies getting, you know, constant getting to the constant rate, constant fundraising and there's so much demand for the company. I remember I would see these rounds getting done at Crazy valuations, with crazy multiples, because we're in a bubble. And I saw there were some investors that, you know, could handle on to the ride, where they believe that, hey, this is one of our winners. We're gonna ride it to the very end, right? And there's other other investors that I saw like, hey, I'm gonna take some money off the table, right? There's a lot of demand for this company, I can actually do some proactive liquidity and sell my share to another investor that wants to invest. Right? 

Charley Ma  

I think a great example of this is probably Hopin, which was one of these very hot virtual conferencing platforms during the pandemic. I don't remember the last valuation they raised at some billion dollar plus valuation. I had several friends that were early investors in that company. Half of them were like, nope, this are, this are best performing asset. You don't sell your winners, you keep your chips on the table, right? You let it ride, right? That company exited for basically $0 post pandemic, and all those investors got wiped out, and that, you know, amazing investment turned into nothing, right? Whereas I have a bunch of other friends, I have a couple friends that returned their funds off that investment. They were able to sell at the peak, and were able to sell, you know, maybe not their entire portion, but a significant portion of their shares to another investor, right, and generate liquidity proactively, right? They weren't just kind of ride along investors along for the ride. They're proactive on managing your portfolio and I think that really good venture investors do think about this. You know, how do you actually, admittedly what is our job? Our job is to generate alpha and generate multiples of returns throughout the capital and how you manage sort of liquidity through that portfolio is actually a thing that you care about.

Ryan Miller  

Man, brilliant. So you really have this dialed in. Man, that is so impressive. I can see why you guys are just winning and winning more. But it's not just about cash and return, obviously it's that, but it's also just providing value. You ask your entrepreneurs to do that in the market, and you do that for the entrepreneurs. And so you get this virtuous cycle where venture capitalists come in, they help you, obviously they help investors and so there's this amazing ecosystem that exists. Now, speaking of ecosystems, there's an ecosystem called the market. Now that's obviously a very broad term,there's not one market, but there's many corners of the market. But as far as what you're looking at in the market, I'm curious, what are you seeing out there? 

Charley Ma  

Yeah, it has been a very interesting time in venture I think, over the last even just a lot the last couple years, right where I think we had this crazy wave of adoption of technology, rapid adoption technology, across consumers, across businesses during the pandemic, right? Where we were all forced to work from home, we were all forced to adopt technology. You saw just crazy growth amongst everywhere, across startups, across FinTech, across public companies, across large companies, just crazy adoption technology, right? And I remember the thinking at the time was, oh, wow, this is a really big moment, right? And this trend will continue. This sort of increasing digitization will continue to increase, and we're going to see even more bigger companies, you know, come out from the private markets into the public markets, right? Where I remember, you know, even 10 years ago, the idea of the first trillion dollar company was a crazy idea. I think now we have three, right? And so there was thinking that, okay, great venture capital a lot of the math was built on, okay, the goal is to basically try and find and back companies that can get to an exit at a billion dollars. If you get, if you got a company that exit a billion, that was by far an amazing outcome, right? And they were called unicorns, right? And so that was, you know, a lot of the job adventure was trying to find and back the next unicorn. What ended up happening, though, right? Was, I think there was a lot of belief in the venture market, in the public market, that we're going to actually start to see a lot more ten billion companies, right? Decacorns, if you will, because of the adoption of technology across businesses and consumers, we're gonna see more and more ten billion plus companies, right? And as a result, the other side, you continue to see, you know, just large public tech companies get bigger and bigger, right? We have, I think, like Apple, I think a video is a trillion dollars. Now, there's a few other that are trillion dollars, and they continue to grow in size, right? So great and then you also saw in the public markets, public markets, investors were willing to pay extremely aggressive multiples on revenue to these public companies, right? And I think that there's a lot of venture investors that believe that, well, I don't really want to pay attention to the macro, right? I'm in. I'm trying to invest 10 years into the future, right? The company that I invested, that's two people in a garage today. My hope that 10 years from now the YPO be one of those, you know, the next Apple, the next Google, and so I'm kind of agnostic about the macro. I think that's generally true, but I also believe that the public markets and private markets are actually pretty closely intertwined, and a lot more than we think, right? And I think one of the things that, that thing when I think about is actually around valuations, right? 

Charley Ma  

A lot of veteran investors have been talking and complaining about, and I think it's true about how early stage valuations have increased dramatically, where even just 10 years ago, the average seed valuation was in probably the single digit millions, right? It's definitely creeped up dramatically and in fact, now we've started to see, you know, 100 million dollar seed valuations when you add in some of the AI factors, right? And so as a result, venture has become, I think, a pretty tricky place to navigate, where you saw this crazy activity post pandemic, you saw that crash, right? So there was a period in, say, 2021-2022 where venture was very, very quiet. The public markets valuations had reset post COVID. I think the market realized, well, actually, COVID and then the pandemic, digital disruption is probably best for the large companies, like the apples, the Googles and the Facebooks, they grew tremendously. But for companies that were in the middle, they grew okay, actually, but they wasn't actually amazing, right? If anything, reply, can actually wanna see just a lot more bifurcation of a lot more trillion dollar companies. The bigger companies are gonna get bigger, right? And the one and the smaller companies are going to kind of stay at a similar size, and some of them will break through, but we're not going to have this, you know, huge market of 10 billion, $1 billion plus companies at the end of the day, right? We saw that hit the private market valuations where all of a sudden, you know, investors didn't know what to do, like, hey, you know, I was expecting the public market to value you at 100x multiple. Now the market comp is 5x you know, your revenue. Ooh, I invested at 1,000x you know, at the last round. Ooh, this valuation looks really underwater, right? 

Charley Ma  

So you have, and you still have it in the market a lot of companies in the private markets that have raised a ton of capital that I kind of call zombies, right, where they're not, they don't have enough revenue really to IPO and to go public, but they still have a lot of capital that they've raised. They're probably operating in a very efficient manner, but they're kind of, there's no man's land on what to do. They can't raise additional capital because the last valuation they raised was so high that doesn't make sense for them to raise capital at that last valuation. And so we're still waiting to see that pan out. So that happened over I would say kind of 2021, 2022 end of 2023, in the three. And like, sort of the chat GPT moment with AI, and all of a sudden now I think we're, we are, we are in the midst of a crazy bubble. I think, right. I do think there are going to be really big, huge companies created during this era . We do believe that sort of LLMs and AI are a true platform shift similar to what cloud and mobile actually created. But I also very much believe that we're in a bubble, right? We're seeing really crazy valuations given to early stage companies, pre product, just because they have, you know, really great AI engineers, and they say they're building something in AI. So, long story short, the markets, you know, been tricked, it's never been trickier I think.

Ryan Miller  

Okay, so bit of a minefield, but we're still working through it. So I've heard a few of my VC friends say, stay alive till 25 that's the theme that they're working with. 

Charley Ma  

I think we're all hoping, yeah, the IPO market opens in 2025 but no, we still got, I mean, not to mention we have, obviously, an election, you know, that we've gone through where we're going to have geopolitical instability. It's pretty crazy world out there.

Ryan Miller  

That's right, yeah, I love it. And so, speaking of that, looking forward, what do you where do you think, just from your opinion, where do you think the opportunities are looking forward? 

Charley Ma  

Yeah, at least from our side the way that we've been playing sort of AI and LLMs, is we are not investing necessarily at the infrastructure foundational model layer, like we believe that that is a very expensive game to play and requires a lot of capital, and that a lot of the advantage there goes to companies that can accumulate a lot of capital and that could raise a lot of capital, right? And for our firm and our fund, that just honestly doesn't make that much sense, right, we can't really write a $20 million check into a core infrastructure company, just given the size of our fund, that would be, you know, a significant majority of our fund, and we'd have all our money running that one company, right? And so we believe the advantage does go towards the incumbents, right? The Googles, the Metas, the Nvidias of the worlds I joke on a public portfolio. Yeah, we're not interested in investing in the private side, those are the investments that we've been investing in pretty heavily on the public side. So the public side, because we believe that that's where a lot of the advantages will accrue. They have the money, they have the capital, they have the talent to create a lot of that infrastructure. 

Charley Ma  

I think, yeah, I think I saw recently, I think it was Google or Meta is investing in nuclear power plants, right? The amount of power, right? Google exactly the amount of power that, you know, they'll need to be able to be able to power their AI, to get towards AGI, we're not gonna have enough power, right? It's no longer a it's not a data or a data center issues it's a pure power issue, right? To get to the next shift, or next platform shift on LLMs, and that naturally, I think advantage will go to the incumbents. And so the way that we're playing is more the application layer. We really, like really old legacy industries there's a ton of them. There's health and healthcare and financial services, accounting, legal, where a lot of them are still working on on prem software, right? Like they a lot of them just move from, it sounds crazy, say, on prem to cloud, and the next thing they're gonna be able to finally DOM, now that they're on Cloud, they're gonna be able to adopt these AI LLMs, right? And I think the really cool thing about AI is that for the first time in a long time, right, I think the last 10 years, whenever I if I would go into a boardroom and tell them, hey, we need an AI strategy, the answer would be, okay, great. We're gonna hire a bunch of PhDs, a bunch of data scientists, we're gonna have to train these machine learning models. We have to buy this infrastructure to extract out all this data. Was really expensive to quote, unquote, leverage AI right, now with things like open AI, Cloud, Vlamo from Meta, it's an API call, right it's oh, cool. If I wanna leverage llms In my software, I could just or even a chat bot, right? I could just chat it in, and the AI will actually do things for me, right? And that's a crazy platform shift to think about, there's all these legacy industries that are still operating in the 1990s and so bringing them up to the 2000s and now the 2020s with aI think is a really exciting opportunity.

Ryan Miller  

Yeah, that's brilliant. And it's, it's funny, you bring up those power plants. So I just gave an interview where I got interviewed for a change, and it was a ton of fun. So it was on a company that's or a podcast called Frontier Line and so they talked about that exact thing, about some of the constraints, and we covered a lot of those things in data centers and AI and power and all of that stuff and you're spot on man, building a data center, it's not, it's not that wild, right? I mean, it's, it's not like you're making a peanut butter sandwich, like there's some complexity to it. But one of the biggest constraints, you called it and you were starting to see, is to say it's not that data centers aren't getting built because nobody needs them. We actually need them quite badly. They're not getting built because we don't have enough power, and so that's why, in fact, we're building one that's going to get up to two gigawatts of power and a data center. Yeah. So these data center hybrids that you're seeing with power production and data centers, that's a great opportunity, I'm so glad you brought that up. And with the I guess the proliferation of AI and I just saw OpenAI is looking at something called swarm technology, which is basically, you sign up for us, and we will have agents that will literally run everything in your business, from call centers, customer support, marketing, sales, everything, and so they have this swarm technology that they're developing and nearly done. So I'm very interested in seeing that, so we're not too far off from AI agents and the Rise of the Machines. So any comments on that?

Charley Ma  

No, I actually think that every time we go to San Francisco, at least a lot of the innovation and so at the very forefront of all of them has been in robotics. And I do genuinely believe that we're, we are, I think there is a near term world where everyone actually does have a personal robot that does tasks for them, which is kind of crazy to think about, and have more of those kind of actual physical manual operations being done by an actual robot. I actually think we're not too far.

Ryan Miller  

That's incredible, man, and to be honest, to me, that's exciting. So people are terrified. 

Charley Ma  

Yeah.

Ryan Miller  

I think as long as we have responsible people with their hands on the wheel, as far as development of that, I mean, 

Charley Ma  

That's, that's a big question.

Ryan Miller  

That's the that's a big question. And they have now, they have AI like, they have people that they counsel, people who are building them and just on ethics and morality, and making sure that that's programmed into the we'll say, thinking of a lot of these AI agents. Is to say, hey, as humans, for the most part, there are certain lines in our psychology that we just won't cross. Let's make sure that, as the machines rise up, that they also share in those standards. To say, look, there's certain things we don't do, like lying right, making up things and saying it's factual when it's not, they're still working through a lot of those things. But I couldn't be more excited about the future using that. 

Charley Ma  

Yeah.

Ryan Miller  

So,

Charley Ma  

Crazy, crazy time to be alive. 

Ryan Miller  

Yeah and what a wonderful time, for sure. So, you know, as we round third base and kind of wrap up our time together, I'm curious what are say two or three, leave behind competitive advantages that you can leave for our listeners today.

Charley Ma  

Yeah, one of the things that has stuck with me for a very long time is, how do you actually truly become the .1% best at something in the world, right? I think if you're able to get to there, there's a ton of earning power, a ton of potential around that, right? And one of the things that a mentor of mine has told me once, is that, well, the way to actually go about achieving that, that's actually a lot more doable, right is, how do you actually become the top 1% of something, right? And combine overlapping areas to get to the point 1% right? So for example, I think it's very, very difficult if you want to be the best salesperson in the world, right? I think it's very, very hard to be in the top .1% of salespeople in the world, right? There, there are, there are just incredible people that are born to do sales, right? But I do believe genuinely, that with a lot of hard work and talking to the right people and investing in the right areas, you can't get to the top 1% of salespeople in the world, right? There's a lot of bad salespeople out there, to be frank and I think to get to the top 1% with a lot of hard work, you can get there right? And then I think the interesting area, and how you actually try to get alpha on earning potential is, how do you overlap that with other areas, right? Maybe it's AI, right? How do you, if you, you know, become an expert around LLMs and AI as a salesperson, right? There's not that many, literally, there literally, can't be that many people that are experts on LMS, right? It's. Only been around for a few years. If you're able to spend one or two years immersed amongst people building around AI and LLMs, I think you can become a point, a 1% expert on AI. And if you combine the two, great you're 1% salesperson, you're 1% LLM expert, you are now the top .1% of salespeople in AI, right? And that will inherently make you insanely hireable, right, and there's just a lot of earning potential. And so I think a lot about that is okay, how do you identify skill sets where, with a lot of hard work and just with the right people, you can become truly great at that, and then interesting, perhaps new emerging areas that you can layer on top of to become, you know, best in the world at right? Like this podcast is example, right? I would say, if you want to be the, know the top .1% podcast in the world, I guess that's very hard, right? There's a lot of amazing podcasts out there. It's hyper competitive to be competing on a generalized scale, right? But when it comes to, okay, top 1% podcaster, Ryan, 100% I think that obviously, easily there, right? And then among venture capital, private equity, top 1% great. You're now in the top .1% of podcasts on venture capital, private equity, and that's a great spot to be at. And so I think I think a lot about that Venn diagram and sort of complimenting skill sets as a piece of advice that I give out on that side. 

Ryan Miller  

Yeah, I love that. And this is something I've actually never told anybody, not that it's secret, but it's never really come up. Is, as many people know have listened to the show, and you may or may not know that, but I was there in a former life. I was the CFO of an InsurTech company, and so this is starting to be a little more obvious, but back 1000 years ago, when I started my career and in finance, and I was the young guy that's title chasing and all that stuff, by the way, don't do that guys, don't do it, yeah, titles don't mean anything. And so obviously I've learned that now but one of the things that I found is exactly what you said. So you can do this in your career, you can do this in your businesses, you can do this in your investing thesis is really just find, like you said, that Venn diagram, that's exactly how I pictured it is where are these two areas and what's converging? And in the middle, if you can be the guy that stitches two industries together to your point, you're very hirable. Or if it's your company, it's very investable and so the one we talked about earlier is power production and data centers. And if you can create an investment thesis to say we will those two need to come together, not only should they, they have to. And so we can figure that out and say we actually have a thing that solves those problems in my career. As I mentioned before, recovering executive, I just saw that the, what I believe was the CFO and the CTO jobs were starting to converge, and it's no longer good for a head of Finance to just understand accounting. You need to understand tech, FinTech, to be specific, but all operating tech, and so the CFO and so I got to work, and I combined myself and my skills to combine technology and finance, and then all of a sudden, it's saying someone understands technology and finance that's a guy I want to work with. So hopefully you're getting the idea, folks, what Charley and I are talking about is to say, any part of your life, if you're looking to innovate, you don't have to build a company that mines asteroids in outer space, right? In fact, that's nobody understands that anyway, so it's a little too wild but if you can find two areas like tech and finance, and be the person that can stitch those two together, be it through your own skill set, so selling your time and your knowledge, be it building a business in these converging areas, now you're on to something, and innovation can just come from combining two areas, I absolutely love it. What else would you say as another competitive advantage that you can share with our listeners today?

Charley Ma  

Yeah, it comes back down to what we talked about on reputation and relationships, right or results, which, when I first heard it, I was like, that's that sums up perfectly, where I think a lot about the best decisions that I've made in my career have always been following just talented, driven groups of people, right? If I think about startups, right, I get this, I got this question a lot of well, how do I pick, you know, if I want to go work at a startup or want to go back a founder, how do I go about doing that right? And I think it's hard right at the end of the day when it comes to backing venture backed companies that starts at the early stages, they are kind of lottery tickets, right? I can't it's there's a lot of things that are within the founders control and the teams control, there's a lot of things that without a control, right? But the one thing that is always 100% in your control and in the teams control is, is the team that you build around yourself, right? And something that I think about is, hey, maybe that startup that you worked at, right as an operator, for example. Maybe that start doesn't work out, right, but careers are long, and you'll get another shot at another company and multiple other companies to work for and work with, and if you're able to surround yourself or compound, just like the quality of people that you're working with, and build actual genuine, really, real relationships, that's the thing that will actually pay dividends from a career perspective, right? 

Charley Ma  

I've had many stories of friends that worked at an early stage company or backed a founder, right, where the company ended up not, not, not working out for whatever reason, but that founder was incredible, and the team they brought was incredible, and they went to go start a second company. They brought their team over, they brought the investors over, and that second company was one that actually broke out. Right? There's tons of things that examples, or even the third, fourth company was the one that really kind of broke out. And the only thing that really compounded all the situations were, yeah, they just try to bring the best people with them and try to bring them along for the ride, right? And so I think it goes down to at the end of the day, cultivating really strong relationships with just good, smart, hard working people and making sure that the, you actually have genuine quality relationships, right? I think early on my career, I thought a lot of it was, I have to do networking. I have to go out to conferences and dinners and meet all these people. And my network would be, you know, some function of the number of people that I knew. And I think there's some people that are really incredible at that, right? And if you are, when those people good for you, that's amazing. I have a lot of friends that I don't know how they do. They're able to just somehow be best friends with 100 plus people and I think it's amazing I love them. I for at some point realized, nope, I'm actually much more introverted. I like spending quality time with it, with a few select amount of people, but going really, really deep in those relationships, and I want to invest the time and effort to do so and prioritize my time around that. And I at some point, I realized I don't have to necessarily go to every single networking thing and be there right? If I'm building and working on something interesting and you're talking and surrounding yourself with the right people that you kind of vibe with, that's the thing that compounds. And so I think I would go down to relationships matter and pick, you know, this whatever is most organic to yourself and real to yourself, on how you go about building relationships. That's what I would invest in.

Ryan Miller  

Brilliant before we wrap things up. Is there anything else that you'd like our listeners around the world to know? Maybe ways to contact your anything at all? 

Charley Ma  

Yeah, I'm on Twitter, that's probably the easiest way to get in front of me. For whatever reason, people like to DM me and friend me on LinkedIn, but I find there's LinkedIn is very, very noisy. I don't know what's going on with LinkedIn, but just very, very, very noisy. So actually, Twitter, ironically, ends up being the best platform to get in front of me. So feel free to shoot me a follow or apply or a DM. I'm just Charley Ma C, H, A, R, L, E, Y, M, A, on Twitter, I try to share, hopefully, interesting things and thoughts from time to time. On, I guess it's called X. Now I keep forgetting but on X, formerly known as Twitter. So follow me there, or you can also find my email on our website, pathlight.dc and if you're building anything exciting, or thinking about building anything exciting, please reach out to me, I would love to meet and chat. 

Ryan Miller  

Brilliant. Thank you for that. So just to recap everything that Charley and I spoke about, remember the 4Ss and 1E sourcing, selecting, signing, supporting and exiting. Make sure you dial those in if you're launching a fund, and if you're looking to speak to an investor like Charley, well, also understand this is how he views the world, so make sure that you can make his job easier. The second one was, just figure out where you could be the best and spend the rest of your natural life going after it. I know that's a dramatic spin on what you said, but it's absolutely true, I've been that way. Is when you're wired like I am, and I assume you are too, is you just want whatever your, is in front of you. You want to be the best, so make sure that you apply the right energy and direction into that. And then focus on reputation, relationships and results, just to amplify your success, you do these things, and you too will be well on 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.