Hans Swildens 10:10
I can credit Tom for that. And, you know, he we all, we all tried to figure out a good name for the business. And, and Tom had some foresight, and, and, and looked at, we were looking for a website domain, because that was kind of one of the criteria of just meeting the website domain. And we also wanted to have something more generic that talked about, you know, the venture industry as a whole, and it ended up being a really good name for the business, because we ended up, over time, going into the different venture segments of the venture business and building out the business over the last 25 years, and kind of a category segment, kind of new product development way and and so the overarching name of industry vendors ended up being, you know, at the end of the day, a good one.
Steve Brotman 10:59
So you start out with early stage, pivoted to secondaries. You added new strategies over time, right?
Hans Swildens 11:06
We did. I’d say one of the things that’s kind of a DNA of the firm, hallmark of the team here is just their our entrepreneurial side. The whole firm has a really great entrepreneurial core here and and so we’ve been pivoting, kind of modifying, developing, you know, listening to the market, trying to figure out where the white spaces are, where we can compete, where we can build out, you know, fund strategies that are differentiated with outsized return potential the whole time. And so, you know, pivoting right out of the gate from doing seed investing and kind of annual investing into secondaries.
You know, the next thing we did was, you know, after we built out the secondary business, to a certain extent, we got into the small fund market and bought, we bought one of our LPS businesses, Roland Reynolds, who’s here as a partner, running that team and and he’s built out with the team here, this whole part of holdings business. We have a secondary fund business. We have a partial holdings business that’s the fund that’s seeding new funds, and, you know, buying LPS out of those funds. And then we added co investing with those funds.
So then we launched a direct fund business that did pro rata, right investing, which is something you’re doing, and then we launched a tech buyout business, which is the small end of the tech buyout market, trying to transition venture funded companies to tech buyout funds. We think there’s a very long term, you know, decade long opportunity there. And we’re very differentiated for sourcing and putting together the tech buyout funds with the venture funded companies due to our position in the market. So we started a business there about five years ago. So when you look at kind of the history of the firm we’ve gone into different segments of the venture business. We’ve kind of modified our strategies. We’ve tweaked them over time. We’ve added things to them. It’s been very fluid, and it’s been based on what the markets needed. It’s based on what the entrepreneurs need, what this you know, management teams need, what the VCs need, and what the LPS need in terms of capital and help and solutions. And so now we’ve, you know, after 25 years of doing this and getting into various segments at different times as they’ve developed, we have a full stack firm that we’re able to utilize all our information, from the seed to the to the to the pre IPO and tech buyout market as a as a team, to help the market with not only liquidity, but capital. So we have both. We do both primary and secondary investing today. What do you think sets apart the best VCs? What characteristics do you look for generally, when you’re when you’re looking at VC partnerships, you know, if you look at this small venture funds that we’re funding, and we’ve funded some of the most successful ones in the history of the venture business. Interestingly enough, they typically fall into three categories.
If you could stereotype them or categorize them, I think, you know, the first one is there. It’s a individual, or two or three people that are at a brand name firm that’s typically large, that love working together and they want to start their own business, right? And that they have a lot of experience. They have a lot of relationships, both with the entrepreneurs as well as with the other venture funds and people that focus on their sectors. A lot of times they’re sector focused, and then they know some LPs, because they were at a, you know, a battery, or a Venrock or a Kleiner, or, you know, Sequoia, or whoever. And so they’re spinning out starting their business.
That’s the first category, I would say, in terms of new venture fund managers. That’s kind of not the easiest category, but like the the one that a lot of LPs focus on, just because they get to know the people when they’re in these other businesses, like at NEA or something, then they can, you know, have a relationship and fund them when they spit out.
The second category are people like you and I, which, you know, we came from the entrepreneur side, the scrappy start your business to try to, you know, be different and compete and have a new product and invent something.
You know, those individuals typically are just like you or I, where, you know, they made some money from their last company, they had a success or two, and sometimes three or four. And they want to, you know, take their capital, invest it, and then bring and bring LPS along for the ride. So that’s the second category. We’ve been very active in funding those, just because that’s kind of where we came from. So we felt like we could understand that group of people better than most and relate to them. And then the third is someone who’s got an amazing Angel Network. Maybe they came from Google or Facebook or somewhere like Microsoft or whoever, and they were doing angel investing while they were there or when they left and they have this, you know, a network of people that are spinning out of these hubs of, you know, engineers. So if you look at the engineering talent around Silicon Valley there, you know that it moves around into different groups of, you know, innovative companies. And specifically now you’ve got all these, all these engineers retooling themselves to be aI engineers.
But if you follow the engineers, and you follow the talent, and you know who they are, and it helps to have worked with them before at one of these larger firms, and you can seed fund them, you know, it’s differentiated deal flow and it’s top talent. So we funded a group of folks that have been like that. So I would say those are the three main there’s others too. But I would say, you know, 80 plus percent of the venture capitalists that are managing these seed funds or around funds are in those buckets.
Steve Brotman 17:22
What would you say is the biggest surprise that you found at Industry Ventures in your career so far, among what are the biggest surprises that you’ve had?
Hans Swildens 17:30
I would say the I always thought that you could perfect this art, that it was something that’s highly predictable. Now, there is a big component of investing in the venture business that’s predictable, but there is also, over time, you get super humbled, especially if you’ve done 1,000 investments over 25 years.
Hans Swildens 17:56
Yeah, you get super humbled with the fact that there is a decent chunk of what we do and what you do, and everybody else does that is unpredictable. So I would say the biggest surprise for me is just over time, understanding and factoring that into our underwriting, and it’s an art, I would definitely put it’s not a science. I’m not sure if it’s quantifiable, because I’ve had, I’ve seen teams go and try to quantify that through data analytics and whatnot, but we’ll see if AI can help figure that one out. But you know, it’s just a random walk, you know, it’s, it’s, you know, you are developing, you know, something different in a segment that everybody did think was interesting, and suddenly it becomes a ten billion opportunity, right? Yeah, you know, platform shifts that a lot of it’s platform shifts so, you know, like the iPhone comes out, and there’s this huge opportunity to create mobile games that are different because there’s a gyro in the phone and a GPS chip in the phone, and so you can do all these different things with gaming, and the form factor is different, and then, you know, blah, blah, blah. So a lot of it’s platform ships. We’ll see that now with AI, I think it’s another kind of replatforming. Seems once you once these platform shifts happen, these like tectonic plates that move around, you know, there’s just an enormous amount of innovation that’s unpredictable.
Steve Brotman 19:34
Yeah, I mean, I think I was just, we just did a podcast with Ed Sim bold start, you know, og, and he’s been around for as long as we have. Hey, you’re still alive. You’re still doing that. Yeah, I went over to his house in Miami and said hello, and had a nice chat with him in his backyard. He’s crushing it. Crushing.
Them now, finally getting some liquidity. But still, he’s like, you know, it takes 10-15 years to grow an early stage business, which is painful. Yeah, I think that’s probably we’re lucky enough to be a small investor in his funds. He’s, he’s a great wish we are a larger one than we are. Yeah, he’s crushed it every which-way. But he was, well, I bring him up because he was talking about how AI is a new vector for attack for cybersecurity.
Got an explosion of cybersecurity companies that are both attacking using AI but also sending using AI, yeah, you know, you and I talked about humanoid robotics, which is, you know, talk about revolutionary what? What happens to the 50% of global labor that’s paid today? If you all of a sudden, an AI robot can do some of that, or all of it. It’s pretty, pretty, pretty remarkable. You know, where do you think you you and I have talked over the years about where we are in different phases of the market. Where do you think where do you think we are today? Are we at an inflection point? Are we at a market lull? Are we where? Where do you think we are?
Hans Swildens 21:25
I’ve been talking to a lot of VCs that we’ve either bought part of their funds or funded with their new funds about this lately. And you know, the convict that there’s super high conviction in the market around the fact that we’re like an Indian one some I was with a team member from Khosla here sitting on our deck last week. And we’re lucky enough to be an LP there too. And, and, and they, they called it inning zero because I was debating with them, Hey, are we in the first any second, any like, where are we in this continuum? And they’re like, No, it’s zero. Like, it just started. Like, you know, you just got, we’re in the anthem.
I was like, what I feels like getting one or two to me.
Steve Brotman 22:13
But for what, for venture or for the industries, are looking at just the whole innovation cycle.
Hans Swildens 22:23
You know, we saw when the internet was developed, you know, you and I were there, when, when, when the internet started being used for consumer and business purposes. And, you know, that was a whole cycle, right? A big boom and a bust. And then, you know, these, these things cycle, right? So we might go through a huge boom here of funding and and then kind of a pullback, and then we’ll see the, you know, the thing re accelerated, do a 10 to 100x growth rate from there, kind of the curve that these things go through. But so, you know, internet was that, and then you had, you know, cloud computing and mobile, those are another two big platforms and kind of ways, because when you move compute and apps, you know, and not sitting on your desktop in there, you know, in the cloud, that allowed different things to happen, And you could use things in different ways. And then when you put things on the phone and made it mobile, right, that also. And now you’ve got a situation where all these devices and all this hardware that’s out there, and all the platforms that were previous developed are all getting enabled with AI, and so you know where it’s going to go is kind of exciting. Um, of exciting. You know, we’re in this phase, I think, where everyone’s going to, you know, everyone’s developing a co pilot because, because you need to, you need to interface with, with with, with them, with the models, and with the AI, so that, you know, it’s human driven. You know, what you’re you know, it’s kind of augmented human interaction, right, with computer person. And then there’s a thought that, over time, maybe it just, you know, the human gets cut out of the loop, right? But, but a lot of what’s being funded today are co pilot businesses where it’s like, you’ve got the AI system co piloting, right, right? And is there still a couple of those this last quarter? Yeah. I mean, there seems to be a lot of utility there in terms of, you know, making us all more productive. But, but there is going to be that’s kind of, maybe that’s version zero, and where all this goes, kind of exciting. That’s a little scary some of it, but I would say it’s pretty exciting and and I think we’ve got a huge and 20 year innovation cycle here again.
Steve Brotman 24:53
That’s that’s rocking, yeah, thanks. Thanks, Hans, that’s if just any last words of advice. Advice to GPS that are starting out 25 years ago. Is there anything that you wish you know you could you knew? I guess we talked a little bit about this, about the volatility of the sector and just the humbleness that you know you gotta have.
Hans Swildens 25:17
Yeah, the one thing that people, well, some people told me this. I didn’t really listen. I’ve had, you know, for better, course, listening issues and but the, you know, some people told us, when I started out, they said, Listen, you know, there’s only a certain number of LPs in the world that fund, venture funds, especially new ones.
There might be, you know, couple 100, max 1000, right? That are LPS that consistently are the fun new GPS, GPS, you think there’s 1000 of them worldwide? Probably, yeah, I’d say in that at scale, probably not. But right in terms of new at scale lead LPs, I would say there’s probably 25 right terms of other LPs that are writing checks into these small funds, yeah, that’s probably 1000 and then in terms of consistent ones, it’s probably a couple 100. So it’s not a ton like you can just, I told, tell everybody I meet, just start up, you know, CRM system. You know, start with a spreadsheet. Move to CRM system, because you’re going to be talking to all these LPS for the next 20 years, the same ones. So and they move, and they move around, right, right? It’s actually the thing that’s been, I’ve thought that’s been most interesting talking to venture capitalists over the last 25 years, just being an entrepreneur, they, they typically don’t, don’t internalize the fact that they’re just like the entrepreneurs presenting to venture capitalists. So if you look at the VC market, there’s probably, like, 1000 that matter, 200 that are kind of core, and then 25 that, you know, lead and dominate a lot of the activity.
And on the LP side, it’s, it’s similar, you know, they think it’s more fragmented than it is. You know, if you’re an entrepreneur and you go out and start raising venture capital, it looks super fragmented, right? There’s, like, thousands of firms, and, you know, it’s hard to figure out who’s who and who might be a fit. And so, you know, when VCs are raising new funds, got to the LP market, they’re kind of the same way they think that, you know, they think it’s not like the VC market is with entrepreneurs, but it is. It’s a mirror of it. So you’ve got the, you know, VCs, and then you’ve got their LPs, right? And so I would say that’s something that most VCs that start out or spin out or create their businesses don’t really get is that they’re just like an entrepreneur going to pitch a venture fund, and, you know, the capital basis, the activity level, the ability to lead rounds or lead funds. It’s very, very similar. And I think once you’ve talked to them, and they kind of get humbled by the fact that, oh, you know, now I’m in the entrepreneur’s seat, pitching right the LPs, which is just like the entrepreneur seat pitching the VCs. Because the LPs that fund, these small funds, are the VCs of VCs, right?
Steve Brotman 28:18
Yeah. Well, they have to take multiple bets. That’s what it is. I see in the background. You’ve got a picture. What is that a surf? Where’s that surf? That thing? Yeah, that’s raincon. Where’s that? It’s a big break. You don’t see the whole thing. If you saw the whole thing, it’s pretty big. It’s down in Santa Barbara, and it’s one of the surf breaks I really enjoy. And you also have some skis in the back. Yeah, I’ve got my old pair of skis that I used to ski on back here to remind me of skiing every day. But yeah, I’ve got, I should have a mountain bike in here too, and then I’d have all my how important to you. I mean, is it, are they props in your life, or is work life balance important to you?
Hans Swildens 29:05
Oh, work life balance is key. I would say, I wish I had, I’ve been working my whole career on work life balance, and for me, you know, I don’t think I’d be as good at my job. I think most everyone needs great work life balance. And it’s a challenge, right? Because when you’re building a business and growing a business or running a business, it’s like all in so I would say I felt like, over time, I’ve had to kind of car, carve time, carve time, carve time off, for for, you know, going on surf trips, going on ski trips, doing mountain biking, whatever.
Steve Brotman 29:43
And, yeah, have you seen that reflected in sort of the VCs and their success? Is it the ones who had more work life balance or not really?
Hans Swildens 29:54
Well, I think, I think I’ve seen both the folks that don’t have work life balance, end up having a very one sided life that is focused on work, right? So typically, their family gets broken where, you know, there’s, you know, there’s a fracture in their marriage or their family, or they don’t get married.
Steve Brotman 30:21
I think that to have a family life that’s happy and healthy, you need to have work life balance. Yeah, years ago, you and I talked about, you know, partners breaking up, and then you know that it’s the biggest risk that LPs take when investing in a fund is the partners breaking apart. Yeah, if you don’t have that, it’s like, it’s just like entrepreneurs, right? There’s no difference, right? Now, you’ve got two or three entrepreneurs, and they start a business together. Maybe one’s the leader of the pack, and there’s two others, or there’s three that are all equal, or whatever it is.
Hans Swildens 31:01
And then over time, you know, as time clicks on, people change and their life, their life goals change, and sometimes for the better, sometimes for the worse. And and that affects both business with its founding team as well as a venture fund with its you know, investors. So, yeah, I mean, I’ve seen it help as well as hurt, because sometimes the founding teams, you know, end up being dysfunctional, and they need to make a change, and someone needs to take over,
Steve Brotman 31:36
and the other people need to go and or sometimes, you know, they need to work through it and stick together. So it’s the same thing on the venture, venture fund side, from, from your perspective, if that happens, is that, like, you know, are you going to wait to sort of see how things resolve?
Hans Swildens 31:57
Situation specific? Yeah, you know, the hard one is the hard one to get your head around, which typically means you’re walking whether you know whether it’s the right decision or not, because sometimes it’s the wrong decision to walk honestly. You know, the LPS make the same mistakes that VCs do.
It’s kind of funny. You know, we set up both sides of the table, right? Because we make direct investments to secondary investments, and we are an LP, and so we see, we see it all from all sides. And, you know, it’s the same human mistakes, right? It’s like, you know, should have you funded the restart of Twitter. Should Have you rolled your equity and wrote another check into Yammer when it spun out. When, you know, a lot of these businesses, when they start in the venture business, they don’t start as, you know, as that business. They end up, you know, pivoting or restructuring. We were one of those, right? I mean, I started doing angel investing, and I ended up building a secondary liquidity fund business, and then, you know, I mean, all these other funds that we’ve developed, too have been pretty, pretty entrepreneurial. I think, you know, venture funds are the same, right? They’ll go fund an entrepreneur and a team, and then they’ll go build something, and it won’t work, or it’s the wrong time for it, or it’s too early, or whatever it is, and then they retool it, and they, you know, if they launch something else that they have learned is a better need for the market, that they’ve talked to their customers, and they’ve retooled everything so that they can kind of solve a problem that needs to be solved, and then the business cranks and so, yeah, I mean, I think venture funds are no different. You know, we’ve seen venture funds start and retool themselves and restructure, and people leave, and other people join, and then they, you know, either work or down. I think the one that’s really hard to get around though, is when you have a founding team, they build a track record. A couple of the founding team members after 10 years leave. There’s one, you know, founding person left, that person decides to retire or leave. And there’s this new group of people that don’t have a track record, right? And then, as an LP, you’re looking at that, going, wait, wait, wait, wait, I’m giving the money to these people that actually don’t have the track record, they don’t have the relationships, they don’t have what the other team did.
That’s the hard one to get your head around from an LP perspective. But there’s natural churn in all these partnerships. Every partnership, including the largest ones, have churned right because people age out their personal situation changes. They maybe, maybe, for them, a certain number, you know, a certain amount of money was what their goal was, and they hit it. So they leave and so.
And there’s other, you know, personal problems that people have, or they. Family issues, or whatever it is, and they go have to deal with it. And so there’s a natural churn in the market, and very few firms have been able to kind of have a culture of entrepreneurship to fill in the gaps as the team that’s managing the firm is churning. So that’s kind of a weird talent among these venture funds. And I would say the ones that do it really well have core entrepreneurial talent to notice it, address it, put plans in place so that it doesn’t become an issue.
Steve Brotman 35:37
I think managing that succession is really important, yeah. And I’m sure something that you’ve, you’ve thought about, you’ve got another got, what, another 20 years in you, what is the future, we’ll see.
Hans Swildens 35:54
Feels like I have that much gas in the tank.
Steve Brotman 35:58
Well, I mean, if you keep the balance, I think, I think you got this, yeah, thanks for coming on the podcast. It’s the dream come true for me to continue to be in this industry. I’m sure you feel the same way, because you know how hard it is to build an enterprise, a startup or a venture fund to scale and deliver value to LPs.
You know, you’ve built an impressive firm so far. You know, anytime I have a personal question about or not personal or business question, you’ve been a great resource for me, and so I appreciate that, and I hope likewise for you as well. Thanks again, Hans.
Hans Swildens 36:46
Thank you, Steve. I mean, I’m so that’s not something that’s awesome in this industry, is people like us that have been around for a long time, that have a lot of history together, seeing how what you’ve done has been also really impressive and just trying to learn from each other has been great. So thanks for always reaching out and chatting, right? We’ll do this again soon. All right, man, great. Thanks.
Outro 37:17
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