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Special: Ho Nam from Altos Ventures — A Different Approach to VC

ACQ2 Episode

June 20, 2021
June 20, 2021

Altos Ventures' Strategy and Playbook

What do you get when you combine Berkshire Hathaway's approach with early-stage venture capital? Altos Ventures. We're joined by Altos's wonderful Ho Nam to discuss their highly unusual approach to VC, which has resulted in them becoming significant shareholders in great companies like Roblox, Coupang, Woowa Brothers and Krafton (makers of PUBG). This episode is an absolute must-listen for anyone in our industry — Ho is one of the best and most under-the-radar thinkers in Silicon Valley, and has many lessons to offer us all!

Topics covered:

  • Altos's 13-year+ journey with Roblox, and how they deployed over $400m into the company out of an $86m fund
  • Altos's heritage in Jack McDonald's Investments class at Stanford GSB, and the influence of Jack, Phil Fisher and Warren & Charlie
  • How Altos successfully "value invests" in venture capital, and reconciling cashflow potential with growth
  • "Good fundraisers" vs. "bad fundraisers" and correlation with returns
  • Altos's unique fund structure and how they're architected to stay with companies longer than a typical venture capital firm
  • Ho's Twitter presence and how (and why) he went from de minimus followers to one of the top FinTwit accounts in a few months




We finally did it. After five years and over 100 episodes, we decided to formalize the answer to Acquired’s most frequently asked question: “what are the best acquisitions of all time?” Here it is: The Acquired Top Ten. You can listen to the full episode (above, which includes honorable mentions), or read our quick blog post below.

Note: we ranked the list by our estimate of absolute dollar return to the acquirer. We could have used ROI multiple or annualized return, but we decided the ultimate yardstick of success should be the absolute dollar amount added to the parent company’s enterprise value. Afterall, you can’t eat IRR! For more on our methodology, please see the notes at the end of this post. And for all our trademark Acquired editorial and discussion tune in to the full episode above!

10. Marvel

Purchase Price: $4.2 billion, 2009

Estimated Current Contribution to Market Cap: $20.5 billion

Absolute Dollar Return: $16.3 billion

Back in 2009, Marvel Studios was recently formed, most of its movie rights were leased out, and the prevailing wisdom was that Marvel was just some old comic book IP company that only nerds cared about. Since then, Marvel Cinematic Universe films have grossed $22.5b in total box office receipts (including the single biggest movie of all-time), for an average of $2.2b annually. Disney earns about two dollars in parks and merchandise revenue for every one dollar earned from films (discussed on our Disney, Plus episode). Therefore we estimate Marvel generates about $6.75b in annual revenue for Disney, or nearly 10% of all the company’s revenue. Not bad for a set of nerdy comic book franchises…

Season 1, Episode 26
LP Show
June 20, 2021

9. Google Maps (Where2, Keyhole, ZipDash)

Total Purchase Price: $70 million (estimated), 2004

Estimated Current Contribution to Market Cap: $16.9 billion

Absolute Dollar Return: $16.8 billion

Morgan Stanley estimated that Google Maps generated $2.95b in revenue in 2019. Although that’s small compared to Google’s overall revenue of $160b+, it still accounts for over $16b in market cap by our calculations. Ironically the majority of Maps’ usage (and presumably revenue) comes from mobile, which grew out of by far the smallest of the 3 acquisitions, ZipDash. Tiny yet mighty!

Google Maps
Season 5, Episode 3
LP Show
June 20, 2021


Total Purchase Price: $188 million (by ABC), 1984

Estimated Current Contribution to Market Cap: $31.2 billion

Absolute Dollar Return: $31.0 billion

ABC’s 1984 acquisition of ESPN is heavyweight champion and still undisputed G.O.A.T. of media acquisitions.With an estimated $10.3B in 2018 revenue, ESPN’s value has compounded annually within ABC/Disney at >15% for an astounding THIRTY-FIVE YEARS. Single-handedly responsible for one of the greatest business model innovations in history with the advent of cable carriage fees, ESPN proves Albert Einstein’s famous statement that “Compound interest is the eighth wonder of the world.”

Season 4, Episode 1
LP Show
June 20, 2021

7. PayPal

Total Purchase Price: $1.5 billion, 2002

Value Realized at Spinoff: $47.1 billion

Absolute Dollar Return: $45.6 billion

Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.

Season 1, Episode 11
LP Show
June 20, 2021

6. Booking.com

Total Purchase Price: $135 million, 2005

Estimated Current Contribution to Market Cap: $49.9 billion

Absolute Dollar Return: $49.8 billion

Remember the Priceline Negotiator? Boy did he get himself a screaming deal on this one. This purchase might have ranked even higher if Booking Holdings’ stock (Priceline even renamed the whole company after this acquisition!) weren’t down ~20% due to COVID-19 fears when we did the analysis. We also took a conservative approach, using only the (massive) $10.8b in annual revenue from the company’s “Agency Revenues” segment as Booking.com’s contribution — there is likely more revenue in other segments that’s also attributable to Booking.com, though we can’t be sure how much.

Booking.com (with Jetsetter & Room 77 CEO Drew Patterson)
Season 1, Episode 41
LP Show
June 20, 2021

5. NeXT

Total Purchase Price: $429 million, 1997

Estimated Current Contribution to Market Cap: $63.0 billion

Absolute Dollar Return: $62.6 billion

How do you put a value on Steve Jobs? Turns out we didn’t have to! NeXTSTEP, NeXT’s operating system, underpins all of Apple’s modern operating systems today: MacOS, iOS, WatchOS, and beyond. Literally every dollar of Apple’s $260b in annual revenue comes from NeXT roots, and from Steve wiping the product slate clean upon his return. With the acquisition being necessary but not sufficient to create Apple’s $1.4 trillion market cap today, we conservatively attributed 5% of Apple to this purchase.

Season 1, Episode 23
LP Show
June 20, 2021

4. Android

Total Purchase Price: $50 million, 2005

Estimated Current Contribution to Market Cap: $72 billion

Absolute Dollar Return: $72 billion

Speaking of operating system acquisitions, NeXT was great, but on a pure value basis Android beats it. We took Google Play Store revenues (where Google’s 30% cut is worth about $7.7b) and added the dollar amount we estimate Google saves in Traffic Acquisition Costs by owning default search on Android ($4.8b), to reach an estimated annual revenue contribution to Google of $12.5b from the diminutive robot OS. Android also takes the award for largest ROI multiple: >1400x. Yep, you can’t eat IRR, but that’s a figure VCs only dream of.

Season 1, Episode 20
LP Show
June 20, 2021

3. YouTube

Total Purchase Price: $1.65 billion, 2006

Estimated Current Contribution to Market Cap: $86.2 billion

Absolute Dollar Return: $84.5 billion

We admit it, we screwed up on our first episode covering YouTube: there’s no way this deal was a “C”.  With Google recently reporting YouTube revenues for the first time ($15b — almost 10% of Google’s revenue!), it’s clear this acquisition was a juggernaut. It’s past-time for an Acquired revisit.

That said, while YouTube as the world’s second-highest-traffic search engine (second-only to their parent company!) grosses $15b, much of that revenue (over 50%?) gets paid out to creators, and YouTube’s hosting and bandwidth costs are significant. But we’ll leave the debate over the division’s profitability to the podcast.

Season 1, Episode 7
LP Show
June 20, 2021

2. DoubleClick

Total Purchase Price: $3.1 billion, 2007

Estimated Current Contribution to Market Cap: $126.4 billion

Absolute Dollar Return: $123.3 billion

A dark horse rides into second place! The only acquisition on this list not-yet covered on Acquired (to be remedied very soon), this deal was far, far more important than most people realize. Effectively extending Google’s advertising reach from just its own properties to the entire internet, DoubleClick and its associated products generated over $20b in revenue within Google last year. Given what we now know about the nature of competition in internet advertising services, it’s unlikely governments and antitrust authorities would allow another deal like this again, much like #1 on our list...

1. Instagram

Purchase Price: $1 billion, 2012

Estimated Current Contribution to Market Cap: $153 billion

Absolute Dollar Return: $152 billion

Source: SportsNation

When it comes to G.O.A.T. status, if ESPN is M&A’s Lebron, Insta is its MJ. No offense to ESPN/Lebron, but we’ll probably never see another acquisition that’s so unquestionably dominant across every dimension of the M&A game as Facebook’s 2012 purchase of Instagram. Reported by Bloomberg to be doing $20B of revenue annually now within Facebook (up from ~$0 just eight years ago), Instagram takes the Acquired crown by a mile. And unlike YouTube, Facebook keeps nearly all of that $20b for itself! At risk of stretching the MJ analogy too far, given the circumstances at the time of the deal — Facebook’s “missing” of mobile and existential questions surrounding its ill-fated IPO — buying Instagram was Facebook’s equivalent of Jordan’s Game 6. Whether this deal was ultimately good or bad for the world at-large is another question, but there’s no doubt Instagram goes down in history as the greatest acquisition of all-time.

Season 1, Episode 2
LP Show
June 20, 2021

The Acquired Top Ten data, in full.

Methodology and Notes:

  • In order to count for our list, acquisitions must be at least a majority stake in the target company (otherwise it’s just an investment). Naspers’ investment in Tencent and Softbank/Yahoo’s investment in Alibaba are disqualified for this reason.
  • We considered all historical acquisitions — not just technology companies — but may have overlooked some in areas that we know less well. If you have any examples you think we missed ping us on Slack or email at: acquiredfm@gmail.com
  • We used revenue multiples to estimate the current value of the acquired company, multiplying its current estimated revenue by the market cap-to-revenue multiple of the parent company’s stock. We recognize this analysis is flawed (cashflow/profit multiples are better, at least for mature companies), but given the opacity of most companies’ business unit reporting, this was the only way to apply a consistent and straightforward approach to each deal.
  • All underlying assumptions are based on public financial disclosures unless stated otherwise. If we made an assumption not disclosed by the parent company, we linked to the source of the reported assumption.
  • This ranking represents a point in time in history, March 2, 2020. It is obviously subject to change going forward from both future and past acquisition performance, as well as fluctuating stock prices.
  • We have five honorable mentions that didn’t make our Top Ten list. Tune into the full episode to hear them!


  • Thanks to Silicon Valley Bank for being our banner sponsor for Acquired Season 6. You can learn more about SVB here: https://www.svb.com/next
  • Thank you as well to Wilson Sonsini - You can learn more about WSGR at: https://www.wsgr.com/

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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ho: I feel like I know you guys because I listen to you guys on your podcast. It's really fascinating because I think the three-part series on Berkshire is your signature piece because I think you guys said you never thought you could go beyond two hours. I know you guys have to cut a whole bunch of stuff out just to fit it into six hours. But there's nobody who goes into the depths like you guys, so it's great to talk to you guys here.

Ben: Welcome to this special episode of Acquired. The podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, the co-founder and managing director of Seattle-based Pioneer Square Labs, and our venture fund PSL ventures.

David: And I'm David Rosenthal. I am an angel investor based in San Francisco.

Ben: And we are your hosts. On today's show, we have a gas that both David and I have looked up to for years, Ho Nam from Altos Ventures. Without giving too much away in this early intro, I will say that this episode could be summed up as, what if you tried to be a value investor with Berkshire-Hathaway's principles but for early stage technology companies? This episode is the perfect cousin to everything that we talked about in the Berkshire trilogy.

Now before we dive in, I want to say first, if you are new here join us in the Acquired Slack. We'll be talking about this episode and everything going on in the tech and investing news of the day. That's acquired.fm/slack.

We have a very special sponsor with us today, the Massachusetts Institute of Technology Investment Management Company or MITIMCo. MITIMCo is on a mission to deliver outstanding long-term investment returns for MIT. They are listeners themselves and know that you all are some of the best thinkers, leaders, and investors in the technology ecosystem.

MITIMCo is always on the lookout for the very best investment talent in the world, and they have a track record of partnering very early on. They are also interested in selectively adding to their investment team.

I'm here today with Nate Chesley, a global investor at MITIMCo. Last time, we talked about your approach to partnering with investors early in their journey. Could you expand a little bit on MITIMCo’s approach?

Nate: Hey Ben. It's a great pleasure to speak with you again. Our approach is to partner with leading investors who have built competitive advantages with an attractive opportunity set across the globe. This ranges from early stage investors, to stock pickers in the public markets, to operationally-focused specialists in areas like real estate and private equity.

Where we can, we like to be the first partner to support our investment managers. We also like situations where we can be the inflection capital to great investors. For example, maybe you've been investing for a long time but are just getting ready to go out on your own. Maybe you're investing on a deal-by-deal basis but are ready for a committed capital pool. Being involved early in an inflection point suits our long-term approach because it increases the odds of partnerships that are measured in decades, not years.

Ben: I love that. I'm curious how your team structure enables MITIMCo’s success? You have an unconventional flat organizational structure with a lot of autonomy and a bias toward every single person being a generalist, which I think is pretty unique. Can you tell us about that?

Nate: Sure. Everyone on a global investment team has the same title and the same mandate to find great investments for MIT. Our generalist model enables the freedom to work on what interests you, and the flat structure and autonomy lets new team members jump right into leading investments and making an impact from day one. Combined, we think the model allows us to be nimble and opportunistic with our resources.

MITIMCo is also just an amazing platform for investors to learn and grow. We have access to some of the best investment talent in the world and have a culture that prioritizes getting a little bit better every day. We'd love to hear from members of the Acquired community if this strikes a chord.

Ben: I'm sure there are definitely some folks out there that would love to either be a steward of MIT's capital or (of course) join your team. With that, thank you so much to Nate and thanks to MITIMCo. They are truly some of the best and most well-known investors in the LP community. Their performance supports MIT's cutting-edge research and world-class education which has produced alumni who've gone on to produce enduring companies like Stripe, Dropbox, Khan Academy, Qualcomm, Akamai, TSMC, VMware, and even Fairchild Semiconductor, among countless others.

If you or someone you know is starting a fund or if you are interested in joining the team, you can click the link in the show notes to learn more and email partnership@mitimco.org and just tell them that you heard about them on Acquired.

All right, now as you know, this is not investment advice. We may hold interests in some of the companies that we discussed on the show and this is for informational and entertainment purposes only.

We also have one more exciting announcement today. As the world opens up, we are marking the occasion by having an Acquired party as we wrap season eight. Yes, that is an in-person event. It is going to be here in Seattle at Gas Works Park on Thursday June 24 at 5:00 PM. It'll have picnic vibes so bring anything you want to eat or drink. Rumors are circulating that David Rosenthal is even going to fly up for it. We cannot wait to see you there.

Now, on to our conversation with Ho Nam from Altos Ventures.

David: Ho, we are so excited to have you here. This is an episode we've been wanting to do for a long time. Just speaking personally, the last thesis we had here on the main show were Alfred Lin and Doug Leone from Sequoia. Of course, I have so much respect for them. But even though Altos isn't as well-known, I have learned just as much from following you over the years and I am so excited to share that now with everyone.

I thought maybe a good way to start is Altos has made so many incredible investments, but I thought we could start off with probably your best known one, which is Roblox. I think it'll tell your whole story in a really nice way, including the most amazing part, which is how Altos ended up investing multiple hundreds of millions of dollars into one company, Roblox, out of what was originally just an $85 million fund.

Ho: It was $86.5 million fund.

Ben: And you became the largest shareholder at the time of IPO, is that right?

Ho: That's right. We were also the largest shareholder from the beginning but we increased our ownership percentage over time. We increased it and then it went down and then it went back up. I'll tell you the whole story.

We met Dave Baszucki late 2007, in the fall of 2007. That deal was referred to us by Mark Reinstra, who actually works for Roblox now full-time as a general counsel. At the time, he was a partner at Wilson, and he was general counsel for one of our other portfolio companies a number of years ago. It was an enterprise software storage company.

He said, hey, I think you're going to really like these guys. We said, why? Actually, Wilson Sonsini works with everybody, of course. We knew Benchmark was looking at it. We knew a number of other firms were looking at it. Craig Sherman, actually, who was an EIR at Benchmark at the time that David, you know very well. I think Benchmark asked him to look at it. We asked him to look at it because at the time he was CEO of Gaia. He knew something about social networks and he's a really smart guy.

We ended up doing the deal and we let Craig invest with us. He was actually right there from the beginning before he even joined Meritech. He came in much later, of course. Anyway, going back, Mark said, you're going to really like these guys, and we said, why? He said, they're really scrappy, very capital-efficient. It’s just like Altos—we like this really bootstraps, scrappy. capital-envisioned entrepreneurs. We don't like burning a lot of money. He said, I don't think they really like VC's. I said, really? Okay.

David: Great. They're going to love you guys.

Ho: Yeah, exactly. Our kind of entrepreneur. Literally, when we met and got excited, we decided to give a term sheet, they would not take our money until we had to be interviewed by the founders’ father and brother, who were both on the board. Somehow, we passed the test. I was not even at that meeting. It was my partners, Anthony and Han, who were there at the meeting. Luckily they passed and they gave the blessing.

Ben: Like pass the test?

Ho: Yeah. They passed the test and our term sheet was for $2 million for a series C financing. A and B we're all friends and family. They said, $2 million, that's a lot of money. That's just too much.

Ben: What year is this?

Ho: This is in 2007. The deal closed in February of 2008, but when we were negotiating, it was going through the holidays in 2007-2008.

David: Right before Bear Stearns blew up.

Ho: Yeah. They said, $2 million is too much but we'll take $1.5 million from you guys. Okay, we'll start with $1.5 million. That's how it got started. But backtrack before that, why we decided to do the deal is really interesting. My partner, Anthony, really had a thesis. Specifically, he was looking for the next Club Penguin.

David: I remember Club Penguin.

Ho: Yeah, and my other partner, Han, his two daughters were totally hooked on Club Penguin. They love Club Penguin and then Anthony got all excited about Club Penguin because it was another one of those great bootstrapped success stories. They've never raised any venture funding.

David: They're in British Columbia, right?

Ho: Yeah. A Canadian startup and Anthony's Canadian. A Canadian startup, I think four or five different dads got together, created this company, and then sold it to Disney for $400 million. Back in those days, that's a huge exit.

David: You're investing in an $85 million fund. You're like, $400 million exit, great.

Ho: Fantastic. That's a fund returner. He had a thesis which is really interesting and then for me, I do not have a thesis around it. If somebody had told me, you should fund this company that's like Lego 3D virtual online playground, I would have told you that's a dumb idea. I would say, why would I fund that? I don't get that.

This is an interesting dynamic because in a partnership, you have different partners with different passions, different ideas, and you have this inter-mixing of different ideas. We debate it, we talk about it, but I think it's something that’s a really dumb idea; somebody else might have a thesis.

Now, you have this entrepreneur who walks in the door. Why did I get converted from, this is the dumbest idea I ever heard to this is really interesting. Well, when you show up at my door and then you have this little graph that shows 7% compounded growth on a weekly basis for 52 weeks in a row of engagement hours, well that's interesting. If you graph that out in Excel, that is a classic exponential curve that just grew 33X in a year.

Okay, something's going on. They're not burning much money. They're just early in the monetization phase. They exactly copied Club Penguin, they had this Club Penguin. Well, we had a club too. We call it the Builders Club. That's what it was, same exact pricing as Club Penguin, $599 a month. When we first started talking to them, it was tiny and by the time we closed the deal, I think maybe they were doing $50,000 a month, $500,000–$600,000 annualized run rate.

David: This is Roblox.

Ho: This is Roblox, yeah. I said, okay, something's going on. You have exponential growth and engagement. You got early monetization. Then the thing that was really interesting, two other things that sealed the deal for us, one is you do a YouTube search for Roblox. It's a unique name, and back in those days—this was several years before Minecraft ever launched, that was 2011—we found 200-something hits on Roblox. Okay, so what are these videos? We started going through all these different videos. Some of these were really shaky videos, camcorder recordings of the computer screen. Kids were so proud of their creations.

Back in those days, it was really difficult. Think about all the friction points. You're recording off of an analog camcorder—your computer screen—and then you have to get that off the tape, digitize it, and then upload it on slower bandwidth connections back in those days into YouTube, which was very early days of YouTube. They were so proud of their creations. They want to show it off to their friends. Something is going on. There is so much engagement, so much passion around this community.

To top it all off, you meet Dave Baszucki. This guy had this vision and inspiration going back so many years. He had four kids and he really wanted to do something good for the kids, for his kids that he would be proud of.

His prior company had done something to educate kids, teach 3D physics, that has a little simulator. Then that was a successful company, again bootstrapped, no venture funding, had a nice exit, but even though it was designed to sell to elementary schools to teach kids physics, it was purchased by a CAD company, mechanical CAD company so that Boeing engineers could use a physics simulator. He was working for that CAD company and he’s like, okay, I think now I want to go back to my original passion. Do something good for the kids again.

You meet a guy like that. In our original investment memo, we talked about, I think this guy is like a hedgehog. The hedgehog concept was new to us still. We published this blog post in 2006 about the fox and the hedgehog in Silicon Valley.

David: Inspired by Jim Collins, right?

Ho: Yeah, Jim Collins, exactly. We wrote that blog post long before we met Dave Baszucki, but it's like this guy is a total hedgehog. But of course, it was very, very early in the journey and you only know when you're 5 or 10 years into it whether or not that person truly is a hedgehog. That's what we talked about in that blog post. These people have hedgehog potential but you won't know until you're 10 years into it.

Ben: Ho, for folks who don't know, what is the fox and the hedgehog concept?

Ho: Jim Collins wrote about this in Good To Great and his conclusion was these great CEO's, great companies are run by these hedgehogs that really have one big idea and they have one big mission in life, versus the fox who is very smart and very clever, there may be polymaths, they're the great serial entrepreneurs, and they're very popular with VCs. They could hang out at these cocktail parties. They're very smooth. They're really, really good at fundraising.

The hedgehog is really this boring creature, not very good at fundraising, does no networking, he doesn't even like VCs, he doesn’t want to meet anybody. They're just too busy doing their own thing. Nose to the ground, that's the hedgehog personality. Collins just perfectly nailed it and when I wrote that blog post, I was thinking this is just like Sam Walton. I had Sam Walton in my mind. He's one of the all-time great hedgehogs. His book, Made in America, told me what the mind of an amazing entrepreneur looks like.

We're very, very fortunate that he got sick at the end of his life because he never would have written that book. He would've been out duck hunting, visiting his stores, and doing all those things he loved, but he was bound at home. Everybody wanted him to write something and he finally wrote it. We're very lucky that we got to get a glimpse into his mind.

Buffett, of course, is another amazing hedgehog. You have this guy who, at the time—I don't know how old he was, in his 80s or 70s—he hasn’t needed to work for money for decades, but he's still working; he’s now 90 or 91 years old.

David: He didn't have to work for money when he left Graham Newman.

Ho: That's right, at age 25 he had enough to retire, but they keep going. They keep going on and on like the Energizer Bunny. They never run out of energy. Why is that? What is it about certain guys that become billionaires and they're still showing up to work? Not only showing up to work, but they say they tap dance to work. Bezos copied Buffett’s lines, he’s like, I tap dance to work every day. Buffett’s still there. Sam Walton’s still there to the end, to the very end. You have to carry them out with a stretcher.

They’re some of the people who are just like that. We’re trying to study who these people are. We’re trying to incorporate some of that for ourselves as well. How do we structure the work and surround ourselves with the types of people that give us joy, that motivate us to come back, to keep coming back, to keep doing it, rather than to say I'm done, I'm punching out?

We're always thinking about that because our role model is the Buffett kind of guy. We didn't set out to start the venture firm for ourselves, so we punch out at the age of 50 or 60 and say, why did I start something so I could give it to the next generation?

I think I'm going to just be around for a while. The next generation could join us. They're fantastic people and these are people I want to invest in. We think of the next generation as we are both LPs and GPs. We want to invest in that next generation. I think that's one of the things we observe with some really enduring franchises, where they are no longer thinking about the business as a GP. They're really thinking about it as an LP. They become both LP and GP.

There are certain folks like IGSP that David knows about—

David: Right, there’s no distinction.

Ho: Yeah, they are the LP. They've never had LPs in 52 years, so those guys are fantastic.

David: They'll be mad at us for bringing up their name in public, but for folks who don't know the investment group at Santa Barbara, which also came out of GSP Business School, which Altos did as well which will get to and specifically Jack McDonald's investments class, it's all their own money. There's no outside capital. I believe they manage now probably approaching $10+ billion out of Santa Barbara, and they have beaten their own path over 50+ years. It's amazing.

Before we move on from Roblox, because I think this is relevant to how Altos has evolved, how did you end up making the untraditional moves of putting so much capital in?

Ho: That's always a mystery for folks. This is what happened. We only got it at $1.5 million piece, and then about a year later, first round actually came in because they actually passed on the original round that we invested in, but kudos to Chris Fralic for tracking it and they said, hey (look, can I really get in throwing an extra $500,000? We said, yeah, we could use a little extra capital. We got them to come in and we actually invested more in that round. Every chance we got we kept investing more.

A lot of times before we started doing these big SPVs, we actually bought secondary shares (I think) on six separate occasions. Every time we had a chance to pick up some shares, whether from employees, founders, or whoever, that people needed a little bit of liquidity, we're happy to buy some more. Every time (of course) the price changes. The price keeps going up. We value it based on what we thought were the right comparables and we price it at a certain level. We had a similar comparable. Maybe we're valuing it at five times revenue or something like that.

The price kept going up, we kept buying more. But at some point we had this interesting turning point. We were very lucky in some ways. We thought about selling the company and by that time we had a pretty good game, we had a tiny fund. Of course, it would be a very meaningful exit for that tiny fund. Luckily, the offers came in at significantly below the price at which we were all willing to sell. Even at those higher prices, we were really reluctant but it's like, okay, I guess we got to do this thing. It’s the right thing to do for the fund management business. We'll talk on this topic later because I think a lot of fund managers make decisions to serve the fund but they may not be making the proper investment decision. You got us to learn how to separate that.

Ben: Or perhaps serve the management company, like the institution that you are building with your investment firm that is not necessarily perfectly aligned with the actual investors in that particular fund.

Ho: Exactly. Again, we felt those conflicting interests. We've made those mistakes. We've made certain decisions, and then we just finally said, look, let's just be very clear about why we're making such and such a decision and it's okay to make a good business decision. It's okay to make a decision that's very rational that serves to fund or serve your business, whatever it is. It's also okay to make an investment decision, but just don't get those confused. Just understand why you're making certain decisions.

Anyway, we had these bids. We said, at that price we're not going to sell. Actually we said, at that price, we should be buyers. Some people did want to sell at that price and other people wanted to buy. We said why don't we just buy some more shares. That was a time that we stepped up and it significantly more than little nibbles, secondary. That was another secondary but it was only $2.2 million secondary and nowhere near the levels later.

Ben: By this point you've put $5+ million into this company, so it's becoming a meaningful percentage of the whole fund.

Ho: Yes. Anyway, we bought more, and then what ended up happening right after that round was about a year later. Again, the company continues to really perform. That's when Craig, our friend from Meritech, comes back in the picture—he's known about this company from day one—and he says, this is starting to look quite interesting. Maybe we'll lead the next round.

That next round was led at a significantly higher price than the price that we were talking about, which everybody was thinking about selling. It's like okay, we’ll look at $500 million pre, but maybe it's time to sell a little bit. Make our LP's happy, increase the DPI. This DPI thing is very interesting.

David: This is the fund management business.

Ho: Yeah. Chris [...] who’s a friend of all of ours, what did he say? He says, it's all about the moolah in the cooler. I love that. Until the cash is in the bank, it's not for real.

David: DPI, just for folks, is distributed capital to paid-in capital, so it's actually dollars. Don't give me more markup, give me dollars in my bank.

Ho: Exactly, and look, we all live through the dot-com bubble. We thought we were going to be so successful. We had all these huge gains and it just disintegrated on us. We were all burned by that and LPs are burned by that. The thing is LPs really don't know if something is a fraud or if something is for real. They're trusting us. They're trusting the fund managers. They see all this gain after gain after gain, but it's all paper. At some point, they have to convert that to cash. Otherwise, they never know, and if you've been around for a long time, you know it could go to zero.

Anyway, we had these pressures and said maybe we should increase the DPI to help us raise our next fights. That’s how a lot of fund managers think. We decided to sell 15% of our Roblox position. We were still the largest shareholder at that point after that. It makes our LP's pleased. We said as we were selling that little piece, it was such a tough decision. We were saying, I think that's going to end up being a $200 million mistake. A $200 million mistake in the context of an $86.5 million fund is a pretty big mistake.

We still did it anyway. We still did it even though we thought it might be a $200 million mistake. It turned out to be more than a $1 billion mistake. Just member that, because it was the pain of that mistake that really let us down this whole different path where we became an RIA. We sold a little bit at that point. Then fast forward a year or two later, a much bigger around happens, $2.5 billion pre.

Before that $2.5 million pre round led by Tiger and Greylock also came in that round, we had a number of other people start to get really interested in this company. People are just begging, can we have a chance to look at the company? We weren't really looking to raise money because the company, again, after the first $10.5 million of equity, we got to a point where we were cash flow positive and we just didn't need to raise any more money. People could be knocking on our doors and we just kept saying no, no, no. But at $2 billion, we thought maybe we should sell a little bit again.

We thought that worked okay last time. At $2 billion we could sell maybe only 10% of our position and still return a big chunk of the fund. Why not? We actually talked to some folks at $2 billion and they came in at slightly below. Our asking price was $2 billion and they, for some reason, couldn't quite get there. They're offering like $1.7–$1.8 billion, and we just said we’re just going to pass.

David: This is like when Buffett bought Berkshire-Hathaway where he wanted to sell and it was the Chase family. They came in at, I think, an eighth of a dollar below the price that they had agreed, shook hands on a tender offer. That's when Buffett said, I'm not going to sell. I'm going to buy it.

Ho: I have another one of those great stories for you later, remind me, Woowa Brothers. You're just off by a little bit and it's just so dumb to be off by a little bit. Just go for it. Those guys were off by a little bit and it’s a lucky thing for us because we waited a little bit longer and we got to the $2.5 billion valuation.

If we were going to sell at $2 billion, we should be willing to sell at $2.5 billion. But it's all relative to how much progress the company is making. The other key difference was by the time we got to $2.5 billion, we had registered and become an RIA. That was a key difference. Once we registered to be an RIA, we could do these SPVs and we could a purchase secondary

Ben: RIA, being Registered Investment Advisor or Advisory?

Ho: That's right. Registered Investment Advisor. VCs are exempt from SEC registration because we help create jobs and all that kind of stuff. There's a lot of truth to that. VCs are really small and are really for the public investors. But from an SEC perspective, if you do too much secondary, they’ll look at it and say you're not creating any jobs here. You're putting dollars into somebody else's pocket. It's not going to the company’s coffers, it's going to another shareholder's pocket. To me, that looks like a public trade, shareholder-to-shareholder transaction. We got too much secondary, that's what happens.

Ben: By the way, before Ho continues, we should just anchor a price in people's minds. When he's talking about we invested $1.5 million and then you mentioned something around a $500 million valuation round, now you mention a $2.5 billion valuation round. How big can this company get? Well, the public market currently believes it's worth about $60 billion. It does indeed keep running.

Ho: Yes, it definitely keeps running. That $2.5 billion, because they didn't need money, they only took a little bit of money into the company and then the rest of it was a tender offer to purchase secondary shares. There was a whole process going on, everybody got a chance to sell a little bit. If you remember, we sold a little bit and the last round was $500 million. At $2.5 billion, we told the company, you know something, thanks but no thanks. We're not going to be part of this tender process.

What we did was we ran our own little tender process. We said, you know something, we will do this SPV and we’ll participate in the round. Then we will run a tender process amongst our LPs and say, if anybody really wants a chance at liquidity, here it is. If they want to rollover, you could also roll over. We don't want to force anybody out. We wanted to give them a chance to roll over on a no-fee-no-carry basis. The reason we were going to provide no-fee-no-carry is, first of all, no fee, because we're going to work with this company regardless because we still had a big position. Why should we charge any fees? No carry, because we were crystallizing the carry as we did that distribution. They already paid us that carry from that fund, so if they rolled over into this new vehicle, we shouldn't charge anymore.

It was a free rollover if they wanted to roll, but a lot of people decided to cash out. It was interesting and we cashed out some too. As GPs, we know we've been toiling away for a long time. We didn’t have a whole lot of fund returners at that point. We cashed out half of our carry and rolled over the other half. It was a good thing for everybody.

We did that and then fast forward later, there was another round. When we did the $2.5 billion, it was $125 million SPV. After we did that, we didn't think we would ever do another SPV on top of that. But yet again at $4 billion when that deal happened, we did another $125 million. That's how it starts to get big, $125 million plus $125 million, now you got $250 million, plus we had another round after that, the pre IPO route that $45 a share.

Now, when you think about all these rounds, though, it's crazy to think even at the $45 a share, which people thought was crazy. That was a $30 billion market cap. All the rumors about Roblox went public at $8 billion. I have no idea where they pulled that out but I think it was the reporters saying well if the last round was $4 billion then the IPO must be two times that. It must be at $8 billion. Everybody said it's going to go public at $8 billion, maybe $10 billion.

Ben: This is famously the IPO that got pulled because people or the company presumably have thought looking around at where tech companies are being valued going out today, this wouldn’t make sense. We actually should raise more in the private market and then decide if we want to go out next year.

Ho: That's right. Those pops were just insane. We felt helpless to control it because if you do a traditional IPO, you have such a limited supply. You just can't and a lot of people wanted access to this deal. They didn't get a chance to invest, so they were going to buy, but as soon as they did the price would spike up, and then we knew that it would come back down. We just didn't want people to get burned. It just didn't seem right.

Also for the sellers. All these employees and shareholders wanted some liquidity. Why should they sell at this artificially low price just because that's what the bankers wanted? It doesn't make sense. We wanted to try to explore and find the right price and we thought the right price was going to be much higher than the IPO price. We did find some investors to validate that. It should be at least $45 a share, which is a $30 billion market cap, way higher than the $10–$15 billion, maybe people thought it should be priced at. We bought more at that point. That's again a key lesson in terms of how we think about the business and holding on to our winners longer.

I think that tells the whole Roblox story. I skipped a whole bunch of other things that happen in between because this whole Roblox journey would not have happened at all in terms of making these big investments without this other little company called Woowa Brothers in Korea. That was one of our early winners.

We always said that we didn't think Woowa Brothers was going to be our biggest winner, but we always said for a number of years that this is our most important company. If we screw that up, we screw up all of Altos. The reason is we use that company to test out so many different theories about the business and about what we want to do, what kind of VC we want to be. Woowa Brothers was the main reason that we registered to be in RIA to do the first SPV.

Woowa is this little food tech company in Korea that did $1 billion in net revenue last year in GMD. I'm not sure what it is, $7 billion or $8 billion, surprisingly big for a little country of South Korea. We had been involved with that company again from very early stages as well. That company is so fascinating because the founder is one of these non-consensus founders. He did not go to one of the top colleges in Korea. In Korea going to a top college is like a really big deal. Education is everything there.

He was a designer, went to design school and started this little company that failed. He was in debt and he had to go back and try to pay off his debts. He started this company after he paid off the debts or most of it. The company was growing pretty fast. We decided to bet on it. We thought it was like the Grubhub of Korea at the time before the whole physical delivery.

We thought this company could be maybe $30–$40 million in revenue. Maybe we can exit. In Korea, you could take a tiny company like that public. We didn't think it would be that big, but it got to a $10 million run rate. We thought this is really starting to work and this is maybe a bigger market than we thought. The CEO comes to us and says, I took it this far. I think it's time to get a CEO.

David: This is such a great story.

Ho: I said what do you mean? He’s like, I don't know how to take it from $10 million to $100 million. Some of the other board members were saying we got to take this company public. In Korea, you could take a tiny company like that public, but you have to be profitable. From $10 million to $20 million, they wanted to get the company profitable and then take it public around the time it was $20 million. We said, no, I don't think that's the right approach. I think this is really starting to work. It's time to step on the gas. We told the founders like, I think we could take a little bit further. Let's see what happens but let's raise a little more money and just go for it.

David: You draft him back into service.

Ho: Yeah. It’s interesting because we are seen in Silicon Valley as these very stodgy, conservative, pragmatic guys, capital efficient, we don't like burning a lot of money. In Korea, when we say this tiny little $10 million company should step on the gas, they think these guys are really aggressive. This is really very interesting. It’s the same exact approach because by the time we got to $100 million, of course, we were profitable or at a casual break even. We like companies to get to the self-sustaining phase around the time you get to triple digit millions.

Around the time they got $100 million, the CEO came back to us again. He said this is amazing. Now we're at $100 million in revenues. I think you have the wrong man for the job. I was like, really? Because, I got $100 million, but I don't think I'm the right guy to take it to $1 billion. I was like, okay. Let's see what happens.

Now, here's the fascinating thing. He came to my partner, Han, recently and said, I think we're going to take the sting to $10 billion. He said, just watch me. Now, he's got the confidence. He took it from $100 million to $1 billion and now he knows. Of course, he's just become a fabulous CEO, amazing.

David: He's the first Korean to sign the gifting pledge, right?

Ho: Yeah. He recently signed a Buffett-Gates gifting pledge. First person ever to do that from Korea. Now, another founder from Korea who most recently signed. Now, they have two out of Korea all in the last few months, which is fantastic. He's such a special guy. He actually started selling some of his shares even very early before he became a billionaire. Because he just felt like it was the right thing to give back and he made some promises.

We told him, you're crazy for selling the stock because we were buying. As we were buying, we said I don't think you should be selling that much. But he's like, no. I got to sell it because I got to give $10 million to these guys, whatever. He had made promises and so he sold his stocks. He's such an amazing guy.

Along this Woowa Brothers journey, I talked about missing out on price. We had, again, pressures, feeling the pressures to return some capital to our founders. Woowa Brothers was on a much faster growth trajectory in the early days compared to Roblox. Maybe we thought we would sell 20% of our shares. That returns a nice little percentage of the fund, and we actually had shaken hands on a deal.

We found this great long-term investor. They would be like the Altos. We would leave the shares in really good hands because they would be really with the company for a super long time, not looking to flip out of it. We shook hands and then when we got the paperwork, the price was different. It wasn’t off by a lot, but it's like, but this is not what we agreed to. We just said no. We called off the deal. It's a lucky thing because what happened was we called off the deal but we were still interested in many of the other early investors. We’re all interested in cashing out a little bit.

By the time we found the next investor, which turned out to be Naver, we wanted a strategic as well because we thought Naver could become a competitor and why not make them our friends rather than our enemies. By the time we got to that deal, we actually got the price that we had wanted from the beginning.

But again, six months passed. In a fast-growing company, six months makes you pause. We said, wait a minute at this price, we should be buyers rather than sellers. I think it's a decision we made with Roblox a little earlier. We were thinking about selling at this price, but I think maybe we should be buyers.

Ben: Very similar to what Nolan Bushnell had told us about the Atari deal with Don Valentine, where it took so long to close the deal, months and months went by when Don showed up with the final paperwork to sign, Nolan was like, I think we're actually worth twice as much now. And they were. I mean you just have to look at their growth.

David: Only Nolan Bushnell can have that conversation with Don Valentine.

Ho: It's always a moving target. You try your best, valuing a company is an art, not a science. You can't just apply simple formulas. And it's a moving target; it keeps changing on you. Anyway, we have been talking about potentially becoming an RIA for years, 2–3 years before this Woowa Brothers decision. We thought about doing an SPV for Coupang which was growing even faster than some of these other companies. It was an early rocket ship and we just could not get comfortable with the notion of becoming an RIA at the time. For a small fund like ours, it was just a big, huge undertaking, a lot more overhead. You had to have a chief compliance officer, and a lot more legal costs.

David: We’ll get back to this, but at that time, how many people were at Altos? What did the firm look like?

Ho: We were tiny. This is before any of our next generation partners have joined us. It was just still the three of us, just three partners. Our receptionist was our office manager, our admin, she's still with us. We are just a tiny little office. We decided not to do the SPV for a Coupang but we had been thinking about this for a number of years. We talked to a whole bunch of people who were registered. They told us, my advice to you is just don't do it. I was like, really? But you're registered. He’s like, yeah, it’s the cost of doing business for us, but for you guys, I don't think it's worth it.

Literally we got that well-meaning advice from a lot of people. We just didn't do it for Coupang, which probably turned out to be a $1 billion mistake. But that’s fine, that's one $1 billion mistake, the Roblox thing was another $1 billion mistake. We keep making all these huge billion-dollar mistakes. At some point we should stop making these big mistakes.

For Woowa, again, we went back to the same exact people that we had talked to before who said you shouldn't do it. We talked to some of those guys and got some advice. We said, despite all these costs—we were doing the math on it—and for this little $30 million SPV, I think we will make enough money on this to justify all the added expenses and overhead forever, or at least for the 10 years. I think it'll pay for all of the 10 years of expenses if this turns out to be correct.

Then we thought there could be some other deals. Three years ago, we had Coupang, now we have Woowa Brother. There could be some other deals, you just never know. We thought why not? We registered and we got it just in the nick of time. We had to register very, very quickly to be able to close, and the $30 million SPV was 100% for secondary. Not a penny of it went to the company. We bought shares from other early investors like us that needed that liquidity.

David: Is that one of the things that you can't do if you're not an RIA is lead a whole round that's just secondary?

Ho: Yeah. The technicality is 25% of any fund. You could have $1 billion under management, but if you have a one fund that's a $30 million fund, and if 25% of that one fund happens to be secondary, then that triggers a registration requirement for the entire platform. That’s the math, $30 million, 100% of its secondary, so that triggered the registration. Because we had done that for Woowa Brothers, that's what allowed us to do all those other Roblox SPVs.

Now, before this Woowa SPV, that was the 6th fund that had invested in the Woowa Brothers. I didn't tell that part of the story. We were investing fund after fund after fund into Woowa Brothers.

David: Canonical VC dogma from LPs, but I think VCs also believe this—cross-fund investing is a no-no.

Ho: It’s a no-no. People really don't like it. When we first started doing this, that's because we were just not very good fund managers. A lot of times you do it because you're just not doing a good job of reserving. If you run out of money, we run out of money. We were like, we can't support our companies anymore. We had to beg our LPs, like can we maybe use our new fund to help support some of our older companies? We did that, and LPs didn't like it, but they gave us a little rope. They said, okay, you could do a little bit, but we're watching you. Our eyes are on you.

Ben: We're going to start reading those quarterly statements that you sent us now.

Ho: We're going to make sure that you don't put good money after bad to support your crappy companies and run out of money. We made some mistakes, but we also made some good deals. Our LPs started to get more and more comfortable with us doing these crossovers. When we raised our first Korea fund, we raised that funds primarily because of some of the lessons on Woowa Brothers. We were starting to run out of money in our US funds for Korea.

When we first started raising US funds from institutional LPs in 2005, they let us invest up to 10% of our fund anywhere outside of the US. The reason is we asked for permission to do that because we started to see some interesting things in Korea. It was worded in the legal documents that we could invest anywhere outside the US but we were just only focusing on Korea. In that first fund, we never reached the 10% limit, but in the next one we increased that limit to 15% because we continued to see more interesting deals. It was in that second fund where we actually hit the 15% limit, and then we want to go beyond that 15%.

Why did we want to go beyond the 15% limit? To put more money into Woowa Brothers. That was the company that we really wanted to start to lean in on. Our LPs relented and they said, we won't let you go up to 20%, but we'll let you go up to 17%. Okay, beggars can't be choosers, we'll take whatever we can get. That 17%, the incremental 2% all went into Woowa, but we wanted more.

Now we were stuck in that US fund, limited at 17%. That's when we went out and said we're going to raise our Korea-only fund because some LPs actually like that idea and wanted more exposure. The other LPs did not want more exposure to Korea. There's all kinds of North Korea risk; they didn't even know how to categorize Korea. I said, well, it isn't going to the emerging market bucket. They don't know how to categorize it.

Some of our core LPs actually passed on that first Korea fund, but luckily we were able to convince enough LPs to come along with us on that first $60 million Korea fund. When we raised that fund we told our LPs the first investment we're going to make out of this fund is a crossover, Woowa Brothers.

David: You're literally doing everything that is going to make LPs nervous here. You're investing in a market they don't know and understand, while you're based out of the US and your first investment is a crossover investment. There must've been some fun conversations.

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Ho, let me ask you a question. This will take us a little bit into the firm history. We've thrown around Roblox, we’ve thrown around Coupang, we’ve thrown around Woowa Brothers. At this point, these multi-billion dollar investments, these things keep happening to you. You know what excellence feels like now in terms of the results, and then back-testing that against what those entrepreneurs look like when we invested very early in them. Can you take us back emotionally to what it was like the first time you started to see your first 3X, 5X, 8X, where you knew you had something in the portfolio, where you were looking at each other, like we actually might be good at this. One of these companies might go and what your psychology was around that point in time.

Ho: It’s such an interesting question. It’s complicated. There's the people equation and then there's also the business equation. I'll talk about the people a little bit and then we’re going to talk about the business fundamentals. The people, we already talked about a little bit. We just have a bias towards certain kinds of entrepreneurs, what we call the hedgehog versus the fox.

There's nothing wrong with foxes and nothing wrong with amazing serial entrepreneurs. They're incredibly competent people. They will make money over and over again. But I call the great serial entrepreneurs just amazing people who just have not yet found their true life's calling. You could be a serial entrepreneur, have a bunch of fantastic hits but then you will find something and say, oh my God, this is it. I found what my life's purpose is. I'm here for the rest of my life. We're looking for that match—company founder fit.

Sam Walton was like that. Sam Walton was a very successful serial entrepreneur, very successful even as a teenager. He was making all kinds of money. He was making thousands of dollars which is big money back in those days. Just like Buffett was a very successful teenage entrepreneur. He's always been fairly wealthy, fairly successful, but he did not start Walmart until age 46. He was already a wealthy, successful guy. At 46, he founded Walmart and that was it. That was it for the rest of his life, the one thing.

We're looking for the people, the one thing. This is our true life's mission at this point in our lives. We're not looking for yet another deal to make money. Why would we do that? Don't show me another deal that just makes money. Show me an opportunity to build something really special with a special group of people that have a mission, their life's mission (hopefully) and how can we support them on that.

Guess what, if you actually do that, the money will be there. Don't worry about making money, that cannot be the reason to do any deal. It's got to be because you want to work with these people and it’s got to because we have a chance to build something. It's about the people that's such a critical component.

David: You’ve said a bunch to me and I love adapting a Buffett analogy, but you want to find people and I think you all think of yourselves this way in Altos. Where you're painting a masterpiece versus your painting by numbers. When you're painting a masterpiece, there is no formula and it's never done.

Ho: Yeah. Every time it's just different. But Buffett calls Berkshire his painting, that's my painting. When he buys business from one of these great founders who became a billionaire, he tells them, you have this masterpiece. I want to hang it in my museum. I'm not going to touch it. I'm not going to rip it apart, sell it off in pieces. I'm going to hold onto it forever. It’s a beautiful masterpiece.

Sometimes you do the painting and it turns out to be not so good. Sometimes it's a masterpiece, but it's just unique. It's just different every time. We're looking for an artist. There's a lot of people out there who want volume, they want scale and paint by numbers will do it. You could build a much, much bigger business that way. Certainly much more predictable and much more repeatable. There's a lot of people who want that.

David: Or maybe a bigger business faster.

Ho: Yeah. I think it’s the LP's that are driving it. LPs really want predictability, repeatability. They don't want to take too much risk. I kind of joke that everybody wants Berny Madoff without the fraud. Nobody wants fraud of course, but I think everybody was Berny Madoff. They want nice, steady. They don’t want to be too greedy. They just want steady returns, and there's a lot of big funds that are just geared, they're set up for that. Company after company, deal after deal, it's like a cookie cutter. Crank them out of a factory and it’s a deal factory, a deal machine and the LP's want it.

Okay, good for you that's fine. We're just going to do something different over here. If you want that, it's a small piece of your portfolio because we're not going to be able to crank it up in volume like that. We just have our own little thing going.

David: That's the people side of the equation and then you said there's the business side of the equation.

Ho: Yeah, there's a business side. Around the time a company gets to about $10–$20 million scale, that's what we call first base. That's when we start to get a lot more curious about the business, around the time let's say Woowa Brothers got to $10 million. Okay, I think we might have something here, and we start to dig in.

Sometimes, I might not even be paying attention. If it's a company (of course) that I'm working with, I'm very involved with what's going on, but if it’s a partnership, we might not know about every single company. But if somebody else's deal or whatever, if you get to first base, now you got my attention. Wait a minute, so what do they do again? What is it that they're doing? I want to learn a little bit more about this little business.

Around $10–$20 million, you get our attention. We start to get curious. We learn so much more about the people, the business, the market, because now we're a few years into it. What we've learned is that so many companies, venture-backed companies especially, are in a hurry to grow. The faster you grow, the higher your valuation at the next round and everybody's really happy.

But I’ll tell you, when you really step on the gas—we've done it before, we've had companies go to $100 million in revenues and then the wheel starts falling apart—it takes so much time, so much work to get a company to $100 million. The most heartbreaking thing in the world is to have this thing that you worked so hard on start to fall apart on you, and it's really hard to turn it around. It's much harder to do a turnaround than to build it right from the beginning.

I think almost every single company startup has a great culture in the beginning. People say the culture gets set when it's the first five people or whatever. You got to do it right. I'm like, don't tell me about that. Every little company has a great culture, you know why? Because just to survive that little infant mortality phase, if everybody's not pulling their weight, there's no place to hide. Everybody is contributing. Everybody knows what the heck is going on. You have a great culture. Every little company. But not every great culture at every little company turns out to be great as they grow, so you have to pay a serious amount of attention.

Around the time you get to first base, that's when you get your first 100 people and you really have to do it right. Basically in our best companies, they’re accelerating in growth in the multiple hundreds of millions at a faster rate a lot of times in percentage terms than when they are in the tens of millions. That's what we're looking for. We want this acceleration starting at $100 million rather than a deceleration and the wheels falling off at $100 million.

When we see something special, again not every company that gets to $10–$20 million is going to get to that hundreds of millions. But that's what we were paying attention to see which of these have the opportunity to really scale up. If we see the big potential, we get more careful and more patient with those because we want to do it right. We want to build the right pieces because by the time you get to $100 million, again, if you don't have the fundamentals down, it's just almost too late. It's just really hard.

I mean, you could do it, but it takes a lot of effort. But if you keep doing it right, if you're making the right decisions at $10 million, $20 million, $30 million rather than at $100 million, then by the time you get to $100 million, you've got some momentum building. You got some practice. You got the right fundamentals going. At $100 million, you have this ability to start to accelerate. That's what we're trying to do.

David: What are some examples of some of those key decisions in the $10–$30 million revenue range that you got to take the time to get right in your experience?

Ho: A big thing is people, people and culture. It's so easy to just get people with fancy resumes and they'll take you there, super, super-fast, you just have to be careful. I have no problems hiring talent and as companies grow, we have access to better and better talent. When you're at a startup, you just can't get the people you get at $20 million. When you’re at $20 million, you cannot get the kind of people you could recruit at $200 million. At $200 million, I will tell you, you cannot get the kind of people you can get at $2 billion. You start to get tapped into better and better talent.

All along the way, we are just trying to upgrade the talent but also all along the way, we're trying to develop the talent. We're really looking for signs of that, which are the people that we hired early days that are able to keep coming along with us? You have to be patient with some of those folks.

It always makes me feel a little bit more comfortable with the company if I see certain people coming along and we have some history with them. If I wake up one day and we're at $100 million in revenues but I look at the management team and I don't know anybody on the team, it makes me very nervous actually. I might know the business, I might have a long 10-year history with the business, but I just don't know these people. I got to start the cycle all over again.

It makes me feel more comfortable when I've known these people for a while. Some of them might start as individual contributors and they become managers, and then the directors, and VPs. Because we work with these companies for such a long time, we get to know people at multiple layers. We might know people at four or five different layers within the company at all different stages of their career development. Again, those are the companies where we tend to get much more conviction around.

David: I remember talking of Zoom and I remember talking about this with Santi in our episode with him. It's a very Altos-like company. I remember the IPO prospectus going to the management team, and they all were developed internally. They're all incredible but it looks very different than often you'd see in a typical venture past, just like you're saying, you bring the gold-plated resumes at each stage, and they've done this, they've done that, they've done XYZ, but they've been with the company six months before the IPO.

Ho: We certainly have some of that at Roblox, too. I mean, you can look at the IPO prospectus, there are some people we brought in and there are other people behind the scenes that have been there for a really long time, some amazing people. There are some people at the IPO prospectus that might not be in the documents yet, but we know they're in the background and they're getting better and better. Maybe 5, 10 years from now, they're going to take over. Who knows? But we see that kind of machinery being developed.

That's really interesting, but that's again going back to people. So much of this is really about people at the end of the day. That's what certainly makes it more fun for us. It seems interesting because in Korea, we go to a lot of funerals. It's so fascinating. It's like, really? In Korea, you don't have to go to all the weddings, but you do have to go to all the funerals. It's a really big deal.

David: These are not funerals of employees of companies. These are of their older family members, right?

Ho: Yes, usually. We have so many employees at our companies now, but I think we go to at least four or five funerals a month, a lot. It's a big deal. We take time to do that, but we develop these relationships.

I've seen people who are single, they get married, they have kids. Then, at the other end, people who become empty nesters or people who unfortunately do pass away. We've seen the entire life cycle having been in this for 25+ years. Seeing the life-long journeys of these people and seeing these families grow up is also one of the things that keep us coming back.

By the way, I keep going back to people. Going back to the business though, the metrics, we do like to see this capital efficiency, but we have no problem stepping on the gas. It just depends on the business.

Coupang is a good example where they got to profitability or cash flow breakeven, but then they really made a courageous step on the gas and built out their entire infrastructure. That really cannot be done without a serious amount of money. That was the first $1 billion check from SoftBank and then they did another $2 billion.

We have another company called Viva Republica, another Korean company, fintech [...], approaching a billion or so in revenues. That took some amount of capital. That took up a pretty good amount of capital because, in the early days, we were losing money with every transaction. It was the Venmo of Korea. Every single time you did a transaction, it cost us $0.50.

Ben: Not great gross margins.

Ho: Yeah. As our volumes went up, we negotiated those rates down much lower. Also, as we got bigger because of network effects, some of the transactions we had zero cost because you could just leave it in your Toss account. That Toss is the Venmo of Korea. If you leave it in the account and you do a money transfer within the network, it's zero cost. But if you transfer it back to a bank, then it costs us whatever, we negotiate with the bank.

That is an example of a deal that really did cost us a lot of money, but again, this is a good example. In places like the U.S. and China, you would just raise a ton of money. It's like, hey, this is a great product-market fit. Go for it.

But there, we were trying to slow down the growth because we were going to drive ourselves out of business. We were this little venture fund. We can't keep funding this burn rate, so we actually did things like, oh, why don't we charge you a transaction fee? After the first free 5 or 10 transactions, we would charge you. By charging people, we will slow down the growth. We did that. Of course, that helped subsidize the burn. It didn't slow down the growth that much actually, but at least we got some money.

You have to do clever things. There's a saying, "Creativity loves constraints." We try to constraint our companies in a way that forces them to think creatively about the product and about the business model so that you don't burn crazy amounts of money. Again, I have no problem stepping on the gas when I see something obviously good, but we try to do it within the balance of some reasonable constraints.

The number one rule for us is we have to be able to control our own destiny. It's not just to protect Altos' ROI. We're trying to protect the founders because these founders start their companies and this is their life’s mission. Let's say we pick the right founder. This is their life's mission. The last thing I want to see happen is their life's mission blow up, and it will blow up if you keep running out of money. I want to see founders in control, not the investors.

If the founder keeps running out of money, guess what? The founder is no longer in control. Some big investor comes in, they're calling all the shots, and before you know it, the founder could be gone. Now, I'm staring at a bunch of execs that I don't know, I don't have a relationship with, and I'm not sure what to do with that. I like having relationships with the company and I want to know who I'm working with.

We're trying to protect the founders. We want them to be under control. If they're burning too much money, they're going to lose control over their own companies, so we want to protect them and we want to protect our capital efficiency. We care about price per share appreciation. You could have these valuations keep going up, but you have so much dilution. Your price per share is not going up at the same rate. Price per share appreciation matters.

Ben: Ironically, yes. Valuation is actually not the thing to watch, which of course, you're never going to see the price per share in a TechCrunch article, but it is funny how people just anchor directly on that valuation.

On this note, Ho, I want to take us in a little bit of investment fundamentals direction. It's too easy to say, well, there are two types of investing: value investing and growth investing. It's obviously some spectrum. I think you have—at least from the outside—mastered the art of identifying where and when to be on which places in that spectrum.

Earlier, you mentioned something like, with Roblox, with our early investments, we paid something like 5X revenues on a valuation basis. I assume (and I haven't looked at the numbers) that it's much higher than that now. I also assume that at some point, when you were investing in those multi-billion-dollar valuation rounds that it was higher than 5X then too.

When are you comfortable and how do you make decisions in fast-growing tech companies around what investment multiples makes sense?

Ho: That's a great question. We use these rough metrics—whether it's 5X or 10X—when we don't know the business. But once we know the business and we know what the potential is, then we know, hey, we could be monetizing more but we chose not to for a whole variety of reasons. We have to factor that into the valuation equation.

Until you really get to know the business, you really don't know how to value it, so we have to use these dumb metrics. Then, once we really get to know the business, we feel like we are in a better position to evaluate than anybody else.

I like to say, we're different from every other early-stage VC because we never run out of money and we never run out of time. Thanks to our LPs, we could just keep investing across multiple funds. We're also very different from any other later-stage investor because that's where most of our dollars go these days, to the later stage. But we're different because we don't chase somebody else's unicorn. We are going very deep into these companies.

I like to say I'm a very slow learner, so it takes me many years to get to know you and your business before I could even qualify myself to make that kind of a judgment call. Buffett likes to talk about his circle of competence. Our circle of competence is quite narrow. They're our own companies.

We look at other people's companies, try to learn of course, but we're going to town studying our own businesses, trying to figure out which of those businesses have potential and trying to understand how it works.

When a company starts to work, that's a rare thing as you know. We're all in the venture business. It's hard to find something that actually works, so when something is working, that should just tell you maybe you should be paying more attention. Something is going on. Try to understand what is going on.

There are many explanations behind something that's working. It could be the market. It could be a competitive dynamic. It could be that the people are really special. It could be that you have some secret sauce. Maybe you got lucky. Whatever it is, try to unpack it, try to understand the components of it, and then try to understand how this machinery works. As you understand the machinery, you start to understand what the potential is and how to value it. There's no easy formula, but that's one way to think about it.

This interesting comment about value versus growth. I give a lot of credit to Jack McDonald who taught investing for 50 years. He's no longer with us, but that's the same class that the IGSB guys teach at. We go back every year to teach that class. Buffett used to come every year. He always told us, hey, value and growth are the same things as far as he was concerned. It's like two sides of the same coin, that's what Buffett says.

The way McDonald talked about it is, isn't growth just a component of value? Of course it is. The higher the growth, the higher the valuation potentially. It's just one of the many elements that we've had to factor in to try to put a proper valuation on the business. That's the way we've been thinking about it for a long time.

Of course, for these early-stage venture deals, there are no metrics. It's so early, so I just no longer even think about the venture deals as investments. I think about the venture portfolio as just the world's greatest discovery mechanism. Try to learn about businesses. Try to learn about people. Once in a while, we discover a very interesting opportunity, and then we'll develop that opportunity. It's not about you discovering it, you cut this lightning in a bottle, and now you're rich. No, it doesn't happen that way.

You discovered the opportunity, now you got the next 10–20 years to figure out what to do with it. If you don't show up for the next 20 years, you're not going to get paid big. Maybe you'll get lucky and you'll go flip it to somebody because they're going to pay you a big forward valuation. If you're not lucky and somebody's not willing to pay you for all the future cash flows today, you have no choice but to just build it. You got to do it yourself. Do it the old-fashioned way. Do it the hard way. Just build a [...] company instead of trying to flip it to somebody else and get paid for not doing it. Let's just do it.

David: That's what happened with Roblox. I remember when you told me this viewpoint. I'd never thought of things this way before. For me, so many lightbulbs went off and really helped me evolve the way I think about investing over the past year. It's tied to what we were talking about earlier that the out years of compounding are where the huge lion’s share of the value is.

If you take the traditional or normal VC approach of, I'm looking for the markups, I'm looking to get paid, I want growth, and I want to offload it—that's a pejorative way of saying it, but that's how a lot of these traditional venture companies go. You're missing out on the potential to go from Roblox going from $2.5 billion to $68 billion. That's 90% of the value.

Ho: Yeah. In a company like that, again, we're not thinking about what's going to happen to the price in the next one or two years. We're thinking about what we can do with this company in the next 5–10, or 20 years? The best ones will keep going longer.

We always like to talk about GEICO. I love the GEICO story because that's a 70-year relationship between an investor and a company. It's like, wow, that would be amazing to have a 70-year relationship. Some of these tech companies might have a shorter life, but you could have a nice 20-year or 30-year run. We hope to have some of those kinds of runs.

David: The GEICO story is the perfect transition to another topic I want to have you educate us on. You also said to me once that passing and missing are all in your head. That's just a construct. You can always invest. The Buffett GEICO story illustrates that so beautifully. He bought, he sold, he bought, he sold. He bought a part, then bought the rest of it. You can always invest. Tell us more about that.

Ho: This is the thing, if you've been around for as long as I have, you get to know these companies. Of course, we defined our circle of competence for just our own portfolio. But just as an investor, we've all been doing public investing now for decades. I've encouraged people to just do that.

We have our 401(k)s structured in a way that we could individually manage it. We want everybody to do that so that they get to practice with this tiny little 401(k), which is no longer that tiny, by the way. Now, we have the benefit of decades of experience when we have serious money to manage on the public side. It's a fascinating journey.

This concept of you get to know these companies over the period of many years and many decades and you get to see these teams. Once in a while, whether it's a 2008 crisis or dot-com crash, you have these strange things happen in the external environment that gave you this amazing gift. If you have a mental database of various companies that you know about—different models, different teams—you could really get to know some of these public companies quite intimately.

I've been quite impressed by meeting some folks on Twitter who really know their businesses. They're public investors. They have no special access to those management teams like we do and yet they really know their stuff. Like, wow, I've been very impressed. Some of the CEOs, we didn't invest in some of these companies, but I know these people. I realized these people have never met the guy but they know them. They really do, they study them.

You could study these CEOs. They're on videos on YouTube, they're on podcasts. You could read through the quarterly earnings calls, and they're going really deep. If you start to go really that deep and then you follow them for 10, 20 years, you really do know.

There's a guy, Tom Russo, another IGSB guy who speaks in that same class. I think he's been investing for 37 years ever since he saw Buffett speak at the class in the '80s. He followed some of these companies like Nestle for decades. I remember him talking about meeting some factory manager in China more than 20 years ago. He does a factory tour. He's just always looking into those companies. It's the same company. He's still invested in it, but now that factory manager has become some bigwig executive in Switzerland.

David: This is the Phil Fisher Scuttlebutt.

Ho: Yeah. The Scuttlebutt, just taken to an extreme. Just get to know a bunch of companies and again, stick to the stuff that you know. Why speculate on stuff you have no business speculating on? Get to know a bunch of businesses and take some comfort in the fact that only a very small number of companies are truly special so you don't have to get to know everybody.

Maybe you do have to kiss some frogs to find a few princes. You got to have to know a bunch of businesses—good and bad—so that you can recognize a great one when it's staring at you in the face. Again, if it's not so obviously great, then that's easy. If it's not obviously great to you, then it's not great. What an easy thing. Just pass.

Ben: What does your flowchart look like in your brain when deciding if a business is truly special? What is the mental walk? Is it first slice by sector and then look at a few key metrics? Is it more people-oriented? How do you even begin? If I were to tell you, hey, Company A is really interesting, you should check it out. How do you validate if I'm right or not?

Ho: It's a good question. Sometimes it's really based on how special a company is, but it's also based on how the market views the company. Because if I think that the market's misunderstanding the company, then there's an opportunity for alpha.

Again, we talked about people, so that has to be a critical equation. You got to look at the financials. You got to look at the balance sheet. If it has too much debt, if some unforeseen event could put the company over the edge, I tend to be shy a bit, but I'm not totally afraid of debt because sometimes you have the best opportunities in public markets with companies that have a pretty good amount of debt.

They could go through bankruptcy, but you have to use your judgment and say, okay, they have a good amount of debt. Everybody thinks it's going to go BK, but I think this company is not going to go bankrupt for the following reasons. If you have a thesis that everybody thinks it's going to go bankrupt and you don't think it will, then you have an opportunity to make an interesting bet that has asymmetric upside.

David: The classic example of this I always think of now is Buffett's Coca-Cola investment where there's the new coke disaster. The market thought, oh, my gosh, get me out of Coca-Cola before they go bankrupt. They've killed the golden goose.

I don't know if this is how Buffett looked at it but you could go back, look at that in time, and be like, okay, let's say Coca-Cola Classic is done. They still have Diet Coke, which is the biggest soda in the world, so there's a huge margin of safety there that people were not appreciating.

Ho: Yeah, absolutely. One of my favorite examples was during the 2008 crisis. There's a little company called Select Comfort. Now, it's called the Sleep Number.

I remember that The Motley Fool was touting the stock as this great stock and it was growing crazy. Then, it completely cratered in the crisis. A lot of people were saying, well, they're going to go bankrupt. Or maybe not bankrupt, but they were saying things like, well, no one's going to buy a $3000 or $4000 mattress in the middle of a crisis.

People say these kinds of things which are just ludicrous. Like, seriously, nobody is going to buy this? Is it that revenue is going to go from $600 million to $0 overnight? Let's see what happens. You could look at the financial statements. You could listen to the quarterly earnings.

Yeah, of course, they're going to struggle and revenues are going to go down, but they sold quite a lot of mattresses actually during the crisis. Nobody goes to the shopping malls and traffic is a lot lighter, but lo and behold, they sold $650 million worth of mattresses right in the middle of the crisis. The world just doesn't end. When bad things happen, very few things just go to zero overnight. You just have to look at it.

The management team made a bunch of mistakes right in the middle of that SAP implementation, switch over into ERP, which is always really painful. It's a fairly small company trying to do SAP. They probably overreached. I knew Intel was doing SAP implementation back a number of years ago and oh my God, that was such a nightmare implementation. They spent hundreds of millions of dollars. It was like one of those black holes.

You could imagine a little company like Select Comfort trying to do it. They kind of wasted a few tens of millions of dollars, they got in over their heads, and things were getting a little bit tight around them. They had all these lease obligations and they did have some debt. This is where we had to apply the judgment of, well, they have debt, but what are the chances that the lenders are going to come in and seize control? I have to think about that.

Now, you could imagine, this is a little fun detour in public investing, but look at the Altos portfolio during the 2008, 2009 crisis. We had some companies struggling, of course, and there were no prospects of raising more equity, so we had to rely on some debt and the bankers were getting awfully nervous.

I remember literally sitting across the conference room table with one of the bankers. They were giving us a really hard time about one of our companies. We stopped making payments and we wanted to renegotiate a few things. You got to give us a little more time.

Of course, the bankers hold all the cards. They could seize control. And literally, I think I pulled out the keys. It's a mythical key out of my pocket, like, here it is, take the keys. Good luck. Just take over. If you don't want to work with us, just take the keys. It's yours.

David: They're probably like, nobody's actually pulled out keys before.

Ben: Nor do I want to operate this business.

Ho: Exactly. They're like, oh, I really don't want those keys. What can you do with this? It's like, well, if you want us involved, I think we might be able to do XYZ, but they have to work with us. We knew that a lot of companies are going through trouble, but there are a lot of debt guys who don't necessarily want to take the keys. There are some guys who do, by the way. We've had the unfortunate experience dealing with some folks who are the loan-to-own guys.

David: Yeah. That's the whole strategy.

Ho: They want the keys. That's the strategy. They take the debt position, but they're really control guys. They're more like private equity guys, but they happen to be on the debt side. They're looking for the first opportunity to take over.

That's a different kind of debt provider that you have to be careful with because they will snatch those keys. They will pry those keys out of your little clenched fingers, so you have to know who you're dealing with. But for the most part, most debt guys you can work with and they're good folks. As long as you pay them back, they're fine.

Eventually, we'll pay them back. I think we've defaulted on very, very few loans in our entire history. I'm trying to think when's the last time we ever defaulted. I really, to be honest, can't tell you when we defaulted. There's going to be some debt guy who's listening to this podcast who's going to say, oh, you stuck me with this thing once. I have no idea when it was. Maybe it was 20 some years ago, who knows? We try not to. We honor all our commitments.

Ben: I do want to ask that question in a little bit of a different way. I think I asked you on a relative basis when we talked a lot about when there could be attractive investing windows like buying opportunities, but what about on an absolute basis? What makes a company one of this incredibly rare 1 % or less that are truly special businesses?

Ho: I wrote an interesting blog post last year answering this question because people ask me this kind of a thing a lot like, what gives you conviction in a business at the end of the day to do these kinds of crazy things where you're buying more? Instead of cashing out a little bit, you're buying more shares when you're up. What gives you that crazy conviction? I wrote that blog post called How Do You Know? They're just some really basic rules of thumb. This is like kindergarten. This is Business 101.

The first rule is does the business make money? We talked about trying to protect the founders, making sure that they stay in control. If the company keeps running out of money and they have to keep raising more and more, maybe in a frothy environment, they could keep raising more and more at higher prices and they're going to be fine, but what if the music stops, what happens?

We want to make sure that we are within shouting distance of break even if we're not generating lots of cash. We know the path to survival. We know what belts we could tighten to make sure that we don't just go off the cliff. We want to make sure the business generates cash or we see the path to profitability or cash flow breakeven. That's one. Obviously, that's such a basic thing. It's like, well, duh, that's the whole purpose of starting a company, so that you could make some money.

The second rule is, of course, it's not good enough to just make a lot of money. If you make a lot of money, as Bezos says, your margin is my opportunity, so you have to have something more. The second thing is what Buffett calls a moat. You have to have something that is protectable. And the deeper you get into a business, the more you realize whether or not there's a moat and whether or not there's not a moat.

Sometimes, it's not totally obvious and the moat can come in many different ways. Obviously, network effects are one of those things. You could have patents. You could have the know-how. Of all the things that I think about, network effects certainly are very powerful but it's really the know-how. There's so much discovery that happens, and as we figure things out along the way, if we think that we have figured out some things that are not obvious to the outside world, those are the companies that are very interesting to me. It’s like we uncovered some secrets that other people don't know about.

This is the thing that always puzzles me when people say, oh, we're killing it. We're doing so well pounding the chest. Do you know something, that's not the way I've seen it. I think people who uncovered some really interesting secrets want to keep it a secret. They're not blasting to the rest of the world the thing that they figured out. They're keeping it nice and hush and they're working at it.

It's really the moat, and it comes in many, many different ways. But if we feel like we figured some things out that are protectable, that are not replicable—maybe in some ways, the best moat is not a secret. You could tell your competitors exactly what you're doing.

You guys talk about counter-positioning and things like that, that's a classic example. You could tell the competitor exactly what you're doing and they're still not going to replicate because they can't or they don't want to. That's just not their model. Maybe that's even better.

I remember one of our companies meeting Amazon. They got very curious and they wanted to come in. With most companies, you have to be super careful because they're going to come in, maybe act like they're going to buy you, and then they come back and say, we decided to change our mind. Then, they release their own product. This used to happen with Microsoft. Amazon has done this now a number of times. I think some other larger companies may do it.

It may not be with really bad intent. Maybe they already had a project that's underway anyway and they were curious about it, they really wanted it, and thought you would be a part of it, but they decided, no, you don't have anything special, so they just decided to go on their own path.

With big players, sometimes you have to be careful about what you disclose. But there are other companies I will tell you that have met those kinds of companies, like big, scary Amazon or whatever. We said, oh, yeah. Have no problems. You could tell them exactly what we're doing. You could tell them everything about what we're doing, we would have no worries whatsoever.

It depends on the secret and on what you're doing. There are some things you could tell people. We tell people exactly what we do in terms of crossover investing in the SPVs, the RIA, or the structure of our deals. I've been very open about it.

If people want to do it, that's a good thing because it supports more entrepreneurs. We don't worry about them competing against us because how many people are going to manage whatever the multiple billions of dollars under management with zero management fees? All of our SPVs have zero management fees. If you want to charge zero management fees, that's good for the world. Go for it. No one seems to want to copy me.

I've had so many conversations with good friends of mine who are in the hedge fund business and then they go off and they want to do their own hedge fund. I've had so many of these conversations over the years. It's just like, I cannot believe people do not copy the BPL partnership structure. I don't manage a public fund, but I think that's a fantastic structure. You should do that. Mohnish Pabrai is doing it and Guy Spier is doing it. A couple of guys are doing it, but not that many.

I don't know why you don't do it. It's such a great thing. It's a win-win. You charge 25% carry after a 6% hurdle. You should do that.

David: And no management fees.

Ho: Yeah. They all know about Buffett, they know about that, and then they look at me like I'm some idiot. They're like, what are you talking about? Why would I give up the fees?

Ben: Right. If I have a $5 billion fund and I have a guaranteed 2% fee every year, it takes a certain amount of ideological conviction. Not even faith in your own abilities because I think a lot of people say, I know I'm going to outperform the market, and many do. You truly have to be ideological about it in order to turn down the easy standard default path to those fees.

Ho: Yeah. Going back to your original question, Ben. The first two, make money and have a moat. Number three, now this is where it starts to get into very idiosyncratic portfolio construction because, in the first two, you want in every special top 1% kind of a business. But the third one is more narrowing your circle of competence and more narrowing what you choose to do with your life as an investor to something that personally fits you.

The third is really about the relationship. The relationship is all about people. Again, we like to go big on companies where we feel like we have a great relationship. If we don't have a relationship with the company in a very deep way, then we're like any other investor. We're like an outsider looking in.

I did say that some of these public investors are very impressive and that they are not like outsiders that I've ever known. They really go deep into those companies, but again, we like to have a special relationship. If we don't, then we get very nervous holding onto a massive concentrated position in a company where we're just like any other investor and an outsider looking in. We have no proprietary knowledge.

At some point, of course, we had some proprietary knowledge in helping build some of these companies, but that knowledge decays over time and then we become like any other investor. So maybe we should just start to distribute our shares, sell our shares, or whatever. We should get out at some point.

We all part ways as friends. If the founder or the company found their new best friends because now it's Fidelity, T. Rowe Price, or somebody else, we're no longer getting the updates and it's tricky. We're kind of new into this whole public investing realm.

The relationship is very important to me personally, and it does give us some advantages of insight. After a while, it just becomes a personal decision. I think of some of these businesses as really like a family business. If you have a family business and it takes care of your family and generations potentially—some of these family businesses go on for literally generations—if your family business happens to do well, you and generations of your family will do quite well. If it fails, then your family fails, so you better make it work.

There's nothing wrong with riding on the coattails of a great family business. There's nothing to say that you deserve something you don't deserve. If the business doesn't do well, you don't deserve to do well.

I start to have an irrational attachment to certain businesses where I’ll say, you know something? It’s special to me, I'm not going to part with it like what Buffett says. No matter what, he's irrational. He just won't sell any business. He might write certain businesses down to zero like with the Berkshire textile mills and so on. I'm okay doing that, so I'm perfectly happy holding onto these shares.

Here's another thing. I used to have a more difficult time selling certain shares just because I don't see the dollar value coming in. I see dollar value times 10.

David: You have the Warren Buffett curse.

Ho: I have the curse. I used to give my wife a hard time. She's like, do you realize that this house that we're building is actually costing us this money instead of this other money? Because I see the real value, we used to hate parting with it. But now, I've come to a realization that that's what it’s there for.

We worked hard to build this capital and we want to return this capital to our LPs that are funding educational institutions, hospitals, homeless shelters—all kinds of great causes. Then, we use it for our personal needs to build a house, to take care of somebody's medical needs, and educational needs.

When you need the money, it doesn't matter if the stock's going to go up another 10X, 100X, or whatever. Who cares? You need the money. That's what it's there for. You sell the stock, you pay all your taxes, you should use that money, and you should be very grateful that you have access to this capital.

But if you don't need it, why are you dancing in and out of a stock and paying all these taxes? Why don't you just leave it alone? That's one of the things that we've learned in investing in these public stocks over all these decades. We've tried different strategies. We wanted to practice before we got better. As we practiced, I tended to be the bigger trader. My partners tend to be like, just leave it alone.

The leave it alone strategy works pretty well. We all go up and down together. There's a lot of beta driving all the portfolios and then there's some alpha. We have different strategies, so we're all within shouting distance of each other. But I've seen the numbers go up and down over the years and it's very fascinating to see the different personalities and different strategies manifest themselves. Some are more concentrated, some are more intact, and some are more in value. The thing that works very well is to stick to what you know, stick to good people, and good businesses. It's not that hard and it does not take up much of our mental bandwidth. We kind of do it in our sleep.

Our primary job is to invest in the Altos funds, but I'm glad we did that side work so that we have the experience and the conviction. Now that we have some serious amount of stocks to deal with, I feel perfectly comfortable leaving a bunch of things alone. When I need the money, I might sell it, or we start to transfer it to various charitable causes. It's great because we get to put all of the pre-tax money to work rather than having to put it after taxes.

David: It always surprises me that more VCs aren't active public market investors on the side like you say. It feels like if you're not doing it, you're just missing out on opportunities to practice.

Ho: That's the thing. I realized that more than 20 years ago. I got my first venture job back in the '90s, so this is 30 years ago. I know a lot of VCs and over the years are following them. So many VCs have made a lot of money. A lot of them—it was very interesting—would turn their money over to some wealth manager, to other professional investors.

It was 30 something years ago. I was very young. I didn't know anything, but I always thought, well, that seems strange. I thought you were the professional. Aren't you a money manager? If you're the money manager, why are you turning it over to some other money manager? That I didn't quite understand.

They would have the barbell strategy. It's like, well, the venture is my risk part of the portfolio and I have this other thing, the tax-free municipal bonds or whatever. There's some truth to that. You should always have some amount of liquidity and amount of cash that you are protected on the downside and make sure that you never risk your family capital. There's a certain amount that you have to set aside.

But after that, the idea that you should turn it over to some other professional when you are the professional and you should try to be the best professional possible. Whether you're public or private, it doesn't matter. It's just fundamentals investing. You should try to be the best investor possible. That's what we wanted to be almost from day one. That's why the public part of it, even though it was tiny dollars, I'm glad we had a chance to practice doing that for all those years.

What I wanted to test out was, okay, after 27 years, if I really suck as a public investor, then I'll be like every other VC. Hopefully, I'll make some money and I’ll turn it over to the real professionals to manage my public portfolio.

If I got a chance to practice for 20 years and I decided that I'm actually okay with this, then it's like, okay, now I've had a lot of practice. I'll just continue to do it on my own. It worked out that way. It's like, oh yeah, we feel perfectly comfortable doing it all on our own.

David: That's so cool.

Ben: All right. We'd like to thank Perkins Coie, the official legal sponsor of these special episodes of Acquired. As long-time Acquired listeners know, Perkins Coie is a premiere, technology-focused international law firm known for providing high-value strategic solutions and extraordinary client service to businesses ranging in size from startups to the Fortune 50.

I, as you know, have personally worked with Perkins—in fact, several times recently—and it has been a great experience. And I know many other listeners who feel the same way. Clients rely on Perkins Coie for counsel on company formations, IP protection and enforcement, financings, IPOs, M&A—everything you can think of. They also advise VCs in their fund formations and investments and represent their portfolio companies throughout the entire arc of their growth.

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David: We promised at the beginning of the episode that we would get into the whole Altos story. I don't know if we have enough time. I think we're going to have to do another episode. It is amazing, coming out of IGSB and the Jack McDonald Investments Class, but maybe rather than that, we can't let you go without talking Twitter.

Ben: I pulled some stats here, Ho. As of February, you had tweeted 1400 times ever. I don't think that's because we're late to Twitter. I think you just didn't tweet a lot. But in the last 3 months, you've tweeted 3000 times and you've 7X your following. What's going on? Was there an intentional strategic shift? Did you just wake up and go, oh, this is fun? What is going on?

Ho: It's a good question. Twitter—I actually uninstalled the app from all my devices for a number of years. I did that with Facebook too and then I got back into Facebook. I think I never really quite understood Twitter. I never quite got into it, and I think I finally am understanding it better now. I'm still a novice because I got back into it recently.

The reason I started lurking on Twitter more recently was purely because we had some of these IPOs coming up and I wanted to see what the sentiment was. There was some analysis that was happening. People were posting interesting analyses and thoughts on these IPOs.

That's why I started to re-engage on Twitter just at least to follow. Then, as I was starting to read, I got into some conversations with folks. I thought the analysis on Twitter was way better than a lot of these reporters. Those articles could be written by a machine. The AI might have done a better job.

David: In many cases, even equity research analysts.

Ho: Yeah, that's true. They just misunderstood the business, but there were some people who did understand the business and I was impressed. I was like, wow, these guys did their homework and they're quite insightful. How did they even get these insights? I want to just engage. Hey, how did you figure this or that out?

Anyway, I got into these conversations. Once you get into these conversations—I realized that with the way I'm using it, I don't know if I'm still using Twitter properly or not.

David: I don't think anybody does.

Ho: Yeah. But the way I'm using it now is it's just a conversational platform. It's not a PR broadcast platform. I think I was using it as a broadcast with some news out there.

If I post something on Facebook and LinkedIn, I also used to post it on Twitter. Then, I just completely got off of it for a while. But now, I just don't post very much on Twitter that's anything related to news, Altos, or whatever. I just engage in conversations. When I have a chance to look at the feed, if there are some interesting comments, I will just chime in, people respond, and when they respond I feel like I should respond. You get those notifications.

That's what happened. As I started to engage in Twitter, some various things triggered in my mind and I started to write something. I realized, oh, this thread concept wasn't a big thing in the early days of Twitter, but I saw all these people doing threads. I was like, how does that work? I remember a Saturday morning, I posted something about Arthur Rock. Something triggered my memory. It's like, Arthur Rock is so amazing.

These young VCs don't even know who he is. I remembered this old Mike Moritz quote. I think I put that in the thread. Moritz is so eloquent with his wording. He said, when you got a call from Arthur Rock, it was like the white smoke coming from the Vatican chimney. I think that's what it was. He'll say stuff like that that is so eloquent I could never imagine. Anyway, I remember Moritz saying it was like that. He was like, he was so legendary. I just had one little tweet about Arthur Rock saying, yeah, you should remember Arthur Rock.

That one tweet then leads to another thought, another thought, and then another thought. I then had this little tweet stream going, so I did a whole bunch of tweets replying to myself. I thought, some people are lurking and following me on Twitter—I make sure I don't say anything dumb—they're saying, wow, Ho is really funny because he just tweets and he's just replying to himself. He's having a conversation with himself because that's what it is.

Then, that became a tweetstorm, which got a whole bunch of impressions—over 700,000 impressions, or whatever. It's like, oh, okay. That did a whole bunch of followers, so now I've done it where I have this stream of consciousness, tweetstorms, and then I have these conversations. That's what I've been using Twitter for.

Some of the most valuable things though on Twitter is just meeting certain people for the first time that were quite interesting or impressive and having these offline conversations through either DMs or Zoom calls. In one particular case, I actually met the person in person as we're coming out of COVID. There are some very thoughtful people out there and many of them are individuals. They’re not institutional guys. They're just individual investors. They're quite impressive actually.

As an individual investor, you have a lot of advantages over institutional investors. You could be extremely concentrated. You could be extremely long-term oriented. You could stomach a lot of volatility if you could handle your own emotions. You cannot handle that kind of volatility because that could put you out of business if you're an institutional manager. There are a lot of individuals who approach it the way that I have been approaching it. It's been interesting to exchange some ideas and learnings.

I would learn more from those guys than I would learn from any VC or any institutional fund manager. Because if I talk to an institutional fund manager, their institutional imperative is to protect the fund management business, not to get the best returns. If you're an individual just investing for yourself trying to provide for your family, all you care about is the returns. I like talking to those people who care about only generating great returns.

Ben: Ho, that's probably a great place to leave it. Looking forward to following you a lot more on Twitter and hopefully more great stuff for years to come, but it's been a gift to us all to get your wisdom over the last several months.

Ho: Yeah. Great to be on this podcast with you guys. I've been looking forward to it. I know we talked about it last year and finally got around to doing it. It's been fun.

David: Such a blast. We'll link in the show notes for everybody. Literally, everybody, go follow Ho on Twitter. He's a gift to the Internet.

Any carve-outs? Anything else you want to shout out before we wrap here?

Ho: We really didn't talk about the whole history of Altos but Larry Morse, I should give him a shout-out because he's such a special guy. I don't know if we would be in business without him. He made a commitment to our fund in 2003 and we did not close that fund until 2005. He waited. He honored his commitment for two years. It took us that long. We actually started fundraising in 2001, so it took us two years to convince him, and then he had to wait another two years to raise our first institutional fund in 2005.

That was exceedingly difficult because again, this is coming out of the fallout of the dot-com crash when we thought we were going to make all this money and it just all blew up. You had to have some people who would just really bet on us as people.

This is the thing that I've learned over time. Whatever people decide, they decide for their own personal reasons. It's not a purely irrational decision. There are a lot of people who backed us before we had a track record for whatever reason. We're always grateful to them. They backed us when we had no track record, or I’d like to joke, maybe they backed us when we had a bad track record.

Then, there are other people who will look at our track record and might say, well, you got lucky with this or that. They might still not invest in us. There are people who will pass on us when we have a great track record and there are people who backed us when we have no track record or maybe a bad track record.

You just have to find your people. Find the people who believe in you and who will back you no matter what. People will take the data and make whatever decision they want to make.

It no longer bothers me at all if people are doubting our approach or rejecting us for whatever reason because there are plenty of people who think Warren Buffett can't cut it, is a fraud, is lucky, or whatever. It doesn't matter if you have a 55-year track record. There are going to always be doubters. The doubters just don't bother me at all anymore.

Ben: I love it.

David: All right. Thank you, Ho.

Ben: Thanks, Ho.

Ho: All right. Thanks, guys.

Ben: With that, listeners, thank you so much for listening. You should join us in Slack. We're going to probably be discussing this episode, acquired.fm/slack.

If you live in Seattle or can make it to Seattle, we would love to see you June 24th at 5:00 P.M.—that's a Thursday—at Gas Works Park, picnic vibes, BYOB. It'll be super fun. David's going to be here. I'll be here. Join us. With that, listeners, we will see you next time.

David: We'll see you next time.

Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

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