00:00Capital markets have been open. When you think about IPOs, you also think about M&A. And I
00:06wonder, you know, if there's any sort of optimistic takeaway we can glean from that.
00:11There's definitely reasons to be optimistic. We look at the strong GDP printback in Q3 at
00:16four and a half percent, you know, look at some of the tailwinds in key sectors in the private
00:21market. So I think the reasons to be positive about the outlook for IPOs and the new issue
00:25asset class. There are also reasons to take some pause. You've seen a compression in multiples at
00:30the high end of the market. Software multiples now mid to high single digits on a one year forward
00:35revenue basis down about 30 percent based on a disruption fears. That impacts a lot of the tech
00:40backlog, the high growth IPO backlog. But to put a perspective, the markets are incredibly deep. So I
00:46know there are a number of big IPOs that are on the horizon. The average IPO volume in the U
00:50.S. is
00:50roughly $50 billion per year. At the peak in 2021 is $150 billion. You've got three large potential
00:56IPOs this year that could represent a meaningful portion of that annual volume. But put it all in
01:02context. The market cap of the U.S. equities is $50 trillion. So there's incredible depth of the
01:07market. I think once you see the VIX come out of this 25 to 30 paradigm, which is double the
01:11normalized level, we should definitely see a very strong bid for new issues. Yeah. Watching the VIX has
01:16certainly also been quite an activity over the past couple of days here. But I am curious what
01:21you make of what's going on in private markets right now, because there's a lot of headlines out
01:26there, most of them about private credit and some of the redemption requests that you're seeing there.
01:31But what are you seeing when it comes to the private company side of things and how might that
01:35potentially affect the pipeline going forward? The credit markets always move first. They're an
01:39important indicator of what to expect on the horizon for equities. So we need to look at that and assess
01:43it in terms of risk. The reality is there are some segments of that private credit market that
01:48certainly have weakness, although it seems at the moment to be more driven by liquidity needs for
01:51the underlying investors as opposed to true systemic weakness across the entire ecosystem.
01:56You asked about the private markets. I look at our portfolio at 1789. We have roughly 30 portfolio
02:01companies heavily skewed towards AI, software and defense tech. The reality is it's hard to get a read
02:09through on valuations for IPOs looking at the current cohort of public tech companies because
02:14growth has been brought down so dramatically. There are less than 10 public software companies growing
02:19roughly 30 percent. And you look at the private market, our portfolio, for example, the median revenue
02:24growth is 100 percent. Most of that's at scale. So it's very hard to get a read through on valuations.
02:29And I think that's going to be the challenge for bankers bringing companies public over the course
02:32this year is you just don't have really good public comps. Well, that's what I'm curious about,
02:36too. When we talk about some of those companies, particularly some of the ones in your portfolio,
02:39and we'll get to SpaceX, which is obviously going to be a no brainer for a lot of folks. But
02:42some of
02:43the other ones that you're involved in, there are there's a lot of questions about, you know,
02:46whether there could be disrupted by AI, basically the disruptors becoming the disrupted, but also just
02:51this idea of how you articulate what their long term value is, given that no one really seems to know
02:56what the longer term impact of AI is going to be good or bad. Without a doubt. I mean, we're
03:01doing our absolute
03:01best as we analyze these companies to try and assess that multi-year risk, recognizing that while we think
03:06a third of our portfolio, so roughly 10 companies could be public over the next 12 months, many of them
03:12will be
03:12multi-year holds. And so we have to avoid that disruption risk. We do that by trying to pick the
03:16best in class
03:17winners across each vertical, whether that's in the model layer, the apps layer, AI enabled software, defense tech,
03:23et cetera. But I think by trying to pick the best of the best within those verticals with scaled
03:27businesses, you know, commercial grade revenue and what we think are highly durable forecasts,
03:32you can hopefully avoid some of those pitfalls. Clearly, you're seeing that shake out in public
03:36software with that multiple compression that I referred to. And frankly, you're seeing some of the
03:41enterprise software companies that have promised agentic solutions but have not yet delivered
03:44getting punished the most as it relates to compression on their valuation. Perplexity is one of your
03:49holdings, correct? It is. Yeah. And how does that stack up when you sort of think about,
03:54I guess, some of the things we've seen publicly play out between OpenAI and Anthropic, obviously some
03:59of the issues with the Defense Department. And how does a perplexity sort of fall into that debate,
04:04if at all? It's a fantastic company. I think it's a very competitive segment. And the reality is each of
04:09the companies that are touching the model layer are ensuring that they've got a deep moat. But perplexity
04:14is kind of across all of those. It's across all of them. And so when you think about application layer,
04:18for example, you need to make sure that you aren't incumbent or relying on any single model.
04:23But the reality is they've shown really very strong user metrics and very strong user adoption.
04:28We've also looked at companies like Reflection AI that we co-led for the Series B.
04:33They've put together a fantastic team and they're really leading the open weight segment
04:36to give a counterbalance to the closed weight models that have had these recent issues you've
04:40seen in Washington. So many of the governments, whether it's sovereign or enterprise customers,
04:46need to control their data. They can't have a commingled cloud. They want to be able to build
04:50their own proprietary application layer. And so we think open weight models is really where you're
04:54going to see a lot of that focus shift. I want to take a little bit of a wild card
05:00turn here and talk
05:01a little bit about special purpose vehicles. Because, you know, you think about 1789, you invested
05:06in SpaceX. And there's a lot of people who would like to invest in SpaceX, especially as we get
05:12closer to a potential IPO date. Bailey Lipschultz has a great article on the Bloomberg terminal about
05:17how there's all these special purpose vehicles that purport to have SpaceX and other holdings as
05:23well. Some of the other hot potential IPO candidates and how there's a lot of question marks over whether
05:28or not, you know, some of these SPVs actually have the holdings, have the relationships with the
05:33companies that they say they do. And I'm just curious, you know, given that you are an investor
05:38in SpaceX, what you make of some of these different access points that are trying to be created to some
05:43of these very hot companies? It's a great question. You have two points on that. Number one,
05:48the best in class companies in the late stage private market run a very controlled cap table. So
05:53they're highly aware of distribution of stock and how that works. And so we find those that control
05:58their cap table end up having, as long as the company's performing well, very durable valuations
06:02because there's no supply of stock in the secondary market. That's point one. Point two, we invest only
06:07direct on cap table. So we're very fortunate to have that direct access with the founder relationships,
06:12you know, relationships with the board members and the VCs in those companies. And by doing that,
06:16we ensure that our LPs have just one layer of fees and have one path to liquidity based on our
06:21view
06:21at the general partner. There are plenty of SPVs in the market that go back to back through multiple
06:26layers. And if you're the end investor, you've got very little control on that position. You can have
06:31multiple layers of fees and it can end up being a very convoluted process to unwind those positions
06:36when companies ultimately go public. So I think a key part of Bailey's article is touching upon the
06:40fact that there can be overhang in some of these companies post IPO, post lockup, because you've
06:44got such a broadly distributed shareholder base. All right. And any insight into what the timing of
06:48that IPO might be? No specific comments, but I think the market will be open once you see volatility
06:53come down, you know, greater stability and broader equities and fixed income. There will be a very strong
06:58bid for these must own names. I think we talked about it before. So many of these mega cap companies
07:02in the IPO backlog are must own. They're going to be part of the benchmark very soon after going public.
07:07But we think that the market, as soon as we get past this period of volatility,
07:11will be open for those biggest companies to access the market.
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