Unicorn & Blockbuster Hunting, Emerging Fund Returns & Southeast Asia VC Landscape

· VC and Angels,Southeast Asia,BRAVE Podcast,Education

“There's a saying we often share: you can divorce your spouse, but you can't divorce your investor. Once you’ve sold 20 percent of your company to a group of investors, the legal and information rights they acquire are almost impossible to undo. This reality has led to plenty of founder horror stories. Take, for example, a situation last year where a company had to sell for 20 cents on the dollar. Most investors stood to lose 80 percent of their money, but one person refused to accept the deal and vetoed it. In the end, the entire deal fell through, and everyone ended up with nothing. It’s a stark reminder of why we need to think carefully about rights in two major ways.” - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast

“We talked about how, with each bet carrying very high risk but also very high reward, the most logical approach is to bundle that risk into a portfolio. This strategy generates a unique set of returns, a pattern we see repeatedly across industries. It’s the same with blockbusters—some movies make extraordinary profits, while most perform poorly. Similarly, in the entertainment industry, Hollywood actors, actresses, and supermodels follow the same power law dynamics: a few become household names, while the majority fade into obscurity.” - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast


“Concentrated bets are a different strategy. Companies like Monk’s Hill, NextView Ventures, Haystack, and Alpha JWC in Indonesia, for example, often focus on fewer, high-conviction investments. On the other hand, multi-stage investing, which was much more popular a few years ago, takes a broader approach. Multi-stage essentially means investing in the same company across multiple stages of growth. The idea is to secure the largest possible stake in a company that’s clearly a winner. For instance, a seed index portfolio might invest in 40 companies at the seed stage. A Series A-focused fund might make 20 investments, each with a check size around $3 million. But the multi-stage investor might start with a $10 million check at the seed stage, follow up with $50 million at Series A, and go even bigger with $100 million in later rounds. They view each stage as a limited opportunity and aim to secure ownership throughout the company’s growth trajectory.” - Jeremy Au, Host of BRAVE Southeast Asia Tech Podcast

Jeremy Au discussed the financial returns of venture capital. Firstly, he explored the concept of power law returns, emphasizing that only 4% of startups generate 10-50x returns, with examples like WhatsApp achieving 50x and Zoom delivering 22x even at later stages. He highlighted this phenomenon's prevalence in industries such as Hollywood (blockbusters vs. average films) vs. aviation (budget airlines). Secondly, he explained the three-fund trajectory for venture capitalists to become established, while noting that Fund 1 and Fund 2 for emerging managers often outperforming due to industry veterans leveraging insider insights—citing crypto as an example where early adopters thrived in the 2010s. Lastly, he underscored the importance of governance, pointing out how founder-investor relationships hinge on balancing control rights and trust. He used examples such as the OpenAI coup attempt vs. Sam Altman and Southeast Asia’s reputation for financial mismanagement to stress the implications of governance misalignment and regulatory challenges in the region.

(00:00) Jeremy Au: Legal liability. So they delegate the responsibility to the GPs. The GPs are the ones who do receive that committed capital from LPs. They have legal liability if they don't do the due diligence and so forth. They are responsible for it and there's certain structure about the capital that we talked about.

And then we also talked about how that capital eventually rolls into startups across the portfolio. And the key thing that we understand is that VCs are hunting for home run returns. They're looking for companies that have high growth rate. They're expecting some sort of reasonable valuation. But there are many companies that actually fit that profile.

So WhatsApp was about 50x returns. Zoom was a 22x returns, even for relatively late stage investments. Those investments were even better if you look at it. For the earlier rounds, but the key thing about having is that these are great opportunities But only looking for one or two home runs per portfolio And so we talked about a power law where you know, most of life we know there are people who get A's people get F's There's a bell curve that we see here in most of life, but VCs are looking for power law returns because only a very few number of startups from Peter Thiel's (01:00) perspective, can actually get a super normal profit, a monopoly profit.

Again, I'm not saying they're monopolies for the legals here, but when we look at, for example, budget airlines and the airline industry is perfect competition. Most airlines don't make money consistently because everybody can make their own airline. It's very competitive.

There's no way to make a lot of money. Whereas if you look at Google, you look at Facebook, you look at the magnificent seven in the stock market, they are able to command a premium way superior. Than what their fundamentals are. So these are power law returns where we basically have trillion dollar companies, Bezos, that shared on WhatsApp, he was so cute in 1997.

Very nice, very cute. He ya him, who are you? And he's ha, I am Jeff Bezos. So nice. And then suddenly, $1 trillion later, is super bucked out. He's on his second wife he's, looking super jacked more than me. The thing is someone like him, it's.

It's part of that power law, right? And something like Amazon is able to capture way more return that one company at this end of the scale of a bell curve has captured a lot more profit than everybody else. And so we talked about how that shows up in different parts of the industry. For example, (02:00) only about 4 percent of companies generate 10 to 50 times return.

In the profile, we also looked at a different set of data that showed that, again, maybe about 6 percent of number deals create 60 percent of returns. But the key thing that we're trying to say here is that there is actually a very lopsided dynamic distribution here. And so we talked about how this is similar to the whaling industry because structurally, they were hunting for whales, which was again very risky, like hunting for unicorns today.

And so we talked about how when each bet has a very high amount of risk, but very high reward, the most logical sense is that for VC to bundle that risk into a portfolio of risk, And so as a result, it generates a different set of returns. And we see this happen over and over again in different industries.

It also happens for blockbusters. for movies, some films make super normal profit and then most of them do horrible, Similarly for the entertainment industry, Hollywood actors and actresses, and supermodels, they also have the same power law dynamics.

Some of them will become household names and most of them will be nobodies. I think we have to think about how, as a result, Talent agencies have a portfolio (03:00) of talent that they cast. similarly, you see the same for movie studios where they're funding a portfolio of bets. They always have 20 or 30s that are always in production and they're shopping around trying to make bets on the right people to make it happen.

And so we talked about how VCs collaborate across stages, but are competitive within the stages because of the limited number of opportunities. And we'll talk more about that in time to come. And as a result, I provided a bit of yardsticks in Southeast Asia. Because people are asking what is a seed investment?

In general, that'd be like a 1 million investment. But of course, what we shared over WhatsApp in our group was that Ilya, who was the technical co founder and CTO of OpenAI, tried to orchestrate a bot ejection of Sam Altman.

Microsoft had to step in. Eventually the coup. Failed, Sam Altman was restored as CEO, and as expected, Ilya, who had voted against Sam Altman, eventually left, and his seed round was only a billion dollars at a five billion dollar valuation, right? Crazy to think about it, it was like, seed round.

A pre seed round is a billion dollars. So again, definitions are always (04:00) there but it's interesting for folks to be aware of.

Start?

(04:02) Jeremy Au: there's a thing that we often say is that, you can always divorce your spouse, but you can't divorce your investor, right?

So in a sense that once you have sold your 20 percent to X number of investors, there are these legal rights, information rights, it's actually very hard to clean up. And so there's a lot of horror stories amongst founders. And you can argue that the VCs or whatever, but literally, just like last year I was talking to the thing, and then it was basically like they had to sell the company let's just say it was like 20 cents on the dollar.

So the investors will probably lose 80 percent of the money. But one guy was like, no, I do not accept that. So he vetoed the whole thing. And then now, he gets nothing off the dollar, right? So everybody else is angry. So I think we need to think about rights in two major ways.

Or I'll say two major axes. One is the rights around my pot of money, to supervise my pot of money. And the second set of rights is My set of rights to control the direction of the company. If that makes sense, right? So because it informs everybody else. And then the other axes I'll probably look about it is positive, which is I want to change.

you towards to do something versus negative controls, which is veto (05:00) rights. I want to block you from doing something. So you always have to be thinking about those sets of rights and you have to be very careful who you give them to because the other axis is called, is that guy a joker or a rando, and literally there are people in Southeast Asia that we know that we're like, man, this guy's horrible, right?

Because there's all these horror stories that we hear and we don't know whether it's true or not. Obviously, but we hear it, we play poker with each other, and we're like, okay, probably don't want to do business with that guy, or that corporate VC has a certain set of corporate incentives that may not be aligned, and so you have to be watch out for that.

So you have to watch out for these pieces. And I think that's where your reputation is really important. So I think from a legal perspective, again, it's control over your money versus the direction of the company. The other one is positive controls versus negative controls, veto rights. But at that axis, that's really important.

It's probably your reputation or the trust or credibility. Because, if I trust you a lot and you're the guy who always does the right thing at the end of the day, then I can give you a lot of rights on both ends, right? But if you're like a total asshole and we all know it, everyone's gonna try to negotiate and haggle with you about those, what those rights exactly can do.

Start 2? (3 Funds)

(05:58) Jeremy Au: So imagine (06:00) that you are basically raising a fund, so the formation of a fund. Normally emerging VCs will take about three funds to become an established VC. So the first VC deck that you build is very much based on relationships.

So Fund 2 is normally raised based on momentum. So normally the second fund is raised about two years after the first fund is raised, two to three years. Now, the tricky part as we talked about is that it normally takes about ten years.

for a company to hit a unicorn stage. The second fund is very much unclear whether the portfolio that was selected based on fund one actually has a home run or not. So fund two is normally raised based on momentum. Maybe there's some interim metrics like, Oh, my seed investments that I made have now raised series A and series B in the past three years.

And so I'm raising based on momentum. I don't know if they're going to be a unicorn eventually, but I'm very confident that they are. So it's based on momentum, but also based on the trust of the manager. And lastly, of course, with Fund 3, it's normally about six years after the first fund. By then, it'll be quite clear whether there are companies that are on the (07:00) way to the trajectory to become a unicorn, or they already died by then.

And so there's a lot more data for the LPs to evaluate the VCs. There are different perspectives. There are some institutional LPs, Limited Partners. For example, Tomastek and Sovereign Wealth Funds, that they tend to be larger on average, will only invest in the latest stages when there's demonstrated performance.

Sequoia has been around for dozens of years. A lot of these ASSEL and all these other funds have been around for dozens of years. They have lots of data. They have a proven leadership team, proven succession planning for the leadership team. They are investing based on historical fund performance.

But however, what the research has shown as well, is that the best performing funds tend to be early funds. Fund 1, Fund 2 tend to be the best performing funds, and there are lots of debate about why Fund 1 and Fund 2 tend to be the highest performing. Some people say it's because Fund 1 and Fund 2 tend to be built by people who have left the industry, and therefore have a strong insight about the industry.

And often these, again, as Darius has asked, these industry trends have a limited (08:00) lifespan, if that makes sense. For example, we saw that in crypto, there were a bunch of people who were very nerdy, they were crypto, and then they built their first crypto not so good or great or whatever it is, but then they became crypto VCs very quickly, the fun

Crypto VC did really well. But now if you look at a lot of the crypto VCs, fund three, fund four, they're performing not very well because crypto as a industry has gone through that boom and bust. So these fund ones tend to outperform because an early crypto adopter and influencer and leader jumps to become a vc.

They have all the known knowledge, they have all the friendships with the founders. So they're able to monopolize, and they have an insight about how to put that bet in. So it's not a 1 in 40 bet for them, it's not roulette for them. For them, they're like, this is a 1 in 2. I know that Bitcoin is gonna go 10x over the next 10 years.

It's a no brainer. Jeremy from UC Berkeley, who shared on this idea last week over drinks, is a total loser. He believes in gold. What a lame ass guy. For sure it's gonna win. This is not a 1 in 40 chance. This is a 1 in 2 chance. I just gotta get as much money, and (09:00) you raise that money, and you get leverage from other people to make bets on something that I know has upside, right?

So that'll be argument for Fund 1. There's also argument for other end, is that later funds, the fund managers become more professional, more institutionalized, and then the argument is they become lazier, they have more filters, they're more distant from the market. As a result, you see the LPs, there are LPs that are interested in investing in emerging general partners, or VCs on one end, and there are other funds that have a mandate that they can only invest in later stage.

But of course, when you're in a later stage fund, in order to raise fund you probably are very successful, you have a very large fund, you may only have reserved access for the people who believe in you in the early days. So if you look at Sequoia or these other late stage funds. The minimum check size is like ten million dollars like you can't get in unless you were their buddy from a long time ago.

Does it make sense? So that's how the game is played a little bit. An emerging VC will say, I'm such a hotshot. I know what's going on. Now's the time to come in. If you don't come in, you (10:00) may not be able to come in the future because I'm so successful, right? And so it depends on the relationship and the background of the VC.

4 Stages

(10:06) Jeremy Au: So if you were, setting up as a VC fund and you're building those decks, you think about it in terms of three to four major phases. The first thing is you plan your fund, you design a strategy. So that's what this cost would be over the next seven to eight weeks. You'll plan and prepare fundraising materials.

You'll prepare this. Fundraising deck, you'll get input from people, and then you build a target LP list about who you want to do pre marketing to. So you want to explain and tell them that you're interested. Then the second thing you want to do is you're going to do the fundraising. So you're going to go out, you're going to have a lot of coffee, you're going to have a lot of wine, you're going to go for a lot of jogging, you're going to talk to the LPs one on one and then there are fundraising guys that are going to do due diligence on you.

They're going to quickly call their buddy and hey, is he in, is he legit? And then the other guy is yeah, he's super legit. He was the best teammate I ever had. He knows all the shit about semantic AI, that's the hottest thing and the guy's great, positive. due diligence call.

And then you obviously build an LP base and a funnel. And after that, you close the fund, you start setting the (11:00) business terms, start negotiating the limited partner agreement, we'll talk about it later, as well as some side letters. For example, if you are a very big fund the Saudis, then the Saudis will say I write such a large check, I don't think you should.

have so much money going to you because I'm going to write a last check, but you should take a smaller percentage of this last check. So you may have side letters with these. And of course, you close the fund, so you tell people that you should wire the money to me. And obviously, you have LP relations, you continue to manage the LP relationship, and then you always are preparing to raise the next fund.

So the joke about VCs is that a lot of founders become VCs to start fundraising, and then once they become a VC, they have a fundraise every two years. So it's actually quite exhausting, and people travel all the time. For example, I met somebody. We were at a barbecue. He's a VC fund manager. He flew all the way to Scandinavian country, and he was like, you should invest in Southeast Asia.

And then the person was like, oh, I know about Southeast Asia. He's oh, how do you know about Southeast Asia? And then she was like, I listened to the Brave podcast, and the guy laughed and said, oh, actually, I know Jeremy, right? The reason why is that a Scandinavian LP (12:00) She's not interested in my podcast per se, but she's interested in saying, Okay, I have money allocated to China, TBD, global decoupling and trade war USA, are we tapped out?

So they have to explore new geographies, India, Southeast Asia, new geographies to invest, right? New asset classes to invest in. So you're always having to manage a relationship over and over again. So there are four major fund strategies that you see. And so every time you meet a VC fund, you can probably bucket them into these four categories..

4 Major VC Themes

(12:26) Jeremy Au: These would be your index portfolio, your relatively standard or concentrated bets. Then you have multistage and then lastly, you have venture builders. we're only simplifying to the first two, which are the most standard type. Of course, the most famous tend to be the multistage, I would say,

An index portfolio is basically spray and pray. So as a result, what it means is that spray and pray is a derogatory way of saying it, but basically what you're saying is, I believe that this industry is there, but it's very hard for me to tell which specific winner. I wanna go wide. I wanna go for lots of bets.

I probably sacrificed some of my alpha in my ability to concentrate my bet in the winners, but I (13:00) think that I should, my belief is I need to optimize widely because I don't understand the market, but I believe that this industry will have big lift overall, right? And this tends to happen, especially earlier, so you look at your seed stage companies, your early pre seed stage companies these tend to be the earlier stage because it's hard to tell when you have founders that only have a pitch deck, it's very hard to tell which one you should really concentrate on.

So these tend to be more wi they tend to lean wider as a fund. And so these will tend to systemize their support, and they te probably tend to have batching to simplify the operations. So Y Combinator is a good example of an index portfolio. They have, like a hundred startups, right? And everybody pitches, in terms of the selection interview process.

I've interviewed at YC three times, I got rejected three times. Now I went off to raise my seat at my Series A, so I said, fuck it, I'm never going back to them. But, in each time that I interviewed at YC, the interview was about five minutes long, right? You get what I mean? They're not doing a ton of due diligence, they had a presentation that five minutes to evaluate me.

So they tend to like, it's more of a numbers game and you can say to some extent, but there are different ways to play that (14:00) numbers game. The second type is a constitutive bets. So these tend to be less companies. They tend to be more conviction. So these tend to be about 20 companies on average, maybe as low as 15.

But normally below 15 is probably bad news because you're too risky. But These tend to be more conviction, and then the argument that you say is I really understand this market, I know I can pick the winners in this industry. For whatever reason. Okay? And so I want to write larger checks, and I'm going to support them more.

And because I have more money in each of these companies, I can take on more work. I can take on, like Siyu and us, I can be on a board to control it, to control the destiny of my money, to control the destiny of the company, because I wrote a larger check, I deserve a larger site. And then as a result, there'd be more control rights, more support.

So imagine if you're a Y Combinator and you're doing thousands of companies effectively across five years, then you don't have ability to support. So you lean on the community supporting each other. Does it make sense? Whereas if you are Sequoia Lightspeed, partner or your SoftBank, then supposedly the is going to sit down with you and make this big bet, right?

And talk you, about the (15:00) strategy, and give you that time. So concentrated bets. So there are different companies like Monk's Hill, Nextview Ventures, Haystack Alpha JWC in Indonesia. For example, these are all companies that will be more concentrated. Obviously multistage used to be much more hotter several years ago.

But multistage is basically a nice way of saying thatI want to invest in the same company across multiple stages. So what they tend to see is they say, remember that curve that we showed about the views is I see that each stage is a limited slot.

So if I see a winner, I want to make sure I have the biggest bet at every stage of that company. so the seed index portfolio does 40 companies all at the seed stage. The Series A doing 20 investments will do all at Series A, around 3 million check size. The multi stage guy might say, I'm gonna do a 10 million check, I'll do the 50 million check, and I'll do the 100 million check, right?

So this would be multi stage. And so they see that these are finite pieces of ownership and they tend to believe that they can do all of it. I understand series A, series B, series C, series D, for example, right? And this was more true during the zero (16:00) interest rate era. A lot of companies became multi stage.

And then now with high interest rates and the fact that people are realizing that it's actually much tougher to make those returns, people are retreating into their zone of competency, which is, I'm very good at the 10 million check size, I'm very good at the 50 million check size. And then people are, as a result, collaborating more with each other at different stages.

So three years ago, I did an angel investment in one company. and then the next thing, the founder called me and said, Jeremy, I received my seed check, and I was like, congratulations, who did you get it from? And, Tiger Global.

And I was like, Tiger, for those who don't know, Tiger Global used to be a public markets fund, and then they were doing IPO, pre IPO funds, so the latest stages, Series D, Series E, and now they're doing a seed check in my company, and I was like, ah, shit. I don't know how I feel about that, right?

Makes me sound very smart, but then I was like, I don't know if Tiger Global really understands how to write 5, 000, 000 check because they normally write, supposed to write 50, 000, 000 to 100, 000, 000 checks. But during that time, they did. So anyway, but now you see people retreating now, right?

So because when Tiger Global took the deal, they took the deal away (17:00) from companies that got done the Series A, Series B, Series C. Because they are supposed to be in their lane, quote unquote, in series D, series E, as a zone of competency. And I think we'll share some of those pieces there but we'll talk about that.

And obviously the last category that we have are venture builders. So these are a new type, but basically they tend to be, what they tend to say is, we think that this market doesn't really have great founders, but we'd like the market or industry. In other words, the VC thinks that they're smarter than what the ecosystem can generate in terms of talent.

For example so a VC may come in, I've seen them, they'll be saying something like I believe I understand we saw that in crypto for sure. We've now seen that for AI. Okay, . Just two weeks ago, I saw an AI company and they were like, we really under they were not , basically they were like venture builders, right?

But they were like, we really understand AI and we're gonna launch five companies in AI and we're all going to be part of this holding company, which is basically a venture builder, right? And then I was like if they figure it out, if they're so good at one of them, (18:00) why build five, right? Just focus on one, for example.

That'll be the argument that you have. But, I think venture builders, you see them a lot. You see them in the Philippines, you tend to see them. I think you also see them in America as well. America if you look at him and hers, it was actually set up by a venture builder that was doing consumer venture studio by basically saying, we have insights about the consumer market, we as a team, we are going to, a bit private equity like, we're going to hire the right managers.

And we're going to take a larger slice of equity for that, but I want to give them some equity. They're going to be employees to launch this idea because we have the insight, we have the support. So for example, you can see that with Rocket Internet for the big days. You may remember that a lot of folks were, their founders were management consultants.

So basically, Rocket Internet was saying, we understand the market. We believe that e commerce works in America. Therefore, we believe that e commerce should work in Southeast Asia. So let's launch Zalora. And so the bulk of the equity went to Rocket Internet, but some small slices of equity and primarily cash went to the founding team across multiple generations of Zalora.

So that's one. We also saw that for Groupon as well. People were like, okay, let's copy (19:00) Groupon. So they launched, Groupon in Singapore. Groupon, so actually if you look at the story of Groupon in the deal sites in Singapore, there was a set of Groupon clones that were funded by venture builders, i.

e. Rocket Internet. But there were also founders who, emerged naturally and were funded by VCs that were indexed portfolio concentrated bets, right? To compete. And so you saw two types of folks go after that with different capital strategies as well.

Now, my follow on strategy may be that I'm going to write 10, 000, 000 checks. Out of the 50, 000, 000 in this pot, I'm going to write 10, 000, 000 checks to double down on the winners. but I only have five of them. Does that make sense? So basically, what the perfect world would be, I make 20 investments, and by the way, all 20 investments, when I first made that investment, I thought it was going to be a unicorn.

Does it make sense? So you must understand that when the VCs make the bet, they don't say this is a shittier bet, this is a better bet. You believe that all 20 of these investments have the equal chance of a unicorn. And quantitatively as a VC, you know there's 1 (20:00) chance. But of course, every VC thinks they're smarter than every other VC.

So they probably think to themselves okay, I got a one in two chance, you know what I mean? So you're like, oh, I got ten unicorns In this basket of twenty, right? Because otherwise, so that's that piece. But over the course of two years, some will overperform because they're better, and some of them will underperform.

Maybe there's a competitor or technology, or you didn't do your homework and someone else's competitor was better, or you thought that you believe in them, whatever it is, sometimes the CEO gets cancer, right? And so there are actually companies that have failed because the CEO had cancer.

And so the CTO had to become the interim CEO, right? There was a company called Jibo. It did social robotics. It was basically Siri before Siri. It was basically like the belief of digital companions.

And they launched it way too early. And they got killed by Alexa. So if they launched three years earlier or the guy didn't have cancer, they probably could have launched before Alexa and they could maybe have been acquired potentially by one of the companies. But they launched too late, they got killed by Alexa, which also shows a different product market situation.

We'll talk about it later. But basically . (21:00) So then the bet was bad in that sense, right? So if you think about it from a VC perspective, two to three years have passed effectively. And now I'm like, ah shit, two years ago I thought I was really smart. I made 20 bets. Think there are 10 of them that, are obvious no's.

They're not, they didn't make it, they underperformed versus my expectation. But 10 of them are in the bucket. Maybe three of them are pretty obvious winners. Does it make sense? So the three obvious winners, like the crushing it, everybody loves them, everything you're like, okay, great, here's the 10 million.

But probably the remaining seven, that's like touch and go, you may make, you have the ability to make those two bets. So that's your second bet. And this is where the people who play poker or gambling get really excited. Because basically what you're saying is, at the start, you had a certain amount of information, you thought they all made sense, but then after two years, each company has revealed information as you provide, they've revealed information about each of them.

The founders underperformed, overperformed, team, blah, blah, blah. And now I can, there are companies that make sense for me to do a sure double down or all in, but some of them, Touch and go, right? (22:00) But of course, the problem is that even at this point in time, you don't know. So you fast forward another eight more years, you may not your sure wins may not become sure wins, right?

So recently, we shared a company called Bolt. I'll share it again. It was a billion dollar valuation, one click checkout, billion dollar company, sure win, and then it fell apart, right? And now, it should go down to zero. So it may actually be one of these companies that are touch and go right now, and that would be based on some level of judgment.

let's just say I, I may, I have a 20 percent investment.

I have a seat on a board. Tiger, come. This is a great company. But by the way I want to sell half of my stake. And Tiger is gonna be like, what are you talking about? If you think the company is really good, and you think it's a show win, Then why are you selling? Not a good excuse these days because most LPs are extending end of life by another two to four years, which is quite common. So it is a, actually, so people do that excuse and I, sorry okay, so there are two sets of strategies. One is, If you're at year 10, and your company is relatively late stage, it's like a billion dollar valuation, but there's no exit on path, I think it's acceptable.

But the problem is that the secondary (23:00) market normally is priced that in. So in today's market today, if you, in general, if you're trying to sell a secondary, the haircut on the private market valuation is at least 50%, if not. 80 percent discount. So imagine you're like, wow, I invested X, and so my stake, my paper stake now is 10 million, let's just say, because you made a very small investment, but you want to sell secondaries.

I can tell you right now that because it's an illiquid market, and this is whatever it is, the other guy will be like, yeah you want to sell, it's a bad signal, but I quasi believe, but the way I can make up for it is you sell me 20 percent of face value. Sell it to me, sell me a 10 a lot of VC funds are getting screwed right now in Southeast Asia because they can't exit, they're end of life, they now have the reason to exit, but there's a big haircut.

And if they sell the value, the loss of that paper value is immediate and will stop their ability to fundraise immediately.

The key issue was that, Actually, a lot of these companies were doing very well.

In fact my company I was working at also did very well, but it got killed by government action, right? In that sense, regulatory.

Regulatory action happens all the time. Which is why it's very important when you write a deal memo, you need to be very (24:00) careful. Because again, no, Google is making a shitload of money, and the EU is going after them for monopoly power, right? Does it make sense? So to some extent when you're a VC 10 years in the past, you're making that decision, you're like, you have to understand.

Regulatory action is the biggest way that late stage unicorns, private unicorns don't achieve that thing. So we saw that for crypto as well, right? So crypto as well will receive regulatory action in many countries simultaneously.

So a lot of people that made a lot of sense fell apart, right? So people had to think about that regulatory action. Obviously, before it happens, you have a passive strategy and you have an active strategy. Passive strategy is, you write your memo and you say the risk of this is that the government will crack down on this, right?

So let's not invest. That's your best passive strategy, right? Your active strategy, and there's actually VCs that have this as part of the value addition, is they will do lobbying. So in the U. S. there's something called Task VC. Their claim to fame is that they legalized Uber, they legalized DraftKings, they were the lawyers and regulators and politicians that were able to lobby and fight the city (25:00) officials state by state.

But their value add is, and I met the team, because they came to me and said, Jeremy, we'll help you legalize your market practice. And I was like, this is a strong value add. You know what I mean? Because that's the only thing they can kill, right? And if you look at VCs today, all VCs around the world have government or state sponsorship.

Most of them do if you think about it. So you go to any emerging market VC, all of them have connections to this politician, that politician, whatever it is, okay? So it's well known, right? Even you go to developed markets, it's all legalized, formalized. We have Mark Andresen and Peter Thiel and Ben Hurwitz have said they are in support of Trump and Elon Musk, right?

I'm just saying, what happens if Kamala comes to power is, So they better hope that they lobby correctly in that sense, right? So I would say that VCs do have strong, because like I said, the first ever VC in the world was a government program. Silicon Valley is a nexus of university, state subsidies on (26:00) manufacturing, silicon manufacturing, as well as government industrial policy, right?

I'm just giving you an example, right? So I think what I'm trying to say here is like the passive policy is don't do the deal if you think it's going to get killed. Don't do the deal in a geography that you think you cannot make money in based on the regulatory action or societal or cultural norms, right?

Which is why I think you see depressed. VC deal making in the EU, right? Does it make sense? Because they know the tax rates and they know that EU is so strong in breaking up large companies They don't feel comfortable. So you choose not to do deals in the EU, right? Then the active strategy is you have the ability to shape policy because as lawyers you will be defining policy by nature for technology You will be rewriting the policy, because the technology did not exist five years ago, and now people have to figure it out.

So a given example would be people are now trying to get married to their AI spouses. Legal or not legal? Don't know. Nobody has ever written it. We all written a marriage is with a person, then obviously there was the LGBTQ reform movement, (27:00) whatever you want to call it, but obviously there was a huge lobbying.

and socio political dynamic where the law was rewritten or updated or kept the same depending on geography So if Dani uploaded herself to a virtual AI version of herself and gifted herself all of her assets via Cayman Islands entity that reports entirely to Dani.

This AI character on my phone says that she's Denny. and she says that she really likes Jeremy and she wants to invest in Jeremy. does the court respect? Denny's next of kin for her assets or the fact that she's gifted assets to this Delaware C Corp, that agrees to do whatever this Denny.

says. I'm just saying that's a real legal case. that is starting to happen now, which is digital avatars, do they have legal rights? Because corporations in America have legal rights. Now, they don't have full rights. I don't think I've never seen Wendy's get married to somebody yet. But I'm just saying they do have legal rights, right?

So I think we just have to be aware that part of the issue is that you have to think through what the regulators are gonna be and what society is (28:00) gonna be.