Walter Chen (Sacra) on private market research, the AI coding race, and secondary market dynamics

it. Let's bring them in. Excited to Hey, how you doing? What's going on? Hey, what's up, guys? Uh, not too much. We're just talking about the Apple uh the Apple intelligence write up by Mark German and Bloomberg. Did you get a chance to read this?

I think we should take Apple private slap then then go out for a new fund raise with a AI multiple suddenly a 20 trillion trillion dollar company. I have not I haven't seen it. What What did you say?

Uh I mean it's just like a full accounting of all the different moves that happened internally to set Apple up for a revitalized Siri. Of course Siri launched in 2011 14 years ago. Seven years ago they bring on uh John Gandrea from uh from Google. So he's been working as the head of AI at Apple for seven years.

Then they launched Apple Intelligence last year with the iPhone 16 and it's still not rolled out to the point where they originally demoed. And so the the obvious question is like what is going on? Um Daring Fireball had that piece uh something is rotten in the state of Certino that kind of rattled everyone.

Um, and there's uh just just endless questions about so now Mark German's digging into like okay what actually happened who who made what decision because the billboards went up that said Genmoji is available but it wasn't available.

So there's obviously some sort of disconnect at Apple between what's available and what's not.

And it seems like a lot of it comes down to the fact that software can be shipped iteratively and that sets you up for a very different culture than hardware which which either the iPhone is ready for Christmas or it's not and the company goes bankrupt that year basically.

And so it's very clear that the AI that the hardware teams at Apple and the supply chain teams at Apple are incredible and their entire cadence and everything that they do with Foxcon and everything they do with all their suppliers is designed for like Well, yeah. Generative AI is inherently imperfect. Yep.

And Apple's culture is a culture that celebrates perfection. Yep. And those two things are you'll never be perfect with it. Anyway, uh can you introduce yourself a little bit? how you doing? Yeah. Yeah. No, this is actually a story that's kind of made it into our household a little bit.

Um, you know, my wife and I don't really talk about tech, but uh her dad uh was my father-in-law was a a tech analyst on Wall Street actually. And he u he was a like a Chinese guy on Wall Street, you know, when there weren't very many Chinese guys. That's cool.

Um and he and he uh you know quite wisely um invested in Apple uh like you know I don't know 20 well not 20 maybe 30 40 years ago. Um yeah and uh so now it actually uh he he he put he invested in Apple on you know for my for my wife and now it actually makes up a disturbingly large part of u our family net worth.

So she was like hey what's going on pull out you know Apple intelligence. I was like, "Huh? Can you break this down for me? " Yeah. Should it be bullish, bearish? I don't know.

I mean, the bull case is that it's LVMH for consumer electronics and they mess a lot of things up and and it's still probably roughly a $3 trillion company. Exactly. Like the worst case is that Apple has no no play in AI, no no AI products, but they still have the best device to run them. The next platform. Yeah.

Or I mean Google won search. Like search happened after Apple existed. They just lost that entirely. Never really built a search engine. Still made 20 billion a year. Yeah. It's fantastic. Um but anyway, uh what's on your mind these days? Uh yeah, give it give a quick intro for those that that are unfamiliar. Yeah.

Yeah. I'm uh I'm Walter. I'm the founder um CEO of Sakra. Um we uh publish research on um startups mostly focused on growth and preipo companies.

Um and uh yeah, one of you know what I think the easy way to describe is one you know while like a pitchbook and crunch base they cover like three million companies um we cover roughly like 300 um and we try to go deeper on those companies.

Um and uh some of our early customers are um we you know we have people who subscribe directly to our research um but we also have an API product where um uh some of the uh top secondary marketplaces um ingest our research and sort of embed it into the marketplace experience um because there's such a lack of information on you know uh private companies um so like NASDAQ private market um equity zen augment caplight um these are some of our customers uh I I I have to ask just because it immediately popped into my head.

How do you think that notice was notice selling uh common do you think?

Because when they were positioning those and shares I don't know if you saw this they said there was like no fees you know something like that and and I was just wondering how they could have positioned a product like that and maybe you didn't maybe you didn't follow but but um yeah yeah yeah actually notice is one of our customers too.

Um, we kind of slot them in actually. Well, so they only recently started doing secondary before they were like kind of like a broker marketplace and they also have a data product.

Um, so I actually didn't follow what they did with Android, but I'm assuming I think it was like the first deal they did coming out of the gate. So I wouldn't be surprised if maybe it was, you know, there was something special about it. Interesting. Yeah. You're you're responsible for that insanely viral cursor chart.

Yeah. Yeah. Yeah. I I put in my investor update uh you know, highlights uh went viral with cursor. Yeah, low lights saw no benefit. Yeah, cursor probably made this and they just put some random logo on. I think the the ROI of viral tweets is almost zero. It's actually crazy. It's actually crazy. Yeah.

I mean, you you've had a tweet get like a 100,000 likes. 150,000 likes. You got like what, like a 100 followers from that or something? Probably more than that. But it's also like low low like followers that are not like part of your like actually engaged with what you're doing.

I I I I talked to somebody who was like YouTube videos are uh like Tik Toks when you just see some like viral content, it's very much like uh graffiti in a bathroom in a public bathroom. Like everyone sees it but doesn't really stop anyone.

I I I wouldn't put the the cursor chart in that camp though because it really did start like a pretty significant conversation. Maybe it didn't benefit you specifically, but there was immediately this discussion of like how durable is this revenue.

Cursor's obviously gone on even to to do I think there are like 300 now or something like that. They're obviously ripping. It's a very special company, but for a lot of these companies that are racing to these new milestones, um it does feel like there's there's rumors of churn. Have you seen any data on that?

Is that something you're trying to track? Have you been able to plug into any of like the credit card data sources to understand more about the durability?

Because if you're really going to underwrite this against this crazy growth, you probably have to think about not just market size and where this caps out, but also the churn. Yeah. Yeah. Yeah. I mean, I think most of these products have relatively high churn. Um, but the velocity is just so high.

Um, and uh, you know, and I mean, proof is in sort of, you know, they went from 100 to 200 to 300 pretty quickly.

Um but I do think like the whole AI coding you know with the acquisition of Windsurf you know by OpenAI I think you know we're probably it's probably sort of past peak or getting to sort of peak and past peak um and we're you know there'll be some consolidation um and uh it'll get a you know it'll start we'll and then some of the churn will start to take its toll.

Yeah. How are you thinking about the AI coding market now post Windsurf acquisition post codeex launch?

I was uh there was a little bit of chatter about like oh well like if they're la if openai is launching codeex why' they buy wind surf like where does this position and and I was kind of working through it like for the consumer you can go to 40 or 03 ask it to do something and it could wind up writing code for you and you didn't even ask it to write code it just did that to get you the answer the example I gave was I wanted to know the height of a table in a and it just wound it wound up running a bunch of like image processing code in Python just to calculate that and count pixels up.

It's kind of crazy to watch, but it probably wrote like 5,000 lines of code just just in one prop. I didn't ask it to write code. Then you have codeex which is maybe a little bit more proumer. You have access to a repo. You bring codeex in, but it's still in the consumerf facing app.

There's a button right there like Sora. And then Windsurf is for more of the professional, someone who's hands on the keyboard writing code all day long. they need a like a souped-up IDE.

Uh and then there's there's bottom up adoption in the enterprise with people just signing up for code for Windsurf or Cursor and the then grow the seats growing kind of organically. Then there's top down like what's happening with uh with uh um uh Cognition and Devon where they're kind of going very enterprise first.

Um but how are you seeing the market shape up? Does that feel roughly correct to you based on what you've seen? Yeah, I think like the the easy answer is that you know it's just happening on every level.

um you know and uh uh um you know just having a play on every you know on sort of every use case and as you as you kind of point out that there's a sort of core which is that um being able to write code um is part of being able to uh solve reasoning problems uh do things um in the digital world um and uh so it's not just you know so it's both the sort of application you know things that you do to code and also it's part of the sort of underlying um infrastructure that that you know it powers you know this type of action.

Yeah. I mean the the the very simple napkin math on on how you make these valuations work and why there's so many different companies. Uh I just had 40 do like a little bit of research. There's as of 2023 the US employed 1. 6 million professional software developers. Median annual wage was 130,000.

works out to um fully loaded their comp is more like 180,000. Yep. Works out to 293 billion dollars annually. Wow.

So it's like yeah make them 20% more efficient charge 10% of that make them you know like save on again as as engineer output increase as as as the output of an individual engineer increases you might have a company say hey we're going to actually build software now because we can hire one person for 180k a year and they can do the work that a handful of engineers would have been able to do and that enables us to yeah so anyway are you dividing up like the startup market map into sectors you know, Andre, they kind of fractured their funds.

They have American dynamism, bio, consumer, crypto, enterprise, fintech, games, infrastructure. They really have so many different uh verticals. Do you think about it that way or are you just looking at uh growth and preIPO as and then the actual business model doesn't matter?

Uh we do a little bit of that, but we don't really that's not the main driver for us. We um you know uh we try to we the main thing for us is like serving the customers that we have and um a lot of the customers are uh you know secondary marketplaces.

So for those folks like the coverage you know really centers around the handful of pre IPO companies that actually you know have some kind of you know secondary trading volume uh you know things that people want to you know people are actually buying and selling in secondary versus and and some like longtail.

So that basically includes like preipo and then um fast growing AI startups. Got it. So uh are you responsible for those charts of like the hottest secondary stocks or is someone else and then that drives business for you? Like how like we see these every once in a while and they kind of shift around.

Uh where does that data come? Do you ever do deals where you actually ask the marketplaces to give you back data as like part of a deal just so you can kind of get insights on what's happening across platforms? Yeah. Yeah. Yeah. For sure.

So we um we help uh we work with some of the places to to make something like that. So we do with augment uh which is a secondary marketplace.

who do you know we work with them on the augment power 20 um and the there are some other ones like the setter setter is like a secondary I think there are secondary broker that um they produce like a a list and um you know basically all these secondary marketplaces produce some kind of a list um and then there there are those who are like like industry ventures um who do a lot of secondary um so uh yeah and and and as part of collaborating on some of those lists you know we we get you know data on on uh on you know What's what uh what is special about the structure of secondary brokers that requires you to slot in or requires them to look for something that looks a little bit more like an equity research uh like sellside analyst report versus a primary bidder uh who's doing pricing a tier one venture firm that might I don't know how much they use your reports but I'm interested to know kind of just structurally uh how secondary brokerages underwrite deals differently than just the normal venture firms that we might be familiar with.

Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. So, uh secondary marketplaces, you know, a lot of them u uh you know, whether for retail or institutional, a lot of these folks who are participating um may or may not have very much information, you know, on the companies.

Um and uh and and for the marketplaces themselves, they want they need uh if you you could frame it slightly differently, they need content. uh they need uh you know collateral to engage you know buyers and sellers. Sure. Um so that's where some of the research comes into play.

Um secondary marketplaces um a lot of times sometimes they invest primary and they have access direct access to information but then there's a whole universe of uh names that they could potentially be interested in that they don't have access to information for.

Um so it's useful to have you know us come in and you know help support their research efforts.

And that's similar for venture funds although venture funds um have you know tend to have some more data but we do work with like a top tier uh like early stage venture fund and we help them uh one of the things that they're very big on is um understanding trends and uh so they let's say they saw a bunch of digital health companies you know in 2015 or whatever they want to see how those have played out today and because they're not like multi-stage funds they don't have necessarily direct information on how those companies they passed on you know, are doing today.

So, we work with them on uh on uh on That's a that's a funny customer experience, a venture fund logging into to to your to your platform and being like seeing a bunch of companies they passed on that are doing hundreds hundreds of millions of AR.

Uh let maybe let's talk about a couple specific categories that that we had talked about offline. So, one I would love an update on the sort of banking as a service platform companies. Uh you had some interesting coverage of column uh as well as lead uh bank uh both of which column's interesting.

I I I hadn't heard or seen any anything from them in a while. You describe them on on the site as a momand pop uh banking as a service platform which they're they're bootstrapped, right? That that was kind of the the the joke. Yeah. Yeah. Yeah.

the the founder uh is a husband and wife team and it's William Hawk Hockey and uh and his wife Sarah and u you know they funded it through Plaid Secondary so they uh you know they bought this bank and then they sort of retrofitted with an API so they're vertically integrated API um and bank and um and right now actually they're you know Mercury is in the process of moving off of evolve onto column I actually Mercury this morning shut down the Sacra bank account um because we didn't do some uh verification there's you know there's brutal brutal yeah yeah so much verification happening but you know it's a good sign because I think columns standards are a bit higher um so uh so it's good um but uh but they so they have mercury and bre basically the two best B2B neo banks um so we yeah we um you know they have to do public filings through the FDI you know because they're a bank so um what's the deal do they do they have to do not I imagine if if they have they're a chartered bank, they have to do a bunch of stuff that's not neo bankanking, right?

Isn't that kind of the nature of of operating a bank? You need to be diversified. You need to be d like d-risk a little bit. You can't just be doing one industry, one type of customer. Is that true? Yeah. Yeah.

They have uh they have like a funny like they have like another website, you know, they have like column bank and then they have like like uh you know like Chico, you know, uh you know, community bank or something. Yeah. Yeah. Yeah. Yeah. So, um yeah, it's pretty funny to see kind of like the two faces.

Um last question, we'll get let you get out of here. Um data sources. I mean, how much of this is like investigative journalism? Just like talking to employees and uh we were looking at that Apple uh report.

The alternative is is a company actually wants analysis on their on their business or there's like credit card data that's floating out there. there's other data that's out there or just like pitch decks like fly around Silicon Valley all the time. You might just get your hands on one if you're just connected.

Um h how how uh what are the most reliable data sources? What's the weirdest data source that you can pull from or that you can share? Are you looking at satellite data like a hedge fund looking at uh who who how how full are the Walmart parking lots? I always love that example. Yeah. Yeah.

Number one is data source is R for rock. You know we just Oh yeah. Yeah. Expect a expect a memecoin from soccer. Yeah. Yeah. Yeah. avoid that at all costs. Yeah.

Um I think like one of the big kind of sources you know that is kind of novel and new is uh you know like uh LinkedIn you know um every sales and marketer you know is you know claims credit for their AR growth.

So it's easy to track sort of like uh you know the AR growth of your you know average company through uh you know the uh accomplishments of the SDR. Um that's good.

Uh yeah and um yeah and then otherwise you know we we collect from a wide variety of sort of public and private sources as you Jord you mentioned like companies do share data with us. We work directly with companies.

Um and because of all of especially some of these capital intensive companies they're constantly raising money. Um and so there's a lot of SPVS there's a lot of like syndicate leads. There's a lot of people out there with you know access to data and these things you know get shared around a lot. Uh very cool.

Uh last question on my side uh and then and then we can make this a recurring thing because I think you get a bunch of uh interesting data points.

At what point is a company so cooked that you just stop covering them because because they're not uh you know you can imagine if a company's raised $300 million and they're not growing anymore and they're subscale like at some point the company's just not necessarily worth anything or or even if they were to sell and maybe they're they stop being uh a good target for coverage.

Yeah. Yeah. Well, you know, we're techno optimists, you know, always believe in the, you know, will you know, you know, it's it's never too late.

Um uh so uh yeah and you know like I think the best um example of this is uh you know we we we wrote this semi viral uh report ramp passes BS um and you know Dian shared it around a lot obviously that um and uh and you know at the time it was a little controversial but I think obviously you know um you know ramp has continued to scale like crazy um but it like for Brex too I mean I think at the end of the day like it's uh it's big market, big opportunity.

I think Brex is going to do fine. I'm actually pro possibly one of the um small handful of people in the world that's both a Brex and Ramp shareholder and I can tell you about that next time. Um very incidentally.

Um but uh uh you know I think like they're both going to win and um and so I think yeah 300 million you know this there they still got a they still got a shot. That's awesome. Well, thanks so much for stopping by. Thanks Walter. This is great. We'll make it a regular thing. Cheers guys. We have Michael coming in next.

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We got Michael Dempsey coming into the studio while John steps away for a second, but uh let's bring him in.