137 Ventures' Alex Jacobson on why SpaceX-style private liquidity beats public markets for employees

we're excited to catch up with Alex of ours. I'm excited. We have a great conversation with him uh a couple months ago. Excited to catch up and chat with him about everything in the 137 Ventures profile. How are you doing, Alex? Good to see you. Oh, good. You too. Sorry we're running late.

We we Yeah, we ran a little late. We got a bunch of very yappy people. This guy Mark Andre came on. He was talking a lot. We were asking a lot of questions, so we put us behind, but good to catch up with you. How are you doing? Good.

I was just watching, but I was three minutes behind, so I thought I was I had a bit more time. Sorry about that. Yeah, we're going to figure out how to feed you the show so that as soon as you join the room, you're seeing it live instead of with the delay. But, uh, anyway, thank you so much for joining.

What's new in your world? What's the biggest news in the 137 Ventures portfolio? I'd love to just get the general update. Oh. Uh, where to start? Well, I'll start. I'll start.

Christian had like a screenshot and it was it was I know, but it was it basically had the 137 portfolio up and it basically looked like the top 10 most in demand private companies. And I was like, "Oh, that looks like a pretty good portfolio to have. " So, you guys have been everywhere. Yeah.

I I mean we have we we're building this general concept of mag seven for private and so we have there's this idea of there's these companies that grow indefinitely in the public markets and they've built themselves to do that in the public markets.

The strategy for doing that in the private markets is different because you need to do different things in different ways. So SpaceX has led the way on this because the they give employees equity and they then also run tenders regularly so that that equity can become liquidity. Mhm.

And the important the important bit of that about that strategy is that the price at which they're providing liquidity is materially lower than what the market would pay in a fully liquid public market. And so you can say, "Oh, that's terrible. The employees aren't getting the right thing. " But that's not fair.

The actual thing that's happening is when employees are issued uh equity when they get hired, they know it's going to go up because SpaceX keeps growing. SpaceX is one of all these companies have the property of having a huge amount of power in their market and a even larger TAM.

And so you can you can understand this indefinite growth. And you can talk about for the public companies or the private companies, but the general thing that you're looking at is this combination of power and large TAM.

And so in a private in a private market context, all these companies need to hire people to go capture that TAM. And the value of these companies keeps going up. And the strategy is to give the employees certainty that the equity they've been issued will be worth a lot more in the future.

That's harder to do in the public markets because everything's perfectly priced and so you don't really know if the stock is going to go up. You think so, you hope so, but it's harder to tell.

In the private markets, the nice thing is you control your price and you can if you're just if you run your process properly, you can have this very deterministic outcome for your employees, which I think is super powerful. We talked to Harley at Shopify about the benefits of being public.

You have uh liquid currency for acquisitions. It it it sets him up. He referred to it as being in the major leagues. Now, uh, give me the pitch for staying private as long as possible. I mean, I don't think SpaceX isn't major league. Yes, I agree. So, there's this what are the benefits of staying private?

The I think the big one is hiring.

Okay, this is that's the thing that I think people underestimate which is that if you can issue people private company stock at your 409A and then you and and you control the price it keeps growing then this is all a much more deterministic thing and it's super powerful to be in these companies because the nice thing about these companies like there's this funniness of uh they're always underpriced.

So there's always investor demand for them. Yeah. So as long as they as as long as So you just have this positive feedback loop of there's always investor demand for them. So the investors want to buy more and the stock price keeps going up.

Which means the employees can look at these companies and go, "Oh, this equity is really worth something because they know it's going to go up. " If you're getting public companies stock, you don't get that. Yeah. Yeah. And there's not the volatility that comes with I checked my portfolio today.

I'm down a little bit just because oh there's some weird tariff thing going on in some foreign country and like how does that affect my business whereas yeah if you're in the private market you don't have to deal with that.

Um what about these new what's your take on some of these new initiatives to uh give retail investors access to private company shares or put private company shares on chain and create tokens and SPVS and all these like like different financial engineering efforts to uh bring to give retail traders access to private market company stocks.

What's your take on all that? We've been seeing people trying to do this forever. It's an ongoing thing of, oh, we find it inconvenient that these companies are private, so we're going to try to do things to make them seem more like public companies.

But the one of the big values of being a private company is controlling who your shareholders are and controlling your pricing. And so, uh, if you're trying to stop that from happening, that's, you know, maybe that's an opportunity.

And maybe you can force one of these companies to be a de facto public, but that's not a service. If they want to be public, you know, there's this mechanism called the public markets to do that. Yeah. What what about a higher level of abstraction?

Like I I believe I believe gold I mean the other big thing is sorry you know certain private companies don't want to be public because they don't want to be on this sort of regular reporting cadence. They just don't feel like they're ready for it.

But uh the idea of like taking private companies, putting them on chain, letting private company shares, putting them on chain and then just letting anybody in the world by access buy access, you know, buy them, but not giving them any of the information that allow that that that makes the the public market so beautiful, which is like anybody can read this information and you can come up with a decision on your own.

And there's like rules and frameworks to make sure that people aren't insider trading and things like that. And so it's like who's benefiting here? It's like retail has a potential to get even more hosed.

Uh and and then the companies are having to deal with shareholders that that now have an opinion about how they're operating the company. Uh but none of the real rights associated with with owning the shares. Let let me be charitable to these people.

There's a real thing of the only people who get access to these private MAG7 companies are institutional LPs who invest in our fund or funds like ours. Yeah. And you know, we're not we're not we don't have retail investors in our fund.

Um there's there's a sort of in the manager class, there's something we refer to as retail, which is there's a longer tale of of wealth that is now trying to play in and invest in these things. So there's some that is in some sense a longer tale, but there isn't the people who have who are public markets players.

There aren't non-institutional players in the game really. And there's something real about giving people access to the growth that these companies are going to have. There's re and it's unfair in some general sense that that these retail investors don't have access to this growth.

And I so I think there was some amount of institutional design around how do we give them access to this growth but turning these private companies into public companies is not necessarily the way the way to do that. Yeah. It's almost like like what if like like what if uh the Yale endowment was publicly traded?

It's like then I'd have broad exposure to a bunch of venture capital firms which have exposure to a bunch of private companies and you know it still just rolls up to just a few line items on the cap table. I'm not you know this random uh like retail trader doesn't isn't actually on the cap.

It's also it's also disingenuous to say that like everyday people don't benefit from the private MAG7 as you've described it because it you know a lot of venture capitalists raised from pension funds. It's teachers and firefighters and things like that who are are actually you know benefiting from the performance.

I mean I I think there there's a pension we're definitely in the b pension funds are definitely beneficiaries and that's very real. But I I don't know how much of the like there's definitely these, you know, those types of pension funds that are out there.

Um, but there's lots of people who aren't in these sorts of pension funds. Like I think you're right. There's there's definitely that that sort of universe is taken care of. But I think there's plenty of people who aren't in that type of pension fund either. Yeah.

And totally if and and generically they're in the pension it's in a pension fund. They're not able to say, "Oh, I would like more exposure to privates. " Yeah. Right. So, at a at invest at the CL there's there I I understand the feeling of that there's these people are underserved in some way.

It's not they're not my customers, but I get the feeling.

I just think we need to design for It is funny to think about if if if a bunch of Stripe shares were dropped on Salana, like what Stripe would actually trade at because I would guess that it would look like it would look like it would be like the most insane pop and then suddenly it's like, okay, if you want to buy Stripe on chain, you got to pay like $400 billion or something or a trillion dollars, right?

You could. And for some of the even bigger like me like like potentially like me uh private companies, it could be even crazier. Yeah. Yeah. Um I mean, yeah, there there's the whole Elon universe of companies. Yeah. You know, we we have a sample of one of them that's public. Yep. We know what happens there.

Uh speaking of that, I mean, he was talking loosely about uh taking Tesla private at one point.

uh that you know obviously didn't materialize but is there a world where the private markets evolve to such a point and it becomes so elusive that you see a takeprivate of a company specifically to get back on that track or or once you IPO has the ship sailed and it's gone forever.

I mean I'm I live in the private markets. I like the private markets. I think there's a huge amount of value of being here in the private markets and so I'm definitely talking my book. But the the the big thing that has changed over the past some number of years is how big the private markets now are. Yeah. Right.

So we so the how much we can invest in SpaceX or Anderl or Gustoa or any of these companies has gotten to be large numbers. And so, you know, there's this argument of when you're public, you have this currency that you didn't have because the public markets have more money. And I don't think that's as true anymore.

I think that there's this real chance that you could decide, I just want more control. I don't want to deal with this regulatory nonsense and be private.

there is this they're both it's a it's a regulatory ritual but it's not actually a different company and you might want to just have a different regulatory environment. Yeah, I'm thinking specifically about Snap. Uh Snap had earnings. They're down 17% today. They live and die by the earnings call.

Uh meanwhile, Apple's up 5%, Meta Platforms up 1%, Amazon's up 4%. and and it's only a$ 13 billion company that the capital exists and there's always been this narrative like it's easier to turn the cruise ship when you're in the private markets.

You go to just a few investors, you say, "Hey, we're going to miss earnings really bad for a couple quarters, but then we're going to build something new. " Um, I don't know. It's a You could have three snaps or one perplexity. Wow.

I mean, the the part of I mean, the hard part is these things are now priced and so you're going to take it private and you now have to go resell this to the private capital markets who have looked at this in the public markets and gone, well, that didn't look right.

Uh, and so I think there there's a hard sell of going to the private markets and selling, you know, selling Snap in the private markets. I think it's entirely possible that it could do better, but you know, the they have to go, they have to sell it. It has there's a founder story.

I mean, I think we can like sit here and script it and maybe we can make it work. But an exciting story. I I think the best example is probably Dell, which went through Take Private and then and then uh later went back public at a much higher price. Um but I mean these stories are extremely few and far between.

Switching gears. Uh I wanted we had Dan on from Armada earlier this week. Super exciting company. I know uh you guys have been involved from uh probably before the company was created. wanted to get your view on on the opportunity and and what made you so bullish uh uh now or back then? I mean both.

I mean we we got we got uh last time we talked I think we got a good good overview but it was kind of hearing the kind of landscape and and the initial catalyst was was interesting.

I mean the the the original version of this is if you think about what a data center is, a data center is a point source is is trying to maximize the value of a point source of connectivity and power, right? That's like structurally what it is.

Uh and so you know power has is available at different prices at different places. Fiber is available at different pl at different levels of reliability. How many fiber points do you have? Are they really one or two? Like it's doing the underwriting of what it's actually a lot of work to make a data center.

But the whole premise is that you have sufficiently reliable and large power and sufficiently reliable and large connectivity. SpaceX changes that. So SpaceX says actually there is no longer this concept of a point source of connectivity. It's available everywhere. Mhm.

Uh and in any one point it's not, you know, it's not as good as a as fiber, but the world's pretty big. And so the aggregate bandwidth of Starlink is huge even if the available the availability in the square foot you're in is not as big as holding a fiber in your hand.

Uh and so the insight is okay well SpaceX gives us opportunity this opportunity to rethink how we do connectivity. So does that mean we can think rethink how we think about power?

And the interesting thing is if you're looser about connectivity now you can look at power in a bunch of different places and you can say hey there's solar everywhere. So now you just simply put out a solar panel and a dish and you're live.

uh and the and is the solar panel enough for the amount of compute you want to do? Maybe, maybe not. But that but that's the beginning of the conversation. And then, you know, so in the original design for this, it w I sketched out a uh shipping container that unfolds solar panels on a roof.

And I figured out that you need a lot of solar panels to power a rack, but you can do it. But and so that's but that but you know, the math on that actually worked. So it was like a 3% IRRa when you did the model and the 3% IR isn't glorious but it was just a model and then you have the testing.

So we're saying oh this is is sufficiently interesting that it's worth testing and then when we then we got Dan and Dan is this phenomenal has has phenomenal network has phenomenal sales and his solution wasn't hey let's build it and sell sell cloud his solution was calling people he knows and asking them what do you think because that's how he works and so we get on the phone with the CTO of Ramco somewhat of a surprise to me so I'm suddenly on the phone with this guy who is San Francisco San Francisco company, right?

Yeah. Founded in San Francisco, right? West Coast Tech wins again. Yes. And so I'm suddenly pitching this to this guy. Uh and the insight is well there's this other problem. You know, the underlying story that I just told you is about stranded energy. There's stranded energy all over the place.

Let's use stranded energy. But the thing that's happening on an oil platform is they're stranded data. Mhm. And so these these these oil platforms produce huge amounts of data that get effectively dropped on the floor. Mhm.

And they have some amount of compute that is in in a closet somewhere that some guy on the platform manages. Uh yeah. And Hallebertton support and Hallebertton sells him the software. It's like the the actual architecture of that market's crazy. Yeah. And so it's like, oh, wait, we could do better.

Y and so if we if we provide a cloud at the at this locus of stranded data and stranded energy and and a global communications, we can create a lot of value. It's great. Very exciting. Well, well, next time you join, we'll have you on for an hour. Yeah. Yeah, we can go so much deeper. Thank you so much for stopping by.

We'll talk to you soon. Great to see you. All right. Hang out soon. Bye. Cheers. Up next, we have Nick from Relet coming into the studio. I think we got to get