Silver Lake co-founder Glenn Hutchins on inventing tech private equity, cash flow lending, and navigating AI infrastructure capital

will bring him into the TVPN Ultra Dome. We were keeping him waiting just a few minutes. We'll keep the bub [music] talk going if he is on the line. Glenn, good to see you. Sorry for keeping you waiting. Welcome to the show. How are you doing?

We don't have audio audio. Can we check how we doing the mute button? Check on that and see if we are getting audio through the um the call. I will give some more context. Uh he is the uh chairman of North Island North Island Ventures, the co-founder of Silverlake, the vice chairman, lead independent director of Sander. There we go.

He's also the lead independent director and he's here on the show. Welcome to the show. Thank you so much for taking the time.

I just want to say I'm a big fan of your show.

That's amazing.

So, it's so much fun to be here. Really a real pleasure to meet to meet you guys in uh almost in person.

Yeah. Well, next time you're in Los Angeles, please uh feel free to stop by the uh TV Ultra Dome here in Los Angeles.

We are so excited to have you on. So much so much to talk about.

Yeah. Why don't we uh start with uh just a little bit of your career arc? I know we're going to want to talk about the the dot bubble, the dot boom, your experience there, but walk me through uh your career up to co-founding Silverlake in I believe it was 1999, right?

That's right. Um just really briefly,

please.

Basically, when I got by Silverlake was my third and now I'm on my fourth essentially startup.

Yeah.

In and around investing largely called private equity. First one,

I was a junior partner to a guy by the name of Tom Lee, founding what people look back on now say is one of the first private equity firms.

Uh then I um uh took some time off, worked in the White House for Bill Clinton. Uh and then was recruited to come to a young little firm called Blackstone.

There we go.

That was getting into the private equity business and wanted to build a private equity platform. Um about 5 years later, the Blackstone guys helped me start uh Silverlake, which was the they invested in it, uh which was the first large scale organization to combine private equity type of investing with technology.

Uh and now I'm on my fourth, which is my platform called North Island, uh which um has one very difficult limited partner, which is me. Uh [laughter] I um we're doing and I'm doing so it's my fourth startup in investing.

Yeah.

Uh and you know the maybe we can get into this a little bit later but you know

uh the origins of private equity might be something worth talking about at some point if you'd like but we come back to that. What's your next question?

No let's start let's start there. I' I'd love I'd love your view on it. Uh and and it really is uh quite quite funny to think that you couldn't have maybe picked better stepping stones uh across the whole across the whole journey. Must have been you must had some good intuition.

Yeah.

You know it's better to be lucky than smart. Um but um so you know the one thing I would say is can I speaking can I get a little geeky for you guys with you guys for a moment? um we can come back to the more personal dimension but there were four or five in real advances in largely quantitative approach to finance that enabled the creation of kind of what I've done over the years um especially in the early ' 80s when we started thinking about private equity and the first was the capital asset pricing model which allowed us to really do very good in-depth uh valuation of equities which had not been done before the second was to were was the Black Shoes option uh pricing model which allowed us to value options and really understand what embedded options how to value embedded options inside of equity securities. Often times when you bought a private equity company you paid for the company and then you identified something inside the company had a real upside and how to value that and how to pay for that was the question.

Second or maybe third was understanding fixed income. a fellow by the name of Marty Leez came up with something called inside the yield curve which let us really value um fixed income and then Mike Milin really unders did really good work on understand the riskreward associated with high yield securities which became the tool that we were able to use

to to build these companies. Michael Porter at Harvard Business School did a bunch of research using uh standard economic analysis. Um uh about the five forces that you could use to extract value from companies which wasn't being done in a very systematic way in those days. And then finally modern portfolio theory with sharp ratios and efficient frontiers were adopted by places like Harvard and Yale. Uh and a key part of that was having um an allocation of private equity. And as that model was uh rolled out across first pension funds and then sovereign wealth funds, a huge amount of money flowed behind us.

That makes a ton of sense.

We figured out how to value companies. We figured out how to use debt. We figured out how to extract value from the companies

and then we had a big flow of money coming in to back us doing it.

Fascinating.

And so that was that's a kind of one way to think about what happened over the last

four years. How how quickly did those ideas and methods actually disperse? And tying that to the present, it feels like, you know, stay ahead of what people do uh who copy me. One of the things I say is that um my uh very my my best ideas are the ones that people dislike and my very best ideas are ones they hate intensely cuz I know if someone really hates something I'm I'm thinking about it and I know it's like could be really good. Um and then by because by the time it turns out to be generally accepted that's when I sell what I bought before to them. [laughter]

Uh if you know what I mean.

Yeah. So you basically like if they if they if they think an idea is dumb or silly that gives you a window of opportunity to signal to to could be good.

Yeah. Well and it gives you a window to like you know get as much value out of that idea before it becomes common knowledge or an accepted approach.

Occupy that territory before they get there. When they come there then you sell to them the beachfront property that you've already purchased.

That's

right. Uh uh and then but to go back to it the halflife of innovation on Wall Street I AI is a little bit different but the halflife of innovation on Wall Street is a time it takes someone to read a perspectus

and then copy what you did and so like you know someone does a spack and everybody does spaxs y

someone does a digital asset treasury thing and everybody wants to do a dat

um it's like on uh in on Park Avenue in New York City as soon as it starts raining

the guys with the umbrellas come out it's almost like they knew it was raining and then blocks on either side of Park Avenue. Everybody's with umbrellas and you got to figure out something else to sell because the umbrella's already there. But the um

so you know when we first started doing and private equity was a way of exploiting value that was latent inside companies because you didn't have the financing to be able to purchase these companies

and you didn't have the um toolkit to extract value from them. That's those are the issues that we resolved with what I just what I talked about earlier, especially when Mike Milin untapped this high yield market that we could borrow from to to finance these companies. Um then then people rushed in uh and in part the Blackstone idea you'd have to talk to Steve Forsman was to build a platform that you could take to scale where you could raise an amount of money that people who would come into the space couldn't match you and so you could like mine a different vertical layer of companies that were immune yet to private equity disciplines by getting to scale

in the enterprise. You see what I mean? very controversial in Silicon Valley to call that out nowadays, [laughter]

right?

There's a big discussion over platform funds and funds that might be doing exactly that.

Yeah. Yeah. Yeah. Okay. We'll come back to that. And then and then what I and I decided that another path that the technology industry had reached a point where there were scale companies where you could use debt and more private equity style skill sets to buy the companies. First big one we did was something called Seagate. Yes. Yes.

Where we borrowed a bunch of money to buy a big tech company. Yes.

Um but if you look at companies like so in when I was coming up people looked at companies like Microsoft and they said, "Oh, these are very risky company." Steve Balmer and Bill Gates were college classmates of mine by the way.

Yeah.

Um we're all you're lucky you're a lucky guy.

Class of 77 at Harvard. Steve and I graduated build, but he did better.

[laughter]

um

on on on the on the financial innovation, it feels like a lot of what you identified, black shores, modern portfolio theory, sharp ratios, all all of that. Uh that's all pre999. Uh I'm interested in understanding what what what was the key unlock to bringing private equity to technology specifically? Were you thinking about metaf's law, network effect, zero marginal cost? Were you looking at businesses that fundamentally differed from the traditional widgets business or industrials business and had different structures or what what else was going on there?

Really good question. So at that point technology was in a part point of the transition. This is like the future is here. It's just not evenly distributed.

Yeah,

the it was thought to be an area two things. One, it was thought to be an area of expertise where you and it was true. Yeah,

you really had to have specialized expertise to understand the companies to invest in them successfully. You couldn't just wander off of out of Wall Street with your pinstripe suit and sort of think you could figure go to a couple conferences and think you can figure out how to buy, you know, a tech technology company because the the the process of evolution was so rapid.

Um and then secondly, to that point, people did not understand how technology companies had evolved. That point technology companies were big um they consumed huge amounts of cash.

Mhm. in investing in R&D to build the products.

Yes. uh and they had very volatile earning streams um as a consequence of um being pioneers in a space that came and went very quickly and so people looked at that from it was a venture capital gig but look at that from a private equity perspective and say you can't do it but at that point Microsoft for instance that's why I was talking about Microsoft

got to a level of scale where it was one of the greatest economic enterprises in world history the um where you make this piece of software that comes comes out of someone's brain has almost no capital expenditures and associated with it no kind of fixed cost and sell it a billion times

right I mean that's and just this massive flywheel of cash comes into that company and we I you know and

when was that when was that like light bulb for you no but for you personally

for me it was I I observed it in the 90s

um I had the benefit then of living in Boston and the venture capital business was pretty sc um uh vibrant there then it moved later primarily to Silicon Valley but there was a big footprint in Boston in those days uh because you remember um data general and digital equipment were kind of there the micro companies the sort of the mini computer companies um and so you could watch it happen and you say you know that's a better way to make money than just trying to extract value from rationalizing legacy industrial companies that have been poorly managed.

Yeah. widgets business,

right? And then the other thing is remember is that people will in thinking about exiting businesses uh the market will pay you more for companies that have good this was an insight in those days. Not now. By the way, in those days to borrow money, you had to have assets to back it with, you know, like um you know, inventory, working capital.

You couldn't use you couldn't use the company that and and and then yeah, you couldn't use the cash flows in this in the in a software business. Didn't you know, they maybe had a a lease for an office, but not a lot of like servers.

But so what we had to do was teach the markets to lend against cash flow.

Oh,

actually lend against assets. So cash flow lending became this kind of new thing that we had to teach people how to do. And when then once you got that

then you realize that if you had a rapidly growing company like a Microsoft that had an extraordinary cash flow engine huge barriers to entry at that point people when I came in the investment business people said tobacco is the best business to invest in because I'm serious because it was very stable. It had stable cash flow stable pricing and it didn't vary with recessions. I said, "Let me get this straight. A businesses that addicts and sickens its customers is better

than Microsoft." No, I'm sorry. I don't agree with that.

Right.

Right. You got to look at the modern world and understand that these cash flows are sustainable and these businesses are extraordinary because it doesn't because the the the product comes from someone's head.

They don't have to [clears throat] build a factory

to build the thing.

Fascinating.

And so we just built this built this business that got that that had that set of insights. And as a consequence, we were able to build a so the other idea there was to build a strategic competitive advantage, a commanding heights that you could occupy that made it very hard for anybody to compete with you.

So um yeah, so help us bridge to uh some of the debt financing that's going on today. I think that there are a lot of folks in the tech community that are very used to uh bunch of 20% dilution equity rounds, maybe a growth equity round and uh the idea of bringing on a partner like Blue Owl for some massive deal. it just doesn't map to the traditional like tech startup uh like path and yet folks who are trying to understand where AI is going and where the big hyperscalers are working start have to grappling with a with with debt and how debt is coming into this generation of this

Sam Alton has has said like we maybe need new he he said we need new ways in we need financial innovation not just technological innovation a lot of people have

uh you know, kind of shunned him for suggesting that. But I think based on what you've been describing of what enabled this wave of like value creation Yeah.

and unlocking the value of these private companies and the value of their cash flows,

it can be done responsibly.

It can be done responsibly. Yeah.

Yeah.

Wow. That's a really really good question. Um and I know maybe we'll have to do a second show just on that because because this is that's a complicated topic, right? But um it is it technology is very I like technology, you know, gotten into it full-time for now, you know, 25 years ago. Um I still feel like I'm new to like I'm still new to golf even though I've been playing it about the same period of time.

Um the uh but one of the things great about is it's constantly changing and you have to constantly adapt your thinking and develop new modes of sort of how of investing. And so this AI thing is come brings us back to the future.

Um that which is it's techn it's a techn softwaredriven LLMs technology enterprise that requires a scale of capital investment that we've never seen before.

Uh and that's a really unique kind of challenge. It's one of the things that's drawn me into the kind of investments that I've made there. It reminds me a bit historically it reminds me a bit of when um the fab the semiconductor companies went fabulous about 25 years ago. Yeah.

Um and the industry split into companies that design semis and and basically TSMC, right? Uh and TSMC succeeded largely because the the country of Taiwan was willing to essentially lend them the credit rating. Mhm.

The scale of capital necessary to build a fab that could design these that could manufacture these wafers with a nanometer scale that they had at prices that were cost competitive that could continue to drive adoption of um technologies based upon semiconductors was only approachable by a national credit rating.

TSMC had a backs stop

basically had the the backing of the government of Taiwan to go get this done. There's a reason why it's in Taiwan. You couldn't do that in those days that that the capital wasn't available to do something like that in those days at that scale for that kind of enterprise.

Mhm.

So, very similar today, which is the scale of financing that's that's required to do to in to [clears throat] build all these um fabs, not fabs, I'm sorry, factories, data centers. I call them factories because they're factories manufacturing data now. And what I say to my people, what I say to my friends is America's now the leader in the world in advanced manufacturing because we're building these data centers to manufacture data.

Y

right. Uh and that's kind of what it is. It's a massive factory manufacturing LLM and applications for both training and inference. Um

yeah,

that's kind of one. The second point um would be you um that people compare this to so the question is are we in a bubble?

Sure. That's kind of underlying the your thing you raised, right? What kind of bubble is it? And the question you have to make a decision whether or not this is more like subprimes in08 or more like the internet in 1999 2000.

Mhm.

You know, whether the subprime is just kind of something that's not real. It's going to collapse and when you're left, you're just left with a bunch of debt and no value there because the home values all went down.

Um I am more in the internet camp.

Yeah. uh which means that um of course there will be uh companies that will be formed that won't be successful.

Of course there will be investors who put capital in bad places and lose money. Of course there will be some number of scoundrels and shysters who come in because money gets moved around and they get attracted to this. Right. Um but there are um uh one major you mentioned blue alowl um the one major difference today between the buildout so this what was happening simultaneous with the internet was being when the dcon companies were being built could say the the LLM equivalent today the fiber optic networks were getting constructed all around the country the selex and those all went to zero and people lost their money on it. The major difference between that and people use that as analogy today and and maybe the railroads is another analogy but the major difference between that and today is every one of these data centers almost all of them has a counterparty a solvent counterparty that is contracted to take all the output they're built to suit

y

not if you build it they will come

okay uh Microsoft has I think the world's best credit rating if you sign a deal with Microsoft to take the offput for your data center.

Satcha is good for it.

He's good for it. Yeah.

And by the way, Microsoft's gonna survive if that has a collapse at some point before it comes back again.

That's a good point.

So, it's a very different kind of financing structure. And the the last point I would make and just finish this is that each of these deals so far as I understand it is done in a way that essentially generates in in the four to 5 year period of the deal generates about a two times multiple of money on the cost of buying the GPUs and standing up the data centers.

Oh interesting

right so the cont and they're about four to five year contracts. Yeah. uh and the output is has a now and and and then and talk about okay embedded options and how you value those right and the and then the owner of the of the the GPUs in the data center has an embedded option on the value of the used GPUs which will be worth something I mean your 5-year-old iPhone is still worth something

of course

even though people are buying the new ones right y

uh and so the each of the model each of the business each of the contracts and builds right now has an has a has a commercial proposition in Mhm.

And when done well, these companies that are doing this, like Cororeweave, are putting one of building a wall with one of those bricks on top of the other.

Yeah.

Do you see what I mean? So, it's not it's not analogous at all to the Selex where they put a bunch of money in the ground and then went to get the customers and the customers weren't there.

Sure.

That's a very different thing.

That's a really good point. I haven't I hadn't considered that. That makes a ton of sense. That's great. Uh yeah, I feel like a lot of people in uh in tech are just struggling to, you know, there's been this narrative for a while that chatbt is the new Google and then you look at how capital consumptive OpenAI will be before profit comes or cash flow comes versus what happened with Google where they were throwing off millions of dollars in cash like well before IPO and the prospectus just looked so clean. in this like super high margin business very fresh out of the gate. Uh and it's just a very different world that we're in where we're delivering as something similar. It feels just like a

partly because OpenAI has to compete with Google.

Yeah, [laughter] maybe. Maybe. But it's just a different it's just a it's a capital consumption changing a little bit.

Yeah.

Each wave of technological innovation companies are created that don't obsolete the company that went before them. They do something completely different. Yes.

Right. And they're sometimes very different like you know so you've got you know the the the soft the Microsoft software was unlike that was the operating system the applications was unlike anything we had before because we didn't have the PC.

Yeah.

And then Amazon was not anywhere near like Microsoft. It was a whole different kind of innovation that was based upon the internet that was built.

Yeah.

Uh and then Google and was different was something new and Facebook was something entirely new. So these aren't companies that say I your thing away from you,

right? Each one is a very different kind of unique unicorn type of business that occupies a niche itself and eventually obsoletes the other businesses because they stop growing.

Yeah.

Right. Like Facebook might stop growing if consumers go to Open AI, but it's not because they're going to open AI because it's a new social network.

Yeah. It's because as a different use case is valuable to them today.

What's been the biggest learning surprise sort of update to your mental model from working with coreweave?

That's a really good question. Um the the the pace of change the scale we talked about. I mean the thing that just amazes me is the scale at which this thing is growing

uh and the um uh this the rapidity

uh that you have to uh have in order to act to act at to to be successful at this kind of scale with this kind of growth. It's unlike anything I've seen before. you look you saw the adoption curves of um you've seen the adoption curves of open AI versus Google versus other things right

uh and it's just like this asic thing going to 700 million customers right overnight all the infrastructure to support that is like unlike anything we've ever seen before

yeah and it's it's still under discussed how much bigger and faster the outcomes can be when you have the internet as a distribution as a distribution engine so like during when like you know you founded uh Silverlake in 1999. I'm sure you've looked at a bunch of companies that had a lot of potential that if there was already billions of people using the internet they would have done very well. And the challenge at that point is there maybe wasn't enough internet users uh to support even ideas that were struct like structurally good ideas just missing enough enough of a of a user base. How how much time do you spend uh finding and and meeting and backing new managers? I feel like every new technology cycle, you know, the the hottest hedge fund of the year is situational awareness or at least at least on X and that feels like um I I imagine there will be more of those. And so I'm curious uh how how many how much like new fund formation you're seeing and and what you're most excited about on on the GP side. Yeah. So, I've got so I have investments. I don't do venture capital investing per se.

So, I've got investments in some of the major venture capital funds, you know, in my investment platform and I know all the people and watch what they do. But my business model outside of that is to find a small number of companies where I can put a fair amount of capital and be engaged helping to create the outcome.

Mhm.

See, that's kind of where I spend my time. So, I'm not doing the whole build the massive portfolio thing. I'm picking my spots. And you mentioned, uh, the European Bank that I'm the lead independent director of.

Yeah.

Um, you know, we've got that stock up 3.5x in the last three years since I invested.

Hit the gong.

We have a gong here. We'd love to hit.

Right. So, you know, there you go. Oh, that's great. Thank you.

Thank you.

I don't But I got to tell you, I didn't get founder mode, guys. I don't know. I [laughter] don't know what's going on here.

Founder. Here we go.

There you go. I didn't get founder mode. Come on. Wait for that. [laughter]

You got to do founder mode for you.

I love the love show.

Is also there for you. [laughter]

I love it.

You know, you know, I've got um uh children about your guys age. I just love your generation. I love hanging out with them. [laughter]

Um it's a lot of fun. Um so, by the way, you see this logo here on my shirt?

Yes. What is that?

That's binary code. See that?

You know what that's binary code for? Uh

1 0 0 1 1 0. What's that? 1 0 0 1 1 0

1 0 0.

It's binary code for 70

70

70.

What? What?

It's my It's my 70th birthday logo.

Oh, very cool.

There we go.

Happy birthday.

Thank you. Congratulations. Incredible.

So, as I say, I've got I've got uh kids kids your age. Uh and I really love hanging out with your generation. It's been my a great pleasure for me.

Yeah. Um, thank you. So, we love hanging out with you, too.

You as you asked me another question that we got distracted from it. Oh, the So, what what I'm trying to do is find a small number of enterprises in which I can engage.

Mhm.

Get involved with them at a senior level in both cases, core and sundere. I'm lead independent director.

Yeah.

Uh, you know, which is another term for non-executive chairman. There's usually an executive chairman and I'm non-executive.

Uh, and then really work with the enterprises to build value.

Yeah. That's kind of how I think about it, right? And I then I I let venture capitalists who I invest with uh and I still invest with Silverle be on the rock face every day building these portfolios.

The rock face analogy. I like that.

Right. Well, you're you're the mountain climber, right?

Yeah.

Yeah. Right. So, um though you're this your height of a basketball player, I think probably the wrong sport. Um [laughter] I think you're referring to like one of our early episodes where I I was joking remember about

about you climbing that those like

Oh yeah yeah yeah. [laughter]

Yeah I heard I heard that. Yeah. I thought that was you were just you were just kidding him right messing around just cuz just the idea of John a 68 guy scale.

Okay. Yeah. I agree. [laughter]

I can't rock climbing.

You could do I I believe in you but I I would be I think that would that would probably violate insurance.

Yeah. I definitely want to be above him on the wall. I don't want [laughter] to be below him. But

anyway, so you know, so I'm I'm trying to pick my spots and really add some value.

Yeah. Well, well, thank you so much for coming on the show. Uh we have to have you back soon. This was fantastic. Uh we could talk all day long.

Uh yeah, there's there's so many so many more questions I want to ask.

Congratulations on the success of the show, guys.

Thank you so much.

You're welcome on welcome on any

coast. Anytime.

When you're on the East Coast, come see me.

Fantastic. Yeah, we will.

Thank you so much. Play him off. Let's hang. Thank you so much, Glenn, for taking We'll talk to you soon. Uh, let me tell you about uh getbzzle.com. Shop over 26,500 luxury watches. Fully authentic in-house by bezels team of