Dan Primack: IPO market is down 20% year-over-year, VC median returns trail the S&P 500 for 25 years

me also tell you about Phantom Cash. Fund your wallet without exchanges or middlemen and spend with the Phantom card. And without further ado, we are joined by Dan Primac,

a legend

from Axios. Dan, how you doing?

What's going on?

Good. How you guys doing?

We're doing fantastically. Thank you so much for taking the time to come chat with us.

Great. Long overdue. First time on the show. Crazy

uh story from this

fan virgin here.

Yeah. crazy

uh story from breakfast this morning. I was talking with John uh when we were looking over the schedule and I was telling him uh when I first got on Twitter in college I followed a bunch of VCs as one does and you know I see them every day you know talking about oh I backed this company at seed or series A and you were the first person to really highlight like oh man you know like some of these numbers aren't looking

sometimes they don't meet they don't beat the the S&P 500.

Yeah. So you were the I I initially had some cognitive dissonance but uh came around to your uh VC returns truthing thing over time

but that's a good place to start. Uh what yeah what is the health of the of the VC industry the VC market? I mean, it's not great, right? We reported the other day, uh, you know, that that median returns are are under the S&P 500, they're under the NASDAQ, they're under the Russell 3000 for 25 years, and and I know there's a little bit of lumpiness because, you know, you're coming out of certain things that's coming out of kind of the great financial crisis, but that was true for the public markets as well. Uh, so it's not great. Now look, you know, top top funds in those top 5%, they're doing great. But the reality is you've got so much more money flooding into the market now. That means more money is going to be at that median. And that's not great for them. And and and it's, you know, you're talking 401ks, you're talking more money coming from insurance companies, etc. It it's not a great place to be. Uh it's it's one LP told me this quote I use. It's kind of the the story of hope over experience, and that's what Venture Capital seems to be right now.

Yeah. talk about that money that's flooding into VC because there's smaller funds that had a particular playbook that have scaled up massively become growth funds. There's stuff that there's the crossovers, there's SPVS, there's strategics. Like what is the shape of the venture capital funding boom over the last few years?

I mean, it's hard to even define what venture capital is anymore, right? Like I mean can you say that somebody who's putting half a million dollars into you know a founding team of maybe two people in a garage is that the same as giving you know $10 billion to open AI I mean they're not even vaguely the same industry uh but they're all quote venture capital uh but there is an enormous amount of money and it's coming from everywhere right you know it used to be that if you wanted exposure to venture capital you had to you know either be an institutional investor or have a friend and be very high net worth at this point you can get some exposure to this stuff by just having a Fidelity mutual fund right you Fidelity contra fund has a bunch of quote unquote startups in it. Um you know and what's coming soon out of the Trump administration is letting your 401k plan invest in private funds. Now are they going to actually invest in individual funds? Will they try to kind of put money into pools? Unclear. It hasn't happened yet. But but there's a hu it's a lot of money coming and it's the thing that venture capitalists and private equity firms have viewed as kind of the holy grail forever because they haven't had access to any of you know that defined contribution money. So when you saw the news, you jumped out of your chair and you said, "Yes, finally my 401k will be deployed into venture capital."

I mean, look, this is the moment when traditional limited partners in venture capital have been, if not getting out, at least trying to give themselves some optionality, right? You you've seen some of kind of the biggest endowments, Yale, Harvard, etc. do big secondary sales of their private equity and venture portfolios. They're not getting out, but they're recognizing they were a little bit too concentrated. And so it's the very minute when some of the smartest money is if not leaving at least hesitating that I hate to say it, all the dumb money is about to come flooding in.

So what does that mean for this K-shaped dynamic that we see in venture capital where there's a few funds that are getting bigger, they still have solid returns and then smaller managers seem to be getting crushed, but what are you actually seeing?

I mean, I I think that's what we're going to continue to see, but the and and this is where the hope over experience part comes in. the best returns still in terms of actual cash on cash are still the young funds, right? It's not the it's not the firm that invested in SpaceX 2 years ago. It's the firm that invested in SpaceX 8 years ago and those were generally smaller funds. Granted, it was founders fund, but they were small at the time. Uh so it is it that's still where those massive massive returns that when people think of venture capital, what they're thinking about, you know, if you invest at a you know half a trillion dollar valuation in a company that you hope is going to go public at a trillion that's nice. I mean 2x is nothing to sneeze at, right? You'd be happy that with mo, but that's not a venture capital return. That's not the reason you have this, you know, the illquidity premium on venture capital.

Yeah. Uh what's the shape of the illquidity premium this like around uh like recently in in recent fundraisers? I mean, everyone goes back to the 2 and 20, but there's obviously a dispersion around that. What are you seeing?

I mean, there is I mean, the this is the problem is when is what that illquidity is right now? Because it used to be you you'd think you're invested in a startup depending on the stage right but say from inception you know seven years maybe that sounded about right at which point maybe it worked and if it worked that means an IPO or that means a sale or if it didn't work it didn't work and and that's understood because it's venture capital. Now though, you've got companies, you know, decade, you know, 15 years old and you've got lots of limited partners in these companies or or in these funds who are looking and saying, "I've got great paper returns. These things are amazing on paper." But I keep going to my investment committee and you know, say you're a college endowment, right? And and your job is to produce money that then gets used by the school every year, right? It's not to take money out of the core endowment. It's to produce returns that then can be used to fund operations. And the investment committee keeps looking at you and saying, "Yeah, you keep giving us these great numbers. We need cash. We gave you cash. We would like cash back. And and the managers just kind of have to shrug and go, you know, Stripe doesn't want to go public. You know, what what can we do?

But it's changing this year, right? We might get like $4 trillion of liquidity this year between SpaceX, OpenAI, Anthropic. Walk me through the maybe. What What's at stake?

Before Before you jump in there, I I did have a a story. There's a friend of mine that I that I've invested with in the past and he's started to look at some new investments and uh he's uh closer to 60 than he is 50 and so he's starting to run the numbers and being like do I really care to make assume this goes incredibly well. Do I really care to get a 10x when I'm 75? like at at at some point he's like I might just leave it in the market and and uh go play another round of golf.

Yeah. Yeah.

So that's a real thing. How much um on the on the LP when you have conversation with LPs uh so much of the reason that I personally have invested in a bunch of startups and and some funds is is basically FOMO and like there's like the there's the healthier dynamic which is like I generally I meet a a founder that I'm excited about and I want to support them and usually money is the most effective way to do that uh at least at at scale. Uh but a lot of it is just kind of FOMO and you know venture is a small part of the money that they uh are allocating and they just want to be able to tell their friends or their or their uh or their fund that they're in all the great names and I don't actually care if it underperforms a little bit if uh I have something to talk about at at dinner.

Yeah. I mean look a limited partner doesn't necessarily care about that. Right. the the FOMO piece, their job, they literally get paid based on if they outperform a benchmark, whatever that benchmark might be. Uh so that's really where they care. And and on the FOMO side, I mean, there is this old story uh going back to like I don't know mid or mid 2000s where Harvard stopped investing with Excel, the big Silicon Valley firm. They were limited Excel for something they had done uh in terms of kind of splitting some funds and not giving money back. They were mad and they wanted to make a big point of not investing. So the next fund for Excel, the one that Harvard very loudly did not invest in is the one that seated Facebook, right? So that didn't work out very well for them. So you know there the FOMO thing is real. I I will say I mean you asked one of you asked about the crossovers earlier. I mean that there is this part of the market right the fidelities the troll prices of the world and the reason they're investing largely in these companies isn't for the return necessarily on those startup stocks. It's to have a nice foothold if and when the company does go public, right? to have a relationship with the company. So then they can take a really big position then they can get their mutual fund clients and their high net worth clients access into the IPO.

So is that more context to talk to their clients so uh a Fidelity has a bunch of high net worth individuals with accounts and they can say hey we've been investing in this company while they were private so we can bring a more confident thesis to bear or

No, I think it's literally access. I think it's literally access. I I think they'll I think what this often means is because they have a relationship and if you've got a very you know if you've got an issuer that's over subscribed for an IPO it's a very popular IPO the company's got to make decisions who gets an allocation of what those allocations are and what if you're Fidelity or Tro what you really want is to be able to go to your existing clients and say we've you know we've got you've got access to the open AI IPO if you want it do you want it and then the client's like oh you know they had access to open AAI I like these guys I'm going to stick with them etc that's what they want they want the relationship and they want and and they can say to the CEO, "Look, we believed in you six years ago. Of course, we still believe in you today. We're a long-term investor."

So, talk about the IPO market. Is it over or are we back?

It's slow. Uh, I mean, if you look, I mean, despite the fact there was this little boom in January in terms of both number of pricings, in terms of filings, we're down over 20% in both of those year-over-year from last year, which was a garbage year for IPOs. Yeah. So, everybody is looking at the big dogs, right? Everybody's looking at SpaceX. Uh, every, you know, coming sooner. Everybody's looking at potentially OpenAI or Anthropic. I I think data bricks is another one that people are sleeping on. That's almost certainly going to come in the second half of this year. So, I think what we might end up with is a really skewed IPO market. You know, the dollar numbers are going to look good uh cuz you're going to have some huge ones, but you're not necessarily going to have an enormous number of actual issuers, at least at this moment. I mean,

yeah,

it's pretty dead. We've got one coming tonight. That's all for the week.

Is that because uh

who's tonight? Oh,

uh tonight something called Mini, not a venturebacked startup. It's a diabetes management spin out of Metronic.

Is that because like you sort of have uh some sort of liquidity premium for the first name to go out in a category like core gets out and there's like the one public neo cloud and so that puts like the bar goes a lot higher for the next three neoclouds to get out. Something like that. I mean I I like I would like to think that may that that was a good argument or that that like that it's that's that much. I think it's really a vibes thing and a and a and a cowardice thing. Kind of been writing this story now for 3 years, which is these companies are scared to go public. Bankers are scared to necessarily bring them. Even though bankers are coin operated and IPOs are good for them, they're a little bit scared of having a lousy IPO and then having a bad reputation off of it. And also a lot of them are spending a lot of time on SpaceX because there's a lot of money in that for them. No, I think I think people are scared. They're scared, you know, what if this doesn't work? It's going to be a lot more work. There's going to be a lot more scrutiny on us. Um and and I think folks have just been terrified of going public for years and I don't think that's necessarily changed.

Yeah.

Well, and and of course, uh the choppiness of of the market this year, the SAS apocalypse narrative, all sorts of stuff.

But this is the problem, right? There's there's going to be choppiness every year, right? You know, last April you obviously had the liberation day stuff. Now you have a war, you have the SAS. There's always going to be a reason to not go public. And I think a lot of people take that reason. You know, there's always something. Yeah. What

What have you What have you uh heard? Uh obviously bad bad week to be fundraising in the middle in the Middle East. How how much are you looking at at uh the war is having kind of like downstream impacts on capital flows? Do you think it's you know this started as like you know we thought it was going to be a couple days now then it was a few weeks and now apparently it's looking like

September. So who knows at that point. Yeah.

Um, and so many of the so like

every time I log on to X, there's a refinery that's, you know, on fire, things like that, which is kind of the economic engine for

a lot of this capital.

Yeah. Yeah. I I'll take kind of the counter argument, I think, on this, which is that the one of the reasons that whether it be Saudi Arabia or Qatar or some of these other countries have decided to do so much venture capital/private equity investing, particularly in the US, and by the way, it's worth noting the folks who are doing these investments often are based in New York. they're not based in the Middle East. So, it's not actually impacting their day-to-day lives is because they want diversification from oil. So, yeah, there there could be some issues in terms of actual capital flows because people are like, "Oh, wait. We're going to have less actual money coming through to invest." But at the same time, the point is diversification and it's possible that what's happened over the past week or two is going to only kind of solidify that desire for diversification. Oh, wow. Oil is our economy. We need other stuff. Mhm. What should we read into Michael Grimes going back to Morgan Stanley?

Uh that you don't that that working for the White House is a is a complicated thing. You don't want to do it for too long. Um beyond that, I mean, look, he's like SpaceX is about to go public. Um you know that and there's going to and the thing is the reason bankers love IPOs isn't for the IPO per se, although they like that. It's all the business that comes after that, right? It's the secondary offerings. It's the debt offerings. It's the acquisitions because the companies now have a public stock and it's easier to buy stuff. It's all that other business. It's the reason everyone wants to be the left lead and and Grimes, you know, is an Elon Banker and has been and I think this is a great time for him and for Morgan Stanley, it makes all the sense in the world to bring him back in the fold.

There's also the uh wealth management piece, I believe, like after uh the Facebook IPO, you have a whole bunch of potential new clients, right? And so there's that's also a piece of lead left. what what actually goes into winning lead left is is that is that is it sort of power law distributed in the allocation or the amount of work or is it more of just like a symbolic title and everyone's sort of splitting it equally. I I think there is more work. I I think getting lead left and the reason you know that it's JP Morgan over Morgan Stanley or somebody is really the relationship usually between the CEO board and that particular banker maybe that banking team. It's really a comfort thing. It it's the first call, right? If something's not going well or something is going well, you need to have that one person. You don't want to have to call 10 bankers at 10 different banks to give them the same information. You want one source of information. They can be kind of the distributor to everybody else. Mhm. Uh what what are you tracking on the other AI lab side? Uh there's a whole bunch of rumors anthropic open AI. Uh what what are you seeing on that side of the of the IPO market?

On the IPO, I mean I open there I do think there is perceived you mentioned earlier this kind of first mover in a space. I I do think there is a sense between Sam and Daario that going first might have some advantages to it. I think there could also be some disadvantages. But I I do think even though we all know the losses are huge, I think the market's going to be shocked when they actually see it in black and white from the companies how large these losses are. Uh but I I so I think there is a little bit of a race between the two of them. It's going to be a huge headline. It's going to be a huge story. Open AI does seem to be a little ahead on that. When you look at, you know, they have a CFO who's done this before and Sarah Frier, right? She helped take Square, now Block Public. She then ran Next Door. She's done this before. Uh so I I think that's going to be the story of the second half is is going to be those two companies maybe battling. I do think open AI goes first again unless there's some you know extraneous event. uh you you mentioned that uh companies are afraid of going public. Obviously like at the high level there's completely different equations around what SpaceX OpenAI how they're thinking about this but at that sort of like mid tier of decacorn centor the the the stripes of the world uh do do they see that there's now infinite liquidity in the private markets to raise endlessly or are they more aware that their current investors their VC backers are fine rolling everything into endless continuation vehicles so they can get profitable and operate as a highly venturebacked profitable company in the private markets for a long time.

I I think it's that uh I think there's enough capital and and they can get some. So it used to be you one of the main reasons to go public outside. So there was two, right? One was get cash on the balance sheet. Well, as you say, there's tons of money in the private market. You can get cash to be honest probably easier in the private market than you can in the public market if you're a strong growth company. And then there was liquidity not only for investors but but for early employees. That was always a very big deal, right? You know, how do you help get, you know, how do you help get money for these folks who have all these options? Well, you've got this kind of industry of of secondary tenders, which has happened. Stripe does one annually. They did one what, two weeks ago. So, you can satisfy both of those problems now. So, there's not a real great reason to go public if you're not somebody who really wants to. There there are certain founders who like the idea of ringing that bell and being that CEO who does the quarterly earnings call. It's a feeling, you know, it's a big leagues thing, right? We've gotten the big leagues. It's what Bill Gurley always or I'm sorry Fred Wilson used to talk about Uber like you know get in the [ __ ] ring go public. Um but you know some folks though you know if you're the Collison brothers I I'll end I'll if they ever do go public I'll be kind of stunned. They don't want to. They clearly don't want to because they could have and they still could and they haven't. And I know when Sequoia Capital did kind of a quasi continuation vehicle about a year or two ago for Stripe where they basically said to other investors we'll buy your stock you know if you want to. We're going to buy your stock in this so you can get out. we want to double down. You know, I spoke to somebody over there. I said, "How do you get out of this thing ever?" Like, "How do you, Sequoia, how do you ever get liquidity?" And they said, "Well, they're going to go public." And and I said, "What gives you the thought? What what gives you any confidence in that?" And there wasn't a great answer to it outside of just faith. And so, you know, I guess faith

faith. What about uh secondary fund growth, LP demand for secondary funds? um even like the fee structure of secondary funds because it feels like so much lower risk if you're managing uh a fund that is just going to buy secondary that's been priced by the best VCs. You're just following along. You're buying maybe at a little bit of a discount. Can you really justify two and 20 on that type of fund?

Uh to you or to me? Probably not. But can they to uh their investors? Apparently they can because that's what they generally get. Not always, but it's what they generally get. Uh, you know, the secondary market's interesting because even just probably like maybe say 10 years ago, it was still very much a cottage small industry. You had a handful of firms that did it that traded, you know, LP interests and venture capital funds or private equity funds. A very small number who did direct secondaries, which is, you know, buying actual portfolios or or individual company stocks from somebody else. Now, it's this massive business and and big private equity firms have gotten into it, right? So, several years ago, Carlile bought something called Alp Invest, which was a huge secondaries investor. EQT, which is kind of this private equity firm most people in the states might not know about, but it's one of the biggest in the world. Uh they just bought AES, which is this huge utility. They bought something called Collar Capital, which is one of the original secondaries firms to build up that practice. So, it's it's becoming a really mature marketplace. Um and and it is another way that companies can stay private longer. It's also a way that you know institute the limited partners can get some liquidity so they can feed it back into the system. Otherwise, given the kind of the lack of, you know, so-called DPI, distribution of paid in capital, the whole market would grind to a halt because a lot of these investors haven't been able to get their money back via traditional means.

Do you think we will see a well-known venture capital firm go public in the next three years?

Yeah, General Catalyst, you think?

Yeah, they I mean, they're they're the one I mean, they're because they're not really a venture capital firm anymore. I mean, it's it's their core. It's still what they do and they invest, you know, in series rounds and startups and they still do that, but they've got a wealth management business. They own a hospital. I mean, they own a hospital. That is not a venture capital thing. And by the way, have to say and and I I this is not a knock on them, man. If I was admitted into a hospital and somehow there was like a plaque on the wall that said we are owned by a Silicon Valley venture capital firm, I'd be scared out of my mind about what was about to happen to me in that room. Um, but they're not

You'd be getting a YC company robot would be doing your surgery. It'd be great.

That's exactly what I want. I you know, as you know, whenever you see a doctor, particularly for a procedure, you want to hear the word experimental. That's always what you're looking for. Um and and you know, uh so I they're not really a VC firm anymore and and they they've diversified and they want a diverse B paying asset base, which is what they're building. Good for them. And to be honest, it's not even that different. If you look on the kind of the private equity side, you know, Blackstone started as a private equity firm doing leverage buyouts, but then they got into other stuff, right? They have private credit. They arguably became a real estate investment firm more than anything else. Diversified asset base. Yeah, I think GC will do it. Uh Sequoa has been talked about forever, but they don't seem to have an appetite and and the way that they operate in terms of management, it doesn't seem doesn't seem like it's going to be them.

What about Andre?

Maybe Andre.

Yeah, maybe Andre.

Maybe maybe Andre, but can you honestly imagine Mark or Ben doing quarterly earnings calls? I can't.

That'd be fun. I mean, they do a lot of podcasts, so it's somewhat similar. They got the raps.

They do a lot of podcasts with their friends.

Sure. Um what about uh the fact that uh private equity and private credit uh has sold off so significantly in the public markets. Isn't that uh downward pressure? Any any VC firm has to be looking at that and saying like hey maybe we want to stay out of this for a while.

I I would think so. I mean it's it's an interesting thing. I you know we were just I was just having a conversation with a colleague um before I got on with you guys about this and this question is there systemic risk in the private credit market or is there not? And and the argument for yes, if there's any, would be that so much of the money that's gone into private credits come from insurance companies. That that's been this big boom into it. That's kind of the counterparty here. And uh-oh, like you know, if insurance companies have problems, we've seen this act before. We know what happens when insurance companies have problems. It goes bad for everybody. Uh but that said, you know, the private credit selloff right now seems to be a reaction to the the SAS apocalypse and some of that. We haven't yet seen a large number really any significant defaults of private credit. People are trying to get their money out of funds. There's been big redemptions. That's a liquidity story. But it's not that, oh my god, you've got, you know, these 20 companies that have gone under that are in these portfolios. Look at those dominoes.

Well, it's different. It's different than, you know, a private credit fund that's getting a bunch of redemptions or kind of a run on the bank. They can just say like, "Hey, we're we're cutting off redemptions. This is a, you know, 10-year fund. We'll see you." Basically, we'll see you later. It's different than an actual bank run where you can just go and say like, "I'd like my money back." And then you have a a collapse,

right? And and look and and they consider that a feature, not a bug, right? That's one of the arguments private credits made for why they are stable. You can't just, you know, the funds can't just have all the money uh pulled out in a day.

Yeah.

Um how much have you tracked uh the volume of SPVS that have been happening over the last 12 months? I I imagine it's pretty hard to actually get a lot of data, like high quality data on this. There's been this narrative that uh you know that the average person has been cut off from benefiting from the overall uh gains in the in the in the market caps of a lot of the AI labs in particular. I would push back and be like everybody, you know, if you've got a 401k, you own Amazon and Nvidia and Microsoft and so you actually do have quite a bit of exposure to the labs. But and the other side of that is that it didn't feel impossible to get exposure to anthropic over the last 6 weeks if you wanted it because people were posting on X. Hey, I've got

a slug here, a slug there. If you wanted it, you could probably get it. Um,

probably. I mean, two things about SPVS. One, to answer your first question, I don't have a great sense on the tracking in terms of actual volume except, you know, this sense that it's through the roof. uh when people advertise an SPV or or say even forget advertise maybe you know somebody you know personally and they send you a note about it you don't necessarily know they actually have exposure what they're trying often to do is build up enough money that then they can go to somebody and offer a good price they're often putting the cart before the horse I will say I mean certain companies uh big companies included have tried uh clamping down a little bit on it I mean CEOs and CFOs particularly hate SPVS generally speaking not always but generally don't like SPVS because it complicates their cap table, it becomes even though it's a single entity, it still becomes way more investors. It becomes a lot more exposure. They would generally rather have a traditional investment firm in them than or a traditional investment fund than an SPV.

Yeah.

Yeah. General solicitation potentially overrated.

Definitely overrated.

You probably need to avoid it. Anyway, thank you so much for taking the time to finally have you on, Dave. Great to have you on. Uh thank you for all of your coverage and come back on anytime.

We'll talk to you soon.

Thank you, guys.

Have a good one. That's it.

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Tim Sweeney

Tim Sweeney

is feeling good.

He's feeling good. He's out front of Google. He uh according to the Verge has signed away his right to criticize Google until 2032. There's some nuance here. He agreed not to criticize Google related to app store distribution and fees. They got to a uh to a deal.

Give us

Stop talking trash. Stop dragging us.

Please, we just need a break. We're exhausted.

The Verge put it in harsh harsh words as Google has finally muzzled Tim Sweeney. So uh he might be one of the most outspoken people in the history of the world. He fought two of the world's most valuable and prof and powerful companies all almost all the way to the US Supreme Court insulting them again and again crooked deceitful insanely sneaky calling Android a fake open platform calling both companies gangster style businesses that will do anything they think they can get away with. telling me how Google's Project Hug was an astonishingly corrupt effort at a massive scale. Wow. He does not mince words. But Google has finally muzzled Tim Sweeney. It's right there in a binding term sheet for his settlement with Google on March 3rd. He not only signed away Epic's right to sue and disparage the company. He signed away his own right to advocate for any further changes to Google's App Store policies. He can't criticize Google's App Store practices. In fact, he has to praise them. The contract states, "Epic believes that the Google and Android platform with the changes in this term sheet are prompetitive and a model for app store/platform operations."

Two companies have also agreed to terms about a new class of apps they're calling metverse browsers.

According to a heavily redacted section of a revised binding term sheet, while the term metaverse has largely fallen out of favor,

uh, Epic CEO Tim Sweeney has been talking for years about the metaverse and how it might work in the future. And this actually isn't the first time there's been a connection with Epic and Google about the metaverse. In court in January, while discussing a secret $800 million Unreal Engine and services deal, Sweeney blurted out that the agreement related to the metaverse. Uh unfortunately, the redactions in the binding term sheet cover up a lot of key details about what a metaverse browser actually is. But what's from vis what's visible in the document metverse browsers will have the primary purpose of allowing the navigation of exploration of metverse worlds support virtual items and identity that are portable across different worlds and must support modern security considerations.

Well, if you don't see me here one day I'll be in my Apple Vision Pro playing Fortnite in the metaverse browser for sure. It's going to

it's going to get me. Uh, let me tell you about Gemini 3.1 Pro. With a more capable baseline, Gemini 3.0 3.1 Pro is great for super complex tasks like visualizing difficult concepts, synthesizing data into a single view, or bringing creative projects to life. And without further ado, let's bring in we the Lambda Lightning round. We're kicking it off. Let's take a look at