M13's Carter Reum on 150x SpaceX returns, why the LA startup scene is having a 'siesta,' and where to find alpha in the AI era

Speaker 1: Great to see you, Merrill. Congrats.

Speaker 2: Congrats so much. Let me tell you about Railway. Railway is the all in one intelligent cloud provider. Use your favorite agent to deploy web app, servers, databases, and more while Railway automatically takes care of scaling, monitoring, and security. And our next guest is here with us live in the TBPN UltraDome. We have from m thirteen. How are doing?

Speaker 6: What's happening, guys? How you doing?

Speaker 1: Welcome to the show. We're doing great. We're great. Give us your review of the World Cup so far.

Speaker 6: Oh. That was definitely the best game in US soccer history. You know, historically, The US has always been competitive but just could never find the back of the net. So to find the back of the net that many times, that was Mhmm. Nothing short of spectacular.

Speaker 1: I had a I had a my my I turned it on. I'm watching for, like, not like really focused on the game. I think I was like in the middle of something. But I was like, wow, we cannot get the ball on Paraguay's side, like, for the life of us. And I realized like I had the I had the the Paraguay's flag look like our jerseys. So we were actually playing quite well. We were we were pressing them the whole time. But I didn't know. And I was oh, wow. This is amazing. We're we're doing great.

Speaker 6: Yeah. Hopefully, yeah. Hopefully, The US gets excited. Like, we hosted the opening night of of the World Cup the night before at our house, and I was texting people going, hey, we're hosting this event for US soccer. They're like, what's coming? I was like, the World Cup. The last time I was in The US was only thirty two years ago. But, yeah, we'll see.

Speaker 1: Come a long way.

Speaker 2: Do you track, like, economic impact from World Cup? Are you reading into it? Some people are saying, like, that's the reason why we're seeing unemployment so low in a time of AI disruption. It's like there's a lot of hospitality hiring. Do you read into this stuff?

Speaker 6: I don't do a whole lot. I mean, it's interesting both between the World Cup and the Olympics. Right? They always put out these studies, and the question is, are you losing a shit ton of money, or

Speaker 7: is it

Speaker 6: who's making the money? Yeah. Yeah. I can tell you the car service in Seattle, they're definitely making money. The company's gonna be $2,500 for a thirty minute trip when I land for Friday's game. So, you know, there are definitely people who make

Speaker 1: Woah. Woah. Surge surge pricing? Yeah. Exactly. Surge pricing of effort for Porsche. $2,500.

Speaker 6: But it's a great economic lesson.

Speaker 2: It's a in Vegas for f one. It was the same thing. It's a couple thousand bucks just to have a car take you from your hotel to the event. It was crazy. Anytime that there's huge demand. So you're thinking more long term. Take us through the basic thesis for the fund, some of your historical investments. Obviously, it seems like you're not thinking quarter to quarter based on, you know, unemployment rate data of this month and whether or not the World Cup is causing unemployment or to decline or spike. But what is the thesis the fund? How long have been doing this?

Speaker 6: I mean, we started m thirteen ten years ago. We just celebrated our ten year anniversary.

Speaker 2: Congratulations. Where's name come from? Success.

Speaker 6: Everyone thinks we're El Salvadorian gangsters.

Speaker 2: Okay. MS

Speaker 6: thirteen. Sadly, I'm not that that gangster, but brightest cluster of stars, brighter than all the stars that comprise it. It's always been our philosophy. We can connect the dots and create more value.

Speaker 5: Got it.

Speaker 6: But, yeah, you know, fast forward ten years later, you know, we've been the Cedar Series A investor in 17 unicorn, so sometimes better to be lucky than good. Incredible. You know, on days like last Friday when we invested in SpaceX at 15,000,000,000 and banged out, you know, 150x, you know? We all need more days like that. That's incredible. Yeah. Thank you for the sound effects. That was well deserved,

Speaker 2: I think.

Speaker 6: Yeah, and I think even at some point we'll start talking about AI, everyone thinks like we haven't seen this before. And I think the key is as a VC, you have to learn how to invest in cycles, right? Like we felt like the world was white hot in 2020 and 2021.

Speaker 2: Yep.

Speaker 6: Turns out it's even hotter now. Right? You think about a lot of us like m thirteen and Therese, and all of us, we are investing in consumer software Sure. Social media, things like ride sharing. That was the implication of the technological breakthrough, which was the iPhone, right? And so there's always kind of these ripples, and so, yeah, now, you know, we got 35 people, offices, New York, San Francisco, LA. Always trying to think what is that next ripple? What is that implication of that technology? How do we invest where the world is bending? And, you know, I think SpaceX is a great example. You invest in outlier people who could create outlier companies, and you you you hope you take enough shots on goal that sometimes, you know, you get those those big outcomes.

Speaker 2: SpaceX, Ring, Matterport, you're not afraid of hardware. Where'd that come from? What's your thesis on hardware enabled technology companies going forward?

Speaker 6: Yeah. I mean, like, take AI today. Right? Like, my housekeeper knows it's gonna change the world. Right? That is not that takes no skill. Yeah. The skill of a VC is to understand where to get the best risk and probability adjusted outcomes. Sure. Right? And to do that, you've got to find the right value layers. Right? So, yes, foundational models are enormous. They also come at high prices with a lot of competition. The thing I talk about all the time these days is, if you think about the last cycle around consumer software, social networks, it was innovators competing with innovators. Right? Zuck competing with Evan. John Zimmer competing with Travis. I would argue in this cycle, it's innovators competing with innovators who are now competing with the most well funded innovators on Google, the Microsoft. Well, even before then, you got to open it, and

Speaker 2: Oh, sure. Right? Yeah.

Speaker 6: Then you have the 10 biggest tech companies in the world. Yeah. And I would argue for the first time in history, they actually have the advantage. Right? They got the tech, the talent, the data, the capital, and the technical expertise.

Speaker 2: Yeah. Google entering AI feels very different than Google entering social networking.

Speaker 6: For sure. Right.

Speaker 2: Very different.

Speaker 6: And so and so when you think about this market, you really gotta think long and hard about where do you get that exposure to AI? Where are the value layers? Right? We invested in a company called Prepared, you know, in the very early days. It sold earlier this year for about $900,000,000. Was using AI and technology to disrupt nine one one, thank you, nine one one call centers, right? They had no competition all the time.

Speaker 1: Hopefully not disrupt the call centers. Not disrupt the actual practice.

Speaker 6: Turns out nine one one was still using landlines. The rest of us just weren't calling using a landline.

Speaker 7: So, you

Speaker 6: know, simple stuff like that. So, in this market, right, it's all about, like, where and I think adventure, right, the multi stage funds play a different game than someone like us. Right? We invest out of a $400,000,000 early stage fund. We're playing for alpha. Right? And so we're pure play seed series a specialist. And so you gotta be disciplined about how you enter

Speaker 2: Yeah.

Speaker 6: What the competition is, things like that.

Speaker 2: So where does the capital come for doing SpaceX at 15,000,000,000? Obviously, a fantastic investment, but not in that sweet spot of seed series a. Right?

Speaker 6: Yeah. Yeah. Our first fund, to be fair, was kind of stage agnostic.

Speaker 2: Okay.

Speaker 6: But I think a lot of it is, look, all the letters are fungible. The way we think about it at m thirteen is there's only two types of companies in this market. Those trying to find product market fit and those who found it who are hyperscalers. Right? And so the end of the day, you're looking for venture scale returns, and then, you know, the thing we talk about all the time is everyone just says venture's risky, and they kind of throw up their arms. That's like kind of true, but if you're trying to colonize Mars, that is riskier than if you're trying to get someone to order a black car on an app. Right? So there are different spectrums of risk. And so it's always, you know, trying to figure out is the risk worse than the reward, and that's the game of venture.

Speaker 1: Have you been disappointed in the growth of the LA ecosystem?

Speaker 6: Yeah. Mean, I laugh because I remember people telling me that San Francisco was dead three years ago. Mhmm. Turns out it's a little less dead than expected. The way I describe LA is right now it's it's having a siesta. Right? Take a little nap, kinda like in Spain, between one and 3PM. Mhmm. We can't forget, you know, about four hundred fifty billion dollars of enterprise value was created outside of some of the big ones like SpaceX in the last cycle. Right? And so you think about this cycle. Right now, we're still talking about the technology, AI. There's no doubt that's gonna come from the technologist sitting in San Francisco. But, you know, you guys know other industries. When you think about the second and the third wave, there's no doubt in my mind some of that will come from LA. Right? Nobody understands media, content, creators. It's why you guys are sitting in LA. Yeah. You're the best of the game at that. Right? And so I think it's too early to count out LA, just like it was too early three years ago to count out San Francisco. Yes, there were a lot of needles on the street, and it was pretty, right, everybody was leaving, but like, yeah, it came roaring back. So I think as you think about what are the new business models we're not even thinking about because of AI? What are those ripples? There's no doubt some of them will be coming from

Speaker 8: Yeah.

Speaker 1: It's interesting. I I am I am bullish on the South Bay. Gundo? El Segundo. El Segundo. South Bay broadly. Continue to be bearish on, on like LA, actually LA, the city. Like, it's hard for me to imagine. I can't imagine a $100,000,000,000 company coming out of Venice, Santa Monica, West Hollywood, places like that which is it's painful to me but I think it's the reality. I'd love to be proven wrong. Hopefully, I haven't passed on that company yet. But but yeah, it's interesting that like it feels like the South Bay is like really working. El Segundo is really working. You know, SpaceX starting in an El Segundo warehouse. Like, that's all working, but I feel like the the original like LA startup movement can't even claim.

Speaker 2: Silicon Beach.

Speaker 1: Yeah. Can't can't claim that.

Speaker 2: Yeah.

Speaker 6: Yeah. I I don't think you'll find a $100,000,000,000 company coming out of LA. I think you might find some 10 to $20,000,000,000 companies. And the reason I say that is, you know, the $100,000,000,000 company, the trillion dollar companies are gonna be foundational models and things like that. Concentration of talent. Yeah. I think the application layers. Yeah. It's like there's a reason Snap is here. And there's a reason Tinder was founded here and

Speaker 1: stuff like that. Know but it's painful that like Suno Suno should have been in LA.

Speaker 2: Should have been in LA. Yeah. Like Yeah.

Speaker 1: That's right. And it's and it's what like Boston, New York, maybe they have an SF office. I forget what

Speaker 2: But I

Speaker 6: think like the DreamWorks of AI, like, has to happen in LA maybe. But it won't be on

Speaker 2: stuff from LA. Like, New York is the home of, like, the the on the street, what do you do for a living TikTok or, like, the person that's playing the the drums and streaming that. Like, so many of the, like, the the Internet democratizing content and then the competition from Atlanta, Toronto, and

Speaker 5: Yep.

Speaker 2: You know, international. There's the big we were just reading about the the director of the Avengers, hugely successful filmmaker, obviously, in the Disney portfolio, is moving to London because they're doing the next round of Marvel films out there. And so, yeah, we just lost like a pool of talent here.

Speaker 6: Yeah. By the way, Jordy, I was gonna tell you I'm very jealous that you live in Malibu since my house burned down in Malibu

Speaker 1: ocean breeze. Last year or 2018?

Speaker 6: Last year. Yeah. Oh, brutal. I told my wife the night before we went to bed, was really panicked. I was like, sweetie, we we literally live across the street from the firehouse. I'm like, not far from nobody. Trust me, our house burning down. Obviously, we were wrong and we're still the lucky ones. A lot of people were way less lucky, but We

Speaker 2: lost loads.

Speaker 6: Man, missed that that beach breeze.

Speaker 2: Are you

Speaker 6: gonna rebuild? Yeah. Gotta start this fall.

Speaker 2: Okay. Yeah.

Speaker 1: So we'll see you in ten years. Yeah. Exactly.

Speaker 2: Hopefully, the permitting goes faster or something. I don't know. It seems like a rough rough go also in the Palisades.

Speaker 1: How are you thinking about consumer investing, like consumer products?

Speaker 6: Yeah. You know, like two and a half years ago at our LP day, we talked about how we thought for the first time in probably four or five, six years that we thought AI would make the application layer more interesting because we've been doing a lot of the underpinnings. Right? We invest in the future, money, work, health, commerce, so that is a pretty high swath. But we are doing mostly infrastructure stuff. I think we've been right on that. It's hard to get the application layer around AI. Just things are so frothy and moving so quickly. I do think I don't know if it will be for us anymore just given the size of our funds. I I do believe the next billion dollar d to c brands will be built as AI companies that happen to sell a product. Right? You the reason guys like us did so many, you know, d to c things and then stopped doing it was at one point the math made sense.

Speaker 2: Sure.

Speaker 6: Right? You could create unicorns of the math. As the cost of Facebook acquisition increased, right, the math no longer made sense. I think for the first time in history, the math will make sense here for the next two to three years. The reality for m thirteen is we need generational companies when you operate out of a $400,000,000 fund. So I don't know if it will

Speaker 1: even if you're even if you're doing a a true seed and you can do two on 10, and then it's billion dollar exit, and like you're like, okay, it doesn't actually can't return the fund.

Speaker 6: Yeah. That's a problem. Like, most people just don't think about the math of venture. It's great to say, oh, I had this exit or that. But yeah, you need at m 13, we always say every check-in the base case has to return half the fund. So we need 3 to $5,000,000,000 companies in the base case and we have to hope, you know, we have companies like OpenFX doing stable coins or we need to find that next SpaceX and you need to find those Decacorns that that's the only way the math works.

Speaker 2: Sure. What's the team structure like? 2,000,000,000 under management now, $400,000,000 fund that feels like enough room for some principals, some VPs around the table, but how how what's your philosophy to growing the firm? Yeah.

Speaker 6: So my brother and I founded the firm. Good. Obviously, the way we talk about it is we wanted to build the venture firm that a founder would have built for themselves. Sure. So every single person is an operator by background. In fact, we only have one person that's ever worked at a VC that's either crazy or that's by design.

Speaker 2: Mhmm.

Speaker 6: Right? In our model, you know, basically some of those operators now invest for a living, right? And so that's the typical venture model. Mhmm. We say they're accountable for company picking, right? Mhmm. Obviously, we've historically been good with 17 unicorns at that, but they're trying to find where's the TAM, where's these great founders. We have a large a team called our propulsion team. They are former operators who actually don't invest for a living. They actually stay as operators. Right? But now, instead of over a single company, they operate over a portfolio. And, you know, we've backed, I think, 11 previous unicorn founders in the last two funds. These aren't people that need help, but where we invest at the early stages of seed or series a, they're not gonna have a head of data and a head of talent And and a head of so we can use these very experienced operators, like we have guys like Carl Alomar, who's built Digital Ocean from pre revenue to a $5,000,000,000 IPO. He now reminds me, I think it's 19,000,000,000 today, so he tells me, stop talking about 5. But, you know, having a guy like that be able to fill in the gaps, look around corners for you at that series a is incredibly valuable. So, yeah. So we have about 12 people that deploy the capital, you know, a handful of partners Yeah. Like you said. So, you know, I think for us, we obsess about our junior talent because those are our rising stars. You know, too many VC firms are a bunch of usually males that have had success and kind of hold on.

Speaker 3: I think you need the

Speaker 6: best 22 year old kid from Stanford. Hungry. Compsi. I think you need the best 32 year old. Mhmm. You know, I'm gonna find the next unicorn founder because I probably had dinner with him last week, but I'm probably not gonna find the 22 year old kid who just dropped out of Stanford and did that. It's probably gonna come from one of the junior people on the team. And so in everything we do, we always say, we didn't wanna create a a better VC. We kinda wanted to create a different type of VC. And so we take cues from the best of the best, and then think about, again, if we were a founder building a VC, how would we build it?

Speaker 1: How do you think the SpaceX IPO is gonna impact the luxury real estate market?

Speaker 6: Oh, I am so fascinated

Speaker 2: by this.

Speaker 6: I mean Well,

Speaker 1: I'm just looking at I'm I'm thinking about YC and how there's like there's a lot of new sent to millionaires and there's not a lot of inventory over there. And knowing wise knowing SpaceX people, they like to be outdoors. A lot of them probably like to ski a little bit. I think there might be a supply demand mismatch, at least at YC.

Speaker 6: Yeah. We'll Maybe we should your house in Malibu, my house in C, we try to get a premium for it, get some Anthropic or OpenAI You

Speaker 2: Oh, you can sell your house for stock now?

Speaker 6: Yeah. Seriously. But, I mean, I think it's gonna be absolutely fascinating. Right? Because you think about when OpenAI and Anthropic IPO, a bunch of VCs are going to make a ton of money, but those people's investors are endowments, institutional pensions, things like that. When you think about SpaceX, right, it is every guy in YPO. It is every guy at the Country Club. It is every guy at Burning Man.

Speaker 2: Oh, sure.

Speaker 6: Even if they did a 150 x like we did, they 10 x, they five x.

Speaker 2: Yeah. You got in some SPVs.

Speaker 6: Right. Think about it, like, there has never been this much value return that was literally 80% in SPVs. Yeah. Right? And so I think it's fascinating because some guy just made 3,000,000, some guy just made a 100,000,000, some guy just made a billion. And so Yeah.

Speaker 1: Think it's gonna be you know, the the the team specifically.

Speaker 6: Yeah. And the team. Yeah. And so when you think about it, like, when you fast

Speaker 2: family forward with SpaceX IPO shirts. And I was like, I don't know that they're, like, like, bankers. I don't know that they were at the IPO on the inside. I think they just, like, got in early, made some money. Yeah. And now they're really proud, and they're part of, like, the retail army, essentially.

Speaker 6: But I think it will be good for venture. I mean, I think there's no doubt planes, houses, private schools, country clubs, all of those things. Right? And we should talk about coupling our houses together. We could get a premium. You get two for one. I mean, that's an efficient

Speaker 1: trade. The starter starter pack.

Speaker 6: The starter the starter centillion to mayor pack. You get Malibu NYC all in one transaction. But I do think it's just good for venture in general, right? Because people have realized these things just take a long time, right? Like, we invested at 15,000,000,000 and still took ten years to return capital. So I do think it shows people in success. Right? Although these things take a long time, that is a lot of money coming back to the system.

Speaker 2: Yeah. Last questions? We gotta hop on with ABS in just

Speaker 1: Let's do it again soon. This is great. And, yeah, we'll feel free to call in from a World Cup game or something like that.

Speaker 6: Alright. You guys going to any of them?

Speaker 2: I I don't have anything scheduled.

Speaker 1: Nothing nothing scheduled.

Speaker 2: We hit FOMO at the last second trying to get in. Yeah. Is this the Knicks tickets? Is it a 100,000 to go or is it more reasonable if you just want to see the game?

Speaker 6: More reasonable. More reasonable.

Speaker 2: Okay. It can get crazy. I mean, I'm sure if it's like, you know, America Well, you're telling everybody about it. Now

Speaker 1: the prices are gonna go crazy. Right.

Speaker 6: But during the next commercial break.

Speaker 2: Anyway, thank you so much.

Speaker 3: Thank you,

Speaker 2: This was fantastic.

Speaker 6: Thanks, man.

Speaker 2: We'll talk to you soon.

Speaker 1: Talk soon.

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