Alexa Binns 00:02
is there a thread connecting things, or have you sort of discovered your true north in this process?

Zach Ruchman 00:31
it’s been a non-traditional pathway, to be sure, I think that being an LP is probably secretly the best job in finance, and I love what I do, so I’m hoping that this is true north here. But certainly, you know, I think every stop that I’ve had through my career has been a really important stop in my career that makes me a much better allocator. You know, if I think about living in the Middle East, working in the international development world, living through the Arab Spring like that was all about learning how to make decisions in uncertain environment and with unclear information, and, you know, never knowing what the next thing was going to be that hit the news and it wasn’t the world that I wanted to live in forever, I think, you know, spending a year with a revolution on one side of the border in Egypt and civil war on the other side of the border in Syria, like that, was maybe a little too much uncertainty. But certainly I learned how to navigate that kind of environment and that sort of complexity. When I think about consulting and Alvarez and Marcel, I think about how to look at large sets of information, how to look at complex business problems and business problems that I didn’t necessarily have expertise in, and look for simplicity in that complexity. And I think that, you know, that’s incredibly important in an allocator role, also, where I’ll spend, you know, one hour speaking with a venture firm, and then my next hour is going to be speaking with someone who does aircraft leasing.

Earnest Sweat 04:45
You mentioned uncertainty before, and you know, there’s a number of things, whether it’s technological shift, different generational things, different macroeconomic things. How does that help you, your edge that you presented to us help you with, like, how to think about the private markets.

Zach Ruchman 05:46
I mean, I think investing in private markets is all about investing into uncertainty, and whether it’s today or 10 years ago or 20 years ago, like when you’re investing into a 10 year fund, like just about anything in private markets, and particularly in ventures where, let’s be honest, like that 10 year fund is probably going to be a 15 year fund, and it might even be a 20 year fund. You have to be incredibly comfortable with uncertainty and with the thought about how technology is going to change over that 10 or 20 years. I think that’s what’s so fun about venture is that you are investing in the future. You’re investing in a very optimistic view of where markets are going and where the world is going. Because, you know, every, every venture manager, in some way, is a hype merchant, and it’s a I’m investing in something that’s going to change the world. Because if it’s not going to change the world, honestly, what are you even doing here? Like a venture? The venture is about finding those moon shots, finding those unicorns. And if I’m going to have illiquidity for 20 years, it better be more than a 3x return. Like you better be looking for those 10x returns, if not more. The only way that you get 10x returns in any type of investing is if you’re investing in something that is going to change the world. Yeah, that’s what’s fun about venture.

Earnest Sweat 07:16
Yeah, it’s kind of not, not pushed back, but also just bring in other things to that point, I totally agree with you that what are you even doing if you’re not trying to do that and be a venture GP, but the other thing that’s going on is the maturation and professionalization of venture. How does that adjust? How do you underwrite or what do you look for in a venture? Because now the marketplace has so many different

Earnest Sweat 07:42
take tastes and offerings, and so people are trying to say, there’s different ways to do venture that may not be the 10x it might just be like a normal value. That’s a lot of money. What are your views on that? Yeah.

Zach Ruchman 07:57
I mean, look, that’s totally, that’s totally a fair point. I think that it depends, as an LP it depends on what is your cost of capital and what are you looking to achieve from a venture allocation. You know, we at HB, we always talk about your fund size is your strategy. And I don’t think that’s a unique insight. I think you’ve had other guests on this podcast who probably said exactly the same thing, but, but it’s very true, right? If you’re raising a billion dollars for your venture fund, that’s going to translate to a very different strategy than $100 million and to get a 5x fund off a billion dollars, the math that goes into that and the enterprise value that you have to create is so totally different than the enterprise value that you’re trying to create from $100 million of a venture fund it. So I don’t think venture math has changed. It’s just that there are now billion dollar venture funds out there who have a different cost of capital. Their LPS have a different cost of capital, and that’s totally fine, as long as everyone is eyes wide open about, you know, what’s, what’s involved in that? I think the traditional venture model is still like, it’s still about that cottage industry, it’s still about those smaller funds. It’s still about looking for how we invest in absolute game changing companies that are going to, you know, drive those power law type returns. That’s not for everyone anymore, but to your point, that’s because venture has changed.

Alexa Binns 09:39
Yeah, and does your approach or strategy differ now that you’re working with private clients versus when you sort of had institutional mandates? So I think there are some things that are very similar.

Zach Ruchman 09:56
Like at the end of the day, our diligence process is the same the way i. Thinking about managers is very much the same. And part of my value proposition to clients at HB is to say to them, Look, we are bringing you a very institutional approach, because there are all sorts of people out there who are looking at private wealth, and they’re saying, hey, there’s retail money that doesn’t know better, and they’re going to be our LPs, and that’ll be great. =

Earnest Sweat 12:06
Just taking a step back, could you just give an overview for an audience of eager managers and other allocators on just what HB health is and the organization’s history?

Zach Ruchman 12:20
Yeah. So HP, wealth. We’ve been around for 30 plus years. We’re a multi family office and RIA today, we have a little bit north of 28 billion in AUM, we serve clients all across the country. Our headquarters is in Atlanta, but we have 12 offices all spread out everywhere I live in Washington, DC, about 4 billion of our AUM is in private assets of one sort or another. So private markets is very core to our approach to investing and the way we work with clients like I said, I think that institutional approach that we have is a is a game changer for clients, and, you know, helps us create portfolios that are customized for our clients, and also a very different offering than what they might be able to get at other places where They might think about investing.

Alexa Binns 13:21
What are those offerings packaged like from an operational standpoint? What? How are you getting your clients in

Zach Ruchman 13:30
So you know, every client, every client is different, and we’re really in the business of creating customized, tailored offerings for that client, for that family understanding you know, all of their particular needs, goals, desires you may have. We have clients who are very liquid and may want to have a lot of investments in private companies because they think that there’s the right risk adjusted return for them. There we have some clients who are very successful entrepreneurs, and they may have most of their wealth tied up in their family business, and then it’s very illiquid. So then we’re thinking about strategies that are not necessarily tied to what I do every day, right? And the advisor works with that client to think about, how do we get you liquidity? How do we diversify your portfolio? How do we, you know, create that sort of long, long, long term and long sighted strategy. You know, when it comes to private investments, in particular, we have a series of commingled funds that we do on a vintage year basis. We have one for private credit, we have one for private real estate, and then we have one for private equity, which also includes growth equity ventures. We have a little bit off to the side, because. As I’ve said, it’s like, I think venture is a little bit of a different asset class. And so with venture, we’re trying to be even more targeted for the individual families that really want that type of exposure. There’s obviously a fuzzy line these days between certain kinds of venture strategies and certain kinds of growth strategies. And so, yeah, we had some managers in that private equity vehicle that some LPS might squint at and be like, well, this feels like a venture to me. But you know, for especially our more early stage venture, we do on a client by client basis,

Earnest Sweat 15:38
That’s interesting. I remember in our prep conversation, we spoke a lot about just your philosophy in underwriting managers. And there’s a number of things that came up, but first I wanted to bring up how you said you really look at incentive alignment in manager selection. Can you describe kind of what it means to you and how you diligence that,

Zach Ruchman 16:04
yeah, at its core, alignment of incentives is about we all win together and we’re all on the same team. We’re all partners. Right? Like it’s right there in the limited partner agreement, it says we’re all partners and that is what we’re looking for, first and foremost in diligence. So some of it is just about economics and making sure that, like I said, everyone wins together. This is part of why I think these larger venture strategies and larger venture managers out there are harder to get to the finish line because the fee income that they get is fantastic, and they’re just they’re less incentivized to outperform right? If you’re getting 2% a year on a billion dollars and you have multiple funds that are a billion dollars, you’re going to be very comfortable. You don’t necessarily need that 20% carry to ever hit, because you’re getting great money just off of your salary from management fees. So that’s one of the reasons why, you know, I tend to spend a lot of time with smaller managers, earlier stage managers, where they haven’t gotten a lot of carry checks yet in their career, because then everyone’s focused on the same thing, which is investment outcomes as opposed to what happens along the way and fundraising success.

Alexa Binns 18:16
Can you give us any examples of what a really good partnership looks like?

Zach Ruchman 18:24
Yeah, I mean, some of it is really intangible. It’s just about getting to know people at a very human level and building trust. That’s why I spend a ton of my time on airplanes, on the road, like going to meet GPS in person, and not just sit in their conference room and fire questions at them. That’s obviously part of my job. But it’s also like, Okay, let’s get coffee, let’s get a drink, let’s get dinner. Let’s really get to know each other, so that we trust each other and and so that outside of that very formal, diligence setting, I understand how you think, you understand how I think. And so, you know, when we sign that LPA and we’re signing up for a 10 plus year partnership, that we all really understand what we are getting into and who we are getting into it with. I think part of it is also, I really appreciate it when GPS will pull back the curtain on their investment process, on deals that they’re looking at, and not just trot out at the annual meeting. Oh, here’s the CEO of my best performing portfolio company, and I’m going to let them talk for a few minutes about how great their company is and how great it’s doing.

Earnest Sweat 20:33
Yeah, I the thing I love about that is it’s, it’s a tailwind that I’m not sure all allocators or all GPs are embracing, but I have a personal opinion that I think this human first radical transparency is needed to show the differentiation of emerging managers who still maybe have a personal brand, but you’re Building a brand for an entire platform, and so with that kind of like, you know, radical transparency, I think a lot of people don’t do it because there’s a fear that you’ll be judged or you but like you said, things are moving so fast that another thing you’re looking for is not just like, you can’t have still pattern recognition anymore. You have to actually show that you have a crazy amount of learning velocity, so you’re able to pick up things and then move on them. Is that kind of what is also your scene of, like, this is a new quality, I know in our prep call, you talked about exception recognition, yeah. Is that to that point? Yeah.

Zach Ruchman 21:39
I mean, I think, intellectual horsepower and deep curiosity is all a part of this, especially in ventures where, like, where technology is always changing, you want GPS to be always learning about the next thing. Because if you’re not learning about the next technology, why are you investing in technology? Like the market will move away from you in the blink of an eye. That said, yes. And I do think that while we want GPS to always be learning and thinking about what’s coming around the bend from a technology perspective, and updating their priors on where they want to be investing. I also want GPS to stay true to themselves in terms of like, know what you’re good at, know what your deal box is, know what types of companies you understand really well, or what industries you understand really well, or what technologies you understand really well, and don’t get out over your skis on that. Like, have an investment philosophy, if that investment philosophy is what’s brought you to this point, and it’s brought you successfully to this point. Like, don’t rock the boat too much also, because, yes, past performance is not indicative of future returns. We can say that until we’re blue in the face, but everyone is also going to look at past performance and say, Okay, well, they’re raising their next fund. I don’t know exactly what companies are going to be in the next fund. So how do I do my diligence on this black box? I’m going to ask myself, what’s different about this firm, what’s different about this GP, and if you used to invest in, you know, crypto, and now you’re going to only do consumer and like, you’re out there doing LuBu futures that, like, that’s going to be hard for your LPs to re up, right? But if you’re saying, hey, you know, this has been the evolution, and we went from on prem to in the cloud, and then we went to the edge, and now we’re doing AI like, that’s a story that I can follow and understand and see the evolution of your thinking about technology, and how you’ve tried to stay at the cutting edge of all of that. And those are two very different things.

Alexa Binns 23:58
what are some of the areas that you’re especially focused on? It? It’s got to be something more unique to you. Yeah. Otherwise, I do think you end up finding yourself having to, having to sort of rejigger fun too, on what you’re what you’re really about.

Zach Ruchman 24:54
Yeah, yeah. I think that’s right. I mean, you know, I think it’s, look, there are so many ventures. Funds out there in the world right now, I think the last number I heard was something like 5000 venture funds, and I think there’s 19,000 McDonald’s in America. So if we are a quarter of the way to as many venture funds as McDonald’s in America, like if you are trying to raise a venture fund, you really need to work so hard to differentiate yourself from the other 4999 out there. Because, you know, think about it from the LP shoes. Like, if I see even a 10th of those in a given year, like, I’m still seeing more than one marketing deck per day, they can all start to blend together pretty quickly, unless you’ve got something really distinctive that you either are trying to say about yourself or trying to say about your investment thesis or your investment philosophy. And you know, we all get too many emails as it is, and AI is just making that worse, your email really needs to pop somehow. And you know, to what we were saying earlier about being authentic, like, I think that it just makes that much more important connecting with people out in the real world and like us getting away from our webcams and out like, whether it’s, you know, in conferences or in coffee shops or wherever it is, but like, go out, touch grass, meet people in person, shake hands, because otherwise you’re just another email that someone has to look at and triage. And you know, when you get a few 100 emails a day, like, I’m sure we all do, it’s really hard to

Earnest Sweat 26:39
do that? Yeah, Zach, you might start getting because of this podcast, pitch decks with mcflurries and dollar menus on them, just to kind of align that McDonald’s analogy. Anyway, I’m curious about you, we’ve brought up the CO kind of like AI and stuff like that. And I’ve heard a number of LPs start to ask me and my peers, what is our tech approach, tech stack, similar things we’re asking founders that maybe came up in the SaaS era, how are they adjusting with the new tools? What’s your viewpoint? Kind of like piggybacking on this, being authentic with with the GPS, right level of use, utilizing these tools,

Zach Ruchman 27:31
I think it’s table stakes on the one hand, right if so many people are using some sort of technology now, whether it’s in their sourcing process, their diligence process, etc, like everyone should have it as a part of their process, but that also means that it’s become a commodity, or will soon become a commodity. And when I talk to portfolio company CEOs, they’ll tell me, you know, several years ago, maybe I got an email a week. Maybe it was a few emails a month from GPS saying, Hey, I heard about your company. I think you’re doing something really interesting. I’d love to get on the phone with you. I’d love to meet you. Whatever I hear from GP, from portfolio company CEOs now, who are saying like they get dozens of that email a week, and it’s all AI generated. Sometimes you can tell, sometimes you can’t tell, but it doesn’t matter. It’s clear like that. This is all just spam going out there into people’s inboxes, and so it makes it that much harder to get in front of a portfolio company CEO, and from what I hear, open rates just keep going down on those emails. And open rates a couple of years ago maybe were like 50% 25% now they’re probably like 5% if you even make it through the spam filter. And so you know, not to, not to, again, bring it back to authenticity and getting outside.
Alexa Binns 29:50
Given how many emails you’re getting, cold pitches, unqualified outreach, is there anything you do want to see more of or that you actually want to see? I am actively looking to invest in a venture.

Zach Ruchman 30:03
So I think, look, a lot of a lot of what we do is network driven. And even though venture has grown tremendously as an industry, even though it has matured tremendously as an industry, there are still a lot of inside networks in venture, and still a lot of relationship driven deals, a lot of relationship driven funds in venture. And I don’t know how that ever really goes away. So, you know, I think it’s, it’s not about, it’s not about, ooh, I have this amazing thesis about this particular industry or this particular sub sector. It’s about finding managers who are truly exceptional at what they do and know what they like, know that they’re exceptional at that thing, and are going to relentlessly prosecute on that edge that they have, that’s what I think is going to be really interesting. And if I can build a portfolio of those managers, that’s going to lead, hopefully to really interesting risk adjusted returns and outcomes for my clients.

Earnest Sweat 31:19
Do you have any examples that you could share of people you know being able to show what their authentic kind of superpower is over time with getting to know you, you

Speaker 1 31:33
can be anonymous. You don’t have to, yeah, it’s, it’s a good question. I think so.

Zach Ruchman 31:47
Someone, someone who I’ve been close with for a long time. I’ve seen him since he was a very junior investor, has built a really nice track record for himself investing outside the US, and he has his roots outside the US. He’s deployed significant dollars into the part of the world where he originally comes from. He’s got great relationships there. He understands the tech ecosystem there really well. He was considering spinning out of the firm where he is and where he’s done all of this, and I got a first cut of his slides. And it was basically, I’m gonna hang out in San Francisco and, like, just poach people as they walk out of YC and hand them a term sheet. And I was like, dude, yeah, you and everyone else. But like, I know it’s in your track record. I’ve seen you grow as an investor, doing all these really interesting deals, like, do talk about how you got here? Do you? Yeah? Like anyone can hang out in front of Y Combinator. That’s not interesting anymore. And there are 1000s of people in San Francisco who have that same idea. But you understand this whole tech, tech ecosystem, in this under invested part of the world, talk about that, like, Go, prosecute that. And you know, he, he went, he reflected on that. He took some of my advice. He didn’t have my advice. But certainly he’s incorporated a lot of that now into his thesis, and he’s out there raising a fund, and I’m really excited to see where it goes, because I know everything he’s done to date in this space like it, it’s differentiated. It’s not a pitch that you see every day. Kudos.

Earnest Sweat 33:38
I just want to say kudos to like providing that feedback, because, you know, it’s not your responsibility to, and I don’t think you know, the human psychology for a lot of LPs is like, you know, sometimes you want to keep everything nice, and you never know, right? So I think you taking a stand and providing feedback was really helpful. I think it’s also speaks to the like pressures of when people feel like they are, oh, I’m going to do this very Maverick thing and start a firm, but then they’re like, I’m going to take all these playbooks that everybody says that I should do, because there’s a pressure that, like, fundraising is a standardized test and not an essay test. And, like, you got to realize it’s an essay test. And you were like, Hey, man, this essay test. So, yeah,

Zach Ruchman 34:30
and the venture, well, all I was gonna say about that, because I love that metaphor, is, like, nothing about venture is standardized tests. And if you think you’re taking a standardized test, like, then you’re doing you’re doing. You’re definitely doing it wrong. But it’s not just that. It’s an essay test. Like, it is a venture, more than anything, is such a maverick industry, and you go all the way back right, like, you go back to Fairchild semiconductors, and the guys who spun out of there, like, into what was. One of the very first venture backed companies ever in history, like that was the most Maverick thing you could possibly do in that time and place in American history. Like you didn’t do that. The entire history of venture is Mavericks, whether it’s on the founder side or the investor side, and the people who, I think will continue to be successful in venture, especially if you’re just launching a fund today, in 2025 2026 like, you need to be a maverick. You need to have a different view on things. It might not work out that, like, let’s let’s not say it’s a sure thing. I’m not telling you. Go be a maverick. That will work, but the people who are successful as first time founders are going to have some sort of maverick outlook.

Alexa Binns 35:52
No What? What you’re teaching me from this story is this kind of coaching to say, like, what’s your superpower? Is maybe a little tough for people to self identify. But what do people call you for? Like, Zach relies on this young kid for X and like, that’s that’s your superpower. Like, whatever you’re getting texted questions in the middle of the night about, like, oh, that’s, that’s where you’re differentiated.

Zach Ruchman 36:25
It’s, yeah, and look to go back to your question about, like, what is partnership? Really look like? Like, that’s, that is partnership. I want to have that sort of relationship with my GPS, where, like, we can coach each other, and it should be a two way street, like I would love for my GPS to tell me, Hey, here’s how you can be a better LP, whether it’s to us or just in general, but that’s how you learn. And when the GP LP relationship is just hey, we show up with money, and then you turn that money into, hopefully more money, and then you give it back to us, and then we give you more for your next fund. Like, that’s so transactional. That’s not, that’s not what true partnership is going to be about. True partnership is going to be about, you know, we’ve known each other for 10 years. We have that texting relationship, you know, yeah, you can, you can text me at 9pm on a Friday night, and we’re going to have a little exchange right then, because you’ve got something on your mind and that’s that is the level of relationship that we have.

Alexa Binns 37:32
Yeah, yeah. Is there anything that is a super quick pass, like, if we could save you 100 emails a day. What’s, what’s the one that you are just like? That’s not for us. You didn’t listen to the podcast. You’re wasting my time. You have a bad AI scraper.

Zach Ruchman 37:54
It’s hard, it’s hard to say that there’s anything that is truly like I want to throw out into the world. I’m never going to ever look at this, because part of our value proposition to my clients is like, as HB, we’re going to look at everything for you and find you the opportunities that we think offer the best risk adjusted returns, or at least the most interesting for you, risk adjusted returns. But you know, I think, look, if, if you are coming to venture as a first time manager, and you previously were in a career that had nothing to do with technology or investing, and you woke up yesterday and you’re like, I think raising a venture fund would be a really cool next step for me. That might be a great personal journey that you’re on, but that’s probably not going to be a fund that I’m going to invest in. There always needs to be a reason. There should be that 5000 and first venture fund at the same time, you know, from an alignment perspective, like the larger the fund gets. And once we’re getting above that billion dollar range, and we’re talking about a very different sort of risk adjusted return and a very different sort of venture math, that gets harder for us now not to say that I’ll never invest there, because obviously those are some of the most famous firms that are out there right now. They see every deal, they get access to, just about every deal and that like that’s really important and really meaningful, both from a capital markets perspective, from a company growth perspective, and there are probably portfolios out there that that is absolutely the right thing for so I would love to be thoughtful about. Is that the right thing for my clients or not? It’s just a different proposition than what venture used to be.

Earnest Sweat 39:52
Is there anything you wish GPS understood more about your role and your clients?

Zach Ruchman 40:01
Um, I mean, when it comes to my role, it’s probably like, if I haven’t answered your email, I’m sorry. I haven’t answered it yet. I’m not ignoring you. But you know, I get 40 of that exact email in a given day, and especially when it’s annual meeting season, like my inbox turns into a disaster. You know, all of the LPs, we’re all traveling all over the place, meeting with all of our GPS in person, and we get to do our email like on the flight home or on the weekend or in a couple of weeks, maybe when we have a week where we aren’t actually traveling. So you know, as much as GPs are on the road. We’re traveling just as much. And I do my best to be as responsive as I can. But that’s, that’s one thing, you know, I think the the other thing is just to like, again, it’s never, it’s not that, it’s like, it’s not you, it’s me, when I say no, but it’s we’re only going to make a few commitments a year. Let’s say, you know, very round numbers, we’ll make 10 ish commitments in a given year. If we’re saying no, it’s not because you’re not doing something that’s really interesting. It’s not because you think you’re bad at what you do. It’s not because we don’t like the look of you. It’s just like we only have so many slots. It’s a very small number. It’s probably easier to get into an Ivy League school than it is to get any LP to say yes to your fund because of how many funds are out there. And you know, we’re doing the best that we all can with the limited information that we have in the uncertain environment that we all live in from day to day. And we’re all just trying to find, you know, the right fit for our portfolio, and sometimes that’s about the return profile. Sometimes it’s about the risk profile, sometimes it’s about the industry. Sometimes it’s about, you know, what we think our cost of capital is, or what we think your cost of capital is. And that doesn’t mean that you’re doing something that’s wrong, like you the GP, it just means that you’re doing something that might not be the right fit for us or that we already have in the portfolio, and we just don’t want more of

Alexa Binns 42:27
and any final advice for high net worth families who are dipping a toe into venture on how they should approach This

Zach Ruchman 42:40
Look, every client is different. So it’s really hard to give broad spectrum advice to any individual, especially just like out there on the internet. I think venture obviously, is a very complex ecosystem. It’s a very vibrant ecosystem. The outcomes, there’s a huge dispersion in the outcomes. And so anyone investing in ventures should be very thoughtful about, you know, how they’re approaching it. And hopefully, you know, either have a great network themselves, or be working with someone who has the right network in venture. Because even as venture matures, and there are lots of people out there who talk about the democratization of venture and all of that, at the end of the day, it’s still a cottage industry. The cottage has just gotten bigger.

Alexa Binns 43:36
Yeah, yeah, you may be at the big public school of the democracy exactly, speaking of earnest public school ventures, and there may still be a small, small, very expensive University up the hill.

Earnest Sweat 43:54
Yeah, wait, yeah, we got it. We need some extra teachers in it. Zach, thanks so much for being on the podcast. We really appreciate it. Your insights. I think I just want you to leave us with all the changes in private equity and venture capital I talked to my PE friends and having some of the same challenges of lack of liquidity and consolidation, which really kind of brings you optimism about the private markets over these next 10 years.

Zach Ruchman 44:31
Look, the pace of innovation is only going to get faster, and venture is like an industry that invests in innovation. So as that innovation cycle speeds up, that just means there will continue to be more opportunities, more interesting opportunities, and, you know, more world changing technologies that are out there. And I’m excited. To You know, spend my time, or at least part of my time, looking for the managers that have an idea about what that technology might be and what that company might be that’s going to do the next world