Earnest Sweat 00:02
Welcome to swimming with alligators. I’m Earnest Sweat and each episode, Alexa Binns and I give you a VC podcast from the LP perspective. You ready? Let’s dive in. On today’s episode of swimming with alligators, we have the pleasure of speaking with Roxanne Googin, an LP and a futurist who has invested in a full spectrum of different asset classes and is bullish on venture capital. I really enjoyed this conversation, all the insights. What about you, Alexa?

Alexa Binns 00:33
Roxanne took us on a total whirlwind. She gave us some insight that’s pretty obvious to anyone over 60 that the rest of us can’t see where the opportunities for outsize gains are this decade and how to succeed in the age of constraints we have just entered.

Earnest Sweat 00:49
So with that, let’s jump in.

Alexa Binns 00:53
Today, we are speaking with Roxanne Googin, a futurist and limited partner who has invested in the full spectrum of capital structures, from seed capital, to asset based lending and everything in between. We are in for a treat. For over 20 years, Roxanne published the high tech observer, a publication focused on what she calls tech anomic disruption disruption, which I would love to hear more about. Among her many predictions, Roxanne called the.com boom and bust the emergence of the wireless internet, as well as the rise of AI. We’re very grateful to have her historical perspective on the show. Thank you for speaking with us, Roxanne, I am on the edge of my seat to hear your next prediction.

Earnest Sweat 01:35
Now we’re going to take a quick break to speak with our sponsor.

Alexa Binns 01:52
I’m curious, Roxanne, that there’s something you’ve mentioned to us. That is obvious to anyone over 60 that the rest of us unions just don’t see. Would you mind giving us a little history lesson on basically the 10 year treasury and how it’s played in all of these big booms that you’ve identified?

Roxane Googin 02:19
Yes, I can start with the 90s. But one thing, anyone who didn’t like to literally try to make a living, you could have been alive in the 70s. But if you were like trying to feed yourself, that was a different view, he realized that the world is not infinitely expandable. So for the last, really since 1980, we had a couple of things going on, we had fabulous demographics, we had exponentially growing automation. And we had globalization, particularly with China with an extra billion workers. And they were willing to work for not much money. And one reason for that is the way they’re so society is set up, they will never be imaginative, they’re good at copying. So what they do is they take your idea and then replicate it at extremely low cost and at high volume. So we had this infinite cheap labor force that would do whatever we wanted. And so what happened is that restructured the whole economy in a way that cost just kept falling. And this has never happened, I’m still shocked by it, you know, just costs kept going down, production kept blowing up. And you could buy elite, you know, now you could get a shirt on or whatever it’s called, you know, for $5 probably made with slave labor. You know, in the turf. It’s like infinitely expandable production. Well, that just like the Earth is starting to get pretty pissed. Like it’s like, you know what, you can’t do that. And so we’ve lived in this Mirage and the cost of everything. And the supply demand balance is reflected not in equities, but in the debt markets. And so it again, I’m familiar with the debt markets, I’m at home, Adam. So one thing to look at is the 10 year because it’s where the biggest economy has the world’s reserve currency, you know, we get to cheat. And it’s like the most important fundamental number of supply demand balance on the planet. And it is a planetary number really. So, if you know, I keep focusing on this chart of the 10 years from the St. Louis Fed, and it’s just, you know, the charter just went down for 40 years. As this paradigm kept growing. The automation kept growing. The demand seemed insatiable And the because we had China on our side, you know, there were just infinite numbers of peasants, you know, coming in, and you know, making whatever we wanted. And that was never going to last forever, you could do it, the resources were just not there, you know, we were already using like two times the planetary output every year. So at some point, it wasn’t gonna work anymore. And then ended with COVID. So what happened is, the social stress of that disease, I think, caused a lot of political problems, right. And we’re still paying the price for that. And I think like the Black Death of the 1300s, the ramifications of the shock that we’ve been through, have not all been appreciated yet. And the social, right, the social, so after the Black Death, you had the Renaissance, you had the peasants could finally go on strike. For the first time Does this sound familiar? This is a little familiar right now. So the balance of income went from a gazillion poor peasants to a couple of rich landowners, you got the guilds, you got the middle class, you got the trades, that ended up with democracy, like you know, the whole thing. Because it’s really not just economic, it is in a stable political infrastructure. But I have to come up with a new word, because politics is also part of that word. It’s like you can’t have. Does that make sense in a stable political structure? It is to economics, you cannot look at one without the other, you’re foolish to do that, because you will be wrong. That’s the problem. You’re missing a key variable. And so back in the 90s, and I was watching this and it was just like, now everyone was watching, Chairman Greenspan and how fat his briefcase was, because, you know, oh, the economy’s growing, he’s got, prices are gonna go up, and he’s gonna have to put on the put down the hammer and the whole irrational exuberance, and I was writing to clients back then I said, he’s wrong. Like, you know, I could see the numbers in the manufacturing company’s inventory turns went from like, four times, this is not even a word. Most people know about that. But you’re gonna work better to get this how fast you could make and sell things, a lot of manual processes. I was in manufacturing, I used some of the first computers, I saw what happened. It was unbelievable. And you could see it going through the economy, but she doesn’t know what to look for. So Chairman Greenspan, well, we can’t possibly make that much stuff without running into supply problems. And I would say, Oh, yes, we can. Yeah, you’re gonna be really surprised by this. And we are going to make more stuff than ever before, with the same inputs, and we’re not going to have inflation. And that’s exactly what happened. Then it culminated in Oh, you know, because now we’ve been doing this automation, it’s working great, Nellis Internet things showing up, you know, it’s like, wow, it’s kind of like aI right now, you know, we could see the upside. But there was a problem we could talk about, it was too productive. And that kind of wrecked everything that we could talk about. But I don’t know if you want to talk about that. But that era has ended. And the whole amazing 1990s It ended with COVID. So we had that nice last spurt with the amazing productivity of the mobile internet, which is just unbelievable, right? That was just the stuff of witchcraft. Right? You know, talking, you know, tracking, I talked to people and I say, well, let’s boomers have to leave. And it’s your turn. And we left you with a wrecked planet, that we made the mobile internet like no one handed that to us. We were giving that to you. And now it’s your turn to use that for something. But so the tenure is telling you all this amazing stuff is running out of steam, something big, that’s planetary is happening because the cost of capital for the entire planet to break a 40 year roundtrip. That’s the shocking part. So the world that you’re getting, like all that stuff, isn’t working. Something bigger than that is happening. And that’s what that yield is telling you.

Alexa Binns 09:45
I appreciate that. We’ve only known the good times here.

Roxane Googin 09:50
As a baby Oh, no. Yes. You have no idea. Yeah, so but like me, I feel in my gut. I’m like, oh, But all this again, because every time you grow, bam, they’re gonna wreck it down. Because they cannot let that it’s really the value of buddy going down, everyone sees it as prices going up, that they can’t let the dollar go down, or people won’t like us as a reserve currency. And we will have to pay out in bond yields all of our growth, we won’t be able to invest in our future. It’s imperative they get this number down. And so it’s out of their control, and they’re not happy. And this is how we lived. This was life. You know, you paid 20% interest rates for a house. Sorry, that wasn’t a very big house. That’s okay. I’m used to it. You’ll get used to it.

Alexa Binns 10:50
Okay, we’re going we’re tightening our belts. The blue cost growth era is over. I have heard you say though there are some outsize gains still on the rise in this decade? Oh, for

Roxane Googin 11:04
sure. Because we’re at a total reset. You have to build a new thing that’s like the mobile internet, like what are you going to build that addresses this problem? We will start with a clean slate, there’ll be huge infrastructure swap outs, all the investment that is in most companies is obsolete, they cannot function in this pressure cooker of a world. Like that’s obvious to me. I know this technology intimately. I can look at the world and see how chaotic it is. Again, the cost pressures building this week decoupled from China, we’re losing a billion workers. I know they have 1.4. But you know, I’m just like, maybe it’s 750 million. I mean, we only have 330 million people, you know, we can go to Mexico, and we will, but they have like 80 million people. Like we’re losing a lot here. And we are losing it. And we have to retool for that. And we can’t. I think it’ll be a lot of AI, a lot of 3D printing , and totally different supply chains. That’s your opportunity. And do it in a way that we don’t destroy the planet. That’s a lot of investment.

Earnest Sweat 12:31
Yeah, if you’re on a lot of themes that I agree with, like, Labor’s changing, like people are retiring, we’re not creating enough people, man, Alexis Jenner generation. And so it needs, we’re going to need technology to be able to fill those gaps. Kind of switching gears, the click

Roxane Googin 12:50
or your living will change. Oh.

Earnest Sweat 12:56
Well, those times have already changed. Those have already changed. But yes, they might continue to change. But I wanted to get from the LP perspective, because the common narrative is that LPs are kind of reeling in their commitments to venture right now. And really questioning even though you know, there is a lot of opportunity there. It’s like it’s been a crazy upturn. So, what’s your perspective on L, you know, for venture right now, what are you doing? Like, are you getting more aggressive on it? Are you being more particular about, you know, what types of opportunities and what type of managers you’re going after?

Roxane Googin 13:35
Well, I have my opinions for sure. And I have so this what’s happening right now, isn’t surprising to me. It’s surprising to a lot of people that I’ve been expecting it for a couple years now. You know, cuz that’s what I do. So I have been interested in if I forget the guys first night Rothschild, you know, you invest when there’s blood in the streets. And so I’ve been keeping some powder dry, because there’s not enough blood. But I see, at the same time, the tools are emerging, you know, when the student is ready, the teacher will come. There’s tools emerging and I’m pretty happy to invest. You know, but that said, you do need to keep some powder dry. So that’s the ballot. So I’m happy to invest because I’m quite positive that we’ll have this free to Lake and that I’ve been focused on for some years now. Very practical companies, companies that help enterprise that consumers, I’m like, No, that’s a lot of things to do, like I’m getting out of that segment. So I’m into enterprise on venture retooling. I’m into using AI to revolutionize the power of operations in a chaotic world. So that’s what I’m invested in. I have an AI investment. But you know, I’ve been doing that for years now. Getting ready for this moment? Yeah, that makes sense. Yeah. So yeah, the prices are going down, and you’ll never call the bottom and you need to keep some cash for you, you know, because, like, you know, you don’t know when the liquidity is going to open up. You don’t. And, but it will, I mean, things have been bad before. And here we are, right? And how do we get here, we innovate, we work, we take chances, and we win. And we do it intelligently. So this too, will change. Does that make sense? I don’t know what year it will happen. And so you need to know that costs are going to be going up for you personally, and you need enough cash, but at the same time, get this. You can’t invest in legacy anymore. That is a depreciating asset, fundamentally, because it was built for a different world, a world that’s gone. It’s not going, it’s gone.

Earnest Sweet 16:03
Now we’re going to take a quick break to speak with our sponsor.

Alexa Binns 16:08
With us today is Taylor, currently partner at Gunderson Dettmer, PitchBook has named Gundersen, the number one law firm globally for investors five years in a row. Our guest Tyler is a dear friend from college. His practice focuses specifically on structuring, forming and operating VC funds. Tyler is that our loveliest lawyer to work with out there? Thank you, Tyler, so much for your advice and expertise. Could you tell us a bit about your firm Gunderson Dettmer. And your role there? Yeah.

Tyler Kirtley 16:37
So, thanks for asking. That’s a different type of law firm. We were founded 30 years ago, to focus on the needs of venture backed companies and the funds that invest in them. So we’re singularly focused in the venture area. We don’t have ancillary practice groups like litigation or bankruptcy, we’re solely focused on the needs of emerging companies and the funds that invest in them. And it’s led to us becoming the leading law firm in the market. PitchBook has named us the number one most active law firm for venture financings globally since they started tracking that information in 2014. And on the fund formation team, which I am a part of, we’ve represented funds that have raised over 130 billion of capital since the start of 2021. So we understand the market really well. We’ve worked on a ton of deals. And that enables us to give our clients really high quality and timely business and strategic advice on what’s happening in the market, how to navigate it. My practice focuses specifically on venture and growth equity fund formation. So I represent a number of first time funds or funds that have graduated to fund 234. And that’s a really fun part of my practice, because I get to see firms that didn’t exist, come into existence, and then continue to grow and have their teams grow. And that’s really fun for me. And it’s also fun to work with several large established managers that have huge teams and huge institutional LP bases. So that’s the other side of my practice.

Alexa Binns 18:26
Now, I got to work with the fund formation team of Gunderson on raising Maven fund three. And it really felt like the Gundersen folks were part of our team. You know, it was like we were all raising that fun together.

Tyler Kirtley 18:43
Yeah. I mean, we always say and I think this, like, I want to treat every client like they’re my friend. And so when someone reaches out to me, how do I respond? I want to respond as if they’re my friend, because they are my friend. And so I think that changing it from a I’m a service provider to you, and I’m just here to do the things that you want me to do. And then I go home and I stop like that. That model doesn’t really work. I don’t think so, as we have a personal relationship. I’m your partner, we rely on each other and that it makes going to work each day much more, much more satisfying. know

Alexa Binns 19:25
for sure it, it felt like okay, you all have been here before, you know we’re going from a $15 million fund or a $60 million fund. And that’s a jump and it’s the you know, this, this isn’t new to you. All it says is it’s good to have perspective. Do you think this is a good time to be raising Why or why not?

Tyler Kirtley 19:43
I think if you look at the historical data regarding different vintages of funds raised across different market cycles, that data would suggest that now is a great time to be racing. The problem right now is that it’s very hard to raise the cap at all. So especially for newer fund managers, I think existing fund managers that have long standing institutional LP relationships are still able to close funds, and do so on similar timelines as they did before. But they’re generally not increasing font size the way that they were a couple of years ago. And newer fund managers are finding it difficult to forge those new LP relationships. And getting to a first closing is taking a lot longer is

Alexa Binns 20:36
the theme of this show. When it comes to the terms in the limited partner agreement, the LPA Are you seeing any drift or new trends?

Tyler Kirtley 20:48
No, I’m not seeing any major changes in terms, you see micro trends for different types of funds, the types of terms that may get added to the LPs, you also see certain limited partners that have their own issues that they focus on when they negotiate the fund agreement. And these days, they may be focusing on those more strongly than they were a few years ago. But in terms of the core economics of a standard 10 year life fund, those have remained relatively stable over the last few years.

Alexa Binns 21:24
Get in touch with Tyler currently, or any of the other fabulous lawyers that Gunderson Dettmer on the information team you can find their profiles gunder.com. G-U-N-D-E-R.com. And now back to our LP interview.

Earnest Sweat 21:39
So with your background, you have both the technical and financial background. I’m curious about what kinds of managers like what experience is going to be necessary? Even if they all think the same? What do you think is going to be most necessary to take advantage of all the blood in the street? This next decade? Yeah. Say more on that, like elaborate on like, what? What does that look like more conviction more like what

Roxane Googin 22:05
fast decision making under very high pressure that’s counterintuitive. People need to be able to kind of like out with the others, they have to move faster, they have to move bigger. They have to be fearless about it. Does that make sense? It’s like a jungle out there that you’re in the jungle, like you’re in a war and like the bombs are going off. And you’re the guy that has to, you know, get something done. It’s gonna be a chaotic, negative environment. But that’s where the Phoenix, I’ve seen this. I’ve lived through this more than once. This is how it works. Like, this isn’t new.

Alexa Binns 22:51
Yeah. Yeah, this is the age of constraints. Yeah, so so so we’ll have some,

Roxane Googin 22:58
I may live except the.com. Bust. Like, that wasn’t fun. And it looked bad. Like, you know, Amazon got to $6. Right. It’s whatever it is, you know, it’s so 1000. But that’s the type of gains you get. So you’re crazy not to embrace it. But bombs are going off, but there’s blood in the street. And you just have to be calm about that. And, you know, I mean, I’m a mom. And you know, and I hate to say this, but you know, there’s the helicopter parents, and I’m like a generation older than my kids, peers, parents, that. That’s just how it works. And I’m always like, take off on your bike, like get on a bus, like when they were 10. Like get on the bus and figure it out. You know, and so long that the heat had gone through that. I can’t. And so people that didn’t grow up that were too, like their parents kept helping or something. Like that’s gonna be tough. This is gonna be a tough time for that. Because you’re going to skin your knees as

Alexa Binns 24:12
a futurist, we would be remiss not to ask you to tell us about the things that you’re just tracking on these remarkable hikes you’re taking in the great outdoors. You’ve mentioned over indebtedness, aging, demographics, AI, D, globalization, climate change. Is there one of these topics, you’d be willing to just sort of open up for us how you’re seeing it?

Roxane Googin 24:37
We’re facing a new environment where disruptive technology is going to have to come in and ruin the economic models of the giants of industries. You know it today. I mean, I can’t wait for it to change healthcare. I can’t wait for it to change education. Like, that would be great. I think it’s going to change financial services, I think the local banks aren’t going away. Like, everyone’s like, oh, there’s less banks, like it’s gonna be on your phone. Just get over it, you know, there’s gonna be a i, you don’t have like these, like the credit rating agencies, are you kidding me? Like they have to go. So okay, so here’s another thing people aren’t thinking about. So 2% Why does the Fed What 2% Money, because that’s all they can afford. So our bonds are equal to our GDP. So if you’re paying out to bondholders, 2%, that’s 2% of GDP that like you’re not seeing it, you can’t invest in it. Either that or you got to print more money, and then the dollar D basis, so he’s in a bind here. And then he has an aging workforce. Yeah, there’s a lot of need for productivity. And so 5% yield, you are paying out, because we have so much debt, more than you’re earning as a society. It’s it’s it’s and it’s a terminal burden. So we need to stop that. And, you know, we do so. So what Chairman Powell will look at is that PCE personal consumption expenditures, which has three components, goods, housing, services, ex housing, essentially, the problem is that services AND housing is 55% of his index. And that includes health care, the baby financial services, education, all the things that have been inflationary, all the things that are not responding to his signals of interest rate hikes. Why? Because they’re monopolistic. And they’re typically owned by PE firms, and they’re designed not to be totally inflationary. And if they don’t like what they’re seeing the PE guys, they run to the Supreme Court and try to get a law passed, so that you cannot lower their prices. That’s kind of what you’re starting to see here. Even when Biden was trying to, you know, we’re gonna lower 10 drugs, you know, to massively let people on Medicare survive. They’re already saying we’re gonna go to the Supreme Court over this. So that’s their backup. So here’s, here’s the dirty secret. So the surfaces X housing, which is, again, kind of dumb, why is it so inflationary? Because it’s monopolistic. And it’s really not as part of the shadow economy, it’s not part of the call to me that you’re seeing. The prices have gone up so much, it’s 55% of that index. And if you look at the St. Louis Fed, the inflation rate in that sector is pretty predictable at four and a half percent. If you do the math, to get to 2%. On everything with 55% of it is growing at four and a half percent. Everything else must be deflationary. You can’t do it. Because we have a new generation coming up. They’re gonna want housing. So housing, you can like, you’re not gonna it’s not going to be deflationary goods could be deflationary. I give him that. But we need to restructure if we are going to live under our debt service, we need to restructure, we can’t just skate by anymore with that PC. So I’m very optimistic that you guys are gonna go out there and the VCs, so there’s a great need, there’s a great need for new revolutionary things. And the VCs are the ones that are there, they’re the ones that are financially motivated to do this. Right. So you want to participate. This is your future. It’s almost like you can’t not

Alexa Binns 29:11
No, no, I think of you Earnest But I think of upgrading the entire software infrastructure of corporate America that’s, that’s your jam. So I’m inspired that we have the right people on the job.

Earnest Sweat 29:23
You’re speaking my language, Roxanne. Oh, really? Yes. I love the biggest industries in the world that haven’t gotten enough technology. That’s my jam.

29:35
That’s a big one. Yeah.

Earnest Sweat 29:37
And so we have just one more question: anything you feel you want to leave or share with our community of both allocators and fund managers?

Roxane Googin 29:50
I would say I don’t know just like oh, this is the type of opportunity and you can. It’s your turn to make the world you want. Like, that’s your, it’s your chance that you can’t just complain about what you got. And you have fantastic tools. And there’s such a great need. And you just have to buckle up. Yeah, no, you have to buck up. I think that’s gonna be another resource in the shortest supply is just going in there and doing it.

Earnest Sweat 30:27
Yeah, but yeah, we’ll

Roxane Googin 30:28
see. That’s why you need a futurist. They can send you a vision, like it’s less scary, because it’s just so inevitable. Like, you’re gonna do this, you’re gonna do what well or poorly but you’re this is you’re gonna do something. Does that make sense? And so you really want to be the most fearless and the most aggressive? Not the least. Safety is dangerous right now.

Earnest Sweat 30:54
Thank you Roxanne for joining us and sharing so much wisdom and inspiration. Thank you.

Alexa Binns 30:59
See you later, Allocator.