Mark Sherman of Telstra Ventures

Welcome to the Puck Venture Capital and Beyond, a show that examines the changing landscape of our world. We'll have candid conversations with VCs, entrepreneurs, and thought leaders grappling with our current challenges and providing solutions to key problems we face as a nation. I'm Jim Beer, president of CMBG Advisors. This podcast brings change makers to the table to discover the inner workings behind their decision making strategies and ultimately to how they got to where they are today. I think the venture business as a business will continue to transform.

And ultimately, the venture business started with a couple of firms and small billions in terms of dollars. And now there are hundreds, if not thousands of firms in billions and billions of dollars. And I think the business is becoming more competitive. And as it does, the key question is how do people source, make decisions, add value, and get to liquidity? On this episode of the Puck, I talk with Mark Sherman, managing partner at Telstra Ventures, a venture firm dedicated to guiding entrepreneurs in their technology companies towards strategic growth and global prominence.

Over the course of our conversation, we touch on AI, lighthouse leaders, and corrections to our economy. We recorded this episode before the collapse of SVB and the ensuing reaction of our government. But our conversation beginning around the half hour point presciently touches on issues that were soon to come to bear. Mark, before we jump in, you wanna take a minute and give us a little bit about your background? Yeah.

So, I've been running Telstra Ventures for almost the last eleven years. We started as a business on Telstra's balance sheet, and about four and a half years ago, spun out to be an independent venture fund, where we brought in outside investors and have really continued to build and grow the business, which has just been focused on new exciting entrepreneurs that have really transformative software and artificial intelligence technologies and, you know, are excited about backing them, bringing them to Telstra, bringing them to Telstra's customers and growing. So that's what I've been doing for the last eleven years. Before that, I was a general partner at Battery Ventures, where I was probably most known for an investment in a company called Coupa, which is a SaaS procurement software company that just got taken private for a nice outcome for the company. It worked out very well for Battery, for me, for the team, and and obviously, Battery LPs.

And before battery, I was an investment banker. I ran the software banking business for Roberts and Stevens and took Siebel, BEA, and many other great software companies public back in the, mid to late nineteen nineties. Terrific. So jumping right in, you know, looking at Telstra, in areas that you're involved in that you particularly like, whether or not it's growth areas or your own personal or company passion areas, tell us a little bit about those. Yeah.

So I think in the end, you know, what really excites us is authentic CEOs that basically have a passion and an understanding for a specific area, and that can be, you know, fintech, logistics tech, climate, or some of the areas that we've been spending some time on more recently. You know, historically, so for the last five, seven, ten years, we've been looking at cloud, SaaS, cyber, some consumer. And then, obviously, with the Telstra connection, we've been looking at a bunch of next generation communications companies as well. And so those are some of the sectors that we like. In general, we spend most of our time investing in The US, probably 80% or more.

And then opportunistically, particularly when we know something about a specific subsector of software, you know, we'll make investments in Australia, in Singapore, in India. Cyber definitely leads us to Israel very frequently and then in other geographies around the world. That makes sense. And when you're looking at Telstra and kind of your mission and so forth, I noticed that you talk about that you incorporate data science with kind of quantitative analysis of non financial data into your investment criteria. What does that actually mean in practice combining nonfinancial data and intangibles?

How do we bring that down from 30,000 feet? Yeah. So, I mean, we got started on this about five and a half years ago, and it was basically the insight that almost all of our portfolio companies were using data science in one way or another to try and make their businesses better. And that could be data analytics on the new customer pipeline generation side or actually in the service delivery side. So a lot of our cyber companies use machine learning and artificial intelligence related technologies to detect, you know, forces of darkness and and malware in their world.

And so, you know, our thesis is basically that data science is pervading every business known to mankind, and so why shouldn't it apply to ours? And so it was a little bit of the cobbler's children not having shoes, at least initially. And then, you know, we were very fortunate to hire a guy who had done data science for a bunch of hedge funds in New York, and then he also started to do data science for marketing lead analytics for LinkedIn. And fundamentally, it was kind of pipeline filling for LinkedIn. And at a very simple level, part of our business is filling our pipeline with prospects of very interesting emerging software and artificial intelligence companies in understanding how to do that.

That's kind of what we do at a very high level and then kind of bringing it from the 30,000 foot level down to the one foot level. Basically, we track 30 or 40 different data sources that give us insights about web traffic, mobile users, employees, product ratings, team management team ratings, and other datasets that we find, you know, very interesting. And so we've been collecting that data for five going on five and a half years now. And then we've developed a set of algorithms and a set of heuristics that we overlay onto those to identify where we see interesting companies at the seed stage and the series a stage and the series b stage that are bubbling up that we can either track from a sourcing perspective or we also collect some of their financial data to help us benchmark how they're doing relative to some of their peers in the industry. And we believe that that gives us better insights as to, you know, which companies are bubbling up and that ultimately will generate, you know, better returns for ourselves and then, you know, for our investors.

And that makes sense. Totally. In this economy where there has been obviously some disruption, interest rates are higher, cryptos obviously had some real challenges lately. What types of investments are you most excited about at the moment in this current climate? Yeah.

So just to level set, we typically are investing, you know, 5 or $10,000,000 into companies in series a's and series b's. And so we're looking for companies that are between 1 and $10,000,000 in revenues typically. And so that's sort of the silhouette or the zip code within which we're we're operating. And, you know, we're finding really interesting investments in climate tech. We're finding very interesting investments in fintech.

We're finding interesting investments in logistics tech. And then, you know, in some of the areas that I mentioned before that have been historic neighborhoods that we've worked in, be it, you know, cloud, SaaS, cyber, consumer, and next generation communications. And so, you know, we continue to look at those areas. One area where we've been spending time on and we haven't made a formal investment yet is around generative AI, and we think that that area is very interesting primarily because it's using language models to help businesses operate better. Probably the most known is around marketing oriented applications where it can generate, you know, websites, emails, search engine terms, etcetera, help optimize marketing departments and essentially reduce costs, but then also increase efficacy in terms of how things are doing.

And I think that generative AI will have, you know, incredibly broad based applications. An example would be homework. I think we'll be transformed by generative AI. My son was goofing around with a friend around college applications and basically asked ChatGPT to generate a essay around an area that he's passionate about. Sure enough, the ChatGPT came back with an essay that was actually pretty good.

I think it just has very broad reaching implications for marketing, but then other business operations, and then eventually homework for kids and for adults as well. I wanna jump in a little deeper on AI. But before we do, I mean, is there any portfolio company that you are investing right now that you're particularly proud of and or wanna showcase? And by the way, if it's an AI company, that's okay as well. But I was curious if there's anything that jumps out at you that you wanna share with us.

Yeah. Sure. If you're combining logistics tech as well as artificial intelligence, one of our portfolio companies is a company called Airspace, which basically does next flight out delivery. And so if you have a human organ that you need to get from a hospital in New York to a hospital in Los Angeles, they will do billions of computations to calculate the shortest and fastest route to get a liver or a kidney, as an example, from A to B as quickly as possible. Or if Federal Express has a flight down and needs to get a part from Boeing in Seattle to Federal Express in Memphis, they'll calculate all the use cases in terms of how you can get something from a to b, and then literally, it's called next flight out transportation because it finds the next flight out that is the shortest distance between these two points and will get it there most cost effectively.

It's a very interesting company. They're growing quite rapidly. They have a number of patents filed in this area around delivering new technologies of artificial intelligence to calculate the roots more quickly and efficiently. And some of the largest logistics companies in the world use them on an OEM basis to help improve their business operations. You know, what's interesting in this company in particular is that not only is it doing well in logistics and doing well in AI, but it's actually doing very nice work in climate.

And so they're expanding into Europe, and Europe is probably ahead of where The US is from a climate perspective. And one of the reasons why they're doing well with customers there is they're using, you know, excess airline inventory to move goods from a to b. And because they're using excess airline inventory, they're essentially doing stuff at a zero carbon footprint or a near zero carbon footprint on the air piece of the transportation of these goods and services. So airspace would probably be a good example of something that's using AI, something that we're really excited about, and something that we think has huge potential. That makes sense.

That's exciting. So when we're talking about AI, and you mentioned specifically Chet GPT, I have a friend who's, you know, successful entrepreneur who sold his company and has been playing around with different things. And he turned me on a ChatGPT and, you know, was sending me emails or messages where he'd say, you know, write the next Grateful Dead song, or take these lyrics or, you know, what's the meaning of life? And it's interesting as you said, like, with homework, it really will write your essay for you. Is that technology that chat GPT is using, is that unique or is that something that's gonna become ubiquitous because the other companies in AI are gonna also have that available pretty soon?

I think the answer is c, all of the above. I think it is unique Okay. And it will become ubiquitous. And what I mean by that is, I think that there's some base levels of artificial intelligence that will help predict language models, and that will be used more generally in many different neighborhoods. The reason why it will become more ubiquitous is different companies will specialize the datasets that they're putting on top of that generalized technology to come with more customized solutions, be they, you know, marketing related, support related, cyber defense related, or homework related as we were talking about before, or maybe, you know, your friend with next generation Grateful Dead songs would be sort of another use case that I think we could say.

I was just experimenting recently with, you know, using Siri to see if its technology, for instance, would write some of this stuff out. And it's not at the level of chat GBT, but as you were saying, I mean, everybody's gonna kinda now see this and see where the puck is moving and adapt. Speaking of that, we see what they're doing in terms of writing essays and stuff. And we're even seeing where schools now are either requiring people to write essays in class more. They're doing all sorts of things and there's discussions about in the same way they ban calculators or then they gave in and said everybody can use a calculator.

We're gonna see some real changes developing around this. In terms of next generation of AI, in terms of where you see it going from a use case, are there things coming down the line that we should be anticipating? Yeah. I mean, I think there are tons of different use cases, and I think, ultimately, it's gonna come from the datasets. And so I think the datasets around marketing is gonna help to automate the marketing buys that people have.

I think in the support use case, you're gonna see the automation of the interactions with end users that are gonna get better and better so that you have to use less humans and call centers to basically respond to a greater volume of calls and messages and emails. I think you're gonna see it be used in many different use cases around cyber, where just responding to the number of incidents and malware and hacks and breaches that people have, you're gonna see more playbooks be developed by artificial intelligence to try to help ameliorate a lot of the problems that we're seeing in the cyber world. So I think basically pretty much any business is gonna have artificial intelligence enhancers to try to help it automate its business better, be more responsive, be more clear, be more systematic in terms of how they're responding to different opportunities or threats. Do you think there's a situation where, you know, you'll send an email to someone and AI will help them answer the email back? Yeah.

I think in the end, there's gonna be no substitute for some human involvement in most of these cases. But ultimately, can AI take away some of the lower level responsiveness that you need? I think that that's where the exciting opportunity is so people can spend more time being creative, more time making connections that are maybe a little bit nonlinear in nature that could ultimately be super interesting for folks. I don't know if you read Ben Thompson's article Stratechery, but he basically, you know, is a tech blogger and has an interesting perspective on different sectors of tech and where it's going. He was talking about using generative AI to try to answer some of his daughter's, I think, college class questions.

And it was a question about, you know, whether Locke was in favor of democracy. And I think, ultimately, Locke was an absolutist, whereas Hobbes was a little bit more, you know, separation of different powers. And in using, I think, chat GPT, the answer that his daughter got back was wrong. It basically said that Locke was in favor of separation of different powers. I think Ben Thompson was speculating that because Hobbes and Locke are often talked about in similar paragraphs, that the predictive algorithms to try to predict which words were best associated with each other didn't really work as well.

And so he was using it as an example, and kind of a funny example of how, you know, the first time he tried to use this stuff, he came back with a very compelling sounding answer, but one that was wrong to argue that ultimately you need to have human involvement here because the models may not ultimately, you know, provide you with exactly perfect responses. And so you need to have your wits about you when you're using these things so that you don't end up with poor papers, maybe in the case of his daughter or, you know, poor marketing campaigns or poor, you know, cyber defenses in some of the other examples that I was mentioning before. That makes sense. You touched on climate earlier, and one thing that definitely stands out to me is that we've spent a lot of money, and when you look at the percentage of green energy that's currently available, it's not a big number yet. Electric cars are not replacing the demand for fossil fuels anytime soon.

And so when you look at technology and climate, what most excites you right now that really could be a game changer? Yes. So we actually just invested in a company called OpenSolar that we think is very interesting that is ultimately using software in AI to design solar implementations. And they are lit up in Australia, they're lit up in The US, and they're lit up in Europe. Essentially, what's creative about their business is their business model, where they're giving the software away to contractors for free in exchange for working with them on the financing terms of people buying solar panels for their homes or their apartments.

And then they earn money from working with the financial services firms on the back end. And we ultimately think that the transition to solar in residential is fundamental. It's very small percentages today, and it's gonna grow to, you know, 25% in the next couple handful of years. And that transformation is gonna drive the need for planning and the need for software implementations that are gonna be pretty significant. So I think that that's a very simple version in terms of where the world is going and a company that's come up with a very creative business model to basically deploy solar and residential homes across The US, but then generally across the world.

When you talk about solar in residential, for instance, and I know you're talking about the software piece of it, but are we still talking about the panels that go on the roof? Or for instance, I was reading recently about this new solar product that is literally a sheet of glass that's coated with some kind of material that also generates some kind of electricity. Are there breakthroughs out there away from these big solar panels that go on the roofs of these residential houses, or what changes do you see there on the hardware side? Yeah. So the answer to your question is yes.

This company basically works with traditional solar panels today. One of the areas that is interesting and we've been hearing about is side solar panels to basically daylight capture that panels that will look, sit on the side of your house and will basically look as your house does today, but then capture, you know, sunrises and then sunsets on either side to basically optimize the ability to capture even more sunlight, not just from, say, nine in the morning until three in the afternoon, but basically the dawn till dusk hours as well. And so that would be an example of another company that's bubbling up that we think is really interesting. We also have been looking at a wind company that basically, rather than having these large turbines that are out in the middle of nowhere that are interesting, these are actually very small wind propellers that sit in terms of panels that sit on tops of building roofs, warehouse roofs, logistics roofs to capture wind even within the city as opposed to, you know, just being way outside cities. And so, you know, we're seeing lots of other additional hardware companies that are bubbling up that we think are really interesting.

Our home and our comfort areas is really software related things, but because of our interest in software, we do see interesting other emerging hardware companies that are bubbling up. Another that is interesting is a company that basically goes into apartment buildings and allows apartment buildings to share solar on the roof. And so if a building has 10 units and has, you know, quite a solar footprint of, say, a 100 panels on their roofs, it can basically divvy up how those solar panels are allocated across different apartment units and giving some people who are more solar driven and want some of the benefits of that access to 20 panels and others that are less interested. You know, Xero would be an example of how this company might work. Or, you know, actually evenly distributing it across the entire building and giving everyone access to the benefits of solar.

Totally makes sense. Yeah. It's interesting as you kind of play around with these different models and as problems come up, people then go out and try to solve those problems in things that you wouldn't anticipate. Like again, in an apartment building, people have different use cases and you've got some people that are using more than others and different times of the day. And so that makes total sense.

You talked about, again, the importance of CEOs and leaders and so forth. And I think you've used the term lighthouse leaders. What do you mean by that? Yeah. So I like the term lighthouse leaders because, you know, in the end, lighthouses are some person or something that attracts attention.

It is ability to capture the attention of ships at sea that are looking for direction and a way to go. I also like the concept of light because oftentimes these leaders are shining lights on new problems and new opportunities in terms of where people are going. What's interesting is it's a little bit of the non data side of our business. So oftentimes, we'll find some of these companies through some of our data science based on, you know, web traffic or employee growth or new hiring or some of the things that give us a little bit of signal that a company is gaining a bit of momentum. But I will say one of the reasons why we like data science is because it automates a lot of the collection of data, but then it also gives us more time to spend with the CEOs of these companies that can help us with sort of the non data side of our business to try to assess, you know, how much we really think that they have this kind of lighthouse characteristics that we're looking for.

And those characteristics are simple things like, you know, smarts, grit, passion, drive, you know, all the things that you would typically expect. But then just the ability to relate and, you know, work with others is super important and having time to basically see and assess, you know, how some of the CEOs work with their teams and with their customers is super important to us. And then also talking to them about their plans. And ultimately, one of the key assessments that we're making is, will this person deliver on the plan that they're saying they will? And having some good insights as to what their roadmap is, how realistic we think it is, and how their ability to continue to build the product market fit that they may have started with is really key.

And then last but not least, you know, there's no substitute for talking to people who have worked with some of these individuals in the past, and try to get a sense of, did Jim really do what he said he did? Is he really the person, the guy, or the gal that's really kind of has their fingerprints all over the project that made this company successful? You know, that's other time that we can spend to really make sure it's a company that we really wanna back and get behind. And the great thing is when we do, it usually works out tremendously well. And I'm constantly impressed by the quality of the CEOs that we're, you know, have the honor and the privilege of working with.

And the way we get to that honor and privilege is by doing, you know, a lot of the hard groundwork to back channel and understand the quality of the people that we see. You know, it's funny. You talk about leadership. I was listening to a podcast. It was a leader that was talking about how, again, leaders are made, they're not born.

And one of the things that he found counterintuitive was that he was in a situation where a leader had made a mistake and really was worried that everyone was gonna walk out the door and really had lost faith in this leader. And the leader pulled everybody together and said, look, I screwed up. And by the way, wasn't making scripts every day, but I screwed up in this situation and I wanna really talk about with you as my management team what went wrong and how we can work together so it won't happen again. His feedback was that not only did it turn the ship around metaphorically, it created an intimacy and an atmosphere that actually was counterintuitive that people redoubled down in terms of their willingness to follow this leader. And so for our listeners and people that really are out there running companies or trying to figure out whether or not they're gonna start a company or how they're gonna do it.

Do you think that's right? That when when somebody owns their mistakes that that actually makes a difference and and is positive? Yeah. Totally. And I'm interested that you heard this on this podcast in that, you know, those are two things that we really look for, which is, you know, ability to kinda overcome challenges.

I agree with the sentiment of the podcast, which is, you know, mistakes happen all the time, and it's it's not a question whether they happen, it's just a question of what you do about them. You know, there are some folks that you know, try to sweep them under the rug, or try to blame others, or try to do, you know, lots of different other things. Or there's other people that are very authentic and really try to get to the root of the issue, and oftentimes may acknowledge their ownership of a lot of the problems that have happened. And, you know, the key is to realize it, fix it, and educate others about what you did and how you got to that situation so that you can, you know, not make that mistake again. So that's sort of one angle that we really, you know, dig in on.

The other is, you know, in the end, a lot of the investments that we're making are contrarian bets. And so I think one of the other angles that we pursue is really making sure that the people are really good at convincing people of something that their audience may not have wiped at first. And how did they bring somebody across the line? How did they convince somebody that had a starting position of South and ultimately got them to North? You know, I think that's another key element that we're digging into, because ultimately, many of the companies that we're working with are starting from a position of controversy, or saying that the incumbent may not have any clothes, And helping to enable customers to empower them to understand why they should move from the incumbent to something else is ultimately another big area that we dig into, in addition to dealing with mistakes.

Right. Another way of saying that that we talk about is, you know, when we're investing in these companies, oftentimes we're investing in them for five, seven, nine years, so a fairly long period of time. And when we're backing the CEOs, you know, they need to make a thousand decisions, you know, along that journey. We're not expecting all of those decisions to be right, but we'd like them to get 850 or or 900 of those decisions right. But then, you know, to your point in the podcast, but to be humble and to be open and transparent enough to say, hey, there's some mistakes that are gonna be made and let's fix those and move on.

I think it's ultimately the difference between, you know, lighthouse oriented CEOs versus good or more meat and potato oriented CEOs. So, Mark, one of the things I've really tried to do is provide people with kind of where the world is going. Prophetic may be too strong or, but if you do see where the world is going and if you look at history and then maybe it doesn't repeat exactly, it rhymes. I do think you've talked about how we're in a colder much colder climate for VC investing. Everybody's looking what the Fed's doing.

Everybody's looking at the debt levels and all this other stuff, and it's just overwhelming to people. What do you see going on from the Telstra's perspective in terms of the economy over the next twenty four months? Yes. So that's a big question. So let me kinda chunk it down a little bit just to make sure that, you know, we get to it.

Sure. First of all, the context that we're coming from is super important. Because, you know, 2022 was really hard. And so the colder side of 2022 from our perspective really came because it was a rebalancing year or in a sports analogy, it's a restructuring year. And we saw, you know, two big things.

We saw the equity market sell off, Nasdaq being off roughly 30%. So multiples were compressing and and coming down pretty significantly. And then you had a very big shift from a venture market that wanted growth at all costs to wanted growth with capital efficiency. So a lot of the companies were trimming, restructuring, riffing, tweaking their business models to get to a better position. I would basically say, where are we going?

So I think we're getting to a point where interest rates are increasing and inflation is decreasing, and I think we could get to some sort of stabilization by mid year. And as we do, I think venture firms are gonna wanna get more and more aggressive in terms of the investments that they underwrite. And, oh, by the way, all the rebuilding that the companies will have had will start to come to a time where the company is actually gonna need some cash again. And when they do, it will be a good time for, you know, venture investors to invest because if the equity market stabilize mid this next year, then I think people will start to get more aggressive about putting money to work in new sectors and new themes. My sense is that the markets are heading towards a more stable world with some lean and mean companies that we can still go off and invest in them and ride out into the second half of this year and into 2024 to some really good results going forward.

I love the approach there in terms of focusing on what I would call goods inflation and that the Fed is doing its job and that we're kind of likely to get back to a new normal. But let me ask a tough question. You're out there in the front lines. You're dealing with hiring people, people wanting to move up and get raises. There are a lot of companies out there where they're not profitable, where there's a real competition to get the best talent.

You've got the boomers retiring, and you got a very, very tight labor market. Are you seeing a humility among the type of workers that you're hiring that are going into these technology companies such that there won't be significant upward pressure on wages? I think it's getting better. You know, I think in 2021, talent wars were an enormous issue for many of our companies, and equity packages and cash base and bonus packages were growing pretty dramatically. We really haven't been hearing that in the last, you know, six months.

And, you know, with the layoffs at Amazon, at Facebook, at Alphabet, at keep going down the list. I think the ability to have access to good quality talent is becoming easier and easier. I think it's something that as a board member or as a CEO, you kinda constantly have to keep your eye on it. But my sense is the winds are blowing towards the talent market not being as constrained as it was, you know, say, eighteen or twenty four months ago. Okay.

So shifting for a second, you've referred to the great rebalance. What is that? So the great rebalance is basically, you know, looking at companies in 2021. We're oriented towards, I want revenue growth at all costs. And so I'll throw as much money as I can to try to generate revenue growth as possible.

And then I think with the sell off in the public equity markets, that's caused a refocusing of public market investors and private market investors to companies that have a good use of capital efficiency. Particularly with interest rates increasing where the capital actually costs more and more, management teams are encouraged to use the the rule of 40 or other tools to measure how efficient they are in terms of deploying their capital. And so the rebalance is basically a rebalance from growth revenue at all costs to balancing revenue and EBITDA margin in the rule of 40 so that people are using their capital much more efficiently. And I'm seeing that too, that there's been this shift from valuing companies just on revenue to going back to the more historical EBITDA model. Are we gonna see the type of liquidity that the fed created with easy money going forward?

Is the deficit gonna be an issue? Is this ability to continue to buy our own debt gonna help get these interest rates down and keep them down? I've heard some statistics that have said that, you know, a quarter of the s and p, there's a significant number of companies that will not really be able to amortize their debt at these levels because they were borrowing monies at lower levels, and they were growing more on the revenue model that you're referring to. Do you see this rebalancing being something that's gonna be with us for a while, and there will be winners and losers. Right?

It's one thing to say we're gonna switch to a different model, but then what about those people that can't? How's that gonna affect the economy? Yeah. I mean, so do I think this will be with us for a while? The answer is yes.

I think when you have interest rates rising and likely to stay in the four to 5% range for some period of time, capital costs money. And because it costs money, there's gonna be a focus on public market investors and private market investors. Is the capital being deployed efficiently? So I think that the quick answer to your question is yes. The second layer is, you know, what happens to companies that can't go through that transformation, and I think the short answer is many will go out of business.

You know, that's unfortunate because they may have oriented themselves under one regime, but the regime has changed, and as such, the metrics and things that are important in the world have changed, and ultimately we're backing management teams to be nimble, And ultimately, there has been a pretty monumental shift in the world, and you have to listen to that. Otherwise, you can't get more capital, and if you can't get more capital, you can't grow. And we're about backing companies that are, you know, growing at generally pretty impressive rates, and they need to be able to do what the market wants in order to be able to get more fuel into the gas tank to help their engine grow. I I agree. Mark, one of the things we like to do is ask people where they think the puck is going.

What's your overall forecast? As it becomes more clear that inflation comes under control and more clear that the Fed rate increases slow down or stop, I think we're gonna have a very active second half of twenty twenty three. And the reason in particular is something we haven't talked about yet, which is the amount of dry powder. And there's, you know, $300,000,000,000 of dry powder of funds that have been raised by venture funds that have yet to be deployed. I'm not saying all of that's gonna get deployed in, you know, the second half of twenty twenty three, but I think that many of the venture funds are mindful that they have these capacities, and they're being paid by limited partners to deploy that capital in things that they find, you know, very interesting.

You know, I think the super macro here is that the shift to software, the shift to digital, the shift to artificial intelligence is very fundamental. And we've seen that in the last twenty years, the information technology portion of the S and P 500 has gone from roughly 10% to roughly 30%. And I think, ultimately, it's gonna get to, you know, 60 or 70%. So I think we have a double from here in terms of the deploying of software and digital and artificial intelligence related technologies in every business that, you know, we're operating virtually every business that are operating under the sun. So we have just a massive transformation that's gonna continue to play out in the public equity markets and the private equity markets in the next, you know, ten, twenty, thirty years.

And that will also fuel a lot of the optimism that, you know, is embedded in some of the more shorter term comments that I'm making now. So to summarize, it sounds like we've got some exciting technology. We've got some exciting developments. We got a lot of dry powder, and there's a lot of good people out there to build these companies. And what we really just need to do is kinda get our ship stabilized, so to speak, get the financials back in balance so that inflation is under control.

And once we do that, we're really positioned to grow in an exponential rate again. Yeah. I think so. I think in the end, you can't fight the Fed. It is kind of one of the classic comments that public market investors, you know, make.

And I think because the private markets are linked to the public markets, you have to be mindful as to, you know, what's going on in the public markets. And and obviously last year was a disaster from an equity returns perspective in the public markets, and I'm cautiously optimistic about this year's as we've talked about. You know, there are some scenarios where the Fed gets it wrong, and we have a more meaningful recession, and we have some difficult times ahead. I think that those are at the smaller end of the spectrum in terms of possibilities, but I think they're, you know, they're very real. So to your summary, I think the long term macro for our space is really good.

I think there could be some zigs and zags in the next year in particular, But ultimately, I think, you know, we're gonna be off to the races in the not too distant future because, you know, the amount of software that needs to get embedded into these companies, the amount of digital technologies, the amount of artificial intelligence technologies are are just gonna be continually, fundamentally transforming pretty much every business that we know. I think the venture business as a business will continue to transform. And ultimately, the venture business started with a couple of firms and small billions in terms of dollars, and now there are hundreds, if not thousands of firms in billions and billions of dollars. And I think the business is becoming more competitive. And as it does, the key question is how do people source, make decisions, add value, and get to liquidity?

I think, you know, we've talked about the data science piece, so I think that's super important. I think the other question that CEOs ask is what am I really getting for this investment? And so I think people are looking for value add that venture firms can provide that are significant beyond the dollars that they're investing. And at least with our business, we've built a revenue capability that we've worked on with our portfolio companies. So out of the 90 investments that we've made, 45 of which we've generated revenue for.

And we've generated $450,000,000 of revenue for our portfolio companies. So it's a pretty broad range, but, you know, on average about $10,000,000 for the companies, which, you know, when we're starting with companies that have, you know, somewhere between 1 and $10,000,000 and we're trying to get them to a $100,000,000 and beyond, that amount of revenue for them is ultimately meaningful and significant. And so we try to work with companies so that we can help them with prospects, you know, within the first six months of of our investment. And ultimately, you know, that's the flag that, you know, we've put in terms of the value add that we have. Other firms help with talent.

Other firms help with conferences. Other firms help with some marketing help or some SEO optimization and those types of things. All of which are very helpful and great. But I think ultimately, it's something that our call is what companies really want, is hard dollar value. You know, if we show up with revenue, that ultimately will excite them and will enhance our relationship.

And it's one of the reasons why we're doing an NPS score analysis of of our work with our CEOs, And it's not done, so I should probably put brackets around this. But I I would say it's trending towards the seventies, which, you know, we're very excited about. And I think just shows that this revenue orientation that we have with our portfolio companies ultimately is paying off. Is there any secret sauce in terms of how you bring revenue? I mean, I don't want you to give away any of your deep secrets, but is there any anything in particular that you do to help boost the revenue?

Yeah. So we have four people that are all operating partners, and all they do is work with our portfolio companies to help them with revenue generation. And one of our strategic investors is Telstra, which is the large Australian mobile operator. They've bought software for their own operations with some of our portfolio companies, and they've also represented them in their channels in terms of the operations of some cloud companies and some cyber companies in particular to help them, you know, generate more revenue. And then over time, we've developed our own relationships and direct customer relationships to help our portfolio companies, you know, go from there.

And so, ultimately, it's really kind of focus and having worked at it for the last ten years to develop the capabilities of knowing what works and maybe what doesn't work as well to help our portfolio company generate some of the numbers that we were talking about before. And it would sound like as you're differentiating yourself, it would behoove CEOs who are interviewing VCs and doing research out there to really look at what their product is and what their revenue plan is and better understand what Telstra brings to the table and the kind of investments that you make, but the types of revenue that you can help enhance to see that it's a good fit. And if they do that homework on the front end, it's gonna make it in more fruitful presentation because it becomes a win win. They're selling you on what they're gonna do, but they also understand what you can do, and then you guys can really focus in on how you can put the two together and really create a win win situation. Totally.

And building on what you're saying, you know, 99% of venture firms can't repeatably generate revenue for their portfolio companies, and we can. And so, you know, that's something that's interesting and differentiated and really very helpful in a constructive way. As I said before, you know, 45 of the companies out of our 90 we've done this for. That means 45 we haven't. We can't do it in every situation, but you know, when it works, it's really, really powerful.

Mark, thank you so much. This was fantastic. Yeah. Absolutely. Hey.

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