Thomas Ruggie discusses how institutional family offices approach late-stage private investments in the context of a changing capital market environment. Presented by Destiny Family Office, the Significance of Wealth Podcast provides institutional-level insights for high-net-worth and ultra-high-net-worth listeners.
In this episode of Significance of Wealth, host Tom Ruggie is joined by Michael Grayson, Portfolio Manager at First Trust Capital Management LP, for a thoughtful discussion on late-stage private investing within a changing capital market landscape.
Their conversation examines how institutional family offices assess private growth opportunities, with an emphasis on underwriting discipline, access, alignment of interests, and risk awareness. Tom and Michael also explore how liquidity considerations, secondary market dynamics, and potential exit paths, including IPOs, inform decision-making as companies mature toward the public markets.
Explore related private market commentary and articles written by Tom Ruggie:
- The Calm Investor’s Guide To Allocating Alternative Investments
- The Role Of Direct Investment Opportunities In The AI Revolution
- Why Alternatives Belong in a Well-Built Portfolio
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Welcome to The Significance of Wealth Podcast, where we explore the evolving landscape of wealth management, private investments, and collecting as both a passion and investment strategy.
I'm Martie Salt.
Today we're joined by Michael Grayson, a portfolio manager at First Trust Capital Management, where he focuses on event driven and multi alternative strategies, as well as the firm's private market platform. Michael brings deep experience across alternative investments and private markets with a background that spans investment management, product development, and working closely with family offices and institutional partners.
Before we begin a brief disclosure. This episode includes discussion of past private, and alternative investments for informational and educational purposes only. Nothing discussed should be construed as an offer, solicitation, or recommendation to invest in any specific security fund or strategy.
Alternative investments are speculative, involve a high degree of risk. And are intended only for investors who meet applicable qualification standards such as accredited investor or qualified purchaser requirements.
These investments are not suitable for all investors may involve limited liquidity and can result in significant loss of principle. Listeners should consider their financial situation and consult their own financial, legal, and tax advisors before making any investment decisions.
In this episode, Tom and Michael discuss how institutional level due diligence, disciplined underwriting, and ongoing access to private markets support the investment process for Destiny family office clients.
They explore how liquidity secondary markets and potential exit paths such as IPOs or evaluated in late stage private investments, offering listeners insight into the frameworks and considerations. That inform these decisions.
And now here's your host, Tom Ruggie.
So today I have with me Michael Grayson effectively known as Grayson to myself and many others.
we actually utilized Mike's firm to set up our Destiny Alternative Fund which is now about four, a little bit over four years old. And more recently, over the last two to three years, we've been doing an awful lot of direct investments with with Mike and his firm. So we're gonna talk a lot about those today and get Grayson's insight and directionally where things may be going in his opinion and whatnot.
So, Grayson, happy to have you here. Thanks for joining.
I really appreciate it, Tom. I feel like this is long overdue, so I'm happy to be on and looking forward to the conversation today.
Awesome. Well, let's start off, maybe just tell us a little bit about yourself, how you got into the business what motivates you at this point?
Yeah, happy to. Grew up in Chicago. Our office is in Chicago.
Went to school in New York, another cold climate at Colgate. Studied economics many years, 15 years ago, got connected with a family office. Coming outta school. Had a kind of relationship with one of the partners there. There were six original partners of the firm. All very successful ex traders on the Chicago Board of Options Exchange.
A couple kind of north of a billion. Were families. And there were six primary or core families where we were investing all private partnership capital for those families. And we grew the multifamily o we called ourselves a multifamily office business. We grew the multifamily office a little bit and expanded to some additional families over a five to 10 year period.
But the focus of the business was a hundred percent private placement investments, mostly equity and debt focused. So private equity, we were doing a decent amount in private debt, which we've also had partnership with destiny on of course. And really developed to have a niche within mid late stage growth equity.
Investing with Partnership Capital and had a couple strategic relationships with family office clients, destiny being one of kind of the exclusive relationships where we started partnering on these opportunities. The family office I was with did a joint venture with a firm called First Trust five years ago, and that really helped expand the access that we were getting to these private companies specifically just because we put a little bit of brand behind our multifamily office business.
First Trusts is a $320 billion asset management firm. They have a large public business. A lot of these companies that are pre IPO really like to align with. Some of the mutual fund companies like a Franklin Templeton or a Fidelity or A T Row Price and first address is in that kind of network of large ETF and mutual fund shops because they want you to support the stock after the IPO.
And so some of the kind of relationships that we had with management teams and venture firms to source access to growth, equity and venture deals prior to the First Trust partnership, coupled with the fact that we were able to lean a little bit into the First Trust brand on the Post IPO storytelling has provided us really exclusives to the access to where I've focus a hundred percent of my time on mid and late stage growth equity investing in large pre IPO businesses.
We've done a lot in the Elon Musk. Names together. We've done a lot in kind of other next generation technologies like defense technology, certain enterprise software companies, a decent amount in ai and then some other frontier technologies like robotics. We've been looking at quantum compute together, we've been looking at nuclear fusion recently together, destiny and, my kind of multifamily office business and the kind of thing we pride ourselves most on, which we can talk about today, is always aligning ourselves with clients, with partnership capital. So we really source these deals through the lens of, do we wanna invest our own capital into these opportunities first and foremost for alignment purposes.
And because we think the investment thesis is compelling. And then have the opportunity to bring them to family office clients that, we work with collectively.
So, we have been investing in quite a number of mid to late pre-IPO companies.
All of which I would put into that, somewhat later stage. I feel like once we get through this cycle, if you will, that it may revert back to more smaller, mid-size companies. Would you agree with that or do you think once we get through this technology cycle that there's going to be other up and coming late IPO type, stage type companies?
Yeah, I definitely think it'll be situational based on capital market environments. So our IPOs open, or clo IPO markets open or closed right now. We think, and we've talked about, we talk about this almost every day together how we're at this really unique inflection point where you have these generational potential companies like a SX or an OpenAI, or an Anthropic or a Databricks, that have been around for a while, like a lot of these companies have been around for 10 years. We had a tough market environment coming out of 2021 and 2022, where we've had almost no IPO activity now for three straight years. And finally it seems like IPO markets are reopening and a lot of these businesses have some AI component to them, but there are really some generational opportunities.
So in these underlying businesses where it seems like we're at this kind of perfect storm of. Having access to pre IPO companies still relatively early in the game, but we're gonna see a lot of IPO activity, I would hope, over the next 12 to 36 months in this universe. And so, you don't wanna say like, this is, I don't think we've thought about this as a being a trade where we're like, oh, we're gonna tactically put this trade on where there're these pre IPO companies and we're gonna capitalize on them over the next 12 to 36 months and then flip 'em through IPOs.
But the investible universe will definitely change over the next 24 months. Once a handful of these companies are more actually go public and are now accessible in public markets. What that means is, we'll continue to evolve the program potentially a little bit more into mid stage companies. I do think there will always be private businesses that are on the kind of brink of IPO where we'll continue to focus partially because.
At least the way I think, and we, I think I speak for both of us. Our partnership capital really thinks about, mid late stage being the sweet spot where there's enough juice to squeeze on these investments to make upside return. But we're not taking binary risk of early venture investing. That's how we wanna invest our own capital.
Like if we can make a two x or a three x or a four x, obviously we can talk track record and portfolio companies, but if we can make consistent, strong IRRs and good multiples for investors over shorter holding periods, so maybe 2, 3, 4, 5 year holding periods, that's a really good outcome
for a family office client.
We don't necessarily have to swing for like the early stage investment that's either a 10 x return or a zero. And so that's why collectively we've always really focused on the companies that are maybe 12 to 36 months out from an IPO and shied a little bit away from the businesses that are so early stage and a bit more speculative in nature.
no,
we definitely have the same thought process and ironically, one thing that I've been quoted as saying many times is. I believe that we're in a once in a generation moment right now, specifically not just with the investments that we've made. 'cause there's other great companies that are out there that that we have not brought to the table for our clients.
And there's been, one or two that we talked about bring to the table, like Core Weave that we missed the boat on. Nonetheless, we've the reason we didn't do Core Weave was because we brought Andrew to the table. So, you have to take a trade off here and there.
But it is again, in my opinion, just a, just an amazing opportunity set that we're in right now. And I'm also in agreement that the, the next 12 to t 24 months is going to be a very exciting time for a lot of the names that, that we've brought to the table. Can you talk to me a little bit about.
Your vetting process, and when I say your, First Trust, Valdi, et cetera.
perhaps even the escalation of the vetting process above and beyond you because, most of our deals are coming directly for private equity firms, so obviously they're doing a significant amount of vetting before it probably crosses your all's desk.
Correct. Yes. Happy to. There's really two layers of the diligence process. So the first I'll talk about is like a little bit more market oriented, where this is a very, we don't believe collectively, this is a do it yourself. Marketplace like there are institutional players in this market, which we would pride ourselves on being one of those counterparties that are providing really high quality solutions to high net worth and family office clients.
Best execution on price reasonable fee schedules appropriate structuring of these investments where you actually control the asset and safeguard client assets that way through structuring youve alignment. So investing your own partnership capital alongside the client's owe close to support.
So like, making sure you're providing regular updates to the end investors. Like those are all things that an institutional firm is gonna provide an end client that's paramount to the outcome of the investment. These are non-investment thesis related items. So like before we even get into thesis, it's making sure like we're on the we're executing like institutionally.
The non-institutional market, which really dominates this space is really almost the wild West right now. You have large brokerage platforms running around with supply and these companies, and when I say these companies, like we'll talk about the businesses we're focused on, but think about like a SX or an Open AI or an Anthropic or an xAI or a Databricks, like these are. Names and companies even Anduril industries. We've done a number of Anduril transactions. Businesses you might know, like they're on CNBC wall Street Journal, 60 Minutes. There are brokers all over the marketplace independent at kind of the large brokerage platforms that are like preying on retail investors.
And then there's a bunch of suspicious counterparties also that are basically masquerading as venture firms. Anytime you get a market like this where there's a really, as Tom noted, a once in a lifetime potentially or generational opportunity set, like it's gonna introduce a lot of shady counterparties to the marketplace that you need to be careful with.
The brokers, intermediate trades connect buyers and sellers. There's double digit percentage commissions in this market. So like, think about a real estate, these transactions are almost like real estate directly negotiated between a buyer and a seller. There's a broker in the middle of the trade. In the venture market that we're talking about in the high demand in names, those are double digit commissions the brokers make on both sides of the trade.
So like you're paying a broker substantial upfront fees, there's no alignment 'cause they're not putting their capital into it. It's a very transactional relationships. So you get no post close updates on how the investment's performing. So you're pretty much shut out and in the dark immediately after you close.
They also do shady things like mark up the share price on these companies regularly, like almost every single transaction because there's no market exchange for these businesses. So do they know whether SX is a $212, or does the end investor know whether SX is $212 per share or $250 per share?
It is two 12. Last transaction would be two 12. That's institutional market pricing. A lot of this wild last retail dominated marketplace pays, pays big embedded premiums on price per share. And so if you're interested in the space, the thing you have to do is make sure you're aligned or with one of those institutional counterparties and not trafficking in the retail kind of dominated wild west broker market that comprises 90% of this marketplace because you're getting taken really one way or another, whether it's their price big egregious fees, multiple SPV layers.
In this conversation are you including purchasing these investments directly in the secondary market?
The secondary markets is, i'm referencing the secondary market, but the brokered secondary market, like we've done secondary transactions where we've bought shares from, a shareholder of the company through a directly negotiated secondary, but we were able to drive terms in that transaction.
For instance, an example is, the Reddit deal that we did together in late 2023. We bought shares from three X employees pre IPO. That was a directly negotiated secondary. We knew those three X employees needed liquidity. They've, they departed the business. They'd lost touch with kind of the progress of the company.
A lot of times they're. Motivated to sell like they had tax liabilities, specifically these three individuals that they had to meet. So they needed to raise liquidity and we were able to negotiate. We entered that one at $29 per share. That was the 5 billion market cap on the company. The stocks trading north of $200 per share.
Right now. So there are certain secondaries where you can, situationally get great access and execution like the Reddit trade that I just walked through. That has a great outcome for investors. But that's because we were collectively driving the terms. Institutionally. The market I was referencing is really the wild West secondary marketplace where, a broker gets their hands on space shares and they're marking them up and there's egregious fees in the middle of it.
That's most of the secondary marketplace, I would say, carries that negative connotation where it's really aimed at exploiting demand in these names and potentially to the detriment of retail investors. So that's, two, two sides of the marketplace. You need to make sure if you're interested in these names, that the counterparty you're engaging with, whether it's First Trust or destiny is institutional.
So we pride ourselves there. Secondly, we spend a lot of time obviously underwriting the individual companies understanding the business models, understanding the IPO visibility of the company. Understanding kind of the unit economics and competitive moat that the company has. And then just all the KPIs, so like the full financial model, having access to that under NDA from these companies so that we can really understand financial performance and projections for the companies.
Having information rights where we have access to financials. That's how we not only underwrite the business, but also keep the investors up to speed on the investment post close. Whereas brokers don't have any access to that information and so you're really making an investment, just frankly hoping the company IPOs and you have a monetization for the business.
So let me just take a pause there
So I know there's been several situations where we were talking about gaining access to a company, and after some due diligence we ultimately decided not to move forward. Can you, without naming the company or companies, but can you give some examples of a situation where there was a pretty deep dive done, but ultimately the team said,
Hey, we're not gonna do this.
Yeah, And this is where the alignment comment I made is so important. Like if you're a counterparty that you're working with, is investing their own capital meaningfully, they have skin in the game. So they're not incentivized. We're not incentivizing. We do have, we both have, both of our firms have meaningful skin in the game and personally on both sides of this conversation.
To make sure these are institutional quality and like best execution deals. Conversely, brokers are all transaction focused, so they just wanna get the trade closed. A couple deals we passed on for diligence purposes that are completely separate, we looked at a robotics company that was they just raised a large financing round at a 10 billion valuation.
we did eight different calls with the CFO and CEO vetting the business we had, we were under NDA, had full access to the data room financial projections.
We, we understood other participants in the round as well. So we were talking through kind of reference checks to other private equity firms that were potentially participating along the way. ultimately flew out to Palo Alto to meet the management team, do an onsite before we invest. We're always doing an onsite, physically in person. Like we need investment team and operational due diligence team and in the office, physically, in person before we're committing our own capital and client capital.
Yeah, which is a great point to make also.
yeah, it's frequent travel. Like it's, we're all over the place, but domestically, western Europe, like you really need to be there on site because the software was lack lost or. For the, this robotics company specifically, like the demo and autonomous mode, and the robot didn't work.
And we had heard that from other counterparties that were also betting the transaction. They were like, look, the hardware aka the robot, the humanoid robot itself is really interesting. Like the software needs some work. And so we went in with kind of moderate expectations, but the reality is like they just weren't there on the software model.
And the valuation was hard to get comfortable with the 10 billion as well. We were working through like a lot of kind of concerns around the valuation front. So that's where we, one where we did eight different calls over a couple months documented all these notes into a hundred pages of writeup.
On the business soup to nuts. Flew out five individuals to Palo Alto to vet the business and like ultimately like decided not to proceed with the transaction on the, in the red zone. Another deal that we passed on for totally separate reasons is anthropic.
So we did the E round in March, as you noted. Then they did the series FA couple months ago.
We had access through a venture firm. The round got very competitive. So like the company was like basically like restricting all these different groups from participating in the round. They were five times oversubscribed with demand. They, had the ability to really get tight on the round.
And so it got hard to get access to the Series F round particularly. We had one venture firm that was going to provide us access through their SPB. On paper, this was a very blue chip venture firm, eight and a half billion in assets. Large institutional limited partners like clients, investors. On paper you would see nothing problematic with this firm when we actually went in and, we're in their offices physically, as I noted, whether it's a business like this robotics company or it's a venture firm or a counterparty that's intermediating the deal for us. We need to be physically in their offices. Show me the stock certificate to make sure proof of existence of shares exist. Oh, I don't wanna see the PDF stock certificate.
I wanna see the electronic stock certificate because we see forged PDF stocks, ORs all the time. Talk to me about your valuation and kind of audit process. I need a side letter that says you're gonna gimme the shares in an IPO and not liquidate me out and gimme cash. Couldn't get there with them on those items. Like immediate non-starters. For us, we were very incentivized from an investment standpoint to get the deal done. Like we then. Collectively bullish on the business now for a while, and we want
wanted,
pill to swallow, but for the right reason for our clients.
right? Protecting client assets our own capital as well, we're aligned. We would never, this is a five minute explanation that can basically be summed up and we would never risk a penny of investor capital if there's anything operationally or structurally that we can't get comfortable with, even if it's our best idea, like an anthropic investment, where we very much wanna participate from the investment side of the table.
And so this is, really puts I think, our partnership into an echelon that most groups. Are not there. And we take the diligence soup to nuts on not only the investment side, but candidly, like even more on these deals on the operational side, incredibly seriously. Because there are a lot of problematic structures, fee structures, counterparties in the marketplace where, there's gonna be, over the next couple years, probably some pretty di difficult outcomes for family office clients.
Not because they got the investment thesis wrong, simply because like, they've been wronged by the counterparty that they partnered with.
you just need to be very careful in this marketplace transacting.
Absolutely. Yeah. and again, that's another, in my view, that's a strength of the relationship that we have with your group. So, switching gears a little bit you mentioned this you bounced around this a little bit earlier, but what do you see happening in.
The niche that we've been investing in over the last couple of years, what do you see happening over the course of the next 12 or 24 months? Again, just your crystal ball. O obviously nobody knows and not only does nobody know, but things can pivot and change, at the drop of a dime for whatever reason.
Government reasons, economic reasons, whatever. But what's your thought process at this point?
Yeah. I think a decent amount of exit activity, specifically IPOs. For these businesses. So I'll talk IPOs first. 2026. There are a number of juggernaut IPO candidates for next year. The hottest, the most hot off the process SX where we have, we've done numerous transactions in SX together through the company run tenders.
So the company does a tender every December and June. We've been able to acquire shares through the tender together. This tender they're putting together in December also coincided with anecdotes around them getting the business ready for an IPO next year. We've spoken to a couple groups that are very close to management and Musk specifically who have really verified the fact the business is progressing towards an IPO that caught the market off guard.
I wouldn't say we've been,
Caught me
um, In
caught everyone. yeah.
that's more 42% of the company. So a lot of these decisions are driven, by him which can create a little bit of volatility in the flow of information. Databricks is another one that we've been really active in together. We did two financing rounds earlier this year. The company's grown 60% top line. They're profitable now as of this year, and so the free cash flow profitability puts them in a good spot for IPO. They, it's great performer for us.
Like we bought the stock earlier this year at $92 and 50 cents per share through the Series J financing around the company's raising at $190 per share right now. So, good outcome where we've made a little over two x return on that in the last 10 months for the investment. And they're probably an IPO candidate back half of next year.
The business we just recently invested in Crusoe which is an AI infrastructure data center developer, they're the firm that's doing the Stargate project. In Texas with Oracle and OpenAI, huge data center development project Cruso will make 2.3 billion of earn out revenue on that project. Also an IPO candidate strong IPO candidate for next year.
So those are three investments that we hold at, pretty meaningful size and businesses that are in the journal and CNBC every day almost who will likely IPO middle of next year. So I think you'll see a decent amount of IPO activity in 26, 27. Probably a lot of IPO, specifically the Frontier labs, AI labs, open AI, and Anthropic Ton of articles circulating around them, pulling forward the IPO potential of those businesses. I think those are probably my personal opinion, 2027 timeframes, but they're aiming for like end of next year. I think that's a little ambitious for them, but I think they leak into 27, still pretty near term at this point.
And then, and oral is another one you would think and they've been pretty outspoken about. This will go this administration, like in the Trump administration probably 2027. So, those are six companies I just mentioned where we have positions where we'll be, monetizing 'em through IPOs for the investors.
One thing we do when IPOs happen, specific to our partnership, is distribute the stock to end investors in the IPO. So the clients get in kind distributions of the stock. It's good for two reasons. One, if the investors wanna hold the position post IPO when the stock's public, they can two it doesn't create a tax liability either.
So we really focus on providing in kind distribution to the stock after the IPO lockup expires. That's one dynamic. The only other thing, and I'll be way more brief on this subject, is the private markets are getting much more liquid to the benefit of investors. So there's no market exchange for trading these companies.
However, there's ton of secondary market activity. There's also, these companies are running tenders now regularly for shareholders to liquidate their positions potentially once or twice a year formally. And so even if IPOs languish, the market is getting. Has progressed to the benefit of shareholders where there's better exit optionality in private markets outside of just a binary IPO outcome.
And so both of those dynamics, I think we're really excited about. We've been, collectively heavily deploying capital over the last three years, coming out of 2022, where we had a big reset in this universe and a lot of these companies were formed. And now I think we're gonna actually start seeing some real monetization events for these companies over the
next 24 months.
Yeah, I would agree with you. That's my personal thoughts as well. And as private companies have been staying private companies much longer. For a number of reasons, but I think we're in agreement that the market's becoming pretty hot for some of these longer tenured private companies to, consider options such as an IPO or something like that.
And then, again, it's all a cycle. So things will probably cool off at some point later down the road. And, if my crystal ball works, it's probably two to three years and and then private companies may stay private longer again. But again, I think the market is really strong for
this sort of thing at this point.
It is. It is. And you need IPO markets in this space. We've made investments six or seven years ago where you go in, you're like, I love this business. I don't know how I'm gonna exit it. This is really attractive. And a lot of times that's not a good strategy. Like you, certain managers will tell you that.
They'll be like, look, this is. about this as being like super long term. We don't know how we're gonna monetize the position. Like we don't need the liquidity. Like this is, the investment merits like are hard to argue with, but you really do want, you need pretty clear exit strategy outside of we could sell this through secondary or tender out of this.
And so when IPO markets start reopening, like it seems like they are this year and especially into next year with a number of these candidates, that tends to be the best time to deploy because like realizations are, not super easy to come by in pre IPO investing. And so, that gets us really excited heading into 26.
And, what are your thoughts on and this is more as a generality, maybe not even just where we are right now but on liquidity. Again, when we talked about SX I was surprised by that because of a lot of the investments that we've done. I've always felt like SX might be a longer term hold than some of the other investments that we're doing.
So, it just give a few thoughts on how you all view liquidity, not just in the current market space, but three, four years ago when there wasn't as much liquidity.
Yeah, that was IPOs were like even more important three, four years ago. This was that second dynamic I was trying to bring into the fold, which is non IPO private market. Liquidity is improving, as you would expect. It would like markets, become a little bit more efficient and a little bit more liquid.
So there are more efficiencies. The thesis behind SX specifically, it's a great example. Unbelievable company. Insane growth on the starlink side. Pretty much a complete monopoly on the rocket launch side. They're like seven or eight years ahead of the next closest competitor on launch. You have Elon Musk who has unlimited access to capital and obviously is a visionary and proven founder.
That's one, handful of years ago where, checks all the boxes you would want for this program. The also profitable business model, like both sides of the house, starlink and the rocket launch side are profitable. So the unit economics work the challenge was. The IPO looked pretty bleak.
Everyone was always giving the generic three to five year IPO expectation. There's actually reasons why the company could potentially operate better as a private company and then a public company given the sector that they're operating in. You could make the argument. So that would be one within this program where we feel less bullish about an IPO coming into the investment.
What we did know that got us comfortable from an exit optionality standpoint is the company runs two tenders per year. Every December, every June they run a tender. The company sets the price and valuation on the tender. They leave the tender open for 20 days. That enables shareholders to liquidate their position through the tender.
So we knew, okay, twice a year, there's really good exit optionality in the private markets through these formal tenders that the company's gotten really good at running. In the event the IPO's languishing, we can, turn to the tender to monetize the position opportunistically also. There's been pretty perennial demand for the stock where the secondary market has had a pretty consistent bid even through market cycle.
So, bid ask spreads can widen when markets get squirrely For a lot of these companies, typically SX has, pretty strong bid through 2020 and 2022 in tough markets. And so those two factors gave us comfort where, we thought maybe IPO 50% chance they IPO the business ultimately 50% chance.
We still have, two really good exit strategies through tender or secondary. I think, if we didn't have optionality for tender or secondary. For one of these businesses where we didn't really feel good about an IPO, that would be like a big hurdle, diligence wise to get comfortable with.
We really wanna see IPO visibility and if there's not a ton of IPO visibility or path towards an IPO, we, there needs to be very reasonable liquidity optionality through a tender or secondary that we can get comfortable with in order to proceed.
Yep. Makes sense. From your vantage point are you seeing where big pools of capital are flowing into these investments? Obviously they're flowing in, but is it coming from are sovereigns getting involved in this, endowments getting involved?
Obviously the ultra high net worth is clamoring for accessibility to these types of investments. But it's also become, as we, we know and we've experienced firsthand that accessibility has really been tightening up over the last year or two.
That's correct. Yeah.
Both true. Tons of capital coming into these companies when they get a little bit, the sovereigns are coming in now since, to your point, like there's a ton of balance sheet behind those entities to, in demand that comes alongside it. The also the mutual fund companies are getting involved.
Yeah, that's true.
and they get involved closer to IPL. Like they, they don't wanna do the business when it's seven years out, but they wanna cross over the stock to their public side. So like, when they start getting a little bit later stage, you'll see like big firms like Fidelity and Franklin and t Row.
And this is something I touched on with the First Trust kind of part of the story where the companies really like those crossover investors on the cap table when they get closer to IPO because they know they'll be supportive of the stock after the IPO, but it brings a lot of demand. Like those are large entities who write big checks.
So a lot of these rounds are tough to get access to, like the anthropic rounds and the open AI rounds. You need $200 million just. To play in those rounds, like the minimum check sizes on those rounds are generally 200 recently. And then the round is, they're raising $10 billion because these are CapEx and Tencent businesses and they're 40 billion of demand for the round.
Like it's, the numbers are really hard to, frankly wrap your heart around a little bit, like 40 billion of demand in the anthropic round. And you have three guys at Anthropic that are running the book on the round. Like things get challenging to get. The transaction closed. If you're on the buy side, like what they start doing is, getting extremely restrictive.
Groups get cut back, allocations get cut, so it can lead to prorations where, you thought you were gonna get $20 million in the round and you're only now getting $10 million in the round. So it's a tough, very competitive marketplace as you'd expect for these businesses where they have transformational or generational potential.
I think that's where, collectively we've had a lot of success.
a lot of the marketplace that's, out marketing these companies are not actually, closing the transactions because they're either, these rounds are, meaningfully under over, excuse me, meaningfully oversubscribed. So I'm proud of the fact that, we got one andel deal on the ground last year that's looking like really attractive cost basis.
We participated in the anthropic round. Databricks was a tough round to get it access to. We closed on that transaction to X ai. We did a really attractive secondary and the company's raising capital this month and a large valuation increase from where we bought the stock. And so, to be able to actually not only go out and, source and diligence, the investments, but actually just take it through closure and execute for the clients. Has, I think been something that puts us in kind of the top decile or top quartile
Yeah.
of this space.
Well, time will tell on the positions that we're doing, one thing that I always tell our clients is you have to invest in any one of these deals with a mindset that, you could lose a hundred percent of your investment. And so that's why I preach diversification.
And yet at the same time I'm so bullish on, everything that we've been doing. And that's, that to me is why I really consider it that, that once in a generation opportunity. I, I feel like this is the pre-internet boom stage where we're getting access to the real companies that are gonna be, when all the dust settles, some of the top companies out there when there's gonna be a lot of me too companies that come along and frankly probably take a lot of people's money that, that is not able to execute and puts those investors at risk of losing all the money.
But yeah it's been just such a unique opportunity. Now, just a couple of the things before we close out, you've mentioned a couple times, us being insiders on the positions and the six month holding period with, again, nobody knows the answer to this, but I would enjoy your insight on, just you, you could use SX or you could not use any company as an example, by the time the IPO goes through and we as insiders, including our clients.
Need to hold it for an additional six months. And then, the benefit of a First Trust and Fidelity and Schwab is they are going to help the stability of those companies at the end of the six months. But let's face it, there's probably a lot of people that want to sell it, that six month period also, which can drive down the price at that point of execution.
What, what are your thoughts on the group of companies that we've been talking about? What do you think they look like if they, IPO and we have to hold 'em for that six month period
Reddit's a good example, we transacted 29 bucks a share. It was $5 billion enterprise value in October, 2023. Company goes public in March 24 stock trades to, a hundred bucks a share or something.
Post IPO, we were in at the cost basis of 29 bucks a share. So we're feeling pretty good about a thesis playing out on that investment at, we're locked up for six months. Pre IPO investors, subject to a six month lockup agreement. That's not specific to Destiny or First Trust. That's, a, any pre IPO investor.
Yeah, all insiders we're So, we're locked up for six months watching the stock as the. Six month period approaches, like you start seeing some selling pressure like coming out of the lock where the stock falls to 55 bucks a share all the way down. I think 50, 55 bucks a share is maybe where it bottomed.
It's why it's so important to distribute the stock to the investors after the six month lockup period because A, sometimes you can get some selling pressure and depressed stock prices around the lockup period expiring simply due to like a lot of insiders exiting the position. When the lock burns off, now the stock's trading at it's two 20 a share.
I mean it pretty quickly rebounded to 200 bucks a share. And. A lot of the clients held onto the position I would say the majority of them held onto the position because we gave them the stock in kind rather than said, okay, we're gonna blow out of the position after six months at 55 bucks a share.
We still made a two x on the investment. Here's your cash distribution of long-term capital gains. So you wanna think about being prudent around,
it'd be, it would've been short term capital games,
you would've been Yeah, probably inside a little bit. Inside In short terms, it's another thing. Typically these are gonna be, more than one year holds.
But that was a really quick one.
So I think we're excited about the IPO and, potential there in the next six to nine months and how the stock will be received in public markets.
The precedents look pretty good and the companies are, really performing. And so I think you're at this perfect storm of, strong fundamental performance and probably some benefit in terms of macro environment or timing around these IPOs. And, hopefully that bodes well at the same time.
The last comment is we don't bank on the stock. Everyone has a pie in the sky. Not everyone, but a lot of people have a pie in the sky kind of scenario. Oh, I'm gonna invest in this company pre IPO and I'm gonna get this massive hop post IPO and I'm gonna make a ton of money on the investment. 'cause it's gonna, we don't I think we've done a really good job collectively of coming in at big discounts to IPO price and valuation where we don't actually need the stock to trade that well post IPO to have a really good outcome.
No, we're definitely
In a fortunate situation with kind of our pool of investments from a standpoint of entry valuation versus current. And to your point. It'd be great for it to to, to IPO and the IPO to, extremely successful over the next six months and have an opportunity to have it grow that much more in value.
But even if it stays at the pre IPO price where the valuation is right now, it's still a very good investment on the majority of the investments that we've made. So, one last question as we wrap up, but again, we've been pretty focused on these core companies over the last, really the last couple of years.
What do you think 2026 has in store for, perhaps new companies, maybe same sectors, maybe not the same sectors, but what are your thoughts going into the next year?
Yeah, there's
some of the big category leading companies are doing what feels like their last financing rounds prior to IPO. So one more bite at the apple for the big kind of category defining companies, probably stays private a little bit longer, but I think you're running up on timeline for some of these companies to go public.
So we're focused collectively on, continuing to participate and support these companies pre IPO in the last couple primary financing rounds that they do.
So ones that we think can grow into being category defining companies that you may or may not have heard of, size of these companies typically ranges from 2 billion market cap to 15 billion market cap. So as we talked about, we're not focused on the a hundred million dollar enterprise startup company that's, raising a seed round or a series A round.
That's just for how we think collectively about investing our partnership capital. Too much risk and speculation. We've. Mostly series C to pre IPO companies. We've been focusing a lot on nuclear energy. So nuclear fusion specifically been a, yeah, really hot theme, great cocktail and like golf kind of theme.
But there's so that's exciting, momentum's behind it. But the reality is like the technology is finally like really interesting and the duration is not like, extremely long for the delivery of these commercially viable nuclear fusion plants. Like a lot of the delivery dates are like 20, 28, 20 29. So you're taking a little bit more duration than like all the businesses we've been talking about, where you're gonna be, public by that point.
But super attractive in terms of transformative energy. And there are a couple companies we're in the seventh or eighth inning of diligence on within that sub-sector. Defense technology and or role. We've done a number of and or transactions together. It's a big winner. They, they create, I, to me, they created the sector of defense, tech, like disrupting the defense industry with unbelievable technology that the defense primes simply don't have.
So I think we'll do something in defense tech together within q in Q1 next year. There's a, one or two other space technology companies that were looking at. One was recently in the news because it was being looked at by Sam Altman. From an acquisition lens or a strategic investment lens.
And then some other frontier technologies robotics, software focused robotics specifically.
We looked at the quantum compute company for a while that I've talked, we've talked about a wearable health device, technology that, is bucking substantial revenue with really good financial numbers.
So we'll do some away from like the blue chips that we've been focused on,
it'll provide some good diversification to our program and we'll continue to rely on the category leaders to, as the main ones that we do throughout the year.
Awesome stuff. Well listen,
it's been a great conversation. thank you so much for taking the time to join us today,
Sounds great. We appreciate the partnership.
Thanks, Tom.
I do as well. Thank you. That brings us to the end of today's episode. Thank you for tuning in. Be sure to subscribe to Significance of Wealth on Apple Podcasts, Spotify, and anywhere else you get your podcasts so you never miss an episode.
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Until next time.
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