Andy Weissman has great energy. It’s refreshing. Andy is a partner at Union Square Ventures, which is one of the most well known venture capital firms in the world. Some of their better known investments are Twitter, Stripe, Etsy and Tumblr.
Andy has a wonderful investment background going back to 1999. He founded Betaworks in 2007 where he invested in Tumblr and Kickstarter and lots of other companies. Andy sits on the board of a few very interesting companies like Figure1, Science Exchange, CircleUp and Numerai.
It was a privilege interviewing Andy. I hope you enjoy it as much as I did.
Here are some things we talk about:
-What’s the number one take away for living life?
-How did you get into investing?
-How do you think about investing in a team?
-How do you incorporate what you’ve learned over the years into your investment process?
-What type of network verticals are you interested in now?
Dave Kruse: Hey everyone. Welcome to another episode of Flyover Labs and today we are lucky enough to have Andy Weissman with us. And as some of you may know, Andy is a Partner in Union Square Ventures, which is one of the well know VC firms in the world. They have invested in Twitter, Stripe, Etsy and Tumblr and a ton of other great companies. Andy has a wonderful investment background going back to at least 1999 and he Founded Betaworks in 2007, where they invested in Tumblr and Kickstart and lots and lots of other companies, so he has seen a lot in his days. And he currently sties on a number of interesting Boards like Figure1, Science Exchange, CircleUp and Numerai. So I wanted to bring Andy on the show to learn more about his thought process and what he is exacted about. So Andy, thanks for coming on the show today.
Andy Weissman: Sure, thank you Dave. I hope you are having a good day.
Dave Kruse: Definitely, I hope you are having a good day out in New York.
Andy Weissman: Yeah, pretty good.
Dave Kruse: Good, good. So before we talk about some of your investments and what you are working on now, can you just kind of give us an overview on your background and how you got into the world of investing?
Andy Weissman: Sure, and it’s kind of an interesting question for me, because it was completely random, not planned whatsoever. In other words, it was a bit of a random walk and I kind of bounced from two different things based on a peculiar set of circumstances in each case and they kind of led me here, and I guess it’s worked out okay, but it wasn’t what was forethought. I was in Washington DC and I was in the communications industry radio and TV and I was with a firm that represented radio, station owners and television owners and at the time of the deregulations a lot of transaction work was put on and I randomly got introduced to someone who had – who’s series of conversations went to an interview at AOL, and then ended up joining AOL and what is really – you know this is mid 90s and so this is like really early in the internet and I can’t say that I was like a hard core technologist or whatever. I had been participating in important board and systems for a long time, particularly the music runs around New York and Washington and that was something that when I went to the interview at AOL I was like, this would be a cool place to work, so, and that was pretty much the thought process. And so then that got me into like the technology industry, the core of the technology internet industry and through a random series of events a bunch of years later that when I started a venture firm back in New York with someone that had more of a banking background, a couple of people in the banking background needed someone that they thought had more internet experience and well I was like, that’s cool. I’m from New York and it got me back to New York and so that was a little bit random. And then reconnected a bunch of years later with the person who then became my partner John at Betaworks, and through a series of conversation we deiced to start this well, you know wacky idea of a company that build products and invested in products and so all of a sudden I found myself as a Founder of a company and I think probably that, only realized that I was a Founder of a company after I had decided to start the company. But it seemed like a good idea at the time and then we worked really closely with a lot of entry firms used, co-ventures in particular. They were friends of ours, co-investors of ours, business partners of ours and in some ways I guess mentors of ours and a bunch of years after that you know it led me here to Union Square Ventures. And so none of it was kind of a – you know none of it was planned. It was more like random connections that led to interesting things that I thought would be interesting to do without much thought you know, without much thought other than I guess being open to interesting and different paths and hoping I would get lucky with one or some of them and the US V1 was particularly interesting, because when we started Betaworks and we were raising money for Betaworks, being in New York we wanted USV to be – we wanted USV to be one of the investors. They were kind of like what we thought of it, the smartest and the most interesting with FB. So we had pitched them, you know once or a couple of times, I forget how many, but I know that – I can remember multiple meetings and we could never convince them to invest in our company, though ultimately it led me here many, many years later. So there is some – I don’t know what the lesson is. There is some connective tissue lesson, but I’ve always kind of been open to like interesting things and you know the random walk if you will have lead me to you know what I’m doing now and its fun and its interesting and so that’s kind of a long winded story, but there is randomness involved in it and I am cognizant with the randomness that’s involved in it. More randomness than anything else, you know like follow your dream, do what you love. It wasn’t really you know – when you are a kid it’s not really much of a story, oh! This seems like a cool. I’ll do this. Oh! AOL, you know they wear tee-shirts and shorts to work. I was like, that’s a good place to work. You know so it was kind of a random series of events that kind of you know. If I had no dream or aspiration to be an investor, just to evolve you know kind of past a series of career solutions evolved to this one and it’s worked out okay.
Dave Kruse: So, I mean you sound like a kind of a curious guy. I mean do you think that’s kind of how you went from one thing to the next, because you are like, ‘oh! That’s interesting, let’s learn more about that’ or…
Andy Weissman: You know, so this is a really good question, because I think that in hindsight if it’s clear to me that those were some of my driving factors in what I did, but I don’t know if at the moment or like growing up I ever thought of myself as curious. I don’t know if I would have described myself as such, but clearly that’s one of the litmus tests I’m thinking about, where I’m going to spend my time professionally as with Oh! This seems kind of interesting, right. So it’s a bit of a – so you know it’s a bit of a paradox that question, because I wouldn’t historically describe myself that way thought. That seems to be one of like the indicators of do I want to do something? Is it interesting, right. So I guess the answer is yes, but again it’s really – I think its more randomness than anything you know.
Dave Kruse: That makes sense.
Andy Weissman: Yeah.
Dave Kruse: Well, I like your philosophy because you know it’s hard to – if you have certain goals and striving like, you know sometimes then you don’t have to – you put your blinders on right and you miss other opportunities that are interesting.
Andy Weissman: Yeah, I like – that’s like if there is anything – if there is one common idea that I’ve always been really intrigued by, right, is this you know, this idea of serendipity and how do you maximize your chances of something serendipitous happening to you. By definition not knowing what the outcome is, but you know that there are, you know out of all that serendipitous encounters then your odds are great, but something interesting would come from them and so I had always been really interested in that and so if anything, maybe that’s kind of like a guiding theme. You know, like oh you know if you are put away enough, some real random things are going to happen, serendipitous things and maybe some of them might be interesting you know. Maybe that’s it, that’s the kind of, maybe that was guiding, that’s guiding a principal, but I’ve always been up to that, like the idea of randomness or serendipity. It’s always been interesting and read like books about it and stuff.
Dave Kruse: Well, interesting. Yeah, I think it’s a healthy way to live, instead of trying to force things.
Andy Weissman: Its one way to live; its one way, it’s one way. You know and we could like – I’m sure if you like go back and feel like ones upbringing and unpack it and figure out why. So I don’t know, it’s like the old – like I believe there is also only one way of anything you know, but one way of doing something. You know its one thing that maybe, you know the one way of operating that maybe right for the business, right; the one way of doing things that maybe right for us as a venture firm or the one way that kind of keeps you happy as an individual. But I don’t think it’s you know, there is no set rule, that’s like kind of very individualistic if you will.
Dave Kruse: Well, that makes sense that makes sense. And so when did you start investing? Like when was your first investment?
Andy Weissman: Well, when I came back you know I would say I mean like part of – I was doing a couple of things at AOL where we were making investments or kind of joint venture stuff like that, although I don’t think I ever thought of myself as an investor. When I moved back to New York and started the venture firm, that was kind of like in the late 90s was the first investment. Although I think it took me a while to where like, you know like I say, I am an investor. You know like before I self identified as that and maybe it’s because investing is a bit of a morphs type of thing where you are participating in other people’s ventures, but not your own venture. So it took me you know – so what I did was doing it like at late 90s, early 2000 period year. But it took me a while I think before I owned up to that as a monocle or as a profession that I was doing.
Dave Kruse: Did you raise a small fund back in the late 90s?
Andy Weissman: Yeah, we did. Yeah, we did a couple of small funds and then a big fund and we, you know we lived through you know like the 90’s, 2000 rise and crash with us, because it was part of that at least. And then that was all right before Betaworks, you know. I felt that Betaworks did all things. I thought of ourselves – we thought of ourselves as what operators and investors and in fact we are designed for that. So maybe around that time that I finally, it felt like I was an investor and had a little more structure, a little more thesis or a little experience where I thought like okay, this is, maybe this is what I’m going to be doing.
Dave Kruse: So. With Betaworks, you know you talked about the operation while investing. So can you kind of explain what you mean by that? Will you help other companies’ operator as well or…
Andy Weissman: Well, we had I would say there was two notions that we had a Betaworks. One was structural and one was topically I guess. In other words, we saw – you know we’ve had been around the internet from the period of, you know AOL running a proprietary you know network to like the open web, to the beginnings of the social web and we had spent a lot of time thinking about what the implications of that were and we have a notion that the social web and the attributes of the social web were going to kind of sub stream all previous methods and types of media and distribution of media and so we wanted to go all in on that, so that was like an investment thesis if you will, and a lot of that was structured around the design of the internet and why social networks could be efficient, connecting one person to another person etcetera. And then we had the idea that we had wanted to build the company around that thesis, but we wanted to be able do two things with that company. One was build our own idea and start our own companies and then invest in other peoples companies. And so we called it a studio, because the studio was the closest analogy that we could think of, like a movie studio, like you make your own movie productions and you finance other people’s productions and so it was one entity but we did two different things. But they all were in the same topic area, and so the theory was that both sides of that coin, both activities made would support each other or make the other type of activity better at what it did, because we were good at both sides. And so we would come up with ideas and build the business around them and stimulate business around and some of them worked and some of them didn’t and then we did a lot of early stage venture investing as well at the same time.
Dave Kruse: Interesting, that sounds like fun. And so this is back in ’07. You must have been one of the first ones to call it a studio, I don’t know. Now it’s pretty popular, but you know…
Andy Weissman: Yeah that was like..
Dave Kruse: Maybe you guys claimed that.
Andy Weissman: You know what, we liked – we are very – we spent a lot of time thinking about words and language, but that was like the best that was the metaphor that made the most sense to us. Like what is this? This is studio. That’s the activities that are going on in here and so that’s the one, that’s the one word that we’ll use.
Dave Kruse: What’s one company that you came up with an idea, started it and then it did okay?
Andy Weissman: So, I mean there are like Biddly you know and Charpy were two while I was there. They have been a bunch since then, but while I was there at the core of it, it was – those were type of the two most – the two – maybe the largest ones or the ones with the biggest footprint.
Dave Kruse: And why did you want to go straight to investing instead of kind of more the studio approach.
Andy Weissman: Well, I think over time you know these were two separate activities and I was the – you know aside from being the Founder was the Chief Operating Officer and probably was a little more primarily responsible for the venture style done, was running the company and more on the studio side and I think probably a desire to more fully explore the lesson inside with two or more traditional fund versus kind of a hybrid end if you will.
Dave Kruse: Okay.
Andy Weissman: Yeah, and so that led me to USB.
Dave Kruse: Got you. And so you know it sounds like with investing you kind of just – it just kind of happened over time. You kind of walked in some opportunities, but what kept you there? Like where you like, oh, this is great! What kind of…?
Andy Weissman: About investing you mean?
Dave Kruse: Yeah, yeah.
Andy Weissman: Because I think running a company is much harder you know right.
Dave Kruse: That’s fair enough.
Andy Weissman: And so who would want to you know leave that to people that want to do that. No, but I think that’s – I think it’s – this I don’t really know the answer to the question. I do think like you know being a part of starting a company and growing it to where we did with Betaworks was incredibly intense. Like I like to think of it as like that was the first company I started and the last company I started. I’m never doing that and its really you know… But its intent in a different way and there’s a lot of really you know benefits and gratification that come from that, right. Like you control your own destiny, you know you determine your company’s path and hopefully its success and as an investor you are building a portfolio and thus you have a portfolio approach. You get to participate in many people’s success as a supporting player at that and not a primary player and so I think that like – you know I must say, it probably like fits better with my personality you know. I don’t need to – Yeah, I learned that I don’t need to be upfront. I’m happy to be behind, you know in the background and supporting people in the background and I think that probably maybe in my motive, learning is one where that wide, the horizontal breadth of companies you visited, you work with as an investor, really you know – I think I learn a lot from that and I’m able to kind of throw those learning’s back or share those learning’s with the specific companies and that feels like, that feels maybe natural to me, maybe more natural than like managing 100 people in the company that has moments too.
Dave Kruse: And that’s probably also why you are such a good investor of VC, because you know where you fit and your open about it and you respect what the entrepreneurs do and how hard it is and…
Andy Weissman: Well, I like to think of it like if you know if we were good, as VCs if we were good at running companies, we’d run companies. We are not good at it, so we don’t and so – but we are good at other things. You know we are good at seeing patterns on a strategic level, we are good at thinking about corporate governance, we are going at you know raising money and thinking about ways to raise money, we are good at seeing patterns that may work on product design now and things like that. We are diversified by definition which was really a different type of risk profile, but we get the benefits of the intelligence from that diversification and can participate in that. But we are a services business you know. Our company, they are not really – I mean they are kind of like our clients more than anything else. You know it’s a different type of client service provider relationship. Our role is to provide service to them. Our role is not to be in front of them, I don’t think. Maybe that’s a – maybe I’m with a very old fashioned view of venture, but it’s a view of it that I like and I don’t like to participate in it. Like our job is to help companies you know become what they want and entrepreneurs become what they want to be to the best of their abilities and reap the rewards from it, but to be supporting at that and when the company succeeds it’s not about us and when they fail it’s not about us either.
Dave Kruse: Now that’s a good philosophy. And what types of services do you see yourself providing to your portfolio companies?
Andy Weissman: Well, so different firms do it different ways and so there’s not one way to do it. The way we do it is we are a firm that invests against the thesis, so at some level those 50 or 60 companies in our Portfolio are connected, because they have some connection to that thesis and therefore we see lots of examples and ways to operate in network based companies in different disciplines at different stages, and can apply those learning’s and the experiences to the early stage ventures we invest in, in a way that hopefully benefit them. And so from this experience of a broad very big portfolio that is diversified, but also at the same time its concentrated in its thesis and their subject matters and so that’s – and so when you take money from us, that’s one of the things we attempt to promise you that you will get; when it is to be connected to that larger network and the set of experiences from that network that we can help guide the companies with and on top of the money, the money matters too. So those are the services you know. They are not specific services, but we have you know the 50 or 60 companies that many thousands of employees and we have built software tools and we use off the shelf software tools to connect people amongst those various companies and they have questions if someone in the company can answer them pretty specifically or pretty quickly.
Dave Kruse: Got you. So let’s talk about your thesis some more and around investing in that network and if you want you probably can explain that a little bit, but just so everyone knows – I mean everyone should know it, because you guys are very public about it and vocal, which is awesome, but you know what’s – I’ve always been curious. I love your thesis, but networks are hard to get going, but it seems like you guys do a pretty good job picking and you guys invest fairly early.
Andy Weissman: Yeah.
Dave Kruse: So how do you know that the network is going to work, because you need both sides and so it seems like a high risk to me and a high reward, but it seems like your hit rate is pretty good.
Andy Weissman: Well, I think. So you don’t know if they are going to work, period, stop, end of story. You hope they are going to, but we invest early, so we don’t have the luxury of having much indication that they are going to work, although we look for data that suggest directionally. There is some indication that they are going to work, but we don’t, because there are a bunch of different variables that go in to play, determining whether something is going to be a success. We do try and apply our previous experiences in the positive and the negative to look at a network and decide whether we think that network has attributes where we would be a good investor and then apply them to come in different fields. And the reason we are vocal about our thesis is because we get feedback on it from people and from companies that helps us refine it and think about it at a more granular level and think about investment opportunities. We don’t simply publish it to just to listen to ourselves talk. We publish it to open up a set of questions that we are getting feedback from the market that help us think better, but we don’t really know if any of these are going to work as early stage investors. We don’t have that luxury, so we attempt to build for each one the diversified portfolio of networks or network related businesses in a bunch of different fields and hopefully the averages workout for that portfolio, but there is a lot breakage in the early stage investment and so that’s why we can’t really know. And sometimes like when you look at it in hindsight and something that worked out, again there is like a lot of randomness and you know for the success and sometimes there are like real specific ways they are executed and we try and plot those back to the company. So I think about it like when my partner Fred and Brad started the firm, they were I think one of the first venture firms that were blogging or publishing a lot and in fact the website for many years was blogged basically and they did that to have a conversation with the market around these set of questions. So I think the conversational nature is kind of now – is now in the genetic structure of the firm and that’s how we think about investments and how we think about decisions and those conversations lead us to companies that we think are all going to work, but at least we understand the dynamics and can come up with a good opinion for why they are going to work, but we just don’t know you know. I mean you have started a bunch of companies. In the companies Dave you have started, when they worked, have you found that they worked for the reasons you thought they were going to work or for a wholly different reasons?
Dave Kruse: Oh! You did ask me a question and that’s good. This is the first question I’ve ever had in Flyover Labs. Things never work out exactly how you envision, that’s for sure and sometimes it goes well and sometimes it doesn’t go well.
Andy Weissman: Sometimes it doesn’t, yeah, but that’s like – and so that’s – I think like that’s why an entrepreneur likes that and that’s why they built things and venture investors like to put money in those things, because those are the dynamics that we want, because every now and then when you do something really you know we have a large valuable, the important company comes out of it, but not always and like you said, often times is for totally different reasons than you thought it was going to work so…
Dave Kruse: Exactly. But so you guys have been investing for a long time. What do you guys have in place in order to at least try to learn? You must have a better – if I was in an investment company that you know had a kind of a network effect, I’m guessing you guys were probably be a little better on it than I would or a lot better
Andy Weissman: Well, we’re more experienced, more experience maybe
Dave Kruse: Yeah, and is that experience more intangible or are there more of a gut feel or there are certain things that you’ve learnt over time?
Andy Weissman: Yeah, I think that’s a really good question. I think there is – I do believe that most venture decisions have an element of gut to them, right. An element of – I can’t really explain it, but I feel like this is the right approach and so – but I also at the same time think that most venture decisions also come with thought process and ideas and pattern recognition of the way things worked in the past or the way things didn’t work or the way things may be different and then the right decisions come at the intersection of that, you know that gut feel plus a reason and process. So I think like good functioning venture investment is a combination of hunches plus reasoned analysis and process to come to a decision. And by process I mean things like what’s your fund size, what’s your focus, what’s your structure, how is a partnership structure, how are the meetings that come to decisions, investment decisions structured you know, like what is the architecture of the table you sit around you know and all these things are components to that. For example, just to make that a little concrete, we have relatively small funds and we’re early stage investors. That constraints the type of investments we can make. That constraint we think is good because we’ve done the math and we think that over time that will allow us to consistently get our investors the return, but it also constraints the set of – the type of the things that we can look at, because we have a small fund. The second attribute is we are consensus driven, so we don’t really vote up or down and then see who wins. It’s you can win seven or eight or nine people through conversation that this is something that we want to spend time with and participate in. That is not the best way to do it. It’s the way that we decided to do it and it works for us. There are many other ways to do it, but it does mean that an individual here probably has less singular ability to do an investment, but an individual has less singular ability to prevent an investment being made, but its consensus and consensus is hard to get. But that process leads us we think to really unpack an investment opportunity and why we might be a good firm for it and why we might be good people for it and why we want to spend our time and money and why they might like us well. So that’s like you take your gut and you sort it into this process and the process is a lot of objective reasoning and quantitative data and pattern recognition and sometimes, and like eight times a year those two things combine and you make your investment; that’s the way we do it, yeah, it works for us.
Dave Kruse: Yeah, exactly. And what I hear is there is a lot of constraints, which is funny people are like, oh! I don’t want to be constrained, but you know like constraints often lead to more creative, more innovation and…
Andy Weissman: Yes, totally, totally. Constraints aren’t only limiting, they can be expansive as well, yeah, yeah.
Dave Kruse: That’s good, that’s good. You should put that out there.
Andy Weissman: It’s 140 characters right, but I don’t know, but think about like the constraint of Twitter is the classic example, it’s a really example. When you need to put something with 140 characters you can really collect intense constraint. You can get really creative about how you describe something, how you explain something, how you demonstrate something and so I think the constraints are really important to our process, really important to our process. And so they are not the most important, but they are one of the three or four important pieces of the process, so it’s like the gut plus process.
Dave Kruse: And so part of that process is you know evaluating the team of the startup and you guys have met some impressive start ups and their teams. And so how – yeah, I know it’s a lot of gut, but is there any intangibles of that like – does the team walk in and when they start talking and you can just be like, these guys are going to make it happen. If they don’t, they will throw themselves off a cliff, in a healthy way, but you know they are not going to go crazy, but you know like they are going to really go for it, these guys. Is that a big part of it or not or yeah, how do you evaluate the team?
Andy Weissman: So this is really good. This is really good – you know these are really insightful kind of ways to think about it. I think that you know there are a couple of different components. Like one is, as early stage investors we know that the relationship with the company is going to be over a long period of time, four or five, six, seven, eight or nine years and so part of this is like, do you think these people want to spend eight or nine years with us and do we want to spend eight or nine years with them and that’s not you know definitely the kind of people that we can learn from and they can learn from us you know, will they listen to us, will we listen to them you know, and do they remind us of other characteristics of entrepreneurs we backed at work or do they remind us of characteristics or entrepreneurs we backed that don’t work. You know so it’s like a series of other questions. Do they have a set of experiences that led them to want to create a company to solve the problem they are solving, like what’s the driver of that you know so these are – a lot of these are qualitative versus quantitative you know, and so but again it’s applying like characteristics around the person relative to all the people we’ve seen, relative to places we think we can be good investors for them or that people and also why is – what is their – what about their background or their story. Do you think we’d lead to a better than not chance that they will succeed at what they are doing, how did they come to this you know and I think and I wrapped around a lot of that is like this continuous question of could we be good for this group of people, you know would we be good for that and is it a good fit. Will they like working with us and will we like working with them and by the way sometimes you never know with certainty and sometimes you’re wrong and sometimes they are wrong. I’ll bet their companies are like, ah it wasn’t a good fit after all and then you learn to live with each other and deal with it, but you try and make your best guess you know around it. But I don’t know, but it’s more of that and like we are looking for people that would like use in your example ‘jump off the cliff’ you know. That’s too fine a point on it I find, but it’s a little more abstract.
Dave Kruse: And I am just curious, how – because I can’t imagine a team rejecting. Like how often does a team pitch to you guys. You guys are like okay, we want to invest and then they say no. Does that ever happen to you guys? I can’t imagine anybody doing that.
Andy Weissman: Yeah, totally. No, it does because you know we’re not – we’re a small fund and so we can write a small cheque and they want to raise more or we think the value of the company is different than what they think and maybe they are right you know; it’s not to say we’re right. But we have a set of parameters too you know and constraints and those don’t always fit with the type of thing that a company wants to go there you know and so I think that happens, that’s healthy. I think that’s like good for us. We learn from that as well.
Dave Kruse: Yeah exactly.
Andy Weissman: We sit there, we learn from that and say Oh! We wish we engaged earlier. Well I wish I was more aggressive in following up and so we try – I at least try and learn from those type of thing, but yeah, that happens, that happens.
Dave Kruse: Definitely, rejection is always a good teacher.
Andy Weissman: Yeah totally or how else are you going to learn, right, totally yeah.
Dave Kruse: All right, so, let’s see, let’s talk about some of your current investments and I know we are getting near the end of this, so – but I mean especially well I’m curious about a number of them. Actually I’ve interviewed some people from your era, people like…
Andy Weissman: Yeah, it looks like you did.
Dave Kruse: Yeah and so we got some good companies. But I am curious about one of your current most recent ones is Numerai and can you tell us a little bit about that; it’s very interesting.
Andy Weissman: Well, Numerai is a hedge fund and so it’s an investment, it’s an investment entity I guess and they take, they create a model from the predictions that a community of data science, their community of data scientists from model and price predictions that community has made. So if you think of it like a, it’s a social network, it’s a community of data scientist that are build investment models and Numerai creates a meta-model from those investment models and trades from that. The idea being that, the ideas of well many thousands of data scientists will always be greater than an idea that is singular person could come up with, and those data scientist, some of them are quantitative finance specialists, some of them are biologists, some of them are mathematicians. You don’t have to actually have any kind of background in finance per say. You just have to know the math and be able to build data models and machine learning models. And so Numerai, Numerai assumes that the power of the crowd can be applied in a pretty spectacular fashion to finance if you reduce finance to a math problem and you do all the right things you are supposed to do in building a community and massaging and managing a community. So it’s like a community based business, whose business model though is a hedge fund bolted on the side of it.
Dave Kruse: And how are they have been doing, how are their returns and how big is their fund?
Andy Weissman: So those are – you know so this is a heavily regulated industry and so I don’t know if they disclose the returns or the size of the fund. They do – they are public, they are right now. I think its 7,000 or 8,000 data scientist who have made 30, over 35 billion price predications. They have published that information. So that’s a big number of price prediction and so a meta fund then kind of creates the combined model out of all those and then trades off it. It doesn’t really have discretion in its trading whatever the models stay.
Dave Kruse: Yeah, and when I say you guys invest in that, I’m like oh! that is so brilliant, because its – I mean it’s great for the hedge fund, but man I’ve always thought about if you could start unlocking data you know across insurance companies, healthcare, and then let people go to work on it, and is like a perfect model for that and when I saw them, I know what these guys, what you guys are thinking.
Andy Weissman: Right, 100%. No, but 100% right, because we have no ability to kind of like, I don t know like how to value that. I mean we know how you can quantitatively evaluate a hedge fund, but we don’t know about – we have no idea how the hedge fund business operates. But we know community, we know software based community businesses and I think Richard the Founder of that – that’s what was attracted to him about us you know and there are other investors that could fill in those other gaps. But we know about – we have experience in building and managing communities. This just happens to be one of data science and so we are really – it’s very really attractive to us and so we through we could be good investors. So its early, its early you know. So we’ll see how well that works out. We are very positive about it and it’s still early days.
Dave Kruse: Because how does it work? You know there is always data scientists on there and before their algorithm is implemented, do they do a little quick back testing or is this all like automated?
Andy Weissman: Yeah.
Dave Kruse: Okay.
Andy Weissman: The company does that. I think there’s a couple of other intricacies or peculiarities to it. One is, its anonymous and so all you need is an email address to you don’t have to disclose who you are nor do they want you to disclose. They don’t want you to disclose who you are. They want this to be anonymous. You can come from anywhere and they believe around an entity, it frees up the creativity of anyone. You don’t have to say how old you are, where you work, you know. Just have to build the model, anyone can build a model. The second thing is that the data sets are encrypted so that no one actually knows the underlying – let’s say right now that its trading global equities. No one knows the underlying equity data, the data set is just a series of numbers and there are forums of homomorphic encryption that allow the company to do this and so you don’t – so the company, no one knows – you don’t even know what your – you know the parameters of your model, but you don’t know the underlying equity, so there’s nothing that you can do with the model. There is nothing anyone can do with the model. You own the IP to it if you will, but it’s just a series of numbers, it’s a math problem and people are coming up with models around math, you know around a series of numbers to find correlation and so it’s an attempt to reduce amenity on the social engineering side and encryption on the data side and finance problem to a very discreet set of math problems and there are many, many people in the world who can solve or attempt to solve math problems and we will build a collection, a meta model around all those models. And then Bitcoin is the way to compensate someone anonymously for this behavior so to speak. So a bunch of different peculiarities that Richard who is the Founder built this, believes aligns all the incentives properly to finally allow this type of model to work.
Dave Kruse: Yeah, that’s pretty brilliant.
Andy Weissman: Yeah, so he calls it a trust list situation. You don’t have to trust Numerai, there is no trust involved, there’s trust list and when trust is evolved then decisions get distorted, that’s the concept.
Dave Kruse: Interesting. Yeah, I’ve always thought that, you know because I was at a medical device startup before and actually worked at a wearable company now. I need – somebody needs to build a platform where all my medical data can be like out there and I want everyone to be like working on it to make sure – I want all the smart algorithms out there to make sure I am staying healthy and so this is a good start.
Andy Weissman: Yeah, and maybe it can be applied in other areas. We’ve thought about that, its early days, so who the heck knows you know.
Dave Kruse: And you know, what other types of networks are you interested in like. What are you waking up and thinking about and like Oh! like this is really interesting to me; like this area or maybe – because traditionally you’ve done a lot of Internet based networks like these. Everything is kind of connected to the Internet, but do you see any areas that are kind of outside your wheelhouse that you are interested in?
Andy Weissman: Right. Well I would say, so I would say that historically the firm, you know its deepest experience is in broad based consumer networks and I was like you know the first five years of the firm was focused on that and the second five years we impacted that a little bit into vertical networks in certain fields, Financial Technology, 3G portfolio and that Education, we have a pretty good portfolio on that and I think the one that we did maybe its most active and we’re speaking about the most. Also had a big click and has been in health and health technology and investing in networks when the business natives, business models are native networks around health technology. And so those are kind of verticals and I would say like for me, I am finding some of the new models and new technologies around in the healthcare where a practice of medicine where it will be the most interesting and stimulating. In fact I think the technology is so advanced that it’s actually gotten ahead of actual real in-market services right now and its usually the opposite, so the technology has gotten really advanced. And so those are – but those are three vertical areas that we focus on particularly and then horizontally it’s something that we call enabling technologies which is companies that provide generic services that the vertical networks might want to utilize truly as an example of one’s type or as an example to another six sites and as an example of another as well, so those are the horizontals. Vertical market specific networks that impact education, medicine, science you know and then horizontal enabling technologies and then on top of that, the whole Bitcoin block chain, well it is really interesting for a bunch of reasons and then the Internet access is another area we’re been poking around in.
Dave Kruse: Yeah, interesting. Yeah, you get to learn about soo many cool things and how they come together, you know like different…
Andy Weissman: Yeah, I think the idea for us is can they come together in the form of a Portfolio for the life of a fund which is 20-20 for a company. So we look at those, we look at each investment we make on the merits, but then we look at that set of 20-20 that are associated with the firm to see whether we think it’s you know – we think it’s appropriately diversified, so we don’t want it to ever be too many syntax companies for example and we don’t want it to be too many of another type. So we think about diversification as well. Yeah, that’s part – that’s the class fund, that’s a little bit of the class fund or the venture fund.
Dave Kruse: Yeah, so the whole portfolio theory bent a little differently.
Andy Weissman: Yeah, yeah.
Dave Kruse: Yeah, totally, absolutely alright. Well, I think I could talk to you for about seven hours, but I don’t know if everyone else will want to hear all that, because my questions might get pretty boring. At least it will…
Andy Weissman: But we learnt that – but we did learn something interesting, which is in all your entrepreneur company starting experiences, what worked or didn’t work was really what you thought was going to work or didn’t work and I think there is some wisdom, there is real wisdom in that.
Dave Kruse: Yeah, and it’s like you said, the serendipity and just taking things as it comes. I mean you got to keep pushing hard right, but it’s…
Andy Weissman: Exactly, exactly. It doesn’t mean things are totally random, it doesn’t mean I think there is a – I think that it means there is a healthy – there is probably a greater amount to learn than we think. But again, I think randomness exists with an order right. In other words I think like people who are lucky you know they work really hard at being lucky, alright. There is a lot of skill that goes into being lucky and so the randomness doesn’t mean you don’t have control over it. I think it’s just a different way of thinking about it.
Dave Kruse: And do you think people who are lucky, I think sometimes they – that sometimes people who other people want to be around I think a little bit and they want to give ideas too, but people just call them lucky often, at least that’s what my experience was.
Andy Weissman: Yeah, exactly, but like I said, it takes a lot of skill to be lucky.
Dave Kruse: Yeah, it does. So one more question before we go. I was just curious you know, how do you deal kind of with the ups and downs, because imagine venture investing can be stressful at times. I’m sure it’s awesome at other times, but how do you get away or how do you relax or how do you just go off the floor. I mean you actually seem like a pretty chill guy, but…
Andy Weissman: That is the highest compliment you could give, You know here is the thing though. Having started the company, the highs that you get at moments in starting the company and the lows are much greater at each extreme than the highs you get from being a venture investor at the low and so which maybe means that being a venture investor really is not for everyone, because if you get off on those highs. If you need the adrenalin rush of the highs and the lows, I don’t think you are going to get it from being a venture investor. It’s very even – on the other hand it’s very even and you get to watch other people’s highs and lows, but you don’t think of them in the same way. You don’t throw the ex-essentials for that. You don’t feel like you just freaking killed it today. You know this is amazing. We figured out the secret to whatever it is you know and so it’s very – and so I think managing, you know managing emotions as a venture investor. I don’t think it’s that hard actually, but you don’t get the rush. If you need that rush, you got to find that rush elsewhere, because I don’t think you get it from being invested in a company and in fact I don’t think entrepreneurs want you to get the rush; that’s not what they are looking for. They need you to be even you know, because they need someone to enjoy this moment. I know I need it. We raised money and I know that’s what raised our investors for a moment, so I was like freaking out or moments where I don’t know, we figured out the secrets in the universe and I need to share that with someone who wasn’t experiencing it, because I needed to get that feedback from them. So it’s a different – like the personalities are different, so I think you like the emotional, yeah I think it’s very easy emotionally being unless you really do, but I think you don’t get the rush as we may from the companies that they get.
Dave Kruse: Got you, and it doesn’t hurt that you’ve done okay, you fixed some decent companies as well.
Andy Weissman: Yeah, it works yeah. You know it’s a long source yeah, but you know what I’ll tell you also like, you know for my partner Fred and my partner Fred’s brother Albert, he has some amazing lessons. The best lessons I’ve always gotten are from them and like Fred said, yeah, but you are kind of only as good as your last one; you know it’s a weird business. You know like the winds are great, but then that last investment that you made is the one that you feel the most you know, the last series of investments. And so maybe the rush is that kind of reinvention, but also its kind of stuff, because you are kind of really like, am I still good at this you know. Does it really matter that company five years ago worked, what about this year? Am I still good at it? Can I still continue to be good at it and so I always thought that was kind of you know, that was useful in a way I think about it.
Dave Kruse: Gotcha. Well alright, I think that’s a pretty good way to end this podcast unfortunately, but Andy I really appreciate your time and thoughts and your energy, I love it, so…
Andy Weissman: Of course. Good luck with your stuff and I hope we can chat again sometime soon.
Dave Kruse: Yeah, it sounds good and good luck with your investing in your companies and yeah..
Andy Weissman: You too.
Dave Kruse: And thanks everyone for listening to another episode of Flyover Labs. As always, I greatly appreciate it and we’ll see you next time. Thanks everyone, thanks Andy.
Andy Weissman: Thank you.
Dave Kruse: Bye.